LEISURE LETTER (01/12/2015)

tickers: mpel, nclh, htht


MPEL CEO Ho comments 

  • "No idea" how many tables Studio City will receive. 
    • Property had been designed for 500 tables, and the firm “hoped” to get as many as 400 early in the resort’s operation
  • Confirmed Studio City's all-in cost (including pre-funded interest) at US$3.2 bn and remain on track to open mid-2015. 
    • Planned attractions – including a collaboration between Hollywood studio Warner Bros and American comic book publisher DC Comics for a virtual reality ride called ‘Batman Dark Flight’, plus a 130-metre (427-feet) high ferris wheel to be called ‘Golden Eye’ and said to be Asia’s tallest – would help Macau to “diversify” its offer to tourists.
    • 5,000-seat ‘Studio City Entertainment Center’, a fully-operational television broadcast studio called Studio 8, and a nightclub under the Pacha branding made famous in Ibiza, Spain. There will also be a 300,000-square foot (27,870-sq metre) themed shopping mall.
  • Studio City strong premium mass focused because of its location near the Lotus Bridge crossing point linking Cotai to neighboring Hengqin Island
  • Reasons for MPEL HK delisting were purely administrative, and said the company had no plans currently for any fresh listing anywhere else to raise capital for any other schemes that it might pursue
  • Asked if the Macau gaming downturn meant the company might be laying off staff, Ho said no, adding the firm was planning to hire “8,000 to 10,000” extra staff for Studio City
  • Other development projects: “There are still development opportunities in Macau… After we’re done with phase one, there’s still phase two. We’ve only built on two thirds of the [Studio City] site. Of course we’re going to have to get the concurrence and support of the minority shareholders [for further development] – who have been great throughout this [initial] process. It’s going to be a very big equity cheque to write [for another phase]. So I don’t know if they are ready at this present moment in time.... But in terms of other jurisdictions…to be honest there are no jurisdictions as good as Macau.”

Article HERE

Takeaway: We think there is risk Studio City may only be allocated 150-250 tables.


NCLH – Kevin Sheehan has left NCL as CEO and is quickly replaced by Prestige CEO Frank Del Rio.

Takeaway:  This was solely a personal decision by Sheehan with no influence from Apollo or the Prestige integration.


China Lodging Group (HTHT) – announced prelim Q4 2014 results

  • REVPAR (blended) CNY153 vs CNY 160 
  • Like-for-like performance for 1,178 leased and manachised hotels opened for at least 18 months during the current quarter:
    • Occupancy rate 90% vs year-ago 93%
    • Average daily room rate CNY179 vs year-ago CNY179
    • RevPAR CNY161 vs year-ago CNY165 

Takeaway: Weak REVPAR from low end segment in China


Anti-graft – 

  • The Communist Party’s anti-graft agency begins its three-day plenum today with analysts saying that the crackdown on political factions and corruption in local governments is likely to be the top priority this year.

Article HERE

  • A compilation of select remarks by Chinese President Xi Jinping on the fight against corruption and the construction of a clean Communist Party of China (CPC) has been published.  The book was published by the Central Party Literature Press and the China Fangzheng Publishing House.

Article HERE


Philippines – A joint venture partner in two of Manila’s new private-sector casinos says the Philippines gaming industry is not being hit by the kind of slowdown seen in Macau. Andrew Tan, chairman and CEO Alliance Global Group Inc said, “In Macau, the slowdown is because the big chunk of their market is ultra-high rollers. We don’t have that segment of the market here. That ultra-high roller market is thinning out [in Macau] that’s why their growth has been slow last year but in the Philippines, we have a very different situation because our market here are more on the tourist side.”

Article HERE

Takeaway: Tan is justifying the rise in GGR last year in the Philippines


Unpaid leave – two casino operators have allegedly offered employees unpaid leave for as long as one year. According to a casino workers’ union affiliated with the Macau Federation of Trade Unions (FOAM), the proposal received an enthusiastic response from the workers, as it has been difficult for them to apply for leave in the past.

Article HERE

Takeaway: Political repercussions prevent layoffs


Southeastern Massachusetts casino license – 4 entrants

  • Massachusetts Gaming and Entertainment 
  • Seafan Trust under the name Sun Moon Resort
  • Somerset On The Move 
  • KG Urban

In addition, the Mashpee Wampanoag still intend to pursue a casino in Taunton.
They have until the 30th to make their non-refundable $400,000 deposit and must file site-specific plans by May 25.


