LEISURE LETTER (05/28/2015)



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


LVS - received notice of an unsolicited mini-tender offer by TRC Capital Corporation ("TRC Capital") to purchase up to 2,500,000 shares of LVS's common stock at a price of $47.63 per share in cash, without interest.  

Takeaway: Thanks for the offer but i'll just sell into the pool of 5 million shares of LVS traded daily at the higher market price.


Stations Casino - is looking to sell shares to the public four years after leaving bankruptcy, people with knowledge of the matter said. The company, which owns or manages 21 casinos, has asked investment banks for proposals for an IPO that would take place this year. Station Casinos could be valued at more than $3.5 billion, including $2.15 billion in debt, one of the people said.


Takeaway: We'd love to see it this well run company back in the public domain. Look for the Hedgeye pre-IPO report.


Galaxy - deputy chairman Francis Lui Yiu-tung expects the company's non-gaming revenue in Macau to see a double-digit growth as the industry faces its toughest times in a decade. "It's hard to predict how big a proportion the non-gaming sector will account for as it just started in the past two years. We'll find out in three years," Lui said. 


So far, the group has invested HK$43 billion in the two phases of Galaxy Macau and Broadway Macau, nearly half of the planned HK$100 billion investment for the SAR. Lui said the group has enough cash and no debt. It will factor in changing market situations in Phases 3 and 4. Phase 2 has 7,000 employees, Lui added.


Takeaway: Please see our note out this morning on the successful Phase 2 opening. 


CCL -Jim Heaney, a financial executive with more than 25 years in the cruise and hospitality industries, including 17 years with Disney Cruise Line, will take the CFO role at Carnival Cruise Line. Most recently Heaney spent three years as CFO for SeaWorld Entertainment. Earlier he was CFO and SVP finance and travel operations at Disney Cruise Line. Prior to that, Heaney held various financial posts at Royal Caribbean Cruises; Pueblo International, which operated a large Florida-based grocery store chain; and Gould, Inc., a manufacturer of super mini-computers used primarily for military application.


April McCarran airport traffic rose 4.4% YoY

Takeaway: 20th straight month of growth for McCarran traffic


Westin Sydney sold -Singapore's Far East Organization has teamed up with its Hong Kong-listed sister company Sino Land for a A$445.33 million (S$467.72 million) acquisition of The Westin Sydney and its adjoining Heritage Retail podium. The property is being sold by GIC Real Estate. The five-star hotel features 416 luxurious rooms. The Westin Sydney continues to be managed by Starwood Hotels & Resorts under the existing management agreement.



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.

Early Surprises

This note was originally published at 8am on May 14, 2015 for Hedgeye subscribers.

“One of the key benefits of experiments is they allow you to get surprises early.”

-Scott Cook


I thought that was an excellent quote from the co-founder of Intuit from a solid chapter in Learn Or Die titled “It’s Time To Bury Caesar” (i.e. the “kind of boss who gives thumbs up or down on all decisions” pg 170).


Thumbs down? If that’s how you run your investment team or firm, I’m thinking that’s probably not going to end well. It would be the equivalent of a coach getting in your face after every mistake. It doesn’t build confidence. The insecure mind is weak.


Be creative… take chances…  fail fast… learn, pivot, evolve. Yeah, I like that. And so do the people you lead. Provided that experimenting is on a progressive path, you should wake up every morning looking forward to that element of surprise.


Early Surprises - 11


Back to the Global Macro Grind


Oh, you don’t like getting scored on right away? You don’t like losing money? Too bad. That’s the game. If the New York Rangers buckled after going down 1-0 last night (or 3-1 in the series for that matter), they’d be golfing today.


I don’t know about you, but I need a real-time signaling mechanism in order to risk manage the many early surprises Mr. Macro Market provides us an opportunity to learn from.


Some of the big ones (counter-TREND moves) as of late are as follows:


  1. Dollar Down, Euro Up
  2. Dollar Down, Oil up
  3. Euro Up, German Stocks Down


What is the market telling us?


