In the Q&A portion of today's Morning Macro Call, Hedgeye CEO Keith McCullough answers three critical questions from institutional subscribers.
In the Q&A portion of today's Morning Macro Call, Hedgeye CEO Keith McCullough answers three critical questions from institutional subscribers.
Takeaway: AMZN monthly comps rip, EBAY lowest growth rate in 3.5yrs. TGT emphasizes 3 key departments, food big omission. UA re-ups with U of MD.
EVENTS TO WATCH
FIVE - Earnings Call: 4:30pm
WTSL - Earnings Call: 4:30pm
RH - Earnings Call: 5:00pm
LULU - Earnings Call: 9:00am
KR - Earnings Call: 10:00am
ULTA - Earnings Call: 5:00pm
AMZN, EBAY - ChannelAdvisor August Comparable Store Sales
Takeaway: ChannelAdvisor works with a host of 3rd party sellers who use the AMZN and EBAY marketplaces and uses the sales results from its clientele to back into these monthly comp numbers. Directionally it’s a very good indication of how the two businesses are tracking. AMZN has been on an absolute tear since April, and the divergence between the two is noteworthy. At 5.9% this is the lowest comp for EBAY in over 3.5 years.
TGT- Target Narrows the Bull's-Eye, With Emphasis on Signature Products
Takeaway: We don't disagree with Mr. Cornell's approach on this one. The problem is that over 70% of the company's US store base has an expanded grocery department and that was willfully omitted from the list. The company can't hop into the DeLorean and undo the P-Fresh decision. Over a 5yr time frame, TGT went from cool, edgy ‘Tarjay’ where it was the envy of most of its peers, with a relatively defendable customer and would actually compete on the fringes with the likes of H&M, to being the place where a person who cares about nothing but price, or shops there simply because they hate going to WalMart. It went from having a peer group where it had a notable competitive advantage, to putting itself right in the middle of four unique competitors – 1) WalMart, 2) Department Stores, 3) Dollar Stores, and 4) Supermarkets. As a bonus, it has Amazon.com hovering over its head plucking away every last sales dollar it can. Differentiating TGT from the competition is going to take more than mannequins and health conscious cleaning supplies.
UA - Maryland’s helmets and uniforms will feature the lyrics to ‘The Star-Spangled Banner’
Takeaway: We're all for patriotism but these new UA unis for the University of Maryland are an eye sore. We take NKE and Oregon's aesthetics over UA and Maryland any day. On another note - UA re-upped its deal with the University yesterday at essentially the same terms as before, $3.4mm per year. Like Nike and Oregon this negotiation was a formality.
KSS - Juicy Couture Now Available Nationwide at Kohl’s Department Stores
KSS - Brendan Hoffman Seen on Kohl's Radar
URBN - 3Q Update (10-Q)
DG, FDO, DLTR - Dollar General Commences Cash Tender Offer to Acquire Family Dollar At $80 Per Share
RL - Judge Puts Ralph Lauren, USPA Case in Arbitration
FIVE - Five Below opens new distribution center in NJ to support growth
Tickers: MGM, LVS, H, RCL, MTN
LVS & 1928:HK – (The Standard) According to CEO Ed Tracy, Sands China is posied to expand its 25% market share. Sands China is planning to hire extra 6,000 workers for the hotel St. Regis Macao and hotel and casino Parisian Macau. The company currently has 9,000 rooms in five hotels. However, the opening of St. Regis will increase it by 400 rooms and the opening of the Parisian will add another 3,000. Tracy further commented “We have 200,000 customers on weekdays and 500,000 during holidays; the hotels have an overall occupancy rate of 96%.”
Takeaway: Tracy turning up the volume on the future "growth" story (2016 by our timing schedule) when investors are now more concerned about downside pressures to Mass and VIP segment revenues.
LVS (Strait Times) – British celebrity chef Gordon Ramsay has gone into partnership with Marina Bay Sands and will be opening a restaurant at the integrated resort next year. He will be opening the casual Bread Street Kitchen.
Takeaway: Non-gaming is the growth vehicle with the casino flattish.
MGM – MGM officials will go before the New Jersey Casino Control Commission later today, in an attempt to reacquire the company's stake in Borgata. Several witnesses are expected to testify in the hearing, which would determine whether or not the company is suitable to re-qualify for a license here.
