Cartoon of the Day: Small Cap Trap?

Cartoon of the Day: Small Cap Trap? - Russell cartoon 12.02.2014


"What if all your money was in the Russell 2000 this year?" asked CEO Keith McCullough in today's Morning Newsletter. "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."



Solid flow through but is it sustainable?


Virginia McDowell, CEO


Q2 Operating Results Highlights: 

  • Increase in visitation
  • 2nd quarter in uptick of retail (non-rated) customer play up nearly 6%,
  • 3% increase in rated play driven by
    • 5% increase in "A" segment customers
    • 3% increase in "C' segment customers
    • flat YoY in lowest rated segment
  • QoQ and YoY increase in market share
  • Hopeful in improving lower-end segment as an indicator of a rising tide

Eric Hausler, CFO

  • Net revenues +3%
  • EBITDA Flow through 87%, due to flat cost structure
  • Special Items:
    • $1.2 million favorable Waterloo property tax relief
    • $3.0 million Referendum 68 in Colorado
  • 10 properties higher net revenues
  • 11 properties higher EBITDA margins
  • Capex: $28-$31 million additional in remainder FY15 due to South Tower renovation at Bettendorf


Q: Colorado - how think about property positioning longer term?

  • View as positive as ISLE property is one of the first casinos on the mountain. Any increase in demand to Blackhawk area, ISLE should capture share.

Q: Consumer improvement?

  • Feel good/optimistic about improvement in upper end of data base and spend.

Q: Customers feeling better about lower gas prices?

  • Not necessarily see correlation to lower gas prices, helps sentiment.  However, unemployment rate in ISLE markets now equal to 2007/2008 - pre-recession levels.

Q: Bettendorf - future development, moving to land based?

  • Continue to look to land based opportunity, project fully scoped, could move in the spring 2015, will have an update in spring 2015 when have final plans, designs, fully-baked.

Q: Lake Charles Golden Nugget - any marketing data points around opening?

  • Lost a number of employees, because ISLE did not have a retention plan. PNK had a retention plan.  Have a marketing plan, promotions, advertising on billboards leaving Houston to Lake Charles. 

Q: Weather - November trends how impact ISLE?

  • Current trends interesting, not do anything about weather, focus on programs and marketing plans.

Q: Florida, compact renewal, gaming expansion?

  • 5 year exclusivity expires mid-2015, while complex situation, catalyst for new regulations, ISLE working with lobbyists to ensure parity of gaming regulations and tax rates.  FL legislation session begins in March.

Q: Houston - key market & Lake Charles plans?

  • New positioning, Farmers Market restaurant/buffet, new interior fixtures.

Q: Balance Sheet, Cash & Revolver?

  • Have bonds that become callable in March, will evaluate as able and continue to pay down revolver.

Q: Database & low-end improvement?

  • Seeing improvement across all properties, optimizing mail marketing, retail (unrated play) was up 5%, but lowest segment was flat.


McCullough: Devaluation Gong Show 'Ends In Tears'

In this brief excerpt from today’s Institutional Morning Macro Call, Hedgeye CEO Keith McCullough discusses current economic pressures in Japan and the U.S., as well as the exaggerated impact of falling oil prices on consumers.

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Is the Russell 2000 the Canary in the Market Coal Mine?

After doing nothing in November (it was literally flat for 4 straight weeks), the Russell 2000 dropped -1.7% yesterday in a straight line. It's back to down -0.9% for 2014 and down -4.5% since July.


Bull market? Or still a #bubble popping?


Is the Russell 2000 the Canary in the Market Coal Mine? - chart


On a related note, Total U.S. Equity Market Volume was up +14% vs. its 1 month average yesterday as stocks fell.


Is the Russell 2000 the Canary in the Market Coal Mine? - table


In other words, the TREND of U.S. equity volume accelerating only on DOWN days continues to signal that the #LiquidityTrap (especially in small caps) remains.


Editor's note: This is an excerpt from Hedgeye morning research. For more information on how you can become a subscriber click here.

CoreLogic | HPI Stabilization Confirmation

Takeaway: October's Corelogic data is the nail in the coffin of the bearish Housing thesis. Time to go the other way.

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. 


CoreLogic | HPI Stabilization Confirmation - Compendium 120214


Today's Focus: October CoreLogic Home Price Report

Corelogic Home price data for October released this morning showed home prices growing +6.1% YoY – a sequential acceleration relative to the +5.3% rate of appreciation reported last month. Price trends in the Ex-Distressed series were similar, accelerating to +5.6% YoY from +4.8% in September. The short-term projections for November are calling for further acceleration to +6.3% and +5.9% in the national and ex-distressed series, respectively. 


The Dilemma…Resolved? Back on 9/2, we put out a note titled: THE DILEMMA where we considered the reported stabilization in home price growth for the Jun/July period in the context of the change in CoreLogic's HPI estimate methodology and the rise in magnitude of estimate revisions in 2014. 


Our conclusion was that the emerging stabilization in 2nd derivative HPI – the trend of which is central to our top down view on the directional outlook for housing (see last week's note: INFLECTION INSPECTION for a summary review of our top-down model) – warranted more caution on remaining bearish but that we were content to await confirmatory data, both from CoreLogic and the other primary home price series.    


While the subsequent data was, indeed, revised to reflect ongoing price deceleration, the trend across the CoreLogic, Case-Shiller, and FHFA series have shown a gradual slowdown in the sequential rate of year-over-year price deceleration over the last two-to-three months.  


*The important takeaway is that what was a fledgling stabilization in HPI trends is now showing a nascent shift towards stabilization/acceleration. Historically, housing related equities have followed the slope in price growth, so an inflection in pricing would sit as a discrete positive for the complex. We’re still a bit weary of a single month of CoreLogic data in isolation but the multi-month stabilization in price growth across HPI series suggests the shift is more legitimate than not.   



CoreLogic | HPI Stabilization Confirmation - Corelogic NSA YoY   TTM 


CoreLogic | HPI Stabilization Confirmation - Corelogic Ex Distressed NSA YoY   TTM 


CoreLogic | HPI Stabilization Confirmation - Corelogic   CS 2nd Deriv Inflection


CoreLogic | HPI Stabilization Confirmation - Corelogic NSA YoY   LT 


About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."


Joshua Steiner, CFA


Christian B. Drake

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