LEISURE LETTER (03/24/2015)

Tickers: MPEL, RHP


  • March 26: Macau Legend 4Q conf call 8:30-9:30pm (EST)
  • March 27: CCL F1Q, 10am -


MPEL - CEO Lawrence Ho said in a letter that it would give a 5% salary increase to eligible non-management staff. The letter was published online by the labour activist group Forefront of the Macao Gaming.


The percentage rate mentioned in the memo is in line with awards previously announced by other Macau operators. The first monthly payment of Melco Crown’s increment is to be given in April. It did not specify how many workers were eligible for the salary increase.

Takeaway: Salary increase of 5% is the norm


Aristocrat - Investor Day presentation



Genting - Resorts World LV will break ground on May 5th. The $4 billion project will include 3,000 rooms, a combined 3,500 slots+tables, a 175,000-square-foot casino, and a Chinese theme designed by architect Paul Steelman.


The company still will need to apply for a full gaming license before Resorts World Las Vegas can open. Construction is expected to take place over multiple years and include at least two or three phases.


Genting - Resorts World at Sentosa has executed an agreement for syndicated senior secured credit facilities worth S$2.27 billion. The new facilities will be utilised primarily for refinancing RWS's existing facilities of S$4.1925 billion obtained in 2011. The five-year facilities comprise a S$1.75 billion syndicated term loan facility, a S$500 million syndicated revolving credit facility and S$20 million bank guarantee facility, provided by DBS Bank and OCBC.


In an announcement to the Singapore Exchange, Genting Singapore said the new facilities will enable RWS to extend the tenure of its existing facilities to 2020 and also offer the firm better repayment terms which enhance its balance sheet strength and financial flexibility.




  • The company has repurchased all of the common stock warrants associated with its previously outstanding 3.75% convertible senior notes, which matured on 1-Oct-14. No warrants remain outstanding following these repurchases.
  • The aggregate amount paid to the warrant counterparties in consideration for the repurchase of the remaining 4.7M outstanding common stock warrants during Q1 of 2015 was $154.7M, funded with cash on hand and borrowings under the company’s credit facility.
  • Due to the change in the fair value of the warrants between 31-Dec, 2014 and the settlement date, the company expects to record, in its financial statements for the quarter ended 31-Mar-15, an approximate $20M loss on this change in the fair value, which will be included in other gains and losses, net. 


Carey Watermark - acquired the landmark Westin Pasadena hotel. The acquisition price was $142.5 million. The full-service hotel includes 350 guestrooms and is located in downtown Pasadena, California.


Takeaway: Average price per key: $407k for this UUP property in a tier 1 market. 


Japan- Liberal Democratic Party politician Takeshi Iwaya, a member of a group of pro-casino lawmakers, said they decided to submit the casino bill by next Tuesday, the last day of the fiscal year.


"We have decided to submit it before the end of the fiscal year," Iwaya told reporters, adding that having the bill on the table by March 31 meant local governments considering casino resorts could continue funding research on the topic in the coming year.


Takeaway: Still a long shot

China lottery sales (Feb 2015) - Total lottery sales in February 2015 increased 23.9% YoY to RMB 24.79 billion. Sports lottery sales increased 42.7% YoY to RMB 11.777 billion. However, instant scratch cards fell YoY.


LEISURE LETTER (03/24/2015) - lot


Tunis attack impact - “I think it’s too early to tell,” said Dwain Wall, former general manager of the CruiseOne/Cruises Inc. division of World Travel Holdings and now co-president of, an online travel agency in Beijing. “It hasn’t had any effect on our bookings as of yet. … It’s so hard to tell how consumers are going to respond.”


UK cruising -  Kennedy Cree, general manager of Scotia Travel said, " The fall in passengers doesn’t surprise me. The market reached a frenetic peak about two years ago and I didn’t think that would be sustained. There was a huge assumption that first-time cruisers would be cruisers for life, and I’m not sure that’s proved to be the case so far. They still want to go on land-based holidays so are not booking cruises every year." He added that he was unsure how cruise lines would be able to reverse the fall, and said that despite the industry’s best efforts, discounting was still a problem.


