LEISURE LETTER (10/28/2014)

Tickers:  SGMS, GTCH.MI, MAR


  • Oct 28:
    • HEDGEYE EBOLA CALL 1 pm , code 651216#
    • GLPI Q3 earnings 10 am
    • HOT Q3 earnings 11:30 am , code 10325720
    • WYNN Q3 earnings 4:30 pm , pw 16870074
    • MAR Q3 earnings 5 pm , ID 59390131
  • Oct 29: H Q3 earnings 11:30 am code 95150754
  • Oct 30:
    • HST Q3 earnings 10 am
    • NCLH Q3 earnings 10 am
    • MGM Q3 earnings 11 am , pw 6307991
    • BYD Q3 earnings 5 pm , pw 8021592
  • Nov 3:
    • BEE Q3 earnings 11 am , pw 37266467
    • SHO Q3 earnings 12n , ID 75906336
  • Nov 4: RHP Q3 earnings 10 am
  • Nov 6:
    • PNK Q3 earnings 10 am , code 27759617
    • BEL Q3 earnings 10 am , ID 12457691


SGMS(Bloomberg) Scientific Games Banks Said to Put Off $3.19bn Bridge Loan Sale.  JPMorgan, BofA and DB, which were hired by SGMS to underwrite and sell the bridge loan, failed to gather interest from investors by an Oct. 3 deadline.  According to sources, the bridge loan debt includes a $485 million seven-year secured portion that pays interest at 5.75 percent, a $2.2 billion eight-year unsecured bridge slice that pays 7.25 percent and a $500 million 10-year unsecured loan that pays at least 7.75 percent.  The rate on all three loans would increase by 0.5% every 90 days until the acquisition is closed or the debt is repaid with bonds.  Interest rates would have been capped at 7.5 percent on the secured bridge loan and 9.75 percent on the 10-year unsecured loan.

Takeaway:  Junk yields have been rising. Higher interest expense for SGMS coming.


GTECH – will provide the Washington Lottery with a central system based on its Enterprise Series platform, 3,800 Altura® GT1200 lottery terminals, Gemini® Touch self-service machines, in-store multimedia technology and support services.  GTK expects to receive $150 million in revenue during the 10-year contract.

Takeaway:  solid system sale


TRUMP – ( is asking a bankruptcy court in Delaware for permission to sell the last 353 of its slots to Patriot Gaming & Electronics, a New Jersey firm that sells new and used slot machines and parts.  The machines would be sold for just under $150,000.


MAR – Construction of Lapita Hotel started in February 2014, with the opening scheduled for 2016.  The 503-key Lapita Hotel will form part of the Autograph Collection, an exclusive ensemble of independent luxury hotels, within the Marriott International brand portfolio

Takeaway: Marriott building its luxury presence in Dubai


MSC (ANSA) Judicial authorities on Monday seized assets worth 33 million euros from MSC Cruises CEO Pierfrancesco Vago and from Francesco Zuccarino, the president of the board of directors of the cruise company.  Vago is suspected of failure to declare earnings, while Zuccarino is suspected dishonest earnings declarations, the sources said.

Takeaway: Troubling development for MSC




Graftbuster – chief discipline inspector of the Communist Party of China (CPC) Wang Qishan said no inner-Party cliques are allowed, and all members must abide by Party rules.  

Takeaway:  More rules and regulations for Chinese political officials


Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

Retail Callouts (10/28): ICSC, COH, CROX, KSS, WMT, M, JCP, LOW, AMZN

Takeaway: ICSC trend continues to slow on the margin. COH 'broken brand' not equal 'broken stock'. KSS-It'll Miss Again. WMT with an oops.



Wednesday (10/29)

  • KSS - Investor Day: 9:00am
  • RL - Earnings Call: 9:00am
  • HBI - Earnings Call: 4:30pm


Thursday (10/30)

  • SHOO - Earnings Call: 8:30am
  • COLM - Earnings Call: 5:00pm




Takeaway: We can't help but callout the bifurcation we've seen over the past few weeks between the numbers reported by ICSC and the retail comp numbers we've seen out of those accountable to the public markets. The relative strength we've seen out of the ICSC (which we would note has been slowing on the 2 year trend line since early August) has not been reflected in the sales numbers we've seen coming out of the 3rd quarter. We'd point to WMT, GPS, URBN, KSS, and to a lesser extent JCP as levered names to the US consumer that we would expect to benefit. That certainly hasn’t been the case.



