LEISURE LETTER (01/27/2015)




  •  Jan 28:  LVS 4Q CC
    • , Passcode: 61558874
  • Jan 29:  
    • PENN 4Q CC
    • RCL 4Q CC
  • Feb 2: Cod Manila Grand Opening
  • Feb 3:  GLPI 4Q CC

headline story

MAR - 

  • Signed definitive agreements to acquire the Delta Hotels and Resorts® brand and management and franchise business from Delta Hotels Limited Partnership, a subsidiary of British Columbia Investment Management Corporation (bcIMC) for C$168 million (approximately $135 million).  
  • Delta brand:  38 hotels; 10,000 rooms in more than 30 cities across Canada
    • bcIMC-affiliated entities own 13 Delta hotels (and one under development) and will sign new 30-year management agreements with Marriott for these properties.  Third parties own the other 25 Delta hotels; 15 are managed by Delta and 10 are franchised.  In total, five managed hotels (approximately 1,100 rooms) are under development.

  • When completed, the transaction will increase Marriott's distribution in Canada to more than 120 hotels and 27,000 rooms, making Marriott the largest full service hotel company in Canada.
  • At stabilization, after realizing certain operating synergies, Marriott expects the purchase price to be approximately 10x annualized EBITDA 
  • Expect transaction to close 2Q 2015 
  • MAR does not expect the transaction will have a material impact on its 2015 results, excluding one-time transaction and integration costs.

Takeaway: This is a micro deal considering Delta would generate only $14m in EBITDA after synergies while MAR is expected to earn >$1.6bn in EBITDA in 2015.


Grand Korea Leisure - is seeking to operate casinos on cruise ships. The company has already engaged a consulting firm to study the economic feasibility of the project. 

Article HERE


MAR - will be introducing Moxy Hotels to the US via 8 projects slated for major metropolitan locations, including New York City (Chelsea, Mid-town and Lower Manhattan), San Francisco, Seattle, New Orleans and Chicago.

Takeaway:  Bringing the boutique, fun and hip to the big cities


H - introduced Hyatt Centric, a new, full service lifestyle brand designed for business and leisure travelers. The launch marks the sixth brand Hyatt has introduced since 2006.  More than 15 Hyatt Centric locations, comprised of open and previously announced hotels, will debut this summer in the heart of some of the world’s most popular cities, including New York, Paris, Atlanta, Chicago and Miami. 

Takeaway:  A lifestyle brand? What an original idea...


HST- announced that its European joint ventures' recently acquired 394-room Grand Hotel Esplanade Hotel in Berlin was converted to a Sheraton franchise in December 2014.  EVENT Hotel Group will continue to operate the hotel under a franchise agreement.

Takeaway: The European JV, in which HST holds a 33.4% interest, had already acquired a 90% ownership interest in the Grand Hotel Esplanade in October. At the time, the hotel was acquired for a gross purchase price of €81.0 million.


LHO - LaSalle Hotel acquires the Westin Market Street for $350M. Hotel was renamed Park Central San Francisco.  Michael D. Barnello, President and CEO of LHO, said, “The San Francisco lodging market remains very strong, with demand at peak levels and limited supply growth on the horizon, and we are excited about increasing our presence in San Francisco for the second time within 10 months – marking our seventh hotel in the city. Approximately 17% of our EBITDA is now generated in San Francisco.”

Takeaway:  Another transaction in a strong tier 1 market.  Average price per key was $513,950


NCLH - Regent Seven Seas Cruises reports that its new flagship, Seven Seas Explorer, has posted both single-day and first week record bookings since the ship went on sale to the line's loyalty members. Here's the latest on the new ship.

Article HERE

Takeaway:  Strong initial demand for Regent's new ship


CCL - will sign a MOU with China Merchants Group (CMG) for 2 potential JVs. 1) explore a potential partnership to form a Chinese cruise line for the domestic market, using new ships designed and built in China. The joint venture might also acquire existing vessels. 2) Develop ports and destinations in China and Northern Asia. CMG is already developing Prince Bay Cruise Terminal in Shenzhen.

