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LEISURE LETTER (03/05/2015)



  •  Chinese Premier Li Keqiang's comments in NPC speech: 
    • “Our tough stance on corruption is here to stay; our tolerance for corruption is zero, and anyone guilty of corruption will be dealt with seriously. We will see to it that every instance of corruption, should it be committed higher up or lower down, is severely punished.”
    • “There is still much to be improved in the work of the government, with some policies and measures not being satisfactorily implemented. A small number of government employees behave irresponsibly; shocking cases of corruption still exist; and some government officials are neglectful of their duties, holding onto the jobs while failing to fulfill their responsibilities.”
    • "We will give full support to the chief executives and governments of the Hong Kong and Macao special administrative regions in governing their regions in accordance with the law, growing the economy, improving people's standard of living, advancing democracy, and promoting social harmony." 

Takeaway:  No slowdown in the corruption crackdown. It will be interesting to see where VIP volumes ultimately shake out. Will that be representative of the "true" betting figure? 


CZR -  Caesars Entertainment Corp has revealed plans to exit voluntary bankruptcy little more than a month and a half after signing up for it. But the process of exiting so-called Chapter 11 bankruptcy – a status which had been sought to protect the operating entity from hostile creditors and to give it time to reorganize its finances – could take as much as a year. The exit plan involves the bankrupt unit – Caesars Entertainment Operating Co Inc (CEOC) – being split into OpCo and PropCo.



WYNN - would pay a special dividend of HKD1.05 (US$0.14) per share on March 31. 

Takeaway: The payout ratio of 141% was higher than expected for 2014. But in 2015, we could see a lower ratio in the midst of such a difficult demand environment.


LVS - A decision is expected next week on whether Sands China will face sanctions for redacting personal information from documents related to its lawsuits with former Sands China CEO Steve Jacobs, the Las Vegas Review-Journal reported.


PNK - UNITE HERE labor union is calling for customers to boycott Pinnacle’s Ameristar East Chicago casino until a new contract is negotiated. Among the issues are UNITE HERE’s call for retaining a health care contract for the 200 workers it represents. Matt Schuffert, vice president and general manager of the East Chicago casino, expressed disappointment with the union's actions.



MPEL - has announced that its delisting from the Hong Kong Stock Exchange will take place on July 3.


HOT - "All of the major cities in the U.S. already have a Sheraton and Westin, but we pretty much have a blank canvas" for Le Meridien, said Anthony Ingham, vice president, North America brand management for Starwood's St. Regis Hotels, Luxury Collection, W Hotels and Le Meridien brands. "Since [acquiring Le Meridien], Starwood's expanded very aggressively internationally, whereas, at Le Meridien, we have a real opportunity to drive growth in North America."


As for further expansion, Starwood's Ingham said there are Le Meridien hotels in the works for Cleveland, Denver and "five to six" other U.S. cities that he declined to reveal. He added that Starwood has the opportunity to expand Le Meridien within the U.S. to about 100 hotels.

"Le Meridien is positioned upper-upscale, but the experience and target audience is quite different [from Sheraton and Westin]," Ingham said. "Le Meridien is much smaller, lifestyle-oriented hotels that will compete with the independent boutiques in a way Sheraton and Westin won't."


Takeaway: Another leg to the HOT unit growth story - which was in need of a spark. It remains to be seen how strong of a brand Le Meridien will be.


NCLH -  management shakeup:

  • Andy Stuart has been named President and COO of Norwegian Cruise Line, following the resignation of Drew Madsen, who was named as President and COO in October 2014.  Stuart has been with Norwegian Cruise Line since 1988 and has held a number of leadership positions, most recently as Executive Vice President of Sales. 
  • Michael Flesch is no longer with the company. The executive vice president of shipboard operations was brought in by former President and CEO Kevin Sheehan, and had played a key role in the turnaround of the brand, crew welfare, and hotel operations across the fleet.


Takeaway: Well, that was quick for Madsen. We are concerned about these management changes. As we pointed out in our conference call on Tuesday, we're also concerned with the negative pricing pivot we've seen recently with the brand.

CCL- Seabourn has revealed plans to send its next newly built ship to Australia immediately after its christening in January 2017. Seabourn Encore, which will be the newest cruise ship ever to visit Australia, is scheduled to spend almost two months in local waters.



IVS report - Macau’s Secretary for Social Affairs and Culture Alexis Tam Chon Weng said the government is working on a report detailing the number of Chinese visitors that have come to Macau since the introduction of the mainland’s Individual Visit Scheme (IVS) in 2003. Mr Tam added that he expects the first report to be ready “next week”.


