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THE M3: MPEL SUED; GGR FORECAST

The Macau Metro Monitor, March 7, 2012

 

 

MACAU CASINO SUED IN LAW FIRM THEFT CASE South China Morning Post

An international law firm founded by Bill Gates' father, K&L Gates, has filed a writ at the High Court against MPEL.  The firm is seeking a court order to find out how much of MPEL's property represents money that ex-employee of K&L Gates, Navin Kumar Aggarwal, took, or his net winnings, or both, and to have MPEL pay what it owes.  K&L Gates claims that Aggarwal transferred at least HK$34 million from the client accounts to Melco and gambled with that money and other funds.  He made a net loss of at least HK$9.9 million.  K&L Gates also says MPEL received the misappropriated money knowing it was not entitled to do so, that the money did not belong to Aggarwal and that the former partner had a history as an unsuccessful gambler, among other things.

 

The filing says Aggarwal took millions of dollars from the escrow accounts of clients, including those four parties.  Four clients had been repaid a total of HK$117 million, the writ said.  The clients are Hui Kau-mo, Mark Lightbown, Golden Bridge United Holdings Group (HK), and Laxmi Niwas Jhunjhunwala.   

 

Initially the figure involved was put at HK$16.6 million. Prosecutors later revised it to HK$780 million.  The criminal case is scheduled for a brief hearing on April 2 at Eastern Court.

 

GAMING REVENUE GROWTH TO DROP IN 2012, SAYS GOV'T Macau Business

Macau's secretary for economy and finance, Francis Tam Pak Yuen, says Macau GGR growth is expected to be up only 'low double-digts or high single-digits' in 2012.  Macau government estimates regarding the growth of the casino industry are traditionally very conservative.

 

Taking into account the expected revenue from direct taxes from gaming included in the 2012 government budget, presented in November last year, that would actually mean a contraction of the sector, opposing the general view among industry players and analysts.

 



ECB and BOE Preview

Thursday has announcements from the ECB and BOE on monetary policy. We do not expect moves from either bank in interest rate levels or calls for additional non-standard measures or QE.

 

Although the ECB does need to cut its main interest rate as the region is dragged into recession, we’ll likely see Draghi remain on hold due to the timing of the 2nd 36 month LTRO (€529.5 billion) just last week and given that there’s plenty of runway left in 2012 to cut off the 1.00% bound. Another gauge that may weigh on inaction is the improvement in the EURIBOR-OIS spread, down 40% year-to-date to 58bps. However, as the chart below shows, a fair amount of the LTRO’s credit may be flowing to safety in the ECB’s overnight deposit facility (which is hitting new highs), and not to its intended audience of corporates and personal loans.   

 

ECB and BOE Preview - 1111. MEIN

 

Remember, Draghi revised the language on the main outlook on the Eurozone economy in the last meeting (on 2/9) to “tentative signs of stabilization in economic activity at a low level” versus “substantial downside risks” in the previous report. We could see a return to his previous language.

 

Recent data since the last meeting that will weigh on the decision, and collectively hasn’t shown “tentative signs of stabilization”, includes:

 

Eurozone Q4 GDP -0.3% Q/Q vs 0.1% in Q4 2011

Eurozone M3 2.5% JAN Y/Y (exp. 1.8%) vs 1.6% DEC

Eurozone Unemployment Rate 10.7% JAN vs 10.6% DEC  (highest since ‘97)

Eurozone CPI Y/Y 2.7% FEB (exp. 2.6%) vs 2.7% JAN

Eurozone PPI 3.7% JAN Y/Y (exp. 3.5%) vs 4.3% DEC  [0.7% JAN M/M (exp. 0.5%) vs -0.2% DEC]

 

Eurozone Retail Sales 0.0% JAN Y/Y vs -1.3% DEC   [0.3% JAN M/M vs -0.5%]

Eurozone PMI Manufacturing  49 FEB vs 48.8 JAN

Eurozone PMI Services  48.8 FEB vs 50.4 JAN

 

Eurozone Business Climate Indicator -0.18 FEB vs -0.21 JAN

Eurozone Consumer Confidence -20.3 FEB Final vs -20.7 JAN

Eurozone Economic Confidence 94.4 FEB (exp. 94) vs 93.4 JAN

Eurozone Industrial Confidence -5.8 FEB (exp. -6.9) vs -7 JAN

Eurozone Services Confidence -0.9 FEB (exp. -0.6) vs -0.7 JAN

------

 

The BOE should also maintain its 0.50% benchmark rate and £325 Billion bond purchasing program, following a £50 Billion increase last month. Fundamental data hasn’t shown signs of material improvement, though improvement on the margin, but again, there’s a lot of runway left in 2012 for monetary policy and still much uncertainty surrounding the direction of the Eurozone, the UK’s main trading partner.

