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European Banking Monitor: Sharp Pullback in Greek Financials Swaps

Takeaway: Greek Financials Swaps tighten ~15% on bailout negotiations.

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 

 

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European Financial CDS - Swaps were mostly unchanged in Europe last week while Greek institutions finally tightened in unison given a positive development in bailout negotiations; Greece delivered a more detailed plan for its bailout to the International Monetary Fund on Wednesday.

 

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart1 financials CDS

 

Sovereign CDS – Sovereign swaps mostly tightened over last week on news of Greece delivering a more detailed bailout plan to the IMF.  Spanish sovereign swaps tightened the most, by -8 bps to 86, while Irish sovereign swaps widened nominally (+1 bp to 49).

 

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart2 sovereign CDS

 

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart3 sovereign CDS

 

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - 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 was unchanged at 11 bps.

 

European Banking Monitor: Sharp Pullback in Greek Financials Swaps - chart5 euribor OIS Spread

 

Matthew Hedrick

Associate

 

Ben Ryan

Analyst


Retail Callouts (4/6): KSS, M, JCP, JWN, DDS, SHLD

Takeaway: 1Q15 Real Estate Summary: Strip Center demand lags Regional Malls, minimal real estate optionality for KSS.

EVENTS TO WATCH

Retail Callouts (4/6): KSS, M, JCP, JWN, DDS, SHLD - 4 6 chart2

 

 

COMPANY HIGHLIGHTS

 

KSS, Department Stores - Strip Center and Regional Mall 1Q15 Vacancy Rates

(http://www.wsj.com/articles/retail-landlords-notch-solid-quarter-1428033661?tesla=y)

 

Takeaway: Here's a quick summary of what went down on the real estate front in 1Q15. Regional mall vacancies continue to outperform strip/community centers in the US with vacancy rates 220bps below the 7,000+ strip centers which sits at 10.1%. Only marginally off the 11% recession peaks. While rents at regional malls increased 1.8% in 1Q (driven in large part by 'A' properties) while stripe center occupancy rates creeped up by just 0.5%. Those are important data points given the questions we've fielded on KSS over the past few months in regards to the company's real estate optionality. 

 

KSS operates just 7% of its stores in regional malls, the rest are split between strip centers (67%) and freestanding locations (26%). Besides the fact that the company owns just 36% of its properties outright, it has practically no exposure to the space's beach front property -- the 300 or so 'A' malls in the country. Strip center space is a dime a dozen, though construction has stalled out following the recession there is little demand to fill the vacant space. Plus negative sq. ft. events like the Office Depot/Max/Staples will continue to weigh on this space. Add on the fact that we are massively overstored in the US today, we average 46. sq. ft./capita, compared to #2 on the list the UK at 9 sq. ft./capita. That leaves KSS with very little ability to monetize its real estate assets.

 

Retail Callouts (4/6): KSS, M, JCP, JWN, DDS, SHLD - 4 6 chart1

 

 

OTHER NEWS

 

Party City files to raise up to $427.7 million in an IPO

(http://www.marketwatch.com/story/party-city-files-to-raise-up-to-4277-million-in-an-ipo-2015-04-06)

 

BLKIA - Belk confirms it is exploring strategic alternatives, hires Goldman Sachs

(http://www.chainstoreage.com/article/belk-confirms-it-exploring-strategic-alternatives-hires-goldman-sachs)

 

Changing of the guard at RadioShack; former Dell exec to head chain

(http://www.chainstoreage.com/article/changing-guard-radioshack-former-dell-exec-head-chain)

 

Saks chief steps down after 15 months

(http://www.retailingtoday.com/article/saks-chief-steps-down-after-15-months)

 

AMZN - Amazon.com expands Prime Now to Atlanta

(http://www.retailingtoday.com/article/amazoncom-expands-prime-now-atlanta>

 

TGT - Target, Lilly Pulitzer Collaboration Gets App

(http://wwd.com/retail-news/people/target-lilly-pulitzer-collaboration-gets-app-10107564/)

 

Everything to Know About Primark

(http://www.racked.com/2015/4/1/8321127/primark-us-openings)

 

Alibaba eyeing acquisition of Indian e-commerce firms 

(http://economictimes.indiatimes.com/industry/services/retail/alibaba-eyeing-acquisition-of-indian-e-commerce-firms/articleshow/46812243.cms)

 


Keith's Macro Notebook 4/6: UST 10YR | USD | Commodities

Hedgeye Macro Analyst Darius Dale shares the top three things in CEO Keith McCullough's macro notebook this morning.

