November 3: 10:00AM: NCLH 3Q CC 

November 3: 10:00AM: RHP 3Q CC  

November 3: 11:00AM: 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


Transit Visa Policy - The Macau Police used their WeChat page to counter the rumors regarding possible changes to the transit visa policies. Remember, Union Gaming reported over the weekend that the government was implementing transit visa changes, citing multip sources. Below is a translated snag from WeChat. 

LEISURE LETTER (11/03/2015) - CZR, BLOOM, AIRBNB, CCL, UBER - Macau Police

Takeaway: Interesting turn of events. The July transit changes generated more visitation through that visa scheme but did not translate into gaming revenue growth. Even if Union Gaming was correct, it's difficult to say there would be any revenue impact this time.


CZR - Caesars Entertainment Corp. is pulling out of both Cleveland and Cincinnati, where it owned and operated two Horseshoe casinos that are being taken over by Rock Gaming LLC.  The Cincinnati Business Courier, a Baltimore Business Journal sister publication, reported the Horseshoe Casino Cleveland, Horseshoe Cincinnati and ThistleDown Racino in North Randall, Ohio, will be rebranded and operated by Rock Gaming. Rock Gaming already owned the Cincinnati property, and the casinos and racino will remain open during the rebranding process.



BLOOM - Philippines-based casino operator Bloomberry Resorts Corp reported a net loss of PHP189.5 million ($4.1 million) for the third quarter of 2015, compared to a net profit of PHP991.7 million a year earlier. The firm on Tuesday said its Philippine operations recorded PHP281 million in net profit for the three months to September 30, while a casino resort in South Korea that it recently took over generated PHP471 million in net losses.



AIRBNB - American Express is teaming up Airbnb to let its card members pay for their home and apartment rentals more easily. Airbnb will now accept American Express membership rewards points to pay for booking. Users will be given the option to sign into the site using their AmEx credentials and then given the ability at checkout to pay fully or partially for their home rentals using their points. 


Takeaway: A valuable partnership for both sides. 


CRYSTAL CRUISES - In response to cruiser and travel agent demand, Crystal River Cruises -- the new river cruise division of luxury line Crystal Cruises -- has placed orders for four new river ships, which will launch in 2017.  In addition, the line has purchased an existing riverboat, which will be refurbished, renamed and kick off river cruises for the line in July 2016, a year earlier than planned.


CCL - As part of a $300-million refurbishment project, Holland America Line is planning upgrades to its top staterooms with new furnishings, colors, amenities and upgrades for all suites on the line’s Signature-, Vista- and R-Class ships. The first ships to undergo the suite transformation will be ms Eurodam and ms Oosterdam, followed by ms Nieuw Amsterdam, ms Westerdam, ms Zuiderdam and ms Noordam.   



UBER - Uber expects its turnover in China to exceed that of the US by the end of the year. Meanwhile, Guangzhou has recently overtaken Chengdu to become Uber’s top city in the world in terms of booking volume.  Uber entered the Chinese market in 2014. It has been operating in the major cities of Beijing, Shanghai, Guangzhou and Shenzhen for over a year. Its service now covers 21 cities, and it will continue to expand to other cities in the next 12 months.



Philippine Gaming Investment - Philippine property firm Megaworld Corp and casino operator Travellers International Hotel Group Inc are spending an aggregate of PHP65 billion ($1.4 billion) to develop a 31-hectare (76.6-acre) “leisure and entertainment township” at Entertainment City in Manila Bay.  The companies will be allocating a total of about US$300 million to build the residential portion of the project, Megaworld said on Monday. It will be next door to a new casino project called Resorts World Bayshore, to which Travellers International is already committed.






Texas Roadhouse (TXRH) is on the Hedgeye Restaurants LONG bench. 


