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LEISURE LETTER (05/26/2015)



  • May 28: MGM Annual General Meeting: Proxy "Fight"
  • June 4: CCL special press announcement in NYC


Galaxy - operator Galaxy Entertainment Group Ltd will open its HKD19.6 billion (US$2.5 billion) Galaxy Macau Phase 2 property with over 200 gaming tables, said Richard Longhurst director of operations at Galaxy Macau. 


75% of the new 150 tables will be allocated to the mass market. “The 38 gaming tables that we borrowed during the renovation of Broadway Macau have been returned to the property, and they will be focused on the mass market,” Longhurst said. “The additional tables that we have are sufficient for the current market,” the executive said. 


According to Kevin Clayton, Galaxy’s Chief Marketing Officer, 95% of Galaxy's Ph2 investment has been non-gaming related. According to Clayton, percentage occupancy rates are “in the high 90s” and “the take up in the [new] hotels for the first few weeks of launch is already reaching a point where we’ve got demand that exceeds supply.” 


Takeaway: The 75/25 mass/vip breakout is confirmed. 

China Star - had “mutually irrevocably and unconditionally” agreed to terminate a deal to buy an equity interest in the profit stream from Macau junket operator Eight Elements Entertainment Ltd. China Star runs the casino at a hotel property called Lan Kwai Fong in downtown Macau, under a gaming licence from SJM Holdings Ltd.


Golden Group - VIP gaming promoter Macau Golden Group Ltd will cut labor costs by depriving its employees of their attendance bonuses, free ferry tickets and money meant to substitute for tips as of next month. An internal notice says this is meant to allow the company to keep operating effectively. Macau Golden Group has five VIP gaming rooms in the Hotel Lisboa and six in the Grand Lisboa Hotel.



Takeaway: These decisions were likely influenced by the tough VIP market conditions.


Migrant worker visa - The Macau government will tighten its control over migrant construction workers’ visas and cut their visa period to a maximum one-month stay after their assigned public work is complete. The Secretary for Economy and Finance, Lionel Leong, revealed on Saturday that the authorities will shorten the workers’ permitted period of stay, three months prior to the construction’s projected completion; the workers will then be requested to leave Macau within one month upon the completion of their duties.

Takeaway: This change will help reduce congestion in Macau. Little impact on Macau gaming operators.


Unions against smoking lounges - Seven associations representing casino workers in Macau have shown their support to a full smoking ban inside casinos, including the removal of smoking lounges. The associations are also calling on the government to implement a trade union law and the right to collective bargaining, said legislator José Pereira Coutinho.


Meanwhile, an association of junkets says it collected over 12,500 responses in a survey taken last week, where 99% of respondents believed that a full smoking ban will affect casinos’ business and agreed to have smoking rooms inside VIP gambling zones.



Takeaway: Consensus is that there will inevitably be a full smoking ban


Taiwan - A mainland Chinese official has threatened severance of the mainland’s direct links with the Taiwan-controlled archipelago of Kinmen if gaming is introduced there. The media quote the director of the mainland’s Taiwan Affairs Office, Zhang Zhijun, as saying during a visit to Kinmen that direct aviation, shipping and postal services between the mainland and the archipelago would be cancelled.


Consideration has been given to putting a casino on Kinmen, which is less than 10 km from the mainland city of Xiamen.


Takeaway: The road to gaming in Taiwan is not an easy one.

Singapore visitation - saw a 7.4% YoY drop in visitor arrivals for March 2015. Indonesia visitation tumbled 14% in March - 8th straight monthly decline. Malaysian visitation fell 5% in March.  Mainland Chinese visitation fell 21% in March, reversing the +16% growth in February.


LEISURE LETTER (05/26/2015) - 5 26 2015 8 39 53 AM

Takeaway: This is disconcerting. The reversal in Chinese visitation trend isn't surprising for March but declining local visitation (Malaysia/Indonesia) raises the question of how much longer can flattish mass revenue trends be sustained this year. 


Australia cruising - 

  • According to Cruise Lines International Association (CLIA) Australasia, number of Australian passengers rose 20.4% YoY to 170k - thereby achieving the industry's long-held goal to hit one million cruisers by 2020 six years early.

  • The equivalent of 4.2% of Australians took a cruise last year, ahead of the second ranked North American market, which has a market penetration rate of 3.4%. 

  • Rising from its number-five position in 2013 by overtaking Italy, Australia is now the fourth largest source market for cruise passengers, accounting for 4.5% of world cruisers, behind North America (54.2 per cent), Germany (8%) and UK/Ireland (7.4%).



Mainland China - will reduce tariffs on some imported consumer goods such as skincare products, Western-style clothes and disposable nappies, Reuters reports. The news agency quotes a written statement issued by the Ministry of Finance as saying import duties would be lowered by an average of over 50% on June 1.



Takeaway: Cheaper consumer goods coming to Macau


Singapore -

  • 1Q 2015 GDP growth of 2.6% beat Street estimates of 2.2%
  • April CPI fell 0.5% YoY, compared with the median expectation for a 0.1% decline based on a Dow Jones Newswires poll of five economists. In March, Singapore's CPI fell 0.3%.




Hedgeye Macro Team remains negative on 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.

McCullough: The Broader Risk of Falling Volume

In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough answers a subscriber’s question on how he looks at declining market volume.


Subscribe to The Macro Show today for access to this and all other episodes. 

Yen, Commodities + Spain

Client Talking Points


A big move overnight in Japan taking something that hasn’t been part of the 2015 macro narrative right back into the flow. Yen down -1.1% testing fresh YTD lows vs. USD at 122.87. The Nikkei? It absolutely loves that, closing at another YTD high of 20,437. It's up +18% YTD.


