“Never believe anything, until it has officially been denied.”
For those of you who didn’t know that Cockburn was a British journalist and proponent of communism, now you know. His aforementioned quote was cited by Jim Rickards at the beginning of an excellent chapter titled “Prophesy” in The Death of Money.
BREAKING: “Bundesbank investigating whether it can block sovereign QE”
Pardon? I know. I know. What is up with the London Telegraph dropping that anti-money-printing (QE) bomb on my laptop while I was sitting pretty at the epicenter of inequality’s Social #Bubble (San Francisco) after the US stock market close last night?
Back to the Global Macro Grind…
Now I’m sure that Europe’s un-elected-central-planner-in-Chief (Draghi) will officially deny anything that remotely resembles that headline being true at today’s ECB (European Central Bank) meeting… but that’s the point.
What if the Germans have legal grounds to tell the Italian jobber to #PoundSand?
Pardon my hockey-talk, but believing anything that you hear about what the Japanese, European, and American central planning agencies can do to stock markets these days is a very dangerous premise.
What happens if:
- People (as in market expectations) don’t believe Policies To Inflate asset prices work anymore? (hint: #deflation)
- Or, maybe more importantly, that they aren’t allowed to legally execute on them anyway?
Bueller? Or is it “spoos and chartreuse” while Ed is saying that every time the “surveys” get growth wrong “QE will get the perma bulls paid” anyway?
Admittedly, as global growth slows (again), it’s getting harder and harder to keep track of what it is, precisely, that has consensus right bulled up about chasing the all-time #bubble high in the SP500.
As Rickards appropriately summarizes in the same chapter, “when it comes to betting on a sure thing, greed trumps common sense.” (The Death of Money, page 25).
In other news…
Utilities (XLU), +2.3% on the day to +22.3% YTD, led the US stock market’s no-volume charge to all-time highs yesterday. I know. Everyone nailed that and Energy (XLE) being -3.1% YTD too.
- Japan’s economic implosion finally ended the 3-day central planning rip, with the Nikkei closing -0.9%
- European Equities are doing nothing while they await the 2nd coming of the 3rd and 4th coming of Draghi
- US Equity futures are down, well, because maybe they won’t go up on the jobs report tomorrow
As for me… after spending most of the week in California, I am back in the saddle in Connecticut wondering what changed, fundamentally, since the Russell 2000 was -10% lower (120 points) less than a month ago…
Other than mostly every growth and inflation metric in our model being slower today than it was then, I guess the answer is that those who are permanently predisposed to be long of US stocks will believe almost anything, other than common sense.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.24-2.38%
WTI Oil 76.12-80.29
Natural Gas 3.88-4.27
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
Client Talking Points
The chitter “chatter” about “BOJ buying” just couldn’t keep the Japanese currency burning experiment ball in the air into the close (Nikkie -0.9%) – was that it? The risk range for the Nikkei is wacky wide now = 14560-17161, #enjoy.
Oil had a 1-day bounce and then went right back down again, -0.3% to $78.48 as #Quad4 deflation sinks into the psyche of those who have been net long of oil carry trading since The Bernanke introduced it in 2008; intermediate-term risk range now $64-84.
Utilities (XLU) were up +2.3% yesterday to, get this, +22.6% year-to-date with the Russell 2000 flat on the year. We know – everyone nailed that. But this is what you get as bond yields crash (UST 10YR Yield -23% year-to-date) – bond proxy ramps in equity land.
|FIXED INCOME||25%||INTL CURRENCIES||3%|
Top Long Ideas
The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.
We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).
Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.
Three for the Road
TWEET OF THE DAY
Restaurant owner Chuy's $CHUY sinks 30% in worst day ever http://finance.yahoo.com/news/restaurant-owner-chuy-s-sinks-30--in-stock-s-worst-day-ever-165739285.html?soc_src=mediacontentstory&soc_trk=tw … via @YahooFinance
*** @HedgeyeHWP went short on 10/28
QUOTE OF THE DAY
Someday is not a day of the week.
