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LEISURE LETTER (07/01/2015)



Macau Casino Revenue - GGR down 36.2% YoY in June. Macau raked in MOP17.4 billion (US$2.2 billion) in gross gaming revenue in June, official figures released today by the Gaming Inspection and Coordination Bureau show.

  • This is a decrease of 36.2% YoY, represents thirteen straight months of slump in casino revenue in the city. 
  • The latest data also means that the accumulated gross gaming revenue for the first six months of 2015 at MOP121.6 billion is 37% lower than the same period in 2014.


Takeaway: Slightly better than the most recent conensus but exactly in line with our forecast. However, June represented a sequential, seasonally adjusted GGR decline. Based on the prior 3 months, June should've fallen only 27% per our estimate, which was our forecast at the beginning of the month. 


1159.HK - Jimei International Entertainment Group Ltd, known junket investor, has agreed on a deal to operate at least seven VIP gambling tables at NagaWorld casino resort, in Cambodia.  The filing didn’t specify the incentives the Jimei entity would receive in order to send players to NagaWorld. But it did say that the Jimei side would be responsible for services including accommodation, transportation, food and beverages.


Takeaway: China won't make it easy for VIPs to visit often but luring mainland junkets could pay off.


Mohegan Sun - Mohegan Sun finalizes ideas for South Korea Casino.  U.S. regional tribal casino operator Mohegan Tribal Gaming Authority, known as Mohegan Sun, announced on Tuesday it has finalized what it referred to as a “concept agreement” for a casino resort it hopes to develop in South Korea. The project, first announced in April, is to be in partnership with South Korea’s Incheon International Airport Corp (IIAC).

  • The integrated resort would have a two-tower luxury hotel complex with 1,000 rooms, a private air terminal, and more than 18,500 sq. meters of shops, restaurants, art exhibition and music entertainment areas.
  • The companies estimate the construction cost for the private terminal at $35 million, with a further US$320 million to be spent on the entertainment arena and US$140 million for the theme park. The statement did not provide an estimated cost either for the hotel towers or the casino.

LEISURE LETTER (07/01/2015) - Korea Casino


Takeaway: The competition to win over foreign gamblers continues.


H - Kansas City, MO, developers of the proposed downtown Hyatt convention headquarters hotel, now estimated to cost $310.8 million, took a big step forward Tuesday, with a recommendation of approval of a tax increment financing plan.The Tax Increment Financing Commission of Kansas City board voted 8-2 for the TIF levels KC Hotel Developers LLC requested for the 800-room hotel, which remains on track for a late 2018 opening.



TUI.LN - TUI Cruises and Meyer Turku signed an agreement for two more cruise ships. The newbuilds, planned for 2018 and 2019, will successively replace Mein Schiff 1 and Mein Schiff 2. "We regard the cruise market as a growth market for our Group. By expanding our activities in this segment we want to drive the planned revenue and earnings increases for the TUI Group and at the same time develop into one of Europe's leading cruise providers," said Sebastian Ebel, responsible for cruise activities on the board of TUI Group. 


Celebrity Cruises - Starting July 6, Celebrity Cruises is set to roll out a permanent change to its pricing structure.  The new system builds on Celebrity's 123Go! promotion, which offers a menu of perquisites, such as free gratuities, beverage packages or an onboard spending credit. 

  • The pricing structure, to be called Go!Big, Go!Better, Go!Best, adopts the rhythm and language of the 123Go! promotion, but Celebrity is emphasizing that it is not a temporary campaign. 
  • Guests can choose among four perquisites: a Classic beverage package, free gratuities, unlimited internet or a $150-per-person spending credit.  All ocean view, balcony and suite accommodations will be priced at minimum with the choice of one perquisite built in. 
  • The new pricing will not apply to Celebrity's Xpedition ship or to transatlantic and transpacific crossings.



NCLH - Norwegian Cruise Line Holdings is making a bigger push into Australia and the surrounding region.

  • "In view of the growing international interest in cruising combined with our strong growth strategy, the new office in Australia is a natural next step in our global expansion of Norwegian Cruise Line Holdings,"Harry Sommer, executive vice president of international business development for Norwegian Cruise Line Holdings, said in a statement. 

  • "It reflects our confidence in the growing Australia and New Zealand markets and we believe that our three brands...are all a perfect fit for the Australian market, offering a wide variety of experiences and worldwide itineraries."



