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LEISURE LETTER (12/29/2014)

Tickers:  WYNN, CCL



COMPANY NEWS

WYNN – Steve Wynn previews the recently revised plans for Wynn Everett including redesigned curved hotel reminiscent of Wynn Las Vegas and Encore, increased planned rooms from 500 to 630, an oversized lobby overlooking the Mystic River as well as porte-cochère and casino featuring 150 table games and a raised poker floor. 

Article HERE

 

CCL – Up to $100 onboard credit per cabin and two category upgrades lead Carnival Cruise Lines ‘Real Deal’ campaign for the peak wave booking period. The offers apply to bookings from December 26 until January 31 and cover cruises until August 31. The deals are available on three to eight-day cruises, with itineraries including the western Caribbean, Nassau, Bahamas, eastern Caribbean, and exotic Caribbean.

Article HERE

Takeaway:  Carnival brand's Wave 2015 promotion for the Caribbean is in effect. 

INDUSTRY NEWS

Macau November Visitation – Visitor arrivals in November increased by 15% YoY to 2,802,373. Visitors from Mainland China surged by 28% YoY to 1,975,951, coming primarily from Guangdong Province (898,373) and Fujian Province (78,196). The number of mainland visitors travelling under the Individual Visit Scheme also soared by 35% to 940,056. Meanwhile, visitors from South Korea increased by 8% to 41,592, while those from Hong Kong (508,122) and Taiwan (69,625) decreased by 3% and 19% respectively. The average length of visitors’ stays decreased by 0.1 day year-on-year to 0.9 day in November. Overnight and same-day visitors recorded an average stay of 1.9 days and 0.2 day respectively.

Article HERE

Takeaway: Visitation remains strong despite mass revenue slump

 

VIP Gamblers Must Have Not Have Criminal Records – The Gaming Inspection and Coordination Bureau has told VIP gaming promoters that they must certify that their clients have no criminal record before giving them accounts, Business Daily reports. The newspaper quotes unidentified sources in the gaming business as saying that a notice circulated by the bureau on December 19 says the rule comes into force on January 1.

Article HERE

Takeaway: A further crackdown on potential criminal activity and the potential related money laundering.

 

Macau Secretary Appointment Questioned – Several lawmakers have asked the government to explain the decision to appoint the former deputy director of the Land, Public Works and Transport Bureau (DSSOPT) Li Canfeng as the new director of the bureau. The lawmaker said that society is uncertain about the appointment of Li because of the way he testified during the trial of his former superior, the disgraced Secretary for Transport and Public Works Ao Man Long. During the court hearings of the Au Man Long case in 2007, Li had responded to multiple questions with “I can’t remember” and “I have no recollection”, which had drawn criticisms from the judge. He left the government in 2008. Moreover, the lawmaker criticized the public relation skills of the new Secretary for Transport and Public Works, Raimundo Rosário, describing the way he responded to the media regarding Li’s appointment as inappropriate.

Article HERE

 

Macau Chief Executive Reiterates Need for Economic Diversification – Macau Chief Executive Fernando Chui Sai On said he expects the weight of the casino industry in the city’s economy to be gradually reduced. He added that pushing economic diversification away from gaming would be one of the priorities for his new term. Mr Chui was in Beijing on Saturday, after his annual duty visit to President Xi Jinping and Premier Li Keqiang to report to on the development of Macau in the past 12 months.

Article HERE

Takeaway: What a coincidence - the Macau and Chinese governments are on the same page.  

 

Casino Workers Encouraged to Take Unpaid Leave – The city’s casino workers’ union, Forefront of Macau Gaming, said beginning in November some of its members were advised that unpaid leave was encouraged amongst gaming table workers – namely, croupiers, supervisors and pit managers..

Article HERE

Takeaway: Both MPEL and MGM China are discussed as offering workers the opportunity to take leave without pay.

 

Louis Vitton Belt Become Focus of Extravagance – Li Jianguo, general manager of the state-owned Rucheng County water and electricity company, is placed under judicial investigation after a photo of him wearing a Louis Vuitton belt went viral on social media in China.

