Takeaway: Mgmt believes the Macau govt have about 400 new tables to allocate to Cotai in 2015. Mgmt will also ask for additional tables this year.




  • Past months have been challenging in Macau 
  • Visitation in Fisherman's Wharf have increased 5% YoY from 4.1m in 2013 to 4.3m in 2014
  • Interested in South Korea, Japan and other Asian countries
  • Margins from Direct VIP are attractive
  • Not overbuilt and fully funded
  • Targeting mass segment 
  • Marina Ph2 (convention center/additional hotel/larger marina) -expected Q2 2016
  • Opening of Harbourview Hotel (Feb 2015) attended by both Macau officials and Central govt officials
  • Total hotel inventory is around 1,000
  • Legend Palace Hotel (Q2 2016) (Monte-Carlo theme): applied for construction license for superstructure. Expect approval very soon.
  • Expect govt approval to operate the marina by June 2015
  • Submit for application for MFW phase 2 redevelopment:
  • Non-gaming as a % of total revenues: 29%
  • Will reclassify some VIP tables into Mass
  • MLD has performed Peninsula on GGR


  • Only report 2% of outsourced VIP revenue as MLD revenue
  • Harborview construction took ~1 yr; right now, have 33 gaming tables in operation
  • Dinosaur experience: hope to start construction later in 2015
  • Performance theater: expect to open Q2 2017
  • Labor market continues to be tight in Macau. Have added pension scheme as part of retention policy


Q & A

  • Macau govt - they have about 400 new tables to allocate to Cotai in 2015.
  • IVS study: Chinese govt will not stop anybody from coming and will not hurt Macau. Want Macau to be more non-gaming and an international destination. 
  • Will you apply for new tables in 2015? Can move 10 tables from Landmark. Will ask govt for extra tables in 2015.  The 35 tables are not fully in operation since they are still training staff. They will be fully utilized by Q2 2015.
  • By Q2 2015, all 185 tables will be in operation. 
  • Q4 2014 vs Q4 2013:  didn't have any extraordinary items in Q4 2014. In Q3 2014, recognized $81.7m HK accrual from Legend contribution.
  • Casino mgmt system:  fixed rate contract Bally (biggest casino operations cost)
    • Additional costs from transition to new system and new staff from Bally; costs will come down in future quarters.
  • How much capital they have spent to date:  spent HK$1.3 billion for MFW redvelopment and Landmark renovation project.  Total budget: HK$8 billion.
  • Capex guidance: $2.5-$3.0 billion in 2015 and 2016

WAB, Rails: Deteriorating Environment

Takeaway: By the time utilization declines amid peak equipment deliveries and weak traffic, it may be too late to exit/short WAB, if we are correct.



In our WAB black book, we suggest that US freight rail volumes should weaken and lead to rail capital spending declines into 2016.  A decline in US freight rail capital spending (orders, not sales) would be a serious negative for WAB, as WAB shares are priced for continued secular earnings growth.  Recent data suggests that this thesis is, perhaps, playing out.  In the last few weeks, the shares US railroads have underperformed as rail data has softened.  We expect weaker volumes to negatively impact the shares of equipment suppliers over time. 



G&W, KSU Guidance Cuts


“G&W’s traffic in the first quarter of 2015 has been weaker than the Company’s expectations due to severe winter weather in four of G&W’s North American regions, as well as weakness in certain commodity groups, including steam coal and metals. Based on first quarter results to date, G&W expects total revenues in the first quarter to be approximately $375 million, or $25 million below its guidance of $400 million provided on February 10, 2015. In addition, G&W expects costs to be approximately $5 million higher as a result of the extreme winter conditions. As a result of these factors, G&W expects net income in the first quarter of 2015 to be approximately $10 million below guidance.” 

- GWR Press Release


While Crude by Rail has received some attention, the G&W guidance cut also notes weakness in steam coal and metals.  With the approach of the Mercury Air Toxics implementation, coal volumes seem likely to weaken further.  Industrial metals prices are also not encouraging.  KSU also lowered its outlook on March 23rd, and specifically mentioned lower expenses as an offset to a weaker environment.





WAB, Rails: Deteriorating Environment - rq1



Here is what Cass has to say on mode shifting back to trucks:


WAB, Rails: Deteriorating Environment - rq2





After a few surges in output, coal production is down again.  SCOTUS is unlikely to rule on MATS regulations until well after its mid-April implementation.


WAB, Rails: Deteriorating Environment - rq3



Crude By Rail


Lower crude oil prices have not had a positive impact on the growth in crude by rail shipments. 


WAB, Rails: Deteriorating Environment - rq4



Hard To See Growth in 2015


While some categories, like Chemicals, continue to expand, it is challenging for us to see rail growth in the current environment.  By the time utilization has declined amid peak equipment deliveries and stagnant traffic, it will be too late to exit/short WAB, assuming we are correct.


WAB, Rails: Deteriorating Environment - rq5


EDV: Adding Vanguard Extended Duration ETF to Investing Ideas

Takeaway: We are adding EDV to Investing Ideas.

Please note that we are adding EDV back to Investing Ideas today. Our macro team will provide a more detailed and granular update behind this decision in this weekend's edition.

