LEISURE LETTER (04/09/2015)



HLT - Blackstone has reportedly been approached by a Chinese consortium including Shanghai-based JinJiang International.  Whispers have suggested Blackstone has been offered $45/share for its controlling stake but Blackstone wants more.


Takeaway: HLT has done well on solid lodging fundamentals. This rumor would further support its share price.


MGM - The Bellagio has just completed a resort-wide remodel of the guest rooms and 403 suites in its main tower.  The Mandalay Bay Convention Center is on schedule to open the first phase of its expansion in August.


ZNGA - has announced the resignation of CEO Don Mattrick after just short of two years in the CEO hot seat. Former CEO and founder/chairman Mark Pincus will return to CEO, effective April 8. Pincus tells the WSJ that the company is preparing a new set of mobile games.


FCH - announced prelim Q1 REVPAR growth of +13.1% on same-store basis.  “We are extremely pleased with our strong year-to-date results, which are significantly ahead of our expectations. Lodging fundamentals continue to be robust and our same-store RevPAR growth continues to outperform the industry," said Richard A. Smith, President and Chief Executive Officer of FelCor. “We are also making great progress on completing the sales of our remaining non-strategic hotels. We have sold three hotels during 2015, including one in March, and three of the five remaining hotels are under contract to be sold.”


Melco International - $700 million casino in the Russian gambling zone of Primorye at Vladivostok will open its first phase in July.  This will include a casino and a 140-room hotel. 

Takeaway: This project has been long delayed.  


WYNN -  “The corporate governance committee will name one or more diverse directors to the board by the end of 2015,” said WYNN in a filing. Wynn Resorts would “prioritise women and diverse candidates in its search,” the filing added.



  • People familiar with an investigation by regulator the Autorité des marchés financiers tell the Globe and Mail that the AMF has seized documents of and communications records between CEO David Baazov and CFO Daniel Sebag.
  • The Globe and Mail reports that the AMF and the company's board are looking into trading in Amaya stock before the $4.9B purchase of Rational Group (PokerStars) last summer, and that the regulator has executed search warrants on Amaya, its financial adviser Canaccord Genuity (CF.CN), and Manulife Securities (MFC.CN).
  • In other news, NYX has agreed to purchase from Amaya all of the issued and outstanding shares of Amaya's subsidiaries, Amaya (Alberta) Inc. (formerly Chartwell Technology Inc.) and Cryptologic Limited on a cash-free and debt-free basis.
    • The total cash consideration for the transaction is C$150,000,000, subject to working capital adjustments.
    • As part of the transaction, a subsidiary of Amaya and NYX anticipate entering into a supplier licensing agreement for a term of six years, under which NYX will provide certain casino gaming content to Amaya's real-money casino offering which Amaya intends to integrate into the PokerStars and Full Tilt branded casino websites.
    • Pursuant to the Licensing agreement, a subsidiary of Amaya will provide NYX with a minimum license commitment in the amount of C$12,000,000 per year for each of the first three years of the Licensing agreement. 



Pollard Banknote - its $5 instant lottery game Frogger is already the Vermont Lottery’s highest-selling instant game despite being on the market less than three months. The game, licensed from Konami, is outperforming all other instant games introduced in Vermont since 2010.


Less Mainland visitors - Macau received fewer visitors from the mainland but more from both Hong Kong and Taiwan over the Easter and Ching Ming holidays between Good Friday and Monday, Macau Government Tourist Office (MGTO) Director Helena de Senna Fernandes said.

Senna Fernandes said that the city received 641,000 visitors during the four days, up 2.7% YoY. While the number of mainland visitors dropped 3.5%, the number of visitors from Hong Kong and Taiwan rose 20% and 42% respectively, the city’s tourism chief said. 

Meanwhile, the Government Information Bureau (GCS) said in a statement on Wednesday that the number of “tourist arrivals” rose 1.67% to 775,086 between Good Friday and Tuesday.


Takeaway: Weak Mainland visitation could partly explain the lower revenues in the 1st week of April.


Singapore - Singapore is trying to use judicial means to compel dozens of Chinese gamblers to pay up. Last year its two casinos filed 49 lawsuits against individuals in Singapore’s High Court for gaming-related debts, up from just two a year earlier. The resorts brought 12 more cases in the first quarter of 2015. 


Takeaway: Without junkets, Singapore casinos are more exposed to the VIP downturn and collecting debts.


South Korea - According to news agency Yonhap, national officials supported a measure that would ease some foreign investment conditions relating to Saemangeum, an area of reclaimed land (pictured) in North Jeolla, in the southwest of the country. The government-backed bill is said to simplify the registration process for foreigners-only casinos in that area. Under the current rules, only casinos that are attached to luxury hotels and have at least US$500 million of investment are qualified to register, reported Yonhap. 



