prev

LEISURE LETTER (06/17/2015)

TICKERS: SGMS, MGM, CZR, IGT, HLT, HT, RCL 

 

EVENTS

  • June 23, 2015 - CCL Q2 2015 earnings call 10am

HEADLINE NEWS 

Macau full smoking bill - 

  • Macau’s Secretary for Social Affairs and Culture, Alexis Tam Chong Weng, said the government would send the bill to the city’s Legislative Assembly before the end of the month. The government remains committed to a full smoking ban, including the removal of enclosed smoking lounges currently located on some casino mass floors
  • But a group said to be representing Macau’s casino operators on the smoking issue said that the companies hoped there was still the chance of an alternative solution.
  • Macau CEO Fernando Chui Sai On said that whether a blanket casino smoking ban would affect Macau’s gaming revenue remained to be seen, pointing out that gaming receipts have been decreasing for the last 12 months despite the absence of a complete smoking ban in casinos.  
    • “… I don’t think the decreasing gaming revenue for 12 months is due to a smoking ban,” said Chui, adding the government would monitor what happens once the blanket smoking ban is in place and that the law would be reviewed every three years. 

ARTICLE HERE

ARTICLE HERE

Takeaway: Full smoking ban bill on its way - not unexpected but not good either.

COMPANY NEWS    

SGMS- Bally Gaming has reached an agreement to provide at least 2,000 VLTs to the Oregon Lottery.  The Company has submitted the product and software to the Oregon Lottery and will begin shipping games later this year, after completion of a field trial and receipt of approval from the Oregon Lottery. All games will be part of a multi-game suite on the Bally ALPHA 2 Pro V32 cabinet.   

Takeaway: As mentioned yesterday, there could be another 5,000 VLT upgrades up for grabs for the suppliers in Oregon. 


MGM - Kirk Kerkorian, has died at the age of 98. Tracinda Corp, the holding company founded by Kirk Kerkorian, said the billionaire's will requires the company to dispose of its stake in MGM. Tracinda had a 16.2% stake in MGM Resorts, according to the company's filing on Tuesday. (Roughly $1.75 billion worth)

ARTICLE HERE

Takeaway: Only real implication is that there will be stock for sale.

 

IGT - Announced that it will provide the new Plainridge Park Casino in Plainville, MA with a wide selection of new content and cabinets, including more than 400 games

ARTICLE HERE

Takeaway: 32% ship share is about right for IGT.  Earlier, SGMS had reported 44% new slot share or roughly 26% total ship share for Plainville, according to our estimates.

 

HLT - Offering a deal for summer travel in China, and Hong Kong.  Bookings made between June 15 and August 14, 2015 and completed between June 17 and December 31, 2015 at participating Hilton Worldwide hotels, will enjoy savings of up to 25% off the Best Available Rate.

ARTICLE HERE

 

HT - Hersha Hospitality Trust has acquired the St. Gregory Hotel & Suites south of Dupont Circle for $57 million, its third hotel in D.C. ($386,000 per key) The property was acquired from an affiliate of St. James Associates. 

ARTICLE HERE

 

RCL -  Plans to deploy a luxury vessel from its Celebrity Cruises fleet in Abu Dhabi on a home-port basis from November 2016. The move will serve to strengthen the UAE capital’s ambition to become a major cruise hub. During peak season, the ship is expected to attract some 15,000 visitors to Abu Dhabi.

ARTICLE HERE 

INDUSTRY NEWS

Macau Travel -  According to official data, Macau dropped from fifth most popular place to sixth during the first quarter, with declining numbers of tourists. Receiving 24.1% less Chinese tourists traveling via agencies from the previous quarter, Macau is now the sixth most popular destination for them during the first quarter from the fifth most. 

 

ARTICLE HERE

LEISURE LETTER (06/17/2015) - pop 

 

Macau smoking rooms - Two-thirds of Macau’s casino employees think casinos should keep their smoking rooms.  According to the results of the survey, which covered 34,000 employees of all six of Macau’s casino operators.