 


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LEISURE LETTER (04/06/2015)

TICKERS: WYNN, IGT

COMPANY NEWS  

WYNN -  Institutional Shareholder Services, a leading proxy-advisory firm, recommended that shareholders protest governance issues by withholding support for the company’s nominees to the board as well as dissident nominee Elaine Wynn amid a contentious board battle. 

ARTICLE HERE

 

WYNN - is promising a swift response to concerns from the MA's environmental secretary, who raised legal questions about the acquisition of MBTA-owned land critical to the casino's traffic plans. Wynn Everett President Robert DeSalvio says Secretary of Energy and Environmental Affairs Matthew Beaton found the gambling company's plan "suitable on substantially all of the 59 conditions" for the project identified by Beaton's predecessor. But Beaton said, "The requirement for the environmental approval will delay, but not derail, the project."

 

The Boston Herald reports that Beaton also said the state Department of Transportation, working with Wynn to upgrade to state-owned roads to the casino site, must integrate the plans with those of Boston, which has had a long-term federally financed $100 million fix for Sullivan Square and Rutherford Avenue that did not take into account casino trips.

ARTICLE HERE

Takeaway:  Not surprsingly, a delay in the Everett project. Capex may be inched higher.

 

GTECH/IGT - announced that 17 of the 20 lenders under its senior revolving credit facilities have proportionally increased their aggregate commitments with respect to the U.S. Dollar revolving credit facility from $1,500M to $1,800M and their aggregate commitments with respect to the EURO revolving credit facility from €850M to €1,050M. To prepare for the transition, GTK has finalized its price paid for IGT: $14.3396 in cash and .1819 shares in the new IGT for every current IGT share.

 

Crystal Cruises - is offering savings for family travel during than a dozen of its luxury cruises in fall and winter, with free berths for kids and other group perks.

ARTICLE HERE

 

 

INDUSTRY NEWS

 

Easter/Ching Ming visitation - Travelers to or from Macau made over 1.28 million border crossings during the Easter and Ching Ming festival holidays from Friday to Sunday. Between Friday and 9pm yesterday, about 570,700 mainlanders and 191,800 Hong Kong people entered Macau, the police say.
The authorities at the Gongbei border post say about 330,000 travelers crossed the border there on Sunday alone, some 160,000 of them Macau people or Hong Kong people.

ARTICLE HERE

Takeaway: Border travelers was higher than last year's 1.25m.  Tourists were also higher than last year's 412,630. Visitation growth, while slower, is not the problem.

 

F&B/Luxury -“Many friends and members have said that [in March] the food and beverage business dropped by 20% and the retail sales of luxury [items] also saw a cut of 40%. On the other hand, mass-oriented businesses remain unaffected for the moment. What we are seeing is, a general economic downturn,” said director of the Industry and Commerce Association of Macau, Ho King Lun, adding that rent-related expenses and other living costs in the city seem to be remaining intact in spite of the ongoing economic adjustment.

ARTICLE HERE

Takeaway:  F&B/retail revenues should also be lower in Q1 2015.

 

Cambodia -  Ros Phearun, deputy director of finance industry for the Ministry of Economy and Finance, said the ministry is close to finalizing the long-delayed draft bill, after which it will proceed to the Council of Ministers, with approval from the National Assembly not expected to take long after that. “We believe that when we have the law in place, we can increase our revenue by two times compared to our current revenue [of $25 million],” he said,

 

Son Chhay, deputy chairman of the National Assembly’s banking and finance commission, welcomed the draft law, but said the government should issue new gaming licenses only after the law was passed. He said that the law should be strict and reinforce the existing ban on locals gambling. He said once the bill passed the Council of Ministers, it should take the National Assembly no longer than three months to pass it. “I think it won’t take long because the government will try to push it as they need more money to fill up their recent increase of civil servants salary,” he added.

