LEISURE LETTER (06/09/2015)



  • June 9: ISLE F4Q 2015 CC


HOT/HST - HOT sells The Phoenician, a Luxury Collection Resort, in Scottsdale, AZ to HST for $400m.  Under Host’s ownership, The Phoenician will undergo a complete renovation.

Takeaway: Assuming the multiple is right, should be a good transaction for HOT by getting rid of a property needing substantial capex and standing by its asset-light strategy. Price per key on the transaction is ~$622k. HOT will continue to manage the property and fees will go higher when renovation is complete.


SGMS - has signed a new contract with Norsk Tipping (the "Lottery"), the National Lottery of Norway, to provide instant games and related marketing services. Awarded through a competitive procurement process, the three-year contract began January 29, 2015 and may be extended by the Lottery for an additional term.Scientific Games currently supplies Norsk Tipping with gaming system and retail technology.  Total sales were 26.9 billion Norwegian Kroner in 2014.


HT- acquires St. Gregory Hotel & Suites in Wash DC for $57m. Based on the company’s underwriting assumptions, the company anticipates the purchase price reflects a forward economic cap rate and EBITDA multiple of 7.0% and 12.9x, respectively. 


WYNN - Steve Wynn was in Kazakhstan May 25, apparently pitching resort ideas. According to media reports, Wynn met with President Nursultan Nazarbayev about possible joint projects in the central Asia country that is trying to develop casino resorts. One project, Tengri Resort, already is under construction near the city of Almaty.


Junket layoffs - A trade union leader says two Macau gambling junket operators will together lay off about 400 employees this month.  Forefront of Macau Gaming VP Lei Kuok Keong said David Group told its staff that it will close two VIP gaming rooms, but did not tell them which.  Lei estimates that the closures will cost nearly 100 jobs.  Lei said Neptune Guangdong Group intended to lay off 300 employees but keep all its VIP gaming rooms open.


According to the official website of David Group, it has two VIP rooms respectively in MGM Macau and Galaxy Macau, with another two in Wynn Macau. The union vice-head estimated that the imminent closure of David Group will lead to nearly 100 gaming workers losing their job.


Takeaway: VIP business may see further compression in June, maybe at MGM and/or WYNN.


Macau May visitation - Macau Government Tourist Office (MGTO) Director Maria Helena de Senna Fernandes said that based on data from the travel and hotel sectors the number of visitor arrivals in May is believed to have risen compared to March or April. The city’s tourism chief also said she was confident that the number of visitor arrivals in the second half of the year will be “stable”.


Takeaway: If Maria is correct, visitation for May will show growth following YoY declines in March and April


Singapore visitation - visitor arrivals fell 3% in April 2015, 14th consecutive month of declines.  A bright spot was Mainland Chinese visitation which rose 22% on a super easy comp of -43% (Malaysian Airline 370 disappearance on March 8th); however, sequentially, visitation gained 18%. 


Mass segment - Indonesia/Malaysia-  visitation continued to fall.  Indonesia visitation dropped 10% YoY in April, a 9th straight monthly decline. Malaysian visitation slipped 5%, similar to March's performance.  

LEISURE LETTER (06/09/2015) - 6 9 2015 8 11 30 AM


Takeaway: While visitation declined again in Singapore, the strong uptick in Mainland visitation was a positive surprise in April.


Smoking ban - David Chow acknowledged that implementing a full smoking ban could hurt gaming revenue. The casino tycoon recalled that competition within the gaming industry is high, and other jurisdictions across Asia and other parts of the world still allow smoking inside casinos. “We need to see whether it’s good for competition. This is a special industry."



Health Bureau raises MERS alert level to high - Macau’s health authorities raised their response to the Middle East Respiratory Syndrome (MERS) from a standard alert to a high-level alert yesterday evening, as the virus’s outbreak in South Korea was regarded as placing neighboring regions at greater risk.  The number of inbound passengers from Korea to Macau is estimated at 500 to 700 every day, most of whom disembark from a total of three direct flights.


Takeaway: Will MERS affect visitation?


