In this one-minute excerpt from today's edition of The Macro Show, Hedgeye Energy sector head Kevin Kaiser is asked if his short thesis on Chesapeake Energy could be upended by an acquisition.
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Good morning from London.
So, we got another nice pullback for bond yields off of last week’s panic highs. The US 10-year yield down -22 basis points in less than a week after the US Dollar failed to reclaim TREND support.
I’ve been looking for a dovish Fed since the March 18th meeting, so I’ll reiterate what they should do (see 3 Charts - Don't Hike) given the slowing data – USD agrees.
So, if the Fed opts for one rate hike “just because it’s time” … then I think stock, bond, and commodity market risks ramp.
Editor's Note: This comes from research written by Hedgeye CEO Keith McCullough earlier this morning. If you're serious about stepping up your market game we encourage you to take a look at our offerings.
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TICKERS: Galaxy Entertainment (0027.HK), G13.SI, RCL, HOT, HLT, SGMS, CCL
Galaxy - Business at the second phase of Galaxy’s Cotai casino resort “is satisfactory, but not as good as what we expected,” Chairman Lui Che Woo said after the company’s annual general meeting, adding he expects further impact of its gaming business if the city allows a smoking ban to be extended to VIP rooms.
Phase 2 “will be better in the next one to two months,” said Galaxy Vice Chairman Francis Lui, adding he was happy with the performance of the non-gaming elements at its new properties such as its hotel bookings and dining outlets.
“Be patient, we believe the scale, facilities and services of the second phase are the best,” he said. Business should improve in July and August, compared with June which is an exam season for students, he added.
Takeaway: Share gains in June due to good luck and the opening of Phase 2, not just the expansion. Comments can only be taken as a disappointment.
Cruise Selling Agents Report Robust Sales for First Half of 2015 - Agencies show: Soft sales out of Asia Pacific, Australia, New Zealand, Mexico. Strong sales out of Alaska. Strong uptick in interest for World and River Cruises.
- Lucinda Belden, franchise owner,CruiseOne in Carrollton, TX, says her agency has posted a 19% increase in cruise sales thus far this year, compared to the same period last year.
- David Walsh, owner of CWCruises, an independent agency of Avoya Travel in Bradenton, FL, says sales for his agency have never been better.
- Geoff Cox, supplier relations director for KHM Travel Group, a Vacation.com member agency in Brunswick, OH, reports: “Our 2015 sales with several cruise lines are up over 35%.”
GENTING SINGAPORE – On June 16, bought back 2.5 million shares at S$0.91 each. On June 15, Genting also bought 7.5 million shares at S$0.91 each.
Takeaway: These share buybacks continue but larger in the the last 2 days.
SGMS - Launches Online Titles With Paddy Power. Bob Hays, vice-president, commercial, interactive at Scientific Games, added: “The interest in our full slots and table games library from Paddy Power, widely considered one of the top online casino operators in Europe, is another testament to the wide player appeal of the proprietary and third party brands in our portfolio."
HOT - announced the planned spin-off of its vacation ownership business into a separate publicly traded company. Starwood Vacation Ownership (SVO), which will be named Vistana Signature Experiences, Inc. upon completion of the spin-off transaction, has filed an initial Form 10.
Takeaway: Completion of spin-off of SVO on track for Q4 2015.
ARC Hospitality Trust - ARC Hospitality announces agreement to acquire portfolio of 13 Hotels for a purchase price of $300 million from Noble Investment Group.($156,822 per key)
The Noble Portfolio consists of 12 premium-branded select-service and extended-stay hotels and one full-service hotel totaling 1,913 rooms. The hotels are franchised by major global brands including Hyatt Hotels, Hilton Hotels & Resorts and Marriott International. Hotel flags include Hyatt Place®, Hilton Garden Inn, Hyatt House®, Courtyard by Marriott and Hilton.
CCL - Costa Croicere has announced the Costa Fascinosa will join the Costa Pacifica in South America for the upcoming 2015/2016. The Costa Fascinosa increases the company’s capacity in the region, as it takes over from the previously announced Costa Mediterranea, which is a slightly smaller vessel. The Costa Fascinosa had been set to stay in the Mediterranean for the winter, but will now make up the line's two ship program in South America.
