LEISURE LETTER (11/2/2015) - WYNN, 0296.HK, UBER



November 3: 10:00AM: NCLH 3Q CC 

November 3: 10:00AM: RHP 3Q CC  

November 3: 10:00AM: H 3Q CC - , PW: 52469697

Novmber 4: 4:30PM: AWAY 3Q CC - ,PW: N/A

November 4-6: Anthem of the Seas Dead Cruise/Investor Event

November 5: 8:30AM: MPEL 3Q CC - , PW: MPEL

headline news 

Macau Transit Visas -  Macau’s transit visa scheme “is set to undergo a significant positive shift at year end,” says a new note from Union Gaming Securities Asia Ltd, quoting “multiple local sources.”  According to Union Gaming’s note, “persons entering Macau (ostensibly) for the purposes of transiting to a third party country would be allowed to stay for up to 14 days (from 7) upon one’s first entry into Macau during any given month, and would then be allowed to stay up to 7 days (from 2) for a second entry during the same month.”  


Takeaway: Government trying to make a difference, on th positive side.


WYNN - Wynn Resorts executives unveiled a handful of tweaks to their design for a $1.7 billion hotel and casino complex in Everett, MA including the substitution of a smaller, premium “ultra lounge” for a previously planned nightclub.  In a presentation to the Massachusetts Gaming Commission, Wynn said the size of the entire resort had only increased by about 3%.  

  • Wynn’s new plan calls for about 37,000 square feet of convention and meeting space. The “ultra lounge” is a newer approach to bars, DeSalvio said, which is currently being developed by Wynn in Las Vegas.  
  • Wynn said the change was, in part, driven by the difference in liquor laws between Massachusetts and Nevada.  “In Las Vegas, you can keep the bars open all night. And here, you can’t,” said DeSalvio, president of Wynn Everett.


Takeaway: We're still skeptical on the ROI


SUNCITY GROUP - Alvin Chau Cheok Wa, owner and chairman of major Macau junket operator Suncity Group, says it is “absolutely possible” that the city could see growth in casino earnings again next year, and that the trend of continuous closures of VIP gaming rooms seen in recent months would end.  The Suncity boss believes that Macau's gaming market has now bottomed out as “all the bad news” for the industry has already been digested and reflected.


Takeaway: While we're positive on the stocks over the near term, we've heard the bottoming story before. I suppose gaming revenue growth could turn positive - we're forecasting a GGR decline - but earnings? 


0296.HK - Emperor Entertainment Hotel Ltd, owner and operator of Macau casino property Grand Emperor Hotel, said it expects to record a “significant decrease” in consolidated net profit for the six months ended September 30, 2015, compared to the prior-year period.  The decline is attributable to “a net loss on the hotel property valuation due to the downturn of the Macau property market,” the company said in a filing to the Hong Kong Stock Exchange on Friday. The net loss “is a non-cash item and will not have a direct impact on the operation of the group,” the firm added. 



PAGCOR - The state-run Philippine Amusement and Gaming Corp (Pagcor) reported net income of PHP3.2 billion ($68.3 million) for the first nine months of 2015, up by 37.1% YoY. Pagcor said it was 24.6% ahead of its own PHP2.6 billion target for net income in the nine-month period.  Total revenue for the first nine months of 2015 rose 18.7% YoY to PHP35.7 billion, Pagcor reported. For the third quarter alone, total revenue was PHP10.9 billion.



UBER - In Germany, Uber withdrew from three major cities after the regulators urged the company to file in complex paperwork. Now, Uber officially abandoned Düsseldorf, Frankfurt and Hamburg.  In Germany, the only places where the car hailing app is still operational are Munich and Berlin.



Macau GGR - Macau’s casino GGR for October fell by 28.4% YoY to MOP20.06 billion ($2.5 billion), according to data released on Sunday by the city’s regulator, the Gaming Inspection and Coordination Bureau. It was the 17th straight month of GGR retreat measured year-on-year but the best monthly tally for the industry since May. 


Takeaway: Slightly better than anticipated


Macau Slots - Macau Gaming Equipment Manufacturers Association president Jay Chun thinks the gaming industry’s shift toward the mass market as the VIP market slumps is an opportunity for gaming machine makers to exploit, Business Daily reports.  “The industry is focusing on increasing the proportion of mass market,” the newspaper quotes Mr Chun as saying in an interview given in advance of this month’s Macao Gaming Show, which his association organises.  



