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THE M3: MGM CHINA IPO PRICE; RWS PHASE 2; APRIL UNEMPLOYMENT

The Macau Metro Monitor, May 27, 2011

 


MGM CHINA PRICES AT TOP OF RANGE IN HONG KONG WSJ, Reuters

The MGM China IPO was priced at HK$15.34 (US$1.97), the high end of the range.  The company sold 760MM shares, raising HK$11.66 billion ($1.5 billion).

 

RESORTS WORLD READY FOR PHASE TWO OPENING Strait Times

RWS' executive chairman Tan Sri Lim Kok Thay said that barring any incidents, the resort is on track for its Phase Two opening and he is confident that it will attract more than 16MM visitors in 2011, up from last year's 15MM.  Starting with the opening of the maritime museum in 3Q, other attractions to open under Phase Two include the Equarius hotel, an oceanarium and a water theme park.

 

EMPLOYMENT SURVEY FOR FEBRUARY-APRIL 2011 DSEC

Macau's unemployment rate for February-April 2011 was 2.7%, unchanged from the previous period (January-March 2011).  Total labor force was 334,000 in February-April 2011 and the labor force participation rate stood at 71.2%. 


TALES OF THE TAPE: MCD, GMCR, EAT, PEET, BWLD, KKD

TALES OF THE TAPE

 

  • The Coffee trade continues - CBOU, GMCR, PEET and KKD continue to power ahead on good volume
  • JACK sales remain down - LA Times - The article talks largely to analysts and notes that the company's attempts to attract a slightly wealthier client base might actually backfire.  Maybe the LA Times should be talking to analysts that know that they are talking about, because the strategy is not to go after wealthier client base.  Here are the comments from the CEO speaking at the latest conference “Lastly I want to reiterate that our number one priority this year is to drive sales and traffic at Jack in the Box through investments we made to enhance our food, service and facilities. We recognize that these investments may depress margins in the near-term but should build sales and brand loyalty over the longer term. To recap the steps we are taking, we are investing resources to improve many of our top-selling core products and continuing to emphasize both premium products and value promotions in our marketing calendar. We're investing resources to improve the guest service by delivering a more consistent experience. And Phase two of this system-wide plan is focusing on improving speed of service and other key drivers of guest satisfaction.”
  • Yesterday, BWLD was added to short term buy list at Deutsche Bank
  • THI is still MUM on CEO’s departure; down for the second day on accelerating volume
  • MCD was weak in a strong tape…..  If the USA prints a 3% SSS for the month of May that suggests traffic is slowing
  • Overall Casual Dining had a great day yesterday
  • RRGB - The good news is getting baked in
  • CAKE - Up on strong volume and Im negative
  • RUTH and EAT (two names I like) were up on strong volume
  • Corn prices rose for a second day Thursday on concerns that heavy rains could hurt this year's harvest.  Corn rose 0.4%, while wheat rose 2.3% and soybeans rose 0.6%. Wet weather in parts of the Midwest has made it difficult for farmers to plant corn, even as demand remains high around the globe. 
  • Google has partnered with MasterCard and Citi in its Wallet application, which is designed to be a combination credit card, rewards program and coupon case when customers tap their smartphones at the register. Also on hand were Google's posse of retail and restaurant partners, including Subway, American Eagle and Macy's, which will enable Wallet payments and offers when the platform launches this summer. 


TALES OF THE TAPE: MCD, GMCR, EAT, PEET, BWLD, KKD - qsr

TALES OF THE TAPE: MCD, GMCR, EAT, PEET, BWLD, KKD - fsr

 

Howard Penney



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G-Fluff

“Governments everywhere are still trying to cure by public works the unemployment brought about by their own policies.”

-Henry Hazlitt (Economics In One Lesson, page 208)

 

I suppose it’s only fitting that Henry Hazlitt revised his million-plus copies sold of “Economics In One Lesson” in June of 1978 (originally penned in 1946). That’s when the Western world was swallowing stagflation whole. That was shortly after the French introduced the G-Fluff.

 

G-Fluff, formerly known as the G-6 Central Planning Board (created by France in 1975), is now affectionately referred to by professional politicians as the G-8.

 

The G stands for Groupthink. The G-8 currently consists of Canada, France, Germany, Italy, Japan, Russia, United Kingdom, and the United States. Not to be outdone, The EU also sends their commissioners for 3 hour lunches that serve up piping hot bs, with broccoli.

