LEISURE LETTER (08/15/2014)



  • Aug 19-21:
    • Hedgeye Cruise Pricing Update
  • Aug 19:
    • Galaxy Entertainment Group 2Q results 5 am


MGM & 2282:HK – In a change of tone regarding the current state of the gaming business in Macau, Grant Bowie, CEO of MGM China said that China's moves to strengthen capital controls represent "a significant policy shift" that has made Chinese visitors to Macau "more circumspect."  He noted the two channels for getting cash out in Macau are being squeezed. First UnionPay tightened checks on suspicious transactions in the territory to combat money laundering. Second, junkets are facing pressure from casinos and regulators to disclose the names of their customers.

Takeaway:  comments that could've been made last month. 


MPEL & MCP:PM – Melco Crown (Philippines) Resorts Corp said the company and its subsidiaries had a total manpower of 2,480 employees as of June 30, 2014, up from 340 employees at the end of March.  The company also expects to increase its work force by 107% at the end of the third quarter and an additional 3% by year end as it readies the property for opening. 

Takeaway: The hiring process is in full swing for a late 2014 opening. 


AYA:TSX Amaya Gaming Group – in its earning release disclosed it completed the acquisition of of Oldford Group Limited, parent company of the Rational Group, one of the world's largest online gaming companies and owner and operator of the PokerStars and Full Tilt brands on August 1, 2014, approximately two months ahead of the anticipated timeline.  And subsequent to the quarter, Amaya completed the integration of its Casino Gaming System for websites of several major online casino operators including's websites in Europe, Cherry AB's websites, Ultimate Gaming in New Jersey, and Rational Group's Full Tilt Poker. Amaya also launched new online and mobile casino games for its customers and completed the integration of new games from multiple third-party suppliers onto Amaya's Casino Gaming System including IGT, Bally Technologies and SHFL, and Leander.

Takeaway: The new big kid on the online gaming block.


GENM:MK – Police found skimming devices fitted to four automated teller machines (ATM) to steal bank card data of users in Genting Highlands since February. The most recent case was detected at 4pm on Aug 7, while the other three cases were detected in February, May and June. The initial investigation found the syndicate fitted the skimming devices and installed wireless CCTV cameras to the machines to steal users' pin numbers and card data before making fake ATM cards to withdraw money. 


880:HK SJM (GGRAsia & Macau Business) SJM is the latest casino operator targeted by casino labor group Forefront of the Macao Gaming after hundreds gathered on Thursday outside of the firm’s human resources offices to protest against the company’s pay and promotion policies. Approximately 1,000 people attended the protest - an unconfirmed headcount as police did not comment. Many of the protesters had their faces covered. It is not clear how many were workers from SJM Holdings. The labor group demanded SJM Holdings increase by approximately 10% across the board the pay of casino floor staff.

Takeaway: Interesting because Forefront previously indicated it would not protest against local (non-American) operators.


MTN – Utah Third District Court Judge Ryan Harris is expected to receive arguments today from Park City Mountain Resort and Vail Resorts on how to calculate the value (amount) of the bond which would serve as security and allow Park City to continue using Talisker’s acreage while PCMR pursues its appeal. Talisker and Vail (which control the litigation on behalf of Talisker) will argue they are entitled to at least the amount of money Park City has been earning by using its land. Utah law provides for treble damages in such landlord-tenant disputes as a spur for tenants to leave property they no longer have the right to occupy. Judge Harris is expected to set the amount after an Aug. 27 hearing.

Takeaway: Despite the ongoing litigation, the real question is who will operate The Canyons this winter. 


RCL – Celebrity gives instant credit in onboard booking program (Seatrade Insider)  

Celebrity Cruises' on-board booking program is now giving an instant on-board credit of $50 to $500. When passengers book a future cruise while on board, they can immediately receive the credit or they have the option to use it on a future cruise.  The offer is combinable with one of the benefits from the year-round 'Evergreen 123Go!' promotion—a choice of a free Classic Beverage Package, free gratuities or up to an additional $300 in on-board credit. 

Takeaway:  Another driver for Celebrity's strong onboard performance.



CHH – CEO Stephen P. Joyce sold 44,463 shares of stock in a two step sales with 17,811 shares sold on August 11 at an average $48.58/share and 26,652 shares sold on August 12 at an average $49.12/share.  The 44,463 shares were an exercise of employee stock options granted on May 1, 2008 at $26.55/share with a May 1, 2015 expiration date.  Mr. Joyce now directly owns 110,704 shares of the company’s stock as well as a beneficial interest in 269,279 options.


BYD – Director William Boyd sold 5,000 shares at $10.20 each.  He now owns 24,960 shares directly and 2.087 million shares through various trusts.