Takeaway:  Carnival continuing to explore opportunities in China and build relationships there.

industry news

Gaming workforce The number of people in Macau working for the gaming industry reached an all-time high during 4Q 2014.  There were 87,000 people employed by the sector during the October-December 2014 period, said the Statistics and Census Service. The figure was up by 7% QoQ.  

Article HERE 

Takeaway: This number will be much higher after Galaxy Phase 2 and MSC opens later in 2015

Hotel transactions

  • Dubai Based Select Group Acquires the 211-key Radisson Blu Hotel Birmingham in the UK 

Article HERE

  • Arden Group Acquires Florida's 323-key Intercontinental Hotel Tampa Westshore; $7 Million Renovation Planned 

Article HERE

  • DelMonte Hotel Group Sells Four of its Fairfield Inn Hotels 

Article HERE


Caribbean capacity - According to the 2015-2016 Cruise Industry News Annual Report, Caribbean market capacity will level off for the 2015 calendar year, slightly dipping due to ship movements. After a record breaking 9.1 million passenger performance in 2014, up from 8 million passengers in 2013, the Caribbean cruise market will come down to an estimated 8.75 million for the 2015 season. The main driver of the slight decrease has been a few ship movements, including sending the Allure of the Seas to Europe. In addition, some operators are offering longer cruises and a few vessels were moved to Asia and Australia, thus offsetting capacity spikes from new tonnage.

Article HERE

Takeaway:  Lower capacity in the Caribbean is a known; will pricing grow?


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.

Late-Cycle Macro Factors Matter

Client Talking Points


Sorry for sounding like a broken record on this, but not really – because #deflation remains grossly misunderstood. CRB Index hit another new low yesterday at 216 (-6% year-to-date, -31% last 6 months) with Nickel chasing Copper lower -3.4% as Chinese Industrial profits of -8% year-over-year are as bad as their marked up stock market has been good. 


UST 10YR gets the global #GrowthSlowing + #Deflation theme; they tried to bounce rates intraday yesterday, but that only lasted a few hours and the UST 10YR is right back down at 1.81% this morning with no immediate-term support to 1.75%, then 1.52% after that – don’t forget that Q414 GDP report is pending on Friday and should slow vs. Q3.


The mainstream/sell-side is about anything but this right now – worst start to an EPS season in 6 years. Only 33% of companies are registering sequential acceleration in sales growth thus far, only 40% registering sequential margin expansion, and just half registering sequential acceleration in earnings growth.



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Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road


Oil continues to suck wind at $45.21 WTI (-15% YTD - started 2015 at $53.27)



The revolution is not an apple that falls when it is ripe. You have to make it fall.

-Che Guevara


Craft brewers on average use 4.17 times as much barley as brews from U.S. beer giants InBev and MillerCoors, according to the USDA. Non-craft beer brewers use an average of 16.5 pounds of barley per barrel, while craft beer producers use a whopping 68.7 pounds per barrel.

CHART OF THE DAY: Late-Cycle #Earnings Slowdown

CHART OF THE DAY: Late-Cycle #Earnings Slowdown - chart


Editor's note: This is a brief excerpt from Hedgeye CEO Keith McCullough's Morning Newsletter today. 


With US Earnings Season underway, here are some early highlights (with ~20% of SPX constituents having reported – see Chart of The Day for color coded rate of change breakdown):


  1. From an operating momentum perspective this is about as ugly as it’s been in recent memory
  2. Only 33% of companies are registering sequential acceleration in sales growth thus far
  3. Only 40% registering sequential margin expansion, and 50% seeing sequential acceleration in EPS growth

Late-Cycle Slowdown

“Each thing is of like form from everlasting and comes round again in its cycle.”

