Keith's Macro Notebook 8/27: Volume | DAX | Yield Spread

LEISURE LETTER (08/27/2014)

Tickers: HOT, NCLH, CCL


  • Aug 27: 
    • ISLE FQ1 2015, 11 am
    • BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes


HOT – Starwood Hotels & Resorts named Thomas Mangas EVP, CFO, effective September 29, 2014. Most recently, Mr. Mangas was EVP and CEO of Armstrong Floor Products, a division of Armstrong World Industries, Inc.  

Takeaway:  A differentiated background.


NCLH (TTG Digital)–  Norwegian considers another 'try before you buy' day

Francis Riley, vice-president and general manager international, said the “try before you buy” concept that was successful for Getaway, will be implemented on Escape.  The new ship, which comes into operation in October 2015, is scheduled to sail from Europe to Southampton on October 25.  


Riley said while both the UK and German market are performing strongly, he could not yet say whether the company would base a ship in either country in the immediate future.  “With four ships coming between 2015 and 2019 we’re adding close to a million guests by 2020. We’re starting to figure through the deployment plan. Does that mean a UK ship? A German ship? Nothing’s off the table - but there’s also a lot of North American ports we’re not in yet, and clearly Asia is a massive opportunity for us and it’s more of a case of when, rather than if, we’ll go into Asia,” he said.

Takeaway:  A firm date on Escape's debut.  NCL still needs to diversify from its congested Florida home.


CCL (Reuters) Japan's Mitsubishi Heavy is planning to exit the cruise ship-making business, German business daily Handelsblatt reported, citing several ship owners. That means Germany's Meyer-Werft stands a good chance of winning back Carnival's Aida Cruises as a customer, the paper reported.

Mitsubishi Heavy took a hit to its results for the 2013/14 fiscal year after delays in the construction of two big cruise ships for Aida led to unexpectedly high costs.

Takeaway:  Less competition for the shipyards


24-hour crossing – The Cross Border Industrial Zone immigration checkpoint can open from midnight to 7:00am for Macau residents as well as migrant workers.

Takeaway:  Good news to lessen congestion


Clarion closing – The 200-room Clarion hotel and casino in Las Vegas is reportedly closing on Monday.

Takeaway:  Too small to be profitable in LV

LV home prices  rose 15.2% YoY in June, according to S&P/Case-Shiller 

Takeaway:  June was 2 months ago.  Our housing team continues to believe price growth will slow in 2H 2014.

Singapore June visitor arrivals  fell 8.4% YoY as Mainland China visitors tumbled 45.2% YoY to 91,422, the lowest level since Sept 2010.


LEISURE LETTER (08/27/2014) - ss


Takeaway:  One reason why S'pore gaming is struggling to grow.


New Jersey Sports Betting – New Jersey State Senator Ray Lesniak has decided to try to override Gov. Chris Christie’s veto of his sports betting bill, and Lesniak has set September 22 as the date for the override attempt. The sports betting legislation overwhelmingly passed through the legislature, but there is considerable doubt about an override given that Republican legislators will stick by Christie.

Takeaway: Low probability of an override.



Glendale Casino (AZ Central) – Tohono O'odham Indians broke ground on their $400m Glendale Casino.  The development will include a 75,000-square-foot gaming floor, 400 hotel rooms, restaurants and a spa.  It is designed to include 1 million square feet of space when completed.

Takeaway:  This long-delayed project is finally coming along. Some roadblocks remain, including a bill in Congress to outlaw any new casinos in the Phoenix area until 2017. 


Cherokee Casino South Coffeyville – The Cherokee Indians will break ground on the Cherokee Casino South Coffeyville Wednesday. Construction is expected to finish in six months. The new casino will feature 300 electronic games. 

Takeaway:  Too small to matter for the suppliers.

Hotel fees (Hotel News Now) – U.S. hotels are expected to collect a record $2.3 billion in fees and surcharges this year, according to an analysis by Bjorn Hanson, clinical professor with the New York University School of Professional Studies Preston Robert Tisch Center for Hospitality, Tourism and Sports Management.  This would surpass 2013's $2.1 billion in fees and surcharges.  “Fees and surcharges are highly profitable; most have incremental profitability of 80(%) to 90% or more of the amounts collected,” according to the analysis.

Takeaway: No surprise here since 2013 was a record and the industry has only gotten stronger.

