LEISURE LETTER (11/20/2014)



  • Nov 23: Pacquiao-Algieri bout at Venetian Cotai Arena


CZR – Bloomberg reported Caesars Entertainment is considering a strategy to convert the operating unit into a REIT (real estate investment trust).  This story followed an earlier comment that debt restructuring talks had broken down between Caesars Entertainment and Silver Point while discussions continue with other First Lien Creditors.

Articles HERE and HERE

Takeaway: Debt is still debt regardless of structure - one of two outcomes to address the excessive leverage is certain -- 1) a debt for equity swap (potential bankruptcy reorganization) or 2) a massive equity issuance.


GLPI – announced that in order to comply with Internal Revenue Service regulations related to its spin-off from PENN, GLPI is required to make a one-time distribution of $38M; as well as, it needs to distribute $6M in order to ensure that it has distributed 100% of its taxable income for the 2014 year.  As a result, the Board of Directors declared a special cash dividend of $0.40 per share on common stock and declared a $0.52 per share dividend; unchanged from prior resulting in a total payment of $0.92 per share for shareholders of record December 2, 2014 and payable December 19, 2014.

Takeaway: One time dividend to comply with IRS regulations, a piece of decent news for GLPI shareholders.  CZR announcement to pursue a gaming REIT is negative for GLPI.


LVS – Jeffrey Schwartz, Co-Founder and CEO Global Logistics Properties, who also is/was a sitting member of LVS' Board of Directors as Director and Chairman of Compensation Committee, Member of Audit Committee and Member of Nominating & Governance Committee and Member of COO Search Committee for Las Vegas Sands Corporation, unexpectedly passed away on November 19, 2014.

Takeaway: We knew Mr. Schwartz and are saddened by this news. Mr. Schwartz was a great individual both personally and professionally and we appreciated his profound wisdom, clarity of thought and provocative conversation.  No doubt Mr. Schwartz was a valuable resource to LVS's significant Asian future.


MGM – Bill Hornbuckle, President of MGM Resorts said MGM is still “very optimistic” about the prospects for casinos in Japan despite the news of a snap general election called for mid-December.

Article HERE

Takeaway: Things have changed in Japan. Hornbuckle has to be more realistic.


MGM & 2282.HK – In commemoration of the 15th anniversary of Macau’s handover, the MGM inaugurated two exhibitions at its Art Space yesterday, featuring two red sandalwood replicas of ancient Beijing buildings and the works of hundreds of photographers which reflected changes to the MSAR. “This time, we want to help people remember that we’ve [belonged to] China, our motherland, for fifteen years, so we’d like to include something from Beijing,” said the MGM vice-president of marketing and communications, Mr Toby Leung, on Tuesday.

Article HERE

Takeaway: We await Chinese President Xi Jinping's visit to Macau on December 19th and 20th.


0678.HK – Genting Hong Kong for the formation of a joint venture with Landing International Development Limited to operate the Jeju Casino under Genting Trademarks. Genting HK will invest KRW130 billion (approximately HKD917 million) in the joint venture as working capital of the casino. Genting HK will subscribe 50% equity interest of Landing International's subsidiary to form the joint venture. The casino is located in Hyatt Regency Jeju hotel and is pursuant to one of the eight gaming licenses in Jeju under the Tourism Promotion Act. The casino is now under renovation and is expected to reopen in January 2015, and is expected to have around 30 gaming tables and 16 slot machines at its reopening.

Article HERE

Takeaway: This is the 2nd agreement Genting has formed with Landing. Earlier this year, Landing International and Genting Singapore announced a JV to develop a $2.2bn integrated resort scheduled to open in 2017.


GEN.SP – Genting Singapore today repurchased 10 million shares for S$11.058 million.  Cumulative shares repurchased year-to-date = 36,684,000 and the maximum shares authorized for repurchase = 1,223,813,684   Following today's 10 million share repurchase, the total shares outstanding = 12,211,352,480.

Article HERE

Takeaway: Genting's share repurchase today was ~30% of today's total share volume.  With Japan casino legislation unlikely any time soon, Genting can focus on buying back stock. The group has approval from shareholders to buy back up to 10% of its paid-up capital or 1.22 billion shares.  