“It’s hard to see what cruise lines can do that they aren’t already doing. Prices are good and if they are going up a bit, the lines are including a drinks package or onboard spend so the customer is getting better value. They have done this to discourage discounting but it’s not worked and there’s still discounting across all the star categories. I think the cruise market will start growing again, but just a bit slower than they thought it would.”


Statistics from Clia UK and Ireland show that the number of British travellers taking a river cruise grew by almost 8,000, taking the total number to 139,400 in 2014. Europe remains the most popular region for UK travellers, accounting for 85% of all passengers. In particular, the river Danube’s popularity remained strong, growing 41% while cruises on the Danube and the Rhine grew 37%.



Takeaway: UK pricing is not as robust as before. Cannibalization could be a risk here.



Macau CPI - February 2015 increased by 5.30% YoY and 0.90% MoM.


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.




Our pricing survey suggests CCL should report an in-line earnings report on Friday with mixed guidance commentary. A small recovery in Caribbean pricing should offset some pricing weakness overseas, particularly in Europe. The Tunisia incident had some impact on Costa pricing, though not major, so far.


Please see our detailed note:

The Right Words

This note was originally published at 8am on March 10, 2015 for Hedgeye subscribers.

“A powerful agent is the right word.”

-Mark Twain


From San Francisco to Boston to New York (and today Chicago) I’ve been on the road meeting with a lot of investors in the last few weeks. Finding the right words for macro market risks gets less hard when I boil it down to one - #deflation.


That’s it. One word. You are either positioned for its risks or you are not.


Its risks are far reaching, inasmuch as the opportunities it presents will be. For the average household in America that doesn’t own stocks and bonds it’s a big tax cut. For the average corporation who sells anything with deflating prices, it’s a big headache.

The Right Words - Deflation cartoon 12.29.2014


Back to the Global Macro Grind


Can the world’s central-planners arrest the #deflation? Or are they now perpetuating it?


To review slide 8 of our current macro deck:


  1. Burning Euros are not going to magically create inflation
  2. Burning Yens are not going to produce inflation “targets” either


Instead, $1.07 Euro (-11% YTD vs. USD) and $121.67 Yen (-1.5% YTD vs. USD) are creating the mother of all ramps in the US Dollar. Picking up right where it spiked to last week, the US Dollar Index is already +0.7% this week to +9.1% YTD.


What we call the Correlation Risk (of #deflation) to #StrongDollar remains obvious at the epicenter of where you should be crushing it on the short side and/or have a 0% asset allocation (Commodities):


  1. CRB Commodities Index was down another -0.4% yesterday to -4.7% YTD (with US stocks and Treasuries up on the day)
  2. Gold is down another -0.7% this morning to $1159 (-2.1% YTD)
  3. Copper is down another -1.8% this morning to $2.62 (-7.1% YTD)


In other words, in terms of what to avoid, the easiest question I’ve been answering on the road for the last 6 months remains one word too – Commodities. Why on god’s good earth of deflationary forces would you buy what was the most levered bet on US Dollar destruction into 2011-2012?


Moreover, if you have intermediate-term targets of $1.05 and $135 Euro and Yen, respectively (vs. USD)… and those targets look increasingly probable by the day, why wouldn’t you keep pressing the long Consumer (XLY), short Energy (XLE) position?


A: in a word – “valuation”


Especially when Oil was bouncing, we were getting a lot of “but everyone is short oil and underweight Energy stocks – there’s a lot of value here – why can’t Oil go back to $70?”


