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Morning Macro Call 11/14/14


Here is a complimentary look at Hedgeye's daily Morning Macro Call for institutional subscribers.

LEISURE LETTER (11/14/2014)



  • Nov 13-16
    • Macau Grand Prix
    • Hedgeye Cruise Pricing Survey
  • Nov 16-18: Quantum of the Seas investor event
  • Nov 17:  Carnival Corp announcement (Source: Seatrade Insider)


LVS/GENTING – The Casino Regulatory Authority of Singapore (CRA) has fined Marina Bay Sands a total of S$197,500 and Resorts World Sentosa, S$20,000, for various breaches of the Casino Control Act.  The two casino operators had failed to prevent Singapore citizens and permanent residents from entering or remaining in their casinos without valid entry levies. They also failed to bar minors from entering.


Takeaway:  Another MBS/RWS fine.


CZR – Richard Stockton College, located just outside Atlantic City, announced it signed a letter of intent to buy the shuttered 1.4 million square Showboat Atlantic City casino resort, including 1,329 hotel rooms and on 28 beachfront acres, from Caesars Entertainment Corp and turn the property into a branch campus.  



326:HK China Star Entertainment – is planning to sell its Lan Kwai Fong hotel property on the Macau peninsula. There is currently a casino licensed by Macau gaming concessionaire SJM Holdings Ltd inside the hotel building, but China Star didn’t mention what would happen to that operation. China Star said in August it wanted to focus its operations on gaming in Macau. The company has also signed a binding letter of intent, dated October 31, 2014, to dispose of the rights over four plots of land on the Macau peninsula, adjacent to the Lan Kwai Fong hotel property. A subsidiary of China Star paid HKD550 million (US$70.9 million) for the four plots in 2010. The seller was Sociedade de Turismo e Diversões de Macau (STDM) SA, the company founded by Stanley Ho Hung Sun. At the time of the deal, Mr Ho was identified as chairman and director of Lan Kwai Fong (Macau) Ltd, a 50% owned subsidiary of China Star.


Takeaway: We are interested to learn if the buyer of the hotel will continue to operate the hotel or potentially convert to some other form of residential property. 


114090:KS –  Grand Korea Leisure Co Ltd, which operates three foreigners-only casinos in South Korea under the Seven Luck brand, reported Q3 2014 operating profit fell 41.7% year-on-year to KRW39.2 billion (US$35.7 million) due to a drop in hold from 16% to 12% on a year-over-year basis while revenue declined 12.3% year-on-year to KRW135.6 billion. Further hindering results were higher costs which increased 10% year-on-year.



IGT Shareholders of Italy's GTECH who did not vote in favor of a planned merger with U.S. International Game Technology will have time until Nov. 27 to exercise their right of withdrawal.



023250:KS – Kangwon Land Inc, the operator of the only casino resort in South Korea where the country’s nationals are allowed to gamble, reported Q3 2014 net profit of KRW105.5 billion (US$95.9 million), up 0.9% from a year earlier based on reported revenue of KRW394 billion, a 5.2% increase year-over-year while GGR for the period grew by 5.9% to KRW376 billion.  Non-gaming revenue however fell by 6.6% to KRW18 billion mainly attributable to a 3.6% year-on-year drop – to 83,300 – in the number of visitors.  


Takeaway:  At least this Asian property saw GGR growth in Q3


MGMMGM Grand Detroit has been fined $350,000 by state regulators for violating multiple casino regulations, including serving alcohol to minors and allowing an employee to embezzle close to $700,000. 


Takeaway: Unfortunate lapses in oversight results in regulatory fines/penalties. 


Hannounced the completion of the sale of 38 hotels to a company organized by Lone Star Funds for approximately $590 million. The portfolio of 38 hotels consists of Hyatt Place and Hyatt House hotels comprising 4,950 rooms across more than ten states.