-Denise Brennan Nelson
STAT OF THE DAY
According to the Energy Information Administration, in 2013 a full 68% of Russian exports, or more than $350 billion dollars, came from energy, with more than half of that from crude oil. In 2009, after crude oil declined by 80% in 2008, that the Russian economy shrunk by 7.8% in 2009, the most of any G20 economy.
Tickers: SGMS, H, RCL, CCL
- Nov 6:
- MPEL Q3 earnings 8:30 am , pw MPEL
- PNK Q3 earnings 10 am , code 27759617
- BEL Q3 earnings 10 am , ID 12457691
- DIS Q3 earnings 5 pm , pin 38177041
- Nov 10:
- CZR Q3 earnings 4:30 pm , pin 20797507
- SNOW FYQ1 earnings 5pm
- SJM Q3 earnings
- Nov 11
- Galaxy Entertainment Q3 earnings: 3:15am
- Genting Singapore Q3 earnings: 5am
- Stations Casino Q3 earnings: 4:30pm
BLOOM:PM – Bloomberry Resorts Corp, the operator of Solaire Resort and Casino in the Philippines, said phase 1A of the casino resort would open by the end of November this year. The expansion is expected to provide an additional 66 VIP gaming tables and 223 slot machines and also include a 312-room all-suite boutique hotel tower and a 1,760-seat Broadway-style theater.
Takeaway: Manila gearing up for the opening of Solaire's phase 1A as well as City of Dream's Manila later in December.
034230:KS – 3Q revs increased by 5.1% YoY to KRW172.6 billion. Growth was mostly supported by casino revenue, which grew by 7.1% YoY to KRW139.9 billion. Paradise had a share of 49.6% of the South Korean market based on casino sales in the third quarter, up from 46% a year earlier, but down from a 54.9% share in the previous quarter.
Takeaway: Contrast to Macau, casinos revenues actually grew in 3Q.
SMGS – announced it was awarded the contract by the New Zealand Lotteries Commission to provide instant games for Lotto New Zealand. The seven-year contract began in September 2014 and includes a one-year extension option.
H – filed a Certificate of Retirement with the Secretary of State of the State of Delaware to retire 1,122,000 shares of Class B Common Stock. All 1,122,000 shares of Class B Common Stock were converted into shares of Class A Common Stock in connection with the repurchase by the Company of 1,122,000 shares of Class B Common Stock from selling stockholders. The Company has also retired all 1,122,000 shares of Class A Common Stock into which the Class B
Common Stock converted. The total number of authorized shares of the Company is now 1,453,399,875 shares, consisting of 1,000,000,000 shares designated Class A Common Stock, 443,399,875 shares designated Class B Common Stock, and 10,000,000 shares designated Preferred Stock, $0.01 par value per share.
Takeaway: Hyatt buying back stock while also modestly simplifying the equity capital structure.
RCL– According to Dondra Ritzenthaler, Senior VP of Sales for Celebrity, Celebrity has launched "1,2,3 Go All-inclusive". Guests between November 5 and January 4 that book Concierge and above [suites, Aquaclass] will get 1, 2, 3 Go All-inclusive. That includes beverage package, free gratuities, and up to $300 onboard credit for specialty dining."
In other news, Celebrity has launched some 2016/2017 itineraries, the earliest ever released for those far out itineraries.
Takeaway: Celebrity getting a head start on promotions ahead of Wave
CCL – (Travel Weekly) The battle for British cruise passengers is heating up, with P&O Cruises introducing a low deposit offer and more onboard spending money. The move to attract early bookings follows RCL putting its wave campaign on sale two months earlier than usual following a trade preview of new ship Quantum of the Seas in Southampton last weekend. The P&O Cruises £50 deposit offer covers bookings made before November 30 including sailings over Christmas and Easter next year.
Takeaway: Price war?
