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CRUISE CALL TAKEAWAYS

Takeaway: Overall, the takeaway is on the margin negative: Wave momentum slowed in Jan Europe is struggling.

Summary from Wednesday's conf call with Mike Driscoll from Cruise Week

 

 

Yesterday, we held a conference call for subscribers Mike Driscoll Editor In Chief of Cruise Week.  From Mike's commentary, we came away with the impression that Wave momentum slowed in January and European demand was softening. Overall, the call seemed to corroborate the findings of our latest cruise pricing survey.  

 

Here are some more thoughts from Mike:

 

Wave 2015

  • Mixed results despite high expectations for Wave North America.
    • December Wave bookings were strong, primarly due to a lot of deals and discounting by the cruise lines.
    • January slowed considerably possibly due to an earlier start to Wave this year

Europe

  • Mediterranean/Baltic both slowing since France crisis  
  • 2014 was a record booking season for Europe.
  • Not seeing cancellations but seeing weakness in ocean cruising. River cruising has held up better.
  • St. Petersburg struggling for quite some time

Caribbean

  • Recovery happening.
    • Last year, many norovirus issues. This year, nothing.
    • Benefiting from cold weather
  • Norwegian started discounting early in December and then put out its Wave package in January

Carnival brand  

  • Expectations from agents was already low
    • Agents think Carnival could be doing much better due to comps but that hasn't materialized. 
    • Agents blame Carnival's heavy direct business for the slow recovery (not surprise that agents would blame the competition)
    • Some reluctance from agents to reestablish trust with the Carnival brand
    • Getting hurt badly on the interior part of the US.  Carnival brand but doing better on the ports (e.g. Galveston, Carolinas etc)
      • Norwegian, however, has grown with its national business
  • Feedback from Vista was underwelming

Asia

  • Question mark market
  • RCL only putting its best ships there. CCL testing its middle ships there
  • In the past, Carnival went into Japan with two ships year round and mgmt didn't speak of Japan on the conference calls. Then they pulled back. When things are going well, mgmt will talk it up, like China for example.

1st time cruisers

  • Cruise lines still having difficulty attracting 1st cruisers
  • Very challenging to increase 1st timers
  • Agents are most helpful in this area but requires more of their time
  • They feel like they’re not getting the deal because they don’t know what they’re looking at
  • Many complexities are holding back first timers
  • Norwegian is doing somewhat well but overall, we are not seeing the bump in first timers as we should 
  • Carnival is losing share of 1st timers

More bundled promotions

  • Retailers love it. It’s the way consumers now shop.
  • Travel agents like it because commissions are higher with bundled deals
  • Norwegian is changing its promotions every month.
  • Sometimes it can undermine the group business.

What do consumers value most today when booking?

  • All inclusive bundles
  • Consumers aren't falling for the price tag
  • Direct business hasn’t grown as much because they know they not getting the best deal
  • Repeat customers know what prices they should be paying 

Loyalty

  • Royal and Princess have a very loyal customer base

Competition 

  • River cruise industry is a serious competitor. Even Seabourn is losing business to river cruises.
  • In the US, the alternative vacation choice is Vegas and Orlando
  • Carnival's biggest competition is all-inclusive packages

Princess

  • Princess is doing 3-4 day cruises out of Los Angeles and Fort Lauderdale to attract first time customers. Prices lower than expected. ~50% of customers were first timers to Princess but not first time cruisers.

Agencies/Commissions

  • Only a few large travel agencies control the business now
  • Viking is coming out with new ocean going ships in the Med with higher commissions
  • Max out at 17% commission with Princess

Climbing The Wall

This note was originally published at 8am on January 16, 2015 for Hedgeye subscribers.

“We were just us up there – 19 days on the wall.”

-Kevin Jorgeson

 

In case you missed it, two American free-climbers achieved greatness this week. After a 19-day epic #grind of human preparation, teamwork, and perseverance, Tommy Caldwell and Kevin Jorgeson successfully scaled Yosemite’s El Capitan.

 

Since you know I like to think and write in metaphors of historical feats and failures, there are obviously a lot of ways I can roll with this story. But the most important lesson is to have both patience and #process.

 

These guys spent 7 years planning to embrace the uncertainty of the climb… and 7 full days, literally stuck, hanging, on the most difficult face of mountain (Dawn Wall). If you think multi-duration and multi-factor like these guys do, you can achieve excellence too.

 

Climbing The Wall - 99

 

Back to the Global Macro Grind

 

I’m not a fan of excuse making or mediocrity. I know that might rub some people the wrong way but, in case you didn’t notice, I don’t particularly care about what they think. My teammates and I are out here, every day, climbing an Old Wall that we know we can beat.

 

Does that mean that this is easy? Of course not. This is one of the highest paying professions on the planet because excellence isn’t allocated to job titles and/or academic standing – it’s earned out there on The Wall, every day.

 

The toughest climb we’ve had in the last 3 years hasn’t been making the bullish Long Bond (TLT) call. It was in building a #process (for 7yrs as a team) that was flexible and could objectively go both ways, calling for:

 

  1. A breakout in US interest rates in 2013 (as real US economic and employment growth #accelerated)
  2. Then the reversal of rates in 2014 (global #GrowthSlowing + #Deflation)

 

I don’t know if it was the 7 days at the end of September (before the Russell’s JUL-OCT drawdown capitulated at -15%) or the last 7 trading days of December when everything was going the wrong way vs. our plan…

 

But there were plenty of times where I questioned my every premise. I had to review everything I’d written in my notebooks, my teammates models, etc. and ask myself, over and over again, whether or not this was the right path to take.

