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Q3 HOTEL TRANSACTIONS UPDATE

Not as robust as earlier in the year but much higher than 2010

 

 

Market M&A Trends for Q3

  • Q3 US hotel transaction volume fell to $3BN from $4BN in Q2 and $5BN in Q1. But 2011 YTD volume is almost double that of 2010’s total.
    • Q3 US Upper Upscale Hotel Volume tumbled 65% QoQ as there were fewer transactions and a couple of fire-sales.  Average Price per Key fell to $250k in Q3.
  • REITs were not as active; JVs controlled much of the market
  • Portfolio deals picked up steam
  • The most prominent deal was the sale of W London at an average price per key of $1.6MM
  • Hotel delinquencies continue to trend around the 14% level. 
  • According to SHO CEO Kenneth Cruse, CMBS spreads have widened by 60-100bps from a rate of LIBOR+242bps a year ago

 Luxury Segment

  • Average Price per Key
    • Q3 2011
      • US average: $632,270  (2 transactions)
      • Other average: $858,612 (2 transactions)
    • Q2 2011
      • US average: $406,250 (4 transactions)
      • Other average:  $788,461 (3 transactions)

Upper Upscale Segment

  • Average Price per Key
    • Q3 2011
      • US average: $253,736 (8 transactions)
      • Other average: $338,661 (4 transactions)
    • Q2 2011
      • US average: $355,382 (13 transactions)
      • Other average: $250,152 (2 transactions)

 

Q3 HOTEL TRANSACTIONS UPDATE - hotel


Bearish Formation: SP500 Levels, Refreshed

POSITION: Short Consumer Staples (XLP)

 

No change in my view here as there is no factor in my model that is making me change, yet.

 

Across risk management durations, the SP500 remains in what we call a Bearish Formation (bearish TRADE, TREND, and TAIL): 

  1. TAIL = 1266
  2. TREND = 1237
  3. TRADE = 1182 

There is an even shorter-term duration I use (almost hyper short-term to stress test for crash scenarios) that is building in a lower-high of resistance now at 1157. This is not encouraging as it puts pressure on the downward bound of my immediate-term TRADE range (1113).

 

At 1113 or wherever we wash out next, I’ll likely call that a Short Covering Opportunity. Nothing more. Don’t forget the US Employment Report is due out on Friday and a 50,000 payroll add (expected number) is no layup. Neither is closure on a Euro-TARP bazooka before October 17th (EU Summit).

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bearish Formation: SP500 Levels, Refreshed - SPX


European Risk Monitor: More of the Same Indecision

Positions: Short Italy (EWI)


Some things change, others stay the same. As the European sovereign debt and banking contagion crisis chugs along, the underlying current remains that despite Germany’s pledge to back the EFSF, the fund is undercapitalized to deal with the bailout/default needs of Italy or Spain, and Trichet and the ECB remain unwilling to let the Bank take on more risk via larger sovereign bond purchases.

 

As the powder keg of indecision on go-forward policy from Eurocrats heightens, so too does volatility across European capital markets. We’re positioning to get short a number of European economies at the right price. Currently we’re short Italy in the Hedgeye Virtual Portfolio via the etf EWI, but numerous indices are broken across immediate and intermediate TRADE and TREND durations, an explicit bearish set-up in our models. [For more on our thesis on Italy see our note titled “Shorting Italy (EWI)” on 9/30].  

 

From a risk perspective, we continue to take our cues from government bond yields and cds spreads. As we’ve noted in previous work, the 6% yield on 10 year government bonds has been a historically significant level for the PIIGS, meaning that a violation of the line to the upside resulted in an expeditious upward run (see chart below).  Italy, like Spain, has maintained a level below 6% since the ECB restarted the SMP on August 8th, and currently trades at 5.50%, whereas Spain is trading at 5.08%.  However, should yields rise above the 6% level, we’d expect the ECB and European policy makers to act quickly to attach another band-aid to the Union’s fiscal imbalances.

 

European Risk Monitor: More of the Same Indecision - A. 10

 

European Sovereign CDS – European sovereign swaps were mostly tighter week over week, with only the German sovereign CDS spread widening. Irish sovereign CDS spreads tightened week over week by 15%. (Please note: Greek CDS is not shown in the chart because the data was not available.  To gauge Greek credit risk, please refer to Greek bond yields below.) 

