LEISURE LETTER (12/08/2014)

Tickers:  CZR, CCL, SHO


  • Dec 8: 10:30 MTN Q1 2015 earnings
  • Dec 9: Hedgeye Client Holiday Cocktails Cellar Bar @ Bryant Park Hotel
  • Dec 14: City of Dreams Manila Soft Opening
  • Dec 17:  Upstate NY Casino Decision
  • Dec 20: Trump Taj Mahal Closing

Today's Headline Story

Macau Transit Visas  – In 2013, the Zhuhai checkpoints recorded a total of 2 million people entering Macau with a Chinese passport who didn’t actually depart for another country. During 2014, CCTV reports that around a million people are estimated to have entered Macau last year using a travel loophole. Travel agencies in Shenzhen and Zhuhai “helped” clients enter Macau and Hong Kong via non-legitimate visas and flight tickets. 
Article HERE

Takeaway:  Official Macau immigration figures show 2.64 million Mainlanders entered Macau in transit in 2013 but only 20.8% actually traveled to an overseas destination.  This is a huge number.  Stricter enforcement of the transit visas could result in a 7% reduction in annual total visitation to Macau.  

company news

CZR – Three months after Horseshoe Casino Baltimore opened to big crowds, its revenues are substantially lower than state consultants projected. The $442 million casino has averaged monthly revenue of $22.8 million, about a third less than forecast in November 2013 by a pair of state-funded consulting firms, which projected it would average about $32 million to $35 million a month in its first 10 months of operation.

Article HERE

Takeaway:  Horseshoe Casino competing in an already saturated greater Baltimore, Philadelphia market.  Maryland Live! is also holding tough despite the competition.   


CZR– plans to convert Caesars's largest unit into a real-estate investment trust is facing resistance from creditors, complicating the casino giant’s efforts to slash the unit’s $18.4 billion debt. The disagreement over the conversion plan for Caesars Entertainment Operating Co. and other terms of the restructuring have so far prevented Caesars from winning support from senior creditors for filing a prearranged bankruptcy plan for the unit.

Article HERE

Takeaway:  As we've repeatedly pointed out, the likely outcome is a large equity issuance to pay down debt or a debt for equity restructuring.


LVS & 1928.HK– Sands China Ltd appointed Melina Leong as chief operating officer of subsidiary Cotai Ferry Co Ltd. Ms Leong, currently serving as Sands China’s senior vice president of public relations and community affairs, will take on the new role from January 1, 2015. Ms Leong has been with the company for almost 10 years. 

Article HERE

Takeaway:  Interestingly, the announcement follows the appointment of Lionel Leong Vai Tac, Ms Leong’s brother, as Macau’s next Secretary for Economy and Finance.


Novomatic – Privately owned, giant Austrian gaming supplier Novomatic has made its second acquisition in two months. It has purchased Spanish gaming equipment supplier GiGames from Conei Group. Last month Novomatic bought Elam Group, the Dutch distributor for Interblock and Aristocrat.

Takeaway:  Novomatic quietly getting bigger.


CCL – The Dawn Princess, currently on a 13-day cruise to New Zealand, is plagued by a recurrent Norovirus outbreak which has sickened many of her 1500 passengers. Yesterday, more than 200 passengers remain restricted to their cabins with severe symptoms. 

Article HERE

Takeaway:  The Princess brand has been on a streak of bad luck recently 


CCL – Carnival Cruise Lines will offer a series of unforgettable 10- to 14-day voyages on six different ships between October 2015 and February 2016 that feature extended calls at magnificent destinations throughout the Caribbean, Bermuda, Mexican Riviera and The Bahamas. Several of the 10- and 11-day voyages can be combined into three-week-long Caribbean adventures providing an unmatched combination of breathtaking ports of call, amazing experiences ashore, and fun-filled sea days, all at an incredible value. These new voyages are in addition to a previously announced series of nine 10- to 14-day departures to the Caribbean and Bermuda offered on Carnival Triumph from Galveston and Carnival Pride from Baltimore in 2015-16.

