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Patriot Pigs

This note was originally published at 8am on April 06, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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

TODAY’S S&P 500 SET-UP - April 11, 2011

 

Over night the best performing markets are in the Middle East; Qatar and Kuwait up 1.03% and 0.88%, respectively.  The IMF is coming around to the Hedgeye view and has lowered its forecasts for economic growth in the U.S.  As we look at today’s set up for the S&P 500, the range is 19 points or -0.62% downside to 1320 and 0.82% upside to 1339.

 

SECTOR AND GLOBAL PERFORMANCE

 

We are on day 6 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: -966 (-208)  
  • VOLUME: NYSE 815.79 (-10.06%)
  • VIX:  17.87 +4.44% YTD PERFORMANCE: +0.68%
  • SPX PUT/CALL RATIO: 1.73 from 1.93 (-10.43%)

 

CREDIT/ECONOMIC MARKET LOOK:

 

Treasuries fall as economists estimate that U.S. data will show inflation quickened and Pimco’s Bill Gross set a bet against govt. debt. 

  • TED SPREAD: 24.73 -0.250 (-1.001%)
  • 3-MONTH T-BILL YIELD: 0.04%
  • 10-Year: 3.59 from 3.58
  • YIELD CURVE: 2.76 from 2.77 

 

MACRO DATA POINTS:

  • 11 a.m.: Export inspections (corn, soybeans, wheat)
  • 11:30 a.m.: U.S. to sell $32b 3-mo. bills, $30b 6-mo. bills
  • 12:15 p.m.: Fed’s Yellen to speak to Economic Club of New York (text, Q&A)
  • 4 p.m.: Crop progress (winter wheat, corn, cotton)

 

WHAT TO WATCH:

  • President Obama to deliver major speech regarding deficit reduction this week - Politico
  • NYSE Euronext board unanimously rejects NDAQ/ICE offer; reaffirms commitment to Deutsche Boerse combination
  • YouTube announces the the initial roll out of YouTube Live, which provides live streaming capablity

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • China Meat Binge Fuels Iowa-Sized Soybean Imports to Feed 689 Million Pigs
  • Copper Erases Gain as Chinese Imports Stoke Speculation Demand May Weaken
  • Gold May Slide on Sales After Rally to Record; Silver Reaches 31-Year High
  • China Copper Imports Decline 33% on Year as Demand Ebbs, Stockpiles Climb
  • Corn Advances to Highest Since June 2008 on Forecast for Shrinking Supply
  • Cocoa Climbs on Ivory Coast Fighting; Coffee Declines, Sugar Prices Gain
  • Hedge Funds Boost Bullish Bets on Grain, Soy Prices on Increased Demand
  • Nickel Demand in China Set to Grow Fastest Among Metals, Antaike's Xu Says
  • Alcoa Net May Triple as Aluminum Demand Outweighs ‘Monstrous’ Stockpiles
  • Copper Set to Climb 13% to Record, Aluminum to Advance: Technical Analysis
  • India May End Wheat, Rice Export Bans on Record Harvests, Citigroup Says
  • Milk Shipments Resume From Japan’s Ibaraki as Radiation Levels Decline
  • BHP Billiton Douses Speculation of $48.6 Billion Woodside Takeover Offer

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - daily currency view

 

EUROPEAN MARKETS

  • Europe markets are mixed on inflation concerns and the beginning of earnings season.
  • German Finance Minister Wolfgang Schaeuble said after a’meeting with EU counterparts at the weekend that it’s unclear whether Greece will need another cut in its bailout rate or a further extension of repayment terms.
  • French Industrial Production 0.4% M/m, est. +0.5% (prior +1.0%)
  • French Industrial Production 5.6% Y/y, est. +5.2% (prior +5.4%)
  • French Manufacturing Production 0.7% M/m, est. +0.7% (prior +1.8%)
  • French Manufacturing Production 7.2% Y/y, est. +6.4% (prior +6.8%)
  • Italian Industrial Production (sa) 1.4% M/m, est. +1.7% M/m (prior +1.5%)
  • Italian Industrial Production (wsa) 2.3% Y/y, est. +3.4% Y/y (prior +0.6%)
  • Italian Industrial Production (nsa) 2.3% Y/y, est. +3.9% Y/y (prior +3.8%)

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

ASIA PACIFIC MARKTES:

  • China falls for the first time in 5 days
  • Most Asian stocks decline as oil reaches 30-month high and a 6.6-magnitude quake hits in Japan.
  • Major markets were closed before the 7.1 earthquake in Japan.
  • Japan February core machinery orders (2.3%) m/m vs cons (1.1%).
  • China Q1 trade balance ($1.02B) vs year-ago $13.91B.