 

European Risk Monitor: More of the Same Indecision - A. 1

 

European Risk Monitor: More of the Same Indecision - A. b

 

We don’t have the crystal ball on the timing of the next bailout band-aid, however below we provide a calendar of catalyst around which an announcement could be made:

 

4th October:                            ECOFIN Council.                

6th October:                            ECB Interest rate decision. Jean Claude Trichet’s last Meeting as President.

13th October:                          Eurogroup to decide on release of 6th tranche of Greece bailout funding.

13th October:                          Italian Bond Auction.

14th October:                          G20 Finance Ministers.

Mid-October:                           Possible Italian proposals on labor market and other structural reforms.

17th October:                          Possible Slovakian vote on EFSF.                              

17th/18th October:                   EU Summit.

27th October:                          Irish Presidential Election.

28th October:                          Italian Bond Auction.

Late-October:                          Expected publication of European Commission report on Eurobonds.

1st November:                         Mario Draghi replaces Jean Claude Trichet as ECB President.

4th November:                         G20 Heads of State.

8th November:                         ECOFIN.

20th November:                       Spanish Elections.

 

Finally, below we present the European Financials CDS Monitor from our Financials team. Bank swaps mostly tightened in Europe last week.  Swaps tightened for 34 of the 40 reference entities, widened for 5, and was unchanged for 1. The average tightening was 6.7%, or 37 basis points, and the median tightening was 3.0%.

 

European Risk Monitor: More of the Same Indecision - A. Banks

 

Matthew Hedrick

Senior Analyst


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THE HBM: SBUX, DPZ, RT, PFCB, CAKE

The most important meal of the day.

 

THE HEDGEYE BREAKFAST MONITOR

 

MACRO

 

Commodities

 

Dairy price have come down dramatically over the past couple of months but it is worth noting that beef prices continue to follow a bullish trajectory.  Cheese prices have been volatile this year and we believe that another increase is possible before the quarter is out.

 

THE HBM: SBUX, DPZ, RT, PFCB, CAKE - cheese 103

 

THE HBM: SBUX, DPZ, RT, PFCB, CAKE - live cattle 103

 

 

SUBSECTOR PERFORMANCE

 

Corn continues to slide and food processors, in turn, continue to outperform peer subsectors in the food, beverage, and restaurant space.

 

THE HBM: SBUX, DPZ, RT, PFCB, CAKE - corn 103

 

THE HBM: SBUX, DPZ, RT, PFCB, CAKE - subsector fbr

 

 

QUICK SERVICE

 

SBUX is kicking off its “Create Jobs for USA” campaign, accepting donations online and in some of its cafes to spur job creation among community businesses in the United States.

 

DPZ outperformed the space on Friday. 

 

CASUAL DINING

 

RT, CAKE, and PFCB underperformed the casual dining category on accelerating volume during Friday’s trading session.

 

THE HBM: SBUX, DPZ, RT, PFCB, CAKE - stocks 103

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - October 3, 2011


Deflating The Inflation via a Strong Dollar remains our Global Macro call.  Get the US Dollar right, you get a lot of other things right.  As we look at today’s set up for the S&P 500, the range is 44 points or -1.63% downside to 1113 and 2.26% upside to 1157.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -1836 (-3131) 
  • VOLUME: NYSE 1323.20 (+18.04%)
  • VIX:  42.96 +10.61% YTD PERFORMANCE: +142.03%
  • SPX PUT/CALL RATIO: 1.49 from 2.20 (-31.98%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 36.42
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.92 from 1.99     
  • YIELD CURVE: 1.67 from 1.72

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7 a.m.: Fed’s Fisher speaks on CNBC
  • 10 a.m.: Construction spending, est. (-0.2%), prior (-1.3%)
  • 10 a.m.: ISM Manufacturing, est. 50.3, prior 50.6
  • 11 a.m.: Fed to purchase $2.75b-$3.5b in notes/bonds
  • 11 a.m.: Export inspections: corn, soybeans, wheat
  • 11:30 a.m.: U.S. to sell $29b 3-mo. bills, $27b 6-mo. bills
  • 1 p.m.: Fed’s Fisher speaks on Bloomberg Radio
  • 6 p.m.: Fed’s Lacker speaks in Madison, Wis.

