VIDEO: Keith's Macro Notebook 7/1: Canadian Dollar, Oil, Germany


Takeaway: Home prices increases have decelerated by 410 bps in the last four months. The headwinds should persist for another ~8 months.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 




Today's Focus: June CoreLogic Home Price Report

CoreLogic released its monthly home price report for May/June earlier this morning. Unlike S&P/Case-Shiller, which is a rolling 3-month average repeat sales index,CoreLogic is a single month index released on almost no lag. Essentially, it gives you information three months more current than what you get from Case-Shiller. 


CoreLogic estimates that home prices rose +7.7% YoY in June, a deceleration vs the +8.8% in May and +10.0% in April. We show this in the first chart below.


Interestingly, in the past few months we've seen material upward revisions to the preliminary estimates for the most recent month-ended. This month, however, the revision was almost non-existent and actually was revised lower. The preliminary estimate for May was +8.9% and the final number came in at +8.8%.


Its also worth noting that while sales comps begin to ease through 2H14, price comps don’t really begin to ease until Feb 2015 (hardest near-term comp is Oct which was +11.8% YoY). As such, we think the next 8 months of worsening pricing data will weigh on the housing complex.


Our main thesis on housing is that the rate of home price appreciation will slow meaningfully over the course of 2014 and into 2015. Historically, inflections in the rate of HPI or HPD have been major macro drivers of relative positive or negative performance.









About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."


Joshua Steiner, CFA


Christian B. Drake

LEISURE LETTER (07/01/2014)



  • Thurs July 3: ISCA 9 am Q2 earnings , pswd 69156862


880:HK / SJM Holdings – (GGRAsia)  According to industry figures, here is the June GGR shares:

  • SJM: 24.9%
  • LVS: 22.0%
  • GALAXY: 21.1%
  • WYNN: 9.5%
  • MPEL: 12.2%
  • MGM: 10.3%

Takeaway: Strong showing by the local, Chinese mass-centric operators.


GLPI & ISLE – late yesterday Reuters reported Isle of Capri (ISLE) is in renewed sales talks with Gaming & Leisure Properties (GLPI)

Takeaway: We are EXTREMELY skeptical of such discussions leading to a completed transaction! 

H – Toronto, Ontario-based Westmont Hospitality Group is on the verge of buying the Park Hyatt Washington from Hyatt Hotels Corp. for $100 million or $462,963 per key for the 216-key hotel located at 1201 24th St. NW - near embassy row.

Takeaway: The capital recycling program continues.


HOT – is reportedly in talks with the owner of the five-star Nikolskaya Hotel in Moscow to convert the property to a St. Regis Hotel. 

Takeaway: If you can't build 'em, convert 'em - especially in the luxury segment of lodging. 


OEH / BEL – formally changed its name from Orient-Express Hotels Ltd. to Belmond Ltd. following approval from shareholders at the 2014 annual general meeting of shareholders held yesterday. Additionally, the Company intends to change the ticker symbol of its class A common shares listed on the New York Stock Exchange from OEH to BEL on July 28, 2014

Takeaway: On April 28, we suggested potential new ticker symbol of "BMD" - it seems simplicity was an overriding factor. 


RHP – announced a $14 million expansion and renovation of Ryman Auditorium. The building's historic auditorium, renovated in 1994, will remain unchanged while the renovation will focus on the building's addition, which was completed in 1994.

Takeaway: Building out the non-core lodging amenities similar to MGM's current ancillary development in Las Vegas.


CCL P&O and Cunard Line's 6% extra bonus promise (TTG Digital)

P&O Cruises and Cunard (CCL brands) are offering travel agents bonus commission of up to 6% in a new booking promotion.  They are paying the extra commission on selected bookings for departures between September 2014 and June 2015.


The lines will be paying the 6% bonus, on top of standard commission of 7.5%, to agents for sales of P&O’s Select Price and Cunard Fare tickets, while agents can also earn an extra 3% commission for bookings of Early Saver fares for both brands.

