prev

Oil Price Shocks are Leading Indicators of Recessions

Conclusion:  As consumption of oil eclipses 5.5% of GDP, it has historically had clear negative impacts on economic growth.  This relationship is only further enhanced when the there is a “price shock”, so when oil moves up at an accelerated pace.


We recently stumbled upon a tweet that a major brokerage firm did an analysis of the correlation between GDP and the price of oil dating back to 1970 and found that there was literally no correlation.  We’ve heard other pundits suggest that increasing oil prices are, perversely, good for growth.  Or that increasing oil prices are, at the very least, indicators of improving demand and thus an improving economic outlook.  Well, to put it mildly, we beg to differ.

 

In this note, we wanted to start with some recent history and a series of charts that highlight the impact of rapidly increasing oil prices on certain economic indicators:

  • Brent Oil versus World Food Prices - In the chart below we show one of the derivative impacts of high oil prices, which is that these energy input costs also influence other commodity oriented products, in particular food.  As this chart shows, oil and food prices have basically moved in lockstep over the past nine years.  In fact, the correlation over the period is 0.81, so high, which isn’t totally surprising given that energy is a major input into the production of food.  According the Bureau of Labor Statistics, the average U.S. consumer spends more than 10% of their pre-tax income on food.  Energy is an input cost for food and naturally impacts the cost of food.

Oil Price Shocks are Leading Indicators of Recessions - Food.brent

 

  • Brent Oil versus Jobless Claims – The relationship between jobless claims and Brent oil is an obvious one if you look at the chart below.  Specifically, a rapidly increasing price of oil is historically an accurate leading indicator for jobless claims.  This occurred three times to note over the last two plus decades, in the late 1980s, in the late 1990s, and in late 2007.

 Oil Price Shocks are Leading Indicators of Recessions - jobless.brent

 

  • Brent Oil versus Durable Goods Orders – The image below emphasizes that as the price of Brent has stepped up durable goods growth has decelerated.  Durables goods are those goods purchased that are expected to last more than three years.  In the most recent report, durable goods were down -4% year-over-year, with the biggest decline, not surprisingly, in civilian aircraft orders, whose key input cost is jet fuel.  This negative correlation between durable goods orders declining and higher energy prices further supports the idea that consumers, and companies, are unwilling to make longer term, larger ticket investments in an uncertain input cost environment.   

Oil Price Shocks are Leading Indicators of Recessions - dgoodsandbrent

 

 

Charles Hall, Steven Balogh, and David Murphy did an analysis of the connection between the price of oil and when recession can be expected, examining the Minimum Energy Return on Investment (EROI).  In their assessment, recession is likely to occur when oil amounts to more than 5.5% of GDP.  Logically, this makes sense.  Even based on the very tainted calculation of CPI, the average U.S. consumer spends 9% of his or her income directly on energy, with the majority allocated to gasoline.  This obviously also excludes the derivative impact of increasing energy costs, such, as we noted above, the increasing costs of food.

 

Hall, Balogh, and Murphy also modeled out various scenarios of price increases, which we’ve highlighted in the chart below.  They found that price shocks versus gradual increases in prices are much more detrimental to near term GDP growth.  There models considered two types of price shocks.  The first being a 10% price increase that either happens gradually over 5-6 quarters or that happens quickly within two quarters, and the same scenario only with a 50% magnitude price increase.   

 

Oil Price Shocks are Leading Indicators of Recessions - chart3

 

 

Based on all scenarios, the price of oil was a headwind to growth but if a price hike transpired in a shorter period of time it would lead to a more dramatic and an almost exponentially negative impact on GDP growth.  As energy prices accelerate, it creates uncertainty related to the future, which slows decision making.  We actually see this clearly in the durable goods orders chart above.  Consumers slow their durable goods orders in conjunction with increasing energy prices because of both the price, but also increasing concerns related to future economic demand.

 

The chart directly below shows this long term impact of oil accelerating quickly and reaching 5.5% of GDP going back to 1970.  While certain large investment banks may not have been able to measure the correlation, the relationship is quite obvious in the chart. 