Wyoming Lotto – CEO Clontz said the lottery has sold more than $6.5 million worth of tickets since it opened for business on Aug. 24.  This coming Friday, the lottery plans to unveil its first state-based game. And while he didn't want to give too many details away early, Clontz said the game will be similar to the state lotto games held in Colorado and elsewhere. Clontz said revenues would increase significantly if the lottery was to begin selling scratch cards - they are by far the main game that players have been asking for.

Article HERE

Takeaway: The 2013 law prohibits the sale of instant games due to addiction concerns. But will that end at some point?


Wave Season  – Cruise companies are opening 2015 with a raft of new TV ad campaigns seeking to take advantage of the upswing in consumer interest in cruise planning during Wave season.  The ads range from new variations on established themes at Norwegian Cruise Line and Princess Cruises to a first-ever TV campaign in the U.S. for MSC Cruises.  Another first will occur on Feb. 1 when Carnival Corp. unveils its commercial on TV’s most watched annual event, the NFL’s Super Bowl. 

Article HERE

Takeaway: Wave marketing dollars are likely to be higher in 2015


Venice  – The Veneto Region Administrative Tribunal has annulled an Italian Coast Guard decree on January 9 to ban cruise ships over 96,000gt from sailing through Venice’s Giudecca Channel and past St Mark’s Square to reach the city’s cruise terminal.  The decision is not likely to have an immediate impact on large ship transits since Cruise Lines International Association members have been voluntarily complying with these restrictions while awaiting a solution to the transit debate, which all the interested parties hope to have reached with the proposed Contorta Sant'Angelo Channel project.


‘We are expecting no cruise ships over 96,000gt this year, resulting in a predicted loss of just under 300,000 passengers," Sandro Trevisano, president of  Venice Passenger Terminal said. He added, ‘We are hoping this decision will induce the government to pass measures to support the return of cruise ships to Venice, however the Contorta Sant'Angelo Channel project would require 18 months for completion, putting our 2016 cruise business also at risk."

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. 

Retail Callouts (1/12): LULU Guidance, TIF Holiday, W, M

Takeaway: LULU-Current mgmt incapable of $2.50 but one that will develop over next 12mnths puts $3.50-$4 in play. TIF-Holiday sales takeaway



LULU - Holiday Guidance Update


Takeaway: LULU came out this morning and raised guidance consistent with the high end of the range it had set before lowering expectations a few weeks back because of port delay issues.  Despite the guide-down the stock has traded up 26% since the 3Q print and is up again following this release. We still like the name here - though the risk reward isn't what it was when the stock was trading in the 30s. Nonetheless, we're willing to give the benefit of the doubt to Co-Chairmen Casey/Mussafer with the hire of  CFO Stuart Haselden last week. Is he a 'rockstar' CFO? Probably not. But we think he'll go a long way in building a finance culture at a company that is more devoid of one than any organization we have ever seen. The former management team was incapable of earnings anything over $2.50, in our opinion. But the one that should develop over the next year should put $3.50-$4.00 in play. In other words, the stock has traded up mostly on sentiment factors, but we think that the next leg will hinge upon LULU finally building out its global distribution platform, and growing like a great global growth company as opposed to a niche brand that has outgrown its Yoga pants.


TIF - Holiday Comp Sales Flat Y/Y



Our initial thought when we saw the number was that this was FX-related. While Japan looked terrible (-8%), Europe looked decent-enough at +4% (constant currency). The big problem area was the US, which comped down 1%.  Maybe this is due in part to weakness in tourist spending in the US, but any way you slice it this is a rare guide down for a company linked to the high-end consumer.





W - Wayfair Reports Direct Retail gross sales increased 76%, overall company gross sales increased 51% year-over-year for long weekend including Thanksgiving and Cyber Monday



M - Bloomingdale’s to open NBA in-store pop-ups



FirstData: Holiday spend up 3.2%; Christmas Eve busiest spending day



Mark Katz Promoted to CFO of Burlington Stores



Kip Tindell Tapped as NRF Chairman



Gucci Designer Giannini Exits Early as New CEO Takes Control



Hockey gear maker Bauer Hockey to open retail stores





Keith's Macro Notebook 1/12: #Quad4 | Europe | Oil


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

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Takeaway: In today's Macro Playbook, we revisit our bullish bias on the U.S. dollar through the lens of our rigorous quantitative analyses.


