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THE M3: GALAXY MACAU; WYNN COTAI; S'PORE HOME SALES

The Macau Metro Monitor, May 16, 2011

 


GALAXY MACAU GETS OVER 20,000 VISITORS IN ITS FIRST 90 MINUTES Macau Business, Macau Daily Times, Intelligence Macau

Galaxy Macau anticipates between 30,000 to 40,000 guests per day.  Galaxy's Vice Chairman, Francis Lui, said Galaxy supports the bill that would raise the minimum age from 18 to 21 and that Galaxy is confident that the new tobacco law will make all parties happy.  In addition, Lui remarked that Galaxy Macau will help the local economy by increasing the average length of stay of visitors.  The average length of stay of tourists to Macau dropped to 1.45 nights in March but the executive hopes that Galaxy guests will stay ‘on an average two days or more’.

 

COO Michael Mecca said most of Galaxy's 450 tables are new and that the 1930's Shanghai-themed private club and restaurant China Rouge is still under development.  In September, Galaxy will launch a nine-screen, 3D multi-purpose cinema.

 

Galaxy Macau only takes up 1/3 of the area granted by the government in Cotai and the company is already looking at the future.  The company has until 2019 to develop the block.  “To do everything in one piece would mean that it could quickly become obsolete. The profile of our customer has changed so much in the last five years. We want to be sure about what the customer wants. At the appropriate time we will make an announcement on future projects,” Lui stressed.

 

IM is hearing that Phase 2 will include a mall.

 

WYNN SAYS NEW MACAU CASINO TO OPEN IN FOUR YEARS Bloomberg

According to Steve Wynn, Wynn Macau looks to double its earnings in Macau after its Cotai resort opens.  "I don’t know what measurements you use -- revenue, profitability, total visitation, but we could be easily twice as big,” said Wynn.  Wynn said he expects government permission to start building the new casino any day now.  "The new project on Cotai may take longer than normal to construct because it’s being built on reclaimed land," Wynn added.  Wynn Cotai is planned for a 2015 opening.

 

Wynn says his company faces no FCPA risk, and he does not believe that Sheldon Adelson is so stupid as to have blackmailed anyone.

 

PRIVATE HOME SALES UP 29% IN APRIL Channel News Asia

According to the Urban Redevelopment Authority, 1,788 private homes were sold in Singapore last month, a 29% MoM increase from March.


TALES OF THE TAPE: COSI, MCD, DPZ, MSSR

Notable news items and price action from Friday as well as our fundamental view on select names.

  • COSI reported a loss of $0.04 per share for the first quarter.  Company same-store sales gained 3% on a year-over-year basis.
  • MCD plans to scale back employment of cashiers and use of banknotes at its 7,000 European outlets, replacing them with touch screen terminals and swipe cards, according to the Financial Times, citing an interview with Steve Easterbrook, president of McDonald’s Europe.
  • DPZ gained 2.1% on accelerating volume.  BAGL declined 5.5% on accelerating volume.
  • MSSR declined 1% on accelerating volume.

TALES OF THE TAPE: COSI, MCD, DPZ, MSSR - stocks 516

 

Howard Penney

Managing Director


WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 2 of 11 improved / 4 out of 11 worsened / 5 of 11 unchanged
  • Intermediate-term (MoM): Negative / 2 of 11 improved / 3 of 11 worsened / 6 of 11 unchanged
  • Long-term (150 DMA): Neutral / 4 of 11 improved / 4 of 11 worsened / 3 of 11 unchanged

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - summary

 

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

Widened the most vs last week: GS, PMI, PRU

Tightened the most vs last week: ACE, MBI, GNW

Widened the most vs last month: GS, PMI, MTG

Tightened the most vs last month: ACE, ALL, TRV

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe were evenly split last week, widening for 19 of the 39 reference entities and tightening for 19, with one flat.

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - euro cds

 

3. European Sovereign CDS – European sovereign swaps fell last week, dropping 32 bps on average. 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates rose slightly last week, ending at 7.14 versus 7.12 the prior week. A data error or methodology change appears to be the cause of the step function in the Bloomberg series.  We are awaiting clarification on this shift.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index remained flat at 1621 again last week.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - lev loan

 

6. TED Spread Monitor – The TED spread backed off its high last week, ending the week at 24.0 versus 26.2 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the JOC index continued to decline, ending the week at 16.7, 4.4 points lower than the prior week.  This fall brings the JOC to a new year-to-date low.

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 7 bps versus the prior Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - 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 six 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. We track the 14-V1.  Last week spreads ticked up to 105 from 99. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - 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.  Early in the year, Australian floods and oversupply pressured the Index, driving it down 30% before bouncing off the lows.  Last week it fell 34 points to 1306.

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - baltic

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread widened 3 bps to 263 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows:  2.0% upside to TRADE resistance, 0.1% downside to TRADE support.

