LEISURE LETTER (12/02/2014)



  • Dec 2: 11 am ISLE Q2 2015 earnings
  • Dec 8: 10:30 MTN Q1 2015 earnings
  • Dec 8: Golden Nugget Lake Charles Opening
  • Dec 12: Trump Taj Mahal Closing
  • Dec 14: City of Dreams Manila Opening
  • Dec 17:  Upstate NY Casino Decision


959.HK – Macau junket investor Amax Holdings Ltd. posted a loss of HK$18.40 million (US$2.3 million) during the first half of its fiscal year ended September 30. Facing increased losses of revenue, Amax Holdings noted the loss ‘was mainly attributable to the increase in general and administrative expenses and finance costs during the period under review.’

Article HERE

Takeaway: More challenging VIP gaming operations hinder results and performance as Amax looks to diversify into resort operations with its Vanuatu casino resort development.


GENS.SP – Genting Singapore today repurchased 10 million shares for S$11.356 million, following yesterday's repurchase of 10 million shares. Cumulative shares repurchased year-to-date = 87,665,000.  Following today's share repurchase, the total shares outstanding = 12,160,371,480

Article HERE

Takeaway: Genting share repurchases continue. Pristine balance sheet suggests there will be more.


IGT & GTK.IM – GTECH S.p.A. announced that based on the communications received from the custodians, GTECH believes that cash exit rights have been exercised for less than 20% of the Company shares outstanding as of July 15, 2014, when the agreement for the acquisition of International Game Technology was executed.  GTECH and IGT continue to work towards completing transaction final results of the cash exit rights to be announced by December 12, 2014.

Takeaway: GTECH/IGT merger remains on track.


LVS & 1928.HK Sands China announced the 400-room St. Regis Macao, located in Sands Cotai Central, will open in the third quarter of next year.

Article HERE

Takeaway:  We think it will open on August 1, 2015.


MPEL & MCP.PM – According to Lawrence Ho Yau Lung, co-chairman and chief executive of Melco Crown, City of Dreams Manila is to have a soft opening on December 14.

Article HERE

Takeaway:  As expected.


200.HK – Melco International Development Ltd has subscribed to 26,062,294 new shares of common stock in Entertainment Gaming Asia Inc (EGT). Melco International paid more than US$14 million for its subscription to new shares in EGT, via an entity called EGT Entertainment Holding Ltd, which was already EGT’s largest stockholder. Upon completion of the rights issue, Melco International’s subsidiary owns 37,512,294 shares of common stock in EGT, representing 64.81% of the outstanding shares of common stock of EGT’s enlarged capital. EGT operates slot machines on a participation basis and also supplies gaming chips and plaques to casinos in Asia.

Article HERE

MGM – As the company works to obtain all the necessary permits to begin breaking ground in early 2015 for its $800 million Springfield casino, MGM Resorts International is also preparing to shell out nearly $2 million to eight Western Massachusetts communities on Friday, Dec. 5.

Article HERE

Takeaway: MGM ensuring an expeditious approval and permitting process with the payment of the surrounding communities funds to help improve traffic flow.


BEE – announced a 20 million share offering through JP Morgan and intends to use the proceeds from the offering to fund the acquisition of the Four Seasons Resort Scottsdale at Troon North as well as to redeem all of the issued and outstanding shares of its 8.25% Series B Cumulative Redeemable Preferred Stock and general corporate purposes.

Article HERE

Takeaway: Interesting to us is how management conveyed at NAREIT (November 5 and 6) their view that BEE shares were undervalued (stock was $12.60 to $12.90/share) then various C-Level individuals sold stock on November 6 and 7 at $12.64 and $12.59/share...and now we have an equity issuance near $12.50/share.


NCLH – announced that Jason Montague has been named President and Chief Operating Officer of Prestige Cruise Holdings, Inc. following the resignation of Kunal S. Kamlani.


