Real Conversations with Neil Howe, Historian and Author of "The Fourth Turning"

Hedgeye CEO Keith McCullough sits down with author and historian Neil Howe in our latest edition of Real Conversations. 



Invite: Inside the Organic Food Industry & New Best Idea Call

We are adding SHORT Hain Celestial Group (HAIN) to our Hedgeye Best Ideas list.


We will also be hosting two conference calls focused on the organic space of the food industry next week.

1. Thought Leader Discussion

The first conference call will be an expert call on Tuesday, August 12th, 2014 at 1pm EST and will feature guest speaker Bob Burke, Principal at Natural Products Consulting Group


Since 1998, Bob Burke has provided assistance in bringing natural, organic and specialty products to market across most classes of trade. This includes work in strategic planning, writing sales, marketing and business plans, building distribution, broker selection and management, organizational development and compensation, strategic options, financing, branding, trade spending and assistance around M&A, due diligence and venture strategy groups.  He is also the co-author of the Natural Products Field Manual, 6th Edition and The Sales Manager’s Handbook. Prior to consulting, Bob was with Stonyfield Farm Yogurt for 11 years as Vice President, Sales & Corporate Development.


During the call, Mr. Burke will focus on:

  • The state of the organic industry
  • GMO labeling and its impact on the food industry and supply chain
  • Thoughts on publicly traded organic stocks

2. Best Idea Call

The second conference call will be a Best Idea call on Thursday, August 14th, 2014 at 1pm EST.


The organic food industry is the only place in the consumer staples sector that investors can find real growth.  That being said, the last five years have been great for organic stocks – especially HAIN.  The past 12-months, however, have been more challenging with evidence mounting that industry headwinds will keep some stocks within the organic segment under intense pressure.  With HAIN being the 700 pound gorilla in the room, it has the potential to feel the most pain.

We’ve recently seen early signs of maturation in the organic segment of the food space.  This is despite several companies seeing above-average organic volume growth. 


Our call on HAIN will focus on the following issues:

  • Organic segment maturation
  • Acquisition fatigue – the “roll up” story is looking tired
  • Brand management and lack of disclosure
  • Slowing top line trends
  • Margin pressure
  • Signs of financial stress
  • Positive sentiment
  • Frothy valuation


If you would like to attend one, or both, of these events please contact .


Howard Penney

Managing Director


Matt Hedrick



Fred Masotta



Removing TIP, Adding TLT to Investing Ideas

Takeaway: We are removing TIP from our Investing Ideas list, and we are adding TLT to it.


On June 2 we added the iShares TIPS Bond Fund (TIP) to our Investing Ideas list. Since then this ETF has outpaced the -1.3% decline for the S&P 500 ETF Trust (SPY) and the -4.4% decline for the iShares Russell 2000 ETF (IWM).


In conjunction with our #InflationAccelerating and #StructuralInflation themes, we’ve seen measures of domestic consumer price inflation creep up over the past several months. Indeed, CPI has nearly doubled from its February 2014 YTD trough of +1.1% YoY to +2.1% in the month of June. We’ve seen a similar trend of accelerating inflation in the GDP deflator as well, with the figure accelerating to +2% QoQ SAAR in 2Q14 from +1.3% QoQ SAAR in 1Q14.


Is the trend of accelerating inflation in the rearview mirror? With the recent downdraft in commodity prices, we are increasingly inclined to think so. Both Crude Oil and the benchmark CRB Commodity Index are now breaking down quantitatively on our intermediate-term TREND duration, which is typically a leading indicator for a phase transition in both market prices and reported fundamental data.


To the extent the US Dollar Index confirms its commensurate quantitative breakout, we could be looking at a situation where the rate of change in reported inflation and inflation expectations levels off. To that tune, it’s worth noting that the 5Y Breakevens have receded -13bps from their late-JUN YTD highs in the 2.11% range.


On the margin, this developing fundamental setup is negative for TIP, so we are looking to book the gain here.


As they have been throughout the YTD, fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side.


In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next 2-3M:


  • iShares 20+ Year Treasury Bond Fund (TLT): +12.4% YTD
  • S&P 500 ETF Trust (SPY): +4.5% YTD
  • iShares Russell 2000 ETF (IWM): -4% YTD
  • PowerShares DB Commodity Index Tracking Fund (DBC): -1.4% YTD


This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Be it Bloomberg consensus estimates that call for a 3.11% US Treasury 10Y Yield at EOY ’14 amid perpetual ~3% real GDP growth forecasts or speculative net length in the futures and options markets for 10Y Treasury Notes at -19.2k contracts on a rolling 4-week basis, consensus is far from being in the area code of bullish on bonds.


Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.