  1. The US economy is experiencing a #LateCycle slowdown
  2. The most lagging of cyclical indicators (Labor) is slowing, in rate of change terms
  3. The Fed has no policy shift for that other than to push out the “dots” on rates #LowerForLonger


Now you might say, “but rates have gone straight up in the last few weeks.” Yep. And I’d say back that:


A)     US rates have de-coupled from the US Dollar move and moved in sync with European Bond Yields

B)      US Dollar has traded in sync with the rate of change in high-frequency economic data


Yesterday’s key US economic data (Retail Sales missing at 830AM) immediately crushed the US Dollar (10yr fell to 2.20% on the “news” too, then traded back up as German Yields rose).


What up with US Retail Sales #slowing, bro? Was it the nice April weather? Nope, it was the cycle:


  1. After bouncing in March, Retail Sales were dead flat at 0.0% sequentially in April
  2. After slowing from cyclical highs of +4-5% (since November), year-over-year Retail Sales are now 0.9%


Not cool. If you are one of the consensus bulls on US Consumer (XLY) and Retail (XRT) stocks, that is … Yes, on bounces I’d short both of those Sector Style Factors in the US stock market. I’m adding both to the bear side of our Macro ETF Playbook today.


Got SELL ideas with #timing on top? While the Euro and Oil will continue to signal immediate-term TRADE overbought within their longer-term TAIL risk setups, I wouldn’t be selling those short, other than for short-term trades.


On the road yesterday in Boston, Darius Dale and I were spending a lot of time on risk managing the short-term within our longer-term view. That can be summarized in a picture (slide 52 of our Q2 Macro Themes deck) as follows:


  1. US Dollar Index can trade as low as 90.11, before it resumes its longer-term breakout
  2. Euro (vs. USD) can trade as high as $1.19-1.20, before it blows up again on Draghi devaluation
  3. Oil (WTI) can trade as high as $71.38/barrel, before it resumes its longer-term #deflation


The calendar catalyst for that are:


  1. May 29th = downward revision to US GDP
  2. June 5th = US jobs report
  3. June 17th = FOMC meeting


For now, this is what I believe the market is signaling as a probable continuation of what’s become a big ole macro Pain Trade.


And while I was surprised early by some of these v-bottom bounces in things like Euros and Oil related securities, one of the key benefits to being crazy enough to get up and write to you every day is that I get to change my mind. Timing matters.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.95-2.32%

SPX 2080-2117
RUT 1214-1243
USD 93.25-95.43
EUR/USD 1.10-1.14
Oil (WTI) 55.47-61.71


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Early Surprises - z 05.14.15 chart


Takeaway: Don’t put too much stock in the new casino openings but given the sentiment, Phase 2 could surprise to the upside for HK.0027 and Macau


Macau stocks appear ripe for a rip to the upside, potentially aided by short covering.  The opening of Galaxy Phase 2 yesterday could provide that catalyst.  Our contacts (competitors included) praised the new product and the well executed opening and noted big crowds and importantly, mostly unaffected traffic at existing Cotai casinos.  We remain focused on the underappreciated degradation in the base mass business but the near-term trade could be higher given the horrid investor sentiment overall and capacity concerns specifically. 


Yesterday’s opening of the 2nd phase of Galaxy Macau appears to have been a success.  We typically don’t place too much emphasis on the initial performance of new casino openings and we won’t have a good gauge on the success of Phase 2 or its impact on Macau for several months.  However, with the smooth opening, product quality and strong traffic, the new property could allay some near-term investor fears that the upcoming supply growth will be entirely cannibalistic.  More importantly, the other Cotai properties generated consistent traffic flow for a Wednesday, providing at least a glimmer of hope that Phase 2 can grow the Macau market.


