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THE M3: TAIWAN GAMING; MGM GRAND HO TRAM; SENTOSA

The Macau Metro Monitor, April 6, 2011


 

MOTC HAMMERS OUT DETAILS OF GAMBLING Taiwan Today, China Daily  

 Taiwan's Ministry of Transportation and Communcations (MTC) unveiled its gaming bill recently.  Here are some details:

  • 2 gaming licenses with concession period of 30 yrs
  • Gaming tax: 12-15%
  • Residents subject to NT$2,000 entrance fee.
  • Additional NT$8 BN tax revenue / year

The bill will be discussed in many public hearings in Kinmen, Matsu, and Penghu during April and May.  It will undergo revisions before being submitted to Congress.  The media believes legislative review may happen by year-end.

 

JOHN SHIGLEY NAMED PRESIDENT OF MGM GRAND HO TRAM macaubusiness.com

MGM Hospitality, a subsidiary of MGM Resorts International, and Asian Coast Development (Canada) Limited, have named John Shigley as MGM Grand Ho Tram's President and COO.  Shigley has recently been supporting MGM Resorts International’s Asian gaming interests, primarily in Macau, while also serving as executive vice president of operations for MGM Grand Las Vegas.


SENTOSA'S INTEGRATED RESORTS FAIL TO INCREASE SINGAPORE'S Travel Daily UK

According to a poll taken by the Association of Singapore Attractions (ASA), 45% of Singapore's attractions had seen a decline in visitation in 2010, despite a 20% rise in visitors to Singapore.  “Our inaugural survey revealed that while national tourist arrivals grew by one-fifth in 2010, its influence wasn’t evenly felt across Singapore attractions. We’ve also discovered that the IRs tend to benefit the attractions on Sentosa Island more so than any other location," said Kevin Cheong, Chairman of ASA.


TALES OF THE TAPE: YUM, RT, LNY, MSSR, CMG, COSI, MCD

Notable news items and price action from the last twenty-four hours.

  • YUM down 1.8% on accelerating volume; China raising rates and rumors today that KFC in Japan to reduce outlet opening hours in response to shortages in chicken supplies.
  • RT to report AMC current guidance for fiscal 2011 (May) guidance is EPS $0.76-0.86 and company-owned same-restaurant flat to +2%.
  • LNY CEO and MSSR suitor Tilman Fertitta said in an interview with CNBC that McCormick & Schmick’s “is not a good public company” and Landry’s will make its official tender offer on April 7.  On the broader restaurant space, Mr. Fertitta discussed inflation as being a present factor for operators.
  • MSSR gained 4.8% on accelerating volume yesterday.  Tilman will end up paying $10.50-$11.00 for MSSR.
  • CMG CEO Steve Ells received $14.1M in compensation for fiscal 2010 versus $6.41M the year prior.
  • COSI gained 3.2% on accelerating volume during yesterday’s trading.
  • MCD may be facing another Happy Meal ban, this time in New York as politicians move to ban toy giveaways from fast-food restaurants.  City Council Deputy Majority Leader Leroy Comrie, who plans to introduce the bill on Wednesday, said banning toy giveaways would reduce the allure of fast-food restaurants for children and encourage the industry to provide healthier options.
  • Volume in restaurant stocks broadly fell yesterday, versus the thirty-day average.

 

TALES OF THE TAPE: YUM, RT, LNY, MSSR, CMG, COSI, MCD - stocks 46

 

Howard Penney

Managing Director



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Patriot Pigs

“Lincoln’s ability to retain his emotional balance in such difficult situations was rooted in an acute self awareness.”

-Doris Kearns Goodwin, Team Of Rivals

 

I’m still grinding through this American classic, “Team of Rivals – The Political Genius of Abraham Lincoln.” The aforementioned quote from Kearns Goodwin comes from Chapter 23 which is titled, “There’s a Man In It”, which dissects the subtleties of leadership qualities that were uniquely possessed by both Lincoln and Ulysses S. Grant.