Taiwan Casino - Residents in Taiwan’s outlying island of Penghu could vote again on whether to allow casinos in the county, reports Taiwan’s Central News Agency. The local government’s Referendum Screening Committee on Friday approved a proposal to hold a referendum early next year.  The success of Taiwan’s casino industry however could depend on mainland China’s visa policies.  Mainland China officials earlier this year have ruled out the idea of that country’s citizens being allowed to gamble in Taiwan casinos if such schemes ever come to fruition.



CHART OF THE DAY: Capitulation With The Pain | $SPY

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe.


CHART OF THE DAY: Capitulation With The Pain | $SPY - 11.02.15 EL chart


... From a sentiment perspective, CFTC non-commercial Futures & Options net positioning saw the YTD highs in NET SHORT SP500 Index + Eminis from September melt-down by 72,584 contracts (covered) week-over-week.


That’s nice, because it’s a lot easier to have confidence in maintaining a bearish small cap, beta, leverage, etc. view when a consensus that wasn’t Bearish Enough to begin with (in JUL) doesn’t trust the short positions they put on at the AUG-SEP lows!

Championship Confidence

“To be of championship caliber, a crew must have total confidence in each other.”

-George Pocock


That’s how Daniel James Brown brings home the final chapters of his epic championship story about 9 Americans winning Gold at the 1936 Olympics in Berlin (Boys In The Boat). And that’s how I’m going to start my week. I love excellence. Congrats to the Kansas City Royals for winning The World Series last night.


Back to the Global Macro Grind


Instead of a big European and/or Chinese central plan (that was the catalyst for “stocks” 2 weeks ago), last week was dominated by the one thing a mediocre consensus has had wrong in 2015 – that #LateCycle US Growth continues to slow.

Championship Confidence - GDP cartoon 10.29.2015


In addition to New Home Sales, Durable Goods, and Consumer Confidence #Slowing, the week was capped off by a big sequential slow-down in Q3 US GDP to 1.5%. The new bull case is that it ended up being “in line” with a consensus estimate that was cut in ½ in the 3 months prior.


But, no worries, everything is going to re-accelerate in Q4 (per consensus). And while we continue to have confidence that that’s dead wrong, it may take another bad jobs report at the end of this week to hammer home reality.


Pardon? I thought “everyone is bearish” so the jobs report could be bullish?


Yep. Keep on hoping for that, I guess. But there is absolutely nothing in our long-term cycle work that suggests the labor market stopped slowing in October. US layoff announcements actually hit new YTD highs.


Taking a step back, here’s what macro markets did last week:


  1. US Dollar Index traded sideways and finished the week -0.2% (after being +2.6% in the week prior) and is +7.4% YTD
  2. EUR/USD was flat week-over-week at $1.10, post the week prior’s Draghi Devaluation of -2.9% taking it to -9.0% YTD
  3. US 10yr Yield bounced 6 basis points on the week to 2.14% after re-testing the low-end of its 1.99-2.19% risk range
  4. CRB Commodities Index had a +1.0% bounce on the week (after deflating -2.9% in the week prior) and is -14.9% YTD
  5. Oil (WTI) bounced +4.5% on the week (after deflating -6.3% in the week prior) and is still in crash mode -21.6% YTD
  6. Gold deflated another -1.8% week-over-week and remains -3.8% for 2015 YTD
  7. Copper deflated another -1.4% week-over-week and continues along its recessionary path at -18.1% YTD
  8. SP500 closed the week +0.2% after having a big slow-volume bounce of +8.3% for OCT to +1.0% YTD
  9. Russell 2000 deflated another -0.4% week-over-week and remains -3.6% for 2015 YTD
  10. US Equity Volatility (VIX) rose as many asset classes fell, closing +4.2% week-over-week after correcting -38.5% in OCT


In other Global Equities “are back” news:


  1. European Stocks (EuroStoxx600) lost -0.5% on the week
  2. Emerging Market Stocks (MSCI Index) deflated another -2.4% week-over-week
  3. Latin American Stocks (MSCI) remained in #crash mode, dropping another -2.2% on the week


Yeah, Europe and Latin America (and maybe China?) is where all the new labor market “demand” is going to come from in Q4, eh? Cool. US Dollar denominated debt #Deflation Risk remains one of the most misunderstood for US equity market navel gazers.


