VIDEO | Keith's Macro Notebook 3/21: EUROPE VIX GOLD





Friday, March 21

  • None       

Monday, March 24

  • None       

Tuesday, March 25

  • CCL to report earnings pre-market, conf call at 10 a.m. EDT

Wednesday, March 26

  • PENN at TAG Spring Consumer Conference
  • Melco Crown Extraordinary General Meeting
  • Melco Crown Board Meeting  

Thursday, March 27

  • None    

 Friday, March 28

  • None  



BYI – the company’s wholly owned subsidiary, Shuffle Master Entertainment (Asia) Limited was cleared of two patent infringement charges alleged by LT Game Limited Macau, LT Game Limited Hong Kong and Paradise Entertainment.   The patent investigation was conducted by the Macau Public Prosecutor, who found no evidence that Shuffle Master Entertainment engaged in any wrongdoing.


LVS – asked Singapore authorities for more land to increase count by nearly 60%.  Marina Bay Sands request includes an additional 1,500 rooms to the 2,563-room, plus meeting rooms, ballrooms and exhibition spaces.

Takeaway:  Having visited MBS many times, this was always the plan.  However, MBS needed the City of Singapore to finish construction of the subway rail and Marina Bay station, as well as the surrounding street and highway infrastructure.   We expect the additional hotel towers will be located southwest of Tower 1 and across Sheares Link, between Bayfront Avenue and Sheres Avenue. More rooms would be a huge positive for this capacity constrained property.


LVS – Sands Casino Resort Bethlehem has named Douglas S. Niethold its interim president following the departure of Robert DeSalvio, who left Sands Bethlehem for Wynn Resorts.

Takeaway:  We continue to believe LVS is looking to exit Bethlehem via a sale of the property.


MGM – According to the Massachusetts Gaming Commission, Thursday is the last day for MGM Resorts International to hash out the terms of surrounding community deals with Longmeadow and West Springfield in regards to its plan to develop an $800 million resort casino in Springfield's South End.

Takeaway:  We expect MGM to reach an agreement with all the communities as the development of Springfield means too much to MGM in the long-term versus a few hundred thousand dollars. 


WYNN – published its Annual Meeting and Shareholder Proxy Statement which notably includes a renegotiated Executive Compensation for Mr. Wynn.  Mr. Wynn’s $4 million base salary will drop to $2.5 million, so that a higher proportion of his compensation is attributable to variable, at-risk components that drive stockholder value. He will now pay annual rent of $525,000 for his Wynn Villa and will reimburse the Company for certain expenses for his personal use of Company aircraft.  Finally, a significant portion of Mr. Wynn’s 2014 annual incentive award will be payable in equity.

Takeaway:  Still not ideal but certainly a more shareholder friendly compensation structure   


WYN – completed a $425 million asset-backed notes securitization.  Sierra Timeshare 2014-1 Receivables Funding LLC issued $328 million of A rated notes and $97 million of BBB rated notes.  The notes were backed by vacation ownership loans and had coupons of 2.07% and 2.42%, respectively, for an overall weighted average coupon of 2.15%. The advance rate for this transaction was 88%.  Sierra Timeshare 2014-1 Receivables Funding LLC is an indirect subsidiary of Wyndham Vacation Ownership. The transaction was completed in reliance upon Rule 144A and Regulation S as a placement of securities. 

Takeaway:  As the economic cycle progresses, investors are pushed to go out the risk/credit spectrums for higher yields.  As a result, we are not surprised by this securitization which we view as a positive for the timeshare industry.  We expect additional timeshare securitizations this year.  


CCL - released details of its return to Norfolk, Va. in 2015, saying it will offer two- to seven-day voyages out of the city on the 3,006-passenger Carnival Splendor.  Taking place in May and October 2015, the seasonal sailings will include five-day Bahamas cruises calling at Nassau and Freeport, and a six-day Bahamas cruise that adds the private island of Half Moon Cay. A seven-day Bermuda cruise.  The company also said Carnival Splendor will sail seasonally out of New York and Miami in 2015 as well.

Takeaway:  CCL is constantly testing markets for demand as well as pricing.  As additional ships (capacity) come on-line, we expect older ships will be based in secondary markets such as Norfolk. 


