"Anyone who thinks they can centrally plan economic gravity," Hedgeye CEO Keith McCullough wrote earlier today, "is a certifiably arrogant academic." We'll throw in Sisyphean for good measure.
Decision day is now FINALLY behind us: ECB President Mario Draghi left rates unchanged but delivered the “drugs”, delivered “more cowbell”, delivered the QE biscuit, however you want to put it.
Here’s a quick overview of the minimal details disclosed on the €1.1 Trillion QE package (beating market expectations of ~€600 Billion).
Shorting The EUR/USD: Head’s You Win; Tail’s You Win
As we outlined in our note More Cowbell! A Roadmap Ahead of the ECB’s Thursday Meeting we called for a scenario of shorting the EUR/USD with the byline “Head’s You Win; Tail’s You Win”. Intraday following Draghi’s remarks the cross has been down as much as -1.6%, pressing the $1.14 level. In short, Draghi DID in fact deliver the drugs, and we foresee a combination of forces maintaining downside pressure on the cross:
Hedgeye Macro Analyst Ben Ryan shares the top three things in Keith's macro notebook this morning.
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.
TICKERS: MPEL, GTECH, RCL, CCL
Macau Visitation fell in December – Macau received a record-breaking number of visitors in 2014 – more than 31.5 million visitor arrivals, +7.5% YoY according to director of Macau Government Tourist Office (MGTO) Maria Helena de Senna Fernandes. Mainland China visitation grew 14.1% in 2014. She also expects 5% visitation growth for CNY 2015 and FY 2015.
The average length of stay for visitors was 1.9 days, with 46.2% of them in 2014 choosing to stay overnight. The average occupancy rate of hotels in Macau is 86.5%, up by 3.4%, with total overnight guests in 2014 reaching 10,710,000. The average room rate of 3 to 5 star hotels in Macau was $199.9, up 8.6% YoY.
Takeaway: This suggests overall December visitation fell 2% and would represent the 1st monthly decline since January 2013. As for Mainland visitation in December, growth was 1% - the slowest pace since March 2013. Official results will be released tonight by DSEC.
MPEL – has said it will press on with extending the shopping arcade in its City of Dreams despite the death of a worker on the construction site. The Labour Affairs Bureau halted the use of all hoists on the site after a worker operating a hoist there fell to his death on Tuesday. Melco Crown said, "The temporary suspension of construction will not affect progress.” The company hopes to open the extension next year.
Takeaway: No delays for MPEL
GTECH/Italy Lottery tax – The additional gaming tax on video lottery and AWP licensees in Italy has now come into force and has been also allocated among licensees with surprises among operators. The peculiarity of such tax is that will be shared among video lottery licensees depending on their number of video lottery and AWPs regardless of the revenues generated by each machine. This circumstance led licensees to disinstall a large number of underperforming machines before the end of the year in order to maximize the revenues generated by their network and have a lower portion of the € 500 million additional tax allocated to them.
And apparently some licensees were very aggressive in disinstalling machines since, according to Italian gambling regulator, AAMS, some of them are now running a number of machines much lower than the video lotteries and AWP in place before the coming into force of the budget law.
GTECH is leading the table of tax payers with over € 96 million of allocated taxes.
Takeaway: This is the compromise for not having a gaming duty tax increase in Italy but still a higher cost, nonetheless, for the video lottery licensees. We're still waiting to see who gets the Lotto license.
CLDT – guided Q4 REVPAR to $112. $3.5m secondary offering at $30.
Takeaway: This is at the low end of their Q4 guidance of $112-114.
PEB – guided 2015 Same-Property RevPAR growth rate to 6.5-7.5%
Takeaway: Not surprisingly, this is lower than 2014's expected growth of 8.25-8.75%. However, it's a strong number.
RCL – The Celebrity Century will become the SkySea Golden Era this May, as she transfers to the new SkySea brand, a joint venture between Royal Caribbean Cruises, Ctrip and Stone Capital. Among the changes on the vessel will be a complete rethink of the restaurants, aiming them at the Chinese market. Also being added will be an ice bar, trampoline at sea, and mini-golf.
CTRP has a 35% stake in SkySea, while Royal Caribbean has an equal 35% share. Stone Capital has a 30% share and is a Shanghai-based private equity firm that invests for China’s wealthiest families and entrepreneurs. The ship’s inaugural season will see it homeport in Shanghai from May to October.
CCL – Cunard has launched an all-inclusive package for Grills Suites passengers to mark the line's 175th anniversary this year. The Grills Suites Inclusive Package includes onboard credit of $60 per day, four bottles of wine, dining credit, included gratuities, a photo, coffee card and internet minutes, all depending on the length of the cruise.
Takeaway: Another operator following the trend of offering all-inclusive deals
CCL - Carnival COO Alan Buckelew said, "We are looking at double-digit growth in China—20%, 30% annually—over the next few years while overall growth [in the industry] is around 3% and 4%.” “In China, the 25- to 45-year-olds are buying the cruises,” he said. “That is where the wealth is in China. They often bring along their parents. Extended-family cruises are common.”