Article HERE

Takeaway:  More longer-dated voyages for the Carnival brand


CCL – officially shut down its Spanish cruise line Iberocruceros this week, after the sale of its last remaining ship to an undisclosed buyer. Plans for the ship, Grand Celebration, to go to sister company Costa Cruises were scrapped last month. However, Costa, which absorbed the Iberocruceros' market, still remains committed to serving Carnival Corp.'s Spanish demographic.

Article HERE


CCL – Holland America Line's new ReadySetSail promotion has upgrades, reduced deposits and, for suite passengers, on-board credit and other perks. The promotion applies to select 2015 summer sailings. Travelers who book cruises or an Alaska Land+Sea Journey (offers on cruise portion only) will get a free stateroom upgrade from an inside to ocean-view or ocean-view to veranda stateroom, up to 10% savings on select shore excursions when booked before March 15, free or reduced third and fourth fares, and 50% off the normal deposit rate. Eligible destinations include Alaska cruises and Land+Sea Journeys, Bermuda, Canada/New England and Europe.

Article HERE

Takeaway:  HAL's Wave promotion is for most sailing regions


RCL - Michael Bayley named CEO of Royal Caribbean International. Bayley was previously the President and CEO of Celebrity Cruises. Lisa Lutoff-Perlo has been appointed the new CEO of Celebrity Cruises.  

Takeaway:  These changes were made to fill the vacant position by Adam Goldstein, who was recently promoted to President and COO of RCL.



Insider Transactions:

RCL – Royal Caribbean President and COO Adam Goldstein discloses sale of 90K shares on Friday, December 5th.

  • 60K shares were sold for $77.3128
  • 30K shares were sold for $77.2947 were for trusts for certain members of the Goldstein family
  • Goldstein beneficially owns 310.7K shares (all direct) following the transaction. 

SHO – CEO Kenneth Edward Cruse sold 31,296 shares of SHO stock on Friday, December 5th, at an average price of $16.10, and now directly owns 605,985 shares in the company. The sale was not options related nor part of a 10b5-1 plan. 


Macau Government Expected Gaming Slowdown – Chief Executive Chui Sai On has said he expects gross gaming revenue in Macau’s casinos to fall to MOP27.5 billion (US$3.45 billion) per month during 2015, and that his government is prepared for this. Mr Chui told reporters that the government had foreseen the slump and taken contingent measures and made appropriate financial arrangements beforehand. 

Article HERE

Takeaway: 2015 forecasted to be down -7% versus 2014 by the Chief Executive - better than the Hedgeye forecast of down 5-10%.


Mainland China Closely Watching Macau – China's top legislator Zhang Dejiang urged Macao's new government to continue fully implementing the "one country, two systems" principle. Zhang, chairman of the Standing Committee of the National People's Congress (NPC), made the remarks at a meeting with Chui Sai On, chief executive of Macao Special Administrative Region (SAR).

Article HERE

Takeaway: China keeping Macau close to the motherland.

Macau International Airport Expansion Planned – Macau International Airport is focused on increasing its capacity to 7.5 million passengers per year with the extension of the Passenger Terminal Building north side.

Article HERE


China's Banks Pressure PBoC to Lower RRR – China’s big banks are pressing the central bank to let them lend out more of their deposits. Currently big banks have to pledge 20% of deposits to the central bank. Reducing it by half a percentage point would boost banks’ liquidity by around 500 billion yuan, or about $81 billion.

Article HERE


Taj Mahal Closing Postponed – The owners of Atlantic City's Trump Taj Mahal casino have pushed back its scheduled closing date until Dec. 20. Trump Entertainment Resorts tells The Associated Press it decided to move the closing date back eight days while talks remain ongoing to try to save the casino and its 3,000 jobs.

Article HERE


Virginia Gaming Legislation – Virginia Senate BIll 19 was introduced.  The bill proposes a casino only in cities where more than 40% of the land is tax exempt - a condition under which only Portsmouth Virginia would qualify and includes a proposed 10% tax on GGR. Portsmouth is located to the west of Norfolk in eastern Virginia near the Atlantic coast.

