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MACAU TRENDING UP 60%

Strong revenue growth continues thru Dec 12th
 

 

Through the first 12 days of December, Macau table revenues were HK$6.629 billion.  After taking into account the number of weekend and weekdays and a full month of slots, our previous HK$17.5 billion estimate for December gaming revenues remains intact.  If our projection holds, December would represent another very strong month in Macau, up approximately 60% from last year.

 

Market shares month-to-date are shown below although they are probably of little value this early in the month.  Hold related volatility is obviously a bigger factor over shorter time periods.  However, we remain impressed with Wynn’s market share rebound over the last few months.  The addition of two new VIP rooms should continue that trend.  MGM also remains above the recent trend and we expect that to continue, even beyond the Q1 IPO.

 

MACAU TRENDING UP 60%  - macau1


THE M3: LEVEN COMMENTS; PACKAGE TOURS; WAGES

The Macau Metro Monitor, December 13th, 2010

 

SANDS SEEKS 'EQUITABLE SOLUTION' WITH GOV'T: LEVEN  Macau Daily Times

Acting Sands China CEO, Michael Leven, has said that the company wants to work with the Macau Government to find an “equitable solution” regarding plots 7 and 8 on Cotai.  Leven said the Government gave “no official reason” for rejecting the company’s request.  "We want to better understand what happened. Why, how and now what can be done to reach a fair solution for all parties,” he said.

 

Regarding meeting Macau CEO Chui, Leven said neither he nor Adelson had met with him but confirmed that the company has requested a meeting.  Also, according to Leven, a new Sands China CEO will not be confirmed by the year-end deadline.

 

Regarding sites 5 & 6, Leven said, “We still aim at opening the first phase in December next year, but probably just in a couple of months I can tell what we’ll open. The rest will be opened during 2012." For the Four Seasons apartments sale, it is still in the hands of the government.  Leven reiterated that the request is not aimed at getting approval for the sale, but the authorisation to transfer it to a new limited company, in which holders can then sell shares.

 

Despite more Cotai competition, Sands China “will still be one of the major growth vehicles [in the territory], with plots 3, 5 and 6, especially after the completion of Galaxy Macau,” he added.

 

PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR OCTOBER 2010 DSEC

Visitor arrivals in package tours increased by 4.2% year-on-year to 396,310 in October 2010.  Visitors from Mainland China continue to lead the pack with 274,805 or 69% of the total.  628,773 guests checked into hotels and guest-houses in October 2010, up 8.2% YoY.

 

VENETIAN, CLEANERS REACH AGREEMENT Macau Daily Times

According to the Labour Affairs Bureau (DSAL), Venetian has reached an agreement with 70 local cleaners regarding unequal wages.  The Venetian told workers that the company will follow the initial plan which will see the operator increase perks and wages in the first half of next year for all personnel and review the internal management mechanism, such as the promotion system and distribution of tasks.
 



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THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - December 13, 2010

 

As we look at today’s set up for the S&P 500, the range is 33 points or -1.64% downside to 1220 and 1.02% upside to 1253.  Equity futures are trading above fair value following a strong start to the week across Asian and Europe where China's decision to not to raise its benchmark interest rate has prompted further risk appetite.  On the data front this week, the passage of the newly-proposed fiscal stimulus package through both Houses of Congress will be the main focus today. For the rest of the week, data highlights include tomorrow's FOMC rate decision plus November Retail Sales, November CPI and Empire Manufacturing on Wednesday.  In addition, weekly Jobless claims plus the Philly Fed Index on Thursday.

  • Airgas (ARG) told court its directors disagreed over minimum price they would accept for co. from Air Products & Chemicals in takeover; earlier stated they were unanimous
  • American Superconductor (AMSC) may be overvalued as wind- turbine inventories at customer Sinovel increase, Barron’s says
  • Colonial Properties Trust (CLP) said it may sell shares equivalent to as much as $100m
  • EXCO Resources (XCO): Wilbur Ross has bought 7.5% in XCO and wants to discuss “extraordinary corporate transactions,” such as a merger or asset sales, according to SEC filing
  • GFI Group (GFIG) said it will pay a special 25c-shr dividend
  • Horace Mann Educators (HMN) boosted quarterly dividend to 11c-shr, vs Bloomberg forecast 10c
  • Mattel (MAT) may rise 20% or more in next year on demand for American Girl dolls, Monster High dolls, Barron’s says
  • Plains All American Pipeline (PAA) and Western Gas Partners (WES) may rise as their fee-based business expands, Barron’s said, citing UBS analyst Jeremy Tonet
  • W&T Offshore (WTI) said it will pay special dividend of 66 cents per share

PERFORMANCE

  • One day: Dow +0.35%, S&P +0.60%, Nasdaq +0.80%, Russell +1.20%
  • Last Week:  Dow +0.25%, S&P +01.28%, Nasdaq +1.78%, Russell +2.70%
  • Month-to-date: Dow +3.67%, S&P +5.07%, Nasdaq +5.58%, Russell +6.85%
  • Quarter-to-date: Dow +5.77%, S&P +8.69%, Nasdaq +11.35%, Russell +14.89%
  • Year-to-date: Dow +9.42%, S&P +11.24%, Nasdaq +16.23%, Russell +24.22%
  • Sector Performance (last week): Financials +3.78%, Tech +1.53%, Consumer Staples +1.15%, Industrials +1.04%, Materials +0.65%,  Healthcare +0.64%, Consumer Discretionary +0.37%, Energy +0.12% and Utilities (-0.50%)