RCL – Royal Caribbean Cruises Ltd. will replace Bemis Company Inc. (BMS) in the S&P 500 effective after the close of trading on Thursday, December 4.


Insider Transactions:

WYN – EVP and General Counsel Scott McLester sold 6,834 shares (not options related) on November 28 at $83/share and now owns 7,675 shares directly and an additional 56,004 via restricted stock units.


Macau Additional Transit Visa Restrictions – Effective as of yesterday December 1st additional transit visa restrictions between Zhuhai to Macau transiting to a third country have been implemented at the China – Macau border crossings and had an immediate effect.


The new regulations now require:

1.  Must hold valid passport

2. Must have valid destination country visa

3. Airplane ticket to the destination country


All three documents must be presented at the dedicated customs check point in order to clear immigration into Macau from Zhuhai.  GongBei border customs officials have dedicated two channels (lanes 21 & 22) to exclusively process this type of visa application and to demonstrate their intent have an exit lane to return to China immediately adjacent for those applicants deemed unsuccessful. News reports suggests this exit lane was well used yesterday immediately the new requirements were enforced. Multiple outlets in and around the GongBei border shopping district that provided this service of selling airline tickets and visas were apparently vacated with shutters down within hours of the new regulations coming into force.

Article HERE

Takeaway: Another blow to the Mass business that generated it's 2nd consecutive YoY decline in November (even after adjusting for the table reclassifications). December continues to look worse and worse.


Macau's New Secretary for Economy & Finance – Lionel Leong Vai Tac, Macau’s new Secretary for Economy and Finance, the official in charge of the city’s casino industry, said  – on Monday said the government would “pay special attention” to the current decline in gaming revenue. He added he would carefully assess the development of the city’s gaming industry ahead of the renewal of the gaming licenses. The current rights of the city’s six Macau gaming concessionaires expire on various dates between 2020 and 2022.

Article HERE and HERE


CPC New Anti-Graft Investigations – Disciplinary inspectors have arrived at all target state organizations in a new round of campaign initiated by the Communist Party of China (CPC) to put a check on officials' misconduct. The third round of inspection for 2014 targets 13 state organizations: the Ministry of Culture, the Ministry of Environmental Protection, China Association for Science and Technology, All-China Federation of Industry & Commerce, China Radio International, China Southern Airlines, China State Shipbuilding Corporation, China Unicom, China Shipping Company, China Huadian Corporation, Dongfeng Motor Corporation, Shenhua Group and Sinopec.  These inspectors will be stationed in their respective target unit for about one month, aiming to uncover officials' misconduct, especially that concerning corruption, undesirable work styles and personnel selection and appointment.

Article HERE

Takeaway: No end in sight for CPC crackdowns and in fact the investigations appear to be more "in plain sight".


Hong Kong Occupy Central Movement Shutdown – Three founders of Hong Kong pro-democracy movement Occupy Central with Love and Peace said they would surrender to the police today, hoping the student protesters who have been leading the street occupations will retreat.

Article HERE


Vietnam Drawing Renewed Gaming Interest – Chow Tai Fook Enterprises Ltd, a privately held firm founded by Hong Kong businessman Cheng Yu Tung, is interested in investing in a US$4 billion casino in Vietnam. The company is already a partner in a bid for a casino in Australia and has recently committed to build an integrated resort in South Korea. VinaCapital Group, Vietnam’s largest fund manager, is developing the Quang Nam project and said it has almost completed negotiations with an unnamed foreign partner, according to an October report by the Vietnam Investment Review. Chow Tai Fook Enterprises would replace Malaysia’s Genting Malaysia Bhd as investors in the project. Vietnam’s government is currently considering a draft decree allowing local citizens to enter casinos and plans also to reduce regulatory barriers for casino operators to do business in the country in a bid to attract more foreign investors.