Here are some of our takeaways following conversations with Macau contacts:

  • Phase 2 contains 230 tables 
  • VIP rooms could be the nicest in town
  • Ritz Carlton rooms are the nicest in town
  • Peninsula properties may have been a little slower but no discernable drop off in traffic flow at any of the Cotai properties
  • Around 100k people flowed through the property with good gaming activity
  • The former Grand Waldo next door reopened as Broadway and it too experienced a strong opening – 38 tables in total
  • Its uber premium mass gaming area, which is not open yet, could be incremental for Galaxy Macau


A successful opening of Phase 2 looks in the cards and could spark all of the Macau stocks, including HK.0027.  However, keep a trade a trade.  The ongoing potential and market impact of Phase 2 won’t be known for several months.  Moreover, even a consistent performance of the new property may not be able to deter the deterioration in the high margin base mass segment, which is not well understood nor projected by the Street, in our opinion.  

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Burning Yen

Client Talking Points


Yet another down day for the Japanese Yen to new year-to-date lows and the Nikkei ramp on that remains epic – Japanese stocks are up for the 10th day in a row (that hasn’t happened in 27 years) to +18.7% year-to-date vs SPX +3.1%.


Global Bond Yields have returned to the long-term bond investor TREND of falling as Global Growth Expectations slow. The Swiss 10YR is down -2 basis points back to -0.06% and the German 10YR is down -3 basis points to 0.53%. We suggest you stay with those Long Bonds in the U.S. at 2.14%. 


What’s a -6.5% down day at the Shanghai Composite Casino amongst friends? The Chinese will definitely need another round of rumoring tonight – that’s all there is to do as China’s population gets older at its fastest rate, ever #GrowthSlowing.

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). Unless the Fed wants to show the world it has the power to go both ways on rates, we don’t think the Fed will ever be able to justify hiking interest rates. We expect an unarguable slowing of the current economic cycle by Q4 of this year. If you think domestic economic growth is slow now, just wait until the U.S. economy faces very difficult growth and inflation comps in the second half of 2015.


Housing got its mojo back in May, rebounding strongly over the last couple of weeks alongside the moderation in rates and ongoing strength in reported price/volume data. Below is a round-up of the data thus far in 2Q:

  • Housing Starts:  New 7-year high in the latest month
  • Purchase Applications (existing market):  2Q15 Tracking +14% QoQ and +13% YoY, on pace for best quarter in two years.
  • Pending Home Sales (existing market):  PHS are up an average of +11.8% year-over-year the last two months
  • New Home Sales (new market):  NHS are up an average of +22.5% year-over-year the last two months
  • HPI:  After a year of discrete deceleration in home price growth in 2014, 2nd derivative HPI has seen 3 consecutive months of acceleration through the latest March data.

The strength of the labor market continues to be a good indicator of our positioning in the current cycle:

  • Seasonally adjusted jobless claims came in at 274k last week vs. 270K est.
  • Despite the slight miss, the rolling 4-week SA figure dropped to 266.3k (lowest rolling SA figure since the week ending April 15th, 2000, which also came in at 266.3k) We all know what happened afterwards…..

Three for the Road


GOLD: immediate-term upside in my risk range to $1209/oz



If you cannot do great things, do small things in a great way.

Napoleon Hill 


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The Macro Show - CLICK HERE to watch today's edition at 8:30am ET.

CHART OF THE DAY: A Century of Economic Cycles

Editor's Note: Below is an excerpt and chart from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to learn more and subscribe.


CHART OF THE DAY: A Century of Economic Cycles - z 05.28.15 chart

Click image to enlarge


...Tops, as you know, are processes, not points. So are cycles. And you can call me crazy staying in certain markets for another 3 weeks. You can call me lazy if I go to 65% Cash after that too.


But this isn’t my first bull/bear cycle battle and I’m thinking that if these keep coming around every 6-7 years, I have few more good fights with long-term “growth” consensus left in me.


Lazy or Crazy?

“What a pity the man wasn’t lazy.”



That’s what a “theologist” who spent his time politicking instead of battling on the front-lines had to say about a General (Napoleon) who fought 60 wars (only lost 7) and died by the age of 51.


When battling it out in macro market moves like these every morning, I don’t think the first word that comes to mind in describing me would be lazy. That said, I think a good case can be made that if I keep doing this I could go crazy.