Macau Casino Promotions - Casinos in Macau are assigning an increasing share of their revenues to promotions and discounts in order to attract new customers, now that the market has slowed.

  • From discounts on room rates to free meals to shopping vouchers to better loyalty programs everything has been thrown at Macau visitors.  Never have the casino operators here spent so much on promotions as a share of gaming revenues as today. 
  • In the first quarter of this year, casino operators MPEL, WYNN, and LVS collected $2,011 million in mass gaming revenues in Macau and gave away $206 million in promotions, a 10.2% YoY increase.


Takeaway: Too competitive to cut promotional allowances faster than gaming volumes are falling. Not good for margins.  Given the state of the midweek business, we wouldn't be surprised to see elevated promotional activity targeted at this segment, i.e. "double point Tuesdays"


Macau Smoking Ban - The government will present to the Legislative Assembly a bill to ban smoking in casinos, increase taxes on tobacco products and prohibit the sale of electronic cigarettes, officials have said. “Predictions tell us that the economy will be hit by these measures,” Health Bureau director Lei Chin Ion told a press conference.  “But there are different predictions. We are concerned with public health – and without health there is no economy at all.”



Singapore Home Prices - Singapore’s home prices dropped for a seventh consecutive quarter, the longest losing streak in 13 years, as tighter mortgage curbs cooled demand in Asia’s second-most expensive housing market.  An index tracking private residential prices fell 0.9 percent in the three months ended June 30th. 

  • Residential prices have already declined 6.7 percent since the peak in September 2013. 
  • Home sales dropped 57 percent to 638 units in May from a year earlier as developers offered fewer projects, according to previously released URA data.
  • The government began introducing residential property curbs in 2009 as low interest rates and demand from foreign buyers raised concerns that the market was overheating. They have included a cap on debt repayment costs at 60 percent of a borrower’s monthly income, higher stamp duties on home purchases and an increase in real estate taxes.



Massachusetts Lottery - Record lottery sales made way for $935 million in profits for the state.  Lottery sales for the fiscal year through June 27 totaled $4.973 billion, compared to $4.825 billion for the same period in fiscal 2014. June has been a "high payout month," a Lottery spokesman said, with one $15 million prize claimed and one $10 million prize, as well as ten $1 million prizes.



4th of July Weekend - According to a projection from AAA, this holiday period between Wednesday and Sunday is expected to be the busiest since 2007, with an estimated 41.9 million people traveling 50 or more miles from home nationwide. According to an early survey of Miami-Dade hotels, occupancy is expected to be higher than last year, at about 81% between Thursday and Sunday. On Miami Beach, that figure is 88%, according to William Talbert III, president and CEO of the Greater Miami Convention & Visitors Bureau. 



China Home Prices - New Home prices up 0.56% MoM (100 major cities index) 

Macau Home Prices - MoM home prices dropped 12.6%, and the number of homes sold fell from 664 in May to 582 in June. 


Hedgeye Macro Team remains negative on Europe 

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot has happened in 2015.

Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at today's Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to subscribe.

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#ConsumerSlowing? (Again)

On this morning’s Macro Show, senior analyst Darius Dale walked though some preliminary analysis that supports our expectation for domestic consumption growth to negatively inflect and slow throughout the balance of 2H15, as well as the associated investment implications.



CLICK HERE to download a PDF version of the associated presentation (23 slides).


Stay tuned for much more on this topic on our 3Q15 Macro Themes Call.


Best of luck out there,




Darius Dale


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Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Retail Callouts (7/1): Phil Knight Read Through to Ralph Lauren, KSS Off Aisle

Takeaway: Without Knight NKE won't miss a beat, read through for Ralph Lauren. First look at KSS Off Aisle concept.

Phil Knight Read Through for Ralph Lauren


Takeaway: Phil Knight stepping down is a complete non-event, for Nike at least. He hasn't been directly involved in the day to day operation of the company for the better part of 20 years. And, he's set up both a trust to protect his cache of stock that represents about 30% of the voting stock in the company and a management structure within the company that can continue to carry on his legacy.


