Takeaway: This is a complimentary look at our proprietary buy and sell levels on major markets, commodities and currencies.
This note was originally published August 20, 2014 at 07:27 in Daily Trading Ranges. Click here to learn more and subscribe.
Client Talking Points
Before the last five days, remember when the SP500 had two up days in 12? Trending volatility does. Friendly reminder that front-month VIX is A) bullish TREND (11.84 support) and B) coming off the most asymmetric low (10) you’ve seen since 2007.
A no-volume-v-bottom-bounce to lower-highs but also below all of my intermediate-term TREND lines (DAX, CAC, MIB, etc), so that intermediate-term context is more important than Europe starting to go down again this morning.
If you’re bullish, you should be bullish on the Long Bond; it’s crushing every major US equity index YTD (Russell 2000 is down for 2014), and the 10yr has immediate term downside to 2.34% into Janet pushing out the dots at Jackson Hole
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Top Long Ideas
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
TWEET OF THE DAY
“If you can’t contextualize macro moves on multiple factors and durations, you shouldn’t do macro.” -- @KeithMcCullough
QUOTE OF THE DAY
“One can be a crucial ingredient on a team, but one man cannot make a team.” – Kareem Abdul-Jabbar
STAT OF THE DAY
$100.53, the closing price Tuesday of one share of Apple stock, which hit an all-time (split-adjusted) high.
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Tickers: BYI, LVS, MGM, SGMS, WYNN, MAR, MTN
- Aug 26: Horseshoe Baltimore Opening
- Aug 27: BYI 2Q earnings
- Aug 28: Hollywood Dayton Raceway Opening
- Sept 1/2: Revel closes
AMAYA – Full Tilt began offering casino gaming to a small section of the player base. Amaya plans on pushing casino games as well as mobile offerings to the entire player base of Rational in the coming year. PokerStars will begin to offer casino games in Italy as well as Spain in the near future. Amaya is also considering a sportsbetting business as well and has set aside cash to develop a sportsbook in-house or may considering buying an existing business.
Takeaway: The power of private equity meets online gaming.
BYI & SGMS – Received notice of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to Scientific Games’ pending acquisition of Bally. The acquisition is expected to be completed in early 2015.
Takeaway: Early approval to the merger.
GTK:IM – During fiscal year 2014, the Indiana Lottery generated $254.6 million of net income. However, GTECH was required to produce net income of $256 million to the Hoosier Lottery during the 2014 fiscal year under the terms of its contract. As a result, GTECH must remedy the short fall with a $1.6 million make whole payment.
Takeaway: The challenge of the lottery business becoming more evident as the competition for gaming wallet share intensifies.
LVS & 1928:HK – (Macau Business Daily) Venetian Macau has been authorized by the government of the Special Administrative Region to increase the number of exchange kiosks in the Sands Cotai Central casinos. The decision was taken on 14 July but has only just been announced in the Official Gazette. Since the beginning of 2013, The Venetian Macau has had permission to operate 9 exchange kiosks but now that number has been raised to 12. These kiosks buy and sell bills and coins in legal currencies as well as buying traveler’s cheques. The kiosks must comply with the rules defined by the Macau Monetary Authority
MGM – (Las Vegas Review Journal) In a letter dated July 28, 2014 but only recently released by New Jersey Division of Gaming Enforcement, MGM Resorts agreed to pay $150,000 while Tracinda will pay $75,000 in lieu of a formal complaint being filed in the matter as a means to resolve old issues as part of an effort by MGM Resorts to regain its Atlantic City gaming license. MGM Resorts is expected to appear in front of the New Jersey Casino Control Commission next month to seek reinstatement of its gaming license.
Takeaway: The relicensing process is almost complete.
WYNN & 1128:HK – doubled the 2014 annual cap on billing of design services by Wynn Design and Development LLC from HKD78.8 million (US$10.17 million) to HD156 million (US$20.13 million). Wynn Design and Development provides the group with design services in connection with the company’s projects in Macau, including the “development, design and construction oversight” of Wynn Palace and enhancement and renovation works at Wynn Macau. The current three-year agreement with Wynn Design and Development and the Wynn Resorts group is due to expire on December 31
Takeaway: Higher costs for Wynn Macau
MAR & PCLN Lodging Frenemies – (tnooz) Priceline via Bookings.com is quietly offering more "white label" services directly to hotel companies. The white-label offering is custom tailored to each particular hotel brand specifications. Marriott recently enlisted the Booking.com white label service with it's entire network of properties located in Italy having the entire search and booking functionality powered by Booking.com.
