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Interesting Chart: Complacency and Slowing Global Growth

Below is an overlay of the Baltic Dry Index and US Equity market Volatility. Both have been headed in one direction as of late – lower.

 

There will undoubtedly be plenty of explanations for this, but I’d like to solicit our exclusive network of risk managers for thoughtful responses. The VIX hasn’t been this low since the end of April. Everyone knows what happened to US equities for 2-3 months thereafter.

 

In Global Equities, if China, India and Brazil didn’t look a lot like this Baltic Dry chart since early November, I wouldn’t be calling the Slowing Global Growth point into attention.

 

If you have time, send us your replies and we’ll pick the best one and post it anonymously.

 

Thanks in advance,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Interesting Chart: Complacency and Slowing Global Growth - bdi vix


TALES OF THE TAPE: CHUX, MRT, RT, DIN, SONC

Strong finish to the week but restaurant space largely traded sideways over the past seven days.

 

The momentum in restaurant stocks certainly seems to have slowed despite the strong performance on Friday.  Casual dining saw a more broad-based gain than quick service following the release of Malcolm Knapp’s Knapp Track sales data.  A few notable observations and news items:

  • Knapp Track data for November showed a sequential slowdown in sales for November on a one and two-year basis.  The print for November sales trends in casual dining was +0.9% vs final +1.6% in October.  Traffic also slowed on a two-year basis.  The print for November traffic in casual dining was -1% vs final -1.2% in October. 
  • Strong performance from CHUX to close out the week during which they announced the resignation of their CFO and the closing of 16 underperforming stores
  • MRT declined on strong volume.  This name has been on a tear over the past month
  • RT underperformed all casual dining stocks on high volume
  • DIN also declined on strong volume
  • SONC was the strongest performing restaurant stock on Friday.  On Tuesday it announced the repurchase of $62.5 million of its Class A-1 variable funding senior notes. 

TALES OF THE TAPE: CHUX, MRT, RT, DIN, SONC - stocks 1220

 

Howard Penney

Managing Director


THE M3: SANDS CO-OP; LEVEN COMMENTS; GALAXY BOND; BELLE GROUP;

The Macau Metro Monitor, December 20th, 2010

 

SANDS CHINA NEARING APPROVAL ALLOWING FOR SALE OF CO-OP SHARES Las Vegas Sands Corp 

Sands China said it has received a letter from the Macau Land, Public Works and Transport Bureau saying "the process is at its final proceeding."  The draft contract finalizing the approval process is expected to be issued very shortly.

 

"We truly appreciate the government's diligence in addressing this matter and we are optimistic that a resolution could be forthcoming very quickly.  The company has been inquiring of prospective buyers over many months and has accelerated the inquiries to ascertain the viability of a concentrated sales effort starting after the first of the year.  The reaction from prospective buyers is very positive and company management is optimistic that our anticipated pricing will be well-received," Sheldon Adelson said.

 

LAS VEGAS SANDS' LEVEN SAYS MACAU SEEKING ORDERLY GROWTH OF CASINO RESORTS Bloomberg

COO Mike Leven said, “They’re [Macau’s Land, Public Works and Transport Bureau] trying to manage growth in a healthy way.  They’re probably not going to allow them all to be built at once. When one gets built and gets close to opening, they’ll allow the next one to start construction, and it will open after the existing property ramps up.”  Projects by Wynn, MGM and Sands’ site 3 may be the next three Cotai casinos allowed, Leven added.

 

GALAXY ENTERTAINMENT GROUP ANNOUNCES SUCCESSFUL CLOSING OF UPSIZED RMB BOND ISSUANCE Galaxy Entertainment Group

Galaxy announced it has closed its fixed rate senior unsecured bond issuance in an aggregate principal amount of RMB 1.38 billion.  The bonds will mature in December 2013.

 

Highlights:

  • Strong vote of confidence in Galaxy with offering more than 13 times oversubscribed
  • Attractive fixed interest rate of 4.625% p.a. for this groundbreaking offering
  • The first ever RMB denominated non-financial-institution corporate bond listed on the Hong Kong Stock Exchange
  • Opportunistic financing which raises reserve funding for development of non-gaming businesses and creates additional general working capital
  • Effective hedging strategies will be implemented to eliminate the currency risk

BELLE GROUP TO TAP MACAU GAMING FIRM FOR RESORT-ENTERTAINMENT COMPLEX The Philippine Star

The consortium of Belle Corp. and Leisure Resources World Corp. (LRWC) may hire Asia Pacific Gaming for consultancy services for its multi-billion peso IR complex.  Negros Occidental Rep. Alfredo “Albee” Benitez, majority owner and former president of LRWC, said the group may not take in a foreign strategic partner and could just hire APG to help them operate The Belle Grande Manila Bay, which is targeted for soft opening by the fourth quarter next year."