Takeaway: A potential competitor to MGM's National Harbor casino located near Washington DC but the road is a long one to passage. 


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.


Keith's Macro Notebook 12/8: Euro | Oil | UST10YR


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    



1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.


  • The ORANGE JUICE, COTTON, AND WHEAT markets experienced the most BULLISH relative positioning changes week-over-week
  • The SUGAR, SOYBEANS, AND HEATING OIL markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 Sentiment



2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The CORN, SUGAR, ORANGE JUICE markets are positioned for HIGHER PRICES near-term
  • The WHEAT, LEAN HOGS, COCOA markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis


3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The BRENT, CORN, AND SUGAR markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

*NOTE* Despite the sell-off in crude oil since the middle of the summer, the futures curve has become much steeper. Jan. 2016 BRENT contracts have widened relative to spot prices. The spot price-1yr differential has widened from around $1.00 at the beginning of October to over $5.00 currently ($5.23 currently). BRENT spot-1Yr. basis differential is the widest of any commodities in the CRB Commodities Index (Jan 2016 contracts are trading nearly +12% higher than Jan 2015 contracts (current spot). Despite the downward pressure on spot prices, the contango in the current curve will provide support to the upside on the expiry roll if the general shape remains the same.    


Commodities Weekly Sentiment Tracker - chart3 spot 1Yr basis


4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 open interest         


Ben Ryan


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Monday Mashup: MCD, KKD and More

Monday Mashup: MCD, KKD and More - 1


Recent Notes

12/01/14 Monday Mashup: YUM, BLMN and More

12/02/14 Long YUM Call Today @10AM

12/03/14 BOBE: The Clock Is Ticking


Events This Week

Monday, December 8th

  • MCD November 2014 Sales and Revenue Release

Tuesday, December 9th

  • KKD earnings call 4:30pm EST

Wednesday, December 10th

  • Bernstein Consumer Summit: NDLS, DENN
  • MCD Oak Brook Investor Meeting

Thursday, December 11th

  • YUM Investor & Analyst Conference


Chart of the Day

MCD reported a -2.2% decline in global same-store sales for the month of November, missing estimates of -1.9%.  We'll have more out on this later today.


Monday Mashup: MCD, KKD and More - 2


Recent News Flow

Monday, December 1st

  • RRGB announced it is two weeks away from opening its first restaurant in Louisiana (Baton Rouge).

Tuesday, December 2nd

  • DFRG upgraded to outperform at Raymond James.
  • TXRH downgraded to outperform from strong buy at Raymond James.
  • CAKE announced the return of its seasonal Peppermint Bark Cheesecake, a festive favorite, in restaurants worldwide.

Wednesday, December 3rd

  • BOBE downgraded to underweight at KeyBanc with a $45 PT.

Thursday, December 4th

  • JMBA provided an update on several initiatives undertaken to drive growth and shareholder value including: its continual move to an asset-light model (targeting 80% franchise-to-company-owned model by the end of 2015), annual cost savings of $30 million and ample share repurchases.  Management also indicated that same-store sales for the first four weeks of 4Q14 are running in the mid single-digit range.
  • SBUX detailed its five-year plan at its biennial investor conference in Seattle.  Among the key topics touched upon were: coffee and tea leadership, daypart and store format diversification, mobile commerce momentum and innovation (including mobile order & pay), global and channel expansion, and financial operating performance.
  • BKW announced its application to acquire THI was approved by the Canadian government.  

Friday, December 5th

  • LOCO announced the opening of its newest restaurant located at 40520 Winchester Road in Temecula, CA.  The 3,800 sq. ft. restaurant was relocated from 27375 Jefferson Ave.
  • DFRG was ranked #3 by The Dallas Morning News in its Top 100 Places to Work list (mid-size companies).  This is the second consecutive year DFRG was included on the list.
  • CBRL announced its Board of Directors declared a regular quarterly dividend of $1.00 per share.
  • COSI reported comps for the five weeks ended December 1st of +3.7% and +0.6% at company-owned and franchise restaurants, respectively.


