LEISURE LETTER (12/11/2014)

Tickers:  SGMS, HLT, MAR, RHP, RCL


  • Dec 14: City of Dreams Manila Opening
  • Dec 17:  Upstate NY Casino Decision
  • Dec 20: Trump Taj Mahal Closing

Today's Headline Story

HLT – is in talks to buy four properties from Blackstone Group LP and other owners to defer tax payments from its $1.95 billion sale of New York’s Waldorf Astoria hotel. The assets include San Francisco’s Parc 55 Wyndham, the city’s fourth-biggest hotel, at more than 1,000 rooms, two Waldorf Astoria resorts in Key West and one in Orlando. Aside from Blackstone, the sellers of the Parc 55 include Rockpoint Group, a Boston-based real estate private-equity firm. New York-based Blackstone owns the two Key West resorts, and the sellers of the Orlando property are Blackstone, Chicago-based Gem Realty Capital and Farallon Capital Management, a San Francisco-based hedge fund firm.

Article HERE

Takeaway:  While the reinvestment is entirely tax motivated, we like the profile of selling New York and buying San Francisco and Florida as well as the EBITDA growth outlook of the new assets.


LVS – Robert G. Goldstein will be replacing Michael A. Leven as LVS's President and COO, as Leven is retiring at the end of 2014. Goldstein joined LVS in 1995 and has served in several executive positions for the company, including president and chief operating officer of The Venetian and Palazzo and, most recently, as president of global gaming operations. 

Takeaway: Given tough times, it is easier to hire an internal candidate. 


200.HK Melco International Development – Development of Barcelona World could be in jeopardy following the withdrawal of the anchor sponsor Enrique Bañuelos.  Late yesterday, Mr. Bañuelos and his firm, Veremonte, announced neither will not exercise the right to purchase the land of CaixaBank in Salou (Tarragona), where they planned to build BCNWorld. Following this announcement, the Catalonia Government hopes to find another investor who takes the initiative forward. In addition to Melco Int'l Development, other development partners included:  Hard Rock, Ceasars, Value Retail, Melia and Port Aventura.

Article HERE

Takeaway: Following the land purchase delay back in July, we'd been hearing from our local contacts that the project would be delayed or potentially canceled. 


678.HK – Genting Hong Kong is acquiring Exa Ltd, an investment company with interests in luxury yachts and submersibles, for US$37.9 million. Genting Hong Kong, a joint venture partner in the Resorts World Manila casino resort in the Philippines, said the acquisition will “enhance the company’s competitive edge”. The deal will be done via Genting-subsidiary Star Cruises Terminal (China) Ltd, which operates casino cruises in the Asia Pacific region. Exa was previously owned by a private unit trust controlled by Lim Kok Thay and his family.  

Article HERE

Takeaway: Genting continuing to diversify


Konami – Shoshone Rose Casino selects Konami's SYNKORS Gaming enterprise management system.

Takeaway: IGT lost a systems client to Konami


GTK.IM– announced that the statutory cash exit rights in connection with the cross-border merger of GTECH with and into Georgia Worldwide PLC have been validly exercised with respect to 19,796,852 shares, for an aggregate amount of €379.6M at the liquidation amount of €19.174 per share. Such shares represent 11.3% of GTECH’s current fully paid-up share capital and 11.4% of GTECH’s shares outstanding as of 15-Jul-14, when the agreement for the acquisition of International Game Technology (IGT) was executed. 


Following the determination of the number of shares for which cash exit rights have been exercised, the commitment for GTECH’s 364-day senior bridge term loan credit facility for the financing of the acquisition of IGT (the “Bridge Facility”), will be further reduced to ~$6 billion.  

Takeaway:  As long it is under 20%, the merger will go as planned. The reduction in the bridge loan is a positive.


SGMS – Richard M. Haddrill, former CEO of Bally Technologies, Inc. ("Bally"), was elected as Executive Vice Chairman of the Board on December 4, 2014, and Judge Gabrielle K. McDonald was elected as a Director of the Board on October 30, 2014. 