  • The survey also covered casino patrons, and found that 32% of VIP gamblers would go somewhere other than Macau to gamble if smoking was banned in the city’s casinos.

ARTICLE HERE 

 

Asia Pacific - In the next five years, the Asia Pacific region will put 17 new casinos into operation. 

  • Macau will grab a third with six gaming properties scheduled. 
  • South Korea has three new casinos in the pipeline. 
  • The Philippines, Australia, New Zealand and Russia are expected to invest in two casinos each within the next five years.

ARTICLE HERE 

MACRO

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: Commodity Price Volatility Cometh?

Editor's Note: The excerpt and chart below are from this morning's note written by Hedgeye Director of Research Daryl Jones. For information on how you can become a subscriber click here

 

...Speaking of volatility, my colleague and resident Hedgeye energy analyst Ben Ryan put together an interesting Chart of the Day this morning on commodity volatility.   While much has been made about the increased volatility on the bond market over the course of the year, volatility in the commodity market has remained somewhat muted this year.

 

The chart shows two key things.  First, specifically related to energy based commodities, their volatility typical spikes into FOMC announcements.  Second, these same commodities are near their lows of the year in terms of implied volatility.  So, what do you think, is the world of energy commodities going to get more or less volatility in coming months? 

 

CHART OF THE DAY: Commodity Price Volatility Cometh? - z Implied in energy


We Petty Men

“He doth bestride the narrow world like a Colossus; and we petty men walk under his huge legs, and peep about to find ourselves dishonorable graves.”

-Shakespeare

 

Over the last 7 or 8 years, today has become a day that most stock market operators have fixated on.  Unless you’ve been stranded on deserted island with a volleyball named "Wilson," you know what we are referring to – FOMC announcement day.  As the Fed has wanton to do since the Great Recession, it has made us feel like petty men as we wait with bated breath on every word from the central planning colossus.

 

Hopefully, the Fed colossus does not pronounce anything overly surprising.  After all, it would be a shame to start digging our investment graves only midway through the year.  According to the Barclay’s Hedge Fund Index, hedge funds in aggregate are up right around 4.5% for the year-to-date, so it would only take a little volatility to get the grave of negative returns started.

 

Inasmuch as we can all criticize the Fed and begrudge our myopic focus on its pronouncements, there is a constituency that has more reason to complain – savers and those who live on fixed incomes.   As former Fed Chairman Bernanke noted in a speech in 2012:

 

“In the case of savers, you know, we think about all these issues, and we certainly recognize that the low interest rates that we’ve been using to try to stimulate investment and expansion of the economy also imposes a cost on savers who have a lower return . . . I guess the response I would make is that the savers in our economy are dependent on a healthy economy in order to get adequate return. … So I think what we need to do, as is often the case when the economy gets into a very weak situation, then low interest rates are needed to help restore the economy to something closer to full employment and to increase growth and that, in return, will lead ultimately to higher returns across all assets for savers and investors.”

 

So in theory, savers will eventually get a return, which is fair, except that interest rates have been at ZIRP for six and half years. (Side note: the average expansion since World War 2 has only lasted six years!)

 

We Petty Men - Fed cartoon 02.23.2015

 

Back to the Global Macro Grind...

 

Speaking of volatility, my colleague and resident Hedgeye energy analyst Ben Ryan put together an interesting Chart of the Day this morning on commodity volatility.   While much has been made about the increased volatility on the bond market over the course of the year, volatility in the commodity market has remained somewhat muted this year.

 

The chart shows two key things.  First, specifically related to energy based commodities, their volatility typical spikes into FOMC announcements.  Second, these same commodities are near their lows of the year in terms of implied volatility.  So, what do you think, is the world of energy commodities going to get more or less volatility in coming months?

 

Speaking of graves, for those investors that have been long the commodity market over the last month, their graves may have been dug.  We track 21 major commodities and over the last month 16 of them have had negative performance.  In the period, the five worst performers were as follows:

 

Sugar - -12.3%

Copper - -11.31%

Silver - -8.92%

Hogs - -7.44%

Nickel - -7.31%

 

The weakness over the last month is likely partially driven by a stronger dollar, but also on some level indicative of a global economy that is not firing on all cylinders.  How else to explain such a broad based underperformance of seemingly unrelated commodities like sugar and nickel over the last month?

