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Video | Keith's Macro Notebook 4/21: JAPAN FOOD UST 10YR

LEISURE LETTER (04/21/2014)



Tuesday, April 22

  • IGT FQ2 earnings:  5 p.m. Conf Call   , Passcode: IGT

Thursday, April 24

  • WYN Q1 earnings - 8:30 a.m. , Passcode: Wyndham
  • LHO Q1 earnings - 9:30 a.m.
  • PENN Q1 earnings - 10 a.m.
  • RCL Q1 earnings - 10 a.m.
  • HOT Q1 earnings - 10:30 a.m. , Passcode: 12049644
  • LVS Q1 earnings - 4:30 p.m. ; PW: 18236529
  • LA March revenues out

Friday, April 25

  • PEB Q1 earnings – 9:00 a.m.

Monday, April 28

  • CHH Q1 earnings – 10:00 a.m. , Passcode: 70683172

Tuesday, April 29

  • VAC Q1 earnings – 10:00 a.m. , Passcode: 4679876
  • MGM Q1 earnings – 11:00 a.m. , Passcode: 20455736 


Macau Legend - Targets high rollers Macau Business Daily 

Macau Legend Development Ltd has done a deal, increasing to 42% from 2% its share of the gross gaming revenue from junket operator New Legend VIP Club Ltd’s gaming tables in its Pharaoh’s Palace casino.  In a HKSE filing, Macau Legend's wholly-owned subsidiary, Hong Hock Development Co Ltd, had formed a variable-interest-entity (VIE) agreement with New Legend.


Macau Legend said, “The company believes that the demand for VIP gaming will continue to increase, and therefore it intends to capitalise on the overall growth in VIP gaming in Macau by engaging in the gaming promotion business.”


PENN / GLPI - Last Thursday, the Iowa Racing & Gaming Commission ruled Argosy Sioux City must shut down by July 1 because the floating casino's state gaming license has lapsed.   Then on Friday, the Argosy Sioux City officially notified the Iowa Workforce Development agency that the 300-employee floating casino likely will close by July 1. PENN, however, has vowed to ask a judge to suspend the commission action, which would allow the boat to remain open while the company pursues a series of legal challenges against the gaming commission.


Hard Rock & Warner Gaming indicate construction of the Hard Rock Hotel and Casino is right on track.  Contractors are working seven-days-a-week to make ensure they meet their scheduled opening this summer.


TAKEAWAY:  We estimate PENN EPS dilution of $0.07/share on an annual basis and about $0.80/share of asset value and GLPI NAV dilution of about $0.50/share.  While PENN's Q1 looks fine, we're not sure enough analysts have taken Sioux City out of their estimates. Discontinued Operations?


MPEL - (Inquirer) CoD Manila, is expected to open its doors on Oct. 1 this year instead of the earlier announced mid-year opening, in time for Golden Week.  CoD Manila will feature a 950 rooms hotel and 20,000 square meters of gaming space with up to 365 gaming tables and 3,300 slot machines. 

TAKEAWAY:  Delays are almost never a good sign.


MGM - Prince George's County approve zoning changes to allow the casino to operate at National Harbor.  In about two weeks, another bill will come up that will focus on the actual development plan – and that ruling will include language dealing with jobs/hiring of minorities. MGM’s casino will feature 3,600 slots, 140 live gaming tables, a 300-room hotel, restaurants, and retail and meeting space.

TAKEAWAY:  Another step in the progress toward ground breaking. 


IGT - completed its first multi-state wide area progressive network, linking Deadwood, SD, casinos with Borgata and Caesars properties in Atlantic City.

TAKEAWAY:  This is probably an under appreciated event by investors that could boost play and yields with bigger jackpots.


IGT - announced that it has licensed the popular Tokidoki brand to develop compelling, casino slot machine content.  IGT will launch new tokidoki-themed games starting in 2015 at select casino properties in Singapore and Macau, and worldwide thereafter.

TAKEAWAY:  Better late than never to expand in Asia. 


RHP - City of Aurora this week will ask Arapahoe County District Court Judge Charles Pratt to lift a stay placed on a countersuit Aurora filed against 11 mostly Denver hotels seeking to block tax incentives awarded to the massive Gaylord hotel project.  If the stay is lifted, Aurora may review communication between the hotels involved in the lawsuit. 

TAKEAWAY:  RHP looks poised to become a development, growth story.


