LEISURE LETTER (07/23/2015) - RCL, CCL


headline news

Macau June Visitation - The Statistics and Census Service (DSEC) reported the following visitation statistics for June:

  • Visitor arrivals totaled 2,248,281 in June 2015, down by 7.6% YoY and 11.8% month-to-month. 
  • The average length of stay of visitors increased by 0.2 day YoY to 1.2 days; overnight and same-day visitors had an average stay of 2.2 days and 0.2 day respectively.
  • Visitors from Mainland China decreased by (10.1%) YoY to 1,435,189; those travelling under the Individual Visit Scheme dropped by (4.2%) YoYto 644,207. 
  • Mainland visitors came primarily from Guangdong Province (632,449), Fujian Province (66,804) and Hunan Province (59,448). 
  • Visitors from Taiwan (80,272), the Republic of Korea (31,406) and India (21,428) decreased by (5.9%), (24.8%) and (3.3%) YoY respectively, while those from Hong Kong (523,789) and the Philippines (22,222) increased by 2.0% and 6.5%. 

LEISURE LETTER (07/23/2015) - RCL, CCL - 3



Takeaway: Soft visitation numbers across the board for June - continues to be a major hole in the Base Mass growth thesis promoted by the Macau bulls. 


July 23 9am:  PENN 2Q CC

July 23 5pm: BYD 2Q CC ; PW: 1397357

July 24 11am-2pm:  PENN Plainridge tour and investor day

July 28 8:30am: WYN 2Q CC ; PW: WYNDHAM

July 29 10:00am: HLT 2Q CC ; PW: 74328196

July 30 9:00am: HST 2Q CC

July 30 10:00am: MAR 2Q CC ; PW: 66506287

July 30 1:00pm: HOT 2Q CC ; PW: 69941686

August 1

  • Wild Rose Jefferson opens
  • St Regis Macau opens

August 4: 11:00am: MGM 2Q CC ; PW: 0575269

August 4: 5:00pm: AWAY 2Q CC

August 6: 8:30-1pm: RCL INVESTOR DAY (NYSE)


CCL - announces 6 ships will be based in China for 2016, increasing its capacity there by 58%.

  • 2 Princess ships: 1) Golden Princess ship to northern China, sailing out of Tianjin on a seasonal basis, with itineraries visiting a variety of desirable destinations in northern Asia; 2) Sapphire Princess, which has been homeported in Shanghai since 2014 and will start sailing year-round in China in 2016.
  • 4 Costa ships: Costa Fortuna, Costa Serena, Costa Atlantica, Costa Victoria

Takeaway: Before this announcement, Asia/Australia accounted for 13% of CCL's total capacity in 2016 - this number included 4 Costa ships and 1 Princess ship sailing out of China. 


CCL - Carnival Corporation signed an agreement with Port Authority of Barcelona to build and operate a new cruise terminal in Europe's largest port. 

  • The agreement with the Port Authority of Barcelona constitutes a more than 30 million euros investment to build and operate its second private cruise terminal at the Port of Barcelona, which is used by seven of the company's 10 cruise line brands as both a destination and home port. 
  • As part of the agreement, the Port Authority granted Carnival Corporation administrative concessions to operate the cruise terminal and all-new parking facility at Europe's largest port and the fourth busiest port in the world.
  • With the agreement, Carnival Corporation has been granted approval to begin the final design process and start construction of the new terminal in 2016. Scheduled to open as early as 2018 in the Port's Adossat wharf, the new terminal will be one of Europe's largest at 11,500 square meters.

RCL- A fire had been reported aboard a Freedom of the Seas but officials said it was quickly extinguished.  There were no reports of injuries. 



CIA/FBI Suspected Involvement in Macau - China suspected that US intelligence agencies were working with American owned casinos in Macau to trap and blackmail Chinese officials, an investigative report by The Guardian revealed today. 

  • The report marked with a warning that it was not to be introduced to mainland China, was uncovered by the Investigative Reporting Program at the University of California, Berkeley. It was among a trove of Sands documents filed with a Las Vegas court which is hearing a civil action by the former head of its Macau casinos who is suing for wrongful dismissal, the Guardian reports.
  • The report said that Sands Macao “is the primary subject” of claims by Chinese officials of collusion with US intelligence services.
  • “A reliable source has reported that central Chinese government officials firmly believe that Sands has permitted CIA/FBI agents to operate from within its facilities. These agents apparently ‘monitor mainland government officials’ who gamble in the casinos,” the report said.


