prev

LEISURE LETTER (12/05/2014)

Tickers:  MGM, RCL, NCLH

EVENTS

  • 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 Soft Opening
  • Dec 17:  Upstate NY Casino Decision

Today's Headline Story

RCL– Celebrity Cruises has ordered two EDGE Class cruise ships from STX France for 1.2 billion euros (US$1.49 billion).  The 1st vessel will be delivered in Fall 2018 and the 2nd vessel in early 2020. The two new vessels will hold up to 2,900 passengers and be 117,000 gross tons. 

  • Based upon current ship orders, projected capital expenditures for full year 2014, 2015, 2016, 2017 and 2018 are $1.4B, $1.5B, $2.3B, $0.4B and $2.2B, respectively.
  • Capacity increases for 2014, 2015, 2016, 2017 and 2018 are expected to be 2.4%, 5.5%, 6.7%, 3.8% and 4.3%, respectively. 

Takeaway:  At $257k per berth, the cost of the two new ships is on par with that of Celebrity Reflection which made its debut in 2012. 

Moderate capacity growth has been a strategic goal for Celebrity, particularly after the sale of Century.  The premium cruiser has been resilient but the battle for their dollars will be much more competitive in the years ahead. 

COMPANY NEWS

MGM– MGM China Holdings Ltd’s co-chairman, Pansy Ho Chiu King, has said the slump in gaming revenue is simply a sign of a tendency toward slower growth after a decade of rapid expansion.  “We don’t think that this presents a very pessimistic picture. It now presents a slowing trend” said Ho. She said casinos ought to respond by holding more attractive events and by getting their customers from a wider range of sources.

 

“The visa restrictions imposed on mainland visitors has added to the gaming industry’s operational pressure, and in the short term it is not easy to introduce new client sources,” Ho added.

Article HERE

Takeaway:  The problem is not slowing growth - it's negative growth.

 

NCLH– The first floating Jimmy Buffett's Margaritaville restaurant and 5 O'Clock Somewhere Bar will be aboard Norwegian Escape.  Along with the venues on Norwegian Escape, the partnership includes Margaritaville branded food and beverage locations on Harvest Caye, set to open in fall 2015 and a 5 O'Clock Somewhere Bar on Great Stirrup Cay, planned to also debut in 2015. In the future, the partnership will extend to other ships in the fleet. Norwegian Escape will begin weekly year-round cruises from PortMiami to the eastern Caribbean on Nov. 14 next year.

INDUSTRY NEWS

Philippines typhoon– Millions of people in the Philippines began seeking shelter in churches, schools and other makeshift evacuation centres on Friday as Typhoon Hagupit bore down on the disaster-weary nation. The storm, which would be the strongest to hit the Southeast Asian archipelago this year, is expected to impact more than half the nation including communities devastated by Super Typhoon Haiyan last year. Authorities said more than 500,000 families, or about 2.5 million people, in the eastern Philippines would be evacuated ahead of Hagupit's expected landfall on Saturday night or Sunday.

Article HERE

Takeaway:  Another storm to hit the Philippines, ahead of CoD Manila soft opening on the 14th. 

  

Paradise City – Paradise Sega Sammy, a joint venture of Korean casino operator Paradise Group and Japanese entertainment company Sega Sammy Holdings will open Korea's 1st IR in March 2017.   

  • 5-star hotel with 711 rooms
  • Casino:  160 table games, 388 electronic table games, 350 slot machines
  • Boutique hotel with 103 rooms
  • 1,200 person convention center
  • Multicultural complex

Article HERE

Takeaway:  With Japan likely dead, Korea may be the next Asian opportunity.

MACRO

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.


USD, Oil and the UST 10YR

Client Talking Points

USD

The risk range for the U.S. Dollar is now 87.64 to 89.21. The good jobs number is good for the USD, the USD has been well bid for 6 months and we don’t think that will change today. 

OIL

On the other side of a good jobs number and up U.S. Dollar is down oil. Europe's redo of the central planning messaging puts #deflation right back into Energy markets. The risk range for WTI Crude is 62.99 to 70.64.

UST 10YR

Deflationary forces vs. people thinking that the jobs market is back is most definitely what people in the bond market are going to have to debate today. Bond yields should go up today  - just one of the many buying opportunities in $TLT this year. 

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
EDV

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.

TLT

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).

XLP

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

TWEET OF THE DAY

2/3 of Americans in a recession, and Old Wall Media continues to gloat that things are awesome

@KeithMcCullough

QUOTE OF THE DAY

Let him who would enjoy a good future waste none of his present.

-Roger Babson

STAT OF THE DAY

15, the number of animals a lion usually kills a year.


