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RTA Live at 10:15 AM ET – Exclusive for Real-Time Alerts Subscribers

Takeaway: Keith will answer your questions about Real-Time Alerts live at 10:15 AM ET.

Hedgeye CEO Keith McCullough will answer your questions about Real-Time Alerts live today at 10:15 AM ET.

 

There are three ways you can ask Keith questions:

  • Tweet us your questions via @Hedgeye with the #RTALive hashtag 
  • Call in and speak to him live toll-free on  

  • Ask questions in the chat box below the video player

 

 
 


LEISURE LETTER (02/25/2015)

TICKERS: SJM, LVS, IGT, RCL


 

 EVENTS

  • Feb 25: 
    • Prestige analyst day (9:00am-12pm)
    • ISLE F3Q 2015:
  • Feb 26: RHP 4Q CC 10:00am  pw: 73087325

COMPANY NEWS

SJM - Legislative Assembly member Ella Lei Cheng I has asked the government to look again at the gaming tax relief that SJM gets for dredging the harbor. Ms Lei says in a written inquiry that the government should reconsider the arrangement when it gets round to reviewing the gaming concessions. The rate of gaming tax SJM pays is one percentage point less than what the other concessionaires pay.

ARTICLE HERE

 

LVS -  Sands China announced what it describes as an “exclusive partnership” with a major non-gaming resort on neighboring Hengqin Island in mainland China, to offer two-center holiday packages.

 

The arrangement with Hengqin Chimelong International Ocean Resort – a few minutes drive from Sands China’s Cotai Strip properties via the Lotus Bridge immigration checkpoint – is to be marketed by Sands China as the ‘Macao Hengqin Experience Package’.

ARTICLE HERE

 

Ainsworth - The company said revenue gains in the Americas “assisted in increasing the contribution of revenue from international markets which now represent 52 percent of total revenue compared to 33 percent in [the] previous corresponding period”. Revenue in Australia dropped 34% YoY to AUD53.5 million, while that of the international segment went up by 45% to AUD58.4 million. The company grew its installed base of recurring revenue machines in the US by 48% to 2,286.

Takeaway: Ainsworth is making headway in the US slot market.

 

IGT - has been chosen to provide its Advantage 9.2 System Suite with Service Window, in addition to 80 IGT games at the new Three Rivers Casino Coos Bay, slated to open in April 2015 in Coos Bay, Oregon.

  

RCL - Citing foggy conditions that have delayed Brilliance of the Seas' previous cruise and are forecast to continue for the next few days, RCL canceled the Feb. 23 sailing. RCL will provide a full refund of the cruise fare plus a future cruise certificate for 25% of the fare paid for the Feb. 23 voyage.  

Takeaway:  RCL has been busy dealing with ship-specific incidents this year.

 

Viking - Viking Cruises, currently with 60 vessels across Europe, Russia and Asia, plans to begin sailing on the Mississippi in late 2017. Plans call for the construction of six vessels over the next three years at an estimated cost of $90m to $100m per vessel, all to be built in US shipyards and crewed by US citizens. The vessels will be owned by Tennenbaum Capital Partners, a Los Angeles-based alternative investment management firm, and time-chartered to Viking in compliance with maritime laws.

ARTICLE HERE

INDUSTRY NEWS

Arizona - The Tohono O’odham Indians are building a temporary casino as the first phase of their $400 million casino in Glendale, west of Phoenix, the Phoenix Business Journal reported. The temporary casino will have 1,089 slot machines and should be open by the fourth quarter. 

Article HERE

Takeaway: After much controversy, it looks like this property is finally on its way

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.

 


Results From The Dovish Peace Pipe

Client Talking Points

UST 10YR

The UST 10YR Yield getting smoked after Janet Yellen puffs the dovish peace pipe, keeping the “patient” word in and acknowledging what she cannot reverse (#Deflation in all reported inflation metrics); 1.96% this morning is -14 basis points lower than 24 hours ago with slowing CPI and GDP reports (Thursday and Friday) up next.

USD

The USD evidently did not like the dovishness either, but the selloff here is modest compared to bond yields. The USD is only -0.2% vs. Burning Euros and Yens, so that should put a short-term bottom in for Oil, Gold, etc. … and that helps keep the S&P 500 at all-time highs (both rate sensitive and inflation expectation stocks stop going down).

