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LEISURE LETTER (03/20/2015)

Tickers: WYNN, GENTING, MAR, NCLH, CCL, RCL

EVENTS

  • March 26: Macau Legend 4Q CC

COMPANY NEWS  

WYNN - raised the pay of employees previously paid MOP 65,000 a month or less by 5%. This represents 98% of its current 81,00 workforce. "This increase is in addition to the 1,000 shares we granted to each of our employees, which now totals 8.3 million shares given since July 2014. These shares, including their annual dividends, represent an additional 10% increase in pay,’ said CEO Steve Wynn.
ARTICLE HERE

Takeaway: WYNN following what other operators (except Galaxy) have already declared.

 

GENTING - More staycation bookings for SG50 long weekend (Aug 7th). This is encouraging, they said, as such inquiries and bookings usually occur two to four weeks before a long weekend.  

 

The Ritz-Carlton, Millenia Singapore, bookings made for the National Day weekend were more than double those made at the same time last year - mostly due to local demand. Orchard Hotel Singapore is 25% booked for the long weekend, with half of them being staycations. 

 

Inquiries for staycations at Resorts World Sentosa have grown by 10%. 

ARTICLE HERE

Takeaway:  RWS outperformed on REVPAR vs its upscale peers in Q4. It could continue.

 

Lightstone/Moxy - Lightstone in February had announced plans to invest $2 billion in the development of hotels in the United States. Half that total will be used to help jump-start MAR's Moxy brand, which has one open property in Milan. 

 

Lightstone President and COO Mitchell Hochberg said the mix of new builds and conversions would take place during the next 24 months. In addition to Moxy, Lightstone officials will look to develop other select-service hotels. 

 

“We believe we are in the fourth or fifth inning of a nine-inning game,” he said of the industry cycle. 

 

NCLH - laid off an unspecified number of employees Thursday, confirming rumors that circulated widely during the industry's annual Cruise Shipping Miami conference this week.

 

Several sources estimated the number at 200 or more affected workers and said the layoffs may take place over time, although it was not clear how long that period would be. It was also unclear how many workers were immediately laid off on Thursday.

ARTICLE HERE

Takeaway:  Cost synergies is just a nice way to say layoffs

 

CCL/MSC (update) - A total of 17 cruise passengers were among the 20 people killed in the Tunis terrorist attack, according to Costa Cruises and MSC Cruises. A further 21 passengers were injured. All Tunisia calls from Costa/MSC have been canceled for the year.

ARTICLE HERE

 

CCL - AIDA Cruises will have 35% of its 2015 capacity in the Mediterranean this year, according to the 2015-2016 Cruise Industry News Annual Report. This is a major change for the leading German cruise line as prior years saw Northern Europe dominate AIDA’s fleet deployment data.

 

While Mediterranean capacity has grown, AIDA has slowly cut back in Northern Europe, cutting back nearly 18% from 2014 to 2015. The line has also added capacity and offerings in the Caribbean, where it will carry over 70,000 passengers this year, as opposed to 50,000 in 2014.

 

AIDA is making moves in Asia as well, as the line will double its Asia capacity this year, growing by nearly 100% to carry over 20,000 passengers in the region.

Takeaway:  AIDA's diversifying from its German hub. Good thing since additional supply from TUI is pressuring pricing there.

 

 

RCL - a rumor that SkySea be adding a second ship to start operation as soon as April of 2016. The Ctrip and Royal Caribbean joint venture has been busy building up its sales channels through Ctrip and other retailers and news could come soon. 

ARTICLE HERE

 

 

INDUSTRY NEWS

IVS capacity report - Chief Executive Fernando Chui Sai On has announced that the tourism capacity report, conducted by the Secretary for Security, Wong Sio Chak, and the Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, has been completed and will be submitted to the central government with regard to improving the city’s Individual Visit Scheme (IVS) for Mainland tourists.

 

Secretary Wong told local broadcaster TDM Radio yesterday that the capacity report covers studies on the measures applied for crowd control and border crossing in the past few years, especially during the Chinese New Year. In addition, he said that the underlying concerns and risks for the measures were also evaluated.


The CE, meanwhile, said that the central government would study how to adjust and improve the current IVS policy based on the report, aiming to reach a balance between the capacity and life quality of Macau residents.

Takeaway: The IVS report is done. The govt is quiet on the details.

 

Construction death - Three fatalities this month alone. Most recently yesterday, on the Hollywood Roosvelt Hotel construction site in Taipa.