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 827 (+473)  
  • VOLUME: NYSE 974.51 (-2.96%)
  • VIX:  17.61 +2.09% YTD PERFORMANCE: -18.77%
  • SPX PUT/CALL RATIO: 1.48 from 1.33 +11.66%

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 17.68 -0.811 (-4.388%)
  • 3-MONTH T-BILL YIELD: 0.13% -0.01%  
  • YIELD CURVE: 2.68 from 2.59

COMMODITY/GROWTH EXPECTATION:

  • CRB: 314.91 -0.37% (-0.49% last week)
  • Oil: 87.79 -0.66% (-1.57% last week)
  • COPPER: 411.20 +0.61% (+2.83% last week)
  • GOLD: 1,384.95 -0.31%% (-1.53% last week)

CURRENCIES:

  • EURO: 1.3226 +0.03% (-1.40% last week)
  • DOLLAR: 80.070 flat (+0.87% last week)

OVERSEAS MARKETS:

 

EUROPEAN MARKETS:

  • European markets opened up and extended gains with mining shares the leading advancers up +2.1% after Chinese industrial output data beat expectations buoying confidence about the economic outlook.
  • Investors took comfort that China did not raise its interest rates over the weekend, though they did raise bank reserve requirements on Friday, and shrugged off China's inflation rate rising to its highest level in over 2 years.
  • Continuing M&A activity also helped sentiment.
  • In a broad advance all but one sector, healthcare (0.1%) trade higher. Peripheral European debt spreads and the euro were pressured ahead of the EU Leaders Summit on 16-17 Dec. Major indices trade slightly off session highs.
  • UK PPI input +9.0% y/y vs consensus +8.5% and prior downwardly revised +8.2%
  • UK Rightmove Dec house prices (3.0%) m/m, up +0.4% y/y; predicts 2011 house prices flat to down (5%)

 

ASIAN MARKTES:

  • Most Asian markets went up today as the region reacted well to China's raising banks' reserve requirements rather than interest rates.
  • Railway stocks continued up in China on government plans to develop a high-speed rail network.  Energy stocks outperformed on economic data suggesting the global economy is recovering.
  • Japan finished higher, with a weaker yen supporting the market. The market opened flat, but took heart on China’s rise.
  • Energy stocks gained on higher oil prices, and property stocks advanced on reports that secondary home sales have picked up, moving Hong Kong higher in light trade.
  • Australia rose, with miners gaining on the belief that China’s raising its reserve requirements for banks was not as harsh a tightening measure as the country might have chosen. The country’s big banks went up on relief that banking system reform measures announced yesterday were not as radical as feared.

Howard Penney

Managing Director

 

THE DAILY OUTLOOK - S P 1213


WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 2 of 10 improved / 5 out of 10 worsened / 3 of 10 unchanged
  • Intermediate-term (MoM): Negative / 0 of 10 improved / 6 of 10 worsened / 4 of 10 unchanged
  • Long-term (150 DMA): Negative / 1 of 10 improved / 5 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - summary

 

1. US Financials CDS Monitor – Swaps continued to tighten across domestic financials last week, widening for just 5 of the 28 reference entities and tightening for the other 23.

Tightened the most vs last week: C, SLM, PRU

Widened the most vs last week: ALL, CB, TRV

Tightened the most vs last month: JPM, C, PRU

Widened the most vs last month: CB, TRV, MBI

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - US cds

 

2. European Financials CDS Monitor – In Europe, banks swaps reversed course and widened out.  Swaps widened for 32 of the 39 reference entities.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - euro cds

 

3. Sovereign CDS – Sovereign CDS rose 27 bps on average last week.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, closing at 8.31 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index came close to new highs, closing at 1556.   

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - lev loan

 

6. TED Spread Monitor – The TED spread backed up on Friday to close the week at 18.5.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 3.8 points, closing at 25.7 on Friday.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose slightly, ending the week 12 bps above the prior week’s close.

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads increased sharply last week, closing at 208 bps, 35 bps higher than last week.     

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - markit mcdx

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell 7.3 points to close at 209.5.   

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - baltic dry

 

11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1.2% upside to TRADE resistance, 3.6% downside to TRADE support. Typically, when downside to upside is greater than 2:1, we believe caution is warranted.  

 

WEEKLY FINANCIALS RISK MONITOR: MUNI SWAPS BACK UP SHARPLY - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE PURSUIT OF TRUE WISDOM

“Knowing others is intelligence, knowing yourself is true wisdom.”

-Lao Tse

 

The closing of the year elicits contemplation and self-reflection. No, I’m not going to head down the road of providing a list of 10 surprises.  These lists are generally interesting to read, but – ironically – many of the forecasted “surprises” become consensus and are not particularly useful from an investment idea perspective. 