HLT – Hilton and Blackstone are eager to close the $1.95 billion sale of New York’s Waldorf Astoria hotel to Anbang Insurance. To speed up the review, Blackstone and Hilton are considering asking the government to go ahead with an investigation. The firm can file its own request for a review rather than wait for officials to act. The Waldorf deal is slated to close Dec. 31, although the companies can agree to a March 31 extension, “subject to certain additional limited adjournments,” Hilton said in a regulatory filing.


Takeaway: We are confident Hilton will complete the Waldorf Astoria sale to Anbang.


HLT – Hilton Worldwide intends putting its Sydney hotel on the market. JLL has been appointed to sell the asset in 2015. Price expectations are for well over $450 million as offshore interest surges for hotel assets in Australia. It has 579 rooms at 488 George Street, opposite Sydney’s Queen ­Victoria Building. The newly refurbished Hilton has 23 meeting rooms, 4,000 square meters of food and beverage space and an 25 meter indoor pool.


Takeaway: We believe, but have not confirmed the $450 million is Aussie Dollars or approximately USD$391 million or approx USD$675,300 - substantially higher than our USD$250,000/key estimate. We applaud Hilton's effort to sell non-US assets.  HOT should take note. 


PEBannounced it acquired The Westin Colonnade Coral Gables for $59.4 million. The 157-room upper-upscale hotel is located in Miami on Miracle Mile in the heart of Coral Gables, Florida. The hotel will continue to be operated by Davidson Hotels and Resorts. For the trailing twelve months ended September 2014, the hotel operated at 80% occupancy, with an average daily rate of $198 and room revenue per available room of $159. During the next 12 months, the Company currently forecasts that the hotel will generate EBITDA of $2.9 to $3.4 million and NOI after capital reserves of $2.3 to $2.8 million.

Takeaway: South Florida remains red hot for lodging transactions.  We expect more South Florida hotel transactions over the coming weeks/months as Blackstone recently listed for sale several assets.


RHP premiered its holiday season with The Gaylord Texan is kicking off the holiday season with it's annual ICE! exhibit featuring a "Frosty the Snowman" theme sculpted from more than 2 million pounds of ice by master artisans from Harbin, China over the past 30 days. The Gaylord Opryland Resort transformed its grounds with 2 million lights and opened its 31st annual A Country Christmas, featuring such attractions as ICE! featuring ’Twas the Night Before Christmas, the Radio City Christmas Spectacular starring the Rockettes, Restless Heart’s “A Season of Harmony” dinner show. Both exhibits and shows run through Jan. 3, 2015,

Takeaway:  We previously donned a parka to experience the Gaylord Texas ICE! exhibit and slide down the ice slide. We were impressed with the creativity and magnitude of the exhibit.


Govt says LRT to link with Guangdong railway by tunnel

Secretary for Transport and Public Works Lau Si Io said the city’s light rail transit (LRT) in Cotai will be linked to the Hengqin border by a tunnel under the Shizhimen channel which separates Cotai from the island in Zhuhai.  Lau also said that the Cotai-Hengqin Lotus Flower border checkpoint will be rebuilt to accommodate an LRT station.


He added that the government had no timetable yet for the reconstruction of the border checkpoint and when the construction of the tunnel will begin.

According to previous media reports, Guangdong expects the extension of its inter-city railway to Hengqin to be completed by 2016 with the line planned to be 17 kilometres long, with seven stops between Zhuhai station and Hengqin's Changlong Park.  The LRT will cover the peninsula, Taipa and Cotai. Construction in Taipa and Cotai is underway. The government has said that it expects the LRT section in Taipa to start operating in 2016.


Takeaway: Macau's infrastructure projects have experienced multiple delays. A long road is ahead.


Push for Macau Casinos to be 100% Smoke FreeThe labor activist group Forefront of the Macao Gaming says the government has to be more efficient in enforcing the smoking ban on casino mass floors in the city. The association is also calling for the whole of gaming venues – including VIP rooms – to be smoke free. Members of the Forefront of the Macao Gaming met with officials of Macau’s Health Bureau on Wednesday. 