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VIDEO: McCullough and Berger Talk Semi Stocks ($BRCM $INTC $NVDA $QCOM)

Hedgeye CEO Keith McCullough and Tech Sector Head Craig Berger discuss the outlook for the semiconductor sector, and dive deep into a number of individual stocks.

Cartoon of the Day: Sad State of the Consumer

Here’s a big reason we see #Q3Slowing.

Cartoon of the Day: Sad State of the Consumer - Econ Indicator 08.04.2014


subscribe to cartoon of the day.



Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.




  • Total revenues:  $2.578 billion
  • Adjusted EBITDA:  $592 million
  • EPS:  $0.10/share



  1. Strip casino demographics:  frequency of visits, spend per visit
  2. Q2 gaming trends look encouraging on the Strip. Can it be sustained heading into 2H 2014? Or will gaming spend under perform non-gaming?
  3. Convention rooms booking pace for 2015?
  4. What % of your chinese VIP player database do you cross market (e.g. Macau/Vegas)? Has VIP Chinese play picked up in Q2 - in either Las Vegas or Macau? Is there a correlation between Macau VIP and LVS?
  5. MGM Macau table revenue fell in 2 out of the 3 months in Q2, significantly underperforming the market due to VIP exposure.  How do you feel about the VIP customer in 2H 2014?  How is the performance of the new table initiatives?
  6. What factors attribute to the recent pick up in mass share at MGM Macau?
  7. How do you feel about your chances regarding the Massachusetts repeal referendum in November?
  8. Is the construction on MGM Cotai on track? Any labor issues?  What delays are you facing? Any permitting issues?
  9. Discuss early thoughts on how to address debt maturities in 2015 and 2016?






  • Market share is improving in a growing market
  • Control about half of the convention market


  • Based on current trends, MGM expects second quarter RevPAR to grow by approximately 5%.


  • 1Q:  On the hotel side, ARIA was able to grow RevPAR by some 14% YoY, driven by both improvements in occupancy and ADR.  Vdara had a record quarter, with hotel occupancy of 89.5%, an increase of over 400bps, and ADR increased 16% to $185, driving RevPAR up 21% to $165 in the quarter. Crystals continues to gain more traction and it, too, recorded results with EBITDA increasing some 30% year-on-year compared to the prior quarter.
  • Expect a record year out of Crystals in 2014 and probably better yet in 2015

Gaming metrics

  • International gaming business remained strong, and domestic rate of play continues to improve.  MGM saw increases in volumes across each of our casino segments – baccarat, non-baccarat table games, and slot handle YoY.  Slot handle and non-baccarat market share continues to grow.

Convention mix 

  • Expect to be near our prior peak for the entire year at around 16% of our total room nights coming from convention.  And to continue to grow this mix beyond that peak, MGM ultimately need more space
    • Mandalay Bay is the place to do that. It has 1.7 million square feet of convention space today and MGM is expanding that to 2 million square feet and that will not only retain and grow MGM's existing groups but also to attract a wide array of new trade shows and corporate groups.  This will solidify MGM's trade-show business while allowing them to increase their high-margin corporate business. They expect great ROI from this in 2016.
  • Seasonality:  strongest in the first quarter, good in the second quarter, weakest in the third and then flat or up in the fourth.

Corporate mix

  • In terms of corporate mix last year, it was about 55% and that's picking up this year to closer to 60% in terms of bookings and that's higher margin particularly in the F&B side.


Interest Expense

  • Interest expense decreased by some $16 million YoY 1Q as a result of continued efforts to lower borrowing costs and reduce debt; MGM expects this trend to continue.

Monte Carlo

  • Strip frontage at Monte Carlo is near completion.  MGM has already opened up three restaurants and are already experiencing significant traffic increases on that side of the Strip.

New York New York

  • Opening up Hershey's next month, which will be a killer and drive a lot of traffic over to the NYNY facade and continue that traffic increase when MGM opens up Tom's Urban and Shake Shack in December 2014.

LV Arena

  • In between NYNY and Monte Carlo that be about 80,000 square feet of very high energy entertainment and food and beverage. 
  • All of that opens in early 2016, accruing to the benefit of those properties and the west side of the Strip and across the street at MGM.

Mandalay Bay - THEhotel Delano remodel

  • Expect to be done in September...expect a significant increase in RevPAR 

MGM National Harbor

  • On track for Summer 2016 opening


  • Vastly exceeded expectations with over 850,000 average daily users on social gaming sites


  • 1Q 2014 flowthrough was 55%, in-line with expected range of 50% to 60% despite a lower hold comparison in the quarter.



  • Looking at cross segment table yield improvement opportunities between the VIP and the mass as well as product upgrades to refine the MGM experience 
  • Sustained market share
  • Mass market is now getting to that point where it's anchoring most of the operator's EBITDA performance (70% of 1Q EBITDA). And MGM sees that as being strong growth.

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