Takeaway: While we have been seeing more commission incentives lately, CCL's commissions as a % of ticket revenue has been pretty steady this year.


RCL - Developing tour subsidiary (Travel Weekly)

RCL has confirmed it is working on a new subsidiary focused on developing and marketing land tours around the globe.  The new company is still in formation, but RCCL has named John Weis, its former vice president of global tour operations, to spearhead its development.

RCCL already offers guests on its three cruise brands thousands of tours in hundreds of destinations. It said the new subsidiary, to be called TourTrek, will operate in 90 countries and will be wholly owned by RCL.


Macau June GGR (DICJ) Macau’s casino revenue fell for the first time in five years in June to HKD26.422 billion (MOP 27.215 bn), down by 3.73% year/year or approx. HKD1.023 billion and also down 15.88% month/month or approx. HKD4.989 billion.

Takeaway: We will receive the monthly details at the end of this week.


Singaporeans to Spend More - According to the Visa Affluent Study, affluent Singaporeans are planning to spend more on dining, entertainment and travel this year, and the willingness to open their wallets is being driven by an increased optimism in the local economy.  82% of affluent respondents from Singapore (defined as cardholders that earn more than US$100,000 (S$124,600) in annual income) intend to spend the same or more this year than they did in 2013.


Takeaway: A potential uptick for the locals/mass segment at RWS and MBS? We haven't seen mass growth in 2014 yet.


New York Upstate Gaming Expansion – following the June 30th deadline for filing a formal application for the four potential licenses, both PENN and CZR completed final applications.  A total of 17 final bids were submitted for the potential four licenses.  The final bids will be evaluated by the State of New York.

Takeaway: Let the marketing and public relations efforts start telling the story for why each sponsor's project is the best option...


Mississippi Gaming Expansion – the Mississippi Gaming Commission voted to allow Land Holdings One to begin construction on the Scarlet Pearl Casino Resort, after the company secured the $280 million in financing needed to build the resort. The Scarlet Pearl will be built on property along Biloxi's Back Bay and will have 60,000 square feet of gaming space with more than 1,000 slot machines, a 300 room hotel tower, and a 36 hole miniature golf course.  The property is scheduled to open during Summer 2015.

Takeaway: As soon as one property closes, another property breaks ground to open.  Scarlet is expected to open with around 1,350 slots in 2015.


China Macro Data

  • Manufacturing PMI 51.0 vs 51.0 consensus and 50.8 prior - six-month high\
  • HSBC manufacturing PMI 50.7 vs 50.8 consensus and 49.4 prior -- the first reading above 50 this year

Takeaway: June final economic data was in line with "flash" estimates during the month and continued the recent improving trend. 


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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Client Talking Points


It’s Canada Day! And the Loonie is starting to breakout vs Burning Bucks ($1.08 USD/CAN is the TREND breakout line). Being long #InflationAccelerating via the Canadian Stock Market (TSX +12.9% year-to-date) beats being long U.S. growth too.  


WTI kicks off Q3 with another +0.4% bounce to $105.77/barrel; no immediate-term TRADE resistance to $106.94, then a lot higher if the U.S. Dollar continues to break down. Big U.S. #ConsumerTax remains intact as real wages in the US go negative for the 1st time in 2 years.


DAX trying to bounce this morning after a soggy end to Q2, but the 2nd derivative of the German economy data is starting to slow (PMI 52.0 JUN vs 52.4 MAY) as the DAX falls below its immediate-term TRADE line of 9902 – something new to monitor.

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.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


TREASURIES: 2.55% 10yr Yield continues to confound consensus growth bulls



“He who will not economize will have to agonize.”



75% of U.S. businesses make under $100K in annual revenue.

Burger Time!

“I still eat a burger at a counter with ketchup dripping down my face.”

-Scarlett Johansson


Like being long #InflationAccelerating and slow-growth #YieldChasing in 2014, that sounds #tasty.