Takeaway: More insider selling by lodging executives and Boyd


Cosmopolitan Las Vegas Results – grew revenue almost 17 percent in the second quarter and trimmed its quarterly loss. Overall revenue was $200.1 million, highlighted by a 67.6% increase in gaming revenue. Hotel revenue grew 13.5%, food and beverage revenue was up 2.5% and other revenue increased 12%.

Takeaway:  Another operator with stellar Strip revenues in 2Q


Upstate New York Gaming Expansion – Applicants for four state casino licenses in upstate New York will make public presentations before the New York Gaming Facility Location Board Sept. 8-9. The Location Board will also host three public comment events in September to allow the public in each eligible region to comment in support of or in opposition to any proposal within their respective region.  The public comment events will be:


• 8 a.m. to 8 p.m. Wednesday, Sept. 24, at the Hotel Ithaca, 222 S. Cayuga St., Ithaca.


• 8 a.m. to 8 p.m. Monday, Sept. 22, Albany Holiday Inn Turf, 205 Wolf Road, Albany.


• 8 a.m. to 8 p.m. Tuesday, Sept. 23, in The Grandview, 176 Rinaldi Blvd., Poughkeepsie.

Takeaway:  The award process gets into full swing.


JW Marriott Ihilani Ko Olina (Oahu) Resort & Spa (Pacific Business News) is scheduled to temporarily close early next year and undergo an extensive renovation which is likely to reopen under Four Season Hotels. The Resort Group is repurchasing the Ihilani from Cornerstone Real Estate Advisors after the agreement with Marriott International is up at the end of this year. The hotel management company recently registered a new business in Hawaii under "FS Ko Olina Inc."

Takeaway: A loss for the Marriott system and significant win for Four Seasons.


Germans favor shorter cruises, ocean pricing holds while river pricing drops (Seatrade Insider)

According to e-hoi, a German booking portal, Germans are choosing shorter ocean and river cruises, and are becoming increasingly price sensitive when booking a river cruise.  The Baltic, Northern Europe, the Caribbean and the Canary Islands all gained market share among the top destinations while the Mediterranean—although still the favorite—lost share.  In the ocean segment, the average cruise price remained stable at €1,266 (1H 2014), compared to €1,261 in 2013. The average cruise duration dropped from 10.1 days to 9.8 days, resulting in a 2% increase in the daily rate, from €115 to €117.  The age of river cruisers remains older than that of ocean cruisers: 61.6 years compared to 53.6 years.

Takeaway:  German ocean pricing has been stable but underperforming the rest of Europe this year. 


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.

Is Bad News Good Again?

Client Talking Points


One of these major economies in the West is not like the others (the one that’s had austerity and a #StrongCurrency). UK GDP accelerates again to +3.2% year-over-year in Q2 and while that might be a sequential peak (for now), it certainly beats the USA’s sub 1% 1H14 annualized number.


Sell the bounce. There’s nothing in it that changes our view (i.e. not one line of resistance in the DAX, CAC, MIB, etc. has been breached to the upside) – looking forward to putting European Equity shorts back on in #RealTimeAlerts as we get the signals.


UST 10YR Yield hits a fresh year-to-date low this morning at 2.39% as the #YieldChasing associated with US #Q3Slowing is obvious again. The Yield Spread (10s minus 2s) is at +197bps wide – that’s a fresh year-to-date low too and why we signaled SELL in KRE (banks) again on green yesterday.

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.


The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.


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 two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  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.

Three for the Road


GOLD (our only remaining long idea in Commodities) flat at $1313 this morn = +9.2% YTD



In this world a man must either be an anvil or hammer.

- Henry W. Longfellow


U.S. auto loans surge to 8-year high. Home loans tumble to 14-year low.

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CHART OF THE DAY: Hedgeye Housing Compendium, Not Pretty

CHART OF THE DAY: Hedgeye Housing Compendium, Not Pretty - Compendium 081314


In today's Chart of the Day, we highlight a table from our housing team summarizing recent data points in housing.  Of the 22 housing data points we track regularly, 18 of them are worse in the most recent period.

The Gambler

“You’ve got to know when to hold’em, know when to fold ‘em.

Know when to walk away, know when to run.

You never count your money when your sittin’ at the table,

There’ll be time enough for countin’ when the dealin’s done.”

-Kenny Rogers


It is hard to believe it, but the song “The Gambler," written by Don Schlitz and recorded by the legend Kenny Rogers is almost 36 years old.  Some songs, poems, and books transcend time and this is certainly one of them.


