LEISURE LETTER (06/18/2015)



  • June 23 - CCL Q2 2015 10am  


Airbnb receives $24 Billion Valuation - Revenue is projected to top more than $900 million in 2015.  

  • The company projects revenues to grow to $10 billion by 2020, and expects $3 billion in EBITDA by 2020. 
  • For 2015 Airbnb is forecasting an operating loss of $150 million.
  • Airbnb expects to close a $1 billion round of funding this year at the $24 billion valuation
  • Revenue growth rates over the past two years have been roughly 90%, and has largely contributed to its rich valuation. 
  • Listings on the site have more than doubled YoY, with 1.4 million listings at the end of May, compared to 600,000 listings in February of 2014
  • Airbnb generates revenue by taking a 3% cut of each booking along with a 6% to 12% service fee from guests.


Takeaway: If these forecasts prove true, AirBnB will be a major threat to the lodging and vacation rental industry. 


MAR - MAR and TRIP announced yesterday that they are expanding their partnership and will add Marriott's global hotel portfolio to the TripAdvisor Instant Booking platform. Starting later this summer, travelers will be able to conveniently make a booking at any of Marriott's more than 4,200 hotels around the world without leaving the TripAdvisor site. 


Takeaway: A great deal for TRIP as it builds out its Instant Booking platform and a smart decision by MAR. Don't fight the OTAs, collaborate instead.


RCL - will invest $3.5m on upgrading cruise facilities at Vietnam's Chan May Port. John Tercek, VP commercial development of RCL signed a berthing preferential agreement with Nguyen Huu Tho, president of Chan May Port. This is the first agreement between RCL and Vietnam.  The upgrading of Chan May is expected to be completed in July.




Macau - Junket Industry Needs More Supervision, says US Trade Union. US-based International Union of Operating Engineers (IUOE) says it has sent a communication to the Central Commission for Discipline Inspection of the Chinese Government, claiming the government’s anti-graft policy will not work if Macau’s regulation of the VIP gaming industry is not to be extended. 


Takeaway: IUOE has been aggressive in raising multiple issues within the gaming industry in Macau.


Macau - Casinos are keen on "compromise" over proposed smoking ban. MGM China Co-chairperson Pansy Ho Chui-king, said that they were simply trying to reach a compromise on the matter and were not attempting to pressure the government into reconsidering its plan to impose a full smoking ban on casinos.



Ohio - Ohio Senate is pushing to add 3,000 new gambling terminals. The push by the Senate to add lottery machines appears connected to a related provision that would allow the Ohio Department of Education, which receives funding from the lottery, to tap an extra $61 million from the lottery in the second year of the two-year budget. 


Takeaway: Could be good news for Intralot and IGT.  



China - May new home prices +0.6% m/m vs +0.2% in April

  • Annualized (4.9%) y/y vs (5.7%) in April
  • Prices down m/m in 41 of 70 cities vs 47 in April

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.

What Is True?

This note was originally published at 8am on June 04, 2015 for Hedgeye subscribers.

“Above all else, I want you to think for yourself to decide: 1) what you want, 2) what is true and 3) what to do about it.”

-Ray Dalio


If you’re reading this note, you are undoubtedly familiar with Ray Dalio and more than likely familiar with his book Principles. In that book, he details three things:


  1. The importance of having principles;
  2. His life principles; and
  3. How he applies those principles to managing Bridgewater, the world’s largest hedge fund.


While Keith would be the first to tell you that he’s no Ray Dalio, we are also big on principles at Hedgeye.