Retail Callouts (10/28): ICSC, COH, CROX, KSS, WMT, M, JCP, LOW, AMZN - 10 28 chart1




COH - 1Q15 Earnings


Takeaway: This was the first time in over three years that we weren't bearish headed into a COH print.  To be clear, the fundamental story is absolutely broken and this change in direction has nothing to do with any near term upside we see in the business model. In fact our numbers 2-3 years out are 25% below consensus. We think the absolute best-case downside is about $5, which is hardly enough with the stock trading at $36. The truth is that we'd need to see the company face-plant on its recently announced Brand repositioning, and there are no expectations for any meaningful results for another 1-2 years. Until then, the company has a hall pass to be subpar.


Retail Callouts (10/28): ICSC, COH, CROX, KSS, WMT, M, JCP, LOW, AMZN - 10 28 chart2


CROX - 3Q14 Earnings


Retail Callouts (10/28): ICSC, COH, CROX, KSS, WMT, M, JCP, LOW, AMZN - 10 28 chart3


KSS - Kohl’s Corporation to Host 2014 Investor Conference and Updates Guidance



  • "Kohl’s Corporation expects comparable sales to decrease 1.4% in the third quarter. October sales have been softer than the balance of the quarter. Geographically, the Company expects sales to be consistent across all regions. E-Commerce sales are expected to increase over 30%."
  • "By line of business, the Company expects Children’s to report comparable sales increases for the quarter. Accessories, Footwear and Men’s are expected to report lower sales, but to outperform the company average. Home and Women’s are expected to underperform the company average."
  • "Based on actual sales to date, the Company expects its 2014 diluted earnings per share to be at the low end of its prior guidance, which was previously $4.05 - $4.45 per diluted share."


Takeaway: For the full text of our note, 'KSS-It'll Miss Again', from this morning click here: LINK


WMT - Walmart Apologizes for Advertising ‘Fat Girl Costumes’ on Its Website



  • "Retail giant Walmart caused a stir on Monday, after a listing for plus-size Halloween outfits appeared on their website under the heading 'Fat Girl Costumes.'"
  • "The retail chain quickly backtracked, issuing an apology before changing the heading to 'Women’s Plus-Size Halloween Costumes.'"


Retail Callouts (10/28): ICSC, COH, CROX, KSS, WMT, M, JCP, LOW, AMZN - 10 28 chart4


Takeaway: How does this make it past quality control?




M - Macy's to Open in Abu Dhabi



  • "Macy’s will open a 205,000-square-foot, four-level store at Al Maryah Central, described as a 'super-regional shopping destination' under development on Al Maryah Island in Abu Dhabi."
  • "A 230,000-square-foot Bloomingdale’s will also open in Al Maryah Central, marking that retailer’s second overseas store. The first opened in Dubai in 2010."
  • "Bloomingdale’s and Macy’s, both divisions of the $28 billion Macy’s Inc., plan to open their Abu Dhabi locations in 2018. They will be operated under license by Al Tayer Group, which already operates the licensed Bloomingdale’s store in Dubai."


WMT, JCP, KSS, M - Traffic At Los Angeles Ports Backed Up For 2 Weeks, Threatens Holiday Season



  • "'This is really a perfect storm,' Port of Los Angeles Executive Director Gene Seroka told the Los Angeles Times.
  • "The pre-holiday surge of cargo for retailers like Wal-Mart, JC Penney, Macy’s, and Kohl’s has always been a busy time of year, but it’s made worse this year by the use of massive container ships. These larger vessels can be up to one-third larger than Los Angeles and Long Beach ports have the capacity to handle. The root of the problem, though, is likely due to a shortage of trucking equipment."
  • "'We have a meltdown on the harbor,' said Robert Curry, president of California Cartage Co., a trucking firm serving both ports. 'Every day it gets worse.'"


LOW - Lowe’s to enter Manhattan with smaller-store format



  • "Lowe's announced that it will enter its first two stores in Manhattan. The home improvement giant has two locations slated to open in the second half of 2015, one at 2008 Broadway at West 68th Street, and a second at 635 6th Avenue at West 19th Street."


AMZN - Amazon to buy first Indian start-up QwikCilver Solutions, a gift card tech firm 



  • "Amazon India is in advanced talks to buy a minority stake in gift card technology and retail firm QwikCilver Solutions, according to three people aware of the development. The deal, if successful, will mark the first investment in an Indian startup by the Seattle-based firm which is battling rivals Flipkart and Snapdeal for primacy in India's online retail industry."

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Takeaway: Oct share shifts likely due to hold. However, VIP volumes could be moving away from the US operators in the coming months

VIP share shifts coming? Read on...



Please see our note:


Takeaway: Our Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and proprietary quantitative market context.

