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MACAU UP AGAIN

Our Oct GGR estimate moves up to HK$25.7-25.8 billion.

 

 

For the second week in a row, Macau table revenues per day increased sequentially.  Month to date, total table revenues were HK$24.2 billion.  Adding in one more day of the month and slot revenue of a little over HK$1 billion yields a full month projection of HK$25.7-25.8 billion, slightly above our previous projection of HK$25.5 billion and a new monthly record.

 

For market share, MGM was the only mover of significance – up to 11% – while Wynn and LVS continue their downward trend.  SJM and MPEL continue to be our favorite Macau operators. 

 

Here are the numbers:

 

MACAU UP AGAIN - macau


THE M3: BOWIE COMMENTS; SHUTTLES; SMOKING LAW; S'PORE 3Q UNEMPLOYMENT RATE

The Macau Metro Monitor, October 31, 2011

 

 

MGM WILL CONTINUE TO ADD NONGAMING ELEMENTS Jornal Va Kio

Grant Bowie, CEO of MGM Resorts China Holdings, said the company has been always dedicated to developing non‐gaming projects and the company is not just striving to secure more gaming tables.  When asked about his opinion about the upcoming tobacco control law, he said it is a global trend and casino business may be affected at initial stage. 

 

CASINOS AGREE TO REGULATE SHUTTLES: GOVT Macau Business

The Transport Bureau director Wong Wan said casino operators have agreed to restrict the number of shuttle buses.  Wong didn’t put forward any specific goal for the overall number of casino shuttles to operate in Macau in the future.  As part of the overall plan to improve traffic, the government also wants to cap the growth in the number of cars at 4% a year starting in 2020.

 

REGULATION ON CASINO SMOKING OUT THIS YEAR Macau Daily Times

Even though the gaming industry will only be forced to introduce smoking restrictions in 2013, the government is planning to release regulation for casinos by the end of this year, Health Bureau (SSM) director Lei Chin Ion said.  A ban on indoors smoking in public spaces will come into effect on January 2012 but casinos will have one more year to set up dedicated smoking areas of up to 50% of their total public area.

 

SINGAPORE'S JOBLESS RATE FALLS AS COMPANIES INCREASE PAYROLLS Bloomberg

The seasonally adjusted unemployment rate eased to 2% in the three months through September from 2.1% the previous quarter, the Ministry of Manpower said. That’s better than the Street estimate of 2.3%.  S'pore economy added ~32,300 jobs in 3Q, compared with 24,800 in 2Q.

 



MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1

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* The TED spread made a new YTD high at 42.9 bps, indicating that credit markets remain skeptical of the EU "bailout".

 

* Credit default swaps for Eurozone countries tightened, but Italian bond yields hit new highs. This may be reflecting a new divergence between yields and swaps due to the counterintuitive ISDA conclusion that a 50% Greek debt haircut is not a default. The ramifications are that this may drive swaps and yields in opposite directions at times, making yields the more appropriate risk benchmark. 

 

* Credit markets are signing a different tune than equity markets. Greek 10-yr bond yields came in just 80 bps to 23.24%, suggesting that the credit market is far less impressed by the summit’s results than the equity market was. 

 

* Mortgage insurer CDS increased even further, indicating a still growing probability of default for RDN and MTG.

 

* The short term (TRADE) downside/upside setup in the XLF is currently 5 to 1 (6.3% downside vs. 1.2% upside).

 

Margin Debt Falls in September

We publish NYSE Margin Debt every month when it’s released. 

 

 NYSE Margin debt hit its post-2007 peak in April of this year at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did this past April, that has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May of this year.

 

 The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. This is important because it means that margin debt, which has retraced back to +0.43 standard deviations as of September, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend reversed. There’s plenty of room for short/intermediate term reversals within this broader secular move, but overall this setup represents a material headwind for the market.  