Article HERE

Takeaway: China's social media web-site Weibo is frequently used to "out" citizens who participate in policies deemed non-compliant with the Communist Party of China. 

 

Former Vice Mayor of Shenzhen Sentenced – A former vice mayor of south China's business hub Shenzhen, Liang Daoxing, has been sentenced to ten years in prison for corruption. The sentence was passed on Nov. 19 by the Intermediate People's Court of Zhaoqing city, but the announcement was stalled until Liang decided if he would choose to appeal. He did not appeal. Liang, who was vice mayor of Shenzhen City from 2002 to early 2009, was found guilty of accepting bribes of 1.95 million yuan (318,000 U.S. dollars), 1.78 million HK dollars (about 230,000 U.S. dollars) and 5,000 U.S. dollars, in return for "benefits" for others.

Article HERE

Takeaway: Another big tiger caged during corruption enforcement actions.

 

Hong Kong Resident Contracted H7N9 – A 68-year-old woman from Hong Kong has been infected with the H7N9 virus. She is currently in a critical condition, having been admitted to the intensive care unit. The patient had visited friends in Shenzhen, accompanied by two other people. She came back the same day to Hong Kong and told authorities she had not visited any market in Shenzhen, nor did she have contact with live poultry

Article HERE

 

Straub Seeks Revel Discount – Lawyers for Glenn Straub said in a court filing the property should be sold for $87 million, not the $95.4 million runner-up bid his Polo North Country Club put in at auction. A judge is scheduled to consider Revel's request to sell the casino to Straub on Jan. 5. Straub says in the filing that he believes the auction was unfair because his side wasn't properly notified of the other bidder. He said he wouldn't have bid more than his original $90 million "stalking horse" bid that set the floor price for the auction if he knew about what he described as "significant and numerous improprieties" in the bidding process.

Article HERE

Takeaway: The story of real estate, all buyers want a lower price - the presiding Judge now faces a prisoner's dilemma, risk losing the sale or push Straub for his last offer price. 

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.  


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.    

 

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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.

 

**NOTE** Due to the shortened holiday week last week, the data below represents positioning reported by the CFTC on Friday, December 19th (reflecting data through Tuesday, December 16th)

  • The COTTON, WHEAT, AND ORANGE JUICE markets experienced the most BULLISH relative positioning changes week-over-week
  • The SUGAR, LEAN HOGS, AND SILVER 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 LEAN HOGS, SUGAR, AND CORN markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, AND 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 NATURAL GAS, BRENT CRUDE, 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  

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

Analyst


Monday Mashup: 'Tis the Season

Monday Mashup: 'Tis the Season - 1

 

Recent Notes

12/22/14 Monday Mashup: BOBE, RT and More

12/23/14 Industry-Wide Comp Outlook (2015)

12/23/14 Statement Analysis (Replay)

 

Events This Week

None

 

Chart of the Day

Gasoline prices are down -31.2% YTD and -30.9% YoY.

 

Monday Mashup: 'Tis the Season - 2

 

Recent News Flow

Monday, December 22nd

  • BLMN appointed MediaVest as its lead media agency following a review.

Tuesday, December 23rd

  • PNRA EVP Scott. G Davis announced he will not return to the company following his previously announced sabbatical for personal reasons.  Mr. Davis has played an instrumental role in "the ongoing evolution of the Panera Bread [bakery-café] concept" and had the sourcing, quality assurance, contract manufacturing and logistic teams reporting to him.

 

Sector Performance

The XLY (+1.8%) outperformed the SPX (+1.3%) as both casual dining and quick service stocks, in aggregate, underperformed the XLY.

 

Monday Mashup: 'Tis the Season - 3

Monday Mashup: 'Tis the Season - 4

 

XLY Quantitative Setup

The XLY continues to be bullish on an intermediate-term TREND duration.

 

Monday Mashup: 'Tis the Season - 5

 

Casual Dining Restaurants

Monday Mashup: 'Tis the Season - 6

Monday Mashup: 'Tis the Season - 7

 

Quick Service Restaurants

Monday Mashup: 'Tis the Season - 8

Monday Mashup: 'Tis the Season - 9


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.

