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SUNNY APRIL FOR REGIONAL GAMING

ASCA and PNK appear to have the most near-term earnings upside.

 

 

The regional gaming revenues have been reported by all of the states and the performance was solid.  We analyze sequential revenues based on the prior 3 months, seasonally adjusted.  As the chart below shows, April sequential revenues for the riverboat market came in more than 3% higher than the projection - the 3rd straight month of sequential revenue improvement.  The consumer shook off high gas prices and bad weather (tax refunds?).

 

SUNNY APRIL FOR REGIONAL GAMING - regional1

 

Of the regionals, ASCA and PNK performed the best in April and they appear to have the most upside to near-term earnings expectations.  Comparisons for the rest of the quarter are easy and the strength appears to have carried into May.  In the last couple of weeks, sell side has been playing catch up as many analysts have raised their ratings and price targets on these two companies.  We still believe consensus is too low.  The following table shows the differential between our EBITDA projections and consensus:

 

SUNNY APRIL FOR REGIONAL GAMING - regional7


Serving The End

This note was originally published at 8am on May 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The most effective way of making everybody serve the single system of ends toward which the social plan is directed is to make everyone believe in those ends.”

-F.A. Hayek

 

That’s the first sentence of Chapter 11 titled “The End Of Truth” in F.A. Hayek’s “The Road To Serfdom” (page 171). “And the most efficient technique to this end is to use old words but change their meaning.” (page 174)

 

As they did in using the old techniques of dollar devaluation and debt monetization in the 1970s, messiahs of the Keynesian Kingdom continue to shop us their central planning policies. But that doesn’t mean that the rest of us have to follow.

 

Whether it’s the center-right Popular Party crushing Zapatero’s Socialist party in Spain this weekend or watching America’s political class go after Paul Ryan for having a spine on debt/deficit reform – no matter where you go out there this morning, there they are – The People.

 

The People get the storytelling. The People know when someone is lying to them. The People will protect their capital against the bureaucrats.

 

In the last 4 weeks, I have protected my family’s hard earned capital by moving to a 61% position in Cash. Since we do in fact keep score at Hedgeye every day, you’ve seen me hold myself accountable to these asset allocation decisions in real-time. I moved to a ZERO percent allocation to US Equities last Thursday as people were bucking up to get Linked-In.

 

This is not to say that I haven’t made my fair share of mistakes in 2011. Neither is it to suggest that I won’t buy back some US Equity exposure if I see my intermediate-term TREND line of support hold (SP500 = 1321). This is simply a reminder that I have an outstanding research team here in New Haven, CT that’s had an outside of consensus view in 2011 – and we’re sticking to it:

  1. Q1 2011 – Growth Slowing As Inflation Accelerates
  2. Q2 2011 – Deflating The Inflation

These two research views did not support chasing Equity or Commodity prices into their respective 2-year highs in April. As Global Macro Risk Managers, we are tasked with getting the slope of A) Growth and B) Inflation right. If we can do that, we take out a lot of risk.

 

In terms of what that means in the Hedgeye Asset Allocation Model, here are the moves I made week-over-week:

  1. Cash = 61% (down from 52% last week and 34% at the end of April)
  2. International Currencies = 18% (Chinese Yuan – CYB)
  3. Fixed Income = 18% (Long-Term Treasuries and US Treasury Flattener – TLT and FLAT)
  4. International Equities = 3% (Germany  - EWG)
  5. US Equities = 0%
  6. Commodities = 0%

Of course, anytime I move to a ZERO percent asset allocation to anything, I get a lot of questions. Most of the questions surround how much conviction we have that The Bernank isn’t going to stop gravity.

 

With gravity being Growth Slowing

 

What’s most interesting (but least surprising) about recent week-over-week moves is that the US Dollar Index continues to drive The Correlation Risk in asset prices. Typically, DOWN DOLLAR would equate to big “REFLATION” trades in everything US Equities. Not so much last week. After “REFLATION” becomes The Inflation – don’t forget that Deflating The Inflation comes next!

 

My longest of long-term base cases about Fiat Fool policy is that:

 

A)     It shortens economic cycles

B)      It amplifies market volatility

 

Therefore, it stands to reason that once you have debased your currency (3 weeks ago, the US Dollar was down -17% since Obama/Geithner took over in 2009) the stock market pops turn into drops.

 

And from what I can tell, all this popping and dropping is making The People tired…

 

After a 2-week +3.8% pop, last week’s US Dollar Index move was only down -0.2% to $75.65. Here’s what everything else did:

  1. SP500 = DOWN -0.3%
  2. Russell 2000 = DOWN -0.7%
  3. Euro = FLAT at $1.41
  4. CRB Commodities Index = UP +0.9%
  5. WTI Crude Oil = UP +0.5%
  6. Gold = UP +1.0%
  7. Copper = UP +3.5%
  8. Volatility (VIX) = UP +2.1%
  9. 2-year UST Yield = DOWN -3.7%
  10. 30-year UST Yield = DOWN -0.2%

So what does our Chaos Theory model tell us about these moves? What’s the deep simplicity of Mr. Macro Market’s messaging?