TXRH reported a strong quarter for 3Q15.  Top line growth is some of the best in the industry and the momentum continued into October.  If October is truly choppy, TXRH is not seeing it.  TXRH reported revenue growth of 13.7% driven by a 6.6% increase in average unit volume and a 7.7% increase in store weeks.  The flow through to EPS was limited, reporting only 8% EPS growth.




The guidance for 2016 looks to be calling for more of the same. Beef price declines will be a major driver of margin improvement in 2016, TXRH is looking to have LSD total commodity basket deflation. But there were a few questions on the potential impact lower prices could have on top line trends.


No change to our view.  We like the trends and the direction the company is headed in, just looking for an opportunity to get more aggressive.



  • Comps in the third quarter were up 6.9%, including traffic growth of 5.2%.
  • Momentum has continued into the fourth quarter with comps increasing approximately 5% in October.
  • TXRH expects low single-digit food cost deflation in 2016
  • The overall labor market continue to show signs of tightening expect ongoing labor inflation into 2016. “Kent and I just spent three weeks meeting with all of managing partners, and many were commenting on how wage rate competition has been intensifying”
  • TXRH plans to take approximately 1.7% of pricing in mid-November.
  • Expect positive comparable sales growth to continue in 2016.
  • On track to open approximately 30 company restaurants in 2015 with 27 restaurants opened so far
  • Franchise partners have opened three restaurants this year, including our third restaurant in Kuwait, which opened last week.
  • Targeting 25 to 30 restaurant openings in 2016 and sites have been selected for almost all these locations.
  • Development growth next year will continue to be focused on Texas Roadhouse restaurants, but plan to open at least five Bubba's 33 restaurants next year.
  • “In 2016, we'll remain focused on returning capital to our shareholders in the form of dividends and share buybacks and protecting the strength and flexibility of our balance sheet.”



  • 3Q15 comp sales increased 6.9%, comprised of 5.2% traffic growth, and a 1.7% increase in average check.
  • By month, comparable sales increased 7.6%, 7.1% and 6.1% for our July, August and September periods respectively.
  • Comps were up approximately 5% in the October period.
  • Expect 4Q15 to be negatively affected by approximately 0.5 points, due to Christmas shifting from Thursday to Friday.
  • Restaurant operating profit increased 12.1% and restaurant margins percent decreased 22bps.
  • COGS were up 6bps as food inflation continued to outpace our menu pricing actions. For the quarter, our food cost inflation was approximately 3.4%, driven by beef, bringing the year-to-date increase to approximately 6%.
  • 2015 food cost inflation will be approximately 5%.
  • Labor costs were 32bps higher driven by wage rate inflation and higher healthcare costs.  Wage rate inflation to continue to be in the 2.5% to 3% range for the remainder of the year and into 2016.
  • G&A costs were up were essentially flat as a percentage of revenue
  • The tax rate for the quarter came in at 29.9% which was lower than the 31.4% rate last year due to higher FICA tip credits.
  • The quarter with $72.6 million in cash and $70.7 million in debt.
  • TXRH generated $35.1 million in cash flow from operations, spent $52.3 million on capital expenditures and $1.6 million on share repurchases.
  • 2015 capital expenditures are now expected to be $160 million driven by spending on new units



  • locked on approximately 75% of our beef needs for next year.
  • expect low single-digit food cost deflation in 2016.
  • Expect labor headwinds to continue due to ongoing wage inflation, along with state minimum and tipped wage rate increases.
  • Expect significant free cash flow generation after projected capital expenditures of $155 million to $165 million.