 

Oil Price Shocks are Leading Indicators of Recessions - chart5

 

 

We actually did an analysis of the U.S. economy’s current situation relating to oil consumption.  Based on the assumption that U.S. GDP is roughly $15.0 trillion, that the U.S. uses 19.5 million barrels of oil per day, and based on the current average price of Brent oil for the year at $116 per barrel. Employing that math, U.S. consumption of oil is at 5.51% of GDP, which is clearly in the danger zone.  Now, obviously, our assumptions can be manipulated a little each way and WTI oil is trading at a lower price, but the key point is that we are at, or very close, to a ratio of oil to GDP of 5.5%.

 

Oil Price Shocks are Leading Indicators of Recessions -  gdp.oilprices

 

 

In terms of whether a shock has occurred, the price of Brent has increased 26% from the start of Q4 2011 to today.  Obviously, this isn’t a 50% ramp in the price of Brent, but it is in the realm of a price shock that negatively impacts growth as cited in the study above.

 

The simple fact is this: nine out ten recessions since World War 2 have been preceded by an increase in oil prices.  Coincidence? Perhaps . . .

 

 

Daryl G. Jones

Director of Research

 

 

 

 

 


ECB Presser YouTubed

-- At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 1.00%, 1.75%, and 0.25% respectively. Draghi forecasts a very “gradual” to “slow” recovery in Eurozone GDP this year on account of increased foreign demand, low interest rates, structural reforms, and (with stress) an improvement in the risk environment as the major factor propelling this recovery.

 

To this last point, we’d say this is a large “gamble” considering that even if the market can cope with Greece, there are plenty of other peripherals that are not in a stable fiscal stead. Draghi also stressed the work of the two 36 month LTROs as decisive measures to put Europe back on track (remove “tail risk”) to see improvement, yet he wasn’t able to show material evidence that real lending has happened in response to these huge liquidity dumps, and called on governments and banks to continue reforms and repair balance sheets to support recovery. He did make it clear that they’re in a wait and analyze phase on the impact of the LTRO programs, and don’t have a third scheduled. While these comments are all well and good, we must not forget the pressures of reduced tax receipts to limit debt and deficits in an uncertain credit market, and the stresses on banks that are in the process of writing down their PIIGS paper and repositioning to meet higher capitalization ratios, mandated by June 30th.

 

Finally, and published after the call, the governing council decided to again accept as collateral any debt instruments that are issued or fully guaranteed by Greece. Yamas!

 

The language on its main economic outlook was unchanged, noting “signs of stabilization in economic activity at a low level” versus “substantial downside risks” in the February 9th report. The bank said it expects the Eurozone economy to “recover gradually in the course of this year”, but again was quick to say that “this outlook is subject to downside risks”. The Bank forecasts annual real GDP growth in a range between -0.5% and 0.3% in 2012 and between 0.0% and 2.2% in 2013. When compared with the December 2011 Eurosystem staff macroeconomic projections, the ranges have been shifted slightly downwards.

 

On inflation, the Bank holds roughly the same view, namely that inflation is “now likely to stay above 2% in 2012, mainly owing to recent increases in energy prices, as well as recently announced increases in indirect taxes, and they expect annual inflation rates should fall below 2% in early 2013. The March 2012 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.1% and 2.7% in 2012 and between 0.9% and 2.3% in 2013. In comparison with the December 2011 Eurosystem staff macroeconomic projections, inflation forecasts have been shifted upwards, notably the range for 2012.”

 

Finally, Draghi noted the pace of monetary expansion remains subdued. The annual growth rate of M3 was 2.5% in January 2012, up from 1.5% in December 2011. Loan growth to the private sector also remains subdued. However, its annual rate (adjusted for loan sales and securitization) picked up slightly in January to 1.5% year on year from 1.2% in December. The annual growth rates of loans to non-financial corporations and loans to households (adjusted for loan sales and securitization) stood at 0.8% and 2.1% respectively in January.

 

----

Top Q&A Responses:

 

-If LTRO effects are not realized, what else can the ECB do?  Mario Draghi (MD): (laughs) both LTROs have such a complex and powerful effect, so we have to see how financial and economic landscapes have changed following operation. We must thoroughly analyze this.  We have done the LTROs, so now we want to see the effects.