 

At Hedgeye, we like to think about what is going to happen in the next three month as opposed to where we are going to be 12 month from now.  As we like to say, “You’ve got to play the game that is in front of you.” Playing the game requires discipline and some self reflection to stay grounded.

 

Of course, as with anything, it is easiest if you have a process or methodology.  On a personal level, yoga is one thing that helps me to enjoy introspection.  In India, the method of self-reflection is called svadhyaya: Sva means “self” and adhyaya means “investigation, inquiry, or education”.  If you practice, svadhyaya it helps you observe moment-to-moment changes in your mind and pose important introspective questions. How are you feeling in your body? Is your mind present? What subject matter draws your mind away? 

 

When it comes to Hedgeye, we try to have a method for observing moment-to-moment changes in the market and also in our current stances on different themes and investment ideas we generate for our clients.  As we’ve said time and again, clients are a key part of this process and their feedback aids us immeasurably in our efforts to better serve them.

 

Heading into the New Year, it’s an appropriate time to reflect upon (1) What has transpired? (2) Where are we headed? and (3) What is left undone?   Svadhyaya is what we aspire to at Hedgeye; the ability to investigate, inquire, and educate ourselves and our processes.  Knowing oneself and obtaining true wisdom is likely a goal to be chased but never quite achieved.  If the pursuit of this goal enriches our perspective on markets and processes then that, in and of itself, makes us better on the margin.  And, as we always say, what matters happens on the margin.

 

Hedgeye’s take on the intermediate-term global macro outlook is three-pronged:

  1. Growth is slowing
  2. Inflation is accelerating
  3. Interconnected risk is compounding

It has been our view for some time that interest rates are going higher.  In terms of timing this call, it is extremely difficult given the scale of government interference in capital markets in recent times.  This call is, quite simply, anchored on our view that global risk is compounding.  Last week the US 10-year Treasury yield reached 3.33%, 28% higher than a month ago, compared with Germany’s borrowing costs rising +27% to 3.03%.  The trend continues today with the US Treasuries getting smoked again this morning as the world continues to see the inflation that Ben Bernanke is not allowed to see.

 

Yes, inflation is accelerating globally.  People are paying higher prices for what they use to feed themselves, clothe their children, and drive their cars than one year ago.  CPI in China accelerated to a 28-week high of 5.1% year-over-year in November.  Food inflation accelerated to 11.7% year-over-year.

 

The price of oil recently hit $90 for the first time in two years, gas prices at the pump are at $3.00 and according to Bloomberg, consumers of food made from wheat and corn should brace for higher prices, if history is any guide, after bad weather and a shortage of farmland threaten to create supply “shock waves”.

 

In keeping with the idea that we must play the game that is in front of us, the “growth is slowing” theme is being challenged by the “fiscal lunacy” of the politicians in Washington who will be adding another $900 billion to the deficit over the next five years.  Now the latest projections are that the USA 2011 budget deficit will hit $1.5 trillion after it was just $1.1 trillion a few months back. 

 

On the heels of the tax plan, consensus expects that the tax reductions will add 1% to GDP growth in 2011 (one time boost).  Side-effects of Bernanke’s monetary policy will, in my view, go some way towards offsetting this boost.  As the Federal Reserve stokes inflation through Quantitative Guessing, a run up in rates, coupled with a 15-20% decline in home prices in 2011, will mitigate the benefit of lower taxes.

 

The combination of inflation and ever-increasing debt levels does not encourage growth, it inhibits it!  Jobless Stagflation is a theme we’ve been highlighting for months and it will become clearer to many as 2011 proceeds.

 

I believe it would be beneficial for the administration to consider svadhyaya as a New Year Resolution.  The government today is an active participant in the markets.  To what end this participation?  Is there an end to this participation?  If government’s role is to protect employment levels and maintain price stability, I think the scoreboard speaks for itself on both counts. 

 

Projections offered by the administration in 2009 as to where unemployment would peak during this crisis have been far surpassed.  If government’s role is to somehow protect and enhance the life that its citizens lead, the almost 43 million people surviving on food stamps may have something to say about the administration’s success on that score.  It’s not that the administration it not trying; it is relentless in its pursuit of what it thinks is needed to bolster the obviously fragile economy. 

 

I do not believe it would take an otherworldly bout of introspection for the administration to realize that these efforts are not working and, more pointedly, they are expensive.  The public sector furor defined by massive government balance sheets has taken hold in Europe and you can bank on it coming into the fold in the U.S. in the not-too-distant future. 

 

David Einhorn of Greenlight Capital was interviewed by Charlie Rose on December 6th and highlighted some “unfinished business” that was left unresolved from the last crisis.  Einhorn is a thoughtful person and offered a metaphor for the economy at present of being “between two storms”.  The private sector storm was first but the public sector crisis is coming.  I don’t know David Einhorn and he may not be a yoga aficionado, but I would hazard a guess that svadhyaya would not be a completely foreign concept to him. 

 

Function is disaster; finish in style

 

Howard Penney

 

THE PURSUIT OF TRUE WISDOM - china cpi


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