LEISURE LETTER (07/02/2015)



WYNN - Summer specials at the Wynn Macau for Macau residents include the following. 

  • Accommodation – Macau residents can stay at the Forbes Five-Star Wynn Macau. The package includes one-night’s accommodation, choice of breakfast for two persons, complimentary WiFi, complimentary parking and late check-out till 3pm. 
  • Dining – Restaurants at Wynn Macau will be offering tasting menus for local residents. 
  • Spa – Residents can enjoy 20% saving on all spa treatments available at the Forbes Five-Star Spa at Wynn with a range of spa services including facials and massages. Complimentary parking is inclusive.



MGM - The Mandalay Bay Resort and Casino in Las Vegas has begun the final phase of a $100 million renovation, in which all 3,211 guestrooms will be updated.  


MGM - MGM Resorts is pitching a $1 billion gambling complex for downtown Atlanta that backers say would funnel tens of millions of dollars into the HOPE scholarship.  But first it would have to overcome stiff opposition in the General Assembly and the governor’s office. 

  • MGM’s proposal would create 3,500 jobs and offer Las Vegas-style casino gambling, as opposed to past ideas involving video slot machines, said state Rep. Ron Stephens, who chairs the House’s economic development committee. He called it the “Cadillac” of casino projects.
  • An MGM Resorts spokesman confirmed the company’s interest in Atlanta but said its analysis in “the very preliminary stages.”



Airbnb - Panel of Hoteliers argue that boutique hotels are less at risk throughout the expansion and growing popularity of Airbnb. Takeaways from panel:

  • CEO of Trust Hospitality argued that Airbnb was simply a play on price, and that's the main reason why anyone uses the platform. With that mentioned, the panel made the case that the Airbnb customers are interested in both the experience and the price. 
  • Here to stay. The panel was in agreement that Airbnb is not going anywhere and the current regulatory and they will overcome the majority of their regulatory headwinds. 


Takeaway: Airbnb continues to make waves in the headlines 

CCL - The 1,266-passenger Ryndam will return to Harwich a day early, on Friday July 3, so staff can perform a deep clean before its next cruise. The ship was forced to cut short the 14-day round-trip cruise from the U.K. due to a Norovirus outbreak.



China Anti-Graft - The People’s Daily, an organ of the Communist Party of China, as saying the party’s Central Commission for Discipline Inspection will use the country’s telecommunications companies to keep tabs on mainland officials when they are abroad. 


Las Vegas Housing - Las Vegas slipped out of the "Top 5 Distressed Markets" for the month of May, but that is not expected to last long. The market’s share of distressed sales fell by nearly half in May, to 13% of the market. That was down from 23.8% in May 2014. 

  • Nevada’s default laws went through several iterations in 2011 and 2013, which banks said complicated their ability to foreclose. As lenders have adjusted, foreclosure starts — first-time filings of notices of default — have picked up noticeably in 2015. 
  • It was also cited that due to the stabilization in home prices and negative equity dropping, homeowners will likely be able to exit their homes without the 'distressed' tag associated with the sale. 



Athens, Greece - The Hellenic Gaming Commission, arrived at a radical change of circumstances which will lead to the actual  suspension of OPAP VLTs business activity. The new regulation, decided by the Gaming Commission only a few days prior to the scheduled launch of the VLTs. 


Takeaway: Bad news for the suppliers 


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.


Takeaway: If history rhymes, we've got 5 quarters of track from here to oblivion.

Below is the breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 


Late-Cycle Strength Rolls On:  Claims this past week were clearly again low at 281k, but the economy is equally clearly late cycle. Once again we'll revisit the key question, which is how long can labor market strength of this magnitude continue?


In the chart below, we show that in the last three cycles, once claims dipped below 330k they remained there for 24 months, 45 months, and 31 months, in the late 1980s, late 1990s/early 2000s, and 2006-2008 period, respectively before the economy went into recession. In the current cycle, claims have been below 330k for 16 months and counting. The average of these last three cycles is 33 months, which would translate to another ~5 quarters of track.




Indexed claims in energy heavy states fell in the week ending June 20th while rising for the country as a whole. The spread between the two series in the chart below tightened from 30 to 24.  


The spread compression in the claims series accords with the Challenger Job Cut Announcement data for June which showed energy sector job cut announcements fall to a 7-month low of just 290 while Ex-Energy announcements rose by 6.2K to the highest level in 11-months. 