 

-Regarding the Greek PSI, the ECB has swapped bonds that were exempt from CACs and the ECB has made no statement on this to date, can you comment?   MD: the bonds swapped were from our SMP bond purchasing program and were therefore in the public interest and deserve protection. The balance sheet of the ECB must be protected. Only when protected can the Bank issue price stability for the union.

 

-We’re in the third week without SMP purchases, is this program history?   MD: correct, inactive in the last 3 weeks. SMP is neither eternal nor infinite.

 

-How confident are you in the fiscal compact?   MD: I’m confident that the fiscal compact will be implemented. We need countries to give up a level of their national sovereignty around fiscal policy. We cannot have one or two countries pay for everyone else, nor under present conditions could we issue joint bonds. We need rules in place, “pillars of trust” if you will, between countries, and this trust is essential for a monetary union.

 

-Your thoughts on collateral rules?  MD: they could be looser. 

 

-Regarding Greece, markets are nervous on PSI, is this justified, or is it what you were expecting? What if PSI doesn’t get sufficient participation?  MD: markets are not nervous today, but rather happy, and they know more than I do.

 

-Should NCBs prepare for exit of Greece?   MD: there is no plan B; having such a plan would admit defeat. It would be to conceive a reality that goes beyond the treaty.

 

 

Additional Q&A:

 

-Interest rates in Germany are way too low, what happens when Germany heats up and rates in the Eurozone are too low?   MD: we must have monetary policy that is correct for the whole Union. Now, the rate is supportive and accommodative to maintain price stability.

 

-Last month you didn’t discuss interest rates moves, discussed this month?  MD: No

 

-Are you confident that Greek PSI will be a success?  MD: unfolding at present time, so inappropriate to comment.

 

-Overnight ECB deposits are high, are you worried about the LTRO’s impact?  MD: the rise in overnight deposits is just a mechanic consequence of the liquidity creation. We expect the deposit facility to go up in the immediate term, but adjust over the medium term. What we’ve seen is that the identity of the depositors and borrowers are different, so money is being circulated.

 

-Juergen Stark said today that the ECB balance sheet is shocking. Should we be worried?   MD: not sure what he meant. He agreed on the LTRO, but left before new collateral rules were issued. I will talk to him to see what he means.

 

-How concerned or upset are you about a leaked Bundesbank letter; are you concerned the ECB is not speaking with one voice?  MD: First I should say that my personal relationship with Jens is excellent. Nobody, contrary to the press, is isolated in the governing council. The ECB has cherished Bundesbank policy for price stability. But now, we’re all custodians of stability. The substance and content of the letter is present in all of our minds, including Target 2 balances. So we share these views. We are all in the same boat, and there’s nothing to gain in arguing outside of the council.

 

---

 

Matthew Hedrick

Senior Analyst


Risk Managing Inflation Expectations: TIP Trade Update

Conclusion: As we have seen repeatedly throughout history, stability in the U.S. Dollar is acting as a governor on the slope of inflation expectations. As such, we have sold our long position in TIPS.

 

Virtual Portfolio Positioning: Sold our long position in the iShares Barclays TIPS Bond Fund (TIP).

 

Yesterday afternoon, Keith sold our long position in Treasury Inflation Protected Securities on the strength of a TRADE line breakdown amid signs of stability in the U.S. Dollar Index, our leading indicator for the slope of intermediate-term inflationary pressures. Conversely, a breakdown of the DXY through its TREND line would, once again, get us increasingly hawkish on the intermediate-term slopes of domestic and global inflation readings.

 

Risk Managing Inflation Expectations: TIP Trade Update - 1

 

Risk Managing Inflation Expectations: TIP Trade Update - 2

 

Fundamentally, USD stability acts as a governor on global food, energy, and raw materials prices, and, as a result, a governor on global producer and consumer prices due to the marginal decrease in supply-chain pressures. Particularly in the U.S., given that there is “slack in the labor markets” and that “capacity utilization remains subdued” (to borrow the Fed’s own lingo), the only thing really moving the dial on domestic PPI and CPI readings  is the purchasing power of the U.S. dollar and its impact on price-setting across global commodity markets.

 

Further, increased clarity in the Republican primary has also been interpreted as dollar-bullish, because it inches consensus one step closer to the generational debate about debts, deficits and monetary policy that we expect to come alive in the months leading up to the general election.