 

This year’s G-Fluff conference is being held in a hoity-toity town on the northwestern coastline de la belle Provence. Les Obamas et les Sarkozys (hearing there may be more than a few of them – with adjoining rooms)… La rencontre… et la culture… sans le DSK.

 

BREAKING HEADLINE (out of the G-8 conference this morning):

 

“THE GLOBAL RECOVERY IS GAINING STRENGTH… HOWEVER, DOWNSIDE RISKS REMAIN”

 

Mais, qu’est-ce que c’est Le Recovery? Que’est-ce qui se passe avec Le Downside?

 

(Before someone goes all French socialist on me – for the record, my Mom’s side of the family is French-Canadian, and I went to French school until the 5th grade, learning how to read, write, and count in French before the English pig stuff.)

 

Back to Le Recovery et Le Downside

 

In Spain the socialists are running a 21.3% unemployment rate, so let’s not talk about that outcome of le debt financing les deficits – Spain isn’t allowed at the G-Fluff conference anyway.

 

Let’s talk about le USA.

  1. Yesterdays US jobless claims report rose 15,000 week-over-week to 424,000
  2. Ze rolling claim (the 4-week moving average) held at 439,000 – a new YTD high!

When considered on 1 of the 2 key measures of le success of Le Bernank (1. Full Employment, 2. Price stability), this is not good. Actually, it’s really bad – because our math suggests that for the unemployment rate in this country to recover, we’ll need to see weekly jobless claims consistently below 385,000.

 

Le Bernank et L’Obama get this. That’s why Le Bernank’s key statement less than a month ago at his Presser was:

 

“It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk.”

-Ben Bernanke, April 27, 2011

 

In other words, without Le Quantitative Guessing (and ze Inflation born out of it) – we do not know what to do.

 

May I suggest two eggs, side by each, pour ton fluffy dejeuner Madame Obama?

 

This entire Keynesian experiment and my mockery of it is a much more serious joke than I can muster this morning. For the last 6 months Hedgeye has been warning that a policy to inflate will structurally impair (slow) economic growth.

 

I’m actually getting tired of hammering my hockey knuckles into my keyboard every morning – as de French-Canadian goalie from “Slapshot”, Dennis Lemieux, might say – SLOW-z… SLOW-zzz – de Inflation slow-ZZZ de growth!

 

Back to the Global Macro Grind

 

The US Treasury Bond market is busting a move to the upside again this morning. US Treasury Bond yields are getting crushed. The 2-year is trading at 0.48% and 10’s are testing a breakdown of the 3% line. The Yield Spread (2-year yields minus 10’s) continues to compress (+258 basis points wide, down another 6 basis points week-over-week).

 

What does this mean?

  1. Growth expectations are slowing
  2. Inflation expectations are slowing

We call this Deflating The Inflation (Hedgeye Q2 Macro Theme), and we can send you the 50 page slide deck on how it works. The two long positions we have on to reflect this view are bullish on the long-end of the bond market (TLT) and long a US Treasury Flattener (FLAT).

 

Yes, we are aware that Le Bernank has to end le QG2 in 6 weeks. We are also aware that when this unprecedented Keynesian experiment ends, jobless claims in America could go a lot higher. I don’t have to wonder what Henry Hazlitt would say about that in June 2011.

 

My immediate-term ranges of support and resistance for Gold, Oil, and the SP500 are now $1511-1538, $96.89-101.57, and 1, respectively.

 

Have a great Memorial Day weekend. God Bless America. And best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

G-Fluff - UST Yield

 

G-Fluff - port2


The Last Stand of the Equity Bulls

This note was originally published at 8am on May 24, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“There are not enough Indians in the world to beat the 7th Cavalry.”

-George Armstrong Custer

 

I’m in the middle reading Nathaniel Philbrick’s book, “The Last Stand”, which is an account of General George Custer’s infamous defeat at the Battle of the Little Bighorn.   Even a novice in American history knows the outcome of June 25th, 1876, a day in which the 7th Cavalry Regiment was soundly defeated by the combined forces of the Lakota, Northern Cheyenne, and Araphao people on the Montana plains.

 

In total, according to archeologist reports, the 7th Cavalry suffered a 52% casualty rate.  The five companies that were directly under the control of General Custer fared much worse.  Near the end of the battle, Custer, and the troops directly under his control, found themselves in a weak strategic position on a hilltop, which would become known as Last Stand Hill.  According to almost all accounts, the Lakota completely annihilated 100% of Custer’s troops within an hour of initial engagement.   