Takeaway: We've heard the Macau (Beijing) government is not happy with disclosures taking place in US courts regarding Macau operations. LVS was reluctant to give any opinions on last night's call regarding potential Macau gov't actions with the smoking ban and transit visa. Is it related? 


Florida GGR June - Total: 3.12% YoY, SSS: 5.61% YoY 




Hedgeye Macro Team is incrementally bearish on U.S. consumption growth, based on the consumer's continued efforts to deleverage their household balance sheet combined with the peaking of consumer confidence and stagnating labor productivity.   

Takeaway:  For now, US regional gaming slowed in June but North American cruise pricing still doing well.

CPB | Analyst Day Notes

We are taking CPB off of the Hedgeye Consumer Staples SHORT Bench.


Campbell’s (CPB) held their Annual Investor Day yesterday afternoon, in which they went through their plan to reshape the company in search for growth.  If you didn’t get a chance to listen, I would say you did not miss anything that you could have just gotten from the press release. Nevertheless we will give you a quick summary and our take on the future for this company.


The biggest change the company is making is switching from a geography first mindset to a consumer category first mindset, and consolidating down to only three operating units:


  1. Their biggest, ‘Americas Simple Meals and Beverages’ will account for ~$4.6bn of net sales and will be the economic engine for the company. Management is projecting a long-term growth rate for this segment in the 1-2% range, in-line with category averages in which they play. This business has operating margins of 22% and will contribute 71% of operating earnings.
  2. ‘Global Biscuits and Snacks’ is a ~$2.7bn segment which globally unifies the Pepperidge Farm, Arnott’s and Kelsen businesses into a fully integrated biscuit and snack portfolio. This business has operating margins of 12% and will contribute 24% of operating earnings.
  3. ‘Campbell Fresh’ is a ~$1bn portfolio that includes their recently acquired Garden Fresh Gourmet business, Bolthouse Farms and Campbell’s retail refrigerated soups. This business has operating margins of 7% and will contribute 5% of operating earnings.


Cost reduction initiatives are also a big part of management’s plan, by 2018 they expect to have annual savings of $250 million by 2018, of which ~2/3 will be non-headcount expenses. Non-headcount savings are in large part a result of zero-based budgeting adoption and changing company spending policies. The other ~1/3 is headcount savings as a result of the organization redesign, in which the company eliminated layers and expanded control.


Innovation and product improvement is top of mind for management, but in low impact areas. CPB has set up a new website, to be more transparent with consumers. Soup has a lot of negative ingredients such as MSG that prior to looking at this website I didn’t realize were in the soup. We think it may have been a better idea to take the MSG out before making the website, but that’s just our opinion. That being said, CPB is committed to taking the MSG out and making the recipes simpler.  In August, Campbell’s will be launching the first updated range of kids soups, this happens to be the same time that Annie’s (GIS) will be launching their line of kids soups. Although soup is not our favorite category, this will be an interesting battle to watch unfold, depending on price points we think Annie’s will have the upper hand. CPB has a slew of other product improvements that every other company is doing, such as taking out artificial colors and flavors and high-fructose corn syrup but nothing to truly differentiate the brands from the competition, just doing enough to stay in the game.  


Outlook for FY2015 is largely a cost cutting/margin expansion story. Sales are expected to be down -1%, while versus previous estimates for EPS to be down -5% to -3% the updated numbers are projecting -1% to 0%.


Overall we believe this reorganization for the company was a great move and will help them expand their brands globally. But this ship is anchored to the floor by soup. Their on-trend growth engine, ‘Campbell Fresh’ where they are doing a majority of the innovation is too small to matter in the grand scheme. Yes, we believe it is a great business and segment to operate in, but as part of this company it won’t be enough.


It’s tough to go short on this name (only 6.6% of the float is short) given the constant threat of possibly being acquired especially with KHC probably in the market for another synergistic acquisition in the next year (the can manufacturing synergies alone would probably be enough to make the deal work.) We remain bearish on the name fundamentally, and can’t get ourselves to go long just hoping for an acquisition.