Takeaway: MAR more focused building the OTA relationship
MTN – The ongoing lease disagreement discussions between Park City Mountain Resort and Talisker may be reaching an amicable conclusion. At the end of last week the two parties requested a 9-day mediation extension through August 24. Originally, the mediation deadline for PCMR/Powdr Corp and Vail Resorts/Talisker to reach an agreement was Friday, August 15. If not agreement is reached, parties will present their arguments during a hearing in front of Judge Harris of the Utah Superior Court on August 27.
Takeaway: Could a resolution be at hand?
H – Reissa Hozore, EVP, General Counsel and Secretary, on August 16, exercised (at expiration) 3,765 restricted stock units and simultaneously sold 1,218 shares at $60.09/share.
WYN – two transactions:
1) Thomas Anderson, EVP and Chief Real Estate Development Officer, on August 14, sold 34,459 shares at $79.50/share in the open market and now owns 60,985 restricted shares.
2) Franz Hanning, President and CEO Wyndham Vacation Ownership, on August 15, sold 18,409 shares at $80/share via a 10b5-1 trading plan and now owns 114,140 restricted shares.
Takeaway: More insider selling at WYN.
Japan Gaming Expansion –
(Kyodo News) Hokkaido governor Ms. Harumi Takahashi toured Singapore’s Resorts World Sentosa casino property on Monday to have a better knowledge of its operations. Ms. Takahashi also met with Jerry See, the head of Singapore’s Casino Regulatory Authority, the city’s gaming regulator.
(Japan Times) Railway Keikyu Corp. said it is aiming to open an integrated resort facility featuring a casino to tap an increase in foreign tourists. Subject to the enactment of gambling bills, Keikyu plans to build the facility on Yamashita pier in Yokohama or in Tokyo’s Odaiba waterfront area before the 2020 Olympics. Keikyu set up a project team and formed a syndicate for the project with trading houses, developers and local businesses. It estimates that total investment will reach ¥500 billion to ¥600 billion (US$4.84 billion to US$5.8 billion).
Takeaway: As we get closer to Fall 2014 decision time, Yokohama has been under the radar.
Ho Tram Strip – (Forbes) profiled Chien Lee, his business background as well as his investment in Ho Tram Strip via NewCity Capital as helping to redirect and foster the business and marketing strategy of Vietnam's first integrated resort as a result of his prior roles with 7 Days Group and Asia Entertainment and Resources Ltd, now known as Iao Kun Group. Hokkaido is Japan's second largest island, the largest and northernmost of Japan's 47 prefectures, and its capital is Sapporo.
Takeaway: Time will tell if Ho Tram will be successful - especially given the increasing threat of competition from Japan and South Korea.
McCarran Airport Airlift – VivaAerobus, a Mexican low-cost carrier, will begin service between Monterrey and Las Vegas in December with four nonstop flights each week.
Takeaway: A positive for continued increases in visitation, especially from new feeder markets.
New California Native American Compact – The California legislature enacted a gaming compact with the Karuk Indians which will allow the tribe to build a casino in Yreka, California. Yreka is located on Interstate 5, 22 miles south of the Oregan and California state line or 52 miles south of Medford, OR as well as 98 miles north of Redding, CA. The casino will feature 1,500 slots and is scheduled to open autumn 2015.
Takeaway: A needed boost for 2015 slot sales but how many will be used slots?
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.
In terms of asset price leadership this year, one of the more outstanding performers has been coffee, which is up more than 64% on the year-to-date. Tomorrow, August 21st at 11am, our commodities macro analyst Ben Ryan is hosting a conference call on the outlook for coffee, which postulates, “Coffee Prices May Move Much Higher From Here” with expert Judith Ganes-Chase.
The call is obviously relevant for a lot of different equities, including CAFE, JO, SBUX, DNKN, MCD, MDLZ, GMCR, THI.
Contact email@example.com to learn how to get access.