NBA Commissioner Adam Silver Supports Sports Betting – In a New York Times OpEd, the Commissioner wrote "I believe that sports betting should be brought out of the underground and into the sunlight where it can be appropriately monitored and regulated."


Takeaway: A profound comment from a professional sports commissioner, whose league recently filed legal proceedings against the State of New Jersey.  


Anbang Plans HKSE Listing – the Chinese insurer buying New York’s Waldorf Astoria hotel, is planning an initial public offering that could raise about US$2 billion (RM6.67 billion), said people with knowledge of the matter. The Beijing-based company aims to start the share sale as early as next year and prefers Hong Kong as a listing destination.


Takeaway: Anbang pursuing the Berkshire Hathaway strategy?



China October new yuan loans CNY548.3B vs consensus CNY626B and CNY857.2B in September

  • Loan growth +13.2% y/y vs +13.2% in September
  • Deposits +9.5% y/y vs +9.3% in September
  • Total social financing CNY662.7 vs consensus CNY887.5B and CNY1.05T in September
  • M0 +3.8% y/y vs +4.2% in September
  • M1 +3.2% y/y vs +4.8% in September
  • M2 +12.6% y/y vs consensus +12.9% and +12.9% in September

 Takeaway: New yuan loans was below expectations in October


Singapore retail sales up 5.5% YoY in September. Excluding motor vehicles, total retail sales grew by 0.6% YoY


Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway: European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q earnings release, we recently turned negative on those stocks based on the negative European thesis. 


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.

#Quad4 Deflation

Client Talking Points


The Yen is burning another -0.5% vs. USD and this is one of the biggest reasons why Oil got smoked (Dollar Up), but an interesting level of resistance here at $116.51 – if that holds, Oil should bounce somewhere north of $73 – so just be aware of the short term capitulation in everything Energy (including Putin!).


The Kospi  is down another -0.9% to -3.2% year-to-date; this is another unintended (the Koreans would say the Japanese intended it) consequence of Yens burning . South Korean Wons get more expensive #CurrencyWar; funny that some used to call it Dr Kospi (as a leading indicator for global growth), until it went down…


The Russell 2000 tried her best @Hedgeye TREND resistance (1187) and failed (again). We can’t tell you how many people A) who missed shorting this in July now say B) the small cap “bottom is in” – but it’s a lot of people; so fade that as the Liquidity Trap that has been this index just made yet another lower-all-time-#Bubble high.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).


The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road


Real Conversations: Crisis Coming? Stockman on ‘Likely Global Recession’... https://www.youtube.com/watch?v=3q1g5swAUrA&feature=youtu.be



Dost thou love life? Then do not squander time, for that's the stuff life is made of.

-Benjamin Franklin


Oil is 95% of Venezuelan exports (iron ore is a portion of the other 5%), and they are known as one of the highest-cost producers in OPEC.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.51%
  • SHORT SIGNALS 78.32%


TODAY’S S&P 500 SET-UP – November 14, 2014

As we look at today's setup for the S&P 500, the range is 38 points or 1.39% downside to 2011 and 0.47% upside to 2049.                                                     













  • YIELD CURVE: 1.82 from 1.83
  • VIX closed at 13.79 1 day percent change of 5.91%


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Retail Sales, Oct., est. 0.2% (prior -0.3%)              
  • 8:30am: Import Price Index, Oct., est. -1.5% (prior -0.5%)             
  • 9:10am: Fed’s Bullard speaks in St. Louis               
  • 9:55am: UMich Consumer Sentiment, Nov. prelim, est. 87.5 (pr 86.9)     
  • 10am: Business Inventories, Sept., est. 0.2% (prior 0.2%)             
  • 10am: Mortgage Delinquencies, 3Q (prior 6.04%)             
  • 10:30am: EIA natural-gas storage change             
  • 1pm: Baker Hughes rig count     
  • 4pm: Fed’s Fischer, Powell speak in Washington              