"With the operation of Costa Fascinosa, we are increasing our capacity by 41% out of Rio,” said Rene Hermann, General Director of Costa Cruises to South America.
Macau instant lottery - The government has renewed for one more year Sociedade de Lotarias e Apostas Mútuas de Macau Lda’s concession to run instant lotteries and take bets on football and basketball, the Official Gazette says. The concession had been due to expire on June 5.
Macau govt finances - The government’s fiscal surplus was MOP25.28 billion (about US$ 3.16 billion) in the first five months this year, 54.9% less than in the corresponding period last year, the Financial Services Bureau says. Additionally: The government collected a total of MOP38.45 billion (US$4.82 billion) in direct taxes from gaming in the first five months of 2015, down by 35.4% YoY, according to data disclosed on Monday by the city’s Financial Services Bureau.
UK - The National Lottery is about to change the way millions choose their lotto numbers by adding ten more balls to the pot. In the biggest change in its 21-year history, players will be able to select from 59 instead of 49 numbers - while average jackpots are going to TRIPLE.
- Camelot said the revamp, due in October, would create an extra 1.8 million winners a week and increase the overall chance of winning any prize from one in 54 now to one in 9.3.
REGIONAL GAMING REVENUES
CT SS Revs: -0.51% YoY
FL SS Revs: +11.38% YoY
NY SS Revs: +2.52% YoY
London - Negative performance for London Hotels in May. Based on the data:
- increases in supply (+3.3%) and demand (+4.1%);
- a 0.8% decrease in occupancy to 85.0%;
- a 10.8% decrease in average daily rate to GBP125.91; and
- a 10.1% decrease in revenue per available room to GBP107.04.
Takeaway: London REVPAR in 2Q has underperformed.
South Korea - Flight bookings to South Korea have plummeted following the outbreak of MERS, according to ForwardKeys, a company that analyzes flight data. Data shows that between May 20 and June 5, international flight bookings to South Korea were down 14.9%, compared to the same period last year. Additionally, flight cancellations were up 21.3%, compared with the same year-ago period.
Takeaway: MERS should not be disregarded. Macau inboard visitation, S Korea lodging and Asia-destined cruise lines could already be affected.
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.
Takeaway: UPS pushes on pricing, with retail margins at peak, and retail sales slowing.
UPS Bulk Item Rate Hikes Bad For Retailers
Takeaway: Any way you cut it, this is bad news for retailers. The fact is that consumers increasingly expect retailers to offer up free shipping. In fact, we think that 'free shipping' will be an industrywide standard by the end of 2016. So the question is this -- If the shippers are starting to push back on pricing due to capacity constraints, and if consumers are highly unlikely to broadly accept paying for shipping when it was otherwise free -- then who is going to foot the bill? Yes, the retailers. If the retailers can find a way to push it back to their suppliers, then they'll do it. But very few have that power. This is not what we want to see when retail margins are tracking at an all-time high, and makes it increasingly difficult to be bullish on this group, broadly speaking.
UA - Class C Stock Dividend to Maintain Plank's Control
Takeaway: We rarely see stock splits structured in this manner, but this is all about Plank keeping control of the Board. He's currently sitting on 66.5% of the vote with 100% of the class B stock, but his ownership position has fallen almost 2 percentage points in a year from 18.5% in 2014 to 16.8% in 2015. At an ownership position below 15%, Plank's class B shares would be converted to class A and his grip on the company would be far less secure than it is today. The new class C structure the company announced yesterday is designed 100% to mitigate that risk.
UA, NKE - Sold-Out Curry MVP Shoe Price Doubles Online
Takeaway: This is the first time we've seen UA basketball kicks hit the resale market in a material way. Nike engineered its distribution process to build hype in the aftermarket long ago, and has a few SKUs (The Air Yeezys for example) that are listed on eBay for $10k+. For UA, it's likely more supply than demand related...but whichever way you slice it, it's a win for UA. The company has found a star in Curry. The company has a lot of wood to chop both on the product and infrastructure side before it declares victory -- its footwear sales in 2014 at $430mm were only 25% greater than what Lebron James did for Nike alone. But it now has an asset it can use to grow the platform and demand is building evidenced by the activity in the resale market. The reality is that the technical merits of a product become far less important when they are for an athlete who is as universally likeable as Curry.