MD removing slots for tables - Over the past 15 months, Maryland’s three largest casinos — Maryland Live, Horseshoe Casino Baltimore and Hollywood Casino Perryville — have kicked 1,350 slot machines to the curb. That’s a 16% cut to their slots to make room for more table games, restaurant space, entertainment and other amenities, all of which are increasing in value to casinos as interest in slots slides, particularly among millennials.


 Takeaway: MD removing slots ahead of MGM's Prince George opening in 2016. Pressure from a high slot tax rate may be at play here.


Regional gaming revenues - 

  • LA SSS: -0.3% YoY (vs HE projection of +1%)
  • OH SSS: -3% YoY

Takeaway: More evidence that May may end up flattish on regional revenues.


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.

CHART OF THE DAY: Transports Are Breaking Down (Caution Ahead)

Editor's Note: Below is a chart and brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to get ahead of the pack and start your market morning right.


CHART OF THE DAY: Transports Are Breaking Down (Caution Ahead) - Z 06.09.15 chart


...In macro strategy there are some leading indicators that even the most creative storyteller can’t convince you that “it’s different this time.” When we went bullish on US #GrowthAccelerating in 2013, the Dow Transports (IYT) index was breaking out to the upside.


Now, after 73 months of a US economic expansion, it’s breaking down:


  1. Transports (IYT) led losers yesterday, down -2.1% vs. SPY -0.65%
  2. Transports (IYT) have been leading losers for the last month, -4.9%
  3. Transports (IYT) are now -8.7% for 2015 YTD


So what say you Mr. Global Growth Is Back man?


Transporting Narratives

“Great is exactly what it isn’t.”

-Wallace Stegner


For some reason Willie Nelson is ringing in my head this morning. I’m on the road again.


And going West is where that quote from Stegner comes from. My Angle of Repose for the next 3 days will be across the sunny State of California, where I’m looking forward to debating Institutional Investors on what is really going on out there.


US and Global #GrowthAccelerating is exactly what isn’t right now. A #LateCycle US Labor report only reiterates that.

Transporting Narratives - It s different cartoon 06.08.2015


Back to the Global Macro Grind


For we strategist types, Transporting Narratives is fun. Meeting to meeting, that is what we do. So let’s start this morning’s narrative with the Transportation stocks.


In macro strategy there are some leading indicators that even the most creative storyteller can’t convince you that “it’s different this time.” When we went bullish on US #GrowthAccelerating in 2013, the Dow Transports (IYT) index was breaking out to the upside.


Now, after 73 months of a US economic expansion, it’s breaking down:


  1. Transports (IYT) led losers yesterday, down -2.1% vs. SPY -0.65%
  2. Transports (IYT) have been leading losers for the last month, -4.9%
  3. Transports (IYT) are now -8.7% for 2015 YTD


So what say you Mr. Global Growth Is Back man?


For those of us who have been on both the buy and sell side of the game, what we say with our #Timestamped positions speaks louder than our slide decks. On last week’s bounce, we signaled short the Transports (IYT) in Real-Time Alerts.


Here are my Top 3 ways to get out of the way on both US and Global #GrowthSlowing:


  1. Short Industrials (XLI) which continue to suck wind -2% YTD
  2. Short Financials (XLF) which failed (again) yesterday and remain in the red -0.4% YTD
  3. Short Transports (IYT) -8.7% YTD


Did I mention the Transports?


Actually there is a 4th way to express the Fed being more dovish (again) at the June 17th meeting, which is to take weakness in the US Dollar as a correlated tax on a #LateCycle and slowing US consumer (XRT).


Don’t forget that the US Retail Sales Growth cycle peaked in Q4 of 2014 at +4.5-4.7% year-over-year growth and has since slowed in its most recent reading (April) to +0.9% due to the sunny East coast weather. Did it rain enough in May?


Nah, let’s not talk about that data point or a 46.2 Chicago PMI reading for the month of May, when we can actually go back to a Durable Goods reading of -2.3% year-over-year in April and hope that the Fed didn’t see that one either.


Instead, let’s look away from the US data and see what Global Equities have been signaling for the last month:


  1. Russia -12%
  2. Portugal -9%
  3. Greece -8%
  4. Brazil -7%
  5. Turkey -7%
  6. Germany -7%
  7. Indonesia -6%
  8. Taiwan -5%


To be fair, I guess the Dow Transports are “outperforming” Taiwanese Stocks by 30 basis points in the last month. That must be the all-systems go on global growth signal, eh?