Article HERE


Maine Gaming Expansion – At the Maine State House, a legislative committee agreed to draft a report for incoming lawmakers to guide their discussion on future gambling venues. The report, which was authorized by the Legislature, could set the stage for a new discussion around creation of two more casinos, one in southern Maine and another that would benefit the state's Indian tribes. However, State Sen. Linda Valentino, plans to submit a request for a bill later this month that would lay the foundation for three more gaming facilities. Valentino says she'd make the case for a facility in southern Maine and for smaller operations in Aroostook and Washington counties. And she says the state could still meet its cap for 3,500 slot machines by distributing them proportionately

Article HERE


Taj Mahal Closes Hotel Tower & Stops Issuing Gaming Credit – Yesterday, Trump Entertainment Resorts announced it closed the Chairman Tower, the newer of its two hotel towers, and halted the issuance of gaming credit.  In its filing with the New Jersey Division of Gaming Enforcement, Trump Entertainment outlined Taj Mahal will close at 5:59 a.m. on Dec. 12, and the final hotel guests have until noon that day to check out. Cars have to be out of the garage by 5 that evening.

Article HERE

 Takeaway:  Taj Mahal on track to close. 


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.


Macro Markets Brace for Draghi

Client Talking Points


After doing nothing in November (literally flat for 4 straight weeks), the Russell 2000 dropped -1.7% yesterday in a straight line and is back to down -0.9% for 2014. Bull market? Or still a #bubble popping? (-4.5% since July).


Total U.S. Equity Market Volume +14% vs. its 1 month average yesterday, so the TREND of U.S. equity volume accelerating only on DOWN days continues to signal that the Liquidity Trap, especially in small caps, remains.


Gold was straight up yesterday, then straight back down -1.4% this morning after failing @Hedgeye TREND resistance of $1225; WTI Oil failed to recover our 1st line of $69.69 resistance too; still looks like #deflation risk.

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


1/3 of the distressed high yield issues in the U.S. are, you guessed it, energy



The pain of discipline is far less than the pain of regret.

-Sarah Bombell


Russia's largest bank, Sberbank, which holds roughly half of all retail deposits for the country, is now trading at over 400 basis points on its credit default swaps. The "danger zone" is generally regarded as anything north of 300 basis points.

December 2, 2014

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the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.


TODAY’S S&P 500 SET-UP – December 2, 2014

As we look at today's setup for the S&P 500, the range is 48 points or 1.19% downside to 2029 and 1.15% upside to 2077.                                                         













  • YIELD CURVE: 1.72 from 1.74
  • VIX closed at 14.29 1 day percent change of 7.20%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:10am: Fed’s Fischer speaks in Washington
  • 8:30am: Fed’s Yellen speaks in Washington
  • 8:55am: Redbook weekly sales
  • 9:45am: ISM New York, Nov. est. 55 (prior 54.8)
  • 10am: Construction Spending, Oct., est. 0.6% (prior -0.4%)
  • 11:30am: U.S. to sell 4W bills
  • 12pm: Fed’s Brainard speaks via video to conf. in Los Angeles
  • 4:30pm: API weekly oil inventories



    • 8:30am: Blood Products Advisory Cmte meets on whether ban preventing gay, bisexual men from donating blood should be partially ended
    • 9am: House Homeland Security Cmte hears from Homeland Security Sec. Jeh Johnson on immigration executive order
    • 9:30am: Health, Education, Labor and Pensions Cmte considers nomination of Lauren McGarity McFerran to serve as member of National Labor Relations Board
    • 2:15pm: Senate Environment and Public Works Cmte hearing on “Super Pollutants Act of 2014”
    • 2:30pm: Senate Commerce, Science and Transportation Cmte hearing on domestic violence in professional sports