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 - SECTOR VIEW


PNK TRADING UPDATE

Keith bought PNK in Hedgeye virtual portfolio since it hit his quantitative hurdles and we like the near term earnings outlook.

 

 

I was down in Houston for the Final Four (Huskies!) and took a trip out to Lake Charles to visit L’Auberge and the GM of the property.  L’Auberge is PNK’s largest property.  Our conclusion is that the property may be tracking well ahead of Street’s expectations in Q1 and the outlook for this year is quite promising.  L’Auberge should contribute to an estimate-beating quarter for PNK.  We'll have a full earnings preview out shortly.

 

We are currently at $25 million in Q1 EBITDA for the property but that number probably needs to go higher by another $2 million.  L'Auberge's Q1 should be a record quarter.  While March gaming revenues will be flattish to last year, profitability will be up handsomely due to better cost controls and lower promotional allowances.  The current GM replaced the Dan Lee hired GM and has been on the job for only 6 months.  From my visit, I’m fairly certain that we are in the early innings of significant improvement at this property. 

 

PNK has gained or maintained market share on a 12-month rolling basis in each property since Q4 2010.  In addition, of the regional states that have reported revenues, March has been above expectations.  We continue to like PNK and most of the regionals as we head into the Q1 earnings season.

 

PNK TRADING UPDATE - PNK


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Heeeere Tiger Tiger Tiger...

They say that half of all marketing dollars are wasted -- you just don't know which half. Yes, Nike's $2+bn in Demand Creation leaves a lot to play with, but you gotta hand it to 'em, they always seem to come out on top.

 

Check this out... Go to www.cnn.com. Then click 'Sports', which will have, of course the leading story of the day -- Tiger's raging comeback on the final da of The Masters. Then click on the story, and you get the image below. Why is it that the two names up top -- the two that are sprinting into the final stretch -- each have Swooshes next to their names?

 

No, it's not because Nike has a crystal ball to only select the best athletes. But it DOES have the organizational process to capitalize on those sports assets whenever the opportunity presents itself. My point here is that Tiger might very well end up losing this one. I don't know and I don't particularly care.

 

What I do care about is that seeing continued evidence that the strategy is in place to monetize some pretty expensive players. Oh, and by the way, keep in mind that sales of Tiger merchandise never fell off anywhere near as much as his public perception since events from 2-Thanksgivings ago. In fact, at times they were up. The installed base of sales and distribution points remains huge, is likely headed higher.

 

Does this make me anymore inclined to own the stock today? Nope.

But is the long-term story intact? Absolutely.

 

Heeeere Tiger Tiger Tiger... - 2121212


LVS PREVIEW IF ANYONE ACTUALLY CARES ABOUT ITS EARNINGS

On a fundamental basis, the LVS Q1 might be ho hum. Nothing about this company is ever just ho hum.

 

 

We still think LVS will beat formal consensus estimates but it may not be the blowout quarter that people have become accustomed.  The stock reaction may hinge on whether any information emerges regarding the Jacobs situation.  Otherwise, we’re not so sure there will be enough in the fundamentals to drive the stock significantly higher.

 

We estimate that LVS will report $2.2BN of revenue and $749MM (3% ahead of consensus) of EBITDA in 1Q2011.

 

 

Macau

We project that LVS’s Macau properties report EBITDA of $348MM and net revenue of $1,152MM, 1% below and 5% above Street estimates, respectively.  Specifically, our EBITDA estimate is in-line with the Street for Sands, 5% below the Street for Venetian, and 21% above the Street for Four Seasons.