Oh, then there’s the narrative that “bond yields are rising because growth and inflation are back.”


On that data front this morning:


  1. Swiss consumer prices (CPI) deflated -1.2% year-over-year in May
  2. Chinese producer prices (PPI) deflated -4.6% year-over-year in May
  3. Chinese CPI slowed from +1.5% y/y in April to +1.2% in May


There’s definitely a narrative out there (perpetuated by Mario Draghi which I think was a huge mistake) that both the European and US economies are accelerating. We hear it in investor meetings every day (I think our competition is on the road too).


Unfortunately for the bullish growth narrative, both the economic data and market moves discounting future growth expectations are reminding you that #accelerating is exactly what it isn’t.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.03-2.41%

SPX 2067-2104
VIX 13.75-15.90
USD 94.64-96.41
EUR/USD 1.08-1.13
Oil (WTI) 56.99-61.50

Gold 1170-1200


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Transporting Narratives - Z 06.09.15 chart

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Client Talking Points


The UST 10YR Yield has backed off @Hedgeye TREND resistance (again) -4 basis points to 2.36% with no immediate-term support to 2.03% now into the Fed meeting on June 17th – Slower-For-Longer (both U.S. and Global Growth) remains our call – U.S. Labor data is #LateCycle.


We guess this time is “different” with the Transports not being a leading indicator for the cycle too? Leading losers from a Sector Style perspective yesterday, IYT was down -2.1% on the day and is now -4.9% month-over-month and down -8.7% year-to-date.


Globally equities look worse than the Transports! And we know one of our competitors is saying “growth is back”, but seriously – month-over-month Global Equity moves = Russia -12%, Portugal -9%, Greece -8%, Germany -7%, Brazil -7%, Turkey -7%... we’ll stop there.


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Penn National Gaming is a true growth story in regional gaming, finally, ripe with catalysts, same store and new unit growth, and accelerating cash flow.  We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility.  PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.


The takeaway on Purchase Activity was mixed as demand declined -3.0% sequentially but accelerated from +13.1% to +13.9% on a year-over-year basis.  More broadly, and inclusive of the latest week, purchase demand in 2Q continues to reflect both sequential and year-over-year improvement with demand growth for the quarter currently tracking +13.6% QoQ and +12.8% YoY. No major callouts in the latest week as the larger trend towards ongoing improvement in purchase activity in 2Q remains intact. 

CLICK HERE to watch Housing Sector Head Josh Steiner gives a brief update on our call on ITB.


Considering we are already well passed an above average length expansion, and moving into the second half of 2015 growth and inflation comps (i.e. the base effects) become very difficult, growth is likely to continue to slow. We put the likelihood of a rate hike in 2015 as highly unlikely and continue to expect rates to move to make a series of lower-highs through the balance the year (bullish for EDV, TLT, and VNQ. When forward looking growth expectations are downwardly revised and the Fed kicks the can on rate hike expectations, rates and the dollar move lower. Gold has historically performed well in an environment of falling rates and a declining U.S. dollar and we don’t expect anything different this time around. Supporting our view, both gold (GLD) and treasuries (TLT, EDV) remain BULLISH on an intermediate-term TREND duration (3-months or more).   

Three for the Road


Chinese CPI slows to 1.2% y/y (from 1.3%) as producer prices continue to #deflate -4.6% y/y



Big thinking precedes great achievement.

Wilferd Peterson


32 million people get summoned each year for jury service in U.S. state courts.


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

The Macro Show Replay | June 9, 2015


Dollar vs. Inflation

This note was originally published at 8am on May 26, 2015 for Hedgeye subscribers.

“I started to establish the present and the present moved on.”

-Wallace Stegner


I love spending long weekends with my family. I hope you had a great one with yours. Welcome back.


This weekend I took some time to review what I’ve organized as the un-read section of my library and I found a book that I’ve been wanting to read for a long time – Wallace Stegner’s 1972 Pulitzer Prize Winner, Angle of Repose.


In some ways I find Stegner to be like Hemingway. He’s of the same era; he writes from a historian’s perspective; and he keeps his short stories within a story concise and to the point. These are all writing attributes I aspire to achieve someday. Until then, I evolve.