  • And on the Bubba's front, we're still trying to figure everything out.
  • Those look like they're still coming in as expected, around $4.7 million.
  • $50 million of the Cap Ex will be for remodels
  • “no doubt if you're in New York State and your tip wage is going from $5 to $7.50, which is a 50% increase, you're going to be thinking in terms of a little bit more pricing. If you're in California where your tip wage was $8 two years ago and now it's going to be $10 in January 1, you're thinking in terms of a little bit higher pricing”
  • Star Bar Remodels  - “I want to say that the count is probably nearing 300. And, I think at some point we'll probably have all of them in the system done, maybe in the next 12 months.  Yeah. Our goal was to finish them up by 2016. It just kind of gives a fresh look to the bar area. And then, gives a few more TVs for people to look and at while they're in the bar area, it adds a little more energy. Some of the things we've kind of picked up at Bubba's. So we've kind of moved them over to Roadhouse.”
  • “in the few restaurants that we have that are West Texas, South Texas, you have seen more of an impact from the slowdown with that part, but most of Texas for us is just chugging right along, I would say unaffected. And we're pretty consistent across the country otherwise we're growing sales in every part of the country.”
  • “turnover is definitely up year-over-year. I guess 7% or 8% year-over-year is what we're up on an hourly basis. Our management turnover hasn't changed much. But on an hourly basis, it's definitely up and not unexpected as unemployment continues to fall. Usually that's what we've seen in the past, unemployment falls and our turnover tends to go up a little bit.”


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw





Credit Risk, Jobs and Deflation

Client Talking Points


Moody’s noted that the speculative grade default rate increased 40 basis points to 2.5% in Q3. While the 4.8% default rate of speculative grade energy sector bonds is the highest since 1999, the more damning takeaways of the broader corporate credit cycle are twofold:  1) defaults in the year-to-date are up 1,800% YoY (38 vs. 2) and the energy sector accounted for ONLY 37% of the 2015’s defaulted issues. In the context of our #SuperLateCycle call, we continue to anticipate a structural widening of credit spreads – as we have each interval since calling the bottom 3Q14.


Looking ahead to Friday, we don’t pretend to have a convicted point estimate on the monthly NFP figure.  While the net gain in OCT could be better or worse sequentially, the Trend remains one of conspicuous deceleration. Indeed, with 3M Ave < 6M Ave < 2015 Ave < 2014 Ave, net monthly payroll gains have been slowing all year. And from a 2nd derivative perspective, payroll growth should continue to slow off the FEB peak of +2.34% YoY  – note: NFP in Oct would have to be +745K to re-breach that FEB RoC peak to the upside.  Moreover, given the outsized gains at the end of last year, payroll comparisons are the toughest they’ve been in 5-years into year-end.  Be patient; let the late-cycle breathe.   


Chevron followed other majors BP, Shell, Total to round out last week in reporting steep YoY earnings declines for Q3 against difficult comparisons (summer 2014 triple digit crude prices). Like the others, Chevron is reducing headcount and capital spending out to 2018. Lower for longer in growth, inflation and subsequent prices is turning out to be more than a short, bad dream for those leveraged to commodity prices.    


**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


Recession Coming? McCullough and Hilsenrath Square Off… @KeithMcCullough @FoxBusiness



Life is about making an impact, not making an income.

Kevin Kruse


In 1991, Sennheiser unveiled the Orpheus HE90, a combination headphone amplifier and pair of headphones meant for the most rabid audiophiles. Only 300 sets were made and they sold for $16,000 each, currently an Orpheus HE90 could cost you around $50,000.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.34%

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CHART OF THE DAY: We're Heading Into the Eye of the #LateCycle Storm

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


CHART OF THE DAY: We're Heading Into the Eye of the #LateCycle Storm - 11.03.15 EL chart1


... While the “mid-cycle” theory has been dead wrong, I’ve been hearing about wages and jobs “accelerating” for 6 months… but, as you can see in today’s Chart of The Day, we’re heading right into the eye of the storm (toughest compares) of this slowing US Labor Cycle.

The Wreck of November

“The legend lives on from the Chippewa on down
Of the big lake they call Gitche Gumee
The lake, it is said, never gives up her dead
When the skies of November turn gloomy”

-Gordon Lightfoot


While I hope none of you are ever subject to listening to me sing, “The Wreck of the Edmund Fitzgerald” by Gordon Lightfoot is a tune I’ll often hum, especially when I’m getting bearish.