ARTICLE HERE

Takeaway: So far, these incidents haven't affected the timeline of the upcoming Cotai projects.

 

HK - With cross-border tensions exacerbated by pro-democracy Hong Kong protests, tour groups visiting Hong Kong from China plunged about 80% in early March. A Beijing crackdown on conspicuous spending by mainlanders also shows no signs of letting up, sending tourists further afield.

 

While daytrippers from just outside Hong Kong continue to buy daily essentials there, Chinese travelers with cash to burn are homing in on places like South Korea and Japan. According to the Japan National Tourism Organization, Chinese visitors lured by the weaker yen and easier visa rules nearly tripled in February to a monthly record: With one in four tourists in Japan, Chinese became the biggest visitor group in a country with which relations have often been fraught.

ARTICLE HERE

Takeaway: Japan and S Korea have seen an influx of Chinese visitors.

 

Turkish Lottery - The group that won the license to run Turkey’s national lottery is seeking $2 billion from lenders including Deutsche Bank AG, Akbank and Denizbank to help pay for the bid, people with knowledge of the matter said.

The lottery operator, set up by Istanbul-based companies Net Holding AS and Hitay Investment Holding AS, plans to borrow the funds for eight or nine years and is close to gaining commitments from banks.

ARTICLE HERE

 

US REVPAR - February REVPAR growth was 8% YoY. Week ending March 14, REVPAR was up 3.8% YoY.

Takeaway: US REVPAR averaged an impressive 8.3% YoY growth in Jan-Feb, although March growth will be much slower. 

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.


Eurozone: Buy Buy Buy?

This note was originally published at 8am on March 06, 2015 for Hedgeye subscribers.

“One Look Is Worth A Thousand Words”

-Fred R. Barnard

 

While he later changed “one look” to “one picture”, the ad man Fred Barnard is attributed with the modern day adage, which he first used in the advertising trade journal Printers’ Ink on December 8, 1921 to promote the use of images in advertisements that appear on the sides of streetcars.  

 

A year ago Hedgeye hired Bob Rich as our in-house cartoonist and illustrator. Formerly a staff illustrator for The Republican newspaper in Springfield, Massachusetts and an editorial cartoonist for The New Haven Register, Bob has won numerous awards for his work.  To say the very least, he has flourished in his role at Hedgeye.  His creative and skillful ability to depict in a cartoon what we analysts spend hours trying to put into words is enviable. And through a recent desk reshuffle in the office, I also have the pleasure of sitting next to Bob, which selfishly affords me the opportunity to encourage him to do European related cartoons, my area of coverage on the macro team.

 

Back to the Global Macro Grind

 

With news of record inflows by investors into European securities; the EUR/USD at a 11 year low; and confirmation that ECB President Mario Draghi will once again do “whatever it takes” to expand the ECB’s balance sheet, to shore up risk (including Greece) and to maintain the existing Eurozone fabric, do you go all in on Europe?  

 

Bob’s cartoons below tell it all – for us the mismatch between the Eurozone’s economic fundamentals and its financial markets still remains stark. And the rub between betting all in on Eurozone securities based on Draghi’s QE program versus the threat of blindly following him over the proverbial QE cliff, is THE risk management question. 

Eurozone: Buy Buy Buy? - 1. BRICH

 

With no crystal ball in sight, here are Hedgeye’s key Eurozone take-aways as we size up going all in on Europe:

  • Our highest conviction investment signal is to stay short the EUR/USD
  • Our Eurozone GIP (Growth/Inflation/Policy) predictive model shows a steady move from QUAD 1 to QUAD 4 to QUAD 3 over the next three quarters. This negative economic view should force the ECB to keep its foot on the QE funnel for longer than its original target [SEPT 2016] as growth surprises on the downside (see our Chart of the Day below), all of which should pressure the EUR/USD lower.
  • We expect that Fiscal Consolidation and Structural Reforms across the region over the intermediate to longer term are unlikely to be carried out (or at the very least not within the ECB’s timeline) to promote economic productivity and job creation, further muting inflation and growth targets.
  • And we expect a confluence of factors to support a strong USD, including 1). policy expectations surround when the Fed will hike rates, not IF, and 2). supportive commodity and business cycle dynamics (for more see my colleague Ben Ryan’s recent note)
  • Our quantitative models show that the EUR/USD is broken  across all durations (TRADE, TREND, and TAIL). We call this a bearish formation and do not see any long term TAIL support until $0.80.
  • On Equities… Juiced By the Draghi QE Drugs:  As risk managers we cannot turn a blind eye to the power of QE to propel equities higher, however we don’t have to be holding the proverbial bag on the way down either. We continue to recommend strong balance sheets at the country level, like Germany (etf EWG), and will tactically trade around QE’s influence on the peripheral markets . YTD we’ve already seen some monster moves across equity markets with the German DAX and Italian FTSE MIB indices each up over +17%.
  • On Fixed IncomeLow Yields Can Go Lower: In yesterday’s ECB press conference Draghi indicated a willingness to buy even government bonds with negative yields as low as the current deposit rate (-0.2%). This flexibility from the Bank, shows once again a commitment to “support” the Eurozone project at all costs. Further, his appetite to support the periphery specifically appears enormous.  Again in his statements he suggested that so long as Greece can pass its reform review, the ECB will reinstate the waver on the conditionality that it will only buy investment grade paper.  Yamas!

 

This coming Monday the ECB will commence its sovereign bond purchase program (€60 Billion/month of its ear-marked €1.1 Trillion package). While it’s tempting to point to the Fed’s QE impact to juice stocks higher, as risk managers we do not think it’s prudent to simply draw a 1-factor like-for-like comparison. This time may in fact be different.

 

As outlined, our highest conviction investment signal is to remain short the EUR/USD. That said, we’ll certainly be navigating the macro waters to trade around what influence Mr. Draghi’s QE wand has on European securities.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.89-2.18%

SPX 2085-2117

DAX 11217-11642

USD 95.07-96.68
EUR/USD 1.09-1.12

Oil (WTI) 48.20-52.04

 

Have a great weekend!

 

Matthew Hedrick
Associate

 

Eurozone: Buy Buy Buy? - EUROZONE


Dollar Down Move – Lasted A Day

Client Talking Points

RUSSELL 2000

One of the sneaky ways to be long #StrongDollar is being long the Russell 2000 vs the S&P 500 – that’s because the Russell gives you domestic revenues, whereas SPX gets you the wrong kind of foreign currency exposure to the USD. The Russell was up another +0.4% yesterday to an all-time closing high of 1254 (+4.2% year-to-date) vs SPX down -0.5% on the day (+1.5% year-to-date) #divergences.

JAPAN

The Japanese Nikkei loves that smell of Burning Yens, up another +0.4% overnight to fresh 15 year highs = +12.2% year-to-date as Bank of Japan Governor Haruhiko Kuroda made a bunch of stuff up about his inflation hopes and said he was going to get “innovative with monetary policy” – thanks buddy (in English that means he’ll go from 90 Trillion Yen in money printings to > 100 Trillion).

UST 10YR

It was a good week for longer-term investors who get #Deflation and global #GrowthSlowing. The UST 10YR was down -14 basis points on the week to 1.97% this morning, with next support at 1.91% and resistance at 2.05% - lower for longer remains our call on rates.

Asset Allocation

CASH 35% US EQUITIES 16%
INTL EQUITIES 13% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
MTW

Manitowoc  (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. The low-end of our sum of the parts valuation is $26, and the low-end is not based on a MIDD comp (not that there is anything wrong with a MIDD comp).  In theory, spin-offs and break-ups unlock shareholder value while increasing operating potential of the formerly smothered units. 

ITB

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.

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.

Three for the Road

TWEET OF THE DAY

VIDEO (1min) Trade the Market Using Math, Not Magic https://app.hedgeye.com/insights/43052-mccullough-trade-the-market-using-math-not-magic

@KeithMcCullough

QUOTE OF THE DAY

It's not necessarily the amount of time you spend at practice that counts; it's what you put into the practice.

-Eric Lindros     

STAT OF THE DAY

In 2014 the average price of brisket increased 47% from 2013, this year it is up 14%.


Early Look

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CHART OF THE DAY: How Are Those "Talks" Going In Europe? (Greek Equities - ASE Index)

CHART OF THE DAY: How Are Those "Talks" Going In Europe? (Greek Equities - ASE Index) - 03.20.15 chart

 

Editor's Note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to subscribe. 

 

Oh, then Draghi woke up and gave the Greek guys a buzz telling them to just float it out there that they are “feeling confident” about their talks with the Germans:

 

  1. After hitting fresh YTD lows (see Chart of The Day), Greek stocks bounced +3% on that and…     

Giant Macro River

“It was the transformation of the ocean from a death sentence to a sort of giant river.”