My Mom makes yummy burgers on the barbee too. Today we’ll be pounding those back (amongst other things) as we celebrate Canada Day out here on the Big Lake they call Gitchee Gumee in Thunder Bay, Ontario.


Back in Connecticut, it’s going to be Berger Time as well. The Craig Berger, that is – our long-awaited head of Technology Research @HedgeyeBerger who will be launching his Best Semiconductor Ideas  today at 11AM EST (Dial-in: ; Conference Code: 859426#).


Burger Time! - HE SC launch


Back to the Global Macro Grind


We surprised some of our Institutional Subscribers when we added Semiconductors (SMH = +16.6% YTD) to the long side of our Global Macro Themes deck in Q2. With Berger on board, we’ll really be able to augment our top-down macro call. It goes something like this:


  1. As US growth slows (and European + Emerging Market + Asian demand stabilizes/strengthens), we like global instead of local demand
  2. With the US Federal Reserve fear-mongering disinvestment (0% rates), US capex and inventory growth will continue to disappoint
  3. With tight inventory and low-capex, obvious ways for companies to grow faster are through A) pricing and B) M&A


Yep, just one more way you can be long a slowing US domestic consumption cycle.


There’s a solid article in the FT today reminding you that those who were bullish on the “US capex cycle” have been direly disappointed in 2014 YTD. Newsflash: you aren’t going to get a real mid-1990s capex cycle until you let interest rates rise.


Ideological central-planners don’t get the career-risk adjusted decision making process of execs inasmuch as their Keynesian textbooks don’t get how a country like the UK can see manufacturing demand accelerate (PMI for June 57.5) as the value of the UK currency does (Pound $1.71 vs USD today).


Why on earth would a public CFO sign off on his or her CEO ramping capex (and hurting peak margins, because that’s what happens in the short-term when you invest) when he or she can just fire people (cut costs), take price, and/or buy someone and do the same all over again?


Back to Berger time…


He and I are going to have some fun together creatively destructing some of the old ways of #OldWall research. You see, our edge isn’t what some of NYC and CT’s finest hedgies went to jail for. It’s working as a team, using a differentiated top-down and bottom-up research process.


If you’re still reading my rants, you probably have a feel for what I do. What Berger does is born partly out of his industry experience (worked at Intel, INTC) and partly from doing his time working for firms that also loved doing banking and brokering (we don’t plan on doing either).


We do un-conflicted, un-compromised, independent research. If we don’t have Research Edge that helps investors generate alpha, we don’t get paid. We’re really looking forward to marrying the top-down signaling process of Global Macro with Craig’s detailed financial models and industry analysis.


Here’s a looksy at slide 10 of Berger’s 52 slide Global Semis deck:


1.       Chip Sector now a Dividend + Cash Return Story: Div yield leaders include STM (4.2%), INTC (3.0%), MXIM (3.0%), MCHP (2.9%), ADI (2.7%)


2.       Large Dividend Hikes (and/or share buybacks) Possible: from SNDK, QCOM, BRCM, NVDA, MRVL, ALTR, AVGO, POWI, VSH, SWKS


3.       Acquisitions in Chip Sector Heating Up: Consolidation trends should continue with CAVM, ISIL, SLAB, POWI, MLNX, AMCC, IPHI, EZCH our top acquisition targets


In other words, if you’re into slow-growth #YieldChasing + M&A, you should still be into semis.


If you’d like to throw some more inflation ketchup on that tasty Hedgeye-Style factored burger, stay with long inflation via my homeland too. Largely a play on commodity #InflationAccelerating, Canadian Stocks (TSX) are +12.9% YTD. Beats banging your head against that Old Wall Dow, doesn’t it?


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.49-2.59%


VIX 10.61-12.79

Pound 1.69-1.71

WTIC Oil 104.76-106.94

Gold 1

Copper 3.13-3.21


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Burger Time! - Chart of the Day

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