This was a brief summary and we would be happy to talk with you more about what we thought over the phone, please send us an email if interested.





The Macro Show Replay | July 23, 2015


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CHART OF THE DAY: Making The Big Macro Market Calls

Editor's Note: The excerpt and chart below are from today's Early Look written by Hedgeye CEO Keith McCullough. If you're interested in getting a step ahead of consensus every morning you can subscribe here. 


...I personally love making macro market calls – because, eventually, all of the Big Macro Themes find themselves implied in style factors that many quants have to chase anyway.


Put another way, Macro Phase Transitions (think points of market entropy, waterfalls, and yes, breaking the 50-day moving monkey) are where most of the non-linearity lives. They sometimes happen slowly, then all at once.

CHART OF THE DAY: Making The Big Macro Market Calls - Chart of the Day

The Visible Hand

“It is a magnificent feeling to recognize the unity of complex phenomena which appear to be things quite apart from the visible truth.”

-Albert Einstein


“What is the truth,” you ask? Well, on being long China, Bridgewater’s Dalio says he’s #out. Or at least that’s what it says on the front-page of the WSJ (Wall Street Journal) this morning. A market that you can’t get out of, really Ray?


Meanwhile, on the front-page of the CSJ (China Securities Journal) this morning, there’s a new chapter of the communist government’s centrally-planned-market-manifesto, trumpeting the benefits of their “visible hand” in the stock market!


Adam Smith, eat your heart (and invisible hand) out, buddy.

The Visible Hand - China cartoon 07.07.2015


Back to the Global Macro Grind


Halt I say, halt! If the “chart” breaks, show those price momentum boys the hand, ladies. Or was it the ladies that were all amped up about anything with liquidity and a “good looking” chart (i.e. price momentum as a Style Factor) prompting the boys?


Who knows. What we do know is that if you’re:


A)     Levered long anything “value” that is hidden within the visible truth of #StrongDollar Deflation and/or

B)      Long what you thought was “Low Beta” but is actually trading with wicked high #deflation beta


You’re probably not having as good a month as the cool boys and girls who were long Google (GOOGL), Amazon (AMZN), and Facebook (FB).


Sure, Apple (AAPL) rocked the alpha-cart some yesterday. But as long as the other ones never go down (imagine that?), the big cap liquidity + growth investing style factors are rocking anything that’s cyclical + slowing.


Enough about Style Factoring (modern day risk management tools that a large % of PMs don’t use) your portfolio as a means of explaining the unity of complex phenomena already, KM… let’s talk about some ideas. Show us your picks!


In Real-Time Alerts, here’s what I’ve had on the LONG side this week:


  1. Hologic (HOLX) – still one of our Best Ideas in the Healthcare sector; Tom Tobin held a call on it again yesterday
  2. US Housing (ITB) – alongside Healthcare, has been one of our Top 3 fav sector exposures for all of 2015
  3. Utilities (XLU) – hasn’t been a favorite for 6 months, but is morphing back into one (alongside REITS)
  4. Long Bond (TLT) – remains the best long-term idea as a way to express growth and inflation slowing
  5. Starbucks (SBUX) – long-time favorite that looks every bit as good (and overbought) as Google and Amazon


Then in our INVESTING IDEAS product (weekend product with longer-term ideas) we still have names like General Mills (GIS) that has pretty much every Style Factor a PM would need right now (Big Cap, Low-Beta, Nice Chart).

The Visible Hand - BENNY 07.23.15 chart


But I’m not going all style factor on you – I promise! (isn’t that a visible truth)


Lots of our SHORTS have been working… especially the stuff:


A)     That looked like “value” but has

B)      Commodity #Deflation and

C)      Debt (leverage) #Deflation


Like Chesapeake (CHK)… there was a lot of perceived “value” in the “dividend”, I guess, until they cut it this week.


#Deflation is not a typical “style factor” that my former quant partners in Chicago would use. That would be a “Macro Idea” to them, and they “don’t do macro”, because they think that’s making a market call (they don’t like those).


I personally love making macro market calls – because, eventually, all of the Big Macro Themes find themselves implied in style factors that many quants have to chase anyway.


Put another way, Macro Phase Transitions (think points of market entropy, waterfalls, and yes, breaking the 50-day moving monkey) are where most of the non-linearity lives. They sometimes happen slowly, then all at once.