It’s a local (and mortal) hymn for those of us who grew up on the big lake they call Gitche Gumme (Lake Superior). The skies of US economic data haven’t turned this gloomy since early 2007. So I’m really humming this morning.


And, as a friendly reminder to those of you who didn’t know, I also got fired for being “too bearish” on November 2nd, 2007. By the end of that month, the almighty SP500 was down over 6%, on the way to an almost 60% peak-to-trough crash.


Back to the Global Macro Grind


I’m not making the 2008 call we made. I’m reiterating the 2015 one we’ve been making. While time flies and Wall Street’s memory about cycles slowing are short, they always seem to miss that each cycle slow-down isn’t the last one they missed.  

The Wreck of November - macro consensus train


Never ever forget that it’s cycles (not central market planners) that make the world go-round. They are natural. They base (2009), recover (2010), stall (2011-12), accelerate (2013-14). They peak (2015). They get long in the tooth (Late Cycle 1H 2015). Then they slow (2H 2015).


That’s probably why the Atlanta Fed’s “GDP Now” cut its GDP forecast from 2.5% to 1.9% last night. Yesterday morning’s ISM reading for the US was a 50.1 for OCT. In rate of change terms, that’s -7.8% year-over-year (the slowest of the year) as we head into the gales of November.


But, but… the “jobs number could be good”, right?


Right. Right. While the “mid-cycle” theory has been dead wrong, I’ve been hearing about wages and jobs “accelerating” for 6 months… but, as you can see in today’s Chart of The Day, we’re heading right into the eye of the storm (toughest compares) of this slowing US Labor Cycle.


“So”, if the non-farm payroll number is 194,000 or 206,000, the Fed should “hike” into a slow-down, right?




Forget for a second what happens on Friday if the more probable scenario at this stage of the cycle plays out (that we get another slowing labor report), if the Federal Reserve raises rates into this gale I think they could easily be the catalyst for the next US stock market wreck.


“The ship was the pride of the American side
Coming back from some mill in Wisconsin
As the big freighters go, it was bigger than most
With a crew and good captain well seasoned
Concluding some terms with a couple of steel firms
When they left fully loaded for Cleveland
Then later that night when the ship's bell rang
Could it be the north wind they'd been feelin'?”


Yes, I get it. US investors have great pride in the American side. But the wreck of expectations happens when everything you’ve been feelin’ since the US economic data really started to slow in July hasn’t gone away.


With both the Europeans (ECB) and Chinese “easing” at the end of October, there’s been plenty of monetary tightening on those positions levered to both A) inflation expectations (Commodities, Levered Energy Companies, Russia, etc.) and B) US Dollar denominated debt.


Raising rates “just because it feels like it’s time” into a slowdown could easily rip the US Dollar Index through 100.0. And if you’re mathematically aware of how that “flows” through to SP500 Earnings, you’ll note that’ll sink 1H 2016 revenues/earnings, big time.


On that score, as of last night’s close, 360 of 500 companies in the SP500 have reported the following:


  1. Revenues down -5.1%
  2. Earnings down -4.2%


It took me about 3 seconds to review what 2015 US stock market bull predicted that:


  1. GDP growth would get cut in half in 2015
  2. And Earnings would be down 4-5%


That’s because none of them did.


So have some patience with the bear case (like we did in July). Wall Street knows a #LateCycle slowdown morphing into a recession when it sees it. Give it time. And, in the meantime, I’ll keep humming:


The wind in the wires made a tattle-tale sound

When the wave broke over the railing

And every man knew, as the captain did too

Twas the witch of November come stealin’


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.21%

SPX 2025-2117
RUT 1135--1189
VIX 13.54-19.30
USD 95.99-98.41
EUR/USD 1.08-1.11


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Wreck of November - 11.03.15 EL chart1

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