#Deflation = A Big Risk

Client Talking Points

EUROPE

The Greek stock market continues to crash (-10% this am to -34% year-to-date) but the more interesting breakdowns @Hedgeye TREND resistance are those in Italy’s MIB and Spain’s IBEX – don’t forget who #deflation hurts the most, #debtors (hence why central planning policies will do anything to try to avoid deflation).

UST 10YR

Best Big Macro, low-volatility, liquid long position to have on if you agree with us on global #GrowthSlowing and #Deflation is the Long Bond (TLT, EDV, etc.) but you have to be there on the pullbacks like you had last week. The UST 10YR Yield is -4bps to 2.21% this am with no support to 2.05%.

RUSSELL 2000

All small/mid cap bulls had to do was be long the Russell for 2 of the last 3 weeks of the year (+5.4% in the last 2 weeks on decelerating volume) and they killed it! (after the 1st week of DEC, Russell was down year-to-date); no short position in Real Time Alerts as higher-highs are bullish until they aren’t, so we are waiting/watching.

Asset Allocation

CASH 56% US EQUITIES 3%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 32% INTL CURRENCIES 7%

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

OIL: trying to "bounce" (again) +1% but treading #deflation's water at $55.28 within a 54.01-57.43 risk range

@KeithMcCullough

QUOTE OF THE DAY

The drops of rain make a hole in the stone not by violence but by oft falling.

-Lucretius

STAT OF THE DAY

Four days after its release on December 24th, The Interview has become Sony's most-downloaded title of all time. It was downloaded more than two million times as of December 27th, making back a third of its $44m budget.


CHART OF THE DAY: Phase Transition to the #Deflation

CHART OF THE DAY: Phase Transition to the #Deflation - 12.29.14 chart

 

Editor's note: Below is a brief excerpt from today's Morning Newsletter by Hedgeye CEO Keith McCullough. Click here for more information on how you can become a subscriber to the fastest-growing independent research firm in America.

 

For those of you who don’t know that breakevens are a leading indicator for the rate of change in inflation expectations, now you know. For all of you who know that falling bond yields and flattening yield curves are leading indicators for #GrowthSlowing, well, you still know that… but need to ignore it on low-volume SPY ramps into your year-end!

 

In the last 6 months, what we (and physicists like Cooper) call a phase transition (from bullish to bearish) in #deflation has been much more pronounced than the macro market acknowledging it as a #deflation risk in the 1st 2 weeks of December. To put that in time/price context, check out these 6 month moves:

 

  1. Japanese Yen -15.5% vs. USD (yes, that was on Japanese #GrowthSlowing to the point where they needed more QE)
  2. Euro -10.5% vs USD (as the Draghi devalued in response to #GrowthSlowing)
  3. CRB Commodities Index #crashed -24.8% in the last 6 months
  4. Oil (WTI) #crashed -45.7% in the last 6 months
  5. Natural Gas #crashed -34.3% in the last 6 months

 

And 5yr breakevens were actually down a lot more in the last 6 months (-90bps, or -43%) than they’ve been for the YTD (remember when late-cycle inflation accelerated in the first half of 2014 and the perma growth bulls just called that bullish for consumers too?).



New Discoveries

“Our interdisciplinary approach sets us apart and gives us a chance to lead new discovery.”

-Leon Cooper

 

While he won’t lead you to where the latest Air Asia flight went this morning, 84 year old Nobel Prize winning physics professor Leon Cooper has had his fair share of discovery in his lifetime. From synaptic plasticity to superconductivity, being first (and right) is how you get that done.

 

This weekend I learned about Cooper’s interdisciplinary research while reading about one of my favorite topics (#monkeys) in a book called The Medici Effect, by Frans Johansson: “Tiny implanted electrodes read signals from the monkey’s brain cells… data from the brain could now be translated into what the monkey was thinking… turning thoughts into action in real time.” (pg 12)

 

Now if only Cooper’s team at Brown University could send us a real-time feed on what 50,000 fund managers were thinking during 5-10% corrections in stocks (in December) that are followed by sharp v-bottoms and epic no-volume ramps to new highs… oh, while commodities and global bond yields crash…

 

New Discoveries - m5

 

Back to the Global Macro Grind

 

Thankfully, I learned a long time ago that making a living trying to call what SPYs are going to do next is no way to live. That’s why I built our Global Macro Risk Management #Process to be both multi-factor and multi-duration, across asset classes.