    • House, Senate in session             
    • 8:30am: EIA Administrator Adam Sieminski delivers remarks on “Implications of the U.S. Shale Revolution,’         
    • 9am: Mexico’s energy undersecretary for hydrocarbons, Maria de Lourdes Melgar Palacios speaks on the nation’s energy reform 
    • 10am: Siemens CEO Joe Kaeser speaks on energy issues at CSIS               
    • 10am: Energy Sec. Ernest Moniz announces “major investment”              
    • 10am: Vice President Biden to speak at Inter-American Development Bank        
    • 11am: Postmaster General Patrick Donahoe on  U.S. Postal Service FY14 end-of-year financial results     



  • U.S. Said to Give Banks December Deadline for FX Admissions  
  • Alibaba Said to Seek $8 Billion in Bond for Loan Repayment         
  • BP Loses Bid for New Trial Over Its Gulf Spill Negligence
  • Halliburton, Baker Hughes Consider Merger Amid Industry Downturn    
  • Virgin America Raises $307m Pricing U.S. IPO Within Range          
  • Applied Materials Forecasts Profit, Revenue Short of Estimates
  • German and French Economies Rebound as Italian Slump Persists           
  • China to Waive Capital-Gains Tax for Foreigners Using Stk Link   
  • Boston Scientific Ordered to Pay $26.7 Million in Mesh Case       
  • Banks Said to Alter IPO Pitches as Finra Faults New Conflicts       
  • Wells Fargo Cancels Sale of Mortgage-Servicing Rights to Ocwen              
  • UPS Sees Wider Margins as E-Tailing Nears Business Shipping    
  • Sub-$2-a-Gallon Gasoline Futures Hand U.S. Motorists Gift         
  • Starbucks Dutch Tax Deal Clashes With Global Standards, EU Says            
  • Hostess Owners Said to Plan Sale of Twinkie Maker in Early 2015              
  • Blackstone May Ask U.S. to Speed Waldorf Sale Probe: NYP       
  • G-20, Fed Minutes, Obamacare, Japan GDP: Wk Ahead Nov. 15-22          



    • Amaya Gaming (AYA CN) 6:30am, C$0.22             
    • B2Gold (BTO CN) 6:30am, $0.01
    • InterOil (IOC) 6am, ($0.51)          
    • Onex (OCX CN) 7am, $1.26         
    • Power Corp. of Canada (POW CN) 11:12am, C$0.68         
    • Springleaf (LEAF) 8am, $0.51      



  • Brent Rises Amid Speculation OPEC Will Respond to Oil-Price Drop
  • Commodities Retreat to Five-Year Low as Oil Slumps With Metals
  • Fracking Boom Spurs Demand for Sand, Clouds of Dust: Commodities
  • Snowfall Alert Triggered Because Lakes Are Too Warm for Cold Air
  • Noble Said to Reload Its First Spanish LNG for Delivery to Japan
  • Soybeans Fall as China Slows and Oil’s Slide May Weigh on Demand
  • U.S. Shale-Oil Surge to Continue Amid Price Slump, IEA Says
  • Glencore to Shut Australian Coal Mines Temporarily Amid Glut
  • Palm Trims Weekly Gain as Crude Oil Losses Reduce Biofuel Demand
  • Steel Rebar Posts Second Weekly Drop as Mills Restart After APEC
  • European Coal Set to Gain Most in Three Months as Glencore Cuts
  • Corn Traders Divided on Demand Concerns to Harvest Forecast
  • Buffett’s Power Market With California Faces Pricing Anomalies
  • OPEC Diplomacy Picks Up From Iraq to Libya Amid Oil Plunge
  • Gold Drops as Inflation Concern Fades; Platinum at Five-Year Low


























The Hedgeye Macro Team



















CHART OF THE DAY: #Quad4 = Bad #Deflation

Editor's note: The excerpt accompanying today's Chart of the Day is from CEO Keith McCullough's Morning Newsletter this morning.


Obviously times, technologies, and mostly everything other than the Old Wall have changed. But the very basic difference between what I’ll call good vs. bad #deflation has not.