CLICK HERE to view the document. In today’s edition, we highlight:


  1. Why the nature of the bounces across various sectors, style factors and country exposures throughout the DM Equities space portend poorly for consensus expectations of a year-end rally
  2. Quantifying and contextualizing the breakdown in across various segments of the energy complex in advance of our 11am call with Dr. Leonardo Maugeri; ping for access


Best of luck out there,


Darius Dale

Associate: Macro Team

#Nice Behavior

This note was originally published at 8am on October 14, 2014 for Hedgeye subscribers.

“It would be nice to think that such bad behavior will never happen again.”

-Daniel Alpert


Some people are nice in this business. Some people are mean. I tend to be nice to subscribers, children, and dogs. I guess I have a not so nice tweet-streak in me for pundits who aren’t accountable. Hockey players can be mean that way.


The aforementioned quote comes from a non-hockey-non-consensus economics book I have been waiting to review called The Age of Oversupply, by Dan Alpert from Westwood Capital. It’s an outside the box, but reasonable way to consider #deflation.


Dan is one of the nice guys who holds himself accountable to his clients. He is also on a short list of people who were appropriately bearish on things like supply in 2008. The main contention in his book is that oversupply is here to stay. That appears right, for now.


Back to the Global Macro Grind


Some of the #MoBros on Twitter have been calling me a meany for calling their levered-long-momentum positions in small cap and/or social (non profit publicly listed companies) stocks #Bubbles. But Dan is down with that – he calls them what they are too.


The Great Credit Bubble may have burst, but the age of oversupply hasn’t ended – and won’t anytime soon. Abundant labor, excess capital, and cheap money are here to stay.” (The Age of Oversupply, pg 18)


By my math, the only way to unwind the excess and stupid-valuation-storytelling associated with these cheap moneys is via lower prices for #bubble stocks. Yesterday’s US stock market volume was revealing on that front:


  1. Total US Equity Market Volume (total exchange + OTC + OTCBB) was +6.2% vs. its 3 month average
  2. Total Exchange Volume was +44% vs. its 3 month average
  3. Total Traded Value (Russell 3000) was +30% vs. its 4 month average


That’s three different ways we try to look at equity market volume in real-time. When it comes to the pick-toggling junk bond #bubble, finding real-time volume read-throughs is more like finding Waldo.


Today’s Chart of The Day (exhibit 51 in our Q4 Macro Themes deck) is a picture of what I am trying to hammer home in terms of the relationship volume has with inflated prices – Total Exchange Volume vs Russell 3000 TTM P/E multiple.


Punch-line: this is the most expensive and illiquid market since the caveman.


“So” how does expensive illiquidity sync with oversupply of labor, capital, etc.? Unfortunately, when Japanese, European, and US growth is slowing (all at the same time), I think what that means is pretty straightforward:


  1. Deflation of illiquid equity bubbles
  2. Re-flation of premiums paid for liquidity (JGBs, Bunds, Treasuries)
  3. And a whole whack of revisionist sell-side economics excuse-making along the way


You see, until this market snapped the backs of the Moving Monkeys (point and click single-factor time/price charts using things like the “50 and 200 day” moving averages), they didn’t have to pay attention to things like books, volume, or volatility.


After a +138% rip in US equity volatility (VIX since the Russell #Bubble topped on July 7th, 2014), they need to start reading!


To be clear on timing, since we’re now probing:


A)     Immediate-term TRADE overbought signals in VIX (risk range = 17.78-24.98)

B)      Immediate-term TRADE oversold signals in SPX and RUT (SPX risk range = 1849-1937)


I don’t want you to be shorting US stocks and buying TLT with the 10yr Yield at its YTD lows (2.21%) today.


I just want you to, objectively, rewind the risk management tapes and learn something from what a baseline 3-factor model (price, volume, and volatility) was signaling for, well, most of 2014.


For OCT to-date, the #Quad4 deflation in US equity sector styles levered to inflation and/or growth expectations looks like this:


  1. Energy Stocks (XLE) down -10.65%
  2. Basic Material Stocks (XLB) down -9.03%
  3. Industrial Stocks (XLI) down -6.79%


That’s precisely what you should see in #Quad4. Mr. Market is telling you that both growth and inflation expectations are slowing, at the same time. Unless you are overweight Cash, Treasury Bonds, and Munis, that is not #nice portfolio behavior.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr yield 2.20-2.39%

SPX 1849-1937

RUT 1042-1081

VIX 17.78-24.98
USD 84.99-86.64

Gold 1211-1241


Best of luck out there today,



#Nice Behavior - 10.14.14 Volume vs. Russell PEs

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