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January 23, 2015

In today's edition of RTA Live, Hedgeye CEO Keith McCullough ran through the Real-Time Alerts positions as of 10:30AM ET and answers subscriber questions on housing, copper, the Canadian dollar, and more. 

 

If you haven't done so already, sign up for Hedgeye's Market Marathon on January 27.  Interact with Keith and his team of analysts as they discuss the stock market, economy and more all in real-time. They will answer your questions live via email, phone, Twitter and chat throughout the entire trading day. Plus, we’ll have special guests in our Stamford studio including best-selling “Currency Wars” author James Rickards, money manager Michael Holland, Jones Trading chief market strategist Michael O’Rourke and many others. 


LEISURE LETTER (01/23/2015)

TICKERS:  MPEL, GTECH, RCL, CCL, 0027.HK

EVENTS

  • Jan 28:  LVS 4Q CC
  • Jan 29:  PENN 4Q CC
  • Jan 29:  RCL 4Q CC
    • (1877)
  • Feb 2: Cod Manila Grand Opening
  • Feb 3:  GLPI 4Q CC

HEADLINE STORY

Galaxy Phase 2 press release–  

  • Open on May 27, 2015, will open with "majority" of facilities 
  • HK$5b "Broadway at Galaxy Macau" property - refurbished former Grand Waldo property
  • Will add 1,500 new hotel rooms, taking total to 4,000 rooms
  • Looking to hire >8,000 employees. Currently  recruited >1,000 people
    • Some hires will be non-locals
  • Francis Lui (Vice Chairman of Galaxy Entertainment):
    • Believe Macau govt should think very carefully on whether to increase gaming tax from 39%
  • Robert Drake, CFO:
    • "Confident we will get a sufficient amount of tables to generate the returns we have been forecasting."

Article HERE

Takeaway:  Rumors of a September opening debunked. How many tables will they receive remains the question?

COMPANY NEWS

LVS- Sheldon Adelson will replace Edward Tracy as Sands China's CEO on March 6. He will remain as chairman following the appointment.

 

Also, Sands China announced an interim dividend of HKD0.99 (US$0.13) per share, a 13.8% YoY. 

Article HERE

Takeaway:  Raising the dividend in a slumping demand environment is surprising.

 

SGMS – Peppermill announced that it has selected an array of Bally Systems solutions to replace existing slot systems at five Nevada properties. Included in the agreement is Bally’s new display management, and it’s promotional kiosk.

Article HERE

 

HST - Announces major transformational repositioning plan for the Denver Marriott Tech Center Hotel. Beginning in late 2015, the hotel will undergo an extensive multi-million dollar renovation to completely modernize every aspect of the hotel.  This renovation includes all 628-rooms of the two towers and will reconfigure and enhance the entrance, lobby, restaurants, and 45,000 square feet of event space.

Article HERE

 

HOT- expects another year of accelerated growth in North America, where it will surpass the 600th hotel milestone in the next two months. In 2014, Starwood opened 23 new hotels and signed 64 new hotel deals in North America, a 23% signings increase over the previous year.  

 

“North America remains one of Starwood’s most important global markets accounting for approximately 50% of our global portfolio and a third of our hotel openings in 2014, and we expect strong growth trends to continue this year,” said Simon Turner, President of Global Development for HOT. “The ongoing economic recovery and increased availability of financing are creating favorable conditions, contributing to strong growth across all three segments of our business and a notable surge in demand for new-build hotels, which comprised 81% of our North America signings in 2014.”

Takeaway:  North America pipeline is strong for 2015.

INDUSTRY NEWS

Vietnam - Have benefited from Macau VIP market downturn. The Grand Ho Tram Strip’s Chris Wieners said that the majority of the resort’s customers are from mainland China and Korea. “They also see a major opportunity with the current downturn in the VIP market in Macau: the opportunity to start growing that market in Vietnam. So a big target for them is to start looking at China, as well as the junket organizations and the VIP market here in Macau, and attract them to Ho Tram,”

Article HERE

 

No smoking in New Orleans  city council has unanimously voted to ban smoking in Casinos, Bars and Restaurants.  The ban will apply to Caesar’s Harrah’s New Orleans and Churchill Downs’ Fair Grounds racino. Pinnacle’s Boomtown New Orleans and Boyd’s Treasure Chest would be unaffected as they are in NOLA’s suburbs. Businesses will have 90 days to comply with the ban, which includes e-cigarettes.