 

Ironically, despite the inauspicious ending to his military career, George Armstrong Custer was probably one of America’s most celebrated cavalry commanders of his era.  While he finished last in his class at West Point, Custer had a meteoric rise in the Union army and at the age of 23, three days prior to the Battle of Gettysburg, was promoted to Brigadier General. 

 

At Gettysburg, Custer was credited with leading a mounted charge of the 1st Michigan Cavalry.  This charge halted the Confederate momentum at the Battle of Gettysburg, which would become known as the turning point of the entire Civil War.  Not only was Custer present at General Robert Lee’s surrender at Appomattox Court House, but the table on which the surrender was signed was given to Custer as a gift for his wife with a note from General Sherdian praising Custer’s bravery and his key role in the Union victory.

 

Perhaps, though, some of Custer’s early successes gave him some false confidence as it related to future military engagements.   According to reports from The Battle of the Little Bighorn, General Custer reportedly said the following shortly before his death:

 

“Hurrah boys, we’ve got them! We’ll finish them up and then go home to our station.”

 

With the history lesson complete, reading the story of Custer and the Battle of the Little Bighorn made me think contextually about the stock market.  In essence, I can’t help but wonder after a +95% move in the SP500 from the lows of March 2009, whether this is The Last Stand of the Equity Bulls.  Certainly, both price action and recent data suggests we are at a critical juncture.  As well, and not dissimilar to Custer, there is likely an over confidence bias pervading the stock market due to the expedited two year move off the bottom. (LinkedIn anyone?)

 

Just like the cavalry, we’ve been sounding the warning trumpets of our key 2011 investment theme that Accelerating Inflation will lead to Slowing Growth.  No doubt, we’ve been early sounding the trumpet, but the view is now playing out in spades.

 

A key tell for this theme has been the price of copper, which is down just over -10% on the year.  Dr. Copper is perhaps one of the most predictive markets for gauging future economic growth, especially from China, a nation that consumers 40% of the world’s copper.  In the most recent data from China, refined copper imports into China were down in April by -48% year-over-year and -17% sequentially from March.  On the LME, copper inventories are up +34% from their December 2010 lows.

 

In other industrial metals, similar trends are in place.  Lead inventories are up +53% this year to the highest level since February 1995, aluminum stocks are at near record highs and up +11% for the year, and zinc inventories are up +21% in 2011 and reached a 16-year high on May 18th.   Other commodities are signaling the same via price action with lumber down -28% in price in the year-to-date, rubber down -7%, and coal down -6%.  In aggregate, the commodity complex is clearly telling us that global growth is slowing.

 

While the most recent quarter of corporate earnings in the United States was decent, results, broadly, were characterized by margin compression.   This was a call our Retail team, led by Sector Head Brian McGough, was early and right in calling.  The bell weather indicator of cost inflation this quarter was Gap Stores, who cut their full year earnings estimates from a range of $1.88 to $1.93 per share, to a range of $1.40 to $1.50 per share due to “heavy cost pressure”.  Collectively, the “cost issue” was reflected in the number of quarters that “beat” earnings this quarter.  Incidentally, beats were down to the lowest level since Q4 2008 at 59.5%.  

 

With a couple more quarters of FIFO accounting and tough commodity input compares ahead for the stock market, the valuation / earnings growth story becomes less compelling for equities, especially in the context of a slowing top line.  Globally, slowing growth is being driven by the emerging world fighting inflation, with the most recent evidence being Chinese PMI coming in at a 10-month low.  In Europe, slowing growth is and will continue to come from massive austerity measures that are being implemented to, hopefully, head off massive debt restructuring.  While in the U.S., the consumer is facing a serious retrenching with U.S. average weekly earnings on a negative trend, unemployment numbers breaking out to the upside, and home prices continuing to be in free fall.

 

Despite the likelihood that corporate margins continue to compress in the coming quarters, which will continue the trends of slowing earnings momentum, those bullish of U.S. equities argue that yields on fixed income are so low that equities still offer a compelling risk / reward.  On some level we agree, as we’ve already made the case for the Fed to remain Indefinitely Dovish and James Bullard, the President of the St. Louis Fed, signaled as much when he said in a speech last night, “past behavior of the FOMC indicates that the Committee sometimes puts policy on hold.”

 

Being on hold is of course one thing, but not extending Quantitative Easing is quite another.  It is the later point that we believe the The Last Stand of the Equity Bulls is predicated upon.  Unfortunately, given the fact that reported inflation in the U.S. is actually set to accelerate, it seems unlikely that the Fed will re-up on Quantitative Easing in the short term.

 

Hurrah, equity bulls! Hurrah!