RHP & MAR – Despite being embroiled in legal controversy, the Gaylord Rockies Hotel and Conference Center could bypass a legal quagmire dragging on and break ground by the end of next year with significant financing from Houston-based RIDA Development Corp. On Monday, Aurora City Council, acting as the Aurora Urban Renewal Authority, unanimously and with no comment approved a resolution that supports Houston-based RIDA Development Corp.  financing the construction of a project, which has been estimated to cost upwards of $800 million

Article HERE

Takeaway: Once development commences on the Gaylord Rockies, RHP would recover about $8.5 million in predevelopment costs from RIDA. Additionally, RHP has first right of refusal on acquiring the Gaylord Rockies from RIDA upon property stabilization.  MAR would be the manager of the hotel.


RCL –  Royal Caribbean International president Michael Bayley said the 1st new Celebrity Edge class ship will operate from the UK.  The ship is due for delivery in autumn 2018.  

Article HERE

Takeaway:  No surprise that the new ships would be positioned in the strongest European market in 2014.


Neptune's Cheung Chai Tai Linked to Paul Phua's Illegal World Cup Betting at Caesars – Recall Paul Phua alleged 14K Triad Leader was arrested for spearheading an alleged illegal World Cup betting scheme via IBCBet from a villa at Caesars Palace.  Now one of Cheung Chai Tai's companies was linked to the World Cup betting as Cheung's companies were used to help the alleged group collect and settle with gamblers.

Article HERE


Macau Hotels  – Macau ranks third most expensive overall in the 2014 Accommodation Price Index compiled by, a Berlin-based travel search website. Macau is among the most expensive overall after New York and St. Moritz in Switzerland. While Macau ranks third in the overall survey, in the category of 5-star Hotel Price Index Macau doesn’t even get into the top 20, at US$353 per night.

Article HERE

Takeaway: While Macau is relatively expensive, many of the rooms are comped for VIP players.


Airfairs & Capacity Growth in 2015 – A new White Paper by ARC and Expedia, “Preparing for Takeoff: Air Travel Trends for 2015,” predicts modest capacity gains next year, but large increases by low-cost carrier while noting airfares should be flat to slightly lower to most U.S. and European cities in 2015. The report notes Frontier expects to increase capacity by 14% in the first half of 2015 and that Spirit’s capacity will be up 26% year over year in the first half of 2015 with new efforts to to penetrate Washington DC, Houston, Dallas, Detroit and Chicago. 

Article HERE

Takeaway: Airline capacity growth is positive for hotels – more seats = support for MICE, business transient and leisure demand.  Lower airfares are a positive for Association groups who tend to be more price sensitive. 


China Banking System To Increase Lending – the PBoC increased target bank lending for 2014 to CNY10T from CNY9.5T last year and the PBoC is also allowing banks to lend more than 75% of deposits


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.



Takeaway: In today's edition of the Macro Playbook, we show the brewing crisis in the high-yield energy credit space and why it's set to accelerate.


Long Ideas/Overweight Recommendations

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

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)



The High-Yield Energy Crisis Continues: In last Friday’s edition of the Hedgeye Macro Playbook, we detailed how the confluence of our GIP modeling process and TACRM signals supported strongly reiterating our bearish outlook for all things energy related, especially domestic E&Ps.


With the XOP ETF down another -7.2% in the week-to-date, that was clearly the appropriate call in the heat of the moment. An even better call was our decision to cover our short on the homebuilders (ITB), replacing that sector with domestic E&Ps on the short side on November 5th; since then, the ITB ETF has rallied +3.7% while the XOP ETF has crashed, falling -23.9%




We still anticipate incremental material downside for domestic E&P stocks – especially in the context of rapidly accelerating risk in the credit market.


Specifically, OAS on high-yield USD-denominated energy bonds widened another +43bps DoD to 943bps on volume that was nearly +50% greater than the average of the previous five Wednesdays. That spread of 943bps is 405bps wider than the next closest sector (Industrials) and is wider by +308bps MoM.