Article HERE

Takeaway:  Negative for New Orleans casinos (CZR/CHDN).

 

AC  Airlines are being offered financial incentives to fly into Atlantic City International Airport, the Press of Atlantic City reported. Airlines are being offered breaks on landing fees, fuel sales and airport rental fees and could also get up to $60,000 in marketing support for domestic flights, and $120,000 for international flights.

Article HERE

 

LV - First quarter air capacity is up about 4.2% from last year with international seats up 17.5% and domestic 3.2% 


Powerball -  Powerball lottery ticket sales collapsed by some 40% in the second half of 2014 from the same period a year earlier in the 44 states, plus the District of Columbia, which participate in the sweepstakes. There hasn’t been a Powerball jackpot higher than $257 million in almost a year. In the 15 months before February 2014, there were five jackpots of at least $400 million. 

Article HERE

Takeaway:  Evidence that the US lottery industry is maturing. These Powerball sales are awful.

 

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.


Keith's Macro Notebook 1/23: Euro | Commodities | VIX

 

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

 

Sign up for Hedgeye's Market Marathon on January 27:  http://live.hedgeye.com/market-marathon/


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

THE HEDGEYE MACRO PLAYBOOK

Takeaway: In today's Macro Playbook, we show why the deterioration in the domestic labor market is perpetuating underperformance in the Financials.

THEMATIC INVESTMENT CONCLUSIONS

Long Ideas/Overweight Recommendations

  1. iShares U.S. Home Construction ETF (ITB)
  2. Health Care Select Sector SPDR Fund (XLV)
  3. iShares 20+ Year Treasury Bond ETF (TLT)
  4. Consumer Staples Select Sector SPDR Fund (XLP)
  5. PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
  1. 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. iShares MSCI Emerging Markets ETF (EEM)
  3. Industrial Select Sector SPDR Fund (XLI)
  4. CurrencyShares Japanese Yen Trust (FXY)
  5. SPDR Barclays High Yield Bond ETF (JNK)
  1. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)

 

QUANT SIGNALS & RESEARCH CONTEXT

Reviewing the Very Nascent Negative Inflection in the U.S. Labor Market: Core to our repeatable process is an extensive focus on rate-of-change and how inflections, accelerations and/or decelerations in the second derivatives of key economic variables impact financial markets.

 

In the spirit of this never-ending interplay, why are Financials (XLF) down -2.8% YTD when Consumer Staples (XLP) and Healthcare (XLV) are up +3.6% and +4.3%, respectively, over the same duration?

 

Perhaps the answer lies within the domestic labor market, which is showing both late-cycle strength and very nascent signs of what could become permanent deterioration – for this particular business cycle, that is. Recall that labor is critical to the rate-of-change in both credit demand and asset quality for banks.

 

From the perspective of “late-cycle strength”, the rolling 6-month average of seasonally-adjusted initial jobless claims is now ~295k. Moreover, this month marks the fourth month of readings at or below 300k. That is important because it’s very difficult for seasonally-adjusted initial jobless claims to continue to fall once this critical level is breached. In fact, you can officially set your U.S. recession clock to this indicator; the last three recessions began 18, 19 and 20 months after this metric hit ~300k. Repeat: we’re only four months into the topping process, which tends to last about a year-and-a half.

 

THE HEDGEYE MACRO PLAYBOOK - JOBLESS CLAIMS  2

 

From the perspective of “nascent signs of deterioration”, neither jobless claims nor non-farm payrolls are showing the strength that they once were.

 

Regarding the former: The YoY percentage change in the rolling 4-week average of non-seasonally adjusted initial jobless claims is another way us macro mavens examine the U.S. labor market. On this metric, the U.S. labor market is improving at a worse pace than in previous weeks and months. In other words, it is showing classic deterioration on a 2nd derivative basis.

 

THE HEDGEYE MACRO PLAYBOOK - Energy State Claims

 

Regarding the latter: The MoM nominal change in non-farm payrolls is among the most pronounced ways investors examine the labor market. On this metric, employment growth is not as robust as it has been in recent months. Another way to put that: the U.S. labor market is showing classic deterioration on a 2nd derivative basis as well.

