LEISURE LETTER (02/11/2015)




  • Feb 12: 
    • MPEL 4Q CC 8:30am
      • (1866) ; pw: MPEL
    • PNK 4Q CC 10:00am
      • ; pw: 68847867
    • BYD 4Q CC 5:00pm
      • ; pw: 5378350
  • Feb 17: MGM 4Q CC 11:00am
    • ; pw: 8870181
  • Feb 18: 
    • NCLH 4Q CC 11:00am
    • HYATT 4Q CC 11:30am
      • ; PW: 62845475
    • MAR 4Q release 5pm
  • Feb 19:
    • HST 4Q CC 9:00am
    • MAR 4Q CC 10:00am
      • ; pw: 41025602
  • Feb 25: Prestige analyst day  


HLT- closes sale of the Waldorf Astoria New York and uses proceeds to acquire five landmark hotels for $1.76B. The five hotels are:  

  • Hilton Orlando Bonnet Creek in Orlando, FL (1,001 rooms)
  • Waldorf Astoria Orlando in Orlando, FL (498 rooms)
  • The Reach, A Waldorf Astoria Resort in Key West, FL (150 rooms)
  • Casa Marina, A Waldorf Astoria Resort in Key West, FL (311 rooms)
  • Parc 55 in San Francisco, CA (1,024 rooms)

Purchase price of these five hotels of $1.76 billion represents ~13x the midpoint of the five properties’ combined full-year forecasted 2015 Adjusted EBITDA of between $132 million to $138 million.


Hilton Worldwide expects that these hotels will not require meaningful incremental capital expense in the near term, and will expand the footprint of Hilton Worldwide’s portfolio of iconic owned hotels in Florida resort markets and San Francisco, a key growth market.


Expects to close transaction in February 2015 and use the balance of the proceeds of the sale of the Waldorf Astoria New York net of prorations, adjustments and transaction expenses, estimated to be approximately $100 million, to purchase additional assets within the next six months.

Article HERE

Takeaway:  Quality assets bought with Waldorf Astoria money in a tax efficient manner. Good arbitrage of multiples while avoiding the inevitable cash outlay for the Waldorf renovation/expansion. Hedgeye believe HLT could spin off all of its real estate into a REIT, possibly announce the deal in 2H 2015.


IGT  - Shareholders approve merger with GTECH. Declared 11 cent/share dividend payable March 20.


IGT  - won 100% slot floor share (100 slots) and system installations at Grey Rock Entertainment & Casino, slated to open this month

Article HERE


MSC-  will expand its capacity on the German market by basing a second Fantasia-Class vessel in a German port for the 2016 season. MSC Fantasia is to operate seven-day cruises from Kiel, April to September next year, replacing the smaller MSC Orchestra.The Fantasia-class MSC Splendida, which is going to operate from Germany for the first time this year, will be based in Hamburg again in 2016.  The fleet reshuffle responds to strong demand for cruises in Northern Europe, according to Michael Zengerle, md of MSC Kreuzfahrten in Munich.

Article HERE

Takeaway:  The Germany market getting crowded.


RCL - Royal Caribbean International has partnered with hospitality technology provider Eleven to provide unlimited onboard Internet access based on a per day rate.

Article HERE


Slump has cost 1,000 VIP gaming jobs, union says. The trade union Forefront of Macau Gaming estimates that at least 1,000 staff of VIP gaming rooms have been laid off since July. Union vice-director Lei Kuok Keong says about one-third of Macau’s VIP rooms have closed temporarily or permanently because of the slump in gaming, which is due to the mainland’s credit squeeze and campaign against corruption deterring rich mainlanders from gambling.


Lei says the employees laid off include cashiers, accountants, public relations staff, customer service staff and drivers.

Article HERE

Takeaway: If true, these are the 1st meaningful job cuts in a while in Macau although no dealers have been laid off.


Beijing’s main representative in Macau Li Gang, director of the Central People's Government Liaison Office in Macau said on Tuesday that the city’s casino industry had entered “an interim development period” that would allow for its stable growth in the future. He added it was “normal” that gross gaming revenue (GGR) had dropped for consecutive months – eight at current count, and heading for a ninth sequential decline in February.

Article HERE


The government expects gross gaming revenue in Macau’s casinos to be lower this month than a year ago. “GGR reached MOP38 billion in February 2014. We estimate that GGR [this month] will not be as high, as MOP38 billion in GGR was the highest that Macau has registered,”

Article HERE


Govt to persist with LRT project. Chief Executive Fernando Chui Sai On has said he and his advisers agree that the Light Rapid Transit elevated railway project should continue.

Article HERE

Takeaway:  This project has been a disappointment and an embarrassment.


Singapore - Singapore reported fewer international visitors last year, the first annual fall since 2009, hurt by a stronger Singapore dollar and a drop in the number of Chinese tourists amid slower regional tourism growth. International visitor arrivals fell 3 percent last year to 15.1 million, missing the Singapore Tourism Board's forecast of an increase of 5 to 8 percent from 2013.


China visitors grew for the 3rd consecutive month in December.

Article HERE


LEISURE LETTER (02/11/2015) - MA


South Korea - Incheon Airport, the gateway to Seoul, is planning a tourism project to emulate Resorts World Sentosa in Singapore that aims to lure Chinese gamblers with a new casino, shopping mall and hotels. The project may cost 5 trillion to 6 trillion won (S$6.3 billion to S$7.6 billion), Mr Lim Byung Kee, an official at Incheon International Airport Corp, said in an interview. The airport is looking to receive proposals to build the facilities and sign deals this year, he added.

