LEISURE LETTER (02/17/2015)



  • Feb 17: HOT Conference Call on leadership change. 9:00am
  • Feb 17: MGM 4Q CC 11:00am
    • ; pw: 8870181
  • Feb 18: 
    • 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 24: GENTING 4Q CC 4:30am
  • Feb 25: 
    • SJM 4Q CC 6:00am
    • Prestige analyst day (9:00am-12pm)
  • Feb 26: RHP 4Q CC 10:00am


HOT- HOT Starwood Hotels announces CEO Frits van Paasschen to resign; Director Adam Aron appointed interim CEO. Aron will act as CEO on an interim basis while the board conducts a search for a permanent CEO that will include both internal and external candidates. van Paasschen will continue with Starwood as a consultant to assist in the transition.

Article HERE

Takeaway: Surprising development.  


BYD - The Borgata is holding a free-throw basketball tournament March 21. The $10,000 tournament has a buy-in of $20 and will consist of three rounds that are 90 seconds each. The games fall under the New Jersey First Initiative to create new gambling products ahead of other states. Borgata COO Tom Balance said the tournament is the start of the Borgata using social and skill-based gaming to target a new generation of players.

Article HERE

Takeaway:  Will skill-based slots come next?


MGM China announced a special bonus to non-management team members at MGM Macau.  The release did not specify how many workers were eligible for the payment, nor the aggregate amount involved. MGM China said only that the special bonus equals to one month’s salary and shall be paid in July 2015.  


The special bonus follows the “annual discretionary bonus" announced earlier this month, the company said, adding that non-management employees will have received total bonus equal to two months’ salary for 2014.

Article HERE

Takeaway:  2nd month bonus handed out to MGM China employees


LVS  - says it will build a $4.5 billion casino in Busan, South Korea if the government allows nationals to gamble there.  LVS has support of Busan Mayor Suh Byuing-soo.

Article HERE

Takeaway:  A long shot for LVS since it's unlikely govt will lift the local exemption. 


OPAP  - OPAP plans to open approximately 660 Play gaming halls with approximately 25 machines each, adding up to a total of 16,500 VLTs. The Agency holds licenses for 35,000 machines, but the remaining 18,500 VLTs will be provided to a series of selected subcontractors

Article HERE

Takeaway:  We have been waiting for Greece for a while. Keep an eye on how this plays out.


CCL - Carnival Cruise Line has launched a search for a new chief financial officer to succeed Anne Bramman, who is leaving after four years.

Article HERE

Takeaway:  We had just met Anne at the Vista event.


RCL - For bookings made starting Valentine’s Day through March 10, Royal Caribbean International's 'BOGO Wild' offer shaves 50% off the second passenger's cruise fare and gives on-board spending credit up to $200 per stateroom. The offer applies to bookings for an ocean-view or higher category. Plus, there are extra deals for cruises in Europe, where Royal Caribbean has eight ships sailing this summer and autumn including Anthem of the Seas and Allure of the Seas.

Article HERE


CCL - Princess Cruises’ 'Denali on Sale' offers fares as low as $99 per day with a refundable deposit. Alaska land and sea vacations combine a seven-day 'Voyage of the Glaciers' cruise including Glacier Bay National Park with a three- to eight-day land tour. The tours provide stays at Princess Wilderness Lodges and scenic rail service to the Denali area with Mount McKinley, North America’s tallest peak.

Article HERE




The Macau police forecast that the number of people crossing the border over the Lunar New Year holidays this year will be between 3-5% greater than last year.    

Article HERE




Las Vegas – Floyd Mayweather and Manny Pacquiao reportedly have finally agreed to a $250 million fight at the MGM Grand in Las Vegas.  

Article HERE

Takeaway:  Hasn't been set in stone yet but would be a positive for MGM if it happens.

Pennsylvania -  The state might consider VLTs in liquor-licensed establishments. The state’s Amusement and Music Machine Association is lobbying the House Gaming Oversight Committee to pass a bill legalizing the machines. The games could generate $1.4 billion a year which would be $500 million a year in tax money, association lobbyist John Milliron told the committee. A similar bill is already being debated in the Indiana legislature. 

Article HERE


Washington -   The gaming board has endorsed the proposal to allow Indian casinos to increase their number of slot machines by 10 percent. The proposal would allow the 27 tribes to add a total of 2,700 slot machines. They are near their current 28,000 allotment. The agreement must still be approved by the governor and legislature.


China January new home prices (0.4%) m/m vs (0.4%) in December

Annualized (5.1%) y/y vs (4.3%) in December


Singapore GDP - grew an annualized 4.9% QoQ in 4Q . That compares with a January estimate of a 1.6% gain and the median forecast of 2.2% in a Bloomberg News survey of 13 economists.


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.

Counter-TREND Macro Moves

Client Talking Points


Greek stocks were +11.3% last week, but giving up 5% in a hurry, whereas German stocks tapped immediate-term TRADE overbought into the weekend and are down -1.3% this morning. The DAX remains bullish TREND with a risk range of 10572-11031.