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CCL YOUTUBE

In preparation for the CCL Q4 2010 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from CCL’s Q3 earnings call.

 

 

YouTube from Q3

 

GENERAL

  • 13 week booking period—covering 4Q 2010, 1Q 2011, and 2Q 2011
    • “Bookings have been strong, running 8% ahead on a YoY  basis.”
    • “For our Europe brands, booking volumes for the last 13 weeks have been very strong on a YoY basis for cruises during the next three quarters with slightly higher local currency pricing. And booking volumes during the last six weeks for Europe brands have also shown significant improvement on a YoY basis.”
  • “Ticket prices, excluding prices for winter Caribbean cruises, are running higher YoY; winter Caribbean pricing is lower, largely as a result of significant increases in industry Caribbean capacity, which in the first quarter is approximately 15% higher, and our fleet capacity in the Caribbean winter is up 10% in the quarter.”
  • [Caribbean capacity for 2011] “The Caribbean is up 7% in the first quarter, 10% for our North American brands. The second quarter is flat, the third quarter is down 8%, and the fourth quarter is down 11%. And as we go throughout the year, the Caribbean is about 50% of our total capacity in the first quarter, stepping down to 36% in the second and 22% in the third and finishing the year at 27% in the fourth quarter.”
  • “Given the current booking and pricing momentum, taken together with the price increases from business already on our books, we are currently forecasting that fleet-wide local currency revenue yields in the first half of 2011 will be higher YoY. And this factors in the lower Caribbean pricing.”
  • “In terms of fleet expansion for 2011, we have four ships scheduled for delivery, the Aida Sol, at the end of March of 2011, the Carnival Magic, at the end of April 2011, the Seabourn Quest in late May and the Costa Favolosa in late June.”
  • “Our capacity increase in 2011 is estimated to be 5.4% for the full year. Breaking that down by quarters, it would be 6.7% in Q1, 4.9% in Q2, 5% in Q3, and 5.1% in Q4. With the delivery of the four ships in 2011, our European brand capacity will be close to 40% of our overall fleet capacity, which is a target we set out after the completion of our merger with P&O Princess in 2003.”
  • “With estimated CapEx of $2.5 billion in 2011, we are forecasting that 2011 will be the first year for driving significant free cash flow in our business, and as cash flow increases, and our CapEx slows in future years, free cash flow is expected to further increase.”
  • “For the full year 2010, the midpoint of our earnings guidance is now $2.50 per share, which is $0.30 higher than the midpoint guidance of $2.20 a share we established back in December of 2009 at the start of the year. The major factors causing the earnings increase in 2010, looking at it with some perspective right now, are higher ticket yields of approximately $0.23 a year, higher onboard yields of $0.05 a share, lower costs of $0.21 a share, and positive one-off items of $0.08 a share. Fuel and currency, on the other hand, affected earnings negatively by $0.27 a share. And this all nets out to a plus $0.30 over our original guidance.”
  • “We do expect 1 to 3% fuel consumption efficiencies per year over the next couple of years.”
  • “All-in costs [per berth] are 20-25% lower than they were at the peak.”
  • “I believe our 2012 deployment will have a little bit less as a % of capacity in the Caribbean, but it’s only on the margin that you can really do it.”
  • “The strategy is to stay in China and to continue to build it, but we will take a little bit of a blip downward in 2011 and then come back with a larger ship in 2012, with the view that it will then be a profitable business with us, with that larger ship.”
  • “I think we are very encouraged that 2011 will be a good Alaska season.”

4Q 2010

  • “For the fourth quarter of 2010, close-in pricing has been strong, especially for North American brand bookings. As a result, pricing has held up quite well and fourth quarter local currency yields continue to strengthen versus last year at the same time.”
  • “For 4Q, our capacity is up 5.8%. 1.4% in North America, and 10.7% in Europe on a fleet-wide basis. With very little inventory left to sell in the quarter, occupancies are in-line with a year ago with local currency pricing running nicely higher.”
  • “North American brands in the fourth quarter are 50% in the Caribbean, up from 45% last year, with all the other itineraries individually below 10%. Occupancies for North American brands in the fourth quarter are slightly ahead YoY with pricing also nicely higher.”
  • “Late fourth quarter bookings for North American brands continue to be strong and yields have shown gradual improvement week-on-week. By the time the quarter closes, we expect North American brand revenue yields to increase in 3-4% YoY.
  • “For European brands, they are 72% in Europe itineraries, down slightly from 78% last year for the fourth quarter, with all other itineraries individually under 10%. European local currency pricing is also higher YoY with occupancies at approximately the same levels. We are currently forecasting an increase in European brand local revenue yields in the fourth quarter by approximately 2%, which is a very positive result considering the 11% increase in capacity for the Europe brands during the quarter.”
  • “Fleetwide revenue yields to increase in the range of 2.5 to 3.5% on a local currency basis and lower by 1 to 2% on a current dollar basis as a result of the strengthening dollar during this period. Costs excluding fuel are expected to be down 1 to 2% on a local currency basis and on a current dollar basis, lower by 5 to 6%.”
  • “EPS expected to be $0.32-0.36. This includes the impact of unfavorable currency and fuel costs of $0.07 per share in 4Q, and compares to the $0.24 per share in 4Q 2009.”