-Marcus Aurelius


Until you’ve survived a few cycles in this business, you haven’t really lived. Cycles come in many styles and durations. Sometimes they’re cyclical. Sometimes they’re secular. Most of the time, you can front-run them – in rate of change terms.


Yes, the ole rate of change. As in the thing that helps you analyze time/speed – accelerations vs. decelerations. No, it’s not what most traditionally-trained-linear-economists use. That’s why what you read here every morning is different.


What is not different this time is that there will be an economic cycle. While central planners will try their damndest to “smooth” and “stabilize” it… in the end, the gravitational force of the cycle will prevail.

Late-Cycle Slowdown - cycle arrows small 

Back to the Global Macro Grind

It’s a lot easier to make bold statements like that about the economic cycle when:


A)     The cycle is already slowing

B)      The Bond Market is already pricing it in


“So”, while our call on global #GrowthSlowing + #Deflation isn’t yet consensus on the sell side, the buy-siders (and self directed individuals) who are set up for it are the ones who are getting paid.


To review the #process of measuring markets and economies in rate of change terms, I always try to contextualize the rate of change in indicators as either EARLY-cycle, or LATE.


For the purpose of this morning’s discussion, I’ll focus on a USA trifecta of LATE-cycle macro factors slowing. Oh, and by the way, they started slowing in the following order (not all at once):


  1. INFLATION (classic late-cycle) has undergone a full phase transition to #deflation in the last 6-8 months
  2. JOBS (as late-cycle as late-cycle gets) peaked in the back half of 2014, and Jobless Claims are breaking out now
  3. EARNINGS (yes, they are cyclical) peaked, in rate of change terms, when pricing and FX impact did (2014)


That last one (EARNINGS) is going to drive the people who are pitching “SP500 isn’t expensive” (if you use peak sales growth and margins to derive SPX earnings) right batty. The rate of change slowing in cyclical data generally does.


With US Earnings Season underway, here are some early highlights (with ~20% of SPX constituents having reported – see Chart of The Day for color coded rate of change breakdown):


  1. From an operating momentum perspective this is about as ugly as it’s been in recent memory
  2. Only 33% of companies are registering sequential acceleration in sales growth thus far
  3. Only 40% registering sequential margin expansion, and 50% seeing sequential acceleration in EPS growth


Now if all you do is look at absolutes vs. Old Wall “expectations”, I lost you at rate of change. But, since most of you reading this pay for it, I’m highly confident that you get it. Calculus was a 12th grade pre-req to the Early Look.


For your stock picking friends who don’t do macro math and don’t get rate of change, ask them the following questions:


  1. If a company’s growth rate is about to slow, will the stock go up or down until the slow-down is priced in?
  2. What if a company’s margins are about to compress from an all-time peak?


Seriously. It’s not rocket science. You just have to doggedly track the second derivatives and #grind.


You also have to do the required #history reading to respect that #Deflation hasn’t been a sustained reality for nearly a decade now. If you expand your analytical horizons to past cycles, you’ll find ones like the 1 #Deflation (i.e. the ugly kind) and the more beautiful ones like 1 (even though America had to go through the ugly to get there).


Delaying the ugly (btw, Dalio coined the “ugly vs the beautiful deleveraging”, not me) via some cochamamy central plan only postpones the inevitable. Draghi and Yellen know that. They’ve been trying to delay the mismatch between falling demand and inflated prices with the illusion of growth (Policies to Inflate via currency devaluation), for what, 6 years?


Thankfully, not everyone shares our view of holding both large cash and long-dated Treasury positions (see Asset Allocation Model) so that we can buy the riskier things we like when they really deflate. Our current strategy doesn’t hold us hostage to an inevitable late-cycle slowdown, and makes us a nice, low-volatility absolute return, while we wait…


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.75-1.84%


VIX 14.64-23.04

Oil (WTI) 44.03-46.85

Gold 1

Copper 2.48-2.58


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Late-Cycle Slowdown - chart


Takeaway: Today we contextualize the relief rally in emerging market asset prices and discuss what would cause us to abandon our bearish thesis.