GTK.IM – GTECH Indiana has agreed to produce $320 million in lottery income for the state during the July 2014-June 2015 period. The latest lottery forecast projects the operator only will bring in $289 million. The parent company of GTECH Indiana, which inked a 15-year contract in 2012 to manage Hoosier Lottery marketing, operations and sales, already has told investors it expects to incur the maximum $16 million penalty for failing to meet its annual lottery income goal. The lottery commission can cancel GTECH Indiana's contract to operate the Hoosier Lottery if the company misses its income target by at least 10 percent two years in a row, or three years during any five-year period. Next year, GTECH Indiana is required to produce $365 million in lottery income and $410 million during the 2017 budget year. The lottery income shortfall primarily is due to lackluster ticket sales for Powerball and other big money draw games. Powerball sales totaled $25.6 million in the first third of the budget year, compared to expected sales of $43.5 million and sales of $46.7 million during the same four-month period last year.

Article HERE

Takeaway:  GTECH Indiana has been struggling lately. The US lottery business is on the decline.    


DRH –announced it entered into a purchase and sale agreement to acquire the fee simple interest in The Westin Beach Resort & Spa, Fort Lauderdale ('Hotel') in Fort Lauderdale, Florida for a purchase price of $149.0M (or $344,900 per guest room) and the purchase price represents a 12.0x to 12.5x on the company's projected 2015 Hotel EBITDA.

Article HERE

Takeaway: Another South Florida hotel transaction with "forward" multiples versus historical -- a sign of a maturing property acquisition market.


HLT – filed an S-4/A Registration Statement for $1.5 billion aggregate principal amount 5.625% Senior Notes due 2021 ("Exchange Securities") registered under the Securities Act of 1933 with the desire and intent of exchanging the newly registered Senior Notes for the likekind private placement Senior Notes issued on October 4, 2013.


CCL – Holland America Line's newest ship, Koningsdam, debuts in February 2016 it will do so in the Mediterranean with a series of 12-night cruises.

The sailings, which will be preceded by a single seven-night journey, will sail roundtrip alternating itineraries from Civitavecchia, Italy and Gibraltar and ports of call will include: Katakolon, Piraeus (Athens), Rhodes and Crete, Greece; Istanbul and Kusadasi (Ephesus), Turkey; Cadiz, Malaga, Cartagena and Barcelona, Spain; Naples, Palermo and Cagliari, Italy. Bookings open December 1, 2014 for Itineraries from February 2016 through May 2016.

Article HERE

Takeaway: More capacity coming to Europe in 2016.


MSC Cruises – offered a jump start on Black Friday and Cyber Monday with a special sale lasting through Monday, Dec. 1.  The promotion features some of the line’s best rates of the season on select sailings in the Caribbean, Bermuda and Europe; up to $200 in shipboard credits per stateroom; and balcony staterooms priced at ocean view rates.

Article HERE

Takeaway:  These deals are never early in a highly promotional environment.


NCLH – announced it has completed its previously-announced acquisition of Prestige Cruises International, Inc., the parent company of Oceania Cruises and Regent Seven Seas Cruises, in cash and stock for a total transaction consideration of $3.025 billion, including the assumption of debt


NCLH – announced several resignations including: Michael Hirsch, Senior VP of Sales; Camille Olivere, Senior VP of sales for the Americas; and James Rodriguez, Senior VP National Accounts for Oceania.  In turn, Nikki Upshaw was been promoted to senior VP of Sales for Oceania, who in turn was replaced by Tricia Wolf as VP of Field Sales.


Taiwan Gaming Expansion – Taiwan’s parliament may approve draft casino and gaming legislation before June 2015, as discussion over a bill regulation casino gambling is expected to begin next month, said Liu Day-Yang, director of the Center for the Study of Lottery and Commercial Gaming at the National Taiwan University of Science and Technology. Under the current draft law, casino licenses will be valid for 30 years and tax should not go above 16% of gross gaming revenue - during the first 15 years, casino operators are expect to pay a 7% tax to the local government, in addition to a 7% national tax. The national tax would then increase to 8% after 15 years and to 9% in the last five years of the license.

Article HERE

Takeaway: While the policy initiative would be welcomed by gaming operators who need new growth, local issues could delay legislation and implementation including: the results of local elections on November 29, uncertainty over where potential casinos/integrated resorts could be located (mainland vs. offshore islands) as well as visa issues with mainland China.