In many ways, the song is also apropos for stock market operators like ourselves.  Certainly, we don’t tell our clients that we are gambling, but some days it does feel like we are at the casino.  And some days certain stock market operators go on unbelievable runs that seem to belie even the best of odds.


The Gambler - gambler


Take my colleague Howard Penney for example.  Yesterday he introduced another Best Idea, which was to short HAIN.  (If you’d like learn how to get access to his 70 page deck on the name, please email .)


To say Howard has had a hot “hand” would be an understatement to say the least.  His last five short ideas have had great returns on an absolute basis and versus the market.  They are as follows:


  • Del Frisco – DFRG ~+20% (still live)
  • Annie’s Inc – BNNY ~+22% (still live)
  • Potbelly – PBPB ~+56% (still live)
  • Panera – PNRA ~+10% (closed)
  • Bloomin Brands – BLMN - ~+21% (closed)


So as it relates to the restaurant and consumer staples sectors, you can gamble or if you are going to go to the stock market casino you can listen to Penney and improve your odds versus the house.


Back to the Global Macro Grind...


Speaking of casinos and gambling, former Reagan budget director David Stockman recently had a great quote saying the markets were like a branch casino of the central bank.  According to Stockman:


“The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.”


Now, casinos are great when the odds are lined up in your favor, but when the odds shift or are not aligned with your bets, it doesn’t matter how many red bulls and vodka you drink, the casino is a very frustrating place to spend the evening.


This morning, by and large, the ball has landed on green across the global markets.  This comes despite, particularly in Europe, some fairly despondent growth data points over the last couple of weeks.  


On the good news front, the U.K. continues to outperform as evidenced by its GDP report last night.  On a year-over-year basis, GDP in the U.K. expanded by +3.2% and was up +0.8% sequentially. Interestingly, U.K. policy makers seem to get that a strong currency helps.  Even the manic media is getting the point, as Reuters wrote this morning:

The strong Pound policy from Carney seems to be a tailwind for the U.K. economy.”  (Note that we bought the British Pound (via the etf FXB) on 8/13 in our Real-Time alert products.)


Hopefully, Dr. Yellen gets the memo!  


Ironically, Dr. Yellen and her colleagues will actually have decent cover to become incrementally dovish (read: push out the dots) given the anemic situation in the U.S. housing market.  In the Chart of the Day today, we’ve included a table from our housing team that summarizes the recent data points in housing.  Of the 22 housing data points we track regularly, 18 of them are worse in the most recent period.


As my colleague Christian Drake wrote yesterday:


“The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended August 8th.


The Composite index fell -2.7% WoW as refi activity was weaker by -4.0% on the week and purchase demand slid -1.0% sequentially.


The anemia extends to August as purchase apps hold the 160 level for a 5th consecutive week and are now running -5.3% QoQ and at the lowest quarterly ave reading since 2Q 1995.  


  • Lower Lows in Purchase Demand:  The Purchase Index slid yet again to 164.8 on the index, down from 166.5 last week - marking a second week of decline and the 5th consecutive week at the 160-level.  As it stands, purchase demand continues to sit just above the 10Y lows recorded during the peak weather distortion trough in February while average purchase demand for 3Q to-date is currently tracking at its lowest level since 2Q of 1995.  
  • Refi & Rates:  Refinance activity declined -4% WoW with rates on the 30Y FRM contract static at 4.35% in the latest week.  Refi activity remains down -38.4% YoY and continues to improve as we traverse through the easiest 2013 comps. 

Summarily, the high frequency housing data continues to corroborate the sea of red currently blanketing our housing compendium.  As we’ve highlighted repeatedly, we’re inclined to remain bearish on the housing complex until the slope of HPI deceleration inflects.”


Not surprisingly then, we recently shorted Toll Brothers (TOL) in our real-time alert products.  There is nothing like fundamentals to put the odds on your favor!


Good “luck” out there today.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.38-2.48% 

SPX 1 

DAX 8 

VIX 11.84-14.99 

Pound 1.66-1.68 

Gold 1 


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


The Gambler - Compendium 081314

Retail Callouts (8/15): JCP, M, KSS, JWN, TGT

Takeaway: Department store SIGMAs are surprisingly good this week. But KSS should turn the other way. JWN is the worst we’ve seen in a decade.



Department Store Earnings


The big takeaway for this week is the comparative SIGMA trends for the department store group. As a reminder, the analysis triangulates sales, inventories and margins. The vertical axis is the spread between sales and inventories -- the higher on the scale, the better.  The horizontal axis is the y/y change in EBIT margin. In effect, you want to be either in the upper right hand quadrant, or headed there. The opposite holds true for the lower left.