INITIAL CLAIMS | 5 QTRS TO GO - Claims18 normal  4




The Data

Prior to revision, initial jobless claims rose 10k to 281k from 271k WoW, as the prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 1k WoW to 274.75k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -12.7% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -13.2%


INITIAL CLAIMS | 5 QTRS TO GO - Claims2 normal  3


INITIAL CLAIMS | 5 QTRS TO GO - Claims3 normal  3


INITIAL CLAIMS | 5 QTRS TO GO - Claims4 normal  3


INITIAL CLAIMS | 5 QTRS TO GO - Claims5 normal  3


INITIAL CLAIMS | 5 QTRS TO GO - Claims6 normal  4



Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT




Cartoon of the Day: Currency Hell

Cartoon of the Day: Currency Hell - Euro hell cartoon


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#CommodityCorrelations, Greece, Japan

Client Talking Points


Welcome to chaotic macro. With cross-asset volatility rising and sideways FX trading, inverse commodity correlations to the USD have broken down over the last 1-3 months. Things like crude oil and copper, which typically sniff out the direction USD, are registering r-squared correlations of +.54 and -.14 to the USD on a 1-month basis and -.22 and +0.64 on a 3-month basis. History suggests this won’t last for an extended period of time, but strap your seatbelts for more non-linear volatility in the interim.      


All eyes are on Greece’s Sunday referendum vote (as it relates to credit proposals boiled down to YES you want to stay in the Eurozone, or NO you don’t).  Both Tsipras and Varoufakis have upped the ante by saying they will resign if there is a YES vote. We expect ~70% probability of YES, but if a NO comes through expect it to wreck havoc on the markets on Monday. 


The Nikkei closed up nearly +1% today, reversing week-to-date weakness on one of the three prongs in our bullish “win-win-win” thesis: subdued survey-based measures of inflation expectations. Specifically, the BoJ’s Tankan Survey showed little change to firms’ FY16 price expectations and its Consumer Survey showed no change to consumers’ price expectations one and five years out. The BoJ has too much demographic hay to bale to meet its inflation target, which effectively means QQE in perpetuity. We reiterate our intermediate-to-long term bullish bias on Japanese equities. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We came out of the earnings report being very positive about management doing all the little things right. They continue to prove that they are some of the best operators in the industry. Importantly, many small cap restaurant companies with an undisciplined unit growth strategy experience significant labor inefficiencies as they expand. ZOES is in a different class of companies.  In a quarter where ZOES opened 12 new company-owned restaurants they managed to decrease both COGS and labor. 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

PENN’s new property, Plainridge Park in Massachusetts, had a strong opening. We expect slot win per day of $400, above Street expectations. In addition, June state gaming revenues will begin to roll out in 1-2 weeks. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.


After a Fed-fueled week of strength in slow-growth, yield-chasing asset classes and long duration fixed income, both the Dollar and interest rates re-couped their losses from Fed Week. The dollar declined, rates increased, and as a result, those long of gold took some pain. Will this continue? Will a long, sustained rate liftoff ensue? We don’t think so. We continue to repeat that the chance of further downward revisions to forward looking growth estimates from the Federal Reserve and consensus macro is much more likely than not. The attempted suspension of economic gravity from policy makers weakens the currency and puts pressure on bond yields. We remain long of this set-up with gold and long-duration fixed income.

Three for the Road


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


“People who say it cannot be done, should not interrupt those who are doing it.”

– George Bernard Shaw


Joey Chestnut (USA) successfully ate 61 hot dogs last year at Nathan's Hot Dog Eating Contest.

We're Just One Bad Jobs Report Away From Significant Volatility

Not only is volatility back, but now it’s obviously back.


We're Just One Bad Jobs Report Away From Significant Volatility - z rough


We’ve had a huge move in volatility that’s been associated with multiple factors, not the least of which is global growth slowing fully-loaded with Europe, China and the U.S. slowing all at the same time paired with the epic political Gong Show in Europe with Greece leading the charge. The more you get of all that back-and-forth, the more volatility you get.


Instead of naval-gazing at how many points the futures are up or down, watch the breakdown in either the Trade or the Trend line of volatility. The intermediate-term trend (which has been bullish for volatility) has been well supported now for over a year. That’s a year. Not a week or a month... a year. 11.34 is the intermediate term trend line of support for volatility.


Then you have the intermediate-term breakout line currently at 14.21. The VIX closed at 18 and change on Tuesday and we’re going to go back and forth and back and forth.


As I’ve said multiple times, we are one bad jobs report away from seeing significant volatility in US equities market.  Don’t forget we’ve seen significant volatility in U.S. equity markets whenever the growth data has been decisively negative. “Decisively negative” has happened multiple times, don’t forget. And that’s really what the late-cycle bulls have to see—they have to see something that can’t be obfuscated.


We're Just One Bad Jobs Report Away From Significant Volatility - zz 06.30.15 chart


Incidentally, at the end of a cycle being "good" is what you should expect from the economic data. That's the point. It's when it's about to go from “good to bad” that you really see the drop off. What you tend to see is the breakout in volatility associated with people being too long or too complacent on U.S. equities.


As far as U.S. equities are concerned, I would simply point out that halfway through the year, this is the worst start to the year we've seen in five years. Yet you're still seeing headlines from Bloomberg saying that Wall Street economists are looking for a fantastic recovery in the second half of 2015. Well, it better be. Because the reality is that it probably won’t be. These people have been routinely wrong on both their growth and S&P-500 forecasts.


We expect them to continue to be wrong.

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