Article HERE

Takeaway:  Better hope the Chinese VIPs can get out of China.


Texas - The Texas Lottery set a record last week for scratch-off ticket sales. The lottery said sales of scratch-off games topped out at $75,677,650 last week, beating the previous record set in March 2013 of $75,360,138.

Article HERE

Takeaway:  Powerball is alive today with a $485 million jackpot. All other lottery games are benefiting from it.


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.

Correlations and Rates

Client Talking Points


Finally a big move down in Yen vs. the USD yesterday and that’s seeing follow through this morning to $119.71 (4 week low). This is A) good for Japanese stocks, B) bad for oil and C) bad for levered Energy stocks.


The beta on this Correlation Risk between USD and Oil is massive – on a +0.2% move in the USD Index yesterday, Oil and Gas stocks were down 10x that, and some of our least liked MLP stocks were down 7-9%; this is a very different macro trade than the newsier Greek thing – lots to think about on different storytelling vectors.


Then you had an expedited 3-day March higher in rates post the jobs report that finally stopped yesterday (vs. 5AM yesterday, the UST 10YR Yield is actually down a beep to 1.98% now), and Utilities (XLU) front-ran that efficiently – best S&P sector on the day at +2.1% as Utilities are now trading with Tech beta!

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


VIDEO (2mins) 3 Reasons the Russell Looks Better Than S&P 500… $IWM $SPX



In order to be irreplaceable, one must always be different.

-Coco Chanel


On average 196 million roses are purchased for Valentine’s Day. 

CHART OF THE DAY: Fading the Move Within the Trend ($USD vs. $OIL)

CHART OF THE DAY: Fading the Move Within the Trend ($USD vs. $OIL) - 02.11.15 chart

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Got Reasons?

“The heart has its reasons, of which reason knows nothing.”

-Blaise Pascal


Leave it to a 17th century mathematician/physicist/philosopher (who was raised by a socialist tax collector in France) to nail what Mr. Macro Market thinks about your investment and risk management reasonings – he does not care.


Of course “he” could be a she – and if the market gods ever let me know on gender, I’ll let you know. The more important point I’m trying to make about markets is that they really don’t care about your political, social, or emotional leanings either.


They don’t care about your research, what school you went to, or your neighbor’s brother’s aunt’s dog. Macro markets care about what they care about – and those things are constantly changing.  Your #process needs to embrace that uncertainty.


Got Reasons? - complacency cartoon 02.10.2015


Back to the Global Macro Grind


Got reasons for what is moving the US Equity futures intraday these days?


  1. Is it another bailout or a blowup in Greece?
  2. Is it a counter-TREND move higher in US Treasury Bond yields?
  3. Is it the Correlation Risk relationship between US Dollars and Oil?


Your portfolio may be affected by one, none, or all of these reasons. If you can tell me which one of them is going to trump all of the others, please tweet me – because, in the very immediate-term, I do not know.


Here’s what Mr. Macro Market thinks about the upside/downside in what I call my immediate-term Risk Ranges:


  1. Greek Stock Market (Athens General Share Index) = 680-883
  2. UST 10yr = 1.62-2.05%
  3. WTI Oil = $45.04-54.78


In other words, what just happened in all 3 of these counter-TREND bounces (newsflash: Greece, Bond Yields, and Oil have been crashing for the last year) was that they all recently tested the top-end of their respective risk ranges.


Unlike who I affectionately call Chart Chasers, Mo Bros, etc., I’m a fader. I don’t chase prices – instead, I try my best to:


  1. Have an intermediate-term TREND research view
  2. Sell/Short at the top-end of the immediate-term TRADE range
  3. Buy/Cover at the low-end of the immediate-term TRADE range


The least complicated part about this research and risk management process are points 2 and 3. It’s just math. The math generates the immediate-term ranges. It’s both dynamic (changing alongside price, volume, and volatility) and non-linear.


The most complicated is point number 1. What is your trending research view? Does it whip around daily? Or do you have a Bayesian inference #process that helps you change both fast, and slow, as critical rates of change undergo phase transitions?


From an intermediate-term research TREND perspective, here’s what I think:


  1. Greece remains bearish and broken
  2. Long-term Bond Yields are bearish inasmuch as our 1H 2015 inflation forecast is
  3. Oil remains a bearish TREND susceptible to ongoing Global #Deflation risk


Yep, there are multiple factors and multiple research and risk management durations incorporated in what I think. And no, Mr. Macro Market doesn’t care about that. But I certainly respect what he/she thinks, and try to listen to him/her very carefully.


Our immediate-term Global Macro Risk Ranges are:


UST 10yr Yield 1.62-2.05%
SPX 2038-2085

DAX 100
Shanghai Comp 3026-3201

VIX 15.81-20.89
USD 93.67-95.49

Oil (WTI) 45.04-54.78


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Got Reasons? - 02.11.15 chart


Takeaway: The positive fundamental momentum continues with more strong State January gaming revenue releases. More to come in February.

Chart Of The Day: A state by state look at the January performance of regional gaming

  • Mature regional Same-store sales (SSS) is trending +8% in January with Louisiana and Mississippi still to report
  • At the end of the day, January will grow faster than any month in 6 years owing to an easy, weather related comp, lower gas prices, and an improved economy
  • So far, West Virginia has been the only disappointment with gaming revenues down ~6% in January. Fierce competition from Ohio, Maryland (Horseshoe Baltimore opened in Aug 2014), and Pennsylvania continue to weigh on the state.



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