#HOUSING

#Housing is one of our Top 3 Themes in our Global Macro Themes deck, it hit higher-highs yesterday post the Toll Brothers (TOL) quarter/commentary. The ITB (sector ETF)is up +8.9% year-to-date and remains one of our favorite allocations in U.S. Equities, alongside Healthcare (XLV) and Consumer Discretionary (XLY) which are +5.9% and +5.0% year-to-date, respectively (SPX +2.7%).

Asset Allocation

CASH 40% US EQUITIES 9%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
EDV

#Housing is one of our Top 3 Themes in our Global Macro Themes deck, it hit higher-highs yesterday post the Toll Brothers (TOL) quarter/commentary. The ITB (sector ETF)is up +8.9% year-to-date and remains one of our favorite allocations in U.S. Equities, alongside Healthcare (XLV) and Consumer Discretionary (XLY) which are +5.9% and +5.0% year-to-date, respectively (SPX +2.7%).

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

HOLX

Hologic (HOLX), at this stage in their product cycle and in the current stage of the economic cycle, has some very impactful tailwinds emerging to their revenue growth and the implied growth in the future. A stock generally will perform really well when doubt about future growth turns to optimism while the most recent data confirms the optimism. So far, we have a little bit of both; recent positive data like the December 2014 quarter upside and consensus estimates and ratings starting to move off of multi-year lows. A less-worse trend in Pap testing and rising patient volume can combine to get us close to flat for HOX’s Cytology (Pap) business. As the growth in Cytology improves and is less of a drag, the 3D Mammography growth can flow through. We think the outlook is bright, and with a few more data points, we think a lot more investors will agree with us.

Three for the Road

TWEET OF THE DAY

@KeithMcCullough and I will be streaming the @Hedgeye Morning Macro Call LIVE this morning at 8:30am ET: https://app.hedgeye.com/insights/42542-hedgeye-morning-macro-call-live-with-keith-mccullough

@HedgeyeDDale

QUOTE OF THE DAY

The lion does not turn around when a small dog barks.

-African Proverb

STAT OF THE DAY

Purchase Applications are up +4.6% week-over-week and +9.8% year-over-year, this is the fastest rate of growth since June 2013. Tracking +2.8% year-over-year, +7% quarter-over-quarter.


real-time alerts

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February 25, 2015

CLICK HERE for a free look at Hedgeye's Morning Macro Call for institutional subscribers. Post your questions for Keith and hear him answer live on the air.

 

February 25, 2015 - Slide1

 

BULLISH TRENDS

February 25, 2015 - Slide2

February 25, 2015 - Slide3

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February 25, 2015 - Slide5

February 25, 2015 - Slide6

 

BEARISH TRENDS

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February 25, 2015 - Slide8

February 25, 2015 - Slide9

February 25, 2015 - Slide10

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February 25, 2015 - Slide13


CHART OF THE DAY: Getting the Market Right: Sector Outperformance YTD

CHART OF THE DAY: Getting the Market Right: Sector Outperformance YTD - 02.25.15 chart

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This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for more information on how you can subscribe.

 

But, for those of us who like to buy both stocks and bonds (I wouldn’t have an Independent Research business if I marketed one asset class over another, sorry), we want to be buying the parts of the US stock market that will go up the most.

 

We call these Sector Style Exposures. In Equities, the 2015 outperformance of the following sectors remains obvious:

 

  1. US Housing Stocks (ITB) were +2.5% yesterday to +8.8% YTD
  2. Healthcare Stocks (XLV) were -0.1% yesterday to +5.9% YTD
  3. Consumer Discretionary (XLY) stocks were +0.5% yesterday to +5.0% YTD

 


The Fed's Road

“The Road goes ever on and on… down from the door where it began.”

-Tolkien

 

No, that is not from Janet Yellen’s testimony yesterday. It’s from J.R.R. Tolkien’s Lord of The Rings. It’s also the theme for a walking song that my favorite Tolkien character (Bilbo Baggins) cites in Chapter 19 of The Hobbit:

 

“Roads go ever ever on

Under cloud and under star,

Yet feet that wandering have gone

Turn at last to home afar.”