RCL – (TTG) Stuart Leven, UK and Ireland MD for RCL hinted there could soon be changes to shore excursions, including whether agents will start to be paid commission on them. “Work is in progress. I don’t think it will be too long before we make any changes in that area," said Leven.
MSC Cruises recently announced plans to raise commission on its shore excursions from 5% to 15%.
Takeaway: More competition (3rd party providers) in the shore excursion space is leading cruise lines to increase incentives to agents.
CHH - COO Patrick Pacious sold 33,947 shares of CHH stock on Monday, November 3 att an average price of $53.25 and now directly owns 99,211 shares of the company’s stock.
MAR - CEO Arne Sorenson sold 147,600 shares of MAR stock on Friday, October 31, at an average price of $75.72 and he now directly owns 420,618 shares.
LHO - CEO Michael D. Barnello sold 30,000 shares of PEB stock on Friday, October 31 at at an average price of $39.08 and now directly owns 181,331 shares.
Macau Construction Worker Wages Increase – (Macau Daily Times) The average daily wage of construction workers increased by 2.3% quarter-to-quarter to MOP672 in the third quarter of this year, and the average daily wage of local construction workers was recorded as MOP883, up by 7%.
Takeaway: Increasing wages not only in gaming
Hilton Prague Listed For Sale – (Czech Happenings) Hilton Prague, the largest Czech hotel with 791 rooms, has been put up for sale, and its managerial contract with the Hilton chain will soon expire. Avid Asset Management, the current owner of the hotel, empowered JLL to mediate the deal whose price was not disclosed. Avid Asset Management has put over EUR50m in the modernization of the hotel since 2004.
Takeaway: Another big European asset listed for sale. We wonder if HOT is watching?
Boca Raton Resort & Club Listed For Sale– (Sun Sentinel) Blackstone Funds, the owner of the Boca Raton Resort & Club plans to put the property up for sale. The listing will be handled by JLL Hotels. The Blackstone Group has invested more than $250 million in the resort. JLL has begun to contact potential investors who might be interested in acquiring the resort.
Takeaway: Inside odds indicate Hilton Worldwide is the likely buyer given the Resort & Club's affiliation with the Waldorf Astoria collection.
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.
Takeaway: The numbers check out – revs, EPS, guide. Now it’s mgmt’s game to lose based on how it handles the call. More ways they can win than lose.
KATE quick take
1) Headline EPS looked good. $0.02 – in line with consensus.
2) 15% comp was in line with our estimate – and about double what the company guided. Consensus was around 12% -- as best as we can tell.
3) 36% growth in revenue – or a 3% revenue beat. Not bad. New store productivity was off the charts. We expected this given the conversion of stores from Juicy to Kate (28 stores were pulled out of comp base during conversion.)
4) Raised EBITDA targets for the year by $10mm, to $130mm - $140mm. KATE (and its predecessors) is not known for taking up guidance – it’s been the opposite historically more often than not.
5) As expected, pushed out 2016 margin targets by a year. That’s 100% in line with what the company said last quarter. As we highlighted yesterday in our 40-page slide deck outlining our thesis on KATE, actual EBITDA dollars are likely to come in about 44% higher than an otherwise higher EBITDA margin target would suggest – given how far ahead the company is tracking with its’ top line.
Overall, we feel very good about these numbers – especially given the volatility we’ve seen out of KATE over time. We wish we could call it a day after looking at the numbers, but we can’t. We still need to hear what management says on the conference call – and we all know what happened last time. But that’s the same reason why we could hardly find a single soul to hit the bid on KATE over the past three months. People have been 1) Afraid of these numbers and this guide (which is a concern that is now proven unfounded), and 2) Afraid of what management will say when it opens up to investors on the call. That’s something that still concerns us. But like we said yesterday, we’re hard pressed to think of a whole lot that the company could say that would result in any more enemies in the investment community. This call is KATE’s game to lose.
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