December 5, 2014

December 5, 2014 - Slide1

 

BULLISH TRENDS

December 5, 2014 - Slide2

December 5, 2014 - Slide3

December 5, 2014 - Slide4

December 5, 2014 - Slide5

 

BEARISH TRENDS

December 5, 2014 - Slide6 

December 5, 2014 - Slide7

December 5, 2014 - Slide8

December 5, 2014 - Slide9

December 5, 2014 - Slide10

December 5, 2014 - Slide11
December 5, 2014 - Slide12

December 5, 2014 - Slide13


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

CHART OF THE DAY: The #OldWall Model vs. Hedgeye

CHART OF THE DAY: The #OldWall Model vs. Hedgeye - mcg1

 

Editor's note: The chart above and brief excerpt below is from today's Morning Newsletter written by Managing Director and Retail Sector Head Brian McGough.

 

Before understanding how we generate ideas, it is important to understand the structure that allows us to do what we do – on a repeatable basis. Consider the table below. I compared an OldWall model against Hedgeye on some key operating metrics. The #OldWall could be your typical bulge bracket ibank, a regional research firm, or pretty much anyone else who is in the business of selling research. Let’s compare and contrast…


The 3 and 0 Count

“When your enemy is making mistakes, don’t interrupt him.” – Billy Beane

 

This week I had the pleasure of presenting the state of Hedgeye’s Research engine to nearly 60 of my colleagues throughout our Firm. There were about a dozen key conclusions, followed by a spirited dialogue (which is part of our DNA). But there was one key component  of our discussion that I believe is relevant to not only our own team internally, but also to our customers, without whom Hedgeye would not have had such a banner year in 2014.  That component is how our business model is structurally different, and how it allows us to think, act, and produce money-making ideas in ways that are dramatically different from the #OldWall.

 

The 3 and 0 Count - t7

 

The Model: WallStreet2.0


Before understanding how we generate ideas, it is important to understand the structure that allows us to do what we do – on a repeatable basis. Consider the table below. I compared an OldWall model against Hedgeye on some key operating metrics. The #OldWall could be your typical bulge bracket ibank, a regional research firm, or pretty much anyone else who is in the business of selling research. Let’s compare and contrast…

 

1) Stocks Covered: A typical #OldWall analyst will have a fixed coverage universe between 12 and 18 stocks. It takes an average of one month per company to ‘initiate coverage’ on a new name (been there, done that).  If you ask that person about a name on the fringe of their coverage, they’ll likely answer “sorry, I don’t cover that”. They’re not allowed to have an opinion without an ‘official’ rating. Note: if an analyst at a Hedge Fund told his/her PM that “I don’t cover that”, they’d soon be out of a job. At Hedgeye, the typical Sector Head has about 100 names under coverage. In Retail, the sector I have the privilege of covering, there’s about 130 names I track regularly. No one at Hedgeye will ever utter the words ‘I don’t cover that’. They might say something like “I’m not familiar with it right now – can I get back to you in a day?” But “I don’t cover it” is not in our vernacular.

Does that mean that I have a ‘call’ on 130 names? Absolutely not. But I have a tremendous playing field from which to source big ideas. I hold myself responsible – as do the other Sector Heads at Hedgeye – to have a repeatable process in place to consistently fish where the fish are.  By the time a company works its way through our vetting process, we’ve checked enough risk management boxes such that it’s like a batter stepping up to the plate with a 3 and 0 count. Chances are grossly in favor of that player getting to first base – at a minimum.

 

2) Big Calls: The way I see it, if I can’t find at least three big longs and three big shorts at any given time out of a group of 130 stocks, then I don’t deserve my seat.  Plain and simple.  If I were to look at those 130 charts (which I do every weekend) I can assure you that there’s a heck of a lot more than three names that doubled last year, and three that got cut in half.

Let’s add another dimension to the concept of a Big Call. Actually, let’s add two more. Now I’m talking Keith’s language -- TRADE, TREND and TAIL. We’re asked so often why we don’t have ratings. The answer is that the concept of a ‘rating system’ is broken.  What if there is a name that we think will double in 18 months, but is going to miss the upcoming quarter by 20%? It might be a short for a more nimble investor, or a long for someone with a 3-year duration that looks through quarterly earnings oscillations (admittedly not many of those people exist, but you get the point). It’s our job to help customers navigate the duration curve.

 

The 3 and 0 Count - mcg1

 

3) Percent Short: Roughly half of our calls are short. And I’m not just talking about TRADE positions. Each of our Sector Heads has about half of their respective calls on the short side. Heck, our Energy and Internet Analysts have nothing BUT shorts – and they have an enviable track record (check out Kaiser’s call on LINE). The reason why I note in the table above that 0% of Sell-Side calls are Short is that I have yet to see an #OldWall report that actually uses the word ‘short’. About 10% of ratings in an informal check were either Sell or Underweight. But none made an outright short call, and the average price decline was only 5% (which is hardly shortable in today's liquidity environment).