Mr Tam on Wednesday said the government would deliver a detailed report with suggestions on how to improve the IVS to the central government “before May”, the Portuguese-language channel of Radio Macau reported.


Commenting on the issue on Wednesday, Macau’s Chief Executive, Fernando Chui Sai On said, “The IVS policy has been introduced more than 10 years ago, so this is the right time to review it." He confirmed that mainland officials had invited their Macau counterparts to discuss changes in the individual visa scheme.

Takeaway: This can't be good. Are they going to announce a relaxation of the visa restrictions in the face of complaints of too many tourists?


Package tours/hotels -

  • Visitors on package tours totaled 984,000 in January 2015, up by 24% YoY; visitors arriving on package tours (710,000) accounted for 72.1% of the total, while those joining local tours shared 27.9%. 
  • Package tour visitors from Mainland China surged by 31.0% YoY to 794,000, while those from Guangdong Province rose by 2.2% to 307,000.
  • There were 97 hotels and guesthouses operating at the end of January 2015, providing 28,000 guest rooms, similar to that in January 2014
  • A total of 803,000 guests checked into hotels and guesthouses in January 2015, down by 8% YoY. Guests from Mainland China (533,000) decreased by 2.6%, while those from Hong Kong (76,000) tumbled by 31.7%. 
  • The average length of stay of guests held stable as January 2014, at 1.4 nights.


Takeaway: Lower spending, family-based package visitors continue to grow 


Macau gaming employment -  decreased 1.8% YoY from Oct- Dec 2014 to Nov-Jan 2015 period.

Takeaway: Due to Macau slump but salaries, meanwhile, are going higher.


Rhode Island -  Twin River is buying Newport Grand Casino for an undisclosed price. Twin Rivers said it will not try to add table games, respecting the decision by local residents who have twice opposed that effort. Newport Grand holds about 1,100 slot machines and e-tables. The Twin River purchase should close by June 30. Twin Rivers can help preserve and possibly enhance the revenue brought into Newport Grand, Twin Rivers Chairman John Taylor Jr. said.


Takeaway: Both of these properties will be hit when PENN's Plainridge Park opens in June.


Singapore's Changi Airport expansion - Terminal 5 is likely to comprise a main facility linked to one or more satellite terminals via an underground rail link. The current plan calls for an initial capacity of up to 50 million passengers a year, but with a provision to increase this to 70 million if needed. This will make T5, which will be built on reclaimed land currently separated from the existing airport by Changi Coast Road, bigger than T1, T2 and T3 combined.





China 2015 GDP forecast at ~7% 

  • Other 2015 targets:
    • CPI 3%, as expected, vs 2014 target 3.5%
    • Fixed Asset Investment +15% YoY
    • M2 +12% YoY
    • Budget deficit 2.3% of GDP
    • Fiscal revenue +7.3% YoY
    • Fiscal spending +10.6% YoY
    • Trade growth +6% YoY
    • Urban jobless rate ~4.5%

Takeaway: 7% is the new normal. Can w e rely on that number?


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.

Retail Callouts (3/5): NKE, Adibok, FL, FINL, HIBB, DKS, COST, DG

Takeaway: NKE monopolizes sneaker-head resale market. Adi re-releases pump, keeps best for itself. COST not attractive here at 27x earnings.



NKE - Top Selling Shoes On eBay


Takeaway: eBay is a better barometer than any other for the aftermarket demand of a sneaker in the 'sneakerhead' collector community. To that end, it is no surprise that Nike absolutely dominated the list of top shoes. Actually, 'dominated' is not the right word. It monopolized the list. Out of the top 15 sneakers, 13 of them are Jordans, and two are Nike (one of which -- the Air Yeezy -- sold at an average price of $3,868. Yes, that's nearly $4k for a pair of kicks. 

Retail Callouts (3/5): NKE, Adibok, FL, FINL, HIBB, DKS, COST, DG - 3 5 chart1



AdiBok - Reebok's Pump Is Back



Takeaway:  As gimmicky as it is, The Pump technology is one of the few innovations that Nike kicks itself for not doing before Reebok. Back in 1991 Reebok sold its basketball pump shoe for $170, which is about $320 in today's dollars.  Perhaps a prohibitive price is what caused The Pump to die on the vine. But the new version (which gaudily says The Pump in what appears to be a 200pt font size) sells for $110. If you want to preorder a pair, you can't go to Foot Locker, Finish Line, Hibbett or Dick's -- you have to go to reebok.com. That is, until March 10 when AdiBok will open the spigot to certain retail channels. We suspect they'll give 1 or 2 colorways/styles to each retailer, so everyone can tout it as an exclusive. But all colors, all styles, in all sizes are all available on reebok.com. 

