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MACAU: MARCH OFF TO A STRONG START

March revenues may hit HK$18.5-19.5BN.

 

 

The strong end to February continued into March with average daily revenue at almost HK$600 million.  At this pace and taking into account the appropriate number of weekday and weekend days, March is on pace for HK$18.5-19.5 billion in total gaming revenue (including slots).  That level of revenue would represent YoY growth of 40-48%, off of a comp of 42%.  March has a chance to outpace February’s HK$19.2 billion record.

 

In terms of market share, Galaxy and MPEL were the winners while LVS and WYNN were the losers.  However, we would caution that given the volatility in VIP hold, market shares can shift dramatically from week to week.  Nevertheless, we continue to be impressed with MPEL’s market share and overall revenue and volume levels.  With January and February already in the bag, MPEL seems to have the most upside relative to Street expectations for Q3.

 

The following table and chart details revenues, market share, and 2-week rolling average daily revenue.

 

MACAU: MARCH OFF TO A STRONG START - MACAU TABLE

 

MACAU: MARCH OFF TO A STRONG START - CHINA


WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE

This week's notable callouts:

- Greek sovereign yields, Greek sovereign CDS and Greek bank swaps increased sharply.  According to our Europe analyst, Matt Hedrick, "Last week, more attention was given to the growing “I don’t pay” movement in which more and more Greeks are refusing to pay for road tolls, bus tickets, and other public charges.  There is rising uncertainty from Germany and France if they’ll support lowering the interest rate on bailout loans ahead of EU Summit March 24-5.  Today Moody’s downgraded Greece credit rating by three steps on rising default risk (Ba1 to B1)."

- Municipal swaps hit a new low

- The Leveraged Loan Index remains in a downtrend


Financial Risk Monitor Summary (Across 3 Durations):

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

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - summary

 

1. US Financials CDS Monitor – Swaps were mostly tighter across domestic financials, tightening for 20 of the 28 reference entities and widening for 8. 

Tightened the most vs last week: JPM, C, COF

Widened the most vs last week: AXP, PMI, GNW

Tightened the most vs last month: COF, MTG, MBI

Widened the most vs last month: MET, PRU, HIG

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe were mostly tighter, except in Greece, tightening for 31 of the 39 reference entities and widening for 8.

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - euro cds

 

3. Sovereign CDS – Sovereign CDS were mixed across Europe, falling 3 bps on average last week.  Widening was concentrated in Greek and Portuguese CDS, while Spanish and Irish quotes were somewhat tighter. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, ending at 7.82, 1 bps lower than the previous week.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index has been falling since early February, ending the week at 1612.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - LLI

 

6. TED Spread Monitor – The TED spread backed up last week, ending the week at 19.2 versus 17.6 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index held rose slightly, climbing to 35.1 on Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 37 bps.

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - 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 fell last week, closing at 148 on Friday, a new low.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - 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.  With Australian floods and oversupply pressuring the Index, the series fell 30% early in the year. Since then it has bounced off the lows.  Last week it rose 101 points to 1346. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - baltic dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread widened to 280 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - 2 10 spreads

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows.

 

WEEKLY RISK MONITOR FOR FINANCIALS: RED FLAGS FROM GREECE - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: HK-MACAU-CHINA COOPERATION; CHINESE BANKS LOAN TARGET

The Macau Metro Monitor, March 7, 2011

 

MAINLAND TO DEEPEN ECONOMIC COOPERATION WITH HK AND MACAU OVER NEXT 5 YEARS Macau Daily News

Key cooperation projects that were outlined in the 12th China Five-year Plan for National Economic and Social Development include:

  • Zhuhai Hengqin New Area Development Zone
    • Has an area of 106.46 sq kilometers; helps to explore new cooperation model between Guangdong and Hong Kong and Macau.
  • Guangzhou Nansha New Area Development Zone
    • To develop into a business, technology innovation and education center for Mainland and Hong Kong and Macau.
  • Hong Kong‐Zhuhai‐Macau Bridge
    • Construction of the bridge was kicked off in December 2009 and due to complete by 2016.
  • Guangzhou‐Shenzhen‐Hong Kong Express Rail Link
    • Also known as Guangshengang XRL, operational in phases between 2011 to 2016
    • It will also be connected with the Wuguang High‐speed Railway and the Hangzhou‐Fuzhou‐Shenzhen Express Rail Link.
  • Hong Kong‐Shenzhen Western Express Line
    • Between Hong Kong International Airport and Shenzhen Baoan International Airport; Hong Kong third direct cross‐boundary railway.
  • Liantang/Heung Yuen Wai Boundary Checkpoint
    • Will serve as a quick link between Hong Kong and South China's Guangdong province.
    • To connect the Eastern neighborhood of Shenzhen. The checkpoint will offer an efficient access to the eastern part of Guangdong Province and adjacent provinces via the Shenzhen‐Huizhou and Shenzhen‐Shantou expressways, cutting the journey time between Hong Kong and Shenzhen city, the eastern part of Guangdong, Fujian and Jiangxi provinces.