WTI was up +1.9% last week to +8.9% for FEB, and up another +0.5% this morning to $53.05, but closing in on the top-end of its immediate-term risk range = $48.01-53.90. It won’t take much of a USD up move to shake both Oil and the CRB Index.


The UST 10YR Yield was up +8 basis points last week to 2.04%, and -2 basis points to start the week at 2.02% (started the year at 2.17%). The U.S. PPI data tomorrow will bring back the #deflation theme, then you get CPI next week and plenty of yield expectations into the FEB jobs report after that.

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


Merrill’s FEB Fund Manager Survey: allocations to European equities are the highest since 2007 (2nd highest since survey inception)



To talk goodness is not good. Only to do it is.

-Chinese Proverb


The CRB Commodities Index currently has a -0.97 correlation to the USD on a 90-day duration, it is up +1.9% on the week.

CHART OF THE DAY: #Consensus Macro Following the Counter-Trend Move

CHART OF THE DAY: #Consensus Macro Following the Counter-Trend Move - 02.17.15 chart


"Can they keep the counter-TREND macro moves from FEB to-date up?" Hedgeye CEO Keith McCullough wrote in today's Morning Newsletter.


Mortal and Unsure

“Exposing what is mortal and unsure…”



That’s from Act IV, Scene 4 of Hamlet, where Shakespeare goes on to question the motives of Norwegian crown prince, Fortinbras, who was marching his army into Poland to conquer an “eggshell.”


Rightly to be great, is not to stir without great argument,

But greatly to find quarrel in a straw

When honor’s at the stake.”


That’s also a passage Peter Thiel effectively cites in chapter 4 of Zero To One, titled “The Ideology of Competition.” And I’m reminded of it this morning, after getting beat up by Mr. Macro Market last week.


Back to the Global Macro Grind

To be beaten, or not to be beaten (by the market): that is the question. What makes me mortal certainly makes me unsure. And when the market goes against my preferred position, my mind stirs with great argument!


What happened in Global Macro last week was more of the same for the month of February to-date – a counter-TREND move. If you did the opposite of what worked in January, you’ve killed it in the last two weeks.


After Retail Sales, Jobless Claims, and Consumer Confidence (University of Michigan reading) missed, the US Dollar Index declined, and everything inversely correlated with Down Dollar ripped. Here’s how that looked, in rate of change terms, week-over-week:


  1. US Dollar Index -0.6% on the week (-0.7% for FEB to-date) to $94.16
  2. EUR/USD +0.6% week-over-week (still -5.9% YTD)
  3. CRB Commodities Index (-0.97 correlation to USD on a 90-day duration) = +1.9% on the wk
  4. Oil (WTI) was +1.7% wk-over-wk to $52.55 (90-day inverse correlation -0.89)
  5. SP500 +2.0% wk-over-wk, erasing its negative YTD return to +1.9% for 2015
  6. Argentina’s stock market +6.1% on the wk


Don’t cry for me Mucker? Or is that Argentina? You’re telling me you weren’t levered long Argentine inflation expectations and/or the Brazilian stock market last week? What is wrong with you?


Setting aside what would have been violently wrong with your returns for the last 3-6 months if you were long inflation instead of hedged vs. Global #Deflation, being long commodity levered and debt ridden nations last week was mint:


  1. Brazil’s stock market was +3.8% on the wk, erasing 2015 losses, taking it to +1.3% YTD
  2. Greek stocks were +11.3% on wk-over-wk, putting them back in the black at +8.3% YTD
  3. And the Ruskies crushed it, seeing the Russian Trading System Index +10.6% on the wk to +15.6% YTD


And, by the looks of it, Consensus Macro positioning (in CFTC non-commercial futures/options terms) got that right too:


  1. Crude Oil net LONG positioning was +7,938 contracts last wk to a total net LONG position of +335,998
  2. SP500 (Index + Emini) net LONG position was +7,396 contracts to a total net LONG position of +96,734
  3. Treasuries (10yr) net SHORT position dropped -66,223 contracts to a net SHORT position of -83,800


That’s the other thing I got wrong last week – long-term rates went up another 8 basis points wk-over-wk on the 10yr UST Yield to 2.04%. The short-end of the curve (2yr UST Yield) was flat wk-over-wk at 0.64%.


But, with the 10yr Yield down -13 basis points YTD, Oil -2.1% YTD, and Dr. Copper -7.9% YTD, what is the #truth about the Global #Deflation TREND vs. the shorter-term FEB to-date TRADE?


Was Oil Volatility (OVX) down -8.7% last week a new intermediate-term TREND, or does the +223% ramp in Oil’s emotional state (OVX) in the last 6 months have something to do with what may be pending if Russia doesn’t bailout Greece? Or something like that…


“And let all sleep?

The imminent death of twenty thousand men,

That, for a fantasy and trick of fame,

Go to their graves like beds, fight for a plot

Whereon the numbers cannot try the cause?”


Though this macro uncertainty may be madness, there is method in’t.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.69-2.09%
SPX 2063-2101
DAX 101
VIX 14.39-19.41
USD 93.45-95.44
Oil (WTI) 48.01-53.90


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Mortal and Unsure - 02.17.15 chart

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