 

All told, keep your eyes on the aforementioned quantitative levels, as the slope of inflation expectations continues to be the driving force of asset prices globally – a relationship we attribute to investors favoring the reflationary effects of easy monetary policy in the absence of true underlying economic growth momentum and improving fundamentals.

 

Darius Dale

Senior Analyst

 

Risk Managing Inflation Expectations: TIP Trade Update - 3


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

ON FURTHER REVIEW, IGT DOING BETTER

Market share stabilizing in more than one area.

 

 

The big takeaways from the following charts are that slot sales are surging and IGT’s installed base and participation share is (finally) stabilizing.  While we liked the slot sector over the near and long term, our concern surrounding IGT was continued declines in their participation share.  That is why chart 2 is so encouraging for our IGT thesis.  The stock is looking pretty washed out here.

 

Now that Aristocrat has reported, we can confirm that the top 5 manufacturers have shipped 62.4k units to North America.  If we include MGAM, which sold 1.4k units, that gets us to a total of 63.8k.  Our best guess is that the rest of the smaller suppliers (Speilo, Aruze, Ainsworth, etc) shipped a total of approximately 3k units. Tallying up the total gets us to a total of 67k North America shipments in 2011 compared to 63k in 2010.   We estimate that replacement comprised 54.6k of the total shipments to NA vs. 49.4k replacements in 2010 – an 11% increase.

 

In 2H11, replacements increased 7% YoY to 26.2k.  Almost all the YoY growth in 2H11 occurred in the 3rd quarter, which we estimate had 13.3k replacement shipments and was up 14% YoY while 4Q was up only 1% YoY at 12.9k shipments.

 

Our estimate for 2012 replacements hasn’t changed much since our last replacement market recap 6 months ago. We believe 2012 will come in at around 59k units with most of the growth back-end loaded, given the tougher 1H comparisons.

 

ON FURTHER REVIEW, IGT DOING BETTER - SLOT1

 

The following chart shows our estimate of participation and lease revenue share for the three largest players in the space.  As shown, IGT’s market share has been in a steady decline for almost 7 years since 2004. However, over the last 6 quarters, IGT’s share has been stable to slightly improving.  We view this very favorably.  Growth for IGT and the industry should resume with all of the new markets and casinos opening in the next few years.

 

ON FURTHER REVIEW, IGT DOING BETTER - slot2

 

ON FURTHER REVIEW, IGT DOING BETTER - slot3



VFC: M&A the Other Way

(Correction: Last sentance of opening paragraph was cut off in prior version)

 

We’re used to seeing VFC involved in M&A deals. It’s simply part of it corporate fabric and for good reason they have had a solid track record of success. But this morning VF is in a less familiar role as the seller of its John Varvatos brand. This is hardly a blockbuster deal (less than $100mm), but we like it for the following reasons:

  • There’s a lot of variety in the 26 primary brands that make up VFC’s consumer branded portfolio (see below), but Varvatos simply didn’t fit in. It’s a luxury men’s apparel brand that sells through luxury department stores like Barneys, Neimans, Bloomie’s, etc. in addition to its 10 free standing stores. VF has plenty of premium brands, but this was its only luxury brand. It was requiring incremental effort in order to maintain relationships with the department stores that VF wouldn’t have been dealing with otherwise – that’s now alleviated.
  • We like the timing. While not a blockbuster deal (financial terms weren’t disclosed), VF is selling an asset in the luxury end of its portfolio just when luxury retail is shinning. As such, whatever the value the deal comes out to (we suspect around $100mm; over $100mm in sales at HSD margin), it’s not likely to have been at depressed multiples.
  • It improves the balance sheet. The proceeds of this deal can be put towards reducing VFC’s debt-to-capital ratio. VF ended the year with a debt-to-capital ratio of 32% well below 40% where the company ended Q3 following the TBL acquisition. While slightly above plan (30% by year end), the company paid off nearly $900mm in debt during Q4 and can generate over $1Bn in FCF this year reflecting a 9% FCF margin despite ramping CapEx spending nearly 2x its historical rate in order to support continued growth, HQ relocation, new DCs, etc. With this level of FCF generation plus an additional ~$100mm from Varvatos, we expect VF to reduce its debt-to-capital ratio to the low-20s in-line with pre acquisition levels by year-end.