MSC Cruises – signed a letter of intent with shipbuilder STX France for the construction of two 167,600-ton vessels for delivery in 2017 and 2019.  MSC says the ships, its largest ever, will represent a new class at the line and have a capacity for up to 5,700 passengers a piece. They'll have 2,250 cabins.  The deal also includes an option for two more of the ships.

Takeaway:  Keeping up with the its bigger competitors as well as positioning itself for a likely IPO as the new ships will be the "growth story". 


NCLH – The first piece of steel was cut at Meyer Werft in Papenburg, Germany for the construction of Norwegian Escape, the first of two new Breakaway Plus Class ships for Norwegian Cruise Line, set for delivery in fall of 2015. The Norwegian Escape will homeport year-round in Miami following her delivery in late 2015 and sail a seven-day Eastern Caribbean itinerary starting November 14, 2015

Takeaway:  Economic recovery, coupled with modestly better pricing always results in new ship construction. 


RCL – announced that the 5,400-passenger Allure of the Seas will redeploy to Fort Lauderdale in November 2015 from Barcelona, where she will be based from May to October 2015.  From Fort Lauderdale, Allure will resume alternating, seven-night sailings to the Eastern and Western Caribbean. Eastern Caribbean sailings will feature calls in Nassau, Bahamas; St. Thomas; and St. Maarten. Western Caribbean sailings will feature calls in Falmouth, Jamaica; Cozumel, Mexico; and Labadee, Royal Caribbean's private beach area on the north coast of Haiti. 




Attempts to Ban Online Gaming Nationwide – A bill proposing to ban online gaming throughout the United States, “The Internet Gambling Control Act” alleged authored by Congressman Jason Chaffetz (R-Utah), was found to be the work of Darryl Nirenberg (an anti-gaming lobbyist who represents Sheldon Adelson and Las Vegas Sands Corporation) aims to ban all forms of Internet gambling, including online poker, state lotteries and sports betting but not horse racing. 

Takeaway:  The bill is unlikely to pass.  The future is on line poker and we don't think that can be stopped even if it is just through interstate efforts.


New Jersey Gaming Expansion not likely – State Senate President Stephen Sweeney dismissed any possibility for legislative discussion on the idea of a Meadowlands casino for another two years because the agreement he made with Governor Christie to give the struggling Atlantic City casino industry five years to try to rebound would not expire until Feb. 2016.

Takeaway:  Hope springs eternal for Atlantic City, while the New Jersey gaming revenues continue to experience cannibalization by surrounding states.  


Boston Mayor Walsh plays thug – Boston Mayor Martin Walsh is seeking greater power and influence in evaluating the Mohegan Sun casino project at Suffolk Downs in Revere and Wynn Resorts proposal on the Mystic River waterfront in Everett.  The Mayor declared Boston is entitled to hold a referendum on each proposal, to negotiate massive compensation packages with the developers, and, if it so chooses, to block a casino from being built.  Walsh’s administration made the assertion in two letters to the state gambling commission Wednesday in which the city declares that it is a host community, under the 2011 casino law.  The gambling commission will address Boston’s assertions at a meeting Thursday.  If the commission does not accept Walsh’s declaration, an obvious option for the city would be to file a lawsuit challenging the panel’s interpretation of the casino law.

Takeaway:  Seems like old-time, back alley Boston politics.  Boston officials had their chances to host the potential casino but played hardball with the operators and now likely regret that tactic. 


Wisconsin Tribal Expansion – The Lac du Flambeau Indians and the city of Shullsburg have finalized an agreement for a $132 million casino.  The off-reservation casino project still hinges on both approval from the state and federal governments.  The proposal also is the second attempt for a Shullsburg casino. More than 10 years ago, federal and state officials rejected a plan that included a 300-room hotel, golf course and water park. Tribal members said the new proposal would be constructed in phases and include a hotel.

Takeaway:  Located 28 miles from Dubuque, Iowa, the proposed Shullsburg casino would cannibalize BYD's Diamond Jo Dubuque and the Mystique Casino to most, while ISLE's Lady Luck in Marquette and Wild Rose Clinton (in Clinton) would likely experience some lost revenues as well.