 

But as we’ve alluded to, the next move in commodities may well be a function of the next move in the central banking colossus, which could come today. On that note, Keith is over in Europe visiting subscribers on the continent this morning, but in his Direct from KM note this morning (ping if you want to be added), he said the following:

 

“Day 3 in London and oh boy is sentiment bearish – could make for a rip higher (stocks, bonds, commodities) on Fed day:

 

  1. US Dollar – if you ask Doctor Dollar, Janet may very well do what I think she should do and stay “data dependent” with no timing on rates – that would = Down Dollar, Down Rates – Up almost Everything (much like my March 18th FOMC meeting call); I think both US equity futures (yesterday), and Oil again today are front-running this scenario
  2. VIX – ramped right to the top-end of my range yesterday then backed off – no support to 12.75 on a potential buy everything ramp – sentiment is bearish (both this morning’s II Bull/Bear Spread at YTD lows and SPX NET SHORT position (futures/options) at YTD highs)
  3. EUROPE – sorry, you get #StrongerEuro on this – and the DAX, CAC (both -4% in the last month) no likey Down Dollar because it means up Euro – so I like long US Equities still vs short EuroStoxx with the Slower-For-Longer (down rates) view, for now … “

 

Good luck out there on Fed Day! And god speed to the day when we petty men (and women) can stop worrying about the Fed.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.16-2.49%

SPX 2072-2113 
VIX 12.75-15.98 
USD 94.06-96.15 
Oil (WTI) 58.11-61.90 

Gold 1168-1203

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

We Petty Men - z Implied in energy


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Buy Everything?

Client Talking Points

USD

If you ask Doctor Dollar, Janet Yellen may very well do what we think she should do and stay “data dependent” with no timing on rates – that would = Down Dollar, Down Rates – Up almost Everything (much like our March 18th FOMC meeting call). We think both U.S. equity futures (yesterday), and Oil again today are front-running this scenario.

VIX

The VIX ramped right to the top-end of our range yesterday then backed off – there is no support to 12.75 on a potential buy everything ramp – sentiment is bearish (this morning’s II Bull/Bear Spread is at year-to-date lows and SPX NET SHORT positions (futures/options) are at year-to-date highs).

EUROPE

Sorry, you get #StrongerEuro on this – and the DAX, CAC (both -4% in the last month) no likey Down Dollar because it means up Euro – so we like long U.S. Equities still vs short EuroStoxx with the Slower-For-Longer (down rates) view, for now ….

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET featuring Macro Analysts Darius Dale and Ben Ryan. 

 

Asset Allocation

CASH 40% US EQUITIES 6%
INTL EQUITIES 12% COMMODITIES 13%
FIXED INCOME 27% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

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.

ITB

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.

TLT

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.

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%

#GrowthSlowing @HedgeyeDDale

@KeithMcCullough

QUOTE OF THE DAY

I would challenge you to a battle of wits, but I see you are unarmed.

William Shakespeare

STAT OF THE DAY

Retail sales this week according to the ICSC index were up only 1.9%, the lowest rate in 15 weeks.


Dollar Down, Rates Up?

This note was originally published at 8am on June 03, 2015 for Hedgeye subscribers.

“We live in time, and through it.”

-Wallace Stegner

 

That’s another great quote about life from a book I’m quite liking right now, Angle of Repose. For the record, there is no repose for me this morning. And I like it. There will be plenty of time to sleep, when I retire.

 

In the meantime, I’m getting on a plane to the heartland of America for a day of investor meetings. I’ll be outlining what I think is becoming more likely by both the day and economic data point – Slower-For-Longer, on both US and Global growth, that is…

 

The two core components of our Global Macro slide deck remain A) the cyclical call (USA in a #LateCycle slowdown) and B) the secular call (#Demographic slowing of core baby boomer consumption cohorts, in the US, Europe, Japan, and China).