Revel Redux – Brookfield US Holdings LLC, the company approved to buy Revel Casino-Hotel for $110 million, is walking away from the transaction. The company made the decision because bondholders refused to rework debt connected to construction of Revel’s power plant. Revel procures its electricity from an adjacent power plant built specifically for Revel's use. The power bill is $3 million a month and Brookfield attempted to lower the price but the utility refused to negotiate.

Article HERE 

Takeaway: More bad news for Atlantic City.  We wonder if the 2nd Philadelphia license had any impact on this decision?  Will shadow horse bidder Glenn Straub step up and buy Revel?  If the deep pockets of Brookfield are unable to make Revel "work" - the likely outcome appears to be a complete shuttering. 


Asia Cruise Trends – The newly-formed Cruise Lines International Association (CLIA) conducted an analysis of the size of 12 Asian passenger source markets as well as the 26 cruise brands operating 52 ships in the region.  Some of the findings include: 

1) During 2013 there were 802 Asia-Asia cruises, in 2015, there will be 981

2) 2013 total capacity was 1.4 million guests for Asia-Asia cruises, while during 2015 total passenger capacity will be 2.05 million, an annual growth of 19.5%

3) during 2013 an additional 73,616 passengers transited through Asia on longer voyages and an estimated 115,360 guests may transit during 2015, 25% per year from 2013.

4) Cruises under one week account for 81% of all voyages in 2015. The 2- to 3-night duration is largest in total with 425 cruises next year. The 4- to 6-night duration is growing fastest, up from 263 to 367 cruises in two years

Article HERE

Takeaway: The Asia growth potential is there. Will it be realized?


China November HSBC Flash Manufacturing PMI 50.0 as compared to 50.4 in October and consensus forecasts of 50.2. 

Takeaway:  More concerning than the flash data point was the commentary that "growth still faces significant downward pressure."  Maybe 6% GDP growth is the new 7%?  Regardless, macroeconomic headwinds for Macau GGR growth persist. 


Hedgeye 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 2014 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.


And We’re Off…

Client Talking Points


Ah that smell of Burning Yen to an immediate-term TRADE oversold signal of $118.64 vs. USD… and the levered long trade to Weimar Nikkei and SPY do not seem to be responding to it (Nikkei only +0.07% on the “bounce”) – what happens if the Yen goes up, for a day – or  a week? #CorrelationRisk is massive right now.


Don’t you hate it when the data doesn’t fit the bullish “recovery” narrative? European PMI’s (both Services and Manufacturing) are awful this morning with our favorite country short posting the worst of the lot (France PMI drops to 47.6!) as Germany teeters on snapping the 50.0 PMI line #EuropeSlowing.


After dropping another -1% yesterday, the Russell is right back into the red for 2014 year-to-date (down -4.2% from its all-time #bubble high of 1208 in July), which begs a very simple question? How high are U.S. GDP expectations for Q414? A: way too high. Stay with #GrowthSlowing Long Bond, Consumer Staples (XLP), Healthcare (XLV) and REITS instead.

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: A Dire Appraisal of Our ‘Broken Global Economy’



If you walk in the footsteps of a stranger, you’ll learn things you never knew.



German PMI for November slows at 50.0 vs. 51.4 October, Germany's Service PMI slows too, 52.1 November vs. 54.4 October.

November 20, 2014

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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.

CHART OF THE DAY: How Are Those #Inflation Expectations?


CHART OF THE DAY: How Are Those #Inflation Expectations? - 11.20.14 EL Chart

Building Expectations

“In the end, if you build it, they may not come.”

-Jim Rickards


Whether it’s the Japanese burning their currency, a demigod named Draghi “saving” Europe, or the Fed’s perpetual Policy To Inflate asset prices, I often wonder if Rickards is right – now that markets have built these expectations, will the growth come?


So far, the long-end of the bond market says no. On growth that is… but what are markets telling you about the centrally planned illusion of growth (i.e. inflation expectations)?


And “what happens when you manipulate markets using price signals that are the output of manipulated markets?” (The Death of Money, pg 86) Never forget that the biggest risks to markets are the critical answers to the toughest questions.


Building Expectations - Monetary policy cartoon 11.07.2014


Back to the Global Macro Grind


I spent all of yesterday seeing Institutional Investors in Greenwich, CT. The meetings, as always, were tremendous learning opportunities. And there was one moment in one of the meetings that I’ll never forget.