CCL - canceled various Alaska port calls by Carnival Miracle previously scheduled for this summer due to a "technical issue" impacting the ship's cruising speed.  The cancelled port callings include Skagway and Ketchikan.  Additionally, several Hawaii cruises will also see itinerary modifications, though no canceled ports.  Repairs to the propulsion unit will not be completed until a scheduled dry dock in early 2015.

TAKEAWAY:  At least this didn't happen in the Caribbean


RCL - Azamara Club Cruises is offering Vacation.com members a High Value Guest Incentive Commission where vacation.com members can earn as much as 5% over their preexisting Royal Caribbean Cruise Line family commission level and up to 21% for a high value guest booking

TAKEAWAY:  Aggressive commission policy


CCL - Seatrade Insider Princess 'Summer Clearance Sale', up to 40% off fares 

Receive as much as $200 onboard spend for Caribbean, Alaska, and Europe itineraries.  Promotion ends on April 30.

TAKEAWAY:  More onboard coupons but less price cuts compared with last summer's Princess promotion.  Last year's Princess summer clearance sale (May 1-8, 2013) offered up to 50% price cut for Alaska and Europe and up to $100 off onboard spend.  



Chinese cancelling visits to Singapore as well after MH370 incident Strait Times

Travel agencies in Singapore have been getting fewer bookings from Chinese tourists in the aftermath of Flight MH370's disappearance.  The National Association of Travel Agents Singapore (Natas) said current bookings for packages which include Singapore as a stopover have fallen by more than 50% at some agencies.


Anita Tan, COO of Natas, which represents more than 300 firms, added that the industry is hopeful that bookings will recover by the July school holidays, which is a peak period for Chinese travellers.

TAKEAWAY:   There were fears several weeks ago that a backlash may happen.  Well, it has.  Not great for LVS and Genting Singapore.


No China headwinds for Macau Macau Business Daily 

“I don’t think the recent slowdown in China will affect Macau in the near future. Only in a scenario where the disposable income of Chinese families drops more than 5% could we talk about an impact on the territory’s economy”, said the economist, José João Pãozinho.


Despite worrying January-March figures - housing sales dropped 7.7%, construction starts fell 25% and retail sales trailed estimates- the backbone of China’s economic peace, the growing middle class, is still intact.  Urban per capita income rose 7.2% in the first quarter and 3.44 million jobs were created in this period, 40,000 more than compared to a year ago, Beijing’s statistic’s bureau reveals.

TAKEAWAY:  We tend to agree.  Look for a May bounce back.


Cotai stores require 20,000 workers Macau Daily News

Retail spaces in the new mega casino resorts opening in Cotai from 2015-17 will require as many as 20,000 workers to man the operation, says Terry Sio Yuen Yee, founder and CEO of a Macau-based distributor and agency of luxury branded products, Rainbow Group. 


Proposed monthly rents, however, have already increased to about 300-450 patacas (US$37.5-56.3) a square foot, compared to 100-150 patacas when the first slew of resorts opened in 2007, said Sio.  Nevertheless, her company still aims to invest some 500 million patacas in opening 30 new stores in the new resorts within the next five years, said Sio.

TAKEAWAY:  Retail positions are easier to fill than dealers.  We continue to worry about dealer wage inflation and the supply of dealers to support the Cotai growth.  Remember that dealers are required to be Macau citizens. 


Massachusetts Gaming – Boston Mayor Martin J. Walsh's administration is calling on the state's top gambling regulator to recuse himself from the casino licensing process in eastern Massachusetts.  The Walsh administration accused Massachusetts Gaming Commission Chairman Stephen Crosby of making "prejudicial" statements critical of the city's request to be declared a host community for proposed casinos in nearby Everett and Revere.  If granted host community status, Boston residents would have an opportunity to vote on casino proposals by Mohegan Sun in Revere and Wynn in Everett.

TAKEAWAY:  Feels to us like Wynn should walk away and let the Mayor take the blame for failing to create jobs and increase state tax revenues.


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.


Food Prices Racing Higher

Takeaway: Stick with the inflation slows consumption growth theme.

The CRB Food Index jumped another +2.7% last week. It’s now closing in on +22% year-to-date.


Food Prices Racing Higher - d45

Soybeans were up +3.8% last week to just shy of +19%, Coffee was up another +0.3% to over +77%, etc, etc.


This is a major tax on US #ConsumerSlowing.


Our advice? Stick with the inflation slows consumption growth theme.


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Marijuana Legalization: The Debate Begins

We look forward to hosting a special call Marijuana Legalization: The Debate Begins, featuring Dr. Beau Kilmer, Codirector of RAND Corporation’s Drug Policy Research Center, on Thursday, April 24th at 2:00pm EDT.