Long Ideas/Overweight Recommendations

  1. Consumer Staples Select Sector SPDR Fund (XLP)
  2. Health Care Select Sector SPDR Fund (XLV)
  3. PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
  4. iShares U.S. Home Construction ETF (ITB)
  5. iShares 20+ Year Treasury Bond ETF (TLT)
  6. LONG BENCH: Vanguard REIT ETF (VNQ), Utilities Select Sector SPDR Fund (XLU), Vanguard Extended Duration Treasury ETF (EDV)

Short Ideas/Underweight Recommendations

  1. iShares TIPS Bond ETF (TIP)
  2. CurrencyShares Japanese Yen Trust (FXY)
  3. Industrial Select Sector SPDR Fund (XLI)
  4. SPDR Barclays High Yield Bond ETF (JNK)
  5. iShares MSCI Emerging Markets ETF (EEM)
  6. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)



#Quad4 Continues to Support a Stronger USD: For those of you who enjoy the occasional game show:



Source: Twitter


The correct answer is, “What is a chart of the U.S. Dollar Index (DXY)?”, which continues on one of its largest intermediate-term melt-ups ever.  In fact, its +16.7% return from its TTM closing low of 79.09 on May 6th, 2014 is good for the steepest 179-day return since April ’09.



Source: Bloomberg L.P.


This rapid appreciation of the U.S. currency has coincided with an equally – if not more dramatic – rise in the net LONG position in DXY futures and options. Specifically, the non-commercial net length in this asset class has rotated all the way from a net SHORT position as recently as late-May to an all-time wide net LONG position of +69.2k contracts per the most recently reported weekly data (through 1/6).



Source: Bloomberg L.P.


This material ramp in positioning has facilitated the emergence of a crowded LONG-dollar trade. Specifically, that +69.2k net LONG position is good for a +2.2 SIGMA move vs. its TTM average net length. Recall that we are typically inclined to fade beta in the immediate-term when the net length exceeds two SIGMA.




That would likely coincide with a pullback to 91.58 on the DXY. A more material pullback to 87.95 is a key risk in the context of a likely continuation of #Quad4-confirming reported U.S. growth and inflation data for the next ~3 weeks.




That being said, however, the EUR and JPY net SHORT positions aren’t nearly as crowded so that would seem to suggest the positioning in the DXY is more a function of investor hedging than it is a function of absolute belief in secular dollar appreciation.


Moreover, we continue to think the USD is likely to trade materially higher vs. its peers over the intermediate-to-long term as market participants increasingly price in a sustained policy divergence among the G-3 economies.


Our Tactical Asset Class Rotation Model (TACRM) continues to signal this from a quantitative perspective. At the primary asset class level, TACRM continues to generate a “DECREASE Exposure” signal for Foreign Exchange, which it has maintained since the week ended September 5th, 2014. Its Passive Trend Follower Asset Allocation of 1% is down -88% from its TTM average and in the 0th percentile of all readings over both the TTM and since the start of 2008.








Very rarely in the history of global macro do you have such impactful moves in the currency market as it pertains to knock-on effects such as #EmergingOutflows, #Quad4 commodity price deflation and global capital flows into liquid dollar-denominated financial assets (think: SPY and TLT).


To the extent you are not already, we continue to implore you to get on the right side of this trade because we think it has serious legs.


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



Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.


#Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.


Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.


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.          

European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 




Key Takeaways:

The big call-out this week remains the ongoing drop in yield spreads and commodity prices. The former puts pressure on the domestic banking market while the latter pressures the economies of select international economies like Russia. Sberbank saw swaps move out another 117 bps w/w as Fitch cut the sovereign rating to near junk. There's little indication thus far that the domestic banking market is pricing in rising international risk, but we think the risk/reward setup there remains unfavorable.


European Financial CDS - Fitch cut Russia's credit ratings to near junk territory. In response, Sberbank CDS swaps widened by a further 117 bps on the week to 726 bps. Greece saw its banks' swaps tightene w/w by an average 60 bps to the low-to-mid 800s. Elsewhere in Europe there was relatively little movement in swaps.


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart1 euro financials CDS


Sovereign CDS – Sovereign swaps mostly widened over last week. Italian, Spanish and Portuguese swaps rose 17, 14 and 20 bps, respectively on the week, though they are still down nominally on a month-over-month basis. The main event in the near term remains the Greek vote on January 25th.


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart2 sovereign CDS


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart3 sovereign CDS


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 11 bps.