From a philosophical perspective:


  1. Transparency: “No banking” means you don’t ever have to worry about what we really think about a specific security or economy. We aren’t trying to sell you anything but our research views.
  2. Accountability: “No asset management” means we don’t earn a management fee. We only get paid when we add value to our customers’ research processes.
  3. Trust: “No broker-dealer” means you don’t ever have to worry about us front-running your order flow – or worse…


From a research perspective:


  1. History: For every indicator we come across, we strive to analyze as much historical data as we can, across cycles, in order to identify or dispel the existence of critical mean reversion thresholds.
  2. Math: Core to our process is an overt focus on rate-of-change, which is derived from a well-researched view that market participants react to incremental developments, rather than to absolute states. As such, we employ basic differential calculus methods to project accelerations, decelerations and inflections in growth rates.
  3. Behavioral Psychology: We believe there is a considerable degree of actionable information to be derived from market prices and that contextualizing investor sentiment and positioning is critical to immediate-term risk management. Moreover, we believe the supply/demand narrative surrounding any asset is heavily influenced by its own price trends.


Back to the Global Macro Grind


Q: What [do] you want?


A: We want to determine whether or not this trending back-up in rates from the JAN 30th lows is a signal for us to: A) abandon our lower-for-longer thesis or B) double-down on said view.


Q: What is true?


A: Supportive of option “A” is 1) the recovery in Eurozone inflation expectations and 2) the recent breakdown in domestic fixed income, credit and equity income plays within our Tactical Asset Class Rotation Model.


Supportive of option “B” is 3) a likely trending deceleration in U.S. economic growth into a likely recession in CY16, 4) secular stagnation brought on by widely misunderstood demographic changes in both the domestic and global economies and 5) a trending material deceleration in global economic growth


Addressing those factors in order:


  1. Eurozone CPI accelerated to +0.3% YoY in MAY from 0.0% prior and continues to accelerate on both a sequential and trending basis. Eurozone Core CPI accelerated to +0.9% YoY in MAY from +0.6% prior and is now accelerating on a sequential and trending basis. Moreover, our predictive tracking algorithm has reported inflation in the Eurozone accelerating through the balance of 2015. In light of these developments, it’s no surprise to see that Germany’s 5Y breakeven rate (as a proxy for Eurozone inflation expectations) has backed up +107bps from its JAN 13th low to the current 0.81% – with +38bps of that delta coming in the last week alone!
  2. Without running the risk of boring you with the details of how TACRM is constructed, it’s worth noting that the model issued a “DECREASE Exposure” signal for the “Domestic Fixed Income, Credit and Equity Income Plays” primary asset class during the week-ended MAY 8th. Since then, the Bloomberg U.S. Treasury Bond 10+ Year Index has declined -3.4%, extending its YTD decline to -5.0%. From a bottom-up perspective, the eight factor exposures (out of ~200) exhibiting the greatest degree of negative VWAP momentum across multiple durations on a marginal basis are explicit bets on lower interest rates: AGG, LQD, BND, FLAT, TLT, BNDX, ZROZ and EDV. Conversely, the three factor exposures exhibiting the greatest degree of positive VWAP momentum across multiple durations on a marginal basis are explicit bets on higher interest rates: KRE, STPP and IAI.
  3. We discussed this thesis in great detail in a note earlier this week (CLICK HERE to review).
  4. Ditto.
  5. Keith and I make a point to visit each of our top customers at least ~1x/quarter. That adds up to a lot of meetings over the course of a year and a lot of travel all across the country and globe (e.g. we’re in CA next week and in London the following week after having done Chicago, Boston, NYC, Greenwich and Kansas City in the past three). The point I’m making is that we hear the perspectives of all types of investors and can readily glean when a view is becoming consensus on the buyside. Currently, one of those consensus views is an assertion that global growth is accelerating and/or poised to accelerate.


Nothing could be further from the truth.


In fact, anyone who does the work will arrive at the conclusion that global growth is slowing on both a sequential and trending basis into the most difficult compares of the year (i.e. the 2nd and 3rd quarters).


As such, the probability for global growth to get cut in half on a YoY basis in 2015 is extremely great. That would represent the slowest rate of global growth in this cycle and ~100bps shy of the trailing 3Y average of +2.2%.


Fortuitously for you, you don’t have to do the work because you pay us to have your back on all things Global Macro.  If you do nothing else for the rest of the week, the one thing you must do is download the following presentation which quickly contextualizes the rapidly deteriorating global growth picture:


All told, if Industrials (XLI) is your best idea on the long side of U.S. equity sectors, then now is the time to start working on thesis drift…


Q: What [do you want] to do about it?