 

THE HEDGEYE MACRO PLAYBOOK - PAYROLLS

 

Whether or not the peak in the employment growth is in the rear-view mirror is something that we cannot confirm at the current juncture. What we can confirm is that the probability that the peak in employment growth is in the rear-view mirror is substantially higher than it was a month ago.

 

What I won’t do is lick my finger in the air and give you some fabricated estimation of said probability; markets and economies move in non-linear and uncertain terms; so should you.

 

Pardon our comfortableness with uncertainty. If you ask us, the “uncertainty” regarding the state of the U.S. labor market is precisely why Financials are underperforming our recommended U.S. equity sectors (i.e. Consumer Staples and Healthcare) by 638bps and 717bps, respectively, for the year-to-date.

 

If only I received nickel over the last 6-9 months for every PM that said: “but I can’t buy Consumer Staples or Healthcare [or Utilities, or REITs] because they are expensive”…

 

***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.

 

Draghi Delivers the Drugs! (1/22)

 

#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.

 

HOUSING: FHFA HPI | Notable Acceleration (1/22)

 

Best of luck out there,

 

DD

 

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.          


Retail Callouts (1/23): KATE, RH, AdiBok, TGT

Takeaway: KATE breaks 'Wall of Silence' pre-announces pre-announcement Thurs 1/29. RH adds new member to Board.

COMPANY HIGHLIGHTS

 

KATE - To Pre-Announce 1/29, Breaks 'Wall of Silence'

 

Takeaway: There's a first time for everything. KATE pre-announced that next Thursday it is going to pre-announce. As bizarre as this seems to be, the only negative is that it confirms a severe disconnect between this company's communication strategy vs. the fundamental strength in its business, and the upside to the long-term financial model. For the full link to our note from this morning, CLICK HERE.

 

RH - RH APPOINTS ALI ROWGHANI TO BOARD OF DIRECTORS

(http://ir.restorationhardware.com/phoenix.zhtml?c=79100&p=irol-newsArticle&ID=2009793)

 

Takeaway: RH needed one more independent Board member to be compliant with the listing requirements after Barry Sternlicht stepped down from the board mid-Summer. We don't know Rowghani personally but his resume speaks for itself. Sternlicht was invaluable in helping build out the blueprint for the Full Line Design Gallery. A framework that is still guiding the negotiations for new deals. We like that that Rowghani checks a box in two departments - finance and tech.

 

 

OTHER NEWS

 

AdiBok - ADIDAS GROUP TO SELL ROCKPORT TO A NEW ENTITY FORMED BY BERKSHIRE PARTNERS AND NEW BALANCE

(http://www.adidas-group.com/en/media/news-archive/press-releases/2015/adidas-group/)

 

TGT - Target launching its first plus-size clothing line in 7 years

(http://www.nydailynews.com/life-style/fashion/target-launching-plus-sized-clothing-line-article-1.2087089)

 

HBC - Hudson's Bay Company Announces $100 Million Bought Deal Offering

(http://investor.hbc.com/releasedetail.cfm?ReleaseID=892575)

 

WMT - Wal-Mart Canada opening 11 supercenters in January

(http://www.chainstoreage.com/article/wal-mart-canada-opening-11-supercenters-january)

 

EBAY - Ebay Cutting 2,400 Jobs

(http://www.wwd.com/business-news/human-resources/ebay-cutting-2400-jobs-8130460?module=Retail-latest)

 

CACH - Caché Closer to a Ch. 11 Filing

(http://www.wwd.com/business-news/financial/cach-closer-to-a-ch-11-filing-8133845?module=Business-latest)


Daily Trading Ranges, Refreshed [Unlocked]

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published January 23, 2015 at 07:26. Click here to learn more and subscribe.

Daily Trading Ranges, Refreshed [Unlocked]   - Slide1

BULLISH TRENDS

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Daily Trading Ranges, Refreshed [Unlocked]   - Slide6

 

BEARISH TRENDS

Daily Trading Ranges, Refreshed [Unlocked]   - Slide7

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Daily Trading Ranges, Refreshed [Unlocked]   - Slide13


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%
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