 WHAT TO WATCH:

  • European finance ministers meet in Luxembourg to consider how to shield banks from the debt crisis, boost region’s rescue fund
  • Yahoo will hold 9 a.m. press conference; Alibaba Chairman Jack Ma said on Sept. 30 very interested in Yahoo, talks snagged over political issues
  • Apple iPhone announcement tomorrow; watch for increasing speculation about iPhone 5 capability
  • N.J. Gov. Chris Christie on brink of decision whether to seek Republican nomination for president
  • Supreme Court’s term opens
  • Congress returns from recess
  • Anadarko (APC) won’t have to face personal-injury claims related to 2010 Gulf of Mexico spill, federal judge ruled
  • Arch Coal (ACI) cut forecast for 2011 adjusted EPS

 

COMMODITY/GROWTH EXPECTATION                                                                    

 

COMMODITIES – everyone and their brother knows Dr Copper is crashing now, and this is perpetuating weakness (down another -3.1% to start the wk making fresh lows at $3.05/lb). Every commodity in the Hedgeye model is now bearish TRADE and TREND, including Gold (TREND resistance $1680)

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • China Manufacturing Stability May Ease ‘Hard Landing’ Risks
  • Raw-Material Bets Cut 26% in Biggest Rout Since ’08: Commodities
  • Hedge Funds Cut Oil Bets Most in Seven Weeks: Energy Markets
  • Shell Declares Force Majeure After Fire, Cancels Oil Supply
  • Gold Rises for Third Day as Greek Debt May Spur Increased Demand
  • Obama Said Poised to Submit Three Trade Accords to U.S. Congress
  • Platinum-Gold Ratio Tumbles to Lowest Level Since at Least 1987
  • Commodities Drop to 10-Month Low as European Industry Shrinking
  • Copper Falls to 14-Month Low on Prospects for Demand to Weaken
  • Crude Extends Declines in New York After Closing at One-Year Low
  • European Goldfields Rises in London on $600 Million Qatari Loan
  • Corn Extends Declines After Biggest Monthly Drop in Five Decades
  • Oil Falls After Closing at One-Year Low as Europe Ministers Meet
  • Petrobras Bonds Trailing Pemex on Higher Costs: Brazil Credit
  • Palm Oil Tumbles to One-Year Low as Soybeans Drop on Stockpiles
  • Copper Falls to 14-Month Low Before Manufacturing: LME Preview
  • U.S. Mint American Eagle Silver Coin Sales Most Since January
  • Freeport, Striking Peru Copper Miners to Resume Wage Talks Today
  • U.A.E. Says World Oil Use Stable, No Risk of Plunging Demand

CURRENCIES                                                                             

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

GREECE – so they fibbed again… what does that matter in a globally interconnected game of risk where the entire construct of the EUR/USD pair continues to trade off of politics? Greece leads the headlines and Germany’s DAX broke my critical TRADE line of 5439 support again. Not good.

 

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

ASIA – complete meltdown where markets were opened last night w/ Hong Kong leading the crashers on the downside (down -4.4% overnight; down 31% since April 8th); Thailand and Indonesia collapsed for -4.7% and -5.9% moves, respectively. Asian Growth Slowing.

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

 

Howard Penney

Managing Director


THE M3: SEPT GGR ESTIMATE; LEVEN COMMENTS; S'PORE Q3 HOME PRICES

The Macau Metro Monitor, October 3, 2011

 

 

GAMING REVENUE DWARFS 2010 RECORD Macau Daily Times

According to data compiled by Macau Daily Times, Macau Sept GGR was likely MOP 21.5-21.7 BN, which would imply 40-42% YoY growth.  The data is up to Sept 29, when typhoon Nesat affected the territory.

 

LAS VEGAS SANDS BULLISH ON CHINA WSJ

Michael Leven, president of LVS, said LVS has not observed any negative signals in its business in Macau.  "When you're on the ground and see what is happening, it's very, very hard to be pessimistic," Leven said.  "We are continuing to go forward with our investment in Asia and we are continuing to look for additional opportunities in Asia. We haven't seen any problems there and we continue to be very very very bullish on the Chinese situation," Leven added.

 

S'PORE PRIVATE HOME PRICES CONTINUE TO MODERATE Channel News Asia

Flash estimate of the private residential property index for the third quarter 2011 shows that the rate of increase in private residential property prices continues to moderate for the eighth consecutive quarter since the fourth quarter 2009.  The index shows a 1.3% QoQ growth. 



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