A: All things considered, we want to take advantage of this weakness in long duration securities to double-down on our lower-for-longer thesis.


Going back to Draghi’s press conference yesterday, we will note that he was keen to address recent bond market volatility by reiterating that ECB QE will continue as planned throughout the stipulated duration of the program – which is at least through SEP ‘16 and until the ECB sees a “sustained adjustment in the path of inflation” towards its goal of +2%. As such, investors needn’t worry about an untimely removal of the ECB’s bid from European sovereign debt markets.


The immediate-term risk to that decision is that the MAY Jobs Report is strong and the Fed anchors on that as justification for pulling forward their guidance on “liftoff” timing in the JUN 17th FOMC statement.


The intermediate-term risk to that decision is that no matter how “data dependent” the Fed claims itself to be with respect to “policy normalization”, they are actually politically motivated to move the Fed Funds Rate well off of the zero bound no matter what. In light of the aforementioned global growth trends, that is definitely a view being intensely scrutinized across global macro markets right now.


The long-term risk to that decision is that “we are all dead” anyway…


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.03-2.39% (bearish)

SPX 2098-2130 (bullish)

USD 94.73-96.78 (neutral)
EUR/USD 1.07-1.14 (bearish)

Oil (WTI) 57.32-61.91 (bullish)

Nat Gas 2.52-2.67 (bearish)

Gold 1175-1210 (bullish)


Keep your head on a swivel,



Darius Dale



Click to enlarge 

What Is True? - Chart of the Day

Less Market Volatility (For Now)

Client Talking Points


One big cross asset class reset continues this morning with Dollar Down (EUR/USD Pain Trade Up), Yen Up, Nikkei Down – Gold stabilizing and holding our $1150-1170 zone of support – it likes Down Dollar, Down Rates.


Down -27 basis points for the UST 10YR Yield in a week to 2.27% now so we’re glad we didn’t capitulate and chase the charts as the fundamental research call didn’t support doing that; 2YR Yield backs off hard (for the 3rd time from 0.75% since DEC) to 0.64%.


Now this gets interesting as both Japanese and European stocks do not like their respective currencies strengthening whereas yield chasers in the U.S. do – so U.S. futures will have to deal with overseas weakness, as a result of a more dovish Fed.


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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


Japanese real wages continue to see no growth, -0.1% y/y



The winner's edge is not in a gifted birth, a high IQ, or in talent. The winner's edge is all in the attitude, not aptitude. Attitude is the criterion for success.

Dennis Waitley


8.1 million people tuned in for HBO’s “Game of Thrones” finale on Sunday, a record for the show.

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CHART OF THE DAY: Pushing the #Dots | $TLT

Editor's Note: The chart and excerpt below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here if you would like more info on how you can subscribe.


CHART OF THE DAY: Pushing the #Dots | $TLT - z 06.18.15 chart


...In terms of levels (they matter):


    1. The 10yr US Treasury Yield has just made yet another epic long-term-lower-high (we’re 18 months into this)
    2. The 2yr US Treasury Yield has now failed to “breakout” from the 0.75% level for the 3rd time since December
    3. My Risk Range model (which I use to front-run volatility) is signaling a narrowing (rather than widening) range


Look At That Dot

“Look again at that dot. That’s here. That’s home. That’s us.”

-Carl Sagan


And, Sagan, the American astro-everything-ist, went on to write about that Pale Blue Dot:


“On it everyone you love, everyone you know, everyone you ever heard of, every human being who ever was…”


This is your market life too. And unless you can show me that dot – as in the one that has the data to support a rate hike, you are going to be subject to the risks associated with one of Sagan’s most basic teachings – gravity.

Look At That Dot - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


Where is your dot?


  1. 6-12 months ago, was it June 2015?
  2. Before yesterday’s Fed announcement, was it September?
  3. Where is it now? December, 2016, or 2017?