 

4) Expected Return:  The average expected upside for Buy ratings on the Sell side is about 12% for Retailers.  If I’m investing real money, I’m probably not going to get too excited about something that gives me a 12% return, unless there is zero potential for downside (which is impossible).  In my little world, I’d point out Restoration Hardware, which is a name we’ve liked since $32 (it’s $84 today), and we still think it’s a winner. For those that like it on the sell side, the debate seems to be whether it will be a $90 stock or a $100 stock.  From where I sit, the bigger question is whether it is a $200 vs $300 stock. Will it get there tomorrow? No. But by 2018 I think RH will earn $11/share. The consensus is at about $6. It looks expensive today if you believe the Street. But it’s extremely cheap if I’m right.  I can guarantee you that if I were at my former (sell side) employer, I literally would not have been allowed to go out with estimates and a resulting equity value that was so far outside of the mean.

 

One of the inherent challenges to having such a broad coverage approach is that we’ll miss some big moves. With a list of 130 stocks, I can guarantee I’ll miss some big longs and shorts in 2015. I’m not happy about that one bit, but as long as I’m right on the names I pick and help our customers make money, then that’s a win from where I sit.  As long as we stick to our process and keep stepping up to the plate with a 3-0 count, I’m downright excited about what 2015 has in store.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.16-2.30%

SPX 2037-2079

RUT 1148-1190

Nikkei 16,098-17,930

VIX 11.71-14.38

WTI Oil 62.99-70.64

 

Get on base,

 

Brian McGough

Managing Director and Retail Sector Head


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 5, 2014


As we look at today's setup for the S&P 500, the range is 42 points or 1.69% downside to 2037 and 0.34% upside to 2079.                                                                                                                             

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

 

  • YIELD CURVE: 1.71 from 1.70
  • VIX closed at 12.38 1 day percent change of -0.72%

 

MACRO DATA POINTS (Bloomberg Estimates):

 

  • 8:30am: Change in Nonfarm Payrolls, Nov., est. 230k (pr 214k)
  • Unemployment Rate, Nov., est. 5.8% (prior 5.8%)
  • 8:30am: Trade Balance, Oct., est. -$41.2b (prior -$43b)
  • 8:45am: Fed’s Mester speaks in Washington
  • 10am: Factory Orders, Oct., est. -0.0% (prior -0.6%)
  • 2:45pm: Fed’s Fischer speaks via video to IMF event
  • 3pm: Consumer Credit, Oct., est. $16.5b (prior $15.924b)

 

GOVERNMENT:

    • House, Senate out of session
    • Obama to nominate his pick for next Defense Secretary; Bloomberg, other news outlets report fmr Deputy Defense Secretary Ashton Carter as choice

 

WHAT TO WATCH:

  • JOBS-DAY GUIDE: Payrolls Seen Climbing Median 230k Workers
  • JPMorgan Said to Put Mortgage-Bond Trader on Leave
  • Starz Said to Consider New Options as No Buyer Found
  • CBS Stays on Dish Satellite TV While Parties Negotiate
  • Apple IPod Judge Says Trial Threatened by Lack of Plaintiff
  • Elliott Said to Bet on Caesars Default Amid Bankruptcy Talks
  • Hartford Unit Faces Racketeering Suit on Sandy Claim Denials
  • Bundesbank Sees Weaker German Eco as Euro Area Struggles
  • China Home Prices to Rebound Amid Strong Demand: Jones Lang
  • China Auto Sales Slow in Nov. as Dealer Inventories Rise
  • President Obama to announce defense sec. nominee Carter
  • Grammy nominations to be announced throughout day
  • Retail Sales, Congress Deadline, Japan GDP: Wk Ahead Dec. 6-13

 

EARNINGS:

    • Bank of Nova Scotia (BNS CN) 6am, C$1.40 - Preview
    • Big Lots (BIG) 6am, ($0.05)
    • National Bank of Canada (NA CN) 7:30am, C$1.15 - Preview

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG

  • Brent Heads for 5-Year Low as Saudi Discounts Spur Competition
  • Billionaire Widjaja Family to Cut Stake in Indonesia Bourse
  • Deepest Saudi Oil Discount Intensifies Fight for Asia Market
  • Ending U.S. Oil Export Ban Argument Bolstered by Price Collapse
  • Super Typhoon Bearing Down on Philippines as Gusts Hit 250 Kph
  • Nickel Trades Near 10-Week High as Copper Heads for Weekly Gain
  • Wheat Declines as Black Sea Concerns Ease, Canada Outlook Raised
  • Steel Rebar Declines on Sluggish Spot Demand to Trim Weekly Gain
  • Ethanol Joins U.S. Fuels Dominating Global Export Market: Energy
  • Gold Drops a Second Day as Dollar Strengthens Before Jobs Data
  • Soybean Traders Bearish for 17th Week on Ample World Supplies
  • EU Gas Traders Divided 2nd Week Amid Cooler Weather, Oil Drop
  • Kingsman Cuts Estimate for Sugar Deficit by 60% to 600K Tons
  • Era of Lower Oil Masks Challenges for Southeast Asian Titans
  • Winter Bomb Watch Begins From New York to Ireland as Storms Brew

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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 80.65%
  • SHORT SIGNALS 78.62%
next