BIG FOUR BANKS MAINTAIN LOAN TARGET DESPITE INFLATIONARY FEARS SCMP

According to sources, Mainland China's four largest banks (ICBC, BoC, CCB, and ABC) expect to issue loans totaling nearly three trillion yuan (HK$3.55 trillion) this year - almost unchanged from last year's 3.1 trillion.  Typically, loans by the top four lenders account for 35 to 40% of the national total, which would suggest loans of at least 7.5 trillion yuan for 2011.


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CHART OF THE DAY: The Inflation is Priced in Petro-Dollars

 

 

CHART OF THE DAY: The Inflation is Priced in Petro-Dollars -  chart


Paying The Price

“For every promise, there is a price to pay.”

-Jim Rohn

 

Paying The Price is what hard working Americans do every morning. They take responsibility for their families. They are accountable for their actions. They’ll also be paying for their government’s promises at the pump this morning.

 

If you didn’t know that The Inflation is what you get when your government promises the entire world to devalue its currency, now you know. In order to calculate the price of The Petro-Dollars look no further than the price of The Petro and the price of The Dollar.

 

Here’s what those two prices did last week:

  1. The Petro = UP another 6.7% week-over-week taking its 2-week move to +17.6%
  2. The US Dollar = DOWN another -1.1% week-over-week hitting new YTD lows (DOWN 8 of the last 10 weeks)

Now someone who is in the business of obfuscating the facts will tell you that the price of The Petro-Dollars raging to the upside has to do with something other than the debauchery of the dollar. Of course it does – everything that adversely affects the marketing message of Washington, DC must have to do with someone else – that’s the un-American way.

 

Pointing the finger at some nut-job wearing shades in Libya just makes the marketing message easier. Since speaking at the American public on economic matters has turned into a world class game of politics, we should expect nothing less. On NBC’s Meet The Press yesterday, President Obama’s newly minted Chief of Storytelling, Bill Daley, reminded the world how Washington’s finest think about risk management plainly:

 

“Most people don’t know what they are talking about… The President knows…”

 

OK. Thanks Chief.

 

We will un-humbly submit that, on Global Macro economic matters, US Presidents and their crony economic advisors haven’t known what they don’t know for at least a decade. That’s a long time. That’s a problem.

 

Back to those stubborn little critters called real-time market prices that we use to illustrate the problem, here’s what else happened in the US as a result of the US Dollar being devalued last week:

  1. CRB Commodities Index (19 components) = +3.1% week-over-week to close at a fresh weekly closing high for 2011 of 362
  2. Price Volatility (VIX Index) = flat week-over-week, holding its +22% gain above its February 18th YTD low of 15.59
  3. US Stocks (SP500) = +0.15% week-over-week to close at 1321, -1.7% lower than its YTD closing high of 1343 (also established on FEB18)

Altogether what this means is that since the US stock market stopped making higher intermediate-term highs on February 18th, the market has started to price in Slowing US Growth assumptions as US Inflation Accelerates.

 

For readers of our work, this shouldn’t be a new theme. Our 3 core Macro Themes at Hedgeye have been calling for Global Growth Slowing as Global Inflation Accelerates since October of 2010.

 

Our call on Accelerating Global Inflation’s impact on both Emerging Markets and Bonds is best captured by the #1 Economics headline on Bloomberg this morning: “Global Bond Rout Resembling 1994 As Inflation Exceeds Rates” – so, globally, people get it. The question is what will it take for US stock-centric consensus to finally get it?

 

Don’t fool yourself by letting some of the Fed’s Fiats fool the media most of the time, whether you look at the stock market performance divergences in US Equities or abroad, Mr. Macro Market is pricing in Global Inflation Accelerating, big time.

 

US S&P Sector Performance divergences for 2011 YTD:

  1. Best Sector = Energy (XLE) +14.78%
  2. Worst Sector = Consumer Staples (XLP) +0.92%

Global Equity Market Performance divergences for 2011 YTD:

  1. Best Countries = Ukraine +14.3%, Russia +13.8%, and Greece +12.2%
  2. Worst Countries = Tunisia -22.7%, Saudi Arabia -19.6%, and Dubai -17.1%

Obviously when presented with these prices on a real-time basis, the fundamental takeaways are crystal clear:

  1. Countries, Sectors, and Companies that get paid in The Petro-Dollars are getting paid by The Inflation
  2. Countries, Sectors, and Companies that don’t have pricing power are taking it in the margin
  3. Citizens are getting plugged

If this continues, the global economic risk management scenario starts to look a lot more like the 1970s than it does anything that most investors have had to wrestle with for the last 30 years. Stocks aren’t in the area code of “cheap” if inflation finds its way into margin and multiple compression.

