LEISURE LETTER (05/11/2015)

Tickers: HLT, PENN, CCL



  • TODAY (1:30pm) - Stations Casino 1Q CC

  • May 13 - IGT 1Q CC 8am, ; PW: 2660253

  • May 14 - Genting Singapore 1Q CC  6am

  • May 14 - Macau Legend Development 1Q CC 8:30pm


HLT - announces 90m secondary offering for Blackstone. The underwriters (DB, BofA/ML, Citi) for the share sale have an option to purchase an additional 13.5 million shares. Blackstone owns 55% of HLT's shares outstanding. 

Takeaway:  This is the fourth 90m secondary for Blackstone. HLT recovered an average of 3% off the initial drop on the announcement in the week of trading following the previous 3 Blackstone sales.


Frasers Hospitality Trust - reached a deal to acquire five-star heritage-listed hotel in Sydney – Sofitel Wentworth for A$224 million ($236 million). The Hotel will continue to be operated by the Accor Hotel Group under its luxury-tier brand Sofitel.


Takeaway: Average price per key of $541,284 for this 5-star property in Australia. 


PENN - has lost its request to reduce Bangor’s property tax assessment of its Hollywood casino in Bangor, ME by $36.8 million. PENN now has 60 days to appeal the decision. 


Genting - might be interested in buying a 51% stake in Baha Mar.


Takeaway: This resort property has been long-delayed, mired with multiple operational and financial difficulties. Baha Mar is reportedly losing $10m a month with the delays.


CCL- dry dock slated for Azamara Quest this September has been moved to April 2016. The change was made as the scope of the upgrades has been expanded. Azamara Journey's dry dock remains on schedule for January 2016.



Korean cruise casinos - plans to enable its citizens and foreign tourists to wager on new cruise ship services that will serve ports around the country, reports the Korea Joongang Daily newspaper. 


The Ministry of Oceans and Fisheries on Thursday announced that the government will launch South Korean cruises within the year.  The initiative will establish docks exclusively for cruise ships in Busan, Incheon, Jeju, and Sokcho, Gangwon, by 2016. Existing docks will also be modified to allow cruise ship access, the newspaper added.


The Oceans Ministry said it plans to operate two trial runs to major tourist destinations in South Korea and Japan within the month. The runs are intended to check for glitches, including dock usage as well as the departure and arrival process.


According to the ministry, in 2014 the spending by each tourist on South Korean cruise ships averaged KRW1.17 million (US$1,075). Total spending exceeded 1.22 trillion won, as there were 1.05 million cruise tourists that travelled on South Korean ships.

Takeaway: Is this a precursor for an eventual lift of the ban on locals land casino betting?  Kangwon Land is the only land-based casino that allows locals betting.


Indiana land casinosGov. Mike Pence has decided to allow legislation permitting on land casinos to become law without his signature, paving the way for Tropicana in Evansville and Majestic Star in Gary.  The new law also gives other riverboats the option to build new on-land casinos on property near their current locations. 


Indiana April SS revs: -3% YoY

Missouri April SS revs: +2% YoY

Illinois April SS revs: -1% YoY

Pennsylvania (slots only) April SS revs: +4% YoY

Takeaway: April has been mixed but overall, it is a little better than our model projection for flat growth.


D LV/Golden Gate - owner Derek Stevens bought all gaming machines and tables from just-shuttered Riviera, the Las Vegas Review-Journal reported. Stevens bought 852 machines, four roulette wheels and spare machine parts for an undisclosed price. He will sell about 500 slots at auction next month.  Not all of the Riviera equipment was for sale, Stevens said. Popular, vendor-owned machines such as Wheel of Fortune and Megabucks were sent back to IGT. The other games will be installed at D and Golden Gate before Memorial Day.




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.


Monday Mashup

Monday Mashup - 1


Recent Notes

05/04/15 Monday Mashup

05/04/15 MCD: Investors Left Playing the Waiting Game

05/05/15 CHUY: Pulling a Rabbit out of a Hat

05/05/15 NDLS: Earnings Disaster

05/06/15 WEN: Making All the Right Moves

05/08/15 Restaurant Sales, Employment, Etc (April > March)

Events This Week

Tuesday, May 12

  • ARCO earnings call 10:00am EST
  • DNKN Annual General Meeting 10:00am EST
  • JMBA Annual General Meeting

Wednesday, May 13

  • SHAK earnings call 5:00pm EST
  • DFRG Annual General Meeting 10:00am EST
  • CMG Annual General Meeting
  • YUM Investor Conference (China Day 1)

Thursday, May 14

  • JACK earnings call 11:30am EST
  • COSI earnings call 5:00pm EST
  • LOCO earnings call 5:00pm EST
  • PBPB Annual General Meeting
  • YUM Investor Conference (China Day 2)


Recent News Flow

Monday, May 4

  • BOBE price target was decreased to $68 from $75 at APB Financial due to slower than anticipated cost cutting and continued operational weakness.