 

WEEKLY RISK MONITOR FOR FINANCIALS: MORTGAGE INSURANCE SWAPS WIDEN - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


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Insecurity's Correlation

“The more we try to provide full security by interfering with the market system, the greater the insecurity becomes.”

-F.A. Hayek

 

I have been focusing my quotes for the last few weeks on the most pertinent parts of Hayek’s “The Road To Serfdom” in hopes of someone in Washington finding it within themselves to stop doing more of what got us into this mess.

 

The Audacity of Hope, unfortunately, is not a Global Macro risk management process. Neither is John Boehner telling Barack Obama, “let’s lock arms and jump out of the boat together”…

 

Boehner was talking about raising the US Debt Ceiling limit (which the US is technically in violation of today). All US Constitutional “technicalities” aside, this country hasn’t had much of a memory when it comes to the original provision to let the US Treasury print debt in 1917 (in order to finance war). When in doubt, fear monger the citizenry into believing centrally planned security is the only way out.

 

For the week, with the US Dollar Index closing up +1.1% at $75.78:

  1. The US Dollar Index has been up for 2 consecutive weeks for a cumulative recovery of +3.8% from its YTD lows.
  2. The US Dollar Index has been down for 14 of the last 20 weeks and remains bearish on an intermediate-term TREND basis.
  3. The US Dollar Index is down -14.4% since Obama and Geithner took over in early 2009.

From a Correlation Risk perspective, here’s the 2-week cumulative declines in stocks and commodities priced in US Dollars:

  1. US Stocks (SP500) = DOWN -1.9%
  2. US Energy Stocks (XLE) = DOWN -8.3%
  3. US Financial Stocks (XLF) = DOWN -3.7%
  4. CRB Commodities Index = DOWN -8.6%
  5. West Texas Crude Oil = DOWN -12.5%
  6. Copper = DOWN -4.6%

So, if you didn’t know that the Globally Interconnected Marketplace is highly correlated to a US Dollar UP move, now you know…

 

Those who interfere with the free-market system, experimenting with Fiat Fool policies that take the US Dollar to all-time lows, didn’t get The Correlation Risk they were imposing on stocks and commodities in Q208 - and they most certainly don’t get it now. The game within the hedge fund game is now called Gaming Policy – and it’s volatile.

 

If you disagree with me that The Bernank perpetuates The Price Volatility by promising the world to remain “Indefinitely Dovish” (Q2 Hedgeye Macro Theme), the market disagrees with you. Since pandering to the political wind at the latest FOMC presser, the VIX (volatility index) is up +15.8%.

 

Global Growth Slows As Inflation Accelerates – I think the world gets that now… but do the world’s Risk Managers know how to deal with the most levered long trade in hedge fund history as it unwinds?

 

We call this “Deflating The Inflation” (Q2 Hedgeye Macro Theme) – US Dollar UP is the only way out of creating the highest levels of US-style Stagflation since the 1970s.

 

Two important points on stagflation:

  1. Real-time inflation (commodities, rents, education, etc) is reported real-time…
  2. US Government reported “inflation” is reported on a lag

Last week’s US Consumer Price Index (CPI) was +3.2% for the month of April – whereas Deflating The Inflation has occurred in May. This is where it gets tricky for the stagflation bulls who don’t think they’ll ever see a 600 basis point drop in the SP500’s PE multiple (like we saw in the 1970s when reported inflation broke out above reported (lagging) US GDP growth). Sound familiar? US GDP for Q1 was +1.8%.

 

Two points on US Growth and Inflation:

  1. Growth Slowing (joblessness) is going to remain throughout the summer months (the 4-week rolling average of weekly jobless claims just hit a new YTD high last week of 437,000).
  2. Reported Inflation is going to remain elevated because rents continue to climb (as US Housing double dips) and The Inflation “compares” get a lot easier through August (putting an upward bias on reported y/y CPI).

So what do you do with that?

 

Last week I moved as aggressively to Cash in the Hedgeye Asset Allocation Model as I have since mid-February. Here’s where our allocations stand as of this morning:

  1. Cash = 52% (up from 43% last week and 34% two weeks ago)
  2. International Currencies = 18% (Chinese Yuan – CYB)
  3. Fixed Income = 15% (US Treasury Flattener and Long Term Treasuries – FLAT and TLT)
  4. Commodities = 6% (Gold – GLD)
  5. US Equities = 6% (Tech – XLK)
  6. International Equities = 3% (Germany – EWG)

Mr. Macro Market does not owe any of us a return. When The Correlation Risk hinges on insecure policy like it does today, sometimes the most secure move for my own money is to simply get out of the way.

 

The problem right here and now is that everyone is still long The Inflation because The Dare was to chase The Yield – so we’ll need to wait and watch for entry points (capitulation maybe closer to $93 oil) before we take up our invested position again.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $93.18-100.58, and $1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Insecurity's Correlation - Chart of the Day

 

Insecurity's Correlation - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - May 16, 2011

 

The USD is now breaking out above the Hedgeye immediate-term TRADE line of $74.55 this morning. In terms of The Correlation Risk, this only enhances the probability that we’re going to see oil test $93 and a continued unwind of The Inflation trade.  The entire commodity complex (CRB) is now bearish TRADE and TREND, confirming what Copper has been signaling since mid-Feb when we started confirming that Global Growth Slows As Inflation Accelerates. As we look at today’s set up for the S&P 500, the range is 14 points or -0.51% downside to 1331 and 0.54% upside to 1345.