 

Fortunately, it was.

 

This morning both the inability of central planners to arrest gravity (global #GrowthSlowing) and market expectations for #deflation are reaching an immediate-term capitulation point.

 

No, that’s not just staring at the “Dow 18,000 Bro” futures guys – remember, we do Global Macro – and there’s a lot more to beating this Old Wall than calling out the 50-day in spooz.

 

Today is capitulation day for Long Bond bears. If they didn’t get rates right, they’re going to be feeling plenty of pain in those asset allocations that are directly correlating to crashing bond yields. Their pain is your gain.

 

Follow #Deflation’s Dominoes:

 

  1. UST 10yr Yield = 1.71% (already down 21% YTD, and -43% since this time last yr)
  2. Commodities (CRB Index) = 220 (that’s -29% since June of 2014, at 12 month #deflationary lows)
  3. Financials (XLF) and Regional Bank Stocks (KRE) are already -6.2% and -10.2% YTD, respectively

 

Particularly on that last point (which is just equities following what bonds and commodities already did), that’s a nasty start to the year. And it fundamentally should be, because:

 

  1. Crashing Bond Yields (and widening credit spreads) are clean cut #GrowthSlowing and #Deflation signals
  2. Yield Spread Compression (10yr minus 2yr at a fresh 12 month low of 128 bps today) = #GrowthSlowing
  3. And when 1 and 2 are true, you don’t buy late-cycle stocks like Energy, Financials, and Industrials

 

If all you do is US stocks (we don’t), here’s the YTD score:

 

  1. Energy (XLE) -8.0% YTD
  2. Financials (XLF) -6.2% YTD
  3. Industrials (XLI) -3.9% YTD

 

Vs. the #alpha climbers:

 

  1. Utilities (XLU) = +2.1% YTD
  2. Healthcare (XLV) = +1.0% YTD
  3. Consumer Staples (XLP) = +0.8%

 

In other words, if you are out-front, beating your competition on that absolute and relative performance wall, you are A) short/underweight what we don’t like and B) long what we like.

 

What’s next for bond yields, the late-cycle bank stocks, etc?

 

  1. What if jobless claims (Energy States) breakout to the upside (see Chart of The Day)
  2. What if #Deflation hurts sales, earnings, and margins? (SP500 is coming off peak)
  3. What if European stocks react to Draghi’s plan next wk like Swiss stocks just did?

 

What if you woke up, every day, asking yourself not whether or not you like me as a person… but asking yourself about yourself, your process, and your performance path?

 

This isn’t Yosemite. This is Wall Street. And yes, you need to have a macro view. So #Timestamp it! The plan is always that the plan is going to change. And while you might lose a few fingernails, stressing yourself to not take the consensus route along the way…

 

If you can make that epic performance climb, you can sit up there at the top, smiling all day.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.70-1.93%

SPX 1981-2018

VIX 19.78-23.31

Oil (WTI) 44.43-47.93
Gold 1225-1267

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Climbing The Wall - Claims vs Crudel


Timestamping David Tepper

We are big believers in accountability and transparency here at Hedgeye. And, like any truly successful athlete, team, company or organization, we have our fair share of loathers out there. But one thing is for certain ... no one can accuse us of not being transparent or accountable.

 

In that vein, we'd like to take a minute to highlight two big market calls recently made by Appaloosa hedge fund manager David Tepper.

 

As the first graphic below shows, exactly one month ago today Tepper was bulled up on stocks calling for 8-10% upside in 2015. He told CNBC's Melissa Lee the following:

 

"It's not the time to be careful now. Enjoy the ride."

 

The S&P 500 is down approximately -4% since. 

 

Timestamping David Tepper - appa3

 

As the second graphic below shows, Tepper's call on bonds back in September to Bloomberg's Stephanie Ruhle, well, it was  #epically wrong.  

 

“It’s the beginning of the end of the bond market rally,” Tepper said in a telephone interview. “We are done.”

 

Hedgeye CEO Keith McCullough and his macro team took a lot of heat during that time (we were non-consensus and long the long bond via TLT in 2014).

 

For the record, TLT is up over +17% since Tepper declared the end of the bond rally as 10-year Treasury yields flirt with record lows at 1.77%

 

Yes, we remain long the long bond.

 

Timestamping David Tepper - boom1


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Cartoon of the Day: Alibubble

Cartoon of the Day: Alibubble - Alibaba cartoon 01.29.2015

 

Very few research firms have been cautious or negative on the BABA, but at Hedgeye, we’ve been on the other side of consensus.


GLD: Adding Gold to Investing Ideas

Takeaway: We are adding Gold to Investing Ideas.

Please note that we are adding Gold (GLD) to Investing Ideas today.

 

Our macro team will outline our bullish thesis in this weekend's edition. 

GLD: Adding Gold to Investing Ideas - Gold cartoon 07.23.2014


McCullough: Don’t Buy Most Expensive Bubble We’ve Seen Since Beginning of Mankind | $BABA

 

In today's edition of RTA Live, Hedgeye CEO Keith McCullough did not mince words when asked about Alibaba.

RTA Live is available exclusively to Real-Time Alerts subscribers.


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