After pounding a serious amount of caffeine (and air miles) into my system, I can assure you that the Institutional Investor community’s answer on when, precisely, we are going to get that interest rate “liftoff” is imprecise.


Why the confusion?


  1. Some anchor on what has been an inaccurate forecasting process (The Fed’s)
  2. Some hem and haw about what Hatzius and Hyman are saying (after the Fed changes its forecast)
  3. Some don’t have a process (and/or use the Fed’s/Wall Street’s) at all – they just react


So, please, allow me to direct-your-dot this morning to December with a rising probability for another push to 2016, and a misunderstood rising (not declining) probability of 2017 or 2018 and beyond.


“Blah, ha, ha!”


You crazy Mucker (that’s my hockey nickname and please use an M). I had more than one group in California laugh at me out loud as the 10yr US Treasury Yield was testing 2.54% last week when I submitted the scenario analysis for 2016 and beyond…


One PM said “Dude, I am buying TBT (UltraShort 20yr Treasury) and the Financials (KRE) right here #charts look great – don’t you think?” … and I responded (group meeting) that I was going to short both of those right after the meeting.


No it wasn’t a head-bobbing-for-voting-commissions moment. I wasn’t trying to be a mean Mucker either. I have my dot – and it’s not the one that chased those charts (or have chased any “rate hike” fear since I was bullish on #RatesRising in early 2013).


Yes, this is a competitive game – and you’re darn right I like to win. From London, I’m happy to report that I stayed with my #process and did not capitulate. I remain long TLT and would still short the Financials and Industrials (XLI) on up days.


In other news – post the dovish Fed announcement yesterday:


  1. Dollar Down
  2. Rates Down
  3. Bonds (and stocks that look like bonds) Up


Oh, but not all “stocks” are up (going all Global on you now), because:


  1. Japanese stocks get Dollar Down, Yen Up, Nikkei Down
  2. European stocks get Dollar Down, Euro up, DAX Down


Not surprisingly, amidst all of the “blah, ha, ha”, that ole Doctor Dollar did me good. He was signaling a dovish Fed throughout the Global Bond Yield ramp (which wasn’t US economic data driven – it was a technical-liquidity move)… and I thank him for that.


The German DAX is actually -1.4% this morning and -6.7% in the last month on what some of Bloomberg’s Editorial/Advertising department has been saying is all about “Greece.”


Thanks for coming out guys. Please get back to interconnected macro markets and redo the headlines this morning to:


  1. Dovish Fed Pushes Out Dots
  2. Dollar and Rates Fall
  3. Global FX Volatility Drives Global Equity Declines


In terms of levels (they matter):


  1. The 10yr US Treasury Yield has just made yet another epic long-term-lower-high (we’re 18 months into this)
  2. The 2yr US Treasury Yield has now failed to “breakout” from the 0.75% level for the 3rd time since December
  3. My Risk Range model (which I use to front-run volatility) is signaling a narrowing (rather than widening) range


When the risk range widens, the “dot” scenarios are widening – and confusion breeds some bid/ask spread contempt. When my risk ranges are narrowing though, the Fed is usually toning down bond market volatility by telling you where the dot is not.


They showed you their dot yesterday. And I’ll show you mine again this morning – it’s called Slower-For-Longer on US growth as the #LatecCycle slow-down becomes evident. My catalyst for more of that data is called time.


Look again at that cyclical slow-down within the framework of a longer-term TAIL risk of secular demographic headwinds for US consumption growth. That’s here. That’s the baby boom generation slowing. That’s the US growth problem. That’s us.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.15-2.39%

SPX 2072-2114
USD 93.51-95.49
EUR/USD 1.11-1.14
YEN 122.21-124.98
Oil (WTI) 58.11-61.72

Gold 1172-1199


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Click image to enlarge

Look At That Dot - z 06.18.15 chart

The Macro Show Replay | June 18, 2015

Please note that we experienced some technical difficulties during today’s show. Hedgeye CEO Keith McCullough called in live to The Macro Show from London and the connection was compromised. We apologize for the inconvenience.



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