  • Japan’s Otsuka Agrees to Buy Avanir Pharma for $3.5b, or $17/shr
  • GIC to Buy Blackstone’s IndCor Properties for $8.1b
  • Cypress Set to Acquire Chipmaker Spansion for $1.6b
  • Nov. U.S. auto sales: Chrysler ~8am; Ford ~9:30am; GM ~9:30am
  • Web Consumers Stretch Out Holiday Shopping Beyond Cyber Monday
  • Russia Scraps Proposed EU Gas Link in Favor of Turkish Delivery
  • Russia Sees First Recession Since 2009 With 0.8% Slump Next Year
  • Boeing’s Dreamliner Battery Fire Caused by Design, Probe Finds
  • EU Said to Face Basel Committee Rebuke on Bank Capital Standards
  • Ebola Crisis Will Cause Economies to Shrink, World Bank Says
  • Wanda Holds Talks to Acquire Lions Gate, MGM in Hollywood Push
  • Highland Seeks $250m From Credit Suisse Over Appraisals
  • New York Times Gets at Least 85 Buyout Applications by Deadline
  • Takata to Expand U.S. Air Bag Recall Nationwide, Nikkei Says
  • Apollo Global Mgmt Leads in Bidding for PetSmart, NY Post Says



    • Bank of Montreal (BMO CN) 7:30am, C$1.68 - Preview
    • Vince Holding (VNCE) 6am, $0.33



    • Ascena Retail (ASNA) 4:02pm, $0.26
    • Bazaarvoice (BV) 4:01pm, ($0.09)
    • Bob Evans (BOBE) 4:01pm, $0.33
    • Guidewire (GWRE) 4:08pm, $0.03
    • OmniVision (OVTI) 4:18pm, $0.51



  • Saudi-Venezuelan Split Plays Out Behind Closed Doors in Vienna
  • Gold Retreats After Rally as Stronger Dollar Reduces Demand
  • Hedge Funds Add to Copper Bear Bets on Growth Risk: Commodities
  • Andurand Fund Sees Oil Slump to $50 in 2015 as OPEC Steps Back
  • What Will World Weather Do in ‘15? Forecasters Say El Nino Looms
  • Steel Rebar in Shanghai Rises as China Inventories Decline
  • Rubber Gains From 3-Week Low as Producers Seen Withholding Sales
  • Funds Cut Bullish U.S. Crude Wagers Before OPEC Price Rout
  • Palm Oil Rebounds From Biggest Drop in 16 Months as Crude Gains
  • Port Hedland Engineers Approve Agreement, Ending Strike Threat
  • Junk Backing Shale Boom Facing $8.5 Billion Loss: Credit Markets
  • Putin Scraps South Stream Gas Pipeline on European Pressure
  • Societe Generale Cuts 2015 and 2016 Brent Forecasts to $70/Bbl
  • Iraq-KRG Government Reach Accord on Oil Exports: Al Mada Press



























The Hedgeye Macro Team



















CHART OF THE DAY: "Money Is #Gold, And Nothing Else." -J.P. Morgan

CHART OF THE DAY: "Money Is #Gold, And Nothing Else." -J.P. Morgan  - 12.02.14 Chart


*  *  *  *  *  *  *


Editor's note: The brief excerpt below comes from Hedgeye CEO Keith McCullough's introduction in today's Morning Newsletter.


“Money is gold, and nothing else.”

-J.P. Morgan


That was one of John Pierpont Morgan’s summary investment conclusions before he passed away in March of 1913.


Ironically enough, later that year, Carter Glass introduced modern day central planning of market expectations, currency manipulation, etc. to the US House of Representatives via the Federal Reserve Act.


By 1971, when US Dollar denominated money was fully politicized by Nixon (he outright abandoned the Gold Standard), J.P. must have been rolling in his grave…


Today, I’d say that money is whatever you think you have that can pay for things. In other words, if all your money was denominated in Bitcoins, Burning Yens, or Russian Rubles, you can pay for a lot less today than you could last year.


Money can often be an illusion of wealth, and nothing else.

Golden Headfakes

“Money is gold, and nothing else.”

-J.P. Morgan


That was one of John Pierpont Morgan’s summary investment conclusions before he passed away in March of 1913.


