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PNK 4Q11: A MISS MAYBE IN THE CARDS

We’re below the Street for Q4 but PNK has underperformed and light Louisiana numbers are well-known.

 

 

After making or beating expectations for two years, PNK could report 4Q11 results below expectations.  We are projecting net revenue of $274MM and adjusted EBITDA of $58.7MM, which is 4% below the Street.  PNK could underperform over the near-term as questionable ROI on new projects and soft revenues could continue to provide an overhang on the stock.  However, the relative weakness of the company’s Q4 report is probably well-known at this point.    

 

PNK 4Q11: A MISS MAYBE IN THE CARDS - pnk2 

While the Q4 is always seasonally weaker than Q3, some properties underperformed this quarter.  L’Auberge gaming revenues were only up 4% YoY after an 11% rise in 3Q.  Margin estimates seem a bit aggressive to us.  Margin improvement of 320bps are difficult to fathom.  Last quarter, PNK’s margins only improved 1.4%.  Adding back the $1.7MM of ‘unusual’ expenses from last quarter, PNK’s margins would have been only 50bps better.  Going forward, margin comps are a lot more difficult than in the first half of 2011.

 

Other assumptions:

  • Corporate expense: $6.7MM
  • Stock comp: $1.7MM
  • D&A: $25.8MM
  • Net interest expense: $24.0MM
  • Same effective tax rate of 7.5% as for the first 9 months of the year 

European Banking Monitor and EUR/USD Update

Positions in Europe: Short EUR/USD (FXE)

 

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor"

 

If you'd like to receive the work of the Financials team or request a trial please email .

 

Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States. Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal. By contrast, the Euribor rate is the rate offered for unsecured interbank lending. Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 5 bps from last Monday to 77 bps today.

 

European Banking Monitor and EUR/USD Update - 1. ois

 

ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis. 

 

European Banking Monitor and EUR/USD Update - 1. ecb

 

European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 34 of the 40 reference entities. The average tightening was 2.3% and the median tightening was 9.4%.

 

European Banking Monitor and EUR/USD Update - 1. banks

 

Security Market Program – The ECB has still yet to publish its secondary sovereign bond purchases for the week ended 1/27 (normally due out by 10am EST on Mondays).  It bought €2.243 Billion in the week ended 1/20 to take the total program to €219.0 Billion.  We’ll post on the 1/27 amount as soon as it’s released.    

 

 

A note on our short EUR/USD position and Europe’s Fiscal Compact illusions:


We remain short the EUR/USD via the etf FXE in the Hedgeye Virtual Portfolio.  This is a position that has worked against us since last week’s announcements from President Obama (State of the Union Address) and Federal Reserve Chief Bernanke (FOMC Press Conference), both of which fundamentally changed our previously bullish outlook on the USD.

 

However, there’s been no resolutions out of Greece on PSI and increasingly Portugal is looking like the next Greece, which suggests we may see a chess fight between the EUR/USD for the weaker link of the pair. Also to note is that Germany has called to establishing a budget overseer in Greece to have strict control and veto power over Greece’s fiscal policy decisions going forward in return for bailout funds. Greece’s Finance Minister Venizelos adamantly rejected this plan and warned that “anyone who puts a nation before the dilemma of economic assistance or national dignity ignores some key historical lessons,” which signals to us that the Fiscal Compact being pushed in Europe has little hope of success as countries refuse to give up their sovereignty to Brussels (or Berlin). In short, we expect cultural difference to trump, and the union of uneven countries to struggle to resolve deep seeded sovereign disparities. In this light, we see a higher probability of intermediate term weakness in the EUR/USD. 

 

Below is a heat map we use, courtesy of The Economist, which clearly shows the great difference in sovereign debt (as a % of GDP) across southern versus northern Europe. We expect this unevenness to have a long tail, and ultimately, and even if levels can be reduced through fiscal consolidation, to come at the expense of growth. 

 

European Banking Monitor and EUR/USD Update - 1. Heat Map

 

Matthew Hedrick

Senior Analyst


Gnarly: SP500 Levels, Refreshed

POSITION: Long Energy (XLE)

 

I came into today with no US Equity exposure in terms of US Index or Sector ETFs. Coming out of The Bernank Tax last week, I sold everything US Equities in the Hedgeye Asset Allocation Model. Today, I’ll take that US Equity position back up from 0% to 6%, buying some inflation protection (Energy – XLE).