Wednesday, May 6

  • WEN announced its intention to refinance its existing credit agreement through a securitization.  The company will use some of the net proceeds of the facility (~$1.1 billion) to return cash to shareholders.
  • WING Wingstop filed for an $86.3 million IPO through Morgan Stanley, Jefferies and Baird.

Thursday, May 7

  • KKD entered an agreement to open 12 shops in Guatemala over the next four years.

Friday, May 8

  • MCD reported April global comps of -0.6% vs the consensus estimate of -1.9%.  The US, Europe, and APMEA regions all outperformed consensus expectations.


Sector Performance

The XLY (+0.33%) slightly underperformed the SPX (+0.37%) last week.  Casual dining stocks, in aggregate, undperformed the XLY, while quick service stocks outperformed.

Monday Mashup - 3

Monday Mashup - 4


Quantitative Setup

From a quantitative perspective, 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

CHART OF THE DAY: Energy Sector Job Cuts

Editor's Note: The chart and excerpt below are from today's Morning Newsletter written by U.S. Macro Analyst Christian Drake. Click here to learn more/subscribe.


CHART OF THE DAY: Energy Sector Job Cuts  - Z Challenger


...The weakness in the BLS report accords with the Challenger Job Cut data for April,  see the Chart of the Day below, which showed energy sector job cut announcements re-ramping to +20K in April.  Notably, collective net employment gains across our  basket of eight energy states was -56K in March, the first delta negative month since September 2010, with the remarkable -26K decline in Texas leading  job losses at the state level.  For scale, the estimated -26K decline in Texas on an employment base of 11.7M would equate to an NFP print of -305K at the national level.   


We’ll find out if the weakness portended by the Challenger data and emergent angst over a prospective state-level recession in Texas finds further traction in April with the release of the state level data on May 27th...



Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Fortune's Inequality

“A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under the sun”

-Thomas Carlyle


How many people must run from a crowded theater before the next person decides to run?


That’s the analogy Jim Rickards uses to anchor his discussion of critical state dynamics in complex systems in the prophetic Fx apocalyptic, Currency Wars


Rickards uses it as the metaphorical underpinning to a hypothetical example of how a repudiation of the Dollar by some relatively small number of people could propagate to a population wide repudiation and full currency collapse. 


I like the theater metaphor because it’s vivid, mentally tractable and widely transferrable  - if some stimulus perturbs a system such that the system reaches a critical state, the signal/perturbation gets propagated and amplified as it moves downstream.


In short:  some people run from the theater --> which cause more people to run from the theater --> everyone runs from the theater. 


Power laws and critical state thresholds are, conceptually, pretty simple.   And in describing the fundamental nature of a complex system, the lessons apply equally well to the Labor Market, Stock Market or interconnected Global Macro Markets as they do to the Currency Market.


It’s probably generally accepted (or perhaps not) that the evolution of macro modeling should endogenize complexity.  So, why hasn’t it been done?


Mostly because the math needed to model network effects and signal propagation at the scale of Macroeconomies is (really) hard.  


However, for those waiting (im)patiently on the ivory tower evolution away from static equilibriums and linear macro, the direction of current research is encouraging. 


At a recent conference of the National Bureau of Economic Research Daron Acemoglu (MIT) et al presented the following paper:  Networks and the Macroeconomy: An Empirical Exploration


If you’re interested – and fully caffeinated – it’s worth a read.  Even if you don’t understand the math and techni-speak, the Abstract/Intro provides some layman friendly intuition for understanding the conceptual framework.  


Fortune's Inequality - Z Century Cycles


Back to the Global Macro Grind….


How many central banks need divergent policy paths to effect a step function rise in the dollar?   -->  What is the critical threshold on the dollar to propagate reflexive price action in commodity markets(i.e for things priced in dollars)?   -->  What is the critical price threshold on Crude to propagate a capitulation in financial demand (i.e. futures and options) for energy products and further price volatility?   -->  How much does the oil price have to drop to cause a collapse in energy sector capex and employment and a state-level recession in Texas?  -->  What’s the critical threshold for an industry level recession to catalyze a derailment of a broader jobs recovery domestically?