Takeaway: This event is expected.
MGM – (Bloomberg) has indicated it would invest up to $10 billion to develop a Japanese casino if they’re legalized and would borrow from Japanese banks to tap on their low rates and local knowledge. “We like low interest rate money, it’s important,” Bill Hornbuckle, president of the Las Vegas-based gaming resorts operator, said. “If you’re going to be borrowing between $3 billion and $7 billion, you’d want to be able make sure you get through the day.” MGM is seeking Japanese consortium partners ranging from financial institutions to real estate developers, the executive said, as Japan’s ruling party seeks to legalize casinos by as soon as the next parliamentary session starting in the fall.
Takeaway: Inexpensive debt - the elixir of earnings growth. Still need legislation to pass and MGM to be selected as a concessionaire.
H – as a follow-up regarding the resignation of CFO Gebhard Rainer, late yesterday Coach named Mr. Rainer the company's new President and COO effective September 29, 2014.
Takeaway: Confirms Mr. Rainers departure from Hyatt was related to a better opportunity and not indicative of any internal Hyatt issues.
RCL – A cruise retailer commented that: "Q4 Caribbean is definitely weak. Worse than usual because of overcapacity. Predictable, in my view, since overcapacity has existed all year." Another retailer sent a RCL memo stating "Q4 Caribbean Price Decrease. We have taken fairly broad pricing decreases on Q4 Caribbean products. They would not do this if business was strong."
Takeaway: We had noted RCL pricing lagging behind its competitors in the Caribbean in our mid-August pricing survey.
NCLH – Bonus commission offer from Norwegian TTG Digital
NCL announced this week that bookings made between September 17 and October 31, for sailings in 2015, would be eligible for an all-inclusive bolt-on, priced between £215pp on a three-night cruise and £735pp on 14 nights. Agents can earn 10% commission on both the cruise and all-inclusive elements booked during this period.
According to Francis Riley, NCL's VP and GM, NCL launched similar all-inclusive packages a month ago in the US, which, after an initial “slow burn”, had proven popular. The deal-period has now been extended in the US - a move which Riley said could also happen in the UK. The all-inclusive offer is effective for all sailings on all ships in 2015 ,except Pride of America, which sails around Hawaii, where legislation on the sales of drinks packages differs.
Takeaway: The all-inclusive deals continue to gain steam.
NCLH – (Seatrade Insider) Oceania Cruises plans to provide free Internet access to travelers booked in suites and concierge-level staterooms on its five ships. This is the first time the line has offered a free Internet program, with the new benefit commencing during the 2015 winter season. The news comes just after close rival Azamara Club Cruises' announcement that it will discontinue free Internet as a benefit of its loyalty program, starting Jan. 1.
Takeaway: Still not sure if Internet access will play a major role in a cruiser's decision.
MTN – Park City Mountain Resort spokesman Andy Miller said Tuesday PCMR posted the $17.5 million bond to ensure the property will open for a 51st straight season. By posting the bond, PCMR avoiding enforcement of Judge Ryan Harris' eviction notice. Additionally, the bond posting allows PCMR additional time to negotiate with MTN regarding future operations. The bond includes $15 million for rent, plus an additional $2.5 million to cover interest and attorney's fees. Judge Harris also ruled PCMR will need another bond to stay eviction and operate the resort for the 2015-2016 ski season if litigation has not concluded, and the parties have not reached a settlement. The bond for the 2015-2016 season would be $19 million -- effectively $4 million of additional collateral.
Takeaway: A modest near-term headwind for MTN. However, MTN will continue its push to secure the operational rights to Park City.
Monmouth racetrack plans to be the first to offer sports betting in NJ NJ.com
Monmouth Park today said it will offer wagering on professional athletics by the end of the month. Terming the Christie administration’s move “huge” and “the saving grace” to the horseracing industry, Monmouth Park adviser Dennis Drazin said Monmouth was forecasting $1 billion worth of sports bets and a $75 million commission to be split between Monmouth Park and its UK-based partner, the sports-betting firm William Hill, just in the first year of operations. “And if nobody else does it, we’ll see an increase in that revenue,” Drazin said. Indeed, Monmouth Park is alone among state-licensed gambling operations saying it plans to offer sports betting, and likely to remain so unless federal courts allow it.