“Leadership is solving problems. The day soldiers stop bringing you their problems is the day you have stopped leading them. They have either lost confidence you can help or concluded you do not care. Either case is a failure of leadership.”
Compared to many of our Wall Street counterparts, Hedgeye is a relatively young and smallish firm. We’ve been around just over six years, have right around 60 employees, and still have our growing pains at times. If we’ve learned anything over those six plus years, it's this: leadership matters.
Leadership, of course, comes in many different stripes. It can be the proverbial “foot soldier” owning his actions and going above and beyond the call of duty. Or it can be top down leadership in which the “generals” enable the “soldiers” to do their job more effectively, through encouragement, teaching, and also making sure they are transparently held accountable to their goals and objectives.
Last week, we wrote about Kinder Morgan and even though we tend to disagree with the long term prospects for the company, we readily admitted that CEO Rich Kinder continues to show preeminent leadership in the realm of financial structuring.
As stock market operators frequently evaluating companies, a key question we ask ourselves is: what makes a good leader? In January 2004, internationally known psychologist Daniel Goleman did a groundbreaking study of some 188 companies that quantified leadership success and concluded the following:
“When I analyzed all this data, I found dramatic results. To be sure, intellect was a driver of outstanding performance. Cognitive skills such as big-picture thinking and long-term vision were particularly important. But when I calculated the ratio of technical skills, IQ, and emotional intelligence as ingredients of excellent performance, emotional intelligence proved to be twice as important as the others for jobs at all levels.”
More than ten years later, Goleman’s findings apply now more than ever.
Back to the Global Macro Grind...
Across the global macro landscape this morning, we are witnessing all sorts of leadership. Both perceived and actual.
In the "actual leadership" category, European equities are leading and so are the central bankers in England. The BOE released minutes from their most recent meeting and for the first time in more than three years, there were votes to increase interest rates. Specifically, two policymakers voted to raise interest rates by 25 basis points. Strong pound equals strong England.
In the "perceived leadership" category, we will have Fed minutes out today as well as a briefing from Jackson Hole. We’ve been decidedly contrarian in our view of bonds and rates this year. And we continue to believe that anything that comes out of Jackson will be incrementally dovish. In our quantitative model, the ten year yield has immediate term downside risk to 2.34% in advance of Yellen "pushing out the dots" this week.
Finally, in the category of "lack of leadership," the Argentine Economic Minister Alex Kicillof will hold a press conference today after announcing a sovereign debt restructuring plan. In conjunction with that, he will immediately submit a bill that will pay foreign currency bonds locally, lets overseas debt holders swap into new bonds, and create a separate account for holdouts. So much for being pulled to par!
In terms of asset price leadership this year, one of the more outstanding performers has been coffee. It's up over 64% year-to-date. Tomorrow, August 21st at 11am, our commodities macro analyst Ben Ryan will host a conference call on the outlook for coffee, which postulates, “Coffee Prices May Move Much Higher From Here.”
Joining Ben on the call will be Judith Ganes-Chase who has been following the coffee markets for more than twenty years. They will be looking at such topics as tree scarcity, weather conditions, and scarcity of grades of coffee. The call is also obviously relevant for a host of different equities, including CAFE, JO, SBUX, DNKN, MCD, MDLZ, GMCR, THI. Hopefully you will grab a cup of Joe and join us for this call with this commodities leader.
In terms of leadership on Hedgeye's Best Ideas list, our savvy retail vet and Sector Head Brian McGough has had a good run with his long pick on Restoration Hardware (RH). Given its lofty valuation, RH has become a true battle ground stock. Since being added to the Best Ideas list just under a year ago, RH is up approximately 36%. Over the last six months, the stock has mercy crushed the S&P 500 in terms of performance.
As always, though, the key is question is whether RH can continue to lead, or will the short sellers (almost 17% of the float is currently short) prevail. If we are correct, the short sellers may be grossly underestimating the real estate opportunity. As McGough wrote last week:
“We’ve spent a lot of time on the road discussing RH over the past three weeks, and most specifically, our recent 45-page deep dive on RH’s real estate. The punchline of our analysis is that a) RH stores could (and probably should) get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. This analysis supports our $11 earnings power in five years (double the consensus), as well as our view that that this stock is headed well above $200.”
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.34-2.42%
WTI Oil 94.56-96.91
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
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