EDV: Adding Vanguard Extended Duration ETF to Investing Ideas - 55


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Attention Entrepreneurs: Take Peter Thiel’s Book With a (Big) Grain of Salt

My longtime business partner, fellow Canadian, and maverick CEO of our independent financial research firm Keith McCullough bought a bunch of copies of entrepreneur Peter Thiel’s book Zero to One and handed them out to our management team a couple of weeks ago. 


Now, before I weigh in with the one important, fundamental flaw in his book, let me just say that I really enjoyed reading it—Thiel wrote a fun and insightful page-turner, filled with tales of immense entrepreneurial success, Silicon Valley insider baseball jargon and motivational life quotes.

Attention Entrepreneurs: Take Peter Thiel’s Book With a (Big) Grain of Salt - z1

Thiel begins his book with a question. It’s a thoughtful, rather interesting question that he normally starts every interview with job candidates or CEOs seeking financial investment:


                “Tell me something that’s true, that almost nobody agrees with you on.”


In the interest of full disclosure, while I’ve never personally interviewed with him, I did apply for a job at Thiel’s hedge fund Clarium Capital many years ago, and if I were to sit down with him today, and he asked me the same question, my answer would be:


                “Your book, Zero to One, is discouraging to aspiring entrepreneurs.”


Now why would I go and say that? For starters, because I believe it to be true. And based on glaring reviews from entrepreneurial notables including Mark Zuckerberg and Elon Musk, almost nobody agrees with me!

Attention Entrepreneurs: Take Peter Thiel’s Book With a (Big) Grain of Salt - py2

Look, I recognize and appreciate Peter Thiel’s success. Only a fool would question his business acumen, visionary insight and non-conventional thought leadership.  That said, I don’t think his book is helpful to aspiring entrepreneurs. In fact, his advice can actually be discouraging and counter-productive. It encourages would-be entrepreneurs to singularly focus upon the one great, elusive, multi-billion dollar idea.  Or as he calls them: “secrets.”


This is bad advice for a number of reasons.  First, aspiring entrepreneurs will spend sleepless nights staring at the ceiling, racking their brain searching far and wide for the “perfect idea,” rather than just getting going on their idea.  Here’s a question: Instead of trying to identify the next “grand slam” idea, what’s the problem with a “double” or “triple”?


Second, while there are only so many Facebooks, Twitters and PayPals in the world, there are plenty of other product and company ideas that fall somewhere between “working for someone else” and taking the leap of faith and initiative to do your own thing and starting a viable business.  Thiel’s book discourages smaller scale entrepreneurship. What’s wrong with starting a restaurant? (See Danny Meyer).


Over the course of the last decade, I’ve been involved in a number of start-ups or turnarounds.  My “day job” is Director of Research here at Hedgeye, which Huffington post recently called the ESPN of Finance. I’m an investor and board member of Sauce Hockey, which creates trendy apparel for the hockey market and recently became a part owner of the NHL’s Arizona Coyotes. I also sit on the board of FarmLead, which is North America’s only fully transparent agriculture marketplace and am an investor in FireFly Space, a revolutionary new space rocket company which is a derivative of SpaceX.


None of these companies currently boast billion-dollar valuations (although some do possess that potential down the road). Moreover, none of these companies, which have all been successful in their own right, would have ever started if the founders got hamstrung overanalyzing the uniqueness of their ideas.


As the famous quote goes:


“Twenty years from now, you will be more disappointed by the things that you didn’t do then by the ones you did do, so throw off the bowlines, sail away from the safe harbor, catch the trade winds in you sails. Explore. Dream. Discover.”


My humble advice to an aspiring entrepreneur is simple and can be summed up in three words:


Just get going.


Recognize that there is no such thing as the “perfect idea.”  There never will be. And there is no perfectly uncompetitive market.  There is only lost time and opportunity. Maybe you’ll hit a grand slam like Thiel or Zuckerberg. Maybe you’ll hit a double. Who cares? At a bare minimum, you’ll be in the game, on base. So again, just get going.


Having said all that (and even if I disagree with Thiel’s initial premise), he does offer some useful advice.  From my own experience, here are three I would emphasize:


1) Distribution matters – This is perhaps the most critical lesson I’ve learned over the past six years.  Simply put, it doesn’t matter how differentiated or proprietary your product or service is, your customers will not find it on without a cohesive sales and marketing effort.  Definitely invest in a sales team.


2) Have a plan – Even though he is clearly a “big idea” type of guy, Thiel also emphasizes the importance of having a plan and measuring success against it.  The plan can always change, but there has to be a benchmark for success or failure.  A simple business plan (no matter how brief) with key metrics is critical to any business.


3) Cultural – Thiel calls the Silicon Valley computer science culture nerdy. Whether that is true or not, his point about knowing your partners very well and having similar backgrounds (at least when the companies are small) is critically important.   When the going gets tough, and rest assured it will, it’s better to know the stuff your partners and colleagues are made of in advance.


Bottom line: Thiel’s book is well worth reading. Download a copy when you have a minute. But take it with a grain of salt and remember, there is power in action. Take your $100,000 idea, $1,000,000 idea or $1,000,000,000 idea and just get going for Pete’s sake!


Watch our bi-weekly update on our active Macro Themes and Thematic Investment Conclusions below.


CLICK HERE to download the associated presentation in PDF format (20 slides).


As always, feel free to ping us with questions.


Have a great weekend,




Darius Dale


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