 

I know this isn’t (wasn’t) the way consensus Keynesians want you to think about it – but from a Growth and Inflation Expectations perspective, this is the way the market sees that it is. On the margin, inflation expectations just went up and growth expectations down. Thirty S&P handles matter.

 

In the chart below you can see this manifesting itself in terms of the always dreaded lower long-term highs. From 1363 in April of 2011 to the 1326 closing high last week (1333 intraday high on Thursday), this looks a lot like US policy – Japanese. As a result, the long-term SP500 chart looks like the Nikkei.

 

Across all 3 risk management durations in my model, here are the lines that matter to me most right now: 

  1. Immediate-term TRADE resistance = 1326
  2. Immediate-term TRADE support = 1297
  3. Long-term TAIL support = 1267 

In other words, I buy/cover here – but I’m taking my time. Lower-highs toward 1363 look firmly in place provided that the Policy To Inflate (slow growth) does.

 

The long-term TAIL holding tells me this is going to be an epic debate about the US Dollar and the policies that attempt to support or debauch it.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gnarly: SP500 Levels, Refreshed - SPX


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

MACAU LIKELY WON'T EVEN HIT HK$24BN

No change to HK$23-24BN projection for January 

 

 

In what will likely be considered a disappointment, total Macau gross gaming revenues (GGR) should finish the month around HK$23.5 billion, up around 30% YoY.  Recent expectations have been elevated, unfortunately.  However, our original projection was HK$23-24 billion, so we wouldn’t exactly consider January a bad month.  February does face a comp that included the Chinese New Year (CNY) celebration last year, although the VIP hold comparison is quite easy. 

 

MACAU LIKELY WON'T EVEN HIT HK$24BN - macau1

 

In terms of market share, LVS is the clear winner this month.  As we expected, LVS’s big junket effort paid off handsomely during the CNY celebration with all the whales in town.  Both MPEL and WYNN posted disappointing January market shares.  Hold likely played a role, particularly for MPEL.  We would expect the Macau stocks to be weak today with the possible exception of LVS. 

 

With a lack of near-term positive catalysts in Macau – although analysts still need to raise Q4 estimates for MPEL – and the recent big move, Macau stocks could underperform.

 

MACAU LIKELY WON'T EVEN HIT HK$24BN - macau2

 


THE HBM: WEN, SBUX

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Comments from CEO Keith McCullough

 

#TheBernank Tax = rising inflation expectations and slowing growth expectations – the market now agrees:

  1. ASIA – the Chinese came back from holidays and just sold (we’re long Chinese Equities). They should have because Bernanke just jammed them w/ a commodity inflation tax and that’s the #1 thing, on the margin, that slows Chinese, Indian, etc growth. India’s Sensex(we’re short) failed at its TAIL line of 17,643 resistance and the Nikkei (we’re short) closed down for 3rd consecutive day.
  2. GERMANY – if the Greeks think they’re going to play a game of chicken w/ the Germans, I’ll take the Germans. Critically, the DAX backs off its long-term TAIL line of 6503 hard this morning as European stocks and bonds finally have a down day of consequence.
  3. TREASURIES – rising inflation expectations slow growth expectations – the 10yr yield is getting smoked this morning down to 1.86% and is right back into what we call a Bearish Formation. The Yield Spread has compressed 13bps in a week with Bernanke leaning on the long-end. Jaime Dimon won’t be pleased; neither will US Equity investors looking for rotation out of bonds.

 

On a snap of 1313, I have no support in the SP500 to 1297.

 

SUBSECTOR PERFORMANCE

 

<chart2>

 

 

QUICK SERVICE

 

WEN: Wendy’s reported preliminary 4Q results this morning. EPS came in at $0.04, in line with consensus.  North America systemwide comparable restaurant sales came in at +4.4%.  The Analyst Day taking place today in New York is an important event for Emil Brolick, the new CEO, and we will be waiting to hear if he is lowering expectations for the company. 

 

SBUX: Starbucks and Tata Global Beverages have formed an equal Joint Venture which will operate Starbucks cafes in India.  The first store in India will open by August.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

COSI: Cosi put up some strong sales numbers last week

 

KKD: The breakfast daypart is performing well

 

GMCR: The bull/bear battle rages on

 

TAST: The split cometh

 

YUM: TACO Bell and PH in the USA had a better than bad quarter

 

WEN: Analyst day is today in NYC – this is Emil Brolick’s real coming out party. Will he lower the bar?

