LEISURE LETTER (06/19/2015)



  • June 23 - CCL Q2 2015 10am  

Headline News

Macau forecasts - Secretary of the Economy and Finance Lionel Leong expects MOP16 billion in gaming revenue for the month of June, down 41% YoY.  Separately, Ambrose So, SJM Chairman, offered a full year 2015 GGR forecast of down 40% for the market.


Takeaway: Hedgeye is currently forecasting -34% for June and -32% for 2015 but we have little confidence in either projection. The Street remains more optimistic.


Paradise Entertainment - The supplier of electronic gaming systems Paradise Entertainment is confident that Macau can provide many opportunities to sell products during the coming months as the new projects in Cotai come on line. "New casinos will open in Macau and lots of products will be refreshed” said Jay Chun, the chairman of the company. 



BYD - Boyd is pledging $2.5 million to to support the expansion of the William F. Harrah College of Hotel Administration at the University of Nevada, Las Vegas.



Frasers Hospitality UK Holdings Limited - A wholly-owned subsidiary of Frasers Centrepoint Limited (FCL), successfully completed the acquisition of Malmaison Hotel du Vin group (MHDV) of boutique lifestyle hotels for a consideration of GBP363.4 million (approximately $576.32 million) from an affiliate of KSL Capital Partners, LLC. The Malmaison portfolio consists of 2,082 keys across 25 cities in the UK or ($276,881 per key).


This sale comes two years after KSL purchased Malmaison Group for £200 million ($313 million). Based on those numbers, this recent sale represents approximately an 82% increase over the 2013 purchase price.  



Viking Cruises - Added Mediterranean and Holy Land itineraries for its upcoming vessels Viking Sea and Viking Sky in 2016 and 2017.



Macau - The Gaming Enterprise Staff Association is arguing that workers who recently filled out surveys regarding the proposed "smoking lounges" at casinos, were pressured to answer the surveys in favor of the lounges.The independent study initially showed that 66% of workers would be in favor of the lounges, but the association is arguing these results are skewed.    



Cash handouts - The government will begin making its annual cash handouts to the public on July 6, Executive Council spokesman Leong Heng Teng has said.

Leong said the government would distribute this year MOP5.84 billion (about US$730 million) among 675,696 residents of Macau.


It will give 607,465 permanent residents MOP9,000 each and each temporary resident MOP5,400. Whether they will get more next year will depend on how big the government’s surplus is this year, Mr Leong said.


Takeaway: Even in tough times, citizens get money back. Felix has already applied for citizenship.


Puerto Rico - Facing a cash crisis, Puerto Rico is turning to desperate measures to pay the bills: it may legalize the black-market slot machines in grocery stores.



New Jersey - Lottery ticket sales fall short of budget projections. 

  • Total ticket sales for 2014 were $2.9 billion, according to the lottery’s annual report. But after prize payouts, retailer commissions, fees and administrative costs, that meant $965 million went to the state budget.
  • Northstar, had projected income of $1.047 billion for the 2015 fiscal year, but revised that figure down twice – first to $955 million and then, last month, to $930 million
  • Northstar’s failure to meet projections have bolstered criticism from Democratic lawmakers that privatizing the essential function of the state’s fourth-largest revenue source was a bad deal for New Jersey. 



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.


ZOES remains on the Hedgeye Best Ideas list as a LONG


Last night ZOES announced that CFO Jason Morgan has resigned to pursue other business opportunities.  Mr. Morgan has been at ZOES for eight years, this decision reflects his personal career choice and in the coming days and week it will be clear where he is going.  Importantly, transition to a new CFO will likely not have a material lasting impact on the company's prospects.


On the contrary, Mr. Morgan is a very talented restaurant executive and is leaving the company in a very strong position with a deep bench of seasoned financial executives.  Over the coming months James Besch, current Controller will lead ZOES’ financial team as the company begins a formal search for a new CFO.


OUR LONG TERM VIEW IS UNCHANGED - We view ZOES as one of the best small cap growth names.  The company is set-up for long-term success for the following reasons:


  1. Superior brand positioning
  2. Management philosophy and execution
  3. Unit opening geographic profile
  4. Early-stage average unit volumes and returns


Volatility, Gold and the USD

Client Talking Points


They smashed cross-asset volatility on the Fed decision, and that makes a lot of sense to me as a narrowing of our FICC risk ranges (especially UST 10YR Yield and EUR/USD) is short-term bullish for asset prices, including stocks (Utilities) that look like bonds.


Oh the love Gold has for the two-stroke Down Dollar, Down Rates move; being long this for the 1st time in a while felt like sitting on a hand grenade, so the +2.2% pop was appreciated; Gold diverged big from Copper, which is down another -1.1% this morning.


Get the U.S. Dollar right, and you’ll certainly get less things wrong – important overbought signal was $1.14 EUR/USD and the risk range there is now 1.11-1.14, so keep that in mind, especially when risk managing your long Oil position (risk range WTI = 58.51-61.78).


**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, Keith McCullough is back from London!

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


Darius Dale on Fox Business: Fed Unlikely To Raise Rates This Year… @HedgeyeDDale



The task of the leader is to get his people from where they are to where they have not been.

Henry Kissinger


When men hit their mid-50s, the median male worker is making about 127% more than he did when he was just starting out in his career, according to a report released this February by the Federal Reserve Bank of New York.