Darius Dale and I spent all of yesterday (and into the early eve at a dinner) debating Global Macro issues with Institutional Investors in New York City. It was a mental grind. And we liked it.


Lazy or Crazy? - macro call cartoon

Grab some coffee and click here to watch Keith on The Macro Show at 8:30am ET


Back to the Global Macro Grind


Of the many strategies we’ve heard from investors, the one we hear about the least is the laziest one of all – i.e. the do nothing strategy. As in literally buy everything right now and then go away for the summer and don’t touch your portfolio.


I guess the other thing you could do is sell everything and go away for a while too. Is that crazy? Or is that just not an option? At the end of the day, the art of managing money is having moneys to manage. Being “fully invested” means we get to go crazy, together.




So let’s get a little nuts this morning and strap on the 3 week portfolio pants ahead of the Fed meeting on June 17th:


  1. Don’t buy more Long-term Bonds (you should have been buying them, lower, for the last 6 weeks)
  2. Buy Gold (because we like to buy low, and Gold hasn’t done anything but trade in a thick chop for 6 weeks)
  3. Buy US stocks that look like Bonds (Yield Chasing proxies like Utilities, REITS, etc.) that have corrected in 2015


I know. I’m the former 2 and 20 guy who has this crazy strategy of buying on red and selling on green. So let’s get out there and sell some of those Japanese stocks that we have in the International Equity exposure now that they have been up for 10 straight days.


After 10 days in a row, do you buy or sell? In Japan, that hasn’t happened in 27 years so I don’t think it’s an entirely crazy idea to book some gains; particularly since the aforementioned 3-week-portfolio implies another US Dollar selloff.


Down Dollar? Pardon? Yep. When the Dollar signals immediate-term overbought, the current macro playbook says:


  1. Burning Japanese Yens are usually signaling oversold
  2. The Weimar Nikkei is usually signaling immediate-term overbought


That is all. So simple a guy who has taken an 80 mph slap shot off the top of the head (with no bucket on) can do it. #stitches


If you don’t like my playoff hockey shtick, and you’re more into the “long-term” thoughtful thing … and you want to do nothing into Friday’s GDP slowing report and/or next week’s potential train wreck of a US jobs report, that is up to you.


Just be aware that the longer-term call (let’s say the next 6-12 months) is probably the easiest it’s been to make (relative to the short-term call) since the summer of 2007.


Remember that?


Yep, that’s the last time that my model started to signal #LateCycle for the US employment and consumption cycle. And the #LateCycle call before that was in the summer of 2000.


Wanna get really nuts? Let’s go all cyclical on the pro-cyclical “jobs are good” consensus:


  1. The last time US Jobless Claims were this “good” (on a 4 week rolling avg) was April 15 of the year 2000
  2. The SP500 imploded from 1356 to 776 (-43%) to the October 2002 cycle low
  3. The Nasdaq crashed from 3321 to  1114 (-66%) to that same October 2002 low




I guess being lazy on the cycle work would be classified as big battles lost by the perma bulls who bought the 2000 and 2007 US economic cycle tops.


Tops, as you know, are processes, not points. So are cycles. And you can call me crazy staying in certain markets for another 3 weeks. You can call me lazy if I go to 65% Cash after that too.


But this isn’t my first bull/bear cycle battle and I’m thinking that if these keep coming around every 6-7 years, I have few more good fights with long-term “growth” consensus left in me.


Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND view in brackets):


UST 10yr Yield 1.98-2.20% (bearish)

SPX 2108-2139 (bullish)
DAX 119 (neutral)
Nikkei 20081-20683 (bullish)
VIX 12.75-14.45 (bullish)
USD 95.05-98.33 (bullish)
EUR/USD 1.08-1.15 (bearish)
YEN 121.09-124.16 (bearish)
Oil (WTI) 57.09-61.40 (bullish)

Natural Gas 2.80-3.10 (bullish)

Gold 1180-1209 (bullish)
Copper 2.72-2.81 (neutral)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Click image to enlarge

Lazy or Crazy? - z 05.28.15 chart

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.47%
  • SHORT SIGNALS 78.71%