That flow of questioning is, of course, easier to generate largely after the fact.


While Financial markets and social media propagate and discount newsflow and events in real-time, frictions and inefficiencies cause the impacts of those events to flow through ‘real’ markets and government statistics on a lag. 


Friday’s employment report provided the latest update on the net impact of the current set of dissonant global macro crosscurrents on the domestic labor market.  We reviewed the data on Friday but a few area’s are worth re-highlighting


Energy Employment:  Job loss in the energy sector extended into March/April according to both the BLS and Challenger Job Cut data.  Oil & Gas extraction employment, which includes data thru April, saw a employment decline for a 3rd time in four months.  Broader energy sector employment, which includes data thru March, showed a 5th consecutive month of net decline, dropping by -9K sequentially with the rate of YoY growth dropping to -0.6% - the first month of negative year-over-year growth in 58 months.


The weakness in the BLS report accords with the Challenger Job Cut data for April,  see the Chart of the Day below, which showed energy sector job cut announcements re-ramping to +20K in April.  Notably, collective net employment gains across our  basket of eight energy states was -56K in March, the first delta negative month since September 2010, with the remarkable -26K decline in Texas leading  job losses at the state level.  For scale, the estimated -26K decline in Texas on an employment base of 11.7M would equate to an NFP print of -305K at the national level.   


We’ll find out if the weakness portended by the Challenger data and emergent angst over a prospective state-level recession in Texas finds further traction in April with the release of the state level data on May 27th .


Housing:  25-34 year old employment growth made a higher cycle high from a rate-of-change perspective, accelerating +80bps sequentially to +3.2% year-over-year.   Accelerating employment growth in this key housing demand demographic should continue to flow through to rising headship rates and housing demand at a modest-to-moderate rate.  Further, Residential Construction employment rose +3K in April alongside the strong rebound in broader construction employment which was up a big +45K on the month as activity rebounded alongside the thaw in the weather. 


The rebound in construction employment and activity in April along with the increased pace of household spending in the March PCE data offer some support to the deferred consumption (i.e. weather/etc) storyline in 1Q15, although the ongoing weakness in the factory sector sits as a material offset.  


Income/Spending:  With no change in hours worked and earnings growth up small sequentially, the moderate gain in total employment and modest positive mix in high-wage/low-wage employment on the month should be enough to support continued Trend improvement in aggregate income in April. 


As we’ve highlighted, with income growth accelerating alongside the rise in the savings rate in recent months, the capacity for consumption growth has increased more than actual reported household spending.  That trend showed a moderate reversal last month with income gains softening, savings declining and spending rising.  Whether that latent spending power re-emerges remains TBD. 


Indeed, consumption has some heavy lifting to do as consensus forecasts for accelerating PCE continue to buttress full year GDP growth estimates which remain at +2.8% despite what will be another 1st quarter of negative growth following the 1st revision to 1Q15 GDP.    


For investors, the labor market rubber ultimately meets the road in terms of expectations around the path of monetary policy.  With the market having already pushed out rate hike expectation to September, the April employment report probably does little to shift that, although the bond market response on Friday looked to be discounting policy conservatism, at the margin. 


More broadly, the return to middling employment growth – and the discrete lack of either collapse or escape velocity improvement – will mostly serve to perpetuate further policy uncertainty, and asset class volatility by extension, as another month is devoted to over-speculation and spurious investor activity in the attempt to front-run a Fed faced with equivocal data and a data-dependence mandate.  


Uncertainty breeds opportunity.  Profitably exploiting that opportunity stems from front-running the inflection or patiently awaiting the catharsis.  Our cash position in the Hedgeye Asset Allocation model remains at 6-month highs.  


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.87-2.25%

SPX 2095-2127
VIX 11.86-15.76
USD 94.01-96.17
Oil (WTI) 54.32-61.90

Gold 1168-1204 


Best of luck out there,,


Christian Drake

U.S. Macro Analyst


Fortune's Inequality - Z Challenger

Are You Fixated?

This note was originally published at 8am on April 27, 2015 for Hedgeye subscribers.

“The real issue is not whether you have a mental model, but whether you’re fixated.”

-Gary Klein


That’s an excellent risk management #process quote from a conversation Ed Hess had with Dr. Gary Klein (senior scientist with Macro Cognition) in chapter 8 of Learn Or DieUsing Science To Build A Leading-Edge Learning Organization.