 

SANDS

We estimate that Sands Macau to report $88MM of EBITDA and $332MM of net gaming revenue  

  • Project gross gaming revenues of $400MM and net gaming revenues of $325MM
    • $236MM of gross and $161MM of net VIP table win
      • $8.8BN RC, up 37% YoY, assuming 15% direct play
      • 2.7% hold
      • 86bps rebate rate
    • Mass table win of $138MM
      • $684MM drop (up 16% YoY)
      • 20.3% hold
    • Slot win of $26MM
      • $417MM handle (up 15% YoY)
      • 6.2% hold
  • $7MM of non-gaming revenues, net of promotional allowances
  • Variable expenses of $198MM ($156MM of gaming taxes and $32MM of incremental junket commissions over the rebate rate)
  • $4MM of non-gaming expenses
  • $48MM of fixed expenses

VENETIAN

We estimate that Venetian will report $652MM of net revenues and $210MM of EBITDA

  • Gross gaming revenues of $660MM and net gaming revenues of $559MM
    • $338MM of gross and $237MM of net VIP table win
      • $12.4BN RC, up 24% YoY, assuming 19% direct play
      • 2.7% hold
      • 82bps rebate rate
    • Mass table win of $269MM
      • $1,120MM drop (up 21.5% YoY)
      • 24% hold
    • Slot win of $53MM
      • $737MM handle (up 10% YoY)
      • 7.2% hold
  • $93MM of non-gaming revenues, net of promotional allowances
  • Variable expenses of $318MM ($257MM of gaming taxes and $43MM of incremental junket commissions over the rebate rate)
  • $24MM of non-gaming expenses
  • $101MM of fixed expenses

FOUR SEASONS

We estimate that Four Seasons will report $168MM of net revenue and $50MM of EBITDA

  • Gross gaming revenues of $198MM and net gaming revenues of $147MM
    • $153MM of gross and $103MM of net VIP table win
      • $4.8BN RC, up 30% YoY, assuming 51% direct play
      • 3.17% hold
      • 105bps rebate rate
    • Mass table win of $33MM
      • $129MM drop (up 30% YoY)
      • 26% hold
    • Slot win of $11MM
      • $186MM handle (up 25% YoY)
      • 6.0% hold
  • $21MM of non-gaming revenues, net of promotional allowances
  • Variable expenses of $86MM ($77MM of gaming taxes and $4MM of incremental junket commissions over the rebate rate)
  • $8MM of non-gaming expenses
  • $25MM of fixed expenses


Singapore

We estimate that Marina Bay Sands will report net revenue of $586MM and EBITDA of $321MM, 3% and 4% below consensus estimates, respectively.

  • Gross gaming revenue of $592MM and net gaming revenue of $471MM
    • Slot win of $111MM
      • $2,019MM slot handle and 5.5% hold
    • Mass table win of $230MM
      • Hold of 22.2% and drop of $1,036MM
    • Net VIP table win of $130MM
      • $9BN of RC volume, 2.8% hold, and a 1.35% rebate rate
  • Non-gaming revenue, net of promotional allowances of $116MM
  • Variable expenses of $109MM – primarily consisting of $103MM of gaming taxes
  • Estimated fixed expenses of $157MM

 

Las Vegas

We estimate that Venetian and Palazzo will report $360MM of net revenue and $117MM of EBITDA, 7% and 18% ahead of the Street, respectively.

  • We estimate that Venetian and Palazzo will report net casino revenues of $141MM
    • $53MM of slot win
      • 5% YoY increase in slot handle to $670MM
    • $110MM of table win
      • 7% YoY growth in table drop and 18.8% hold
    • Rebates and discounts of $22MM of 3.7% of gross casino revenues
  • Rooms revenue of $129MM (assuming mid-high, single digit RevPAR growth)
  • $90MM of other non-gaming revenues, after promotional allowances
  • $244MM of total operating expenses

 

Pennsylvania

We estimate that Sands Bethlehem will report $91MM of revenues and $22MM of EBITDA, 2% and 8% ahead of Street estimates.

  • We estimate $85MM of gaming revenues
    • $65MM of slot revenue and $20MM of table revenue
    • $7MM of other revenue
  • $39MM of gaming taxes
  • $30MM of fixed expenses

 

Other Stuff:

  • Corporate expense: $40MM
  • Rental expense: $11MM
  • Net interest expense: $79MM
  • D&A: $185MM

The Week Ahead

The Economic Data calendar for the week of the 11th of April through the 15th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

The Week Ahead - calm1

The Week Ahead - calm2


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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