As I was sitting across from a Portfolio Manager, the Federal Reserve’s “Minutes” (from their last meeting) were released. So, I sat there and watched Liesman @CNBC spew his interpretation of what he thought the Fed said…  and the seasoned PM just giggled.


Even at the most sophisticated funds, whether they like it or not, this is modern day “macro” – where you have to not only think about what you think… but seriously consider what everyone else was told they should think…


Here’s what I think was incremental in those Fed Minutes:


  1. Inflation expectations are falling
  2. The Fed only has one move to address that newfound concern
  3. In the next 3-6 months, as US inflation falls, the Fed will get more dovish, because of that


Since our “Bad #Deflation” view is not yet consensus, it’s really hard for consensus to get why this is bearish for bond yields (and bullish for the Long Bond, TLT, EDV, etc.). But markets almost always front-run consensus – and that’s already in motion.


After our interlude with the English-major turned pretend macro savant (who has never traded a market in his life), the Portfolio Manager asked me a very simple question that I get asked a lot: “what things should I look at to monitor your #deflation view?”


I answered by referring him to exhibit 15 (the slide in my #Quad4 Deflation Macro deck) that shows #InflationExpectations:


  1. TIPs (5 year Breakeven Rate)
  2. Fed 5Y-5Y Forward Breakeven Rate


Then I said:


  1. The price of Oil relative to my bearish TREND view
  2. CRB Commodities Index (TREND resistance = 281)
  3. Russell 2000 relative to my bearish TREND view


The price of Oil ($74.20/barrel) continues to crash this morning (-31% since June); the CRB Index is trading at 267 (-4.6% YTD); and after having another horrendous day (both absolute and relative to US Equities yesterday) the Russell 2000 is DOWN (again) for 2014 YTD.


Back to real economic growth expectations, I told investors yesterday what I’ve been telling them all year long – my catalyst is the cycle. As the growth cycle data slows, whatever these “bullish surveys” are telling you will look wrong.


That’s what’s happening from China to Europe this morning (they release Producer Manufacturing and Services data for November). Literally all of the growth data slowed.


While China’s PMI print of 50.0 wasn’t as bad as France’s (47.6 NOV vs. 48.8 OCT), that’s not saying much. Bond Yields are falling because the rate of change in global growth is slowing.


When both growth and inflation data slows, expectations for asset price inflation in those things slow. So BUY slow-growth-yield-chasing assets (TLT, EDV, MUB, XLV, XLP, XLU) and keep SELLING growth and/or inflation expectations (IWM, KRE, XOP, EWQ, VWO).


And that’s all I have to say about that.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.29-2.36%

SPX 2005-2055

RUT 1141-1173

France (CAC 40) 4139-4281
YEN 116.02-118.64

WTI Oil 73.01-76.13


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Building Expectations - 11.20.14 EL Chart


TODAY’S S&P 500 SET-UP – November 20, 2014

As we look at today's setup for the S&P 500, the range is 50 points or 2.13% downside to 2005 and 0.31% upside to 2055.                                                            













  • YIELD CURVE: 1.81 from 1.84
  • VIX closed at 13.96 1 day percent change of 0.72%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: Fed’s Tarullo speaks in New York
  • 8:30am: Init Jobless Claims, Nov. 15, est. 284k (prior 290k)
  • 8:30am: CPI m/m, Oct., est. -0.1% (prior 0.1%)
  • 9:45am: Markit U.S. Mfg PMI, Nov. prelim 56.3 (prior 55.9)
  • 9:45am: Bloomberg Consumer Comfort, Nov. 16 (prior 38.2)
  • 10am: Freddie Mac mortgage rates
  • 10am: Philadelphia Fed Outlook, Nov., est. 18.5 (prior 20.7)
  • 10am: Existing Home Sales, Oct., est. 5.15m (prior 5.17m)
  • 10am: Leading Index, Oct., est. 0.6% (prior 0.8%)
  • 10:30am: EIA natural-gas storage change
  • 1pm: U.S. to sell $13b 10Y TIPS
  • 1:30pm: Fed’s Mester speaks in London
  • 8:30pm: Fed’s Williams speaks in Seoul