 

SBUX: Expectations were a little too high going into the quarter

 

 

THE HBM: WEN, SBUX - stocks 130

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


MONDAY MORNING RISK MONITOR: PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING

Key Callouts:

 

* Interbank risk continues to recede. The Euriobor/OIS spread, our preferred measure of systemic risk in the banking industry, tightened 5 bps last week. This is a bullish input in our model. See our note from Friday quantifying the impact of the change in Euribor/OIS on the stock prices of C, BAC, JPM, GS & MS. A similar trend occurring in the TED spread, which fell by 2 basis points to 50 bps last week. Receding interbank risk both in Europe and the US means reflating the discount in the US global banks. 

 

*Bank CDS in both the US and Europe tightened last week.

 

*European sovereign swaps were mostly tighter. However, Portugal has gone parabolic, widening 15% last week to an all-time high. It's interesting to observe the reduced correlations. In 4Q11 all swaps and equities generally moved together. Now we're seeing Portugal blast off, while other PIIGS countries and the European and US banks are tightening.

 

*The MCDX measure of municipal default risk continued to fall sharply week over week.

 

*Quantitative view - Out macro quantitative model suggest that on a short term duration (TRADE), there is slightly more upside than downside in the XLF (0.4% downside vs 0.6% upside)

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 8 of 12 improved / 1 out of 12 worsened / 3 of 12 unchanged

 • Intermediate-term(WoW): Positive / 9 of 12 improved / 2 out of 12 worsened / 1 of 12 unchanged

 • Long-term(WoW): Negative / 0 of 12 improved / 9 out of 12 worsened / 3 of 12 unchanged

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - Summary

 

1. US Financials CDS Monitor – Swaps widened for 16 of 27 major domestic financial company reference entities last week.   

Widened the most WoW: CB, MTG, PRU

Tightened the most WoW: BAC, MS, GS

Widened the most/ tightened the least MoM: MTG, RDN, CB

Tightened the most MoM: BAC, MS, AIG

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - CDS  us

 

2. European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 34 of the 40 reference entities. The average tightening was 2.3% and the median tightening was 9.4%.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - CDS  euro

 

3. European Sovereign CDS European Sovereign Swaps mostly tightened over last week. Italian sovereign swaps tightened by 6.8% (-31 bps to 426 ) while Portuguese sovereign swaps widened by 15.2% (193 bps to 1462).

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - Sovereign CDS 1

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - Soveriegn CDS 2

 

4. High Yield (YTM) Monitor – High Yield rates fell 11.0 bps last week, ending the week at 7.94 versus 8.05 the prior week.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - HY

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 13 points last week, ending at 1626.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - LLI

 

6. TED Spread Monitor – The TED spread fell 2.0 points last week, ending the week at 50 this week versus last week’s print of 52.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - TED spread

 

7. Journal of Commerce Commodity Price Index – The JOC index rose 4.7 points, ending the week at -9.38 versus -14.0 the prior week.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - JOC index

 

8. Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 5 bps from last Monday to 77 bps today.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - Euribor OIS

 

9. ECB Liquidity Recourse to the Deposit Facility– The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis. 

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - ECB liquidity deposit

 

10. 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 , ending the week at 128 bps versus 134 bps the prior week.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - MCDX

 

11. 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 136 points, ending the week at 726 versus 862 the prior week.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - Baltic Dry

 

12. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread tightened to 168 bps, 11 bps tighter than a week ago.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - 2 10

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 0.4% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - XLF

 

NYSE Margin Debt - December

We publish NYSE Margin Debt every month when it’s released. NYSE Margin debt hit its post-2007 peak in April of 2011 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 last 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 2011. 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 retraced back to +0.53 standard deviations in November, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend runs its course. There’s plenty of room for short/intermediate term reversals within this broader secular move, as we saw in November and December's print of +0.55 and +0.53 standard deviations.  Overall, however, this setup represents a headwind for the market. One limitation of this series is that it is reported on a lag.  The chart shows data through December.

 

MONDAY MORNING RISK MONITOR:  PORTUGAL'S PARABOLA vs. INTERBANK RISK RECEDING - Margin Debt 

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

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