In Hedgeye process terms, the words I’ve been using to answer that line of questioning are:


  1. Oil (WTI) has an intermediate-term TREND “price deck” in our model of $36.23-57.82/barrel
  2. Both the net LONG position (futures/options contracts) and curve is looking for higher prices than that
  3. Levered Energy Equities (and their Debts) are not pricing in either the top or bottom end of our range


To be sure, I’d definitely be using the wrong words to describe the most probable #deflation scenario for Energy stocks and bonds if I was a banker. But I’m not a banker. I’m a risk manager. And the only thing I care about is getting to the right words and answers.


If you’re on board with our Global #Deflation theme, we still think the wrong asset allocation answers are:


  1. Buying Russian stocks because they are “cheap”
  2. Buying Greek stocks because they are “cheaper than German stocks”
  3. Buying “your own oil well”


Yes, listen to the radio, you too can buy your own oil well and be called what every other person who got sucked into doing the same for the last year of oil #deflation (one word – lemming).


Finally, we’ve been getting a ton of questions on why German Bund Yields can remain this wide versus US Treasury Yields (0.31% 10yr Bund yield this morning vs. UST at 2.19% = +188bps spread, widest of the year)…


A: I don’t know.


Those are 3 words I have no problem using as I age. The more I learn about macro markets and their histories, the less I know. That said, I still think that if Janet keeps one word in the Fed’s “language” at the March 18th meeting (#patient), US 10yr Yields are coming in hot.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.92-2.27%

SPX 2065-2101

RUT 1208-1233

USD 96.85-98.47
EUR/USD 1.07-1.10

Yen 119.21-121.81
Oil (WTI) 48.14-51.77
Gold 1153-1197
Copper 2.55-2.73


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Right Words - COD

Counter-TREND Bouce

Client Talking Points


The Euro risk range blows out to $1.03-1.10 (a widening range = rising variance --> leading indicator for more, not less, foreign currency market volatility). Ex-Germany (good not great PMI of 52.4 vs 51.1 last) there is still plenty of bad European data (French PMI of 48.2, Finland PPI -1.8% year-over-year) – we say you re-short the Euro at $1.10.


Not to be confused with German data, Chinese and Japanese PMIs were terrible, slowing in March to 49.2 and 50.4, respectively – Chinese stocks hit new year-to-date highs of +14.1% on that, of course, the worse the data is, the moarrr stimulus!


The UST 10 YR looks at Global #Deflation and #GrowthSlowing for what it is year-to-date, i.e. the fundamental case to stay long the Long Bond for longer; 1.91% UST 10YR Yield in the U.S. with no immediate-term support to 1.85% and intermediate-term TREND support down at 1.69%.

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.


Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.


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


Tune in live @8:30 to the @Hedgeye Macro Show to watch @KeithMcCullough deliver a heroic performance: …. #PlayingHurt



You can’t be common, the common man goes nowhere; you have to be uncommon.

Herb Brooks           


Target will raise their minimum wage next month to $9 an hour, 20% of the industry is now at this level.

CHART OF THE DAY: Back to Buying These on the Pullbacks

CHART OF THE DAY: Back to Buying These on the Pullbacks - 03.24.15 chart


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


With the Federal Reserve having not made a monetary policy (rate hike) mistake last week, Fed Vice Chair, Stanley Fischer, reiterated lower-rates-for-longer at his rock-star-status meeting of the mainstream minds yesterday.


No matter where you’ve been positioned, here we are. If I were you, with both interest rates and the US Dollar grinding lower this morning, this is what I’d be doing next...



The Grindstone

“Now it is necessary to get to the grindstone again.”

-Ernest Hemingway


For those of you who are Hemingway fans, you’ll remember that classic one-liner.


He penned it at the end of his preface to “The First Forty Nine” in 1938. He was preparing for the next stage of his life, writing from Finca Vigia (his home in Cuba). That’s where he’d spend the last 22 years of his life, before dying in 1961.


For those of you who didn’t know, that one-liner inspired “Back To the Global Macro Grind…” While my English Lit professor @Yale was very close to failing me in 1995, thank God she saved me with Hemingway’s short-form writing examples.