Dollar up +3.1% last week = CRB Index down -2.5% as the 30-day correlation remains quite high at -0.90… Meanwhile, a #StrongDollar morning here keeps the commodity correction in play, with Gold and Oil pulling back to support levels that I’d buy/cover ahead of Friday’s U.S. GDP bomb.


The first bearish signal for the Spanish IBEX in 2015 with an immediate-term TRADE breakdown through 11,486 support and negative divergence versus a weak European stock market morning.

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. This is a data heavy week for housing. NAHB Builder Confidence dropped for the 4th time in 5 months, dipping -2pts sequentially in May to an Index reading of 54.   Confidence currently sits +9 pts higher than May of last year and is basically right on the average reading of 55 observed over the last three expansionary periods.  Further, at  the current reading of 54, the index remains well above the Better-Worse Mendoza line of 50, signaling builders continue to view conditions favorably.


The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

Three for the Road


How does the Fed blame the "weather" on a -2.3% US Durable Goods slowing y/y in April? @federalreserve



"Watch out for people who think it's embarrassing not to know." - Ray Dalio


In China, the Shanghai Composite gained another +2% and is up a whopping +52% YTD.

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RTA Live: May 26, 2015

Here is the replay of today's edition of RTA Live.


REPLAY | New Best Short Idea Overview with Tom Tobin | Q&A on $MD + $HCA $HOLX $ZMH


Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a live Q&A session Wednesday May 27th at 12:30PM ET. They gave a high level overview of our short thesis on Mednax (MD). 


Tom and Andrew will also answered questions related to HCAHOLX and ZMH, catch the replay above.

The Momentum Mob

This note was originally published at 8am on May 12, 2015 for Hedgeye subscribers.

“When the mob gains the day, it ceases to be any longer the mob.”

-Napoleon Bonaparte


In markets, the momentum mob constantly cares about one thing – #charts. Lots and lots and lots of charts. The linear moving average ones are the simplest to scare you with. My 5 year old daughter can generate them on an iPad, so they have the broadest demographic point-and-click appeal. It’s all about the 50 and 200 hundred day, bro.


No matter where you go this morning, here we are – in the midst of another “breakout” in US bond yields. Notwithstanding that this one has been caused by an epic breakout in Global Yields, US equity only guys looking at TLT have the “bearish chart” now inasmuch as they had the uber bearish Oil one down at $43/barrel.


Even though many of you were right on bond yields (lower-for-longer) for 16 months starting in January of 2014, if you remained bearish on bond yields at the 2015 lows like I did, you have been wrong (on bonds) for a month. And now the mob has you by the #charts, so it’s time to … uh, panic?


The Momentum Mob - 19


Back to the Global Macro Grind


What’s a +28% ramp (in 24 hours) in German Bund Yields, amongst friends? That’s gotta be good for “stocks”, right? Wrong. As the bond yield #charts have “broken out”, sorry bros, it’s been bad for stocks too.


Q: If you can’t be long stocks or bonds, what do you do?

A: Raise cash


At 62% Cash in our Asset Allocation Model, at least we got something right. But most of that “raising cash” came from the equity side of what we liked in Q1. That said, what you really want to know is why I didn’t do the same in Treasuries?


Before I try to answer that question (again), let’s contextualize this epic 1-month move in Global Bond Yields:


  1. US 10yr Treasury = +34 basis points (bps) to 2.34%
  2. Canadian 10yr = +45 bps to 1.82%
  3. German 10yr = +53 bps to 0.68%
  4. French 10yr = +56 bps to 0.98%
  5. Italian 10yr = +60bps to 1.86%
  6. Portuguese 10yr = +84 bps to 2.42%


In other words, even if you don’t look at % moves and rates of change, on an absolute basis being long Treasuries vs. short just about everything else (1 through 5 on that list) was a relative winner!




Not on the performance part (German Bund Yield move was +353% vs. the UST move of +17%). When it comes to getting things right/wrong, I don’t calculate losses in cocoa-puff terms. TLT 1-month losses have been real. I should be held to account for that.


So why didn’t I pull a Jedi mind trick on all of you and book all of our gains in the Long Bond (TLT) at the top (with bond yields re-testing their all-time lows in January, or with the 10yr UTS yield down at 1.85% in April for that matter)?


A: #process


I.e. there would be no fundamental way for me to explain it within the risk management framework in which our longer-term growth and inflation views evolve.


Which obviously begs the question as to whether or not a 1-month move in bond yields has rendered our #process broken OR it’s simply signaling that stocks and bonds don’t go up forever (with no volatility and no down-days).


To review what we believe (because market #history does):


  1. Both local and global bond yields falls when the rate of change in growth is SLOWING
  2. Both local and global bond yields rise when the rate of change in growth is ACCELERATING


With both the trending rate of change in both US and Global Growth #slowing (with our model suggesting y/y US growth slowing to 1.8% in 2H of 2015), there’s no fundamental reason for me to be bearish on Long-duration bonds other than price momentum.


This is where the whole #ChartChasing thing comes into play. In my former hedge fund life I used to see guys chasing 50 and 200 day moving monkeys all of the time. So I taught myself to remain calm and not do that. I shorted Russell 2000 yesterday instead.


If both gas prices and bond yields head higher (from here), someone is going to gain the day. And that’s not going to be the American and/or European consumer. It’ll be a mean macro mob, because their charts will tell you to be short everything.


Our immediate-term Global Macro Risk Ranges are now as follows:


UST 10yr Yield 1.91-2.32%

SPX 2079-2117
RUT 1209-1244
VIX 13.03-15.79
USD 94.09-95.89
Oil (WTI) 55.62-61.12

Gold 1170-1200


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Momentum Mob - z 05.12.15 chart