Airbnb – is seeking to raise $400 to $500 million via private equity.  Airbnb, founded in 2008, allows individuals to rent out couches, rooms, apartments and homes through an online marketplace of more than 600,000 current listings.  Hosts set a nightly rate, and Airbnb collects guest payments, keeping a portion of the fees for itself.  The equity raise, if successful, is estimated to value Airbnb at $10 billion. 

Takeaway:  We remain skeptical of this business model and view Airbnb as a portal for the low-budget, back packing, hostel segment and don't view the business as competitive threat to the traditional lodging industry.   By comparision, AWAY has an equity market cap of approximately $3.83b billion. 


European RevPAR – February RevPAR increased 6.1%, better than +4.8% in January. During February, occupancy was up 3.3% while ADR upticked +2.7%.  February RevPAR on a country basis included: France -2.9%, Germany +6.1%, Spain +5.9% and the UK +9.5%.

Takeaway:  The recovery across Europe continues. HOT is a major European player.




Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning 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.

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Saving Pennies

“A penny saved is a penny earned.”

-Benjamin Franklin


I co-chaired the Bipartisan Policy Center’s dinner/debate on America’s Personal Savings Rate in NYC on Wednesday and one of the most thoughtful portfolio managers I know outlined the following to Senator Kent Conrad (ND) and Jim Lockhart (W.L. Ross):


My wife and I were in the military… we raised our 3 kids teaching them discipline and hard work… my kids all have savings accounts, jobs, and allowances… and my son did pretty well this winter shoveling snow. So I took him to the bank last weekend to make his cash deposit – he looked at his statement and said “Dad, I made 2 cents – why do we do this?”


Very good question, son. With an un-elected Federal Reserve mandate of 0% Rate of Return on American Savings accounts, what is the incentive for the next generation to save?


Saving Pennies - pen1


Back to the Global Macro Grind


Other than the bond and stock market bubbles blowing up, what is your incentive to be in cash this morning? As I was drawing down the cash position in our asset allocation model yesterday, I reminded myself to say my prayers before bedtime last night.


While prayer is not a risk management process, neither is a country destroying both the credibility of her youth’s hard earned currency and savings rate. As you can see in the Chart of The Day, the relationship between the US Dollar’s value and the ratio of personal savings to after-tax income is as obvious as the sun rising in the East.


Now back to dropping my Cash position to 20% yesterday. Damn the long-standing American principle of Franklin Frugality, Ben Bernanke and Janet Yellen have to be proud of me. With return on savings pinned at 0% and #InflationAccelerating, I’m going to go chase myself some hard core nominal yield!


What does chasing yield mean?

  1. The “risk-free” rate of return = 0%
  2. #InflationAccelerating > 2% means your real-rate of return owning 0% is negative
  3. You have to buy stuff (literally anything) that “yields”> 2%, just to break-even

Otherwise known as a Policy To Inflate, this un-elected and un-constitutional tax policy in America pays the debtor and pulverizes not only the saver, but the poor (hint: inflation is an unlegislated tax). And what does the NY Fed have to say about this? Go eat a REIT.


Seriously, let’s go through what you were forced to do in 2011 one more time, because that’s precisely what I am suggesting you do right now (until one day I say, I’m out, and go to 100% under-my-mattress beast mode):

  1. FOREIGN CURRENCIES (22%) – with a Down Dollar policy, buy other country currencies vs the US Dollar (Pounds, Euros, etc.)
  2. COMMODITIES (20%) – since most commodities correlate inversely to USD, buy Gold, Silver, Food – love Coffee!
  3. FIXED INCOME (19%) – yep, if it’s got a yield greater than 1-2%, giddy-up Bernanke Bond Bubble
  4. INTL EQUITIES (10%) – we like #StrongCurrency countries. Period.
  5. US EQUITIES (9%) – slow-growth Utilities, REITS, etc. - love Yield Chasing

Oh, that’s not the asset allocation pie-chart that the Banker-of-bailed-out-America-thundering-turd-high-net-worth-yield-chaser, slash “advisor”, has you in right now? I’m shocked.