 

The best way to fight this is by breaking the gigantic promise that America has made to the world – cheap moneys forever. If we start promising the world more hawkish monetary policy, the US Dollar will stop being debauched. That, in turn, will deflate The Inflation. And I’ll be the first in line to start investing more of my 49% position in Cash (versus 58% on Monday of last week). Paying the lower price works for me.

 

My immediate-term support and resistance levels for the SP500 are now 1315 and 1333, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Paying The Price - ab1

 

Paying The Price - ab2


Getting Old

This note was originally published at 8am on March 02, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Demographics is destiny.”

-Arthur Kemp

 

Undoubtedly, there is a lot I disagree with Arthur Kemp on.  He is the Foreign Affairs Spokesperson for the British National Party, and is a self-avowed white separatist and critic of miscegenation.  Yup, definitely not that kind of cat I would spend much time socializing with or supporting.  Despite this, his quote above regarding demographics rang very true with me.

 

We employ demographics across many of our research verticals, and in fact use it from a macro perspective when analyzing countries and demand patterns.  The inevitability of demographic trends is difficult to deny.  In some instances, it may merely be getting old, which is what my mother likes to tell me I’m doing as a 37-year old bachelor.  In other situations, demographics, and the related outcomes, relate more to youth and birthrates.

 

In an intraday note yesterday titled, “Could the Kingdom Fall?”, I highlighted the importance of age to social unrest in the Middle East and North Africa.  Simply put, MENA has a young population that is severely under-employed.  If there is an elixir for social unrest, this is it - young people with too much time on their hands, and not enough money in their pockets. 

 

As a frame of reference, the median age in the United States is 36.9 years. Globally, the median age is 28.4 years.  So, the population of the United States is meaningfully older than the rest of the world.  The global median age is driven down by the Middle East and North Africa.  In the Chart of the Day, we’ve highlighted this global discrepancy broadly, but the median age in Iran is 26.8, in Iraq 20.9, in Egypt 24.3, in Libya 24.5, and in Pakistan 21.6.  The lower average and median ages in MENA have been driven by vastly improving health care over the last decade, which have driven up birthrates.

 

In Japan, the key demographic trend is the exact opposite.  In contrast to many MENA countries, and really the world, Japan is old.  Not getting old, but already there.  In fact, the median age in Japan is 44.8 years.  According to the CIA World Fact Book, this makes Japan the second oldest nation based on median age after Germany, whose median age is 44.9.  Not surprisingly then, demographics is one the key tenets in our bearish thesis on Japan’s equity and currency; or as we like to call it: Japan’s Jugular.

 

While Japan’s median age is slightly lower than Germany’s, it has by far the world’s most elderly population.  Currently, as of 2009, 22.7% of Japan’s population is above 65 years of age.  The Japanese government has modeled this ratio to grow to 29.2% by 2020 and to 39.6% thirty years after that.  The implications are that in ten years the ratio of retirees to working age will be ~48% in Japan. 

 

The aging Japanese population has dire implications related to the future fiscal and monetary health of the country.  The Japanese Government Pension Investment Fund, the world’s largest pension fund with ~$1.4 trillion in assets, has consistently been one of the largest buyers of Japanese government debt.  This fiscal year, ending March 2011, the fund will be for the first time a net seller of Japanese government bonds.  According to Takahiro Mitani, the President of GPIF, “We certainly have to come up with an adequate amount” to pay pensions.  With these bond sales, the impact of demographic headwinds has likely reached an inflection point in the Japanese economy. These sales will only accelerate in the coming decades and with them the associated risks to the Japanese economy (higher interests rates as one) will also accelerate.

 

In the United States, there is some clear destiny embedded in demographic trends as well, specifically related to healthcare and healthcare investors.  The Baby Boomer wave, which Healthcare investors commonly, and mistakenly, place as the core driver of a long-term Healthcare growth thesis, remains the most consequential domestic demographic trend. 

 

Boomer Employment (45-64 yr olds) reached its crescendo in the 1993-2002 timeframe with peak earnings and peak disposable income occurring alongside historic lows in unemployment.  Now, with this segment of the working population in deceleration mode, the U.S. workforce nearing a peak in average age, and the echo boomers (30-39 yr. olds) years away from peak consumption growth, the healthcare and broader economy face significant longer-term demographic headwinds.

 

This last point is also embedded in long-term projections for healthcare and social security entitlements in the United States.  In the Congressional Budget Office’s long-term baseline scenario, due to these aging demographic trends, social security spending accelerates from 4.8% of GDP in 2010 to 6.2% in 2035 and healthcare spending accelerates from 5.5% of GDP to 9.7% over the same time period, which will lead to a huge ramp in mandatory government spending over the coming decades with no reform.

 

While there is inevitability embedded in many of the demographic trends outlined above, from a risk manager’s perspective we just have to manage the tail and headwinds accordingly.   And as Chuck Jones, the inventor of Wile E. Coyote, said about inevitability:

 

“There is absolutely no inevitability as long as there is a willingness to think.”

 

Indeed.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

 

Getting Old - daryl1

 

Getting Old - daryl2


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