Takeaway: Monmouth may indeed have a monopoly for a while since Meadowlands and PENN's Freehold Raceway are holding out for a federal court approval on sports betting.
Las Vegas Housing Prices – (Vegas Inc) The median sales price of single-family homes in August was $200,000, same as July but up 9.9% YoY. The last time prices rose less than 10% YoY was in July 2012.
Takeaway: Slowing housing price growth which we highlighted on July 16, 2014 note "LV LOCALS: THE MIRAGE OF A RECOVERY".
HKSE listed stocks weak - the superfecta of negative news included:
1) BofA strategist David Chui comments that China’s market rally will evaporate.
2) Premier Li was quoted saying that China can't rely on easy credit policy for growth.
3) Slower than forecasted M2 growth during August.
4) Standard Chartered cut gaming sector outlook.
In stock trading action:
Takeaway: Difficult to catch the falling knife, much easier to buy 5% off the bottom than chase stock prices lower.
Macau Entertainment – The much awaited battle between Manny Pacquiao and Floyd Mayweather Jr. is once again gaining steam as Pacman and his promoter, Top-Rank, revealed they are currently negotiating with Money May's camp for a possible showdown in 2015. The eight-time division world champ added that a fight with Mayweather could happen next year, probably in Dubai with at least $225 million (conservative estimates) at stake for their pound-for-pound slugfest. But first, Pacquiao will fight undefeated American Chris Algieri on November 22 in Macau.
Takeaway: The battle in the ring versus the battle outside the ring for promotional and venue sponsorship dollars.
Vietnam Gaming to Open to Locals – as follow-up to our August 13, Leisure Letter commentary on this topic, Vietnam may soon start allowing locals to play in their casinos as part of the plans by the Hanoi government. Ngo Van Tuan, Head of the government’s Banking and Finance Department said that the intention is to submit the final draft of a new casino decree to Prime Minister Nguyen Tan Dung as early as October, with approval likely before the end of the year. The proposal is believed to be based on the model used in Singapore where locals pay a levy (either daily or annual) to enter the casino but foreigners are permitted entry for free. This is supposedly designed to verify sufficient financial ability, to ensure that only those who can afford to gamble can enter the casinos.
Takeaway: An apparent clear path to legalization of locals gaming in Vietnam - a minor competitive headwind for Macau and Singapore.
Takeaway: This redevelopment opportunity is important because the British Colonial Hilton is immediately adjacent to the Nassau Bahamas Cruise Terminal and Festival Place Shopping Mall.
China Money Supply as measured by M2, was up 12.8% year-over-year during August -- the slowest growth in five months. August's growth was slower than the 13.5% rise at the end of June and lower than 13.5% median forecast
Chinese Economic Growth grew 7.4% in the first half of the year, down 7.7% growth last year and slightly lower than the 7.5% target set by the government.
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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Immediate-term TRADE oversold signals happen, a lot, and they usually happen in the SPX and RUT when we get an immediate-term TRADE overbought signal in the VIX (check, check). Support for the SPX is 1982 and resistance for the VIX is 13.83.
Consistent within the pattern of behavior we’ve seen since July 7th, U.S. stock market DOWN days have more volume than the UP days. Yesterday’s Total U.S. Equity Market Volume (including dark pool) was +9% and +3% vs its 1 and 3 month averages #asymmetry.
The UST 10YR at 2.51% frustrated some yesterday, but understand the new narrative that the Fed is going to “change its forward guidance” – some read that as hawkish, while we read that as dovish, moving to “data dependent” vs “calendar expectations” means the Fed can and will get more dovish as the U.S. economic data slows. We see no support for the UST 10YR to 2.31.
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The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). Now that we have our first set of late-cycle economic indicators slowing in rate of change terms (ADP numbers and the NFP number), it's time to really think through the upcoming moves of this bond market. We are doubling down on our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.
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.
Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could 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. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.
China increased Nickel Ore imports from the Philippines 3-fold on Indonesia export ban (now 61% of total unprocessed Ore). #meaningful
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