London Luxury Hotel Development – Singapore-based  UOL Group Limited acquired the site for the future Heron Plaza development on Bishopsgate and plans to open a hotel under its Pan Pacific brand.  Not only this be the first Pan Pacific for Europe, and only the fifth outside Asia-Pacific (current offerings include: Seattle, Vancouver, and Whistler times two), this location is also the end for what everyone had long accepted would be the third Four Seasons hotel in London City. UOL paid £97 million for the land, which currently has zoning approval for a 43-story tower with 109 residences, 190-room hotel, and retail. The group will “review” the currently approved configuration.

Takeaway: Strong ADRs support luxury hotel development in global cities.  


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.


Takeaway: Purchase demand bounces 2.6% but holds below the 170-level for a 7th consecutive wk – the longest such soft streak since Apr '95.

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


*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point


DEMAND ANEMIA PERSISTS - Compendium 072714


Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended August 22nd.


A 2.6% increase in purchase activity supported the rise in the composite index in the latest week but the gain was largely hollow with the purchase  index holding below the 170-level for a 7th consecutive week – the 1st such occurrence since April of 1995


  • 7 Week Slump: After 3 weeks of decline, Purchase demand rose +2.6% in the latest week, taking the index to 168.4.  This marks the 7th consecutive week below the 170-level on the index – the longest such soft streak since April ’95.  Purchase demand is currently running -5.8% QoQ  and tracking at its lowest level since 2Q95. 
  • Refi & Rates:  Refinance activity increased for a 2nd straight week, rising +2.8% sequentially alongside another tick lower in the 30Y FRM contract to 4.28%.  Rates have declined -8bps in the last two weeks and currently sit just north of the lowest level since May of last year. Refi activity remains down -25% YoY  (vs -31% last week) but continues to improve as we traverse through the easiest 2013 comps. 


Cash sales remain elevated and the regulation-catalyzed shift in the origination channel may be a challenge to intertemporal reliability and dampening reported demand as measured by the MBA survey, but the broader takeaway remains unchanged:


Multi-decade lows in purchase demand (modestly distorted or not) is not the stuff accelerating housing recoveries are made of.   We remain inclined to maintain our bearish view on the housing complex until the slope of HPI deceleration inflects.


DEMAND ANEMIA PERSISTS - Purchase Apps Qtrly Ave 




DEMAND ANEMIA PERSISTS - Purchase Apps 7wk rolling ave 


DEMAND ANEMIA PERSISTS - Purchase Apps LT w summary stats 


DEMAND ANEMIA PERSISTS - Composite LT w summary stats 





About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake

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No Volume? No Worries?

Client Talking Points


This has never happened before, so I am sure this time is “different”, or something like that, but volumes are crashing as we melt up to all-time CNBC SPY highs – Total U.S. Equity Market Volume = down -13% and -39% vs. its 3 month and year-to-date averages yesterday.


Germany’s stock market has tested @Hedgeye TREND resistance of 9642 and so far failed – if the economic data in Europe continues to slow sequentially, and DAX, CAC, MIB, etc. remain bearish TREND, we will still say sell European Equities.


Bond yields falling and yield spread compressing is a clean cut #Q3Slowing signal for the U.S. economy. 2.37% 10yr yield hitting her lows for the week as 10s/2s spread compresses to a fresh year-to-date low of +186 basis points wide – Best Macro Idea is still Long TLT.

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. After almost a year of pushing for change at Bob Evans, activist investor Sandell Asset Management is claiming a big victory. Activist investor Sandell won at least five seats on the board of the restaurant operator and food processor, based on preliminary results from the company’s annual shareholder meeting last week. This is precisely the sort of bullish catalyst that was central to our high conviction on BOBE.


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


The $BKW/$THI deal is just so surreal having lived thru the first iteration…which was a disaster!



In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you.

-Warren Buffett


The U.S. Personal Savings Rate (% of Disposable Income) has been falling for the past 3 years (as the stock market makes new highs).

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CHART OF THE DAY: US Personal Savings Rate vs. Asset Price Inflation

CHART OF THE DAY: US Personal Savings Rate vs. Asset Price Inflation - Savings


As you can see in the Chart of The Day (pg 30 in our current Macro Themes slide deck – if you’d like a copy, ping, the US Personal Savings Rate (% of Disposable Income) has been falling for the past 3 years (as the stock market makes new highs).

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