Back to the Global Macro Grind


When considering the non-linearity of Global Macro markets, isn’t Stegner’s aforementioned quote the truth? Just as Bloomberg writes a headline about FX “volatility expected to reverse direction”, it breaks out this morning. Again, welcome back.


Before I get into the #behavioral side of this foreign currency move (Japanese Yen -1.1% this a.m. to fresh YTD lows), it’s always critical to review the #history of market moves, so that we can attempt to establish context:


  1. In “front-loading” QE, Eurocrats devalued the Euro by -3.8% last week, taking it down -9% vs USD YTD
  2. After 6 weeks of pervasive weakness, the US Dollar Index spiked on that, closing the week +3.1% at +6.4% YTD
  3. The Japanese Yen, which had been doing nothing for months, finally broke down, dropping -1.8% on the week

Dollar vs. Inflation - burning euro cartoon 05.01.2015 normal 

That’s why another drop in the Yen this morning matters. Not only did it break immediate-term TRADE support last week, fortifying our long-term bearish TAIL risk view, but now it’s testing a break-down to lower-lows, -2.5% YTD.


Now, since I’m bearish on the US Dollar into this week’s GDP report (Friday) and next week’s jobs report for June (then the Fed meeting on June 17th), these Euro and Yen moves are going to present opportunities on the long side of commodities.


If you didn’t know that the USD impacts commodity #deflations and reflations (or whatever consensus is whining about right now on “inflation” coming back at sub $60 Oil and 1.68% 5yr US break-evens), now you know.


With USD having a -0.90 inverse correlation to the CRB Index (30-day duration) here’s what everything Commodities did last week:


  1. CRB Commodities Index -2.5% = -1.9% YTD
  2. Oil (WTI) -1.4% to $59.72 = +6.2% YTD
  3. Gold -1.7% to $1204 = +1.6% YTD
  4. Copper -3.9% to $2.81 = -0.5%
  5. Energy Stocks (XLE) -0.6% = +1.3% YTD


Contextualized this way, the present (being YTD) is less than 6 months old. If you pull back your time-series #history to 1 year, obviously most of these “inflation” barometers have plummeted.


Five year breakevens is a fair way to consider inflation expectations, and while it’s true that those are +11 basis points for the current quarter, they are -32 basis points year-over-year. Newsflash: the Fed is not going to “raise rates” on that.


Longer-term, what does the world want – a stronger or weaker Dollar?


  1. If you’re a European stock market bull, you want #StrongDollar, Burning Euro
  2. If you’re an Emerging Markets bull, you want #WeakDollar, Recovering EM Currencies
  3. If you’re a non-Wall St American, you want a #StrongDollar, Rising Purchasing Power


That’s what macro markets reminded you of on last week’s #StrongDollar move:


  1. European Stocks (EuroStoxx 600 and German DAX) +2.8% and +3.2% to +19% and +20.5% YTD, respectively
  2. EM Latin American Stocks (MSCI Index) -5.5%  to -4.2% YTD
  3. Russell 2000 +0.7% to +3.9% YTD with the almighty Dow DOWN -0.2% on the week


Yep, the Russell is basically a US domestic revenue index whereas both the Dow and SP500 are increasingly proxies for international earnings. That’s why the Russell rocks during #StrongDollar periods (see our 2013 US #GrowthAccelerating theme for details).


That’s also why the US Sector Style  (equities) outperformance last week was very much what it was prior to the recent US Dollar correction. US Consumer Discretionary (XLY) loves #StrongDollar whereas the global Industrials (XLI) loathe it.


Love it or loathe it, US Dollar #history has been established. And it’s my job to write about its policy risks for both the short and long-term. While it’s true that, in the long-run, Keynes is right (we’ll all be “dead”), the present moves on.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.97-2.24%

SPX 2108-2144
RUT 1233-1267
Nikkei 19931-20592
USD 94.51-96.85
EUR/USD 1.09-1.15
YEN 120.32-123.04
Oil (WTI) 57.31-61.68

Gold 1190-1230


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


***Click here to watch The Macro Show live at 8:30am.

Dollar vs. Inflation - 5Y BE CoD

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