But consider the read-thru for Ralph Lauren. Both Phil Knight and Ralph Lauren are roughly the same age (born 1938 and 1939, respectively) and started their respective businesses within three years of one another (NKE in 1964 and RL in 1967). Each had a vision for design, branding and marketing Athletic Footwear/Fashion Apparel in an outsourced manufacturing model. While Nike has been more successful, growing to a $55bn footprint globally versus Ralph's $15bn brand footprint, the success stories are unmistakable.


But that's where the comparison ends. Phil Knight is stepping down as Chairman, and Nike's stock won't miss a beat. As noted, his direct involvement has been minimal, but he has successfully built up a talented team and detailed HR succession planning process for the entire organization.


At Ralph Lauren, however, succession is a Black Hole. It's not even a topic that management will entertain, and when the question is asked you could almost hear them tense up. Succeeding Mr. Lauren is not even up for discussion.


From where we sit, if the company won't at least share Mr. Lauren's succession plan, they could at least instill the confidence in us that a plan does, in fact, exist. We're not so sure.


In the end, we think the best way out is for RL to acquire Tory Burch. They get Roger Farrah back, as well as an extremely talented and marketable potential CEO who is still in her 40s. Having Roger back would be good for a good 5 multiple points at RL. That's far better than the alternative -- which is Mr Lauren stepping down one day and the stock losing a third of its cap.

Retail Callouts (7/1): Phil Knight Read Through to Ralph Lauren, KSS Off Aisle - 7 1 chart1

Retail Callouts (7/1): Phil Knight Read Through to Ralph Lauren, KSS Off Aisle - 7 1 chart2


KSS - First Shots of Kohl’s New Concept



These are the first snaps we've seen of the new KSS Off/Aisle concept. And it still doesn't make a whole lot of sense to us. To have an 'off price' concept, you need steady access to high quality brands to consistently offer the perception of great deals to your consumer. KSS is capable of none of this. The retailer just simply doesn't have the brands or the content to support an off-price concept. Yes, it's a test, but if M Backstage is indicative of an ugly department store environment, KSS Off Aisle is a nail in the coffin.

Retail Callouts (7/1): Phil Knight Read Through to Ralph Lauren, KSS Off Aisle - 7 1 chart3





AMZN - Amazon Launching in Mexico




AMZN - Amazon Web Services Announces 2016 India Expansion



MW - Men's Wearhouse Names Bruce Thorn As Chief Operating Officer



FL - EVP/Former CFO Sells 32k shares


PBY - Pep Boys to consider sale



Donna Karan Steps Down From Namesake Company



Jo-Ann makes executive moves



CHART OF THE DAY: Is #Greece Just The Tip Of Europe's Iceberg?

Editor's Note: This is an excerpt and chart from today's morning strategy note written by Hedgeye Director of Research, Daryl Jones. If you're interested in staying a step ahead of consensus, click here to subscribe. 


CHART OF THE DAY: Is #Greece Just The Tip Of Europe's Iceberg? - COD z EL. yields


...[T]he bigger issue with Greece is that it has the potential to be the tip of the iceberg in Europe.  If history over the past decade tells us anything about Europe, it is that the area’s fiscal and competitive imbalances are contained, until they are not.


As an example, while Portugal’s deficit is fully funded for 2015, its longer term fiscal metrics remain disconcerting.  With a public debt-as-percentage-of-GDP at 130% and a deficit-as-a-%-of-GDP still running at 4 – 5%, is far from out of the woods.  Certainly, the country, as evidenced this year, can fund via debt when times are good, but in deeper recessionary scenario when the deficit naturally broadens, that debt loan will likely give creditors pause.


The Castle

“Every revolution evaporates and leaves behind only the slime of a new bureaucracy.”

-Franz Kafka


There may not be a better literary analogy for the situation in Greece than Kafka’s classic, The Castle.  The book was inspired by the actual bureaucracy of the Habsburg Empire, which Kafka was forced to deal with during his life.  (Having just had multiple visits to the Connecticut DMV, we can certainly empathize with Kafka’s experiences.)


In The Castle, the narrator, K, arrives in a village governed by a mysterious bureaucracy that is operating in a nearby castle.  In seeking shelter at the town’s inn, K claims to be a land surveyor summoned by the authorities in the castle.   Very quickly he is notified that the castle contact is an official named Klamm, who informs K in a note that he will report to the Council Chairman.