 

One limitation of this series is that it is reported on a lag.  The chart shows data through September.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - Margin Debt

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 8 of 11 improved / 2 out of 11 worsened / 1 of 11 unchanged
  • Intermediate-term (MoM): Positive / 8 of 11 improved / 1 of 11 worsened / 2 of 11 unchanged
  • Long-term (150 DMA): Negative / 1 of 11 improved / 8 of 11 worsened / 2 of 11 unchanged

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - Summary

 

1. US Financials CDS Monitor – Swaps tightened across every major domestic financial company last week except the three mortgage insurers.  Swaps widened at MTG and RDN as PMI swaps tripled. 

Tightened the most vs last week: LNC, PRU, HIG

Widened the most vs last week:  PMI, MTG, RDN

Tightened the most vs last month: C, MS, HIG

Tightened the least/widened the most vs last month: PMI, RDN, AGO

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - CDS  US

 

2. European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 38 of the 40 reference entities. The average tightening was 8.1% and the median tightening was 16.6%.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - CDS  Europe

 

3. European Sovereign CDS – European sovereign swaps tightened considerably last week on the heels of the Eurozone summit. French and German spreads tightened 10.6% and 8.5% respectively.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - Sovereign CDS

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - Sovereign CDS  2

 

4. High Yield (YTM) Monitor – High Yield rates fell 30 bps last week, ending the week at 7.83 versus 8.13 the prior week.

 

 MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - High Yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 29 points last week, ending at 1595. 

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - LLI LT

 

6. TED Spread Monitor – Last week the TED spread hit another new YTD high, ending the week at 42.9 bps.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - TED Spread

 

7. Journal of Commerce Commodity Price Index – The JOC index rose 4.9 points, ending the week at -18.5 versus -23.3 the prior week.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - JOC LT

 

8. Greek Yield Monitor – The 10-year yield on Greek debt fell just 80 bps last week, ending the week at 2324 bps.  Bond market investors were largely unimpressed by the results of the Eurozone summit, standing in contrast to equity market investors.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - Greek Bond Yields

 

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 tightened sharply, ending the week at 151 bps versus 174 the prior week.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - 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.  Last week the index fell 135 points, ending the week at 2018 versus 2153 the prior week.

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - Baltic

 

11. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 10-year yield rose to 2.32, pushing the 2-10 spread to 203 bps, 8 bps wider than a week ago.   

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - 2 10 spread

 

12. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.2% upside to TRADE resistance and 6.3% downside to TRADE support. The downside/upside setup is currently 5 to 1. 

 

MONDAY MORNING RISK MONITOR: SHORT TERM DOWNSIDE EXCEEDS UPSIDE BY 5 TO 1 - XLF macro

 

Joshua Steiner, CFA

 

Allison Kaptur

 

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Do You Believe?

This note was originally published at 8am on October 26, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“All money is a matter of belief.”

-George J.W. Goodman

 

If he was writing today, George Goodman would have thrived as an “economist” of The People. The competition in the land of Market Practitioner (money manager) turned Author is light. I think he would have crushed Paul Krugman, like a bug.

 

Best known for his writings under the pseudonym of “Adam Smith” when he first published one of the all-time greats on my bookshelf  “The Money Game” in 1968, Goodman went on to write “Supermoney” in 1972 and “Paper Money” in 1981. The similarities between the times of his writings (US Dollar Debauchery, US Debt Monetization, and Big Keynesianism) and today are glaring.

 

Let me re-state that – they are glaring to the non-willfully blind who would, of course, have to accept some level of responsibility in their recommendation. Much like history has forced Nixon, Carter, and their Fed Chief (Arthur Burns) to in the 1970s.

 

Do You Believe?

 

“Credit derives from the Latin, credere, “to believe.” Belief was there, the factories functioned, the farmers delivered their produce. The Central Bank kept the belief alive when it would not let even the government borrow further. But although the country functioned again, the savings were never restored, nor were the values of hard work that had accompanied the savings…” (Paper Money, 1981)

 

In that excerpt, Goodman was talking about The German Hyperinflation of 1923. Obviously a lot has changed since then, but the idea of the world’s largest man-made Money Printing Bazooka (ever) will be as alive as ever in the next 24 hours.

