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MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING

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Credit default swaps for German and French banks were 20% wider last week, while Spanish and Italian CDS blew out to 399 and 516 respectively.  Greek bond yields made a new all-time high, widening 353 bps. Early in the week, the TED spread made a new YTD high before retreating slightly.

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 1 of 11 improved / 7 out of 11 worsened / 3 of 11 unchanged
  • Intermediate-term (MoM): Positive / 6 of 11 improved / 3 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: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - Summary

 

1. US Financials CDS Monitor – Swaps widened for 26 of 28 major domestic financial company reference entities last week.    

Widened the most vs last week: GS, MS, HIG

Widened the least/ tightened the most vs last week: MTG, MBI, GNW

Widened the most/ tightened the least vs last month: PMI, RDN, AGO

Tightened the most vs last month: LNC, MBI, HIG

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - CDS  US

 

2. European Financials CDS Monitor – Bank swaps were wider in Europe last week for 36 of the 40 reference entities. The average widening was 7.6% and the median widening was 14.6%. Swaps for Credit Agricole and the Deutsche Bank widened 31.7% and 31.3% respectively. The nine French and German banks we track saw swaps widen an average of 19%. 

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - CDS  Europe

 

3. European Sovereign CDS – European sovereign swaps mostly widened last week. Spanish sovereign swaps widened by 18% (+60 bps to 399) and Italian by 19% (+82bps to 516).  US CDS widened off a low base, rising from 40 bps to 48 bps.  

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - Sovereign 1

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - Sovereign 2

 

4. High Yield (YTM) Monitor – High Yield rates fell 13 bps last week, ending the week at 7.70 versus 7.83 the prior week.

 

 MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - High Yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 4 points last week, ending at 1591. 

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - LLI LT

 

6. TED Spread Monitor – Early last week, the TED spread hit another new YTD high of 44.5. It retreated slightly off of this level, ending the week at 44.3 bps.

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - TED spread

 

7. Journal of Commerce Commodity Price Index – The JOC index fell 2.3 points, ending the week at -20.8 versus -18.5 the prior week.

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - JOC LT

 

8. Greek Yield Monitor – The 10-year yield on Greek debt rose 353 bps last week, ending the week at 2677 bps, a new all-time high. 

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - 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 widened, ending the week at 163 bps versus 151 bps the prior week.

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - 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 234 points, ending the week at 1784 versus 2018 the prior week.

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - Baltic

 

11. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 10-year yield fell to 2.04, pushing the 2-10 spread to 181 bps, 22 bps tighter than a week ago.   

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - 2 10 spread

 

12. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.9% upside to TRADE resistance and 1.8% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - XLF macro

 

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: TED SPREAD, ITALIAN AND FRENCH SPREADS ALL WIDENING - Margin Debt

 

Joshua Steiner, CFA

 

Allison Kaptur

 

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Unequal Outcomes

This note was originally published at 8am on November 02, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Equality of outcome is a form of inequality.”

-Paul Ryan

 

As I sit here in my hotel room in San Francisco this morning, the elephantine intellects of the Fiat Fool system continue to attempt to centrally plan us towards “equality.” Meanwhile, markets are producing very Unequal Outcomes.

 

Instead of stability, we have volatility. If the +41.9% rip in the Volatility Index (VIX) in the last 3 days isn’t a reminder of that, I don’t know what is…

 

My longest of long-term theses about Big Government Intervention and money printing remains. From Japan, to the USA, to Europe, and back again, Fiat Fool policies to inflate A) shorten economic cycles and B) amplify market volatility.

 

Back to the Global Macro Grind

 

Get the US Dollar right, and you’ll get mostly everything else right. As bad as I looked being long the US Dollar last week is as good as my team looks this week. The US Dollar has put on an impressive +3% move, recovering its TREND line of support (75.37 on the US Dollar Index), and mostly every asset class price that’s inversely correlated to that has fallen, hard.

 

Since I shorted the SP500 on Thursday at 1290 (Time Stamp), US stocks have had a straight down correction of -5.6%, taking the SP500’s correction from its 2011 YTD high (April) back to a double digit loss (-10.6%). Longer-term, like Japanese stocks, the SP500 has crashed from its all time peak (down -22.2% from October 2007). Bull market?

 

With all but 3 country stock market indices in the entire world negative for the YTD, this is obviously not a bull market in equities. It’s a bull market in long-term US Treasuries. It’s a bull market in volatility. But these asset classes are pricing in very Unequal Economic Outcomes.

