prev

THE M3: NEVADA REGULATORS; SIDE-BETTING; WYNN-OKADA DIVORCE; LABOR

The Macau Metro Monitor, March 12, 2012

 

 

NEVADA PROBES JUNKET OPERATORS WSJ

Mark Lipparelli, chairman of the Nevada Gaming Control Board, said that outside junket operators are "becoming an area of increased attention for us."  Nevada regulators in the past six months have increased their scrutiny of whether junket operators that are business partners with casino companies have connections with people tied to organized crime, a person familiar with the matter said. That person declined to say what companies are under scrutiny or to cite any evidence.

 

US DROPS SIDE-BETTING ALLEGATIONS Macau Business

The latest annual U.S. State Department on international money laundering has dropped the claim that the value of side-betting in Macau could exceed GGR by ten times.  Several industry players had rebuffed the claim, made in last year’s report.

 

Even so, in its latest report, issued last week, the U.S. State Department continues to say “Macau’s gaming industry relies heavily on loosely-regulated gaming promoters. Increasingly popular among gamblers seeking inscrutability and alternatives to China’s currency movement restrictions, junket operators are also popular among casinos aiming to reduce credit default risk and unable to legally collect gambling debts in China. This inherent conflict of interest, together with the anonymity gained through the use of the junket operator in the transfer and commingling of funds, as well as the absence of currency and exchange controls, present vulnerabilities for money laundering,” the report says.

 

Even so, the U.S. State Department acknowledges Macau “continues making considerable efforts” to develop an anti-money laundering framework that meets international standards.


THE UNRAVELING OF A CASINO MARRIAGE WSJ

WSJ details signs of a waning Wynn-Okada partnership way before the current legal battle.  Okada needed cash to build his Phillippines project and to support his foundering pachinko business which was being cracked down by the Japanese government but he couldn't sell his Aruze shares, which holds the WYNN shares, due to an amendment which prohibits Wynn and Okada from selling WYNN shares without the other's consent.  Wynn feared his control over Wynn Resorts could be threatened if Okada sold shares in WYNN or lost control of Aruze.  Okada asked Wynn to allow him more control in the company and wanted the authority to nominate WYNN board members.  Okada also wanted more compensation on the board since he was seeking future business for the company in Asia.  Meanwhile, Okada kept trying to persuade Wynn to join the Philippines project.

 

On Sept. 30, 2010, two attorneys from Wynn Resorts presented Okada's attorney with the board's corruption concerns from its investigation and said that because Okada's casino in the Philippines may compete with Wynn's businesses, he was violating his fiduciary duties as a board member.  A few days later, Wynn and Okada, flanked by lawyers, met together in Las Vegas.  Wynn accused Okada of using the company's intellectual property and misrepresenting his project, including handing out his Wynn Resorts business cards.  He also raised corruption concerns connected to Okada's Philippines project.  Wynn told Okada he should step down from his role as a director.

 

LABOR FORCE TO INCREASE BY 10 PERCENT IN 2012 Macau Business

Macau's secretary for economy and finance, Francis Tam Pak Yuen, said Macau’s labor force could increase by as much as 10% in 2012.  According to the secretary, this figure takes into account the needs of small and medium-sized enterprises in hiring workers and also the current and future needs of the gaming industry.  To ensure 10% growth, the government would be forced to allow the number of imported workers to increase by over 30,000.


MONDAY MORNING RISK MONITOR: HOLDING STEADY

A Look at the Current Setup

* Greece's debt swap was largely in line with expectations last week; on a week-over-week basis, we saw relatively little movement in several key risk indicators. Most of the series were essentially unchanged or continued on their pre-swap trajectories. European and US interbank risk receded further last week with the Euribor-OIS shrinking 4 bps week over week, while the TED spread shrank 2 bps. This is less of a catalyst for further upside now that both of these measures have largely renormalized.


* Both European and American Bank CDS widened week over week.

 

* High yield rates rose 13 bps off of last week's YTD low, ending the week at 7.01.  

 

 * Fairly balanced short-term outlook - Our macro team's quantitative model indicates that on a short term duration