With pick-toggles, junk bonds, and MLPs trading near all-time historical multiple highs, I don’t know why the Mucker doesn’t just go whole hog on this asset allocation strategy and go 30% Gold, 70% Kinder Morgan (KMP)!


As long as you realize that investing under this Bernanke/Yellen regime has nothing to do with reasonable valuations for anything that looks like a bond, you’re all set.


Back to the MLP bubble Bernanke will have on his #history watch:

  1. The US Equity market cap of MLPs 10 years ago was around $50B
  2. The all-time-bubble-high market cap for MLPs in 2013 was more than 10x that (over $500B)
  3. The all-time-bubble high in something like Kinder’s KMP in 2013 was 40x earnings

This is why someone like Rich Kinder should be considered a genius – he front-ran both Fed policy and the predictable behavior of human beings being forced to chase yield versus ZIRP (Zero Percent Rate Policy); not to mention the 50% rake he pulls from his LPs.


So, back to the NYC Portfolio Manager – what should we tell his son?


I say we tell him to roll-up some capital intensive assets (snow plows?), play around with the non-GAAP numbers, and collect massive fees from yield-chasing retail investors. Forget long-term principles of frugality and foresight in America. Pay me now. Beats 2 cents.


Our immediate-term Global Macro Risk Ranges are now:



VIX 13.18-15.36

USD 79.64-80.52

EUR/USD 1.37-1.39

Pound $1.64-1.66

Gold 1


Best of luck out there today – enjoy your weekend,




Keith R. McCullough
Chief Executive Officer


Saving Pennies - Chart of the Day


Saving Pennies - Virtual Portfolio

Imperial Ignorance

This note was originally published at 8am on March 07, 2014 for Hedgeye subscribers.

“I implore Imperial Heaven to pardon my ignorance.”

-Daoguang Emperor


Reigning over the Manchu Qing dynasty in China from 1820 to 1850, even by modern central-planning-overlord measures, this guy Daoguang was a whack job. He, like some in Big Government today, thought he was put on this earth to bend economic gravity.


But, “in 1832, Daoguang’s fears of looming crisis converged in one defeat… the government forces were not used to the mountains… many of the troops from the coastal garrisons were opium smokers, and it was difficult to get any vigorous response from them… When nature began conspiring against the Chinese empire… panic was likely to set in.” (The Opium War, pg 49)


So, don’t panic. Blame the weather.


I heard on TV that #InflationAccelerating slowing real US Growth is different this time. And the echoes of Daoguang’s ignorance has the New York Federal Reserve’s back on that: “I, the son of Heaven, am Lord of this World. Heaven looks to me that I preserve tranquility.” (pg 50)


Back to the Global Macro Grind


Yep, things are getting weird. And the President of the NY Fed, Bill Dudley, is getting weirder. You won’t remember him for being a below-average at best Keynesian economist at Goldman Sachs (1986-2007). He’s infamous for his completely out of touch with reality comment in March of 2011 that food prices ripping to all-time highs didn’t matter because iPads were cheap.


No, CRB Foodstuff’s Index fans (which is up another +1.6% this week to +14.0% YTD), you cannot eat an iPad. With US #InflationAccelerating to another fresh YTD high yesterday (CRB Index +10% YTD and the USD hitting another fresh YTD low), you can’t eat Gold (+12.1% YTD) either.


Imperial Ignorance - ipa


But Dudley, who completely missed calling for the 2008 crash, is comfy that the current growth slowdown is all about the “weather” and that US GDP is going to start tracking right back to +3%. As for the Fed’s dual mandate to raise rates when either employment recovers or inflation accelerates, yesterday Dudley called that “obsolete.”


In other dial-a-Fed guy (or gal) to Burn Your Currency news:

  1. The US Labor market data continued its deteriorating @Hedgeye TREND this past week
  2. NSA (non-seasonally adjusted) rolling y/y claims only dropped -3.5% last week
  3. The last 7 jobless claims data points (most recent data point 1st) = -3.5%, -4.4%, -5.6%, -5.1%, -5.7%, -7.3%, -7.9%, -8.5%

In other words, as our all-star-non-Keynesian US Financials analyst Josh Steiner said yesterday, “since we’re looking at the rate of change in year-over-year initial jobless claims, a more negative number is better as it implies a faster rate of improvement.”


