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BIG VOLUMES AND LUCK IN MACAU

January may hit another record.

 

 

The following details Macau table revenues for the first  9 days of January.  Note that the counts are performed 1 day in arrears so the total includes New Year’s Eve and New Year’s Day.  January is off to a stunning start both in terms of volumes and hold percentage.  We certainly expect growth to moderate later in the month as business typically slows down ahead of Chinese New Year which starts on February 3rd this year.  If we assume the current torrid pace continues, then gaming revenues would total HK$21.5 billion, up 58% and a new monthly record.  However, if we use the November pace for the rest of the month, we calculate total gaming revenues will be HK$18.5 billion, up 36% YoY.  Still a record and impressive growth considering last January generated a 63% comp. 

 

Market shares thus far in January continued recent trends.  Wynn knocked the cover off the ball in the first part of the month (again) while LVS was a laggard, dropping all the way to 14%.  Hold likely played a role in the LVS drop but we remain concerned with their weak Junket volume share.  The fact is that LVS is just not competitive with their junket commissions and credit policy.

 

BIG VOLUMES AND LUCK IN MACAU - macau


TALES OF THE TAPE: GMCR, SBUX, COSI, WEN, MCD, RUTH, RRGB, EAT, AFCE

News items and price action from Friday’s trading.  Between the Cowan conference and ICR the news flow for the balance of the week should pick up significantly.

  • GMCR rounded out a strong week by outperforming its QSR peers on accelerating volume Friday, gaining 3.7%.
  • SBUX also gained on accelerating volume, ending the session up 2.6%.
  • COSI again gained on accelerating volume, its shares rose 3.4% to finish the week up 29.4%.  I continue to like this stock and believe improvement in the company’s fundamentals remains
  • WEN  - converting an Arby’s to a Wendy’s in  PA - last Friday WEN declined on accelerating volume.
  • MCD gained slightly on Friday to round out a poor week’s trading during which its shares declined 3.1%.
  • RUTH outperformed on Friday, gaining 4.5% on strong volume.  This morning, the company announced preliminary 4Q10 sales results. 
  • RRGB shares increased 4.2% on accelerating volume on the back of news that activist shareholders are pushing for the company to go private
  • EAT continues to perform strongly, gaining 1.2% on Friday on strong volume. 
  • AFCE raised its forecast for the current fiscal year.

TALES OF THE TAPE: GMCR, SBUX, COSI, WEN, MCD, RUTH, RRGB, EAT, AFCE - stocks 110

 

Howard Penney

Managing Director


THE M3: SJM SELLS 4 BUILDING SITES; TAIWAN IVS; JAPAN CASINO CRUISE; S'PORE INFLATION

The Macau Metro Monitor, January 10, 2011

 

CHINA STAR BUYS SITES IN MACAU macaubusiness.com

Sociedade de Turismo e Diversões de Macau SA, the parent company of SJM Holdings, has sold 4 building sites in Macau to China Star Entertainment for HK$550MM.  The deal is pending approval from the Macau government.  The sites are adjacent to Hotel Lan Kwai Fong, Macao Polytechnic Institute, Forum de Macao and Golden Lotus Square.  They will be developed into office units and residential apartments for sale. 

 

The four sites were granted to STDM by the Portuguese administration, but the company failed to develop them within the agreed deadlines. The government decided to postpone the development period for 36 months commencing from 15 April 2010 (i.e. until 14 April 2013).

 

CROSS STRAIT TRAVELS UNDER INDIVIDUAL VISIT SCHEME China Daily

Certain Beijing and Shanghai residents may be able to travel to Taiwan under the Individual Visit Scheme starting April 2011.  Authorities on both sides had reached a consensus concerning the pilot scheme and that the preliminary planning is to impose a ceiling on the number of applicants at 500 per day.  An individual tourist visa is valid for three months and allows the holder 15 days on the island each time.