Romania - The Romanian government has triggered an investigation into the affairs of national lottery Loteria Romania, accusing the company of entering the gambling proper business without licence or authority by introducing 6,263 slot machines over the period 2006 to 2014 in collaboration with an Intralot subsidiary, Lotrom SA. Prosecutors claimed Wednesday that this illegal activity has impacted state budgets to the tune of over Euro 100 million (a preliminary estimate). The officials declined at this stage to provide further details, and Loteria Romania declined to comment on the issue in view of the ongoing investigation.  Sources close to the investigation told Reuters that the enquiry was criminal in nature, and that bank accounts belonging to the two companies involved had been frozen.



Indiana GGR declined 7.3% YoY in March

Takeaway: A couple of % points below our expectations.


Thoroughbred races -  Handle on thoroughbred races grew 9.46% YoY to $984.365 million in March. Race dates rose 1.81% to 394.

Takeaway:  Horse racing betting did well in March.


Four-river cruise in China -  Asia's first four-country river cruise from the Mekong to China has been introduced by locally based operator Pandaw. The new seven-night itinerary will sail from Chiang Saen, in Thailand, to Myanmar, then on to Laos before crossing the Chinese border for the first time to reach the city of Jinghong in Yunnan Province.



Chinese Ministry of Finance to ease restrictions on NPL write-offs 

  • China Securities Journal cited banking officials who said that China's MoF will further ease restrictions on banks writing off bad loans. The officials said that the government will allow some banks to write off some bad loans before tax to encourage banks to increase lending.

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.

#EmergingOutflows Reversal Risk Management

Takeaway: We now find it prudent for investors to broadly cover their shorts in/across the emerging market space.

We arrive at the aforementioned conclusion for the following three reasons:


  • We have identified three key top-down fundamental factors that drive the bulk of EM asset price performance and, at the margins, these factors are becoming less bearish.
  • While the preponderance of our quantitative signals does not yet support going long EM asset beta, there are enough signals underneath the hood that support a continuation of the developing relief rally across EM assets.
  • Should this relief rally continue, our analysis shows that it is likely to continue to be led by the most risky economies and securities. As such, we are covering all of short ideas in the EM space and booking the gains in our [defensive] long ideas as well. The conclusion: we are taking down our hypothetical gross exposure to this asset class amid what may (or may not) turn out to be a bearish-to-bullish phase transition.


CLICK HERE to download our 20-slide presentation which contains the supporting analysis behind these views.


Have a wonderful evening,


Darius Dale


REPLAY | ZOES: Standing Out From the Crowd

Earlier today we hosted a conference call to discuss the recent addition of ZOES to our Best Ideas list on the long side.  This is a name in which we see upside to $68 per share versus downside to $25 per share over the next three years.



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Oil Déjà Vu: Market Making Fools of Men (Again and Again)

Takeaway: Oil prices are now down over ~50% from June of last year which has surprised…. Well, pretty much everyone.

"The main purpose of the market is to make fools of as many men as possible."

- Bernard Baruch

Oil Déjà Vu: Market Making Fools of Men (Again and Again) - Oil cartoon 02.05.2015


A quick trip down Memory Lane:

Back in October, people said there was a “price floor” because it was uneconomical for “high cost” U.S. Shale Producers to produce below $80/barrel...

In November, people said there was a price floor because OPEC was going to cut production...

Then in January, people said there was a price floor because oil rigs were being idled at a rapid pace...


The one thing clear now is that the world has learned a thing or two about oil production now that we are in the $50/barrel range:

  1. U.S. shale production has become much more efficient and a breakeven cost of production for most is well below $80/barrel.
  2. Physical markets adjust to volatile financial markets on a lag (supply/demand):
    • Many producers hedge out the price of oil which eases some of the pain of shorter-term price movements
    • Producers are often tied into contracts that require them to keep delivering oil
    • Because the money to develop an oil field is spent upfront, many E&Ps will produce an incremental unit of product at an operating loss before cutting production cold turkey

     3.  OPEC’s main focus is to keep market share. Cutting production risks the possibility of end-user customers finding a new producer to source crude oil. Market share is key for keeping “swing producer” status. OPEC has already been consistently losing this share since its “oh-so-powerful” status during the 1970s embargo years when they had a 50%+ share in global markets.

     4. Aggregate production levels can increase even with rigs coming offline at a rapid pace. Oil companies will sideline lower-producing rigs in more mature oil fields and produce more from their best rigs on the most lucrative acreage in tough times of low prices.


Oil Déjà Vu: Market Making Fools of Men (Again and Again) - OPEC Market Share

Cartoon of the Day: Winners!

Cartoon of the Day: Winners! - TLT cartoon 04.08.2015

Hedgeye would like to congratulate the Duke Men's basketball team on their recent championship, the UConn women on theirs, and all of our customers around the world who have raked it in staying long the long bond.

Keith's Macro Notebook 4/8: Euro | Oil | Rates


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

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