Ironically enough, later that year, Carter Glass introduced modern day central planning of market expectations, currency manipulation, etc. to the US House of Representatives via the Federal Reserve Act.


By 1971, when US Dollar denominated money was fully politicized by Nixon (he outright abandoned the Gold Standard), J.P. must have been rolling in his grave…


Today, I’d say that money is whatever you think you have that can pay for things. In other words, if all your money was denominated in Bitcoins, Burning Yens, or Russian Rubles, you can pay for a lot less today than you could last year.


Money can often be an illusion of wealth, and nothing else.

Golden Headfakes - Dollar cartoon 11.25.2014


Back to the Global Macro Grind


What if all your money was in the Russell 2000 this year? That would suck. After doing literally nothing (flat for 4 straight weeks in November), the Russell #Bubble got pounded for a -1.7% loss yesterday, falling back to -0.9% for 2014 YTD.


Gold, on the other hand, had a big day, rallying +3.1%, inching its way back to +0.8% for 2014. And this came on a US Dollar DOWN day, which drove the machines squirrely.


*Squirrely (definition: to chase one, either proverbially in your head, or physically in the Yale Hockey House).


Here are the inverse correlations, across durations, between Gold and the US Dollar Index:


  1. 180-days = -0.90
  2. 120-days = -0.94
  3. 90-days = -0.96


In other words, for most of the time in the last 3-6 months, Gold has been the inverse of the US Dollar, and nothing else.


“So”, with the following moves across a crashing commodity complex yesterday:


  1. Silver +6.1% to -15.0% YTD
  2. Wheat +5.1% to +0.3% YTD
  3. WTI Crude Oil +4.8% to -29.5% YTD


What do you do? Do you chase the squirrel? Do you fade? Or do you do nothing at all?


Most of the time, I like to analyze everything… and do nothing. It hasn’t always been this way for me (as a knuckle-head hockey player, I always thought I needed to do something!). But as I age, I’ve found that there is more money in waiting and watching.


After not chasing silver, wheat, or oil yesterday, and seeing today’s renewed selling in everything inflation expectations (commodities down), I’ll be considering the short side of Gold and Silver today.


While we can have a healthy debate about the definition of squirrel hunters or money, there is none to be had about the direction of trending prices – they are either inflating or deflating – and it’s our job to be on the right side of those trends.


As of this morning’s refreshed price, volume, and volatility data here are some bearish Hedgeye TRENDs I want to reiterate:


  1. Russell 2000 remains bearish TREND with intermediate-term resistance = 1190
  2. UST 10yr Bond Yield remains bearish TREND with intermediate-term resistance = 2.79%
  3. CRB Commodities Index remains bearish TREND with intermediate-term resistance = 280
  4. Gold remains bearish TREND with intermediate-term resistance = 1225
  5. Silver remains bearish TREND with intermediate-term resistance = 17.98
  6. WTI Oil remains bearish TREND with intermediate-term resistance = 85.31


I know, I know… but the SP500 and Apple are up. And that’s just great – but it doesn’t change the fact that the stability of the macro market’s proverbial snow-pack is getting less stable by the day.


Exercising the same mountain of snow metaphor, if there is one factor forming within the layers of interconnected market risk that is signaling #avalanche right now … it’s #deflation.


In between now and mid-December you have two causal forces (Draghi/ECB perpetuating #deflation via devaluing the Euro and/or a Japanese snap election that will decide at what pace Abe/Kuroda can burn the Yen) that can drive #StrongDollar deflation.


If yesterday was simply a head-fake, and Dollar Up, Gold Down, Oil Down correlation risks take hold (again), the accumulation of #deflation risks will continue to rise. And neither Putin nor High-Yield Energy/Gold Bonds will sit on this mountain of risk idly.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.16-2.26%

SPX 2029-2077

RUT 1146-1173

VIX 13.11-15.59

USD 87.41-88.54
WTI Oil 64.45-69.69
Gold 1154-1225


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Golden Headfakes - 12.02.14 Chart