 

While Janet may have been pulled and pushed toward the path of “rate liftoff”, now she’s back to where she, Ben, and their fantasy novel has always been – back to the Shire of money printings and lower-rates-for longer, that is…

The Fed's Road - Deflation cartoon 02.24.2015

 

Back to the Global Macro Grind

 

To be clear, The Fed’s Road doesn’t end with green meadows that rest under shining stars. Policies to Inflate, ultimately end in #deflation. And that gets the Long Bond Bulls paid.

 

Long Bonds? Yes, as in the things that are at all-time highs in Europe and Japan (10yr German Bund and Japanese Government Bond Yields are trading at 0.36% and 0.33%, respectively) as long-term economic expectations there = #deflation.

 

While the USA’s 10yr Yield has dropped -14 basis points to 1.96% in the last 24 hours, it’s still trading at a +160-163 basis point premium to German/Japanese Long-term Bond Yields. Unless you think US inflation is pending, you’re long  the Long Bond (TLT).

 

So, thank you Janet – for pseudo telling the truth yesterday. My world needed that! What did she say?

 

  1. She kept the key-word “patient” in the Fed’s current policy vernacular
  2. She acknowledged inflation expectations being nowhere near the Fed’s “target”
  3. She reminded her fans that she is, allegedly, “data dependent”…

 

Why do these 3 things matter (in the same order)?

 

  1. Plenty of funds were pushing the idea that the “patient” language was going to be dropped
  2. Plenty of funds were trying to pull me into the narrative that the Fed “doesn’t care about inflation”
  3. Plenty of funds now realize that the next “data” points are really going to matter!

On the “data”, you need both a calendar and a forecast – here’s mine:

 

  1. Thursday’s CPI (consumer price inflation) report is going to slow (again) both sequentially and year-over-year
  2. Friday’s GDP report (for Q4 2014) is going to slow (again) both sequentially and year-over-year
  3. Next week’s US Jobs Report (for FEB) is going to do something that I have no edge on

 

While this game of front-running expectations isn’t easy, if I have 3 data points pending and I’m relatively certain about 2/3, I’d much rather see those 2 face cards first! I think both the bond and stock market see them the way I see them too.

 

In that regard, yesterday’s real-time market reaction to the Fed taking you right back down the road that they’ve always been on made complete sense to me:

 

  1. Bond Yields fell, and accelerated to the downside into the close (TLT +1.4% on the day)
  2. The US Dollar stopped going up – Burning Yens and Euros stopped going down
  3. Housing (ITB) and Consumer Discretionary (XLY) stocks led a stock market rally to all-time closing highs

 

Yes, all-time is a long-time – and that’s why I’ve been saying that it was more obvious to buy longer-term Bonds on the recent pullback than it was to buy the SP500. The 10yr US Treasury bond isn’t back to its all-time high yet = more upside!

 

But, for those of us who like to buy both stocks and bonds (I wouldn’t have an Independent Research business if I marketed one asset class over another, sorry), we want to be buying the parts of the US stock market that will go up the most.

 

We call these Sector Style Exposures. In Equities, the 2015 outperformance of the following sectors remains obvious:

 

  1. US Housing Stocks (ITB) were +2.5% yesterday to +8.8% YTD
  2. Healthcare Stocks (XLV) were -0.1% yesterday to +5.9% YTD
  3. Consumer Discretionary (XLY) stocks were +0.5% yesterday to +5.0% YTD

 

Whereas the Sector Styles we’d want to be net short (hedge funds) or underweight (mutual funds) like Energy (XLE) and Financials (XLF) are +1.6% and -0.9% YTD, respectively, are underperforming the SP500 (which is +2.7% YTD).

 

Don’t get me wrong, in a world facing both Global #GrowthSlowing and #Deflation headwinds, a +2.7% YTD gain is nothing to complain about. Being positioned on The Hedgeye Road of Long TLT, ITB, XLV, and XLY has simply been more fruitful.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.84-2.07%
SPX 2099-2125

ITB (Housing) 27.01-28.36
VIX 13.22-16.98
USD 93.70-95.18

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Fed's Road - 02.25.15 chart


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