 

SECTOR AND GLOBAL PERFORMANCE

 

By week’s end the US Equity market saw one more sector (Industrials – XLI ) break our immediate-term TRADE line. That makes 4 of 9 Sectors bearish on our immediate-term TRADE duration (XLF, XLE, XLB, and XLI) and 3 of those 4 (XLF, XLB, and XLE) are also confirmed by bearish intermediate-term TREND breakdowns (which we flagged in a risk management note earlier in the week).

 

Tech (XLK) and Healthcare (XLV) remain our two favorite sectors on the long side (in that order of preference from last price).

 

Beta is starting to underperform as expectations for Growth Slowing get baked in.

 

THE HEDGEYE DAILY OUTLOOK - levels 516

 

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: -1319 (-2118)  
  • VOLUME: NYSE 898.43 (-5.57%)
  • VIX:  17.07 +6.49% YTD PERFORMANCE: -3.83%
  • SPX PUT/CALL RATIO: 1.81 from 1.80 (+0.40%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 24.02
  • 3-MONTH T-BILL YIELD: 0.03% +0.01%
  • 10-Year: 3.18 from 3.22
  • YIELD CURVE: 2.61from 2.65

 

MACRO DATA POINTS:

  • 8:30 a.m.: Empire Manufacturing, est. 19.70, prior 21.70
  • 8:30 a.m.: NOPA oil, soybean data
  • 9 a.m.: Bernanke speaks on innovation/research in Washington
  • 9 a.m.: Total net, net long-term TIC flows
  • 10 a.m.: NAHB housing market index, est. 17, prior 16
  • 11 a.m.: Export inspections, corn, soybeans, wheat
  • 11:30 a.m.: U.S. to sell $27b 3-mo. bills, $24b, 6-mos. Bills
  • 4 p.m.: Crop progress, grains

 

WHAT TO WATCH:

  • State Street wants to expand by acquisition outside the US - FT
  • Netflix announces strategic multi-year agreement with Miramax; terms undisclosed
  • Wynn Resorts CEO Steve Wynn says company has not been investigated for violating Foreign Corrupt Practices Act - WSJ
  • Japan earthquake came at unfortunate time for car dealers like AutoNation - WSJ
  • Greece will plead for boost in its $155b bailout from European govts. in IMF talks clouded by arrest of Strauss- Kahn
  • Primedia, majority-owned by KKR, may announce deal to sell itself to TPG Capital as soon as today
  • A group of Canada’s biggest banks, pension funds made $3.7b bid for TMX Group, topping offer from London Stock Exchange

 

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Speculators Cut Bets on Higher Commodity Prices by 15% in Week to May 10
  • China Said to Sell Soybeans to Cool Inflation at Fastest Pace Since 2008
  • Goldman ‘Most Constructive’ on Copper, Raises Outlook For Aluminum, Nickel
  • Steel Consumption May Improve This Year on Economic Recovery, Stemcor Says
  • Gold May Advance as EU Finance Mininsters Discuss Greece’s Financing Needs
  • Copper Drops in London Trading as Speculators Cut Holdings: LME Preview
  • Coffee Falls as Vietnam’s Production May Increase; Cocoa Prices Advance
  • Crude Declines on Concern Over Greek Bailout Talks, U.S. Economic Growth
  • Corn Advances for Third Day as Wet Weather Delays Planting in U.S. Midwest
  • Hedge Fund Gas Bets Tumble 26% in Commodity ‘Game Changer’: Energy Markets
  • Europe Commodity Day Ahead: Gold-Coin Sales at a High Show Rally Not Over
  • Sumitomo Metal, Sumitomo Corp to Invest $724 Million in Chile Copper Mine
  • Aluminum Stockpiles in Japan Advance 8.9% After Quake Disrupts Shipments

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • European market are weak across the board
  • Eurozone April final CPI +2.8% y/y vs consensus +2.8% and prior +2.8%; Eurozone April final CPI +0.6% m/m vs consensus +0.6% and prior +1.4%
  • Russia breaking intermediate term TREND line as Spain did last week

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIAN MARKETS

  • Asian markets were weak lead by Vietnam and Hong Kong
  • India down another -1% to -10.6% YTD (we're short)
  • Japan March core machinery orders +2.9% m/m vs consensus (9.9%). April domestic CGPI +2.5% y/y. April-June core machinery orders forecast +10%. April consumer confidence 33.1 vs 38.6 in March.
  • Thailand was closed for a special holiday and will reopen 18-May. 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.30%
  • SHORT SIGNALS 78.51%
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