European Banking Monitor: Sberbank CDS Widens on the Back of Fitch Downgrade - chart5 euribor OIS Spread


Matthew Hedrick



Ben Ryan



Monday Mashup: Changes to Our Investment Ideas List

Monday Mashup: Changes to Our Investment Ideas List - 11



We made several changes to our Investment Ideas this week.  In the coming weeks, we will be outlining these changes in more detail.


Perhaps the two most notable moves are the relegation of JACK and PLKI from the Long List to the Long Bench.  We like both names longer-term, but believe the impressive recent outperformance means the street is beginning to understand the long thesis and incremental good news is likely baked-in.


We’ve also expanded our Short Bench with the addition of several casual dining names.  We’re looking to get aggressive on the short side, after we roll easy comps, as we head into the spring.


recent notes

01/05/15 Monday Mashup: BWLD, SBUX and More

01/08/15 SBUX: Why We Think It’s a Short

01/08/15 Knapp Headlines Strong, But…

01/09/15 SBUX: Part of the Story is Going Untold

Events This Week

Monday, January 12th


Tuesday, January 13th


Wednesday, January 14th

  • DPZ Investor Day


Chart of the Day

Monday Mashup: Changes to Our Investment Ideas List - chart2


Recent News Flow

Monday, January 5th

  • BOBE upgraded to buy at Janney Capital with a $60 PT.
  • DPZ upgraded to buy at Janney Capital with a $110 PT.
  • LOCO upgraded to outperform at RW Baird with a $34 PT.
  • PBPB upgraded to outperform at RW Baird with a $17 PT.
  • BWLD PT increased to $205 from $180 at UBS.
  • BWLD downgraded to neutral at RW Baird with a $180 PT.
  • SBUX downgraded to neutral at Janney Capital with an $85 PT.
  • LOCO announced an extension of its Under 500 line with four new menu items, each under 500 calories.  The new offerings include the Chicken & Shrimp Grilled Tostada, Double Chicken Wet Burrito, Grilled Chicken & Kale Salad, and Skinny Chicken Quesadilla.
  • DFRG opened its newest Del Frisco’s Grille in Pasadena, CA.  The restaurant spans more than 7,000 square feet and can entertain about 200 people between both indoor and outdoor seating.

Tuesday, January 6th

  • LOCO announced the opening of three new franchised locations in California (Victorvile, Stockton, and Santa Paula) and one new franchised location in Nevada (Reno).
  • DIN Applebee’s introduced its new Pub Diet menu which features fiber and protein rich dishes with less than 600 calories.  The menu includes four dishes starting at $9.99: Pepper-Crusted Sirloin & Whole Grains, Cedar Grilled Lemon Chicken, Shrimp & Broccoli Cavatappi, and Savory Cedar Salmon.
  • DNKN announced its intention to replace its senior secured credit facility with a new securitized financing facility, expected to be comprised of $2.3 billion of senior fixed-rate term notes and $100 million of variable funding notes.

Wednesday, January 7th

  • FRGI announced the promotion of three of its top executives.  CFO Lynn Schweinfurth was promoted to senior vice president, Chief Counsel Joseph Zirkman was promoted to senior vice president, and Chief Development Officer John Todd was promoted to vice president.

Thursday, January 8th

  • DNKN announced expansion plans in China with the signing of a development agreement that calls for the development of more than 1,400 restaurants across China over the next 20 years as part of a joint venture between Jollibee Worldwide Pte Ltd. and Jasmine Asset Holding Ltd.
  • LOCO celebrated the grand opening of its newest location in Goodyear, Arizona – its 19th restaurant in the state.  The 3,000 square foot restaurant has room for 62 guests.
  • SBUX announced COO Troy Alstead will take a leave from the company, effective March 1st.  The company will provide detail on transition plans during the company Q1 earnings call on January 22, 2015.


Sector Performance

Monday Mashup: Changes to Our Investment Ideas List - 3


Monday Mashup: Changes to Our Investment Ideas List - 4

XLY Quantitative Setup

Monday Mashup: Changes to Our Investment Ideas List - 5

Casual Dining Restaurants

Monday Mashup: Changes to Our Investment Ideas List - 6


Monday Mashup: Changes to Our Investment Ideas List - 7

Quick Service Restaurants

Monday Mashup: Changes to Our Investment Ideas List - 8


Monday Mashup: Changes to Our Investment Ideas List - 9

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