 

It’s an outstanding chapter in American history to reflect upon not only because of its constitutional gravity – “give me liberty or give me death” – but because it reminds us that this country is built on the backs of American character and resolve. What you are seeing from the said-leaders of US Government today looks nothing like it. These pretending patriots remind me more of pigs at a trough than Leaders At The Front.

 

If Timmy Geithner wants to go moral-compass on me for writing that, bring it. My definition of leadership on the ice, at my firm, and in the community is a heck of a lot different than his, and I’ll stand up and say that to his face. YouTube the man. Watch him mimic the hand gestures of Larry Summers. Geithner doesn’t have a sense of self awareness. He is a bureaucrat - not the leader America needs on the front lines of this US Debt-Ceiling Debate.

 

As we predicted, the US Government Shutdown and Debt-Ceiling Debate has replaced Japan and the Middle East as top headline news. This “news” is real-time – and the entire world is watching. If we think that we can call Europeans “pigs”, point fingers at other countries for The Bernank’s inflation, and come out of this generational debate about deficits and debts smelling like a rose, think again.

 

So let’s rethink…

 

One of Bloomberg’s top headlines this morning = “Geithner Says Failure To Raise Debt Limit Would Trigger a Financial Crisis.” And, expanding upon his leadership thoughts, this is what our squirrel hunting bureaucrat had to add to the global risk management conversation:

 

“You will shake the basic foundations of the entire global financial system… I’m totally confident that Congress will act to avoid that… It will be inconceivable that lawmakers will not act in time…”

 

Well Mr. Unaware, conceive reality – this government could (and should) shutdown. During both Bush and Obama’s administrations (you advised both), you worked tirelessly at putting America’s balance sheet in this position. Shame on you for reverting to your go-to move of fear-mongering so that we can do more of what got us into this colossal disaster of fiscal sense. Shame on you Geithner. Shame on you.

 

I’m neither a Republican nor a Democrat. So instead of looking for an angle on me Timmy, why don’t you take a good and hard long look at what Mr. Macro Market is telling you about your Patriot Pig commentary:

  1. Dollar DOWN: Trading down for the 11th out of the last 15 weeks (and down -15% since Geithner became the head of the US Government office that is supposed to be protecting it) the US Dollar Debauchery continues to stoke The Inflation to new economic-cycle and YTD highs (CRB Commodities Index, Food, and Oil both hitting fresh highs this morning).
  2. Euro UP: After registering its best quarterly performance versus the US Dollar since the Euro’s inception in 1999, it’s hitting new YTD highs at $1.43 this morning and smoking all Patriotic Pig name callers in the US out of their holes – reminding Americans that our fiscal issues are worse than Europe’s. And that’s saying something…
  3. Short Term US Treasuries DOWN: Not that the Secretary of the US Treasury should hold himself accountable to massive percentage moves in the prices of US Treasuries, but into and out of Geithner’s fear-mongering comments, 2-year UST yields are ripping higher (up +39% since March 21st, 2011) as  US government shutdown default premiums rise alongside inflation expectations.

Of course it takes two to tango in Burning The Buck  - both a fiscal and a monetary policy central planner. Tag, Bernank and Timmy, you’re it – and either your boss (who has read Lincoln quite closely from what I hear) has “an acute self awareness” of what the American people think about finding fiscal “change we can believe in”, or he doesn’t.

 

As for the rest of us, Yes We Can.

 

The most obvious way to make money on this in 2011 has been to be long of The Inflation Policy of the US Government (short the US Dollar, and short US Treasury Bonds). But, Dear Americans and Canadians alike, please don’t confuse our profits with patriotism. There are 44,000,000 Americans on food stamps (all-time high). While a small some of us are getting paid, most of us are getting plugged.