Retail Sales Begin What Should be a 15-Week Deceleration
And so it begins… sales this week according to the ICSC index were up only 1.9%, the lowest rate in 15 weeks. Unfortunately, the weekly sales growth rate should be under added pressure through the end of September (i.e. through back-to-school) as we comp against a solid Summer of 2014.
House Bill Aims to Close Internet Sales Tax Loophole
GPS - Gap Closing 175 North American Stores
LL - Lumber Liquidators promotes marketing head, cuts merchandising chief
OLLI - Ollie’s eyes IPO and 950 stores
Kmart taps DSW executive as marketing chief
Client Talking Points
The U.S. 10YR Yield is down -22 basis points in less than a week after the U.S. Dollar failed to reclaim TREND support. We’ve been looking for a dovish Fed since the March 18th meeting, so we’ll reiterate what they should do, given the slowing data – USD agrees – so if the Fed opts for one rate hike “just because its time” we think stock, bond, and commodity market risks ramp.
The German DAX continues to breakdown alongside a stabilizing Euro (Down Dollar = Up Euro); risk range there is finally tightening to $1.11-1.15 ahead of the Fed meeting. European stocks do not like a strong Euro and are still signaling bearish TREND across the board (ex-FTSE).
Terrible data, terrible day for the XLI (industrial stocks) – we shared the rate of change chart for Industrial Production in May (not affected by the “weather” excuse) – we don’t know how someone could signal bullish on cyclicals with Transports and Industrials looking like they do.
The Macro Show - CLICK HERE to watch a replay of today's show with guest analysis from Energy Sector Head Kevin Kaiser.
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Top Long Ideas
Penn National Gaming will likely tee off on the bears with a strong Q2, upward 2015/2016 EPS revisions, and the start of a 2 year growth period. PENN’s stock has climbed 27% this year on stabilizing regional gaming revenues, transaction-fueled optimism (real estate) surrounding the regional gaming companies and proximity to the opening of the new Plainridge racino on June 24. So what will drive even more upside? More and better. We think regional gaming trends are even better than anticipated by the Street and Q2 earnings should be a solid beat even before Plainridge contributes.
Housing outperformed in the latest week alongside choppy price action in equities and further, extraordinary volatility in sovereign bond markets. Fundamental data was light with weekly purchase applications data from the MBA the lone release of import for the industry. The first, high-frequency update on purchase demand in June, however, was positive. Purchase demand rose +9.7% sequentially, taking the index to its strongest level in 2 years at reading of 214.3. On a year-over-year basis, growth accelerated for a 4th consecutive week to +14.6%. Inclusive of last weeks gain, demand in 2Q is tracking +14.3% QoQ and +13.4% YoY.
The market has been jockeying for positioning in front of next week’s policy statement from Janet Yellen. We believe Yellen signaling that she remains “data dependent” (i.e. repeats what she said at the March 18thmeeting) is the most probable outcome. To be clear, we remain the long-bond bulls (TLT, EDV, MUB). With that being said we aren’t claiming to be able to predict the outcome of next week’s meeting (sure we do have biases). What we do know is that Hedgeye estimates for growth and inflation shake out much lower against both consensus and central bank forecasts for the full year 2015 (remember that this is after their forecasts have already been downwardly revised).
Three for the Road
TWEET OF THE DAY
ASIA (ex-Shanghai): in the last mth, Hang Seng -6.4%, Singapore -4.8%, KOSPI -3.7%
QUOTE OF THE DAY
Create your future from your future, not your past.
STAT OF THE DAY
The Chicago Blackhawks won the Stanley Cup for the 3rd in 6 seasons with a 2-0 victory against the Tampa Bay Lightning in Game 6 of the Final last night.
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