-Peter Zeihan

 

After a mentally exhausting month on the road where I was debating investors on what the Fed could and should do, now we have the proverbial giant macro river card priced into the marketplace, and I can go back to reading my books and brackets.

 

Since my NCAA brackets are basically an uneducated guess from a 5’9 right-hand-only-dribble-Canadian who doesn’t know the difference between the SEC and whatever division UAB played in this year, my picks did well yesterday.

 

Go figure. Guessing works some of the time – but it gets you run over in macro markets most of the time. So let’s go back to analyzing the transformation of an interconnected, but non-linear, global currency, commodity, fixed income, and equity market.

Giant Macro River - z9

 

Back to the Global Macro Grind

 

The transformation of the oceans (across the last six centuries) is a fantastic metaphor for macro markets to consider as you watch your basketball brackets this weekend. If you’re not into doing either – let me save you the required reading and give you the history point:

 

The most lasting impact of the deep water revolution, wasn’t the shifting of the spice trade, the fall of the Ottomans, or even the rise of the British Empire… Deepwater navigation cracked the world open, launching the Age of Discovery, which in turn condensed the world both culturally and economically.” (The Accidental Superpower, pg 31)

 

Never mind not having a modern day #process to contextualize and risk manage the oceans. Trading macro used to be a death sentence for people who A) didn’t have live quotes and/or B) liquid macro securities that helped them express their macro themes.

 

Today, all of that has changed. Currency markets are some of the deepest and most liquid in the world – and most central planners wake up every morning looking for ways to manipulate them.

 

Last night, BOJ (Bank of Japan) overlord Kuroda was trying to jawbone the Yen lower by suggesting he could come up with some moarrr “innovative monetary policy.” What he meant by that is he can do moarr and moarrr of what has not worked, and take Japan’s annual money printing from 80-90T Yen to something greater than 100 TRILLION Yens…

 

Awesome, eh?

 

Yeah, these guys are totally awesome. As they are blowing up the purchasing power of The People, they are providing us an excellent map of how to navigate the River Alpha of Global Macro returns.

 

How did Kuroda impact macro markets?

 

  1. Yen Down (Dollar Up) = Nikkei Up
  2. With Burning Yens testing YTD lows, Weimar Nikkei ramped to a 15yr high at +12.2% YTD
  3. Janet’s attempts to devalue the US Dollar past 1-day were foiled

 

Oh, then Draghi woke up and gave the Greek guys a buzz telling them to just float it out there that they are “feeling confident” about their talks with the Germans:

 

  1. After hitting fresh YTD lows (see Chart of The Day), Greek stocks bounced +3% on that and…    
  2. The Euro (vs. USD) bounced to another lower-highs too at $1.06…
  3. So Janet doesn’t have to intervene just yet –until Euros and Yens are both on their lows again, I guess

 

This is, of course, the problem with trying to centrally plan your own domestic waterways as the rest of the world is trying to boil the currency ocean. If your “policy” is linear and local in its design, it’s going to get wiped out by non-linear global macro risks.

 

“So”, Janet, while I’m a fan of the no policy mistake move this week… and I think that the move you made on the non-impatience vs. “patient” was cute… in trying to devalue the Dollar from here, I think you’re up this river without a paddle until you make your next move.

 

How do we invest in these #StrongDollar + Down Rates Global Macro waters? No real change from where I’ve been:

 

  1. Commodity #Deflation = rocks, so avoid those (reiterating the asset allocation of 0%, which we’ve had for 6 months)
  2. US Equities = domestic consumption opportunities abound (Russell 2000, Housing, Consumer, Healthcare)
  3. Int’l Equities = owning central plans to ramp stocks markets (Japan, Germany, Italy, Spain, etc.)

 

And in FX and Fixed Income you obviously own what the long-term investors in Global #Deflation and #GrowthSlowing do – US Dollars and Long-term Treasuries. It’s a Giant Macro River, and I’m happy owning the deepest and most liquid parts of it.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.91-2.05%
SPX 2069-2107
RUT 1

DAX 110
USD 97.97-100.69
EUR/USD 1.04-1.08

 

Best of luck out there today and have a great weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Giant Macro River - 03.20.15 chart


March 20, 2015

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BULLISH TRENDS

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BEARISH TRENDS

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