JAPAN PLANS TO OPERATE FLOATING CASINO FROM NAGASAKI TO SHANGHAI Macau Daily News, Nishi Nippon

Huis Ten Bosch intends to start a floating casino between Nagasaki and Shanghai this summer.  The 20,000-30,000 tons luxury ocean liner will target patrons from Mainland China.  Huis Ten Bosch had established a Panamanian company so that it can operate a casino on the ship.  The company invested 20 billion yen into the project and the ship will hold 1,500-1,700 passengers.


SINGAPORE EXPECTS INFLATION TO RISE, ON GUARD AGAINST OVERHEATING WSJ

Finance Minister Tharman Shanmugaratnam said increased Chinese demand and weather-related troubles will likely push up commodity prices, adding to inflationary pressures in Singapore.  Inflation is expected to rise in the first quarter of this year before moderating, he said.

 

Senior Minister of State for Trade and Industry S. Iswaran said there would be no need for stimulus measures in Singapore in 2011.  The government expects a "healthy" 4% to 6% GDP growth in 2011 but inflation needs to be watched closely, he added.


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WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE

Financial Risk Monitor Summary (Across 3 Durations):

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

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - summary

 

1. US Financials CDS Monitor – Swaps were mixed across domestic financials, tightening early in the week and then widening into the end of the week.  Swaps tightened for 16 of the 28 reference entities and widened for the other 12.  Bank of America saw tightening on the back of its settlement with the GSEs early in the week, while all the moneycenter swaps backed up on the news of the Massachusetts Supreme Court foreclosure ruling.  

Widened the most vs last week: WFC, C, GS

Tightened the most vs last week: LNC, MET, AON

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

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

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - us swaps

 

2. European Financials CDS Monitor – In Europe, banks swaps flashed a warning signal.  Swaps widened for 34 of the 39 reference entities. German bank swaps widened an average of 22%, Spanish bank swaps widened an average of 17%, and Belgium’s KBC Group N.V. saw swaps widen more than 40%. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - euro swaps

 

3. Sovereign CDS – Sovereign CDS rose 21 bps on average versus last week amid growing fears of contagion.  Portuguese and Irish swaps saw the largest increase. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - sov swaps

 

4. High Yield (YTM) Monitor – High Yield rates fell 33 bps last week, closing at 8.00 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to charge higher, closing at 1590, 17 points higher than the previous week.   

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - lev loan index

 

6. TED Spread Monitor – The TED spread fell to 16.8 from 18.4 the prior week.

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - ted

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 4.5 points, closing at 31.8 on Thursday.

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 14 bps to a new high of 1261.

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - 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 into week end, rising 17 bps to 226.  

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - markit

 

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.  The index fell to a new low of 177 amid Australian flooding. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - baltic dry index

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread held flat at 273 bps. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 2.1% upside to TRADE resistance, 2.6% downside to TRADE support. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


Buck Breakout

“The best way to destroy the capitalist system is to debauch the currency.” 

-John Maynard Keynes

 

This year I am going to try my best to kick off each week with a Global Macro recap of the week prior. I’ll also try to address what decisions I made in the Hedgeye Asset Allocation Model to reflect ongoing and ever-changing Global Macro risks.

 

The biggest move that mattered last week was the Buck’s Breakout above my immediate-term TRADE line of $79.92 on the US Dollar Index. After taking a breather into December end, the US Dollar Index is now bullish again on both our immediate-term TRADE and intermediate-term TREND durations.