The major takeaway for the group is that 3 of the 4 department stores are on a sequentially improving SIGMA trajectory. It's been years since we've seen this happen. Clearly, JCP is the big winner, and that's no surprise. But Macy's popped into Quadrant 1, which is notable, and even KSS showed some improvement on the margin. That said, it's worth noting that this is the 11th consecutive quarter where KSS has been unable to grow sales faster than inventory. Margins were positive this quarter due to SG&A cuts. That's finite. Gross Margins are in trouble.


JWN comes out as the biggest loser. It was already in Quadrant 3 - the worst place you can be -- for two quarters in a row. But this time not only did margins fall, but inventories were up 23%, and the company really did not have a good reason as to why. This is the worst inventory positioning for JWN in at least a decade. If there's a good reason to own JWN, we definitely don't see it. Numbers appear to be at risk.

Retail Callouts (8/15): JCP, M, KSS, JWN, TGT - chart1 8 15 




TGT - Target CEO Brian Cornell Discusses Personalization



  • "Brian Cornell, Target Corp.’s new chief executive officer, on Wednesday held a town hall event at the retailer’s Minneapolis headquarters, his first meeting with company employees. Showing that he’s a leader for the future, Cornell and Target used Twitter as the platform of choice to communicate his message."
  • "'All of us need to be students of the consumer,' Cornell was quoted as saying on Target’s Twitter account. 'We need to be quick, we need to be decisive, we need to be agile.' He went on, 'We need to move forward with speed. To me, leadership is about surrounding yourself with a great team.'"


SVU - Potential Data Breach Revealed by Supervalu



  • "The grocery chain Supervalu said Friday that it may have suffered a data breach at stores in as many as five states."
  • "Hackers accessed a network that processes store transactions. Account numbers, expiration dates, cardholders' names and other information may have been stolen, the company said."
  • "Grocery stores — as well as some stand-alone liquor shops — in Minnesota, Virginia, Illinois, Maryland and Missouri may have been affected between June 22 and July 17."
  • "The cards from which data may have been stolen were used at 180 Supervalu stores and liquor stores run under the Cub Foods, Farm Fresh, Hornbacher's, Shop 'n Save and Shoppers Food & Pharmacy names. Data may also have been stolen from 29 franchised Cub Foods stores and liquor stores."


WMT - Wal-Mart Sees Disney Orders Jump, Benefiting From Amazon Dispute



  • "Wal-Mart Stores Inc.’s online division began offering discounted pre-orders on Walt Disney Co. DVDs this week, a move that capitalizes on a feud between Disney and Inc."
  • "Pre-orders of Disney movies such as “Captain America: The Winter Soldier” and “Maleficent” are available at for 40 percent off, Dan Toporek, a spokesman for the company, said in an e-mail. The deal helped boost “Captain America” orders by 90 percent, while sales of other Disney titles rose 40 percent, Wal-Mart said."


ZQK - Quiksilver unveils Boardshorts made from recycled fibres



  • "Quiksilver has launched its newly designed AG47 collection of Boardshorts, made from recycled fibres. Each Boardshort is made from approximately 11 plastic bottles. These fibres brand named Repreve are recycled from materials like plastic bottles, etc by Unifi, a leader in recycling fibre."


DG - Dollar General adds Paula Price to BoD’s audit committee



  • "Dollar General Corporation announced the appointment of Paula A. Price, Senior Lecturer at Harvard Business School, to its board of directors effective August 26, 2014."


APP - American Apparel adds Laura Lee to BoD



  • "American Apparel, Inc. announced the appointment of Laura A. Lee to the company's board of directors."
  • "Laura brings a deep understanding of the internet space and digital launch initiatives, combined with a strong background in major brand building and key partnership development, to the American Apparel board," said Colleen Brown, nominating and governance board chair.


WAG - Walgreens set to change operational structure



  • "Following Walgreens' announcement last week about taking the next step in acquiring Alliance Boots, Alex Gourlay, EVP Walgreens Boots Alliance and president of Walgreens, announced changes in the company's operational organization structure in a letter to Walgreens employees."
  • "Mark Wagner, currently president of community management and store operations, will take on a new role as president of business operations."
  • "Brad Fluegel, currently SVP and chief strategy officer, will become SVP chief strategy and business development officer."
  • "Richard Ashworth will be returning from Alliance Boots in a new role as president of retail and pharmacy operations."


SHOO - Steve Madden Acquires Dolce Vita for $60.3M



  • "Steve Madden LTD. is on an acquisition spree, and planning on more deals ahead."
  • "The footwear and accessories firm’s newest baby is Dolce Vita Holdings Inc., which it acquired for $60.3 million in cash, subject to a working capital adjustment and an earn-out provision based on future financial performance."

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