Subsequently, the Council Chairman informs K that due to bad communication between the castle and the village he was erroneously requested.  In lieu of this, the Council Chairman offers him a position to serve as a caretaker in service of the school teacher.  Despite this generous offer, K, still unfamiliar with the processes of the village, continues to try and reach Klamm, which is considered a major taboo by villagers.


The villagers hold the officials and the castle in the highest regard, despite not really understanding what it is they do.  In fact, the actions of the officials are never explained.  Despite this, the villagers often provide justifications for the officials’ actions through long monologues.   In fact, everyone seems to have an explanation for the officials’ actions, despite their contradictory nature and clear ambiguity.  The villagers actually praise this ambiguity as another compelling feature of the official!


Kafka is describing a society in which the bureaucracy has become predominant at the expense of practicality, efficiency and all else.   In the real world of course, the rapid growth of a bureaucracy is likely to stunt growth and innovation.   If Greece sounds like a case study of this, well it should.


The Castle - Greek iceberg cartoon 06.30.2015


Back to the Global Macro Grind...


Distinguished economist and market practitioner Daniel Lacalle wrote a very thoughtful piece on Greece as a special Hedgeye contributor this past weekend.  In the note (a must read), he touched on this very issue of bureaucracy.


According to Lacalle:


...The real drama is that none of the measures announced will solve Greece´s real issues. No, it´s not the euro, or the austerity plans. It´s not the cost or maturity of debt. Greece pays less than 2.6% of GDP in interest and has 16.5 years of average maturity in its bonds. In fact, Greece already enjoys much better debt terms than any sovereign re-structuring seen in recent history.


Greece´s problem is not one of solidarity either. Greece has received the equivalent of 214% of its GDP in aid from the Eurozone, ten times more, relative to gross domestic product, than Germany after the Second World War.


Greece´s challenge is and has always been one of competitiveness and bureaucratic impediments to create businesses and jobs.


Greece ranks number 81 in the Global  Competitiveness Index, compared to Spain (35), Portugal (36) or Italy (49). In fact it has the levels of competitiveness of Algeria or Iran, not of an OECD country.  On top of that, Greece has one of the worst fiscal systems and limits job creation with a combination of agressive taxation on SMEs and high bureaucracy. Greece ranks among the poorest countries of the OECD in ease of doing business (Doing Business, World Bank) at number 61, well below Spain, Italy or Portugal.


Between 1976 and 2012 the number of civil servants multiplied by three while the private sector workforce grew just 25%. This, added to more than 70 loss-making public companies and a government spend to GDP figure that stands at 59%, and has averaged 49% since 2004, is the real Greek drama, and one that will not be solved easily.”


Greece's structural problem is bureaucracy, which is, currently at least, being arbitrarily defended by its citizens, despite broad evidence of its inefficacy. You can request a replay of the conference call he held with Keith on Monday by emailing .


In the most recent news from the Eurozone, Greek PM Tsipras continues to do his best to emulate officials from The Castle.  In contrasts to all standards of logical reason, according to commentary in the WSJ this morning, his most recent letter to creditors appears to actually “increase the fiscal gap”.  Leave it to a bureaucrat to believe that when your country is in economic meltdown mode, the right move is to take steps backwards!


As emphasized in the cartoon in the middle of this note and the Chart of the Day, the bigger issue with Greece is that it has the potential to be the tip of the iceberg in Europe.  If history over the past decade tells us anything about Europe, it is that the area’s fiscal and competitive imbalances are contained, until they are not.


As an example, while Portugal’s deficit is fully funded for 2015, its longer term fiscal metrics remain disconcerting.  With a public debt-as-percentage-of-GDP at 130% and a deficit-as-a-%-of-GDP still running at 4 – 5%, is far from out of the woods.  Certainly, the country, as evidenced this year, can fund via debt when times are good, but in deeper recessionary scenario when the deficit naturally broadens, that debt loan will likely give creditors pause.


Luckily for me, I’m back home celebrating Canada Day and shielded, at least for a day or two, from the dysfunction from the Eurozone.  Although in Canada, there is this little thing called a housing bubble to consider...


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.19-2.49%

SPX 2052-2093 
Nikkei 19
VIX 14.21-19.01
USD 94.01-96.41 
Oil (WTI) 57.80-61.20


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


The Castle - COD z EL. yields

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