What’s not working for me right now is the short call on the US Financials (XLF). For now, this is where the style factors (shorter term) are colliding with my Macro Theme (longer-term) work. In other words:


  1. I’m short the Financials because I think rates will back off (again)
  2. Many Financials are #LateCycle stocks with late-cycle earnings
  3. Most levered parts of FICC (Fixed Income, Currencies, Commodities) imploding is bearish


And yes, rates backed off at lower-long-term-highs for the umpteenth time (2.31% 10yr Yield in US Treasuries this morning) as Fed Fund Futures back off SEP rate hike expectations…


And yes, both Junk and High Yield that is levered to #Deflation retested YTD lows alongside Commodity exposures yesterday…


But the Financials (XLF) were +0.75% on the day to +3.4% YTD…


So either the bond market (spread risk rising as the both the economic and profit cycle slows – yield spreads compressing too) has it right or the equity quants chasing (Big Cap, Low Beta, Nice Chart) 1-3 month price momentum do.


And I have this magnificent feeling that the bond market’s invisible long-term growth and inflation hand still has it right.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.22-2.39%

SPX 2100-2130

VIX 11.81-16.42
USD 96.71-98.56
Oil (WTI) 48.63-51.19

Gold 1079-1130


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Visible Hand - Chart of the Day

Growth, Greece and Housing

Client Talking Points


For the first time in 5 years, large-cap growth is trading at a premium to large-cap value and we anticipate this trend will continue as the cycle slows. Specifically, when broad economic growth slows, investors pay up more for real growth opportunities and rotate out of turnaround growth stories at the margins. 


You think things are all wrapped up in Greece? (Last night Greek lawmakers approve a second set of reforms, 230 to 63)  Far from!  While we expect Greece will ultimately receive another lifeline (and debt concessions), the Eurozone parliaments all need to vote on the “details”.  We expect the indecision along the way to finalize a deal to continue to pressure Europe’s markets to the downside.  Side note, Greece’s equity market is still not expected to open until next week, at the earliest.


Locally and globally, rates continue to make a series of lower-highs as sovereign bond market volatility calms (and dovish Fed rhetoric ramps) – long-term investors stayed with the Long Bond because they get growth/inflation slowing – people chasing charts, sold them (German 10yr = 0.76%, Swiss 10yr back to negative yield -0.01%, 10yr JGB down to 0.40%).


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The General continues to make tough calls as they work to further streamline their manufacturing footprint as part of Project Century. Last week, announcing the closure of two plants, one in West Chicago, IL and the other in Joplin, MO, eliminating approximately 620 positions in the process. West Chicago produced cereal and dry dinner products for the U.S. Retail organization, while the Joplin facility was acquired as part of the Annie’s acquisition and produced snacks. Because of union negotiations management is expecting these actions to be fully executed by fiscal 2019. We view this as a big positive for the company as they go to a more nimble asset light model, which will save on capex and allow it to be allocated to higher growth product platforms.


According to Gaming, Lodging and Leisure Sector Head Todd Jordan, additional state gaming agencies have reported revenues for the month of June. The good news here is that Penn National Gaming remains on track to beat second quarter estimates this Tuesday July 23rd. In addition, PENN will be hosting an investor day on July 24th. We will be there and communicate any noteworthy color and developments. Bottom line? The company remains one of our favorite names on the long side and boasts the best new unit growth story in domestic gaming.


After an awful retail sales print on Tuesday, the confluence of growth slowing data reared its ugly head Friday with a +0.1% year-over-year headline CPI print for June and a UofMich consumer sentiment reading that declined to 93.3 from 96.1 in May. Note that a +0.1% inflation rate is a heck of a long way from the Fed’s 2% target. These two prints were successful in taking the 10-Year Treasury yield down 10 basis points from Monday’s highs to finish the week at 2.35%. We remain one of the lonely bulls on Treasury bonds (bearish on yields) via TLT, EDV, VNQ.

Three for the Road


Nice but sleepy quarter out of $DNKN



If the stars should appear but one night every thousand years how man would marvel and adore.

Ralph Waldo Emerson


New York City -- A state wage board has voted, unanimously, to raise the minimum wage for restaurant workers to $15 an hour. At that pay rate, a fast-food worker will make $600 a week for 40 hours of work, or $31,200 a year.

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