 

Update on the Eurocrat Bazooka:

 

This morning Old Wall Street’s finest brokerages tried to fire the first mini-missile of EFSF bond issuance from Ireland, and had to abort mission! Given that this was the 1st €3B of €600 or so BILLION of these fiat issues coming down the pike, I’d say that’s really not good.

 

Inclusive of attempts to ban short selling, ban CDS trading, and ban gravity, European markets have already been telling you how this sad story of Keynesian spending and leverage ends…

  1. Germany’s DAX snapped its TREND line of 6112 yesterday and is crashing again (down -22% from its 2011 peak)
  2. France’s CAC never recovered its TREND line of 3403, and continues to crash (down -26% from its 2011 peak)
  3. Greece’s Athex Index never recovered a risk management line of consequence in the last 12 weeks (down -56% from its 2011 peak)

Never mind the €2-3 TRILLION Bazooka, these professional politicians can’t sell the world on €3B in bonds!

 

The European Sovereign Bond market gets this obviously. In fact, they didn’t suspend disbelief like stock market people did last week either. Italian and French sovereign debt yields continue to make a series of higher-highs, reminding you that piling-debt-upon-debt-upon-debt structurally impairs economic growth.

 

Setting aside the differences between Europe, Japan, and the US, that’s the story of the Fiat Fools that isn’t getting its “fair share” of air-time, yet (Obama’s team is working on rectifying this inequality). The part about causality. The part that would require these central planners to accept responsibility for the bigger problem than maybe even the banks themselves – Growth Slowing.

 

If Growth Slowing takes Europe’s economy into the negative 1-3% GDP zone as inflation spikes into the +3-6% range, what do you get?

 

European Stagflation.

 

Stagflation earns the lowest multiple for stocks (read: in the 1970s, the SP500 traded at 7x earnings 3 different times in the same decade). Why is that so? Simple: the combo of Growth Slowing and Margins Compressing is the kiss of the “value” investor’s death.

 

That’s the bad news. And it’s a European problem that perversely could result in a Strong US Dollar which, in turn, would Deflate The Inflation in America (think commodity prices). In the long-term, while these are very Unequal Global Macro Outcomes relative to how the central planners of the 2011 Fiat were thinking, this should only perpetuate global economic volatility in the short-term.

 

As for the “price stability”, stay tuned for the Bernank’s latest on that at his 1230PM EST press conference.

 

My immediate-term support and resistance ranges for Gold (bullish TRADE and TREND), Oil (bullish TRADE; bearish TAIL), German DAX (bearish TRADE, TREND, and TAIL) and the SP500 (bullish TREND; bearish TAIL) are now $1710-1785, $91.16-93.87, 5828-6119, and 1213-1248, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Unequal Outcomes - Chart of the Day

 

Unequal Outcomes - Virtual Portfolio



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Loving Life

“Choose a job you love, and you will never have to work a day in your life.”

-Confucius

 

On this day in 2007, my first son Jack was born. Less than a week prior to that, on November 2nd, 2007, I was fired. Having recently achieved my highest ranking “title” in the vaunted hedge fund universe, this was a rather abrupt end to what was only a 10 month old affair at Carlyle’s new hedge fund.

 

All that ends abruptly creates opportunities for new beginnings. I’d never been cut from a team or fired by a firm before (unless I fire myself, hopefully that doesn’t happen again!). However, I firmly believe that men and women have to be able to “fail” in order to ultimately succeed. It’s the only way to learn how to rethink and rework what it is that we are here to do. Evolve.

 

Thank you to Laura, my family, and firm for giving me such a tremendous opportunity to help create Hedgeye. I am Loving Life.

 

Back to the Global Macro Grind

 

With all of the October 2011 fanfare associated with the only good month stocks and commodities have had since April, last week was a reminder of what intermediate to long-term equity investors should recognize as bearish. Welcome to November.

 

If you’ve taken the lessons of the October 2007 US stock market top and embraced it as an opportunity to change your process to one that’s more diversified and Global Macro in scope, last week was a very good one for you. Both the US Dollar and US Treasuries outperformed, big time.

