Cartoon of the Day: Mario "Answers" Reporter's Question

Cartoon of the Day: Mario "Answers" Reporter's Question - Euro cartoon 05.18.2015

The ECB will not stop short in rolling out its trillion-euro-plus money printing scheme, its president Mario Draghi said last week, playing down fears that QE could blow price bubbles.

Keith's Macro Notebook 5/18: USD | Gold | Europe


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

Dollar Getting Smoked

The U.S. Dollar was smoked on that bad Retail Sales report last Wednesday. It proceeded to close the week on its lows (down -1.8% week over week and -5.3% in the last month).


We’re staying with the counter-TREND call (Down Dollar, Up Commodities) until we get through what should be a dovish June 17th FOMC meeting.


On a related note … Lower-for-longer on rates being priced in – Hilsenrath’s WSJ article reiterating the same this morning.


Dollar Getting Smoked - z 44 05.18.15 chart


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LEISURE LETTER (5/18/2015)

Tickers:  27.HK

headline news 

Macau government only approves 150 of the 400 casino tables requested by Galaxy. Galaxy will have to move tables from other casinos under the group’s umbrella to the new casino grounds of Galaxy Phase 2.


Takeaway: While there hasn't been an official announcement, this media source has been credible in the past.  150 is exactly in line with our expectations. 


Bid for BWIN - 

  • 888 Holdings has submitted a proposal regarding the acquisition of, comprising of cash and 888 shares.
    • The proposed transaction will require the approval of 888 shareholders
    • 888 shareholders representing ~59% of 888's share capital have irrevocably committed, subject to customary conditions, to vote in favour of the proposed transaction
  • Earlier reports indicated that a merged 888-Bwin Party business could be worth over GBP 1 billion

  • Bwin Party has been on the sales block since last November 


Takeaway: A bidding war among 888, GVC, and Amaya


Viking - Newly launched Viking Ocean Cruises is the first cruise line in several years to not include noncommissionable fees (NCFs) as part of the cruise commission structure. The line made its official debut on May 17 with the naming of its first ship, the Viking Star, in Bergen, Norway.


From the start, Viking Chairman Torstein Hagen has made “no nickel and diming” one of the cornerstones of the new line. For passengers, that translates into benefits like unlimited free Internet access and complimentary wine and beer with lunch and dinner.


For agents, it means the line items that other cruise lines designate as “noncommissionable,” such as port charges and taxes, are included in the amount on which commissions are calculated. Viking is hoping that this will help distinguish it from other lines in the small-ship, upper-premium category. Several agents said that the policy is welcome, and that if their clients are otherwise qualified for Viking, they would recommend it as a good business move.


Takeaway: A move by Viking to lure agents as they enter the ocean cruising industry.


Macau hotel promotions - Galaxy is introducing hotel promotions to mark the new property openings, while Sands China offers discounts of up to 50%. 


Takeaway: Pressure on ADR


Macau hotel pipeline -  As of March 31, 2015, Macau saw 18 hotel projects under construction and 25 hotel projects undergoing government approval, which could provide about 25,600 new hotel rooms in total, the latest data released by the Bureau of Land, Public Works and Transport (DSSOPT) shows.


The January to March period saw seven fewer hotel projects under construction than the previous quarter. For the 18 projects under construction, most of the over 9,800 hotel room inventory is earmarked for Cotai: five hotel projects were being built in Cotai during the period, which could release over 7,500 rooms.


On the Macau Peninsula 10 hotel projects were being built in the first quarter that could potentially provide over 1,000 rooms; in Taipa, the official data stated that two hotel projects were being built in the period, which could put over another 1,000 rooms in the pipeline. The ongoing construction of a hotel project in Coloane could supply about 200 rooms.


Meanwhile, some 25 hotel projects are in the planning stage and are undergoing government approvals, which could release more than 15,700 rooms to the market, according to DSSOPT data.


While the number of operating hotel rooms by March is almost level that of the same period last year, the occupancy rate declined by 8% points to 79.3% in 1Q 2015 – a time when the number of hotel guests has also declined by 11.6% to about 2.3 million. The last time that the hotel occupancy rate here was below 80% was the first quarter of 2013.