 

In the last meeting, David Miles and Adam Posen pushed for £75 Billion in stimulus, and looser monetary policy, so we’ll have to wait for the minutes to see if the two had any more influence on the committee.

 

Recent data weighing on the decision includes:

 

UK Q4 GDP -0.2% Q/Q vs 0.6% in Q4 2011

UK CPI 3.6% JAN Y/Y (exp. 3.6%) vs 4.2% DEC 

UK PPI Output 4.1% JAN Y/Y (exp. 3.7%) vs 4.8% DEC

UK PPI Input  7.0% JAN Y/Y (exp. 6.8%) vs 8.9% DEC

 

UK RPI   3.9% JAN Y/Y (exp. 4.1)  vs 4.8% DEC

UK ILO Unemployment Rate 8.4% DEC vs 8.4% NOV

UK Jobless Claims Chg 6.9K JAN (exp. 3K) vs 1.9K

UK Avg Wkly Earnings 2.0% DEC Y/Y vs 1.9% NOV

 

UK Net Consumer Credit 0.1 B GBP JAN vs 0.0B GBP DEC

UK Mortgage Approvals 58.7K JAN vs 55K DEC

UK M4 Money Supply -1.8% JAN Y/Y vs -2.5% DEC

UK Nationwide House Prices 0.9% FEB Y/Y (exp. 0.3%) vs 0.6% JAN

 

UK PMI Manufacturing 51.2 FEB vs 52.0 JAN  

UK PMI Services 53.8 FEB vs 56.0 JAN

UK PMI Construction 54.3 FEB (exp. 51.3) vs 51.4 JAN

 

 

Matthew Hedrick

Senior Analyst


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THE CALENDAR IMPACT

An extra day and an easy weather comparison should produce a strong February and Q1 for the regionals.  If Missouri is any indication, it may not be good enough.

 

 

YoY gaming revenue growth in Missouri will come in between 3 and 4% for the month of February.  On the surface and relative to trend, that may seem like a positive.  However, there was a massive storm on February 1st of last year and Feb 2012 obviously contained one extra day.  We would argue that growth should be at least 5%.  January was an unfavorable month from a calendar perspective and same-store gaming revenues fell a combined 4% in the mature regional markets.  However, the regional gaming stocks spiked as calendar driven expectations were low.

 

The calendar tailwind continues for one more month.  March 2012 contains 2 extra weekend days versus last year. 

 

However, it all reverses in Q2:

  • April:  1 less Friday and Saturday; 1 more Sunday
  • May:  1 less Sunday
  • June:  1 less Friday and Saturday

If the regional markets are only going to be up 3-4% in January and February, that won’t bode well for Q2, particularly if gas prices continue to increase.  Of course, Missouri is only one state and one month from one state does not make a trend.  We’ll have more commentary after the states release gaming revenues over the coming weeks.

 


THE CALENDAR IMPACT

An extra day and an easy weather comparison should produce a strong February and Q1 for the regionals.  If Missouri is any indication, it may not be good enough.

 

 

YoY gaming revenue growth in Missouri will come in between 3 and 4% for the month of February.  On the surface and relative to trend, that may seem like a positive.  However, there was a massive storm on February 1st of last year and Feb 2012 obviously contained one extra day.  We would argue that growth should be at least 5%.  January was an unfavorable month from a calendar perspective and same-store gaming revenues fell a combined 4% in the mature regional markets.  However, the regional gaming stocks spiked as calendar driven expectations were low.

 

The calendar tailwind continues for one more month.  March 2012 contains 2 extra weekend days versus last year. 

However, it all reverses in Q2:

  • April:  1 less Friday and Saturday; 1 more Sunday
  • May:  1 less Sunday
  • June:  1 less Friday and Saturday

If the regional markets are only going to be up 3-4% in January and February, that won’t bode well for Q2, particularly if gas prices continue to increase.  Of course, Missouri is only one state and one month from one state does not make a trend.  We’ll have more commentary after the states release gaming revenues over the coming weeks.


Short Covering Opportunity: SP500 Levels, Refreshed

POSITION: Long Utilities (XLU), Short Consumer Discretionary (XLY)

 

That beta “down-shift” from 1 was good for 30 handles, or -2.2%, in the SP500. We’ll take that – literally. At a minimum, you should be covering oversold short positions here.

 

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

  1. Immediate-term TRADE resistance = 1366
  2. Immediate-term TRADE support = 1346
  3. Intermediate-term TREND support = 1283 

Snapping that 1366 line yesterday is now yesterday’s risk management news.

 

Now we’re right at support. This is a Short Covering Opportunity.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Short Covering Opportunity: SP500 Levels, Refreshed - SPX


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