 

On the week, with the US Dollar Index realizing an impressive +2.5% week-over-week return, here’s how everything that’s inversely correlated to the USD moved:

  1. US Stocks (SP500) = down -2.5%
  2. Asian Stocks (MSCI Index) = down -3.6%
  3. Latin American Stocks (MSCI Index) = down -3.3%
  4. Euro/USD = down -2.1%
  5. Canadian Dollar (CAD/USD) = down -2.0%
  6. CRB Commodities Index = down -0.9%
  7. WTIC Oil = up +0.9%
  8. Gold = up +0.5%
  9. Copper = down -3.8%
  10. 10-yr US Treasury Yields = down -12.5%

Interestingly, with both Oil and Gold maintaining 0.7-0.9 inverse correlations to the US Dollar, they diverged versus just about everything else in our Global Macro Correlation model. The intermediate-term TREND between Oil and the US Dollar since May remains intact, however, with the USD Index up +5.4% and Oil down -8.7%, since.

 

Positively correlated with the US Dollar Index (this is the good news, if you’ve been long them since May) are:

  1. Long-term Treasury Bonds (TLT)
  2. US Treasury Flattener (FLAT)
  3. Corporate Bonds (LQD)

Oh, and Volatility (VIX)…

 

Volatility was up +23% last week alone and is up +101% since The Bernank offered us his first global press conference on what he calls “full employment and price stability” (end of April 2011).

 

Not.

 

With the so called “catalyst” of the G20 meetings gone, and another terrible 2011 US employment report behind us, “the gales of November came early.”

 

That line, as many locals from Thunder Bay, Ontario would recognize, comes from one of our local risk management ballads called The Wreck of the Edmund Fitzgerald:

 

“The legend lives on from the Chipewa on down

Of the big lake they called ‘Gitche Gumee’

The lake it is said, never gives up her dead

When the skies of November turn gloomy”

 

And since today is just another day for Risk Managers who have proactively prepared for the Growth Slowing storm of 2011, I’ll just end this morning’s missive here. Given the number of rants you’ve all put up with in the last 4 years of my writing these notes, I owe you all some brevity.

 

My immediate-term support and resistance ranges for Gold (bullish TRADE, TREND, and TAIL), Oil (bearish TAIL, bullish TRADE), German DAX (bearish TRADE, TREND, and TAIL), and the SP500 (bullish TREND; bearish TAIL) are now $1, $92.97-93.88, 5711-6068, and 1, respectively.

 

Happy Birthday Jack and best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Loving Life - Chart of the Day

 

Loving Life - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP - November 7, 2011

 

After the biggest 1 month short squeeze ever, welcome to November where King Dollar has returned to its bullish 6 month TREND.  As we look at today’s set up for the S&P 500, the range is 58 points or -3.45% downside to 1210 and 1.18% upside to 1268. 

 

SECTOR AND GLOBAL PERFORMANCE

 

 

THE HEDGEYE DAILY OUTLOOK - hrmsv

 

THE HEDGEYE DAILY OUTLOOK - hrmsp

 

THE HEDGEYE DAILY OUTLOOK - bpgm1

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -636 (-1939) 
  • VOLUME: NYSE 861.48 (-14.04%)
  • VIX:  30.16 -1.11% YTD PERFORMANCE: +69.92%
  • SPX PUT/CALL RATIO: 1.57 from 1.55 (+0.98%)

 

CREDIT/ECONOMIC MARKET LOOK:

 

TREASURIES – bond yields have been front-running equity investors for all of 2011 and that didn’t change in either US Treasury yields or European sovereigns during October’s stock market beta chase. UST 10 yr yields back into a Bearish Formation with TRADE line of support (2.12%) breaking last week (that’s why we bought TLT back) and now testing 2.00% so the masses will have to pay attention.

  • TED SPREAD: 44.26
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.06 from 2.09    
  • YIELD CURVE: 1.84 from 1.85

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:40 a.m.: Fed’s Rosengren speaks in Boston
  • 11:30 a.m.: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 3 p.m.: Consumer credit, est. $5.20b, prior (-9.50b)

WHAT TO WATCH:

  • Italian benchmark yields climbed to a euro-era record; pressure grew on PM Silvio Berlusconi to resign
  • Greek PM George Papandreou agreed to step down as premier to allow creation of a national unity government
  • U.S. House will probably “move” on infrastructure bill this year, Speaker John Boehner said Sunday.
  • NBA makes ultimatum to players with Nov. 9 deadline
  • Senate will begin consideration of motion to proceed to H.R.674, to amend IRS code of 1986 to repeal imposition of 3% withholding on certain payments to vendors by govt entities

COMMODITY/GROWTH EXPECTATION

 