Sector Performance

The SPX (+0.4%) outperformed the XLY (-0.4%) last week, as both casual dining and quick service stocks, in aggregate, outperformed the XLY.


Monday Mashup: MCD, KKD and More - 3


Monday Mashup: MCD, KKD and More - 4


XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.


Monday Mashup: MCD, KKD and More - 5


Casual Dining Restaurants

Monday Mashup: MCD, KKD and More - 6

Monday Mashup: MCD, KKD and More - 7


Quick Service Restaurants

Monday Mashup: MCD, KKD and More - 8

Monday Mashup: MCD, KKD and More - 9


Howard Penney

Managing Director


Fred Masotta



Takeaway: In today's edition of the Macro Playbook, we reiterate our negative bias on Emerging Market asset class beta.


Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Consumer Staples Select Sector SPDR Fund (XLP)
  5. Health Care Select Sector SPDR Fund (XLV)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)



#EmergingOutflows Continues: Emerging markets continue to suck wind in Q4, in line with our #Quad4 theme. After making the switch from being broadly positive on EM asset class beta to adopting a broadly negative bias in late September, we continue to stress the merits of global capital allocators being underweight EM capital and currency market risk.






Since our 9/23 note titled, “EMERGING MARKETS: THE EM RELIEF RALLY IS LIKELY OVER”, the iShares MSCI Emerging Markets ETF (EEM) is down -3.9%, the WisdomTree Emerging Currency Fund (CEW) is down -5.2%, the iShares JPM EM USD Bond ETF (EMB) is down -1.1% and the Market Vectors EM Local Currency Bond ETF (EMLC) is down -5.8%. To put this performance in perspective, the EEM ETF was up +6.7% over the course of our bullish bias, which began in late March and the VWO (EEM less South Korea) was up +9%.




At the regional level, emerging Europe equities (GUR) are down -10.7% and emerging LatAm equities (GML) are down -12.5%, while emerging Asian equities (GMF) are up a paltry +1% since 9/23. The former returns are perpetuated by Russia (RSX) and Brazil (EWZ) crashing, down -14.9% and -20.7%, respectively, while the latter return is buoyed by gains in China (FXI up +7.4%; CHIX up +18.6%) and India (EPI up +4.2%).


Looking to our Tactical Asset Class Rotation Model (TACRM), we continue to see signals that suggest investors remain under pressure to rotate out of emerging markets, at the margins. A the primary asset class level, TACRM is still generating a “DECREASE EXPOSURE” signal for both EM Equities and Foreign Exchange; those signals have been intact since the weeks ended 10/3 and 9/5, respectively. Their Passive Trend Follower Asset Allocations of 13% and 2% are off -39% and -20% from their respective trailing 3M averages.


At the secondary asset class level, 9 of the bottom 16 Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) readings are explicit emerging market exposures: EM corporate debt (EMCB), Malaysia (EWM), Mexico (EWW), Asian local currency debt (ALD), EM local currency debt (EMLC), EM FX (CEW), Colombia (ICOL), EM USD debt (EMB) and Russia (RSX). Recall that TACRM’s VAMDMI metric adjusts for both volume and volatility, which strengthens the predictive value of the momentum signal (vs. a single-factor model like a SMA or EMA).




All told, lacking a clear catalyst to get positive, we continue to see further downside for EM asset class beta. Stay tuned for a more detailed presentation on emerging markets heading into 2015 after a year of demonstrable underperformance in 2014; the MSCI EM Index is down -1.7% YTD, underperforming the S&P 500 by 1400bps!


***CLICK HERE to download the full TACRM presentation.***



#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.


Early Look: Party Hard? (12/8)


#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.


Draghi Didn’t Deliver the “Drugs”! (12/4)


#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.


#Bubbles: S&P500 Levels, Refreshed (11/18)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.

Hedgeye's Morning Macro Call with CEO Keith McCullough 12/8

CEO Keith McCullough takes a look at global markets and the economy and explains why he remains concerned.

***This is a complimentary peek behind-the-macro-scenes of our daily Morning Macro Call for institutional subscribers.***

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