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Managing Director

 

The Last Stand of the Equity Bulls - Chart of the Day

 

The Last Stand of the Equity Bulls - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - May 27 2011

 

UST Bond Yields showing how bullish people are on the Growth Slowing trade this morning (bullish for bonds). 2s are immediate-term TRADE oversold at 0.48% and 30s at 4.22%, but this is really starting to look like May-July of 2010 in the bond market – they can run.

 

The Hedgeye favorite Macro long positions remain TLT and FLAT – and we bought our GLD back yesterday. If Growth Slowing and Deflating The Inflation (our Macro Themes) become consensus by mid-summer, all 3 of these positions should hold up just fine. Remember Gold acts best when real-interest rates imply negative yields.

 

As we look at today’s set up for the S&P 500, the range is 18 points or -1.18% downside to 1310 and 0.17% upside to 1328.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

THE HEDGEYE DAILY OUTLOOK - bpgmytd

THE HEDGEYE DAILY OUTLOOK - wpgmytd

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1261 (+327)  
  • VOLUME: NYSE 846.11 (11.98%)
  • VIX:  16.09 -5.74% YTD PERFORMANCE: -9.35%
  • SPX PUT/CALL RATIO: 1.76 from 1.30 (+30.00%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 20.84
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 3.07 from 3.13
  • YIELD CURVE: 2.59 from 2.59 

 

MACRO DATA POINTS:

  • 8:30 a.m.: Personal income, est. 0.4%, prior 0.5%
  • 8:30 a.m.: Personal spending, est. 0.5%, prior 0.6%
  • 9:55 a.m.: UMich Consumer Sentiment, final: est. 72.4, prior 72.4
  • 10 a.m.: Pending home sales, est. M/m, (-1.0%), prior 5.1%
  • 1 p.m.: Baker Hughes rig count

WHAT TO WATCH:

  • EU Commission tables measure to ensure fluidity of the EU sugar market
  • Eurozone May Business climate 0.99 vs consensus 1.20 and prior 1.28
  • Microsoft CEO hints at tablet software - WSJ
  • Bank of America (BAC), Morgan Stanley (MS) pay more than $22M to settle wrongful disclosure on active troops - WSJ


COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - dcommv

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Global Tire Demand Exceeding Supply Helps Bridgestone, Goodyear, Sumitomo
  • Corn-Planting Delays Signal Price Gain as U.S. Farmers Switch to Soybeans
  • Oil Rises on World Economy Outlook, Dollar; JPMorgan Sees OPEC Quota Gain
  • Copper Gains to Three-Week High on Indications of Stronger Chinese Demand
  • Thailand’s Sugar Exports May Surge to Record as Domestic Quota Lowered
  • Gold Heads for Second Weekly Advance on Europe Debt Concern, Weaker Dollar
  • Wheat Falls to $8.085 a Bushel in Chicago Trading, Erasing Earlier Advance
  • Copper Premiums in China Advance to Seven-Month High as Demand Recovers
  • Coffee Drinkers Won’t Get Break on Prices as Colombia Sees Global Deficit
  • Corn Demand in China Poised to Exceed Output for First Time in Three Years
  • Barrick Must Let Zambia Keep Equinox Shares as Part of Lumwana Approval
  • Mississippi Crop Cargoes Plunged 39% as Flooding Worsened: Freight Markets
  • Coal Set for Three-Year High on China Drought, Power Cuts: Energy Markets
  • Sugar Price May Gain Next Week on Signs of Increased Demand, Survey Shows

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - dcurrv

 

EUROPEAN MARKETS

  • EUROPE: broad rally this morn but volume is sketchy; DAX (were long) wobbly at this level; Spain/Italy/Greece/Russia all broken TRENDs
  • UK May GfK consumer confidence (21) vs consensus (31)
  • Nationwide UK May house prices (1.2%) y/y vs consensus (1.7%)
  • European Automobile Manufacturers' Association (ACEA) Apr Commercial Vehicles Registrations in the EU +9.5% y/y

THE HEDGEYE DAILY OUTLOOK - bpemytd

THE HEDGEYE DAILY OUTLOOK - wpemytd

 

ASIAN MARKETS

  • A bad week for Asian equities with China down 5 out of 5 days; Vietnam crashing, then bouncing hard (down -15.6% since May4); and Japan remaining abyss
  • Fitch revises Japan's outlook to negative from stable

 

THE HEDGEYE DAILY OUTLOOK - bpamytd

THE HEDGEYE DAILY OUTLOOK - wpamytd

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - meytd

 

Howard Penney

Managing Director


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