 

But be careful out there levered-long traders of the risk management gridiron - being long The Inflation Policy isn’t a new idea. Hedge Fund net long exposure to commodities recently backed off its YTD high, but that was an all-time high (which is saying something given how much our industry was chasing commodity inflation in 2007-2008 as The Bernank’s “shock and awe” interest rate cuts delivered us $150/oil). All-time, is a long time…

 

Interestingly, but not surprisingly, that inflationary period of 2007-2008 also gave birth to the first time that US Import Prices from China were UP on a year-over-year basis. That is, the first time until now – and Americans are going to take this in more places than the pump.

 

For these reasons, fully loaded with the long-term causality associated with creating them (burning our currency and credibility at the stake), Mr. Geithner it’s you who may very well “trigger a financial crisis.” And, perversely, most modern day politicians of the 112th Congress are longing for more of that.

 

My immediate-term support and resistance lines for oil are now $106.22 and $109.78, respectively. My immediate-term support and resistance lines for the SP500 are now 1322 and 1341, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Patriot Pigs - Chart of the Day

 

Patriot Pigs - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - April 6, 2011

 

The US Government Shutdown has overtaken Japan and the Middle East as #1 headline news what does it mean for market pricing?

  • Dollar DOWN = stoking inflation to new cycle and YTD highs (CRB and Oil both this morning)
  • Euro UP = new highs, smoking all patriotic pig name callers in the US out of their holes – reminding Americans our fiscal issues are worse
  • Short Term Treasuries UP = ripping higher with both government shutdown default premiums rising (debt ceiling) and inflation being perpetuated

As we look at today’s set up for the S&P 500, the range is 19 points or -0.80% downside to 1322 and 0.63% upside to 1341.

 

SECTOR AND GLOBAL PERFORMANCE

 

We are on day 3 of perfect with 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.    

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 325 (+70)  
  • VOLUME: NYSE 830.64 (+7.78%)
  • VIX:  17.25 -0.86% YTD PERFORMANCE: -2.82%
  • SPX PUT/CALL RATIO: 1.69 from 2.15 (-21.10%)

CREDIT/ECONOMIC MARKET LOOK:

 

Treasury 10-year yields approached 4-week high, extending jump of 6 bps yesterday after release of Fed’s March 15 minutes

  • TED SPREAD: 22.78
  • 3-MONTH T-BILL YIELD: 0.07% +0.01%
  • 10-Year: 3.50 from 3.45
  • YIELD CURVE: 2.66 from 2.68

MACRO DATA POINTS:

  • 7 a.m.: Fed’s Lockhart to meet with media at Stone Mountain, Ga.
  • 7 a.m.: MBA Mortgage Applications
  • 10:30 a.m.: DoE inventories

WHAT TO WATCH:

  • Alberta government proposes rules that would revoke some oil sands leases - Globe and Mail
  • Bullish sentiment increases to 57.3% from 51.6% in the latest US Investor's Intelligence poll
  • FOMC Minutes indicate that the Fed felt it was important to pay attention to the evolution of inflation expectations
  • NYSE Euronext reportedly may bid for Nasdaq to disrupt hostile counteroffer for NYX from Nasdaq, ICE
  • Taiwan Semiconductor Manufacturing cuts forecast for 2011 global chip industry sales excluding memory products to 4% growth from prev. forecast 7% growth; says Japan earthquake hurt expected demand.
  • Portugal plans to sell up to EU1b in bills due October.

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Wheat Seen Extending Rally as Corn Surge Spurs Swap in Feed for Livestock
  • Gold Climbs to Record in ‘Flight to Safety’ as Silver Reaches 31-Year Peak
  • Wheat Crop Conditions in China Seen Improving, Curbing Import Requirements
  • Fishing Halted in Japan’s Ibaraki Prefecture as Nuclear Plant Taints Sea
  • Copper Reaches One-Week High on Speculation Demand Will Maintain Its Pace
  • Crude Oil Trades Near 30-Month High Before ECB Meeting, U.S. Supply Report
  • Cocoa Advances on Ivory Coast Export Speculation; Coffee Prices Decline
  • Corn Declines as Investors Lock-in Gains After Four-Day Rally; Wheat Gains
  • Citigroup Boosts Commodity Investment Team to Tap Demand as Prices Surge
  • China, India Consumers to Lead Surge in Global Dairy Demand, Fonterra Says
  • Palm Oil Gains as Widening Soybean Oil Margin, Crude Advance Boost Demand
  • Rubber in Tokyo Little Changed as China Rate Hike Offsets Thai Flooding
  • Ivernia Says No Timetable Set to Restart Lead Mine in Western Australia