 

If you want to believe that the Swedes, Russians, and British aren’t already feeling the anticipated inflation associated with the centrally planned destruction of the Eurozone’s common currency, just go there… and ask them…

 

In the US, it’s already here. Only from the artist formerly known as an “economist” from The Goldman Sachs (NY Fed Head Bill Dudley) would you hear that talking up QG3 for a +9% one-day energy rip in the price of oil isn’t inflationary for those of us driving somewhere to eat something for our American Thanksgiving.

 

Thanking God’s Work for that…

 

Back to reality, what do The American People believe?

 

1.   US Consumer Confidence: after the biggest 21 day stock market and commodity inflation almost ever (which is a long time), US Consumer Confidence for the month of October plummeted yesterday to 39.8 versus the 46.4 reading when inflation toned down in September. To put that print in context, US Consumer Confidence in October of 2008 was 38.8! (see chart)

 

2.   US Institutional Sentiment: if there’s one certainty grounded in the Uncertainty of 2011, it’s that institutional investors are forced to suspend disbelief, often. BEFORE this 3-week, +13% inflation of the oil price, the II Bullish to Bearish Survey had a Bearish Spread of minus -12 points (bulls minus bears). AFTER the move, we have a Bullish Spread this morning of +2 points (40% Bulls versus 35.8% last week and 37.9% Bears versus 41% last week).

 

3.   Hedgeye’s Moves: we made the “Short Covering Opportunity” call on October the 4th and the “Shorting The SP500” call on October the 24th. Back-check, Fore-check, Time Stamped.

 

But never mind what we did when few wanted to pull the trigger … or what went on in Germany in 1923 … or in the USA in 1978. Those were lessons that history has offered to us – and our said leaders can ignore them at their own risk. The American Zeitgeist that no one can simplify is actually really simple – The People no longer believe that stock and commodity market inflations are good. Period.

 

Our 2011 Strategy: Growth Slowing. The Keynesian 2011 Strategy: More Policy.

 

The difference between our views and theirs is not that complicated. What is complicated is having The People believe in these ridiculous acronyms (TARP, EFSF, etc). So now, in the spirit of simplicity, the Obama Administration is mixing it up with ones that commoners and journalists alike can pronounce – like HARP (Home Affordable Refinance Program):

 

HARP is the next Policy Idea coming out of Washington that’s had the US Housing Index (ITB) trading with what The Bernank would call The Price Stability (ie +3% daily price moves in the stock market).

 

If you read into this Policy Idea, it’s effectively a short-term subsidy for losers, which will serve notice to the American Dreamers that their deadbeat neighbor can afford a shiny new car lease with his government handout. Or will they?

 

Our resident Financials and Housing gurus, Josh Steiner and Allison Kaptur, have boiled down the HARP 2.0 as follows:

  • It doesn’t really help consumers much at all
  • Consumers will be pressured into shortening the duration of the loan
  • Net-net, monthly payment flat when principle and interest is taken into account

OK. So what do you do with that?

 

The conservative, head down, American saver gets even more upset because every Policy Idea we come up with rewards leverage and losing. Meanwhile the policy itself doesn’t help the most delinquent Americans anyway!

 

Nice. Really nice. Can we get some more of that?

 

As the pretend American Capitalists of Adam Smith’s Invisible Hand spend the next 24 hours hoping and begging for the Heaviest Keynesian Hand offered to Global Markets ever, I’ll leave you with Goodman’s summary of what I think Americans Believe:

 

“… yet they had lost their self assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, ethics, and decency.” (Paper Money, 1981)

 

My immediate-term support and resistance ranges for Gold, Oil, German DAX, and the SP500 are now $$1670-1715, $88.62-93.67, 5698-6144, and 1222-1254, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Do You Believe? - Chart of the Day

 

Do You Believe? - Virtual Portfolio



Licking Gravity

“We can lick gravity, but sometimes the paperwork is overwhelming.”

-Werner von Braun

 

The only problem with last week contributing to the best month for stocks since 1974, is the 1970s. This morning, between German Retail Sales falling to flat year-over-year and Eurozone inflation (CPI) remaining at +3%, European Stagflation remains.