Klein made an astute point about expectations in reminding me that “so much of decision making is taught and treated as if you can pre-define the options” (pg 90). My experience with markets is that the options are both non-linear and constantly changing.


Sometimes expectations change fast; sometimes slow. It isn’t my job to tell the market which catalyst or correlation to fixate on. It’s my job to try my best to accept change.


Back to the Global Macro Grind


Since the last Fed meeting (March 18th) I’ve been fixated on whether or not the Fed is for real on raising interest rates into both #Late-Cycle (see our Q2 Macro Themes deck) employment gains and Global #GrowthSlowing.

Are You Fixated? - FED cartoon 12.18.2014

While it may have sounded a little over the top, our “buy everything” call on that March 18th Fed decision to go dovish, since then (from Chinese to Japanese stocks and/or US stocks and bonds), that was the right asset allocation decision to have made.


Front-running central planning expectations (especially when they are changing, on the margin, from hawkish to dovish – or dovish to uber dovish) will remain a major macro market fixation, until this epic experiment has nothing left to give.


In US Dollar devaluation terms, here’s what macro markets saw last week:


  1. US Dollar Index down another -0.6% week-over-week, taking its 1-month correction to -1.5% (+7.4% YTD)
  2. Euro (vs. USD) up another +0.6% in kind, taking its 1-month counter-TREND bounce to +1.3% (-10.1% YTD)
  3. Canadian Dollar up +0.5% vs. USD last week, taking its 1-month counter-TREND bounce to +4.1% (-4.6% YTD)


In other words, the closer you got to being long anything that looked like a Commodity Correlation trade (for the last month) – from oil itself, to energy stocks and junk bonds, to a resource driven currency – you crushed it.


With the Dollar off its highs, Rates #LowerForLonger, and the SP500 closing at her all-time highs on Friday, could all of this dovishness be priced in? I’m not so sure it is, yet. Chinese stocks closed up another +3% overnight to a 7yr high, +40% YTD!


With USD Down, the other big obvious last week in Global Equities was the outperformance of inflation oriented markets:


  1. Brazil’s Bovespa was +4.9% on the week to +13.2% YTD
  2. MSCI Latin American Equity Index bounced back to break-even YTD with a +4.5% wk-over-wk move
  3. Emerging Markets Equities (MSCI Index) had another big week, +1.7% to +10.9% YTD


If you boil all of this down in growth vs. inflation terms (using a 1-2 month duration), this is all one massive macro re-rating of inflation expectations (to the upside) within the context of what was a nasty 6 month #deflation scare.


On a reported basis (from governments) #deflation or disinflation (or whatever you want to call it) is going to be reality through the summer time. Government data is reported on a year-over-year basis, don’t forget.


But what if the Fed not only backs off on rate hikes, but starts to talk about incremental easing again? I don’t think they’ll do that. But being fixated on what the Fed should do vs. what they will do has proven to be quite costly for the past 6 years.


In the meantime (as in this week), this is where US stock and bond investors are at:


  1. SP500 was +1.8% week to an all-time closing high of 2117 = +2.9% YTD
  2. Tech Stocks (XLK) led the charge at +4.0% wk-over-wk = +4.3% YTD
  3. Consumer Discretionary (XLY) stocks squeezed the shorts +3.2% last wk = +7.6% YTD


Especially when I look at moves in big cap Tech names like Amazon (AMZN) and Microsoft (MSFT) of +14% and +10% (on the day!) on Friday, last week’s beta chasing move in the US stock market tells me that:


  1. Hedge funds are getting squeezed again (forced to cover shorts high and get net longer)
  2. Long-Only funds are being forced to chase performance again into month-end
  3. It’s going to be really hard to be bearish into the Fed meeting on Wednesday


To accentuate this view, the net SHORT position (CFTC non-commercial futures/options contracts) in SP500 Index (+ E-minis) hit a new monthly high of -45,673 contracts last week. To put that in context (when consensus didn’t respect the risk of #deflation) the trailing 6 month average net LONG position in SP500 futures/options contracts is +32,687.


In this game, the real issue is not whether or not you’re “smart”; it’s whether or not you can be mentally flexible enough to fixate on the right things, at the right time.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-1.99%
SPX 2103-2124
RUT 1255-1275
USD 96.71-99.01
EUR/USD 1.06-1.09

Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Are You Fixated? - z chart


Watch the replay of our conference call last Friday.


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.