Dr. Kilmer will provide a framework for assessing the marijuana policy landscape, incorporating his studies on drugs as a RAND researcher and specifically his work on marijuana legalization. He’ll discuss such topics as State versus Federal regulation, the key decisions policy makers face, his “8 Ps” framework, and social costs. We look forward to a robust Q&A on this very hot topic.


Marijuana Legalization: The Debate Begins - pic. Smoking Marijuana Hit 



Beau Kilmer is a senior policy researcher at the RAND Corporation, where he codirects the RAND Drug Policy Research Center. He is also a professor at the Pardee RAND Graduate School. His research lies at the intersection of public health and public safety, with a special emphasis on substance use, illicit markets, crime, and public policy.


Some of his current projects include estimating the size of illegal drug markets, assessing the consequences of alternative marijuana policies, measuring the effect of South Dakota's 24/7 Sobriety Program on drunk driving and domestic violence outcomes, and evaluating other innovative programs intended to reduce violence.


Dr. Kilmer's research has appeared in leading journals such as AddictionAmerican Journal of Public HealthJournal of Quantitative CriminologyProceedings of the National Academy of Sciences, and his essays have been published by the BBCCNNLos Angeles TimesNew York TimesWall Street Journal, and USA Today.


His book Marijuana Legalization: What Everyone Needs To Know (co-authored with Jonathan Caulkins, Angela Hawken, and Mark Kleiman) was published by Oxford University Press in 2012. Before earning his doctorate at Harvard University, Kilmer received a Judicial Administration Fellowship that supported his work with the San Francisco Drug Court. 




Toll Free Number:

Direct Dial Number:

Conference Code: 547194#

Materials: CLICK HERE (materials will be available approximately one hour prior to the start of the call)


Please email  for more information.



Howard Penney

Managing Director


Matt Hedrick



Fred Masotta



New Best Ideas: Short Atlas Energy LP (ATLS) and Atlas Pipeline Partners LP (APL)

What will investors pay for aggressive non-GAAP accounting and financial engineering?  Apparently more than $2 billion, the current market cap of ATLS.


As the General Partner (GP) of Atlas Pipeline Partners LP (APL) and Atlas Resource Partners LP (ARP), Atlas Energy LP’s (ATLS) only material source of income is from the distributions that ARP and APL pay it.  However, we believe that the majority of ARP and APL’s “Distributable Cash Flow (DCF)” is a function of aggressive non-GAAP accounting, which those MLPs use to justify distributions to its LPs and ATLS. 


In our view, ARP and APL’s distributions are funded with capital raises – not real profits – and that can only go on for so long.  ATLS is most at risk, as we believe that neither ARP nor APL can support an LP distribution that would trigger an incentive distribution right payment (IDR) to ATLS.  We believe that fair values for all three Atlas MLPs are well below their current market valuations.  The downside is considerable, particularly for ATLS.


We will publish a full report with our investment thesis and valuation analysis on Thursday morning, April 24th.  We will hold a brief conference call on Thursday at 12:30pm EST to discuss the key points and field questions.


Conference Call Details

Thursday, April 24th at 12:30pm EST

Participant Dial-In:

Participant Code: 169921#

Send questions to


Kevin Kaiser

Managing Director

Stick With Inflation Slowing Growth

Client Talking Points


The Yen (up +2.8% year-to-date versus the US Dollar) is not selling off this morning because the US Dollar continues to make a series of lower-highs. It’s easy to be bearish on the Nikkei if you are bearish on USD – Nikkei is down -10.3% YTD with no support to 13,808.


The CRB Food Index was up another +2.7% last week to +21.6% year-to-date (Soybeans were up +3.8% last week to +18.8% and Coffee is up another +0.3% to +77.3%, etc.). It’s a major tax on US #ConsumerSlowing – stay with the inflation slows consumption growth theme.


The 10-year yield is down 2 basis points to start the week, so the bond market continues to agree with our slowing growth call. At 2.70% (and no support to 2.59%), the 10 year is down -33 basis points year-to-date and is frustrating bond bears.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


FX: #StrongPound punches $1.68 vs USD as Carney teaches Yellen a lesson @KeithMcCullough


"Ability can take you to the top, but it takes character to keep you there." - Zig Ziglar


Nearly 36,000 people 9,000 more than usual — are expected to run in the 118th Boston Marathon today, a year after two bombs exploded at the finish line, killing three people and injuring many more. The runners range in age from 18 to 83. Some were among the 5,600 runners who were unable to cross the finish line last year after the explosions had stopped the race. (New York Times)