The Grindstone - grindstone farmer


Back to the Global Macro Grind


With the Federal Reserve having not made a monetary policy (rate hike) mistake last week, Fed Vice Chair, Stanley Fischer, reiterated lower-rates-for-longer at his rock-star-status meeting of the mainstream minds yesterday.


No matter where you’ve been positioned, here we are. If I were you, with both interest rates and the US Dollar grinding lower this morning, this is what I’d be doing next:


  1. Buying US Dollars on red; Shorting Euros on green
  2. Shorting Commodities and their related stocks/bonds on green
  3. Buying Long-term Bonds (and stocks that look like bonds) on red


In other words, from a Foreign Currency market perspective, I’ll be fading (doing the opposite of) the counter-TREND move. But from a Fixed Income standpoint, I’ll stay with what’s been a very bullish intermediate-term TREND.


The main reasons for that are twofold:


  1. The best way to be positioned for Global #Deflation and #GrowthSlowing remains being long Long-term Treasuries
  2. The best way to stay with the Europeans, Japanese, and Chinese devaluing their currencies, is to be long US Dollars


On Global #Deflation, If you grind through all of the recent Global Macro data, it’s not that hard to see:


  1. Germany’s producer prices (PPI) for FEB were -2.1% year-over-year (vs. -2.2% in the prior month)
  2. Finland’s producer prices (PPI) for FEB were -1.8% year-over-year (vs. -1.9% in the prior month)
  3. United Kingdom’s PPI for FEB was -1.8% year-over-year (vs. -1.9% in the prior month)


And while some of these year-over-year #deflations slowed month-over-month, don’t forget that this all happened in FEB when most things commodities had a Down Dollar bounce. In March, all of the #deflation data should accelerate to the downside again.


On Global #GrowthSlowing (key word there is Global), here’s your data update:


  1. Eurozone PMI for March 51.9 (vs. 51.0 in FEB)
  2. Chinese PMI for March 49.2 (vs. 50.7 in FEB)
  3. Japanese PMI for March 50.4 (vs. 51.6 in FEB)


Chinese and Japanese stocks are running right at YTD highs of +13-14% on those sequential slowdowns. Why? #GrowthSlowing begets more currency burning expectations, which begets higher stock prices in those currencies.


Meanwhile everyone who is long Europe who thinks the German PMI data (which was good, not great, sequentially at 52.4 MAR vs. 51.1 in FEB) is going to carry all of Europe for the rest of the year (France’s PMI sucked at 48.2), has a simple question to answer:


Is the European “growth story” (going from recession to something hoped-for that is less than recessionary) intact with Draghi allowing all of his Burning Euro accomplishments to get unwound?


From a research perspective, the answer to that question is an unequivocal no. Yesterday Draghi was thumping his Italian chest hairs celebrating the “benefits of a weaker Euro.” The immediate-term risk range for the EUR/USD also blew out to $1.03-1.10.


Not to be confused with my English Lit professor, my calculus guy in New Haven never threatened to fail me. The math of the matter is that as risk ranges “blow-out” like the Euro’s just did, variance rises, and so does my expected volatility for the FX market.


As you just witnessed with the Fed’s latest move, in reaction to unexpected currency strength, the only play in the central planner’s playbook is to get easier, not tighter. So, now it’s your turn Super Mario and Mr. Kuroda – prepare your respective FX grindstones.


Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND research views in brackets):


UST 10yr Yield 1.85-2.02% (bearish)

SPX 2080-2117 (bullish)

RUT 1 (bullish)

Nikkei 192 (bullish)
VIX 12.79-15.94 (bullish)

USD 97.01-99.24 (bullish)

EUR/USD 1.03-1.10 (bearish)

Yen 119.39-1.21.90 (bearish)
Oil (WTI) 42.42-48.28 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Grindstone - 03.24.15 chart

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