All in, this deal isn’t going to have a material financial impact, but the company is selling off a fringe asset in the least profitable segment of the business – it makes perfect sense. We like the stock here and the fact of the matter is that VFC continues to give the market reasons as to why it will likely never look cheap. Moreover, we think VF’s initial F12 outlook appears overly conservative, which shouldn’t come as a surprise to those that have followed this team.

 

Our model has VF growing EPS at a mid-teens rate over the next two years – without any stretch assumptions. Timberland growth alone gets us there, and we’re not making any heroic assumptions as to the use of VFC’s $1bn in free cash. With the stock trading at 13.9x our F13 estimate of $10.75, and about 10x EBITDA we can’t exactly call it cheap. But estimate revisions are likely to be headed up from here, and you generally don’t want to be on the wrong side of VFC when estimates are heading higher.

 

Casey Flavin

Director

 

VFC: M&A the Other Way - VFC JVarvatos

 

 


FEBRUARY MACAU DETAIL

February gross gaming revenues (GGR) increased 23% YoY to $3.03BN.  The timing of the Chinese New Year celebration in January of this year versus February of last year had a negative impact on YoY growth comparison which was offset by an easy hold comparison and an extra day this year.  We estimate that total direct play this month accounted for 7.0% of the market, compared to 6.6% last year.  The total VIP market held at 2.88% vs. 2.68% in February 2011.  Accounting for direct play and theoretical hold of 2.85% in both months, February revenues would have increased 16% YoY.  Without the benefit of the leap day, revenues would have been up about 13% YoY. 

 

In a sign of slowing VIP growth, February was the first month since March 2009, that 4 of the 6 concessionaires saw declines in Junket RC volumes.  On the bright side, Mass market table revenues continued to be strong, growing 31% YoY, and the 4th straight month of growth that led the market.  Rolling Chip “only” increased 12% YoY.  Obviously, the higher margin profile of the Mass business makes this trend a very palatable one for the operators.  Commission rates do need to be monitored, however, given the slower growth of VIP coupled with the aggressive Four Seasons/Neptune deals.

 

February market shares were very similar to January.  After a slow start, MPEL was the biggest winner sequentially, driven by its highest Mass share ever at 12.5%, up 80bps MoM.  Fundamentally, MPEL continues to knock the cover off the ball.  If management would just come out and say they will not do a dilutive equity deal, this stock could have a real multiple.

 

Galaxy’s share fell sequentially following a strong, hold aided couple of months.  Yes, VIP hold was low but Mass share fell

120bps MoM.  Even on a normalized basis, Galaxy’s share is quite disappointing.

 

LVS posted another solid share month driven by higher hold and solid Rolling Chip growth.  However, Mass share fell 80bps.  LVS, WYNN, and Galaxy seem to be losing on the Mass side to SJM and MPEL.

 

 

Y-o-Y Table Revenue Observations

 

Total table revenue grew 23% YoY this month, on top of 47% growth last January.  Given the extra day this year and the easy hold comparison from last year, the impact of the shift in the CNY holiday was likely neutral.  Mass revenue growth of 31% was healthy but marked a deceleration from the +40% average growth we’ve seen since June 2011.  VIP revenues grew 21%, while Junket RC “only” increased 12%, with both continuing the ‘slowing trend’ that we began to observe in October.

 

LVS

 

Table revenues grew 28% YoY, outpacing the market mostly due to strong hold across Sands and Four Seasons.  We estimate that LVS’s properties held at 3.2% in February.  At 32%, LVS had the best VIP growth after Galaxy and ranked #4 behind Galaxy, MPEL, and SJM for Mass table growth.

