Link to Report: Monday Mashup

  • Key Callout: We recently added short SHAK to our Best Ideas list and are removing long KKD from our Investment Ideas list.

European Banking Monitor: Widening in Financials

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 




European Financial CDS - Swaps mostly widened among European banks last week.  Greece began discussions with the Troika regarding the technical details of its bailout extension last week and the Syriza party raised some inflammatory issues such as opening up Greece's borders to Middle Eastern refugees and alleged reparations owed to the country by Germany for Nazi war crimes. Investors reacted negatively to the signal from Greece that it will not make the process easy; swaps on Greek banks rose between 152 and 158 bps.


European Banking Monitor: Widening in Financials - chart1 financials CDS


Sovereign CDS – Sovereign swaps were little changed last week. Italian sovereign swaps widened by 6 bps to 105. Meanwhile, Japanese swaps tightened by 3 bps to 40.  


European Banking Monitor: Widening in Financials - chart2 sovereign CDS


European Banking Monitor: Widening in Financials - chart3 sovereign CDS


European Banking Monitor: Widening in Financials - chart4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 11 bps.


European Banking Monitor: Widening in Financials - chart5 euribor.OIS spread



Matthew Hedrick 



Ben Ryan



LEISURE LETTER (03/16/2015)



  • March 16-19: Cruise Shipping Miami Conference
  • March 19: Galaxy FY 2014 results
    • (), Passcode: 712943


LVS - The St. Regis Macao, expected to open during the third quarter of this year at Sands Cotai Central, is looking to recruit 700 employees. The luxury hotel brand held its first job fair in Macau on Friday. The St. Regis will offer 400 guest rooms and suites, as well as dining venues. 


Takeaway: St. Regis is expected to open Aug 1, 2015.


IGT - High 5 Games is suing IGT alleging breach of contract, trademark infringement and unfair competition stemming from their 2012 licensing agreement. The suit alleges that IGT failed to pay royalties on 81 games that use High 5 content, including features like super stacks, tumbling reels and split symbols.


RCL - Could Ovation of the Class be sailing to China?


LEISURE LETTER (03/16/2015) - rcl  ovation


Takeaway: Two Quantum class ships in China would prove RCL's short-term and long-term commitment to that risky but potentially lucrative market opportunity. 


CCL - Agents have given a resounding thumbs-up to P&O’s newest ship Britannia, with some suggesting it could help the line attract a new clientele.  

  • Phil Evans, managing director of Cruise Nation: “I think it’s also going to appeal to a slightly younger audience that P&O tends to attract. They usually tend to get people in their late 50s, but I think this will appeal to people in their 40s."
    • “I do think Anthem will be perhaps be more family orientated, but the staff at my agency have all said that they feel this signals a new era for cruising for P&O.”
  • Ann Anglesea, managing director of Delmar World in Wrexham: “The size of the ship was noticeable – [at 3,647 passengers] it’s a much bigger ship than we’ve been used to.
    • “It is beautiful, but the ambience of a ship depends on the clients that you have onboard, and I wonder if P&O will be reaching out to a different market share than they have previously had.
    • “I think P&O have got it right. The Retreat area looked exceedingly nice, and the specialty dining will appeal to higher end customers, but the prices are competitive in the market place. Whether there’s enough in the market to fill it though will remain to be seen.”


Takeaway: More praise for Britannia. Attracting a new clientele is a stretch. We are concerned about pricing power for the older ships as the Southampton cruise supply revs up.





Super anti-graft bureau - China is preparing to establish a ‘super’ anti-graft bureau that will investigate high-ranking officials suspected of corruption, Procurator-General Cao Jianming said. The plan for the bureau has already been approved by the central government, said Cao, who heads the country’s Supreme People’s Procuratorate. The new bureau will be staffed by several dozen experienced senior prosecutors and will strengthen the Supreme People’s Procuratorate’s anti-corruption capacities.


Proxy-betting - proxy betting in Manila could "represent as much as 50%of VIP revenue in Manila, versus 5%-10% to in Macau.” (Morgan Stanley).


Takeaway: We have also confirmed Suncity adding junket rooms in Solaire and CoD Manila later this year. This is good news for CoD Manila. We will be getting additional color on the Philippines market later in the month.


Jeju Air-  the leading South Korean budget airline is targeting Chinese gamblers deserting Macau due to the crackdown on corruption initiated by the People’s Republic of China Government, the company’s Chief Financial Officer, Kim Tae Yoon, said. In order to attract Chinese tourists the company is offering popular liquor and cosmetics onboard to lure Mainlanders to Jeju Island, where the company is based. The South Korean island has seven casinos where only foreigners are permitted to gamble.



Cyclone Pam - Several cruise ships have been forced to alter South Pacific

itineraries to avoid category 5 Cyclone Pam which has devastated the island nation of Vanuatu. Cunard’s Queen Elizabeth and Queen Victoria and P&O Cruises’ Aurora, all on world cruises, have had itineraries altered in the region. Holland America Line’s Oosterdam was forced to miss a call into Port Vila in Vanuatu on Friday and instead spent a day at sea to avoid the weather front. 

Other companies forced into making itinerary changes include Carnival Cruise Lines, Celebrity Cruises, P&O Cruises Australia and Royal Caribbean International.





Singaporre private home sales - was nearly halved in February from a year earlier. Developers sold 382 units last month, compared with 739 units in February 2014, according to data compiled by the Urban Redevelopment Authority.


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.

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Takeaway: Easiest comps drives a better week.


There was some improvement this week from last due to a much easier comparison.  DTR of HK$691 fell “only” 22% YoY but the comp was the weakest of the month (-7%).  We still believe the trend is lower and while consensus GGR forecasts have dropped dramatically, EBITDA estimates remain much too high in our opinion. We fear the Street is missing the recent downturn in the grind mass which carries the highest margins of any segment.


Please see our detailed note:


Link to Report: SHAK: NYC Is Not The Center Of The Universe

  • We are adding SHAK to the Hedgeye Best Ideas list as a SHORT.
  • The market is valuing SHAK at $27 million per system-wide store versus the average store generating approximately $3.5 million in revenues.  This compares to CMG, which trades at $11.2 million per store.  If SHAK can execute at a CMG level and grow into that valuation, it would trade at around $20 per share.
  • Clink the link below to read more about our SHORT thesis.

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