                                                                                                             

THE HEDGEYE DAILY OUTLOOK - dcommv

 

MOST POPULAR COMMODITY HEADLINES FROM BLOOMBERG:

  • Bangkok Tourists Vanish on Floods Leaving Hotel Bars Empty
  • Papandreou to Step Down in Accord on Greek Unity Government
  • Hedge Funds Curb Wagers for First Time in a Month: Commodities
  • China PMI, Inflation Signal Rate Cut Unlikely: Chart of the Day
  • Hedge Funds Bet Against Gas as Stockpiles Surge: Energy Markets
  • Gold Climbs to Six-Week High as European Concerns Spur Demand
  • Oil Trades Near Three-Month High as Europe Tackles Debt Crisis
  • Evraz Plc Rises as Russia’s Largest Steelmaker Relocates to U.K.
  • Copper Drops on Europe Debt-Crisis Concern Before Italy Vote
  • German Gold Reserves ‘Untouchable’ for EFSF, Roesler Says
  • Norilsk’s U.S. Premium Widens as Buyback Ends: Russia Overnight
  • Freeport’s Grasberg Workers Refuse 35% Wage-Rise Offer
  • Australian Wheat Exports Seen Jumping 15% on Bumper Crop
  • Copper Falls as Economic Slowdown May Curb Demand: LME Preview
  • Oil Falls From Three-Month High in N.Y, as Euro, Equities Slide
  • Commodities May Rise 6% in Next Three Weeks: Technical Analysis
  • Viterra Bonds Erase Gains on Shareholder Rebuff: Canada Credit
  • Copper Drops for a Second Day on European Debt-Crisis Concern
  • Rubber Falls to Two-Week Low as Thai Floods Threaten Factories

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - dcurrv

 

EUROPEAN MARKETS

 

EUROPE – the percentage losses don’t tell this morning’s story of risk – with bearish TREND zones intact, now the immediate-term TRADE lines for the DAX (6068) and CAC (3191) have snapped this morning. All the while Italian bond yields are making all-time highs (6.68% on 10s) - now that the G20 meetings are gone, there really is no catalyst to keep Europe afloat.

  • UK house prices (1.8%) y/y vs consensus (2.3%), prior (2.3%) -- Halifax
  • EuroZone Nov Sentix (21.2) vs consensus (20.0), prior (18.5)
  • EuroZone Sep Retail Sales (1.5%) y/yvs consensus (0.5%), prior revised (0.1%) from (1.0%)

 


THE HEDGEYE DAILY OUTLOOK - bpem1

 

ASIAN MARKETS

 

CHINA – both the Shanghai Composite and Hang Seng failed hard at TREND line resistance levels of 2562 and 20341, respectively last night; importantly, this comes ahead of October data from China which should continue to decelerate, sequentially.

  • Japan September index of coincident indicators 88.9, (1.4 pts) m/m. Index of leading indicators 91.6, (2.2 pts) m/m.

 

  

THE HEDGEYE DAILY OUTLOOK - bpam1

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - me

 

MOST POPULAR MIDDLE EAST HEADLINES FROM BLOOMBERG

  • Syrian Forces Kill 22; Arab League Calls Emergency Meeting
  • Doha Bank Considers 2012 Acquisition in Emerging Market
  • Iran on Verge of Building Nuclear Weapon, Washington Post Says
  • Huawei Confirms MTN Irancell Sales, Denies Censorship Role
  • Russia’s Lavrov Opposed to Possible Israeli Strike Against Iran
  • IAEA Says Foreign Expertise Has Brought Iran to Threshold of Nuclea
  • Israel's Warnings on Iran Get Quiet Nods in Gulf
  • Iran on Verge of Building Nuclear Weapon, Washington Post Says
  • 'Military op vs Iran to jeopardize stability of entire region'
  • Aramco Cuts Asia Oil Differentials, Lifts U.S.: Persian Gulf Oil
  • Iran on threshold of nuclear capability: Report
  • Billionaire Facing Death Threats Says Egypt Risks Becoming Iran
  • British Firm With Links to William Hague Sells 'Protester-tracking' P
  • Iran on Verge of Building Nuclear Weapon: Washington Post Link
  • Ehud Barak Refuses to Rule Out Military Strike Against Iran
  • Al Jazeera: CIA veteran: Israel to attack Iran in fall
  • Russia: Any strike against Iran would be "very serious mistake"

 

The Hedgeye Macro Team

Howard Penney

Managing Director

 

 


WMS YOUTUBE

In preparation for WMS's FQ1 2012 earnings release Monday afternoon, we’ve put together the recent pertinent forward looking company commentary.