 

With the US Dollar Index closing up +2.6% on the week (up for the 8th week out of the last 10), here’s the big stuff that went down: 

  1. Euro = down -3.1% to close the week at $1.29 (we covered our short position in FXE into week’s end)
  2. CRB Commodities Index = down -2.7%, after hitting a new cycle-high of 333 on the 1st trading day of 2011
  3. Oil = down -3.7%, breaking its immediate-term TRADE line of support of $89.46 midweek (we sold our OIL this wk)
  4. Gold = down -3.7%,  breaking its December closing low (we remain short GLD)
  5. Copper = down -3.6%, after hitting an all-time closing-high of $4.48/lb on the 1st trading day of 2011 
  6. Volatility = down -3.3% to $17.14 on the VIX, after seeing volatility rise in an up US equity market in the 2 weeks prior

I’m no Keynesian, but I (like Keynes did when he was 36 years old) trade currencies and believe them to be a very important barometer of a country’s overall health. In those days, as Liaquat Ahamed wrote in one of my favorite financial history books (Lords of Finance, page 11), “in 1914 the single most important, indeed overriding, objective of these institutions was to preserve the value of the currency.”

 

As a direct result of last week’s US currency strength, I think last week was a win, win, win for most Americans who care, not only about how much money they make, but how the rest of society does in the meantime.

 

Let’s look at these 3 wins associated with a strong American currency:

  1. Stocks went up (SP500 was up +1.1% on the week)
  2. Inflation went down (that’s what should happen if a country’s currency is pervasively strong)
  3. Rates of return on our hard earned savings accounts went up (10yr and 30yr US Treasury rates climbed again week-over-week)

No, I’m not saying we are out of the woods yet. I’m just saying that last week was a better week for America by my global macro scorecard than the week prior was – and by the looks of the aforementioned Keynesian quote, the Fiat Fools should agree.

 

Nor am I saying this was good for the rest of the world (some of their currencies went down, and so did their stock markets):

  1. India’s BSE Sensex Index = down -4.0%
  2. Spain’s IBEX Index = down -3.0%
  3. Luxembourg’s LUX Index = down -2.6%
  4. Portugal’s PSI Index = down -2.4%
  5. Taiwan’s TAIEX Index = down -2.1%
  6. Indonesia’s Jakarta Index = down -1.9%

After all, inflation, like politics, is priced in local currency. This, of course, isn’t a consensus way to look at the world; particularly from a money printing government official’s perspective – but I think that will change.

 

Whether it was the price of oil hitting an all-time high choking off US consumption in 2008 or the price of the United Nation’s Food Index hitting an all-time high (this week) staring Indian and Indonesian stock markets right in the face (the #2 and #4 largest country size populations in the world), it’s all the same to me. The Fiat Fools around this world are just taking turns.

 

Back to the Hedgeye Asset Allocation Model, I ended the week with the same allocation to US Cash that I started the week with (61%). Although I did drop down to a 49% position in cash intra-week and changed the complexion of my invested position into Friday’s close (I call this managing risk around my gross invested exposure). My updated positioning is now as follows:

  1. US Cash = 61%
  2. International Currencies = 21% (all in the Chinese Yuan, CYB)
  3. International Equities = 9% (all in German Equities, EWG)
  4. Commodities = 3% (all in Corn, CORN)
  5. US Equities = 3% (all in Volatility, VXX)
  6. Fixed Income = 3% (all in Treasury Inflation Protection, TIP)

Now I fully understand that this isn’t the way that most strategists do it  - that’s why I do it this way.

 

As price, volatility, and volume studies change, I change both my asset allocation positions and invested exposures. For example, I started the week long oil (stocks and the commodity) and US Healthcare stocks (XLV), but Oil broke its immediate-term TRADE line of support and US Healthcare (XLV) became immediate-term TRADE overbought on Thursday. There are no rules stating that I can’t buy either of those positions back (lower) in the coming weeks.

 

Nor are there rules stating that I can’t get less bearish on US Equities if the US Dollar were to continue to strengthen. US stocks actually closed down for back-to-back sessions for the 1st time on Thursday/Friday since November 29th and 30th. I don’t have to buy them when they are on sale. I don’t have to get bullish on the way down either. I’m just saying that with a 61% cash position, I have plenty of options.

 

My immediate term support and resistance levels in the SP500 are now 1251 and 1276, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buck Breakout - matt



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