Here’s another way to slice and dice last week’s performance - US Equity Style Factors (SP500 Companies) to continue to avoid:


  1. LEVERAGE – High Debt (EV/EBITDA) companies lost -1.0% last week and are -7.0% in the last 6 months
  2. BETA – High Beta Stocks lost another -0.6% last week and are -11.5% in the last 6 months
  3. SIZE – Small Cap Stocks were -0.2% vs. Large Cap +0.4% last week, taking Small Cap -10.8% in the last 6 months


Finally, from a sentiment perspective, CFTC non-commercial Futures & Options net positioning saw the YTD highs in NET SHORT SP500 Index + Eminis from September melt-down by 72,584 contracts (covered) week-over-week.


That’s nice, because it’s a lot easier to have confidence in maintaining a bearish small cap, beta, leverage, etc. view when a consensus that wasn’t Bearish Enough to begin with (in JUL) doesn’t trust the short positions they put on at the AUG-SEP lows!


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.99-2.19%

SPX 2015-2096
RUT 1135--1175
VIX 13.76-19.40
EUR/USD 1.08-1.11
Oil (WTI) 43.31-47.09


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Championship Confidence - 11.02.15 EL chart

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The Macro Show Replay | November 2, 2015


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USD #Deflation Risk Hasn’t Gone Away

Client Talking Points


Post their month-end markups for OCT, Japan and China dropped -2.1% and -1.7%, respectively, overnight – on any metric (never mind a cluster of metrics) we follow, that side of the world hasn’t stopped slowing in GDP terms.


But “stocks are up” if you back out the 2000 stocks in the Russell 2000 which dropped another -0.4% last week to -3.6% year-to-date (in the Russell 3000, 62% of stocks are still -20-25% from their #bubble peaks) – reminds us of OCT 2007.


We keep hearing that the jobs report this week could “surprise to the upside” but we haven’t had 1 email that suggests it could be another slowing one… weird. Since FEB all the rate of change in the U.S. jobs market has done is slow from its peak.


**Tune into The Macro Show at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Last week was a big week for McDonald’s (MCD), as they reached the inflection point we were predicting. Post earnings, the next catalyst for the stock is going to be the November 10th analyst meeting.


The meeting will be an opportunity for management to shed more light on the progress of all day breakfast, additional G&A cuts and the potential of doing a REIT. Our Restaurants team remains bullish on the name, and they look forward to giving you some material updates after the meeting.


Restoration Hardware (RH) shares gained 5.8% this past week. The margin story here is explosive. Margins were sitting below 10% on Friday, and we think they will be above 16% in 3 years. The key reason is that expense leverage on these new properties is like nothing we’ve ever seen (i.e. RH pays only 10% more for square footage that’s 300% larger).


In addition, the company does not have to proportionately grow its sourcing organization with the growth in its store base OR its category expansion.


Our estimate is that the company will add $3 billion in sales over 3-years and climb to $11 in EPS. The earnings growth and cash flow characteristics to get to that kind of number would support a 30+ multiple. In the end, we’re getting to a stock in excess of $300.


Our forecasts for domestic economic growth continue to be more accurate than the consensus. We anticipate economic growth will get a lot worse from here. That is why you want to own long-term bonds (TLT, EDV).

  • Real GDP growth slowed to 1.5% on a quarter-over-quarter seasonally adjusted basis. That was actually right at the top end of our range going into it (remember that the mainstream Q/Q annualized number is unpredictable)
  • On the Y/Y numbers, growth decelerated for a 2nd straight quarter to 2.0% from +2.7%
  • Consumption growth was a huge contributor to the number vs. the manufacturing side of the economy which continues to slow. However, take a look at the important chart below. We’re already past peak consumption growth. Consumption growth was positive on an absolute basis but remained rate of change negative with Q3 representing the 2nd quarter of deceleration off of the Q1 2015 peak
  • Both residential and nonresidential Investment decelerated sequentially and inventories contributed almost -1.5% bps to the headline number
  • Personal Income decelerated to +0.1% for Sep vs. +0.3% in August. The expectation was for a +0.2% print
  • Personal spending decelerated to +0.1% from +0.4%. The expectation was also for +0.2% print.
  • Core PCE printed flat at +1.3% Y/Y for Sep. vs. Aug. on a Y/Y basis. That number missed expectations for a +1.4% print

Three for the Road


How to Be Positioned For a #LateCycle Slowdown… cc @KeithMcCullough @HedgeyeDDale $XLF $XLU



You're happiest while you're making the greatest contribution.

Robert F. Kennedy


341 of 500 S&P 500 companies have reported so far this Earnings Season, sales are down -5.5% and EPS is down -3.9%.

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