  1. GROWTH - Growth Slowing (stocks and UST bond yields falling for 3 consecutive weeks in unison)
  2. INFLATION - Deflating The Inflation (commodities are bouncing to lower-highs on low conviction rallies)

How does this all end? Well, if it means that we’re going to sustain anything that remotely resembles The Stagflation of the 1970s, that’s really bad for the market multiple you’ll pay for peak-cycle earnings (in 1974 the SP500 traded to 7x). As to how the storytellers will be Serving The End, like Europe’s proverbial pigs, we’re not sure this decade’s version of the Keynesians will fly.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1504-1518, $95.58-$101.13, and 1321-1340, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Serving The End - Chart of the Day

 

Serving The End - Virtual Portfolio



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Gopher Shrugged

“It’s been proven that every business depends on every other business… so everybody ought to share the burdens of everyone else.”

-Orren Boyle (Atlas Shrugged)

 

While it’s hard to pinpoint exactly who each character in today’s emerging socialist state would be in Ayn Rand’s “Atlas Shrugged”, I’m very confident that Tim Geithner could audition for more roles than one. He’s trained for this for 47% of his life.

 

In Chapter 3 of “Atlas Shrugged”, titled “The Top And The Bottom”, Rand introduces the largesse of Big Government Intervention via a political panderer by the name of Orren Boyle who “had appeared out of nowhere, five years ago, and had since made the cover of every national magazine…”

 

Ah, to be on 60 Minutes… my life would finally have purpose…

 

“Disunity,” drawled James Taggart, “seems to be the basic cause of all social problems.”

 

“You said it, Jim. Disunity that’s the trouble.”

 

That conversation (pages 44-45) between a modern day bailout socialist (James Taggart) and Geithner (Orren Boyle) pretty much sums up how this country’s central planning board of directors thinks about things – in real-time.

 

Real-time? Yes We Can. Check out these comments yesterday by The Gopher (Geithner) about this country’s fiscal affairs:

  1. “Dark forces are waging a war of attrition against efforts to strengthen regulation of the financial system…”
  2. “They’re trying to starve the agencies of funding so they can’t enforce protections…”
  3. “Right now this is all theater… I think there are some people pretending not to understand…”

No – I could not have made up these quotes if I tried. Nor do I find them funny. Political “theater” like this is a national embarrassment. Our moving more and more to the left everyday has every capitalist in America subliminally losing confidence in how this is all going to end.

 

“Who Is John Gault?”

 

This is the world’s 2nd most influential book of all-time (according to a 1991 survey by the Library of Congress) next to the Holy Bible for good reason. There are socialists and there are capitalists. And there are politicians in your life - at work, school, and play – angling … and scheming… somewhere in between the socialist-capitalist spectrum.

 

Never mind “Who Is John Gault?” – maybe a better question is who are you in today’s edition of Gopher Shrugged? It’s an important question to ask yourself as we extend and pretend on the definition of a true free-market society.

 

Back to the Global Macro Grind

 

US stocks and commodities we’re up yesterday because the US Dollar was down. If you want to fix this “disunity” thing – for short-term political resolve - that’s pretty much the only way to do it (if you think getting stocks up is the answer that is). All these fat cats have to do is blow up the hard earned credibility embedded in America’s currency.

 

The problem with this solution to the problem – the problem that they created - is that when you abuse it (and I mean burn it), the “reflation” trade turns into The Inflation (and some loony guys making Reardon Macro in New Haven said INFLATION SLOWS GROWTH).

 

That’s the problem.

 

Dollar DOWN a smidgen yesterday = commodity inflation UP big time (up +1.5% on the CRB Commodities Index – a basket of 19 commodities). So take that “theater” at the pump this Memorial Day weekend folks, and like it.

 

There’s seemingly no juice left in The Gopher’s “agencies.” Market volumes are drying up. And the “dark forces” of market gravity associated with those God blessed things called supply, demand, and price have US stocks down for 4 consecutive weeks.

 

What are we pee-ons who are starting our own companies, on our own sweat capital, to do? Easy answer. Raise Cash in our portfolios so that we can be there … once again - like we were in 2008… to hire and creatively destruct all that is wrong with central planning.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $96-89-101.57, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gopher Shrugged - EL geithner

 

Gopher Shrugged - VP


THE M3: JACOBS RESPOND TO LVS COUNTERCLAIM

The Macau Metro Monitor, May 26, 2011

 

 

FIRED EXECUTIVE LEVELS NEW CHARGES AT LAS VEGAS SANDS, ADELSON Las Vegas Sun, macaubusiness.com

Former Sands China CEO Steven Jacobs has filed new papers against LVS and Chairman Sheldon Adelson, alleging that Adelson tried to intimidate the Reuters international news service into retracting its story about the company and its relationship with alleged triad member Cheung Chi Tai by falsely claiming it was defamatory.  Jacobs' lawyers also mention a May 2010 memo from David Law, Sands China’s collection manager, who discussed sending a US$4.8 million (MOP38.4 million) company check by courier to Las Vegas; this goes against Sands' claim that Jacobs lied about the company sending money abroad via a Macau courier.