Here’s the difference:


  1. Good #Deflation = #StrongDollar + #RatesRising (signal that real, inflation adjusted US growth is accelerating)
  2. Bad #Deflation = #StrongDollar + #RatesCrashing (signal that both US and Global growth are slowing)

CHART OF THE DAY: #Quad4 = Bad #Deflation - 11.14.14 Chart

Bad #Deflation

“The world wants to deflate while governments want to inflate.”

-Jim Rickards


Now if that isn’t one of the best quotes of the year, I don’t know what is. It’s another way of saying that, since the enemy of government debt is deflation, they’ll do anything to try to arrest economic gravity – so will Wall Street consensus.


To their credit, if only because they’re going #Gruber (Google the video) on The People and preying on their economic and market ignorance, at least government Policies To Inflate are implicit at this stage of the game.


Wall Street strategists, on the other hand, are bullish on “stocks” during both #InflationAccelerating and deflation. Yep, $100-150 Oil was no problemo muchachos…  But $70? Ah, that’s why they’ve been bullish on the “economy” all along!

Bad #Deflation - Deflation cartoon 10.02.2014


Back to the Global Macro Grind


Obviously times, technologies, and mostly everything other than the Old Wall have changed. But the very basic difference between what I’ll call good vs. bad #deflation has not.


Here’s the difference:


  1. Good #Deflation = #StrongDollar + #RatesRising (signal that real, inflation adjusted US growth is accelerating)
  2. Bad #Deflation = #StrongDollar + #RatesCrashing (signal that both US and Global growth are slowing)


And trust me, I know who is out there making the call that I made on #StrongDollar, Strong America (after I did in Q4 2012). He’s the same guy who got run-over by late-cycle #InflationAccelerating from JAN-JUN 2014, and missed both early-cycle US #ConsumerSlowing and #HousingSlowdown in 2014 too. But this isn’t about me versus him. This is about understanding:


A)     The difference between good and bad growth expectations

B)      How to express those very different scenarios in terms of stocks versus bonds

C)      How to pick the right sectors of the stock and bond markets that reflect economic reality


Good vs. Bad, Stocks vs. Bonds?


Yes. Top down, the difference in your asset allocation should have been polar opposite in 2013 and 2014:


  1. Good #Deflation = I said Short the Long Bond, Buy The Russell (80% of its revenues come from USA)
  2. Bad #Deflation = I said Buy the Long Bond (TLT), Short the Russell (until growth expectations reset)




And to be clear, only after you have the Bad #Deflation play out in all of its manifestations (down High Yield Energy Bonds, down upstream MLP Energy Stocks, etc.) will you have the catalyst to get long the Good #Deflation.


Put another way, if and when markets price in what the Long Bond and Russell 2000 have been pricing in all year (like they did in early October), you get to buy your favorite early-cycle consumption stocks, lower.


How some of these guys go from having not called for an early cycle slowdown to calling for an economic recovery (from the consumer spending and US housing slowdown) is above my pay grade, but who really cares. Macro markets are going to do what they are going to do, on their own time.


In the meantime, we want you to stay with the #Quad4 deflation playbook:


  1. Long the Long Bond (TLT, EDV, etc.), Munis (MUB), and Cash
  2. Long Healthcare (XLV), Consumer Staples (XLP), and REITS (VNQ)
  3. Short the Russell 2000 (IWM) and Oil & Gas E&Ps (XOP)
  4. Short France (EWQ), Russia (RSX) and Emerging Markets


The US economy won’t recover until government Policies To Inflates are reversed (#RatesRising, not crashing). That is not what the Old Wall wants. But I called my top contact (God) this morning (smart guy)… and he said he still wants economic cycles and gravity to exist.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.30-2.40%

SPX 2011-2049

RUT 1138-1187

VIX 12.16-16.21

Yen 114.87-116.51

WTI Oil 73.89-77.31


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bad #Deflation - 11.14.14 Chart

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.