 

Cambodia currently has 59 licensed casinos as of last year, generating around $25 million, a rise of 15 from 2013. Phearun told the Post in March that three new casinos in Takeo province were awaiting their operating licenses and should be operational in time for Khmer New Year.

ARTICLE HERE

Takeaway: With Macau's slump, doubling gaming revenues in Cambodia is a feasible goal.  

 

NY VLTs - The 2015 New York state budget approved the week of March 29 codifies state law with case law in a move to try to thwart potential legal challenges. By doing so, officials said they have opened the door to requests by racetrack gaming facilities to offer new kinds of video lottery games at their facilities, such as electronic three-card poker and blackjack.

 

Supporters of the measure believe it will give bettors an opportunity to incorporate some skill into their wagers. However, the new devices will still be considered VLTs.

 

The New York State Gaming Commission estimates about 500 new machines will go to New York's racetrack gaming facilities, of which about 175 will replace existing machines that don't offer the games. Resorts World will add the most new machines. The NYSGC will have to approve any requests to add to the number of existing VLT devices.

 

ARTICLE HERE

Takeaway: Positive for SGMS and a way to existing casinos to better compete with upcoming full-scale casinos in NY. 

 

2014 Global lottery results - In 2014, global lottery sales grew 9.9% YoY. The growth in worldwide lottery sales was once again built on the foundations of strong performances from the Asia Pacific and Latin American regions, with both these locales having recorded unbroken double-digit growth in sales over the past six quarters. The robust performance of the Asia Pacific and Latin American markets was tempered, however, by the performance of the North American region, which saw sales tread water in 2014.

  • Latin America sales up 23.2% 
    • Argentina: +26.8%
    • Brazil: +18.5%
    • Chile: flat
    • Mexico: down slightly
  • Asia-Pacific sales up 15.6%
    • China Sports Lottery: +32.8%
    • China Welfare Lottery (world's largest lottery by sales volume at US$32.2 bn): +16.7%
    • Australia: +1.8%
    • Japan: dip slightly
  • Europe sales up 5.1%
    • Hungary: +24.8%
    • Czech Republic: +15.2%
    • Greece: +14.8%
    • Poland: +6.7%
    • Finland/Italy/France: ~+5%
    • Spain: fell slightly
  • Africa sales up 3.8%
  • North American sales up 0.4%
    • California Lottery: +6%
    • Powerball: -19%
  • Global growth in lottery sales has ranged from an annual high of 13.1% (2011) to an annual low of 4.9% (2013).

ARTICLE HERE

Takeaway: Worldwide lottery sales did well in 2014, although the mature North America market continues to lag, posting flattish results. 

 

TN lottery - The Tennessee Education Lottery Corporation announced today that it had sold more than $10 billion in instant tickets since the Lottery’s inception, reaching that mark in March, or  just over 11 years, a faster pace than all but one other U.S. lottery (Texas). Instant ticket sales for March of this year hit $115.8 million, the highest for any month since inception, eclipsing by one million dollars the previous record set in March 2014.

ARTICLE HERE

 

Iowa lottery - Iowa Lottery sales have been "spectacular," with gross sales totaling $217.5 million for the eight months between July and February, Lottery President Terry Rich said. That's 12.5% above the five-year average.

"Our latest monthly results for February show it was a really good month for both scratch and Powerball. March also should be an above-average month, based on current projections," Rich said.

ARTICLE HERE 

 

Turks & Caicos - A $224 million Ritz-Carlton hotel planned for Turks and Caicos will include a casino. Construction is expected to begin in November and last three years.

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.

 


INVITE | Q2 2015 MACRO THEMES CONFERENCE CALL (TOMORROW)

INVITE | Q2 2015 MACRO THEMES CONFERENCE CALL (TOMORROW) - 4 6 2015 8 48 09 AM

 

We will be hosting our highly-anticipated Quarterly Macro Themes conference call tomorrow Tuesday, April 7th at 11:00AM ET.  Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications. 

 

Q2 2015 MACRO THEMES OVERVIEW:

 

#LateCycle USA: Employment, Inflation and Earnings follow an archetypic progression over the course of the economic cycle and always look best before the crest.  We’ll detail where we are in the current cycle, the likely trajectory for this trinity of late-cycle macro indicators from here and how best to be positioned in the twilight of the current expansion.  