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The Macro Show Replay | June 19, 2015


CHART OF THE DAY: (Woeful) Establishment “Blue-Chip” Growth Forecasts

Editor's Note: The excerpt and chart below come from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to subscribe and stay a step ahead of consensus. 


Who really cares that the Fed was at 3.1% GDP, then 2.7%, then 2.4%? As you can see in today’s Chart of The Day, the establishment “blue-chip” growth forecasts have started the year high, and ended on the lows, every year since 2010.


Click to enlarge 

CHART OF THE DAY: (Woeful) Establishment “Blue-Chip” Growth Forecasts - z 06.19.15 chart

Super-High Returns

(Editor's Note: He's back from London. Join Keith live at 8:30am ET on The Macro Show. Click here.)


“The super-high earners have the biggest crashes.”

-Moises Naim


Fair enough, Moises – but they’ve had super-high returns on incremental US Dollar Devaluations by the Federal Reserve going back to 2011. What goes up, doesn’t always have to crash on the way down.


What Naim is referring to is the asset price crash period of 2007-2009 where “the number of Americans making $1M or more fell 40% to 263,883, while their combined incomes fell by nearly 50% - far greater than the less than the 2% drop in total incomes for those making $50,000.” (The End of Power, pg 6)


Love or loathe them, the US stock and bond markets aren’t socialized democracies. These are centrally-planned-markets that are highly sensitive to both the valuation of American currency and the “risk free” rate of capital.

Super-High Returns - Central planning cartoon 03.20.2015


Back to the Global Macro Grind


Did the most recent “surprise” from the Fed matter to the 2011 all-star asset price inflations?


  1. Gold (peaked in 2011 on a nominal basis) = +2.2% yesterday
  2. Utilities (had their biggest relative return year ever in 2011) = +1.3% yesterday


For those of you new to risk managing macro markets within the framework of front-running-probable-central-planning-behavior, note that “expensive” stocks and bonds get more expensive when the market is seeking certain macro exposures.


The two big macro exposures that moved on this recent Fed decision to cut its 2015 GDP forecast closer to ours at 1.8-2.0%:


  1. Down Dollar
  2. Down Rates


Who really cares that the Fed was at 3.1% GDP, then 2.7%, then 2.4%? As you can see in today’s Chart of The Day, the establishment “blue-chip” growth forecasts have started the year high, and ended on the lows, every year since 2010.


In 2011, Gold absolutely loved having exposure to Bernanke devaluing the Dollar to the all-time (post Nixon/Carter/Burns) lows. That’s when long-term rates first tested the mental concept of all-time lows too.


Are we going to see $1900/oz Gold and all-time (which at the time was a long-time) high food prices (2012) again? I doubt it. That’s because the longer-term setup for the US Dollar is to make a series of higher-lows as the Europeans are forced to devalue Euros.


Got 80 cents?


I do. In Euros vs. US Dollars, that is. But that’s my long-term TAIL risk view for both European growth (even worse demographic spending cliffs than the USA, which is saying something) and it’s very immature, but centrally-planned, currency.


If I wanted to just make long-term TAIL risk calls, I’d go up to my lake house in Thunder Bay, fish, and write books. Instead, I choose to travel the world over to help you risk manage the immediate-to-intermediate-term, because I’d get fat fishing.


Never mind this class-warfare crap that politicians from Marx to whoever has driven into the American narrative. We are all responsible and accountable adults. With #process and objective analysis we have super-opportunities to help a lot of people not crash again.


I know. Enough about reminding you about how this ended, long-term risks, etc. Let’s get into the very immediate-term setup so that you can get on with your day:


  1. US Dollar Index immediate-term TRADE oversold on the Fed “news” at $93.81
  2. EUR/USD immediate-term TRADE overbought at $1.14 with a risk range of $1.11-1.14
  3. UST 10yr yield of 2.30% has an immediate-term risk range of 2.15-2.38%, risk manage it
  4. Gold immediate-term TRADE overbought at $1205 on the Down Rates, Down Dollar move
  5. Utilities (XLU) signaled immediate-term TRADE overbought into yesterday’s close


So what would I do from here? Book some gains. This shorter-term macro game of gaming catalyst dates is hard enough as it is. You were either setup for this Federal Reserve move, or you were not.


Another immediate-term move I’d make on the immediate-term oversold signal in USD is:


  1. Re-short some Japanese Yen (FXY)
  2. Buy back the DXJ (Japanese Stocks) we sold pre the Fed decision


Yep. It’s all #timestamped, and I actually sent out that signal to buy DXJ in Real-Time Alerts on red yesterday so apologies if the Early Look reiteration of what I’d do is more like what I already did. Sometimes a great way to not crash is to keep moving.


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


UST 10yr Yield 2.15-2.38% (bearish)

SPX 2104-2126 (bullish)
RUT 1 (bullish)
Nikkei 199 (bullish)
VIX 12.40-15.91 (bullish)
USD 94.01-95.48 (neutral)
EUR/USD 1.11-1.14 (neutral)
YEN 122.21-125.04 (bearish)
Oil (WTI) 58.51-61.78 (bullish)

Nat Gas 2.69-2.99 (bullish)

Gold 1185-1205 (bullish)
Copper 2.54-2.66 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Super-High Returns - z 06.19.15 chart

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