That’s also one of the main reasons why we didn’t start to get bearish on inflation slowing real US growth until 8 weeks ago – the slope of growth, or continued improvement, in the US employment cycle. *Note: employment gains peak at the end of a cycle


Yes, we were the US employment #GrowthAccelerating bulls for all of last year, primarily because the rate of change in both weekly and monthly US employment data (leading indicators) was improving. That’s why the Fed should have started to taper in July-September 2012. They didn’t – because they act on a lag to lagging economic data.


To review how the Fed 1913 Act was supposed to work – it was a dual mandate:

  1. Full Employment
  2. Price Stability

In English, that means that the Fed is supposed to:

  1. Get looser (cut rates) when the rate of change in employment is deteriorating and inflation is slowing
  2. Get tighter (raise rates) when the rate of change in inflation is accelerating and employment is improving

Instead, the Bernanke/Yellen/Dudley Fed:

  1. Is now changing the goal posts on what was their official 6.5% employment target – Janet, we hit it too soon; change it!
  2. Will never fight inflation, so the bond market assigns 0% credibility to the Fed raising rates with #InflationAccelerating

That’s why Dudley’s March 7th, 2014 comments about the Fed Act of 1913 being “obsolete” are very much consistent with his comments about inflation in March of 2011 – eat it.


He’s un-elected and un-accountable to the American people. So, for now, like a Chinese bureaucrat posing as our god, he can say and do whatever he damn well wants. And yes, that will affect the credibility of your currency and liberty, in real-time.


So enjoy your US jobs report day in what has become the no-volume-American stock market casino. And pray that the Fed’s imperial ignorance on the impact of price-fixing rates at 0% never perpetuates a panic.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.59-2.77%

SPX 1848-1884

VIX 13.01-15.65

USD 79.49-80.22

EUR/USD 1.37-1.39

Gold 1321-1355


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Imperial Ignorance -  USD


Imperial Ignorance - rta44


Takeaway: How consumers feel about mgmt has a considerable impact on LULU. Here’s the detail on what percent care, and whether they’ll come back.

This week we explored LULU's a) customer purchase cadence, b) customer loyalty, c) competition, d) reasons for leaving the brand -- and several others.  As a reminder, we'll be looking at the incremental change in these areas as well as the following factors when we host our call on Monday 3/24 at 11am ET.


  1. Does LULU need to begin a more aggressive discounting strategy?
  2. New brands are encroaching on LULU's turf, is that rate slowing or accelerating?
  3. What is LULU's perceived price/value equation relative to other brandsand how is that changing?
  4. Growth in points of distribution for Yoga product - a key competitive threat for LULU.
  5. Insight into our store overlap analysis between Athleta and Lululemon
  6. UnderArmour scored so close to Nike in our last survey - which was a big surprise. Nike has been fighting back. Is it working?
  7. Is the 'I hate LULU Management!' factor (present in 58% of people responding last time) - still as severe? Any improvement? 


To cap off just a few of the highlights of our last survey, here are a few charts showing factors related to corporate management.  We showed this chart yesterday, but it's an important reminder that one of the most notable factors that drove people from the brand was that they dislike corporate management.




Separately, we asked people whether they are aware of the comments that Lululemon senior management made in public in November.  To be clear, we did not state who the person was, and we certainly did not say what the comments were. We did not want to lead the witness.  If we asked Wall Street about these comments, we'd get about 98% of people who heard of them. But The Lululemon customers we surveyed came in at 58%. We can all read that a different way, but our view is that this is a HUGE percentage for your everyday follower of the brand.


Then we asked that 58% if those comments impact the Lululemon brand, and 67% said Yes. We're hoping -- for LULU's sake -- that this number comes down dramatically when we crunch through our results over the next couple of days.


Lastly, we asked how these comments will impact shopper behavior.  10% of the people said that they'll never shop at Lululemon again…which is tough to overcome, 38% said that they'll spend less, and 16% indicated that they simply don't care and will likely spend more. About 36% seem neither positive or negative.


It's good that there's a big proportion of customers that are unaffected, but having 48% that are on the net negative side as it relates to spending intent is not what we want to see from a growth brand.  The update here should be interesting.





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