  • Sands was only up 0.4% YoY despite high hold and an easy hold comparison
    • Mass was up 1%
    • VIP was up 0.1%.  Sands held high in February.  Assuming $300MM/month of direct play or 15% (in-line with the monthly absolute average in 4Q11), hold was 3.86% vs. 2.74% last February, assuming 10% direct play or $270MM/month (in-line with 4Q10).
    • Junket RC was down 21%, the first double digit decline since September 09
  • Venetian table revenues decreased 4% YoY, driven by a combination of a difficult hold comparison and low hold, and a drop in junket VIP RC volume
    • Mass increased of 23%
    • VIP decreased 18%, while junket VIP RC decreased 7%
    • Assuming 27% direct play in the quarter (below the 28% we saw in 4Q11 but higher than 2011), hold was 2.67% compared to 3.24% in February 2011, assuming 19% direct play (in-line with 1Q11)
  • Four Seasons grew 253% YoY, driven by a huge Junket RC growth, high hold, and an 87% increase in Mass revenues.
    • Junket VIP RC increased 3.7x YoY
    • Four Seasons is clearly seeing a benefit from LVS’s recent initiatives.  If we assume that monthly direct play volume of ~$725MM from 687MM/month in 4Q11, that implies a direct play percentage of 15% and a hold rate of 3.43%.  In comparison, if February 2011 direct play was around 50% (54% in 4Q10 and 40% in 1Q11) then hold was 2.46%.

WYNN

 

Wynn table revenues only increased 2.5%, exhibiting the lowest growth of all 6 concessionaires.  While Wynn’s hold was low, last year’s comparison was also easy.  Wynn’s average growth over the last 4 months has slowed to an average of 6%.

  • Mass was up 10% and VIP increased 1%
  • Junket RC fell 4%
  • Assuming 11% of total VIP play was direct (in-line with 4Q11), we estimate that hold was 2.75% compared to 2.62% last year (assuming 10% direct play – in-line with 1Q11)

MPEL

 

MPEL grew 13%, propelled by strong Mass table growth at 37% behind Galaxy, offset by slower 8% growth in VIP

  • Altira revenues fell 2%, due to a 3% decrease in VIP.  Altira revenues have declined 3 of the last 4 months.
    • Mass revenues increased 12%
    • VIP RC decreased 10% - marking the 3rd consecutive month of declines
    • We estimate that hold was 2.7%, compared to 2.5% in the prior year
  • CoD table revenue was up 21%, driven by 41% growth in Mass and 15% growth in VIP
    • Junket VIP RC fell 3%
    • Assuming a 16% direct play level, hold was 3.2% in February compared to 2.8% last year (assuming 13.7% direct play levels in-line with 1Q11)

SJM


Revs grew 12%

  • Mass was up 22% and VIP was up 8%
  • Junket RC was down 7%, implying 2.89% hold across the company’s properties

 

GALAXY

 

For the 9th month in a row, Galaxy posted table revenues growth north of 100% - at 122%. Mass soared 239%, while VIP grew 105%.

  • StarWorld table revenues grew 14%
    • Mass grew 35% and VIP revenue grew 12%
    • Junket RC grew 19%
    • Hold was low at 2.3% but the comparison from last February was also easy, at 2.4%
  • Galaxy Macau's total table revenues were $253MM – down MoM and 25% lower than October’s seasonal high and below November to January run rate of $281MM
    • Mass table declined 23% MoM to $52MM, the lowest level since September 2011
    • VIP table revenue declined 6% MoM to $201MM, also the lowest level since September
    • Hold was 2.74% - the property’s lowest hold since opening
    • RC volume of $7.3BN was 8% higher than January and compares to a peak of $8.3BN in October

MGM

 

Table revenues grew 6%, giving MGM the second slowest growth slot in February despite high hold

  • Mass revenue growth was 4% - the slowest of the concessionaires for the 2nd month in a row
  • VIP revenue grew 6%
  • Junket RC declined 4%
  • Assuming a direct play level of 9% for both periods, we estimate that hold was 3.12% this month vs. 2.83% in February 2011

 

Sequential Market Share

 

LVS

 

LVS share was flatish at 18.5% in February vs. 18.6% in January.  This compares to a 6 month trailing market share of 15.5% and 2011 average share of 15.7%.

