On January 8th we hosted our quarterly Macro Themes conference call in which it detailed the THREE MOST IMPORTANT MACRO TRENDS it has identified for 1Q15 and the associated investment implications.


We encourage you to check out the Video Replays for each theme below:


Global #Deflation




Long #Housing?

Knapp Headlines Strong, But...

Last night Malcom Knapp released casual dining sales results for December, estimating that same-store sales increased +2.2% as guest counts decreased -0.5%.  As expected, restaurant stocks are rallying on the print.  While the headline numbers are strong, the underlying trend is quite the opposite, as same-restaurant sales and traffic declined -2.0% and -4.2%, respectively, on a two-year average basis. 


For the quarter, same-restaurant sales increased +1.5% as guest counts decreased -0.6%.  While 4Q, as a whole, was strong, December marked the second straight month of deceleration in the two-year trend of both measures, suggesting that the state of the casual dining industry isn’t quite as strong as people suspect. 


The reality is, we’re not going to fight the headlines and with another 2-3 months of weak comparisons on tap, we imagine sentiment surrounding restaurant stocks will remain high over the near-term.  However, we believe the recent run-up, which we properly positioned for, will soon provide us with a plethora of opportunities on the short side.


Stay tuned.


Takeaway: 200 tables on average could even be more than what the gov’t is willing to allocate – investors won't like that

300-500 tables per new Cotai casino looking increasingly unlikely



A reliable contact in Macau has indicated to us that the new Cotai projects may be allocated only 150 tables or less on average each.  The smaller than expected allocation would likely disappoint some investors.  Estimates of up to 550 tables for Wynn Palace and 400 for some of the other new Cotai properties have been offered.  WYNN management has been particularly bullish regarding their potential allocation.


In public commentary from both the Macau government and State officials from China including President Xi Jinping during his Macau visit, it has become clear that diversifying the economy away from gaming is a clear public policy goal.  We believe this is no longer just talk – active measures are being taken to achieve this goal.  A lower table allocation is certainly one measure.


With Galaxy Phase II opening in Q2 (mgmt expecting up to 500 tables), we should get a feel for numbers soon.  Galaxy may obtain one of the healthier allocations since they're a 1st mover and have built a solid relationship with the Chinese government. If they are allocated significantly below what is expected, it could be an ominous sign.


Investors would likely react negatively as projections tend to be made on a revenue per table basis.  Thus, fewer tables equates to fewer revenues.  We don’t agree with this modeling approach and would not necessarily view a 200 table allocation as negative based on current demand trends, at least over the short term.  After all, we expect cannibalization so table migration from existing properties should somewhat alleviate the problem of too few tables at new properties.  Moreover, dealer costs will be subdued.


However, if market demand improves, gaming revenue growth could be impeded by short supply.  Of course, this may be what the government wants and relatively small table allocations should be a signal that government is serious about curtailing gaming growth or at least slowing growth rates below that of non-gaming sources.  

Early Look

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

LEISURE LETTER (01/08/2015)

Tickers:  LVS, WYNN, RLJ, NCLH


27.HK – a fire broke out and was quickly extinguished at the under construction Galaxy Phase 2. The small fire started in the area around a cupola in the roof area of the yet to be completed building. The cause of the fire is believed to be a welding torch.

Article HERE

Takeaway: An unfortunate incident but not likely to delay the opening of Phase 2.  


LVS & 1928.HK – has tenants for about 85% of the shop space it will let in the Parisian according to company executive David Sylvester. 

Article HERE


WYNN – The City of Boston has refused to accept a check for $1 million from Wynn Resorts, which would have been the operator’s first payment linked to a license to build a $1.6 billion resort in the state.  Wynn in turn delivered the check to the Massachusetts Gaming Commission offices to be held in escrow for the City, after the City refused to accept the check.

Article HERE

Takeaway: The Mayor of Boston continues to play hardball in hope of extracting greater financial remuneration from Wynn - ideally as a host city.


RLJ – announced that it successfully executed a $150.0 million unsecured Seven-Year Term Loan facility that will be deployed by the end of the second quarter of 2015. The Company is expected to draw funds once the prepayment windows for its 2015 CMBS debt maturities become available. 

Article HERE



Many Macau Residents Don't Gamble – About 34% of Macau people have never gambled in a casino. The survey, found that of the 416 Macau people questioned, 142 (34%) said they had never been in a casino to gamble, 51 (12%) said they gambled frequently and 223 (54%) said they gambled occasionally.

Article HERE


Operation Fox Hunt Nabs 680 Suspects – A total of 680 fugitives suspected of economic crimes have been repatriated to China as a result of the transnational "Fox Hunt" operation launched in July, according to the Ministry of Public Security. Of those seized, 117 had been at large for over a decade and one had been on the run for 22 years. Of the 680 suspects, 208 were involved in economic crimes involving over 10 million yuan (1.6 million U.S. dollars), 74 of which were involved in cases involving over 100 million yuan. Overall, 390 turned themselves in, with 332 doing so after Oct. 10, the date Chinese authorities announced that criminals that gave themselves up before the deadline of Dec. 1 would receive lighter punishment.

Article HERE


Top CPC Party Official Removed – Yang Weize, Party chief of Nanjing, capital city of east China's Jiangsu Province, has been removed from post for suspected "serious discipline and law violations."  Yang was also member of the Standing Committee of the CPC Jiangsu Provincial Committee.

Article HERE

Takeaway: Another Tiger nabbed. 


Additional Chinese Officials Detained – Five local-level officials have been questioned or arrested over allegations of corruption, according to the Supreme People's Procuratorate (SPP). Wang Baojun, who was former chairman of the municipal committee of the Chinese People's Political Consultative Conference of Hengshui in north China's Hebei Province; and Zhong Ji'an, former inspector of Hebei Provincial Commerce Department. The three additional officials include: Yan Cheng, vice president of a local state-owned bank in Inner Mongolia; Chen Yong, head of the energy bureau in Jiangsu Province; and Zhong Bingming, an official with the Jiangxi provincial poverty alleviation authority. All five have been placed under coercive measures which include summons by force, bail, residential surveillance, detention and arrest. 

Article HERE

Takeaway: Enforcement and crackdown actions continue despite repeated warnings by the CPC and Mainland officials.


Alabama Gambling Expansion – Facing a large shortfall in the State's General Fund, there is increased consideration for legalizing gambling. At present, Alabama does not have a state lottery nor legalized casino gambling.

Article HERE


China Netcom Technology  – released its first electronic lottery terminals to the Chinese Sports Lottery in Hainan province. China Netcom provides technology products for lotteries in China.


South Korean Cruise Industry – South Korea’s Prime Minister Chung Hong-won has urged the country’s parliament to pass 14 pending motions aimed at boosting the economy, including one for promoting the cruise business. Asia’s cruise industry is expected to treble in size by 2020, with an onboard gambling component seen as a crucial offering to attract Chinese tourists. The Asian Cruise Association estimates that the overall Asian market could expand from 1.3 million passengers in 2012 to 3.8 million in 2020, including 1.6 million from China. Between 2008 and 2013, capacity in the Asian cruise industry has increased 302 percent based on a recent industry report.

Article HERE


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. 


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