CURRENCIES

  • Canadian Dollar Strengthens to Highest Since November 2007
  • Yen weakened to 6-month low against dollar, tumbled against euro amid speculation BoJ will trail Fed, ECB in ending stimulus

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

EUROPEAN MARKETS

  • Eastern European markets trade higher lower with the periphery again in focus and particularly Ireland and Portugal; Hungry and Turkey are the two best performing markets globally. 
  • Honda to Cut UK Output by 50%, Cites Japanese Parts Shortage
  • UK Halifax Mar House Price Index +0.1% m/m vs consensus +0.2%
  • Germany Mar construction PMI 61.8 vs prior 60.7
  • UK Feb Industrial Production +2.4% y/y vs consensus +4.3%, prior revised +4.2% from +4.4%; UK Manufacturing Production +4.9% y/y vs consensus +5.8%, prior revised +6.6% from +6.8%
  • German Feb. Factory Orders Rise 5x More Than Expected  - Germany Feb industrial orders +2.4% m/m vs consensus +0.6% and prior revised +3.1% vs from +2.9%
  • EuroZone Q4 GDP final +2.0% y/y vs preliminary +2.0%

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIA PACIFIC MARKTES:

 

The Asian markets turned in a positive performance except India, Thailand and South Korea.  Thailand was closed for King Rama I Memorial and Chakri Day.  China rose 1.14% despite yesterday’s surprise interest-rate increase and speculation that March inflation will be higher than expected.

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 46

 

 

Howard Penney

Managing Director


TXRH – PRICEY WITH A TOUGH OUTLOOK

Texas Roadhouse is not a vehicle we would recommend to play the long side of the steak category. 

 

TXRH is currently trading at a premium multiple on a cash flow basis.  8.2x EV/EBITDA NTM is the third highest multiple in casual dining, trailing only BJRI and DIN.  I hold a negative view of the stock from here. 

 

The primary negative factors for the stock are as follows:

  • 65% of the company’s commodity costs are locked for the year (80% of beef needs) but significant exposure remains in diary costs in particular.  While dairy costs came down significantly over the past week, the commodity markets remain volatile and there is significant risk that the company’s guidance of 3% food inflation for the year 2011 will prove conservative.
  • TXRH has been performing well from a top-line perspective.  However, traffic compares get increasingly difficult over the next three quarters and, while optimists may point to top-line outperformance as evidence of some room to add price to the menu, a combination of a step up in price and tough traffic compares could spell trouble for the TXRH top-line.
  • As mentioned earlier, the stock is trading at a lofty multiple which, I believe, is too high given the alternative plays on the space (RUTH at 5x cash flow) and the stock’s less-than-certain outlook.  While there is a strong divergence between the valuation of RUTH and TXRH, the respective sell-side ratings around the stocks (as the second chart below indicates) are much the same.
  • I am also unsure of the effectiveness of the Leader of the Door strategy being implemented at TXRH restaurants to improve wait times.  While management maintained their enthusiasm around this initiative at the most recent Analyst Day in New York, how exactly this will play out remains to be seen.
  • The TXRH core customer is sensitive to gas prices and it seems that Texas Roadhouse could feel some top-line pain from the current level of prices at the pump.  Commentary from DRI CEO Clarence Otis on the most recent Darden earnings call regarding the impact of gasoline prices on casual dining revenues highlighted how acute of a concern gas prices are.

TXRH – PRICEY WITH A TOUGH OUTLOOK - txrh comp makeup

 

TXRH – PRICEY WITH A TOUGH OUTLOOK - ruth comp ratings

 

Howard Penney

Managing Director


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