 

If you do macro the way we do, you don’t have to be one-dimensional. You don’t have to have as many blind spots as I used to have either. From a research perspective, there’s always a new discovery to be made on both the bullish and bearish sides of markets.

 

In our research process, new discoveries are driven by what many probability theorists would call Bayesian Inference. That basically means that what we learned yesterday might change what we think about today.

 

Discoveries don’t always have to be progressive or regressive – sometimes they should just stop you from doing anything at all. While you may think you know your “companies” better than anyone on earth (and I genuinely hope you do), it’s next to impossible to have that kind of conviction on global macro risks.

 

If you had to pick one major new discovery (if you’re long Energy stocks, Emerging Markets, Junk Bonds, etc., it’s probably in your “diversified portfolio”!) in global macro risk that you should have proactively prepared for in the last 3-6 months, would it be?

 

A)     Global #GrowthSlowing

B)      Global #Deflation

 

Since the dogmatic +3-4% US growth forever bulls are still staring at non-year-over-year GDP growth data for Q3 (newsflash: it’s the end of Q4, and Q314 was +2.7% y/y, not +5.0), and inflation expectations continue to get hammered, I’ll take B).

 

While the causal factor for #deflation may be global #GrowthSlowing (think demand), for the last 3 days of the compensation calendar, who actually gets paid to care? What most of you really care about is the score, and here’s how that risk looked last week:

 

  1. US Dollar up another +0.5% week-over-week with Burning Euros and Yens down around the same
  2. CRB Commodities Index (19 commodities) down another -2.3% last week to -16.2% YTD
  3. Oil (WTI) continued its #crash -4.2% week-over-week to -40.1% YTD
  4. Copper down another -2.4% last week to -16.0% YTD
  5. US 5yr Breakeven Rate hit fresh YTD lows of 1.19% last week (-65 bps, or -35% YTD)

 

For those of you who don’t know that breakevens are a leading indicator for the rate of change in inflation expectations, now you know. For all of you who know that falling bond yields and flattening yield curves are leading indicators for #GrowthSlowing, well, you still know that… but need to ignore it on low-volume SPY ramps into your year-end!

 

In the last 6 months, what we (and physicists like Cooper) call a phase transition (from bullish to bearish) in #deflation has been much more pronounced than the macro market acknowledging it as a #deflation risk in the 1st 2 weeks of December. To put that in time/price context, check out these 6 month moves:

 

  1. Japanese Yen -15.5% vs. USD (yes, that was on Japanese #GrowthSlowing to the point where they needed more QE)
  2. Euro -10.5% vs USD (as the Draghi devalued in response to #GrowthSlowing)
  3. CRB Commodities Index #crashed -24.8% in the last 6 months
  4. Oil (WTI) #crashed -45.7% in the last 6 months
  5. Natural Gas #crashed -34.3% in the last 6 months

 

And 5yr breakevens were actually down a lot more in the last 6 months (-90bps, or -43%) than they’ve been for the YTD (remember when late-cycle inflation accelerated in the first half of 2014 and the perma growth bulls just called that bullish for consumers too?).

 

While the growth bulls finding a new narrative at all rates of change in prices doesn’t surprise me, what will definitely surprise me when the macro market’s volume comes back next week is if #deflation isn’t a marked to market risk for high yield debt.

 

On the bullish side, with the macro market marking up everything US consumer assets (Consumer Discretionary, XLY +1.9% last week vs Energy, XLE -0.6%) on the “down gas prices” theme, it wouldn’t surprise me if the Russell (domestic pure play) continued to outperform Emerging Equity Markets linked to #deflation either. With new discoveries come new positions in the new year.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.05-2.31%

SPX 1

RUT 1131-1235

YEN 119.20-121.97

Oil (WTI) 54.01-57.43

Copper 2.80-2.88

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

New Discoveries - 12.29.14 chart


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