 

Most of last week’s fanfare can be boiled down to one solid gravitational factor that underpins all of the math behind what we’ve been calling The Correlation Risk – the US Dollar. If you get the US Dollar Index’s direction right, you’ll get most other things right.

 

The US Dollar Index is up +1.3% so far this morning. That’s a good start to my week because my being long it last week was nasty. Inclusive of a -1.7% week-over-week drawdown, the US Dollar was down for the 3rdconsecutive week, and down -4.6% since the week ended October 7th, 2011.

 

Since that 1stweek of October (after the Cover of Barron’s said “Watch Out, Mr. Bull” – this weekend it said “Not So Fast, Mr. Bear”?), this is what other major moves in Global Macro have looked like:

  1. Euro/USD = +6.1%
  2. CRB Commodities Index = +6.6%
  3. Oil = +12.5%
  4. Copper = +14.9%
  5. Volatility (VIX) = -32%
  6. 10-yr US Treasury Yield = +12%

So what was this all about – Growth or Gravity?

 

We’ve had plenty of rallies since the start of 2011 where consensus has been convinced that this has been all about growth. The only problem with that is that there is a big difference between growth and inflation. That’s why the legitimate calculations of GDP growth apply a legitimate “deflator” to the nominal growth estimate. It’s called the purchasing power of money.

 

Remember in Q1 of 2011 when Sell-Side and Washington “economists” had +3-4% 2011 GDP and 1450 SP500 targets? We do. We also remember that the price of oil was tracking upwards of $110/barrel – and that had a big impact on global economic growth slowing.

 

After it was revised -81% to the downside versus the “preliminary US government estimate”, US GDP growth in 1Q11 was only 0.36%. That was using a “deflator” that we’d consider accommodative to the Big Government Interventionist camp that it’s not Policy, Stupid.

 

That was then – this is now. What does this economy need from here?

 

A)     More US Dollar Debauchery

B)      Higher Oil prices

C)      Stock market cheerleading based on A) and B)

 

Alex, I’ll take a restroom break and the other side of Jon Corzine’s long/short book for $1,000.

 

Obviously most people whose compensation isn’t solely tied to stock market inflations are allowed to get the point here. Not surprisingly, amidst last week’s generational squeeze, a few not so funny things happened on the way to the Europig Forum:

  1. European PIIG Bond Yields (Italy most specifically) hit new 3-year highs
  2. TED Spread (measures global banking counterparty risk) hit a new 2011 YTD high
  3. US Financials (XLF), The Russell 2000 (IWM), and the price of Copper (JJC) all failed at their long-term TAIL lines of resistance

Now that last point is probably the most interesting – because, essentially, it ties back to the aforementioned point about growth. It’s a question really. The Question this morning (as in what you do with your money right here and now): is Global Growth “back” OR was that just another Dollar Down reflation of asset prices?

 

Longer-term, I think the only way to recover real US economic growth (adjusting for inflation) is to:

 

1.       Strengthen the US Dollar

2.       Deflate The Inflation

3.       Strengthen Employment

 

In the Chart of the Day, you’ll see this quite clearly across US Presidential terms. Someone running for President in 2012 really needs to use this picture. Going all the way back to when Richard Nixon abandoned the Gold Standard (1971) and embarked on today’s Euro-style debt monetization scheme, a Strong US Dollar = Strong America.

 

To be sure, looking back at the last 18 days of the biggest move ever in stock prices (ever is a long time), Licking Gravity’s  short-term political resolve has its Month-End Markup perks, for some of us…

 

But, for most of us, the long-term TAILs of Global Growth are still broken.

 

My immediate-term support and resistance ranges for Gold (bullish TRADE and TREND), Oil (bullish TRADE; bearish TAIL), German DAX (bullish TRADE; bearish TAIL), and the SP500 (bullish TRADE and TREND) are now $1, $90.19-93.86, 6098-6455, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Licking Gravity - Chart of the Day

 

Licking Gravity - Virtual Portfolio


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