Long Ideas/Overweight Recommendations

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



We’ve Been Wrong on Emerging Markets For ~6 Weeks… Why?: On 12/16, we hosted a conference call titled, “#EmergingOutflows Round II: This Time Is Actually Different” to reiterate and expand upon our bearish bias on emerging market asset prices and economies.


Since the aforementioned call, EM asset prices have actually gone up; in fact, 12/16 marked the low in many EM capital and currency markets amid the height of the Russian ruble crisis. On the call, we introduced 10 new EM ETF short ideas (EEM, EMB, EMLC, EMCB, CEW, GML, EWZ, ICOL, NGE and RSX); on average, those 10 ETFs have moved -368bps against the direction of our thesis. Not our best work; far from it, actually.


Not to beat ourselves up, however, the two long ideas we introduced on the call (EPHE and TUR) are performing as well as any asset class in all of Global Macro over that time frame and have moved +784bps and +1,520bps, respectively, in the direction of our thesis.




Since we switched from being bullish to being bearish on emerging markets in our 9/23 note titled, “EMERGING MARKETS: THE EM RELIEF RALLY IS LIKELY OVER”, the MSCI EM Index has fallen -4.3%, the JPM EM Currency Index has fallen -9.0% and the Bloomberg USD EM Composite Bond Index has fallen -1.2%. Those returns compare to a gain of +3.8% for the S&P 500 Index, a gain of +11.9% for the U.S. Dollar Index and a gain of +4.5% for the Bloomberg U.S. Treasury Bond Index.


Clearly being bearish on emerging markets over the past ~4 months was the right call to make.


But is being bearish on emerging markets the right call going forward?


Specifically, are the factors which are driving the current relief rally across EM capital and currency markets likely to remain in place for the foreseeable future?


In order to answer that question, we have to first figure out what’s been driving the relief rally in the first place. Rather than use conjecture and/or assumptions, we’ve deferred to math in the following chart:




What you’ll quickly note (likely thanks to our highlighting of key, non-intuitive correlations) is that it’s more than reasonable to attribute the relief rally to the recovery in European financial assets in expectation for and reaction to the ECB’s recent QE announcement due to the tight positive correlations with European equities.


Additionally, one can also conclude that the sharp rally in European fixed income has left European investors yieldless, at the margins, and has perpetuated a massive yield chase across global financial markets which has benefitted EM assets, which are typically higher yielding than their DM counterparts. Yes, this is the same yield chase we’ve seen benefit U.S. Treasury bonds over the past 6-9 months. We can deduce this by noting the tight positive correlations to DM high-dividend stocks, global REITs, USD-denominated and EUR-denominated high-yield debt, as well as the U.S. dollar itself – that latter of which has historically been inversely correlated to EM asset prices.



Source: Bloomberg L.P.


Will the rally in European equities and the ECB-induced global yield chase last? Of course we can’t know the answer to either question on an ex ante basis, but what we do know is that the higher the U.S. dollar climbs, the more risk there is to the downside in EM asset prices and economic growth.








THE HEDGEYE MACRO PLAYBOOK - EM   Foreign Non Official Holdings of Govt Debt


THE HEDGEYE MACRO PLAYBOOK - EM   Change in Foreign Non Official Holdings of Govt Debt


More importantly, our quantitative signals continue to support maintaining a bearish bias on EM asset prices. Specifically, our Tactical Asset Class Rotation Model (TACRM) continues to generate a “DECREASE Exposure” signal for EM Equities as a primary asset class.




That being said, however, any persistent strength in the breadth of this asset class is likely to perpetuate a bullish signal in the coming weeks/months. Moreover, that would likely coincide with a bearish-to-bullish TREND reversal on Keith’s quant signals as well. Either event would cause us to remove our bearish fundamental thesis on this asset class.




***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.


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 (1/23)


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.


EHS | RoC Solid (1/23)


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.          

January 27, 2015

January 27, 2015 - Slide01


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