  • Sands' share dropped 50bps to 4.2%.  For comparison purposes, February share was below 2011's share of 4.6% and 6M trailing average share of 4.3%.
    • VIP rev share decreased 50bps while Mass share fell 30 bps
    • RC share decreased 30bps to just 2.4%, an all-time low for the property
  • Venetian’s share dropped 1.8% to 7.9% from 9.7% in 4Q11- the lowest market share in 6 months.  2011 share was 8.4% and 6 month trailing share was 8.2%.
    • VIP share decreased 1.9% to 5.9%
    • Mass share fell 1.1% bps to 13.9%
    • Junket RC fell 70bps to 4.8%
  • January was the 5th consecutive month where FS gained share.  FS share was 6.2%, up 2.4% and an all-time high.  This compares to 2011 share of 2.2% and 6M trailing average share of 2.5%.
    • VIP share increased 3.0% to 7.4%, an all-time property best –aided by high hold.  This is the first time that FS VIP revenues exceeded those of Venetian and the second month in a row where they exceed Sands’ revenue.
    • Mass share increased 50bps to 2.4%
    • Junket RC improved 60bps to 5.9% - an all-time high for the property.  January marked the second month where RC share at Four Seasons exceeded that of Sands Macao and the first where volumes exceeded Venetian's.

WYNN

 

Wynn’s share inched up 10bps to 12.6%, below its 6 month trailing average share of 12.9% and well below its 2011 average share of 14.1%.  We expect Wynn’s share to continue to struggle with the opening of Sands Cotai Central in April.

  • Mass market share fell 60bps to 9.4%
  • VIP market share improved 30bps to 13.3%, despite below market hold
  • Junket RC share fell to 13.3%, a 90bps MoM decline

MPEL

 

Flip-flopping once again, MPEL was the largest share winner in February. Market share bounced back 1.6% points to 14.1%.  This compares to their 6 month trailing share of 14.2% and 2011 share of 14.8%.

  • Altira share improved 30bps to 4.1%, still well below the property’s 2011 share of 5.3% and 6M trailing share of 4.6%
    • Mass share ticked down 10bps to 1.4% while VIP share increased 30bps
  • CoD’s share improved 1.1% to 9.8%; above its 2011 share of 9.3% and 6M trailing share of 9.5%
    • Mass market share increased 80bps to 11%
    • VIP share increased 80bps to 9.4%
    • Junket RC was flat at 7.7%

SJM

 

SJM gained 60bps of share to 28.0%, better than their 6-month trailing average of 27.2% but below their 2011 average of 29.2%.

  • Mass market share increased 3% off of January lows to 36.6%
  • VIP share ticked down 30bps to 26.0%
  • Junket RC share fell 1% to 27.8%

GALAXY

 

Galaxy was the biggest share loser in February, impacted by low hold.  Galaxy’s share fell for the 5th consecutive month after ‘peaking’ at 20.9% in October.  February share of 16.6% was 1.9%, down MoM and below the 6-month trailing average of 19.7%. 

  • Galaxy Macau share declined 70bps to 8.7% below its 6-month trailing average of 9.8%, partly due to low hold
    • Mass share fell 1.5% to 7.2%, the lowest share in 6 months
    • VIP decreased 50bps to 9.2%, the lowest share in 7 months
    • RC share ticked increased 40bps to 10.4% - consistent with the 4 month average
  • Starworld share fell 1.1% to 6.7% below its TTM average share of 9.1% before Galaxy Macau opened.
    • Low hold was largely to blame for the share loss as Junket RC share increased 50bps to 10.8%

MGM

 

MGM share was flat at 10.3%. February share sits a little below MGM’s 2011 and 6-month trailing average share of 10.5%.

  • Mass share ticked down 10 bps to 6.7%
  • VIP share was flat at 11.2%
  • Junket RC ticked up 10bps to 10.1% 

 

Slot Revenue


Slot revenue totaled $132MM in February, with growth decelerating to just 9% YoY. None of the concessionaires hit records this month.

  • As expected, GALAXY slot revenues grew the most with 251% YoY to $16MM
  • MGM slot revenues had the second best growth at 16% YoY to $19MM
  • MPEL slot revenues grew 9% YoY to $24MM
  • SJM slot revenues grew 7% YoY to $17MM
  • LVS slot revenues fell 10% YoY to $29MM- the company’s absolute lowest level since June 2011 and marking the 3rd YoY decline in 7 months
  • Wynn experience the highest YoY decline with a 11% YoY drop to $25MM.  This was Wynn’s first month of declines in 2 years.

 FEBRUARY MACAU DETAIL - table

 

FEBRUARY MACAU DETAIL - mass

 

FEBRUARY MACAU DETAIL - rc


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%
next