1Q 2011

  • “I think demand is more of a challenge [in Q1] than in the other quarters.”
  • “The impact of the lower Caribbean pricing will be felt more significantly in the first quarter when our Caribbean capacity is greatest, and to a lesser extent, in the second quarter when Caribbean capacity is reduced.”
  • “European yields will be stronger than North American yields in the first quarter, also as the result of the lower Caribbean prices.”
  • “On a fleet-wide basis, 1Q 2011 local currency pricing is higher YoY with occupancies running slightly behind a pattern similar to what we experienced in 4Q.”
  • “For North American brands, they are 66% in the Caribbean, up from 62% in the prior year and 11% in the Mexican Rivera, which is about the same as the prior year with the balance in various other itineraries. Winter Caribbean pricing is lower than a year ago on lower occupancies. Mexican Rivera pricing is nicely higher from the lower levels we experienced a year ago on higher occupancies; pricing across all other itineraries is higher on slightly lower occupancies. Taking all itineraries together, including the Caribbean, pricing is currently in-line with last year.”
  • “Looking at our European brands in 1Q, they’re 25% in Europe itineraries, 23% in the Caribbean, down from 29% the prior year and 18% in South America, which is about the same as in prior year, with the balance in various other itineraries.”
  • “Local currency pricing across all European itineraries is higher YoY on slightly higher overall occupancies.”
  • “Fleet-wide revenue yields for the first quarter of 2011 will be higher, in the 2% range, driven largely by strong forecasted increases in European brand pricing, net of a small decline in North American pricing, largely the result of the lower pricing environment in Q1 and the very competitive Caribbean winter market. Current dollar pricing at today’s exchange rate is forecast to be slightly down YoY.”

2Q 2011

  • “On a fleet-wide basis, second quarter 2011 local currency pricing is higher YoY with occupancies in-line with the previous year. For North American brands, they are 55% in the Caribbean, about the same as last year, but 11% lower than in the first quarter of 2011. The balance in various other itineraries all individually under 10%.”
  • “Currently, pricing for North American brands in the second quarter is higher than a year ago with occupancies currently in-line with last year.  Similar to the first quarter, Caribbean pricing is lower in the second quarter, but improved from the first quarter. And pricing across all other North American brands’ itineraries is higher YoY.”
  • “61% in Europe itineraries, up from 57% a year ago with the balance in various other itineraries. Similar to the first quarter, local currency pricing for European brand cruises is running nicely higher YoY. Occupancies are slightly down from the prior year levels which given the 8.5% capacity increase for Europe brands is quite acceptable, especially given the higher pricing currently being achieved.”
  • “Fleet-wide local currency revenue yields in the second quarter of 2011 will be higher for both North American and European brands.”


WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Neutral / 3 of 10 improved / 3 out of 10 worsened / 4 of 10 unchanged
  • Intermediate-term (MoM): Negative / 1 of 10 improved / 7 of 10 worsened / 2 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 RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - summary

 

1. US Financials CDS Monitor – Swaps were mixed across domestic financials last week, widening for just 9 of the 28 reference entities and tightening for the other 19.

Tightened the most vs last week: BAC, PRU, GNW

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

Tightened the most vs last month: SLM, PRU, GNW

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

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - US cds

 

2. European Financials CDS Monitor – In Europe, banks swaps were similarly mixed.  Swaps widened for 20 of the 39 reference entities.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - euro cds

 

3. Sovereign CDS – Sovereign CDS rose less than one basis point on average last week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - sov CDS

 

4. High Yield (YTM) Monitor – High Yield rates rose very slightly last week, closing at 8.39 on Friday.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index hit a new high, rising 8 points to close at 1564.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - levered loan

 

6. TED Spread Monitor – The TED spread backed up late in the week to close at 20.2.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index fell half a point, closing at 25.1 on Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose slightly, ending the week 22 bps above the prior week’s close.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - greek bond yields

 

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 195 bps, 13 bps lower than last week.     

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - 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 10 points to close at 200.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - baltic dry index

 

11. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1.9% upside to TRADE resistance, 2.4% downside to TRADE support. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: NEUTRAL FOR THE SHORT-TERM - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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