Retail Callouts (3/5): NKE, Adibok, FL, FINL, HIBB, DKS, COST, DG - 3 5 Chart2



COST - 2Q15 Earnings


Takeaway: Everyone knows about the Fx and cheap gas pressures squeezing the top line, but in the face of that COST still leveraged 4% sales growth into 29% earnings growth. It wasn't entirely clean as tax benefits gave them an extra $0.10, but you're still looking at EBIT up 21% in the quarter. That being said, membership income came in lower than expected and margins in the quarter were the best they've been in 4 years. The sales to inventory spread was favorable for the 3rd quarter running, but it was the tightest gap we've seen. In order to offset the considerable top line pressures in the near term, COST will have to tightly manage that line. While we're remiss to short the stock of a great company like COST when it's clearly executing on its business plan, we're certainly not going to rush out and buy it at 27x earnings based on what we see today. 

Retail Callouts (3/5): NKE, Adibok, FL, FINL, HIBB, DKS, COST, DG - 3 5 chart3





DG - Dollar General: West Coast losses will be lasting



ASNA - Ascena Retail Group Announces Appointment of Randy L. Pearce as Lead Independent Director



ANN - Report: Bain, Golden Gate both want Ann Inc.



PBY - Bob Nardelli joining Pep Boys board



Bealls to launch new specialty store concept, Bunulu




Takeaway: Join us for our call today at 1:00pm EST. Call details below.

We will be hosting a call outlining our SHORT thesis on Alibaba Group Holdings (BABA).  Since our last call on BABA, we saw validation of the core tenets of our thesis within its last earnings release, as well the emergence of a new trend, which will compound pressure across its model.  


Join us for our call TODAY at 1:00pm EST as we update our bearish thesis, and why we see 25%+ downside from here.



  • China Can’t Grow Fast Enough: Top-down analysis of the key factors driving e-commerce in China
  • Growth Will Come at a Price: How the China growth story will pressure BABA’s Business Model.
  • Fool’s Gold: Why mobile is not a long-term opportunity, but a secular headwind.
  • Sputtering Tailwinds: Why BABA’s last core growth driver can no longer offset headwinds across its model.



  • US Toll Free Number:
  • US Toll Number:
  • Conference Code: 39000055
  • Materials: CLICK HERE




Hesham Shaaban, CFA



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Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Keith's Daily Trading Ranges, Unlocked

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published March 05, 2015 at 07:35. Click here to learn more and subscribe.

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Burning Euros and A Strong USD

Client Talking Points


Euros Burning to fresh year-to-date lows of $1.10 as Mario Draghi prepares to say something – since he cannot stop economic gravity (and only lift stock markets), it’s interesting to see the Italian recession reported (GDP -0.5% year-over-year) and neither French (10.4%) nor Greek (26.0%) unemployment improve, at all… #NeedMoreCowbell.


Evidently equity markets did not like the hopeful guidance of 7% GDP and 3% Inflation – Shanghai Composite down -1% overnight (back to flat year-to-date) and Hang Seng down -1.1% (-2.1% in the last 2 sessions)… 7% and 3% look unlikely, at best.



#StrongDollar Deflation is not good for plenty of Emerging Markets – if you’re the market that gets tagged with a crashing currency (Lira) and your stock market doesn’t have a daily central planning message, what to do? Stocks in Istanbul down -2% this morning to -6.1% year-to-date. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.


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.

Three for the Road


which means continued slowdown in #Macau gaming volumes $LVS $WYNN $MGM $MPEL



We delight in the beauty of the butterfly, but rarely admit the changes it has gone through to achieve that beauty.

-Maya Angelou


Greece stocks are down another -1% in Athens this morning, down -11% since FEB 24, Greece posted a putrid 26% unemployment rate report.

CHART OF THE DAY: Moarrr #Draghi Cowbell = Moarrr #StrongDollar Driven #Deflation

CHART OF THE DAY: Moarrr #Draghi Cowbell = Moarrr #StrongDollar Driven #Deflation - 03.05.15 chart


Editor's note: This is an excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to learn more and subscribe.


And then there was moarrr #Deflation


Remember that, perversely, moarrr cowbell from Draghi = moarrr #StrongDollar driven #Deflation:


  1. Cowbell = Centrally Planned Currency Devaluation
  2. EUR/USD is getting smoked to -8% YTD and multi-yr lows of $1.10 ahead of Draghi’s latest (830AM EST)
  3. US Dollar Index is rocketing to $96.21 on that, +6% YTD and +21% from its 2014 lows!
  4. Commodities (CRB) Index (19 Commodities which largely trade in Dollars) continues to crash -28% y/y
  5. Oh, and WTI Oil, which you could have chased at $105 at this time last year, has crashed > 50% since 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.