 


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - May 26, 2011

 

Mean reversion bounces to lower-highs across all of the big macro stuff that matters (Euro, Oil, SPX futures, etc), but nothing has changed in terms of the big lines in the sand that ultimately matter – primarily USD support and UST yield resistance.

  1. USD immediate-term TRADE range = 75.65-76.26 (wants to make higher-lows and higher immediate-term highs)
  2. Euro immediate-term TRADE range is tight = 1.39-1.41, with $1.41 being its new TREND line of resistance
  3. Oil immediate-term TRADE range = 96.89-101.57, so we’re looking at shorting oil ahead of another USD rally

 

As we look at today’s set up for the S&P 500, the range is 19 points or -0.79% downside to 1310 and 0.65% upside to 1329.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

THE HEDGEYE DAILY OUTLOOK - bpgm1

THE HEDGEYE DAILY OUTLOOK - wpgm1

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 934 (+1172)  
  • VOLUME: NYSE 961.30 (+10.70%)
  • VIX:  17.07 -4.21% YTD PERFORMANCE: -3.83%
  • SPX PUT/CALL RATIO: 1.30 from 1.84 (-29.07%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 20.89
  • 3-MONTH T-BILL YIELD: 0.06%
  • 10-Year: 3.13 from 3.12
  • YIELD CURVE: 2.61 from 2.61 

 

MACRO DATA POINTS:

  • 8:30 a.m.: GDP Q/Q: 2.2%, prior 1.8%
  • 8:30 a.m.: Net export sales, cotton, corn, soybean
  • 8:30 a.m.: Jobless claims, est. 404k, prior 409k
  • 9:45 a.m.: Bloomberg consumer comfort, est. (-47.0), prior (-49.4)
  • 10:30 a.m.: EIA natural gas storage change, est. 95, prior 92
  • 1 p.m.: U.S. to sell $29b 7-year notes 

WHAT TO WATCH:

  • Google holds press conference in NY; may discuss mobile- payments system, Digital Trends says
  • NY Fed said to probe Goldman Sachs’s mortgage allegations: FT
  • Marriott expects to recognize several hundred million dollars in cash tax benefits from the spin off of its timeshare business
  • Bank of America pressured by states to change mortgage practices - Bloomberg
  • CEO Mark Zuckerberg says Facebook "[doesn't] have the DNA to be a music company or movie company" - GigaOM
  • Starbucks raises bagged coffee prices by 17% - WSJ - The WSJ reports that the price increase will take effect 12-Jul, and comes after they raised supermarket bagged coffee 12% in March.


COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - dcommv

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Global Food Production May Be Hurt as Climate Shifts, UN Forecaster Says
  • Oil Falls From Two-Week High in New York on Bets That Recovery Is Too Slow
  • Wheat Gains for Second Day on Concern Dry Weather in Europe Damaged Crops
  • Gold Falls as China Bond-Buying Speculation Curbs Demand; Silver Declines
  • Sugar Rises for Third Day on Indications of Stronger Demand; Coffee Gains
  • Copper May Rise in London Trading on Prospects for U.S. Demand on Growth
  • Platinum Surplus Seen Jumping Eightfold After Japan Quake Cuts Car Output
  • Gold Companies May Face $100 Billion Liability for Ill South Africa Miners
  • Rusal Leads $10 Billion Borrowing in Metal Producer Revival: Russia Credit
  • Rail-Car Orders at 13-Year High Ratify Buffett’s U.S. Bet: Freight Markets
  • ‘Stressed’ Carbon Credits Drawing Record Demand in Europe: Energy Markets
  • Natural Rubber Output Growth to Miss Estimate This Year, Association Says

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - dcurrv

 

EUROPEAN MARKETS

  • EUROPE: soggy Kleenex this morn w/ DAX, Denmark, and Russia all flagging negative divergences - not what the bulls need to see (sold Sweden)
  • Switzerland calls for phasing out of country's five nuclear reactors - FT
  • Germany Apr Import Prices +9.4% y/y vs consensus +9.9% and prior +11.3%
  • France May Consumer Confidence 84 vs consensus 83

THE HEDGEYE DAILY OUTLOOK - bpem1

THE HEDGEYE DAILY OUTLOOK - wpem1

 

ASIAN MARKETS

  • ASIA: wicked volatility off yesterdays bombed out lows; Vietnam +3%, KOSPI +2.8% - but China down for 4th day of 4 this wk; India still lags
  • Japan April corporate services price index (0.8%) y/y, (0.1%) m/m

 

THE HEDGEYE DAILY OUTLOOK - bpam1

THE HEDGEYE DAILY OUTLOOK - wpam1

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - me

 

Howard Penney

Managing Director


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