A separate set of data provided by the Macau Hotel Association  shows the occupancy rate in the 5-star hotels was 82.72%, almost 9% points lower than the same period last year; the occupancy rate of 4-star hotels was 80.76%, representing an 8.5% points YoY drop.


Takeaway: Lots of hotel supply coming, not just on Cotai in the face of rapidly declining occupancy rates. 


Manila Bay Resorts - Tiger Resort, Leisure and Entertainment Inc – a firm controlled by Kazuo Okada that is developing the Manila Bay Resorts casino property in the Philippines  said via email to GGRAsia, "Given that we have submitted a request for extension of our provisional licence for the first quarter for 2017, we are actively targeting to open the property by 2016. Our Phase 1 spans across our hotel, casino, nightclub and the iconic fountain with a variety of…restaurants...”  “Tiger Resort is currently in review with Pagcor regarding extension of our project implementation plan. Having already committed approximately US$750 million into the project, with a further US$1 billion pending, and having completed more than 50 percent of the construction we believe we are in compliance with the terms of the provisional licence," the company added.


But Tiger Resort has not yet announced a local real estate partner for the scheme. Local media have reported that the need for a local development partner relates to a requirement under the country’s constitution and public land laws that only Filipinos, or entities owned at least 60% by Filipino citizens, are allowed to own land. That restricts Mr Okada and his majority-owned companies to just 40% ownership of the land on which the resort is located.





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.



Another bad data point – we’d really like to bring good news, a positive pivot, a reason for hope, a catalyst on the horizon, but not today. Following a stronger sequential week due to the May holidays, table revenues are back to bad, and down 40% YoY. Our forecast for the full month of gaming revenues is not quite as bad, owing to easier weekly upcoming comps, but nobody should rejoice over a down 35-38% month. Our concern remains with the base mass where we see the biggest negative delta from Street expectations. Indeed, visitation and floor activity looks weak in May as well.



Please see our detailed note:


Client Talking Points


The U.S. Dollar was smoked on that bad Retail Sales report (last Wednesday) and proceeded to close the week on its lows (-1.8% week-over-week and -5.3% in the last month). We are staying with the counter-TREND call (Down Dollar, Up Commodities) until we get through what should be a dovish June 17th FOMC meeting.


Gold had a big move last Wednesday on big volume showing some follow through here this morning (something Gold hasn’t been able to show for 8-10 months); $1228 last after a +3.1% week (+3.4% year-to-date vs SPX +3.0%); Down Dollar, Down Rates is what Gold wants most. 


Europe doesn’t like any of the aforementioned because that implies Up Euro. The EUR/USD is up another +2.3% last week, so the DAX was -2.2% on that, lagging all major equity markets; Euro fades -0.4% this morning, DAX rallies +0.9% - correlations continue to matter.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The reality is that we are in a #LateCycle slowdown and the jockeying around each incremental data point will continue to get more and more intense as the Fed’s only ammo for suspending the cycle that has unfolded many times over is to push out the dots on a rate hike. #LowerForLonger.


The ITB turned in modest positive absolute and relative performance in the latest week as the advance in interest rates ebbed and the high frequency mortgage purchase application data continued to reflect improving housing demand trends. Purchase activity was flat week-over-week but held at 23-month highs with demand growing +11.7% on a year-over-year basis.  As it stands, 2Q15 is currently running +14.5 QoQ, +13.7% YoY, and on track for its best quarter in two years. The Mortgage Bankers Association also released its Mortgage Credit Availability Index (MCAI) for April on Tuesday.  The MCAI made a new cycle high, increasing +0.5% month-over-month with the Government and Jumbo indices leading the gains.  


We are constructively dissatisfied with how last week went for Global Macro markets. Constructive because we think we made the right research pivot on Dollar Down, Commodities Up. Dissatisfied because devaluing the Dollar isn’t the answer for America’s stagnating economy. On Friday, the Down Dollar, Down Rates move looked a lot like 2011 all over again. Remember that? Markets did. Financials (XLF) -0.4% on the day vs. Utilities (XLU) +1.3%. It’s the Fed is going to stay Lower-For-Longer move that Hilsenrath confirmed in the WSJ this morning.

Three for the Road


In today's Early Look "Constructively Dissatisfied", I remind you what 2011 looked like - Down Dollar, Down Rates, Up Gold #Stagflation



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