 

#DemographicYields: Year after year in the post-crisis era, investors, economists and policy-makers alike have consistently seen their estimates for GDP growth, inflation and interest rates surprised to the downside. Perhaps there is some merit to the “secular stagnation” thesis most recently highlighted by Bernanke’s blog. In this theme, we pull back the curtains on the impact of demographics on the domestic and global economy. The conclusion? Lower-for-longer...
 

Oil’s #DeflationDeck: Taking a birds-eye view of oil prices throughout the peaks and troughs in business cycles provides essential context as deflation’s dominoes continue falling on a global scale. With the U.S. production machine changing the supply/demand dynamics in global energy markets, a deep-dive of this shift is key to generating sector-specific alpha into 2016 and beyond.

 

CALL DETAILS

  • U.S. Toll-Free Number:
  • U.S. Toll Number:
  • Confirmation Number: 39359212
  • Materials: CLICK HERE (the slides will be available approximately one hour prior to the start of the call)

As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to .

 

Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.

 

Kind regards,

 

The Hedgeye Macro Team


Monday Mashup

Monday Mashup - 11

 

Recent Notes

03/30/15 Monday Mashup

04/02/15 MCD: Still Lacking Direction

04/02/15 New Best Idea: Long ZOES


Events This Week

Tuesday, April 7

  • PLAY earnings call 5:00pm EST

Thursday, April 9

  • RT earnings call 5:00pm EST

 

Recent News Flow

Monday, March 30

  • PLKI introduced the new Red Stick Chicken to its menu as an LTO.  Four premium tenderloins marinated in a cayenne and Tabasco marinade will be served with Cajun Fries, a Buttermilk Biscuit, and Smok’n Pepper Ranch dipping sauce for just $3.99.
  • DNKN announced its new commitment to transitioning to 100% cage-free eggs globally.  10% of all eggs sourced for its breakfast sandwiches in the U.S. will be cage-free by the end of the year.  DNKN also made a commitment to source only gestation crate-free pork in the U.S. by 2020.
  • MCD will begin testing all day breakfast in the San Diego area in April.

Tuesday, March 31

  • COSI hired Miguel Rossy-Donovan as its new CFO.  Rossy-Donovan will join Cosi from Teach of America, where he has served as Chief Finance & Administration Officer for the past ten years.
  • WEN has agreed to submit management-supported proxy access amendments to its By-Laws.  The amendments would allow a stockholder, or group of up to 25 stockholders, owning 3% or more of the company continuously for at least three years to nominate directors nominees making up to 20% of the Company’s board, given certain conditions are met.

Wednesday, April 1

  • DENN announced the launch of a new kids menu that will feature popular DreamWorks Characters from televisions shows and movies such as Penguins of Madagascar, Puss In Boots, and Turbo FAST.
  • NDLS introduced BUFF Bowls to its menus nationwide.  The new BUFF Bowls are low carb and high protein versions of popular NDLS dishes (Japanese Pan, Whole Grain Tuscan Fresca, Pesto Cavatappi, and Bangkok Curry).
  • MCD plans to raise its pay for U.S. company-owned restaurant workers by more than 10% as well as offer a paid vacation benefit.
  • DENN established a new $250 million credit facility and increased its share repurchase authorization by an additional $100 million of its common stock.
  • JMBA reached an agreement with Vitaligent to refranchise 100 company-owned restaurants in the San Francisco, Sacramento, and San Diego markets in exchange for $36 million cash.  JMBA is on track to complete its refranchising program in 1H15.

Thursday, April 2

  • JMBA announced the termination of it stockholder rights agreement after feedback from investors and considering its current corporate governance practices.

 

Commodities

Monday Mashup - 2

 

Sector Performance

The XLY outperformed the SPX. Both casual dining and quick service stocks, in aggregate, underperformed the XLY.

Monday Mashup - 3

Monday Mashup - 4

 

Quantitative Setup

From a quantitative setup, the XLY remains bullish on an intermediate-term TREND duration.

Monday Mashup - 5

 

Casual Dining Restaurants

Monday Mashup - 6

Monday Mashup - 7

 

Quick Service Restaurants

Monday Mashup - 8

Monday Mashup - 9


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