 

 

WMS Receives Approval from Nevada Gaming Commission for the Initial Commercial Release of WAGE-NET® Networked Gaming System

  • Nevada Gaming Commission approves WMS’s initial commercial version of WAGE-NET
  • WMS will launch the Jackpot Explosion® application, the first themed application in WMS’ Ultra Hit Progressive® (“UHP”) Portal application family in Nevada casinos. 

 

YOUTUBE from FQ4 2011 CONFERENCE CALL

  • “$11 million to $14 million or $0.12 to $0.15 per diluted share of charges in the September 2011 quarter, mostly related to the reduction in force we are now implementing. In aggregate, we will reduce our global workforce by about 10%, which we expect should generate meaningful cost savings in future quarters.”
  • “Since the beginning of the fiscal year, we improved the gross margin on the Bluebird xD cabinet by over 20% through our continuous improvement initiatives, and we expect further improvement in fiscal 2012.”
  • “Guidance for fiscal 2012 revenue growth of 3% to 5% is slightly higher than the result achieved for our fiscal 2011 and reflects recent operating trends and a general industry environment in which we expect customers’ capital spending plans around the globe to remain flat during the remainder of calendar 2011 and into calendar 2012.”
  • “We do expect revenues from new unit sales to increase slightly, with new unit shipment growth coming primarily in the second half of the fiscal year, driven by the increase in demand from a greater number of new casino openings and expansions.  We expect ASPs to generally remain flat, with any changes generally reflecting the mix between Bluebird2 and Bluebird xD cabinets. This guidance does not include any incremental revenues from the potential expansion of Illinois gaming or the opening of Illinois or Ohio VLT markets.”
  • ”Given our industry-high daily revenue of $76.13 and only modest expectations for improvement in the lackluster consumer environment, we believe that average daily revenue will remain flat.”
  • “Additionally, we anticipate that quarterly revenues in the September 2011 quarter will be slightly below the relative percentage of annual revenue achieved in fiscal 2010 and fiscal 2009. This reflects expected year-over-year lower new unit demand, as the timing of G2E was moved from the third week of November to the first week of October, and we anticipate some customers may wait until the show before placing orders. And a slightly higher percentage of revenues in the June 2012 quarter, due to an anticipated increase in new casino opening activity.”
  • “Even with re-prioritizing our R&D efforts, we expect that our annual R&D expenses in fiscal 2012 will approximate 13% of total revenues.”
  • “We expect our product sale margin to improve in fiscal 2012, as we have initiatives targeted to lower costs in both the Bluebird2 and Bluebird xD cabinets. Overall, we expect better product sales margin in the second half of the fiscal year than the first half. Gaming operations margin is expected to be generally stable within a range similar to that experienced during fiscal 2011. Including the impact of the charges I mentioned we will be recording in the September 2011 quarter, we expect to improve our operating margin, especially with the anticipated reduction in our cost structure resulting from the workforce reduction.”
  • “We expect depreciation to increase on a quarterly sequential basis over the $20.6 million expensed in the June 2011 quarter, primarily as a result of the continued transition of our participation base to Bluebird2 and Bluebird xD cabinets and an increase in operating lease units.”
  • “We expect it’ll still be another quarter or two until we return to a more normal flow of [participation] products.”
  • “We made some difficult decisions on both products and staffing, and as a result we narrowed our focus to prioritize core categories and postponed or deselected certain longer-term projects. These actions are aimed squarely at capturing near-term revenue opportunities and improving our predictability. We’re now moving forward once again, and after a brief transition period, we expect to be back to full speed ahead in the second half of fiscal ‘12.”
  • [Portal apps] “We’ve got 300 units in 14 casinos today. We would expect that number will double by the end of this calendar year. And by the end of June next year, we’ll have 100 casinos with our servers and racks in there and a wider assortment of our portal families and applications.”
  • [Product sales margins]  “Our short-term goal is to get back to the mid-50%’s, which is probably a Q3, Q4 event, and ultimately get to that 60% margin over time. We’re working through some of these used-game issues and some of these supply chain issues. But we want to build up to that mid-50%’s rage in the last half of this year. It’ll be a ramp up from Q1 and Q2.”
  • “We would now look for Italy to be a fiscal ‘13 event.”

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