Dollar Down, Rates Up? - Growth cartoon 05.19.2015

 

Back to the Global Macro Grind

 

Dollar Up, Rates Down? Yep. We lived through that yesterday. In terms of our positioning, some of that was good – some of it bad. It was a very immediate-term move, but here’s what it looked like:

 

  1. Dollar Down -1.5% on the day (biggest down day in a month)
  2. Euro (vs. USD) +2.1% to the top-end of my current $1.08-1.12 risk range
  3. Commodities (CRB) Index +1.1% on the “reflation” trade to 226
  4. Oil (and Oil & Gas stocks) up with XOP leading US equity sub-sector performers +1.8%
  5. German 10yr Yield ramped from 0.49% to 0.71%, in a day
  6. US 10yr Yield chased that and went from 2.12% to 2.28%, in a day

 

This, mostly on consensus headline chasing of “inflation is back”, after the Eurozone posted a mind-altering 0.3% year-over-year “inflation” report for the month of May.

 

In other news, European producer prices (PPI) deflated -2.2% year-over-year. But don’t tell Bond Bears that.

 

What did my day look like?

 

  1. FX: I came into the day short the USD in Real-time Alerts and signaled buy/cover #Oversold
  2. Commodities: with our asset allocation at a 1yr high, I was satisfied and stayed put
  3. Bonds: didn’t do much of anything as we already trimmed our allocation to FI on last week’s rally
  4. *Stocks: opted to buy US stocks that look most like bonds in Utilities (XLU) and short more Retail (XRT)
  5. Hockey: coached practice until 7PM and felt normal for about an hour
  6. Family: kissed my kids on the forehead before bed

 

We either let these macro moves raise our anxieties to un-healthy levels or we live through them with a work/family life balance. I’m much more prepared on that front today than I was for the last US #LateCycle slow-down. That’s a #process too.

 

Back to the positioning (I think of asset allocation on a NET exposure basis, just because I love shorting/selling things when they are at the top-end of my risk range, so that I can hopefully cover/buy things back at the low-end of the range):

 

  1. US Equity Allocation = UP from 2% at the all-time SPX high of 2130 to 6% as of yesterday’s close
  2. International Equity Allocation = FLAT at 10% with most of that leaning long Japanese Equities
  3. Commodity Allocation = DOWN 1% from 13% to 12%
  4. Fixed Income Allocation = UP from 23% to 24%
  5. FX = DOWN from 3% to 2%

 

I realize how I communicate allocating capital to assets on down moves and taking some off on up moves isn’t for everyone. But it’s dynamic and daily. I do it every day in this transparent format so you can hold me to account.

 

On the Fixed Income vs. Equities debate I don’t really think that’s what matters most right now. I think the Sector Style and asset allocations you make to either the growth #accelerating or #decelerating exposures does.

 

In other words, if you think that:

 

A)     US growth is going to accelerate in 2H 2015, you buy inflation/growth stocks and short Treasury Bonds

B)      US growth is going to continue to decelerate in 2H 2015, you buy #YieldChasing stocks and bonds

 

Sure, you’ll have to live through volatility along the way. But, if the best longer-term risk management call you could have made 1-year ago was preparing for Global #Deflation, from here until 2016 it’s setting up for Global #GrowthSlowing (again).

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.01-2.29%

SPX 2098-2118
Nikkei 20103-20709
VIX 13.03-14.94
USD 94.83-98.33
EUR/USD 1.08-1.12
Oil (WTI) 58.68-61.90

Gold 1178-1203

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dollar Down, Rates Up? - z 06.03.15 chart


June 17, 2015

June 17, 2015 - Slide1

 

BULLISH TRENDS

June 17, 2015 - Slide2

June 17, 2015 - Slide3

June 17, 2015 - Slide4

June 17, 2015 - Slide5

June 17, 2015 - Slide6

June 17, 2015 - Slide7

 

BEARISH TRENDS

 

June 17, 2015 - Slide8

June 17, 2015 - Slide9

June 17, 2015 - Slide10


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next