Vacations are also shorter in China, with the average cruise lasting for four days compared with seven days in the West. Carnival says it already enjoys a 55% to 60% share of the tiny but fast-growing Chinese market, and executives expect it to grow to about half the size of the U.S. market—the industry’s largest—by 2020.
The Chinese also don’t stand in line for buffets, and spa treatments that are popular on Western routes have yet to catch on. Chinese cruisers require plenty of space for morning tai chi classes, and prefer private gambling parlors to the sort of elaborate evening shows that are popular in North America.
Takeaway: These demographics are well-known. China is a certainly a big opportunity but could also be a costly one, up front.
Las Vegas – According to the Las Vegas Review, January has been a big convention month for Las Vegas, starting with the International Consumer Electronics Show, which drew a record 170,000 attendees. The largest show this week will be the Shooting, Hunting & Outdoor Tradeshow, which is expected draw 67,000 visitors.
Takeaway: Convention business for Q1 2015 could be shaping up better than anticipated.
Maryland – wants to remove 300 slots each to make more room for table games and amenities. CZR wants to add 30 table games and Cordish intends to add 13. The Maryland Lottery must approve the reductions. Earlier, it allowed Gaming and Leisure Property’s Hollywood Casino to remove 308 machines..
Malyasia – offers free visa for tourists from China.
Takeaway: Another reason for tourists not to go to Macau. Korea/Philippines are also benefiting from Macau's slump.
US Treasury – The U.S. Treasury is telling casinos to do more to stop criminals from using their sports books to launder money in its latest warning to the industry to bolster compliance programs.
China Q4 GDP - 7.4% growth vs consensus of 7.2%
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.
Takeaway: The ECB is a "tree". Today we thought we’d focus on the “forest” by quickly framing up the global macro landscape through the lens of TACRM.
THEMATIC INVESTMENT CONCLUSIONS
Long Ideas/Overweight Recommendations
Short Ideas/Underweight Recommendations
QUANT SIGNALS & RESEARCH CONTEXT
Framing Up Global Macro Amid ECB-Related Consternation: Instead of focusing on the “tree” (i.e. Draghi’s ongoing press conference) in today’s Macro Playbook, we thought we’d focus on the “forest” by quickly framing up the global macro landscape through the lens of our Tactical Asset Class Rotation Model (TACRM). The saying, “to know where you’re headed, you need to know where you’re coming from” has rarely been truer than it may wind up being today.
One of the most important pieces of market color TACRM provides investors is through the lens of its Extreme Momentum Monitor, which flags the 20 highest and 20 lowest Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) readings throughout the accessible global macro investment universe of roughly 200 ETFs.
Specifically, observing what’s leading or lagging global macro markets, at the margins, tends to provide investors with a material signal in the dynamic process allocating to and from asset class beta. For example, we noticed that commodities and Euro-denominated assets had begun to consistently dominate the bottom-20 VAMDMI readings by mid-summer (see: slide 14 HERE) and that color that was very instrumental in helping us make the #StrongDollar commodity price #Deflation call that we continue to stick with today.
Among the top-20 readings:
*Things that do NOT rhyme with our active macro themes (refer to the hyperlinks below):
Among the bottom-20 readings:
*Every exposure in the bottom-20 VAMDMI readings is well within the scope of our active macro themes and hopefully we helped you get appropriately positioned for these draw-downs.
One more quick thing to note: currently there are 32 ETFs with a VAMDMI reading greater than +1x, which indicates a trend of positive VWAP momentum across multiple durations. That number compares to 49 ETFs with a VAMDMI reading less than -1x, which indicates the opposite. That ratio was 30/85 at the end of last week.
What this tells us is that investors are clearly bottom-fishing in bombed-out assets (think: EM, junk debt, energy, foreign currencies, etc.), effectively attempting to take advantage of any relief rally that Mario Draghi may provide.
They better hope markets are broadly satisfied with whatever he announces today, or another leg down in everything allergic to #Quad4 could be just around the corner.
***CLICK HERE to download the full TACRM presentation.***
TRACKING OUR ACTIVE MACRO THEMES
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.
EARLY LOOK: History's People (1/21)
#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.
The Hedgeye Macro Playbook (1/16)
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,
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.
Takeaway: We’re holding a conference call today at 1pm EST to update our short thesis on HAIN.
Toll Free Number:
Direct Dial Number:
Conference Code: 727318#
Materials: CLICK HERE
The call will focus on updated financial performance — which includes slowing trends, compressing margins, and deteriorating returns – since our initial short call.
We’ll also take a detailed look at the UK business, which we believe is merely a conventional food business rather than an organic one – and should be valued as such. We’ll hit on several other key points throughout the presentation, all of which indicate the company is severely misunderstood and mispriced.
Our sum-of-the-parts analysis suggests substantial downside.
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