    • Sec. of State John Kerry leaves for Paris
    • 8pm: Obama gives national address on plans for executive order to address immigration
    • 8:30am: Sen. Rob Portman, R-Ohio, delivers breakfast keynote remarks at “Enhancing the Transatlantic Trade & Investment Partnership: Reducing Regulatory Barriers”
    • 9:30am: Senate Permanent Sbcmte on Investigations hearings to examine extent to which banks, holding cos. own physical commodities incl. oil, natural gas, aluminum
    • 9:30am: Sens. Edward Markey, D-Mass., Richard Blumenthal, D-Conn. hold news conf. on Senate Commerce Cmte hearing on airbag recalls
    • 10am: Senate Commerce Cmte hearing on airbag defects, vehicle recall process



  • Obama scheduled to give 8pm speech on immigration action
  • Gunman Shot Dead on Florida University Campus After 3 Injured: AP
  • Technip Seeks $1.8b Purchase of CGG; Approach Rejected
  • Wall Street Banks Gained Unfair Advantage Owning Commodities
  • Airbus Said to Near Win Over Boeing for Delta Air Wide-Body Jets
  • Caesars Shares Jump on Debt Proposal to Convert Unit Into REIT
  • GoDaddy Seeks Nearly $4.5b IPO Valuation, New York Post Reports
  • RBS Fined $88m by U.K. Regulators for 2012 Technology Collapse
  • German PMI Expands at Slowest Pace in 16 Months
  • Chinese Factory Gauge Falls to 6-Month Low as Slowdown Deepens
  • T-Mobile Could Attract Suitors Again, Deutsche Telekom Says
  • Alibaba Said to Prepare Inaugural Bond Sale as Soon as Today
  • Brookfield Property Drops Plan to Buy New Jersey’s Revel Casino
  • Sony Pictures Said to Drop Plans to Produce Steve Jobs Film



    • Donaldson (DCI) 6am, $0.42
    • GasLog (GLOG) 6am, $0.22
    • Spectrum Brands (SPB) 6:30am, $1.14
    • Best Buy (BBY) 7am, $0.25 - Preview
    • Buckle (BKE) 7am, $0.85
    • Patterson (PDCO) 7am, $0.51
    • Perry Ellis (PERY) 7:30am, $0.06
    • Dollar Tree (DLTR) 7:30am, $0.64 - Preview
    • Raven Industries (RAVN) 9am, $0.23



    • Gap (GPS) 4pm, $0.73
    • Ross Stores (ROST) 4pm, $0.87 - Preview
    • Intuit (INTU) 4pm, ($0.20)
    • GameStop (GME) 4:01pm, $0.61
    • Autodesk (ADSK) 4:01pm, $0.22
    • Aruba Networks (ARUN) 4:01pm, $0.25
    • Splunk (SPLK) 4:02pm, $0.01
    • Marvell Technology (MRVL) 4:05pm, $0.29
    • Mentor Graphics (MENT) 4:15pm, $0.21
    • Fresh Market (TFM) 4:20pm, $0.28
    • Renren (RENN) 7pm, ($0.13)



  • Banks Had Unfair Advantage From Commodity Units, Senator Says
  • Top Rubber Growers Agree to Reduce Exports to Boost Global Price
  • Aluminum Fee to Japan Seen Climbing to Record on Global Deficit
  • Oil at $75 Means Patches of Texas Lose Money for Shale Drillers
  • Goldman Lowers 2015 Nickel Estimate on China Pig Iron Output
  • Goldman, Glencore Found in ‘Merry-Go-Round’ Aluminum Trades
  • Soybeans Rebound From Two-Week Low on U.S. Feed Supply Outlook
  • Pigs Are Too Fat for Holiday Hams as Prices Surge: Commodities
  • Ebola Stokes Liberian Food Shortage as Hungry Farmers Eat Seeds
  • Goldman Sachs to Wind Down Uranium Unit After Failing to Sell
  • Gold Futures Fall a Second Day as Dollar Gains After Fed Minutes
  • Codelco Sees Copper Price Outlook ’Quite Stable’: Chairman
  • JPMorgan Power Market Influence Targeted in U.S. Senate Report
  • Saudi Arabia Tenders for 330,000 Tons of Hard Wheat
  • Goldman, Morgan Stanley Commodity Heyday Gone as Units Faulted


























The Hedgeye Macro Team



















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