Using the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays High Yield Bond ETF (JNK) as proxies, the energy sector accounts for roughly 13.5-15% of the existing USD-denominated high-yield credit market. That hefty weighting has certainly weighed heavily upon the broader high-yield complex, with OAS on the broader asset class having backed up +209bps over the past 6M to 543bps wide. Secondary bond market liquidity remains a key risk, as detailed by our #Bubble theme.



Source: IIF




Looking to our Tactical Asset Class Rotation Model (TACRM), the JNK ETF has the 2nd lowest Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) reading across the 29 ETFs that comprise our Fixed Income & Yield Chasing primary asset class, just barely edging out MLPs (AMLP). These two ETFs have the 4th and 2nd lowest VAMDMI readings, respectively, across the entire global macro universe of nearly 200 ETFs.




All told, we continue to think #Quad4 asset price deflation will continue to perpetuate a continuation of reported disinflation across the developed world – particularly in Europe and Japan. To the extent that continues to perpetuate expectations for easier monetary policy out of the ECB and BoJ amid late-cycle employment #GrowthAccelerating in the U.S., we think this massive rip in the USD has legs. That will undoubtedly weigh on the energy sector – as well as the broader commodities complex and emerging markets.






***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: U-G-L-Y (12/10)


#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 Drugs at the JAN ECB Meeting? Nope! (12/10)


#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: “Hedge Fund Hotel” Edition (Part II) (12/8)


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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.

Growth & Inflation Expectations Slowing Globally

Client Talking Points


Global growth bulls used to call it Dr. KOSPI (and Copper), but only because they were going up – now the KOSPI leads losers in Asia, down another -1.5% overnight, re-testing her OCT lows at -4.7% year-to-date; non-central planning catalyst Asia (ex-Japan + China) continues to act horribly.


Commodities crushed to fresh year-to-date lows (CRB Index -1.6%, -11.8% year-to-date); remember that this isn’t just about Oil (risk range there is now 60.48-65.38, lower-highs, lower-lows) – it’s about inflation expectations collapsing into #deflation.


UST 10YR Yield continues to crash, -28% to 2.16% this morning ahead of a U.S. Retail Sales print that the “gas prices are low” bulls better hope isn’t as bad as the Retail Sales print (that missed) in mid-OCT; German 10YR 0.67% and Japanese 10YR at 0.40% - and we still think the Fed gets easier in Q1 as CPI surprises them on the downside.

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


Watch @FoxBusiness at 9am ET as @KeithMcCullough talks markets, economy and more for the full hour with @MariaBartiromo.



Goals live on the other side of obstacles and challenges. Be relentless in pursuit of those goals, especially in the face of obstacles. Along the way, make no excuses and place no blame.

-Ray Bourque


Restoration Hardware (RH) put up a crusher 22% comp vs. our 18% estimate. This was a huge ramp from 21% on a 2-year basis in 2Q to 30% in 3Q. That includes 31% growth online – a 1,800bp sequential acceleration. RH remains our favorite name in retail.

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

December 11, 2014

December 11, 2014 - Slide1



December 11, 2014 - Slide2

December 11, 2014 - Slide3

December 11, 2014 - Slide4




December 11, 2014 - Slide5

December 11, 2014 - Slide6

December 11, 2014 - Slide7

December 11, 2014 - Slide8

December 11, 2014 - Slide9

December 11, 2014 - Slide10

December 11, 2014 - Slide11
December 11, 2014 - Slide12

CHART OF THE DAY: Tizzle In The System: Commodities vs. Long-Term Treasuries $TLT

CHART OF THE DAY: Tizzle In The System: Commodities vs. Long-Term Treasuries $TLT - 12.11.14 TLT vs. CRB


"With the Russell 2000 down YTD and both inflation expectations and 10yr bond yields #crashing," Hedgeye CEO Keith McCullough wrote in today's Morning Newsletter, "initial 2014 consensus beliefs of worldwide growth accelerating and rates rising are no longer believed."

Tizzle In The System

“Each time the system is recalculated, the posterior becomes the prior.”

-Sharon Bertsch McGrayne


Simple is as simple does, within a non-linear and dynamic system like the Global Macro market, that is…


“Conceptually, Bayes’ system was simple. We modify our opinions with objective information. Initial Beliefs (our guess where the cue ball landed) + Recent Objective Data (most recent ball left or right of the prior) = A New and Improved Belief.”

-The Theory That Would Not Die, pg 8


What do you believe? Is what you believed in late September consistent with what you believe after the October and December corrections? How about from January to June (when late-cycle inflation was accelerating) vs. today’s global #deflation? The best way to manage risk is by constantly recalculating your system.

Tizzle In The System - Falling cartoon 12.10.2014


Back to the Global Macro Grind


What does the system say this morning?


With the Russell 2000 down YTD and both inflation expectations and 10yr bond yields #crashing, initial 2014 consensus beliefs of worldwide growth accelerating and rates rising are no longer believed.


Since so many Old Wall dudes still use the “Dow” as some sort of proxy for the global economy, here’s what the broader global equity system is saying:


1. Weimar Nikkei (Japan) only goes up when the economy is so bad that they need to hit the CTRL+Panic (print) button

2. The liquid side of the “China” trade (Hang Seng) continued to signal bearish TREND @Hedgeye overnight (-0.9%)

3. The former Global Growth “signal” (known as Dr. KOSPI in South Korea) -1.5% overnight to -4.7% YTD #bearish

4. The UK’s FTSE failed @Hedgeye TREND resistance and is back to DOWN for 2014 YTD

5. Germany’s DAX is holding on to TREND support of 9688 at +3.2% YTD

6. Greece, Portugal, and Russia continue to crash (down more than 20% respectively, YTD)


Oh, and Argentina dropped -14% in the last 2 trading days… but #NoWorries there – centrally planned currency devaluation has had fantastic economic results for the Argentines! Watch the LEGO movie this weekend with your kids – “everything is awesome.”


Yep, everything other than this other Big Macro thing that is correlating with #CommoditiesCrashing called 10yr Bond Yields:


1. Japan 10yr = 0.40%

2. Germany = 0.67%

3. France = 0.94%


“So” I guess my growth-and-inflation-slowing bull case for the USA Long Bond (TLT) with the US 10yr Treasury Yield crashing (-28% YTD) to 2.16% has plenty of room to run.


The only thing that is awesome (i.e. you don’t have to make things up about global growth accelerating and #deflation not being a globally interconnected risk) is actually being long something, in size, with very low-volatility (Long-Term Treasuries).


One of our hard core customers called it “TLT tizzling” at our Hedgeye NYC Holiday Party on Tuesday… so I looked that up in the Urban Dictionary: “A fat party. This word is derived from the word partizzle, shortened to tizzle…”




Yes, it’s ok to laugh at this game. If you don’t, it might just make you cry. And so will what’s most causal to the pain you are seeing in inflation expectations globally right now – central planners losing Mr. Macro Market’s confidence that they can re-flate asset prices.


In case you didn’t know, that’s how this central planning game of expectations ends – in #deflation.


It’s one thing to run around telling yourself that the Dow and DAX are up because you just knew that markets can’t go down. It’s entirely another to be doing that over and over again when the global macro system starts to signal that the party’s music is stopping.


Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets, which you can find in our Daily Trading Range product) are as follows:


UST 10yr Yield 2.14-2.24% (bearish)

SPX 2018-2042 (bullish)

RUT 1151-1172 (bearish)

KOSPI 1 (bearish)

VIX 14.43-19.59 (bullish)

USD 87.67-88.79 (bullish)

EUR/USD 1.22-1.25 (bearish)

Yen 116.79-121.65 (bearish)

Oil (WTI) 60.48-65.38 (bearish)

NatGas 3.49-3.81 (bearish)

Gold 1 (neutral)

Copper 2.84-2.95 (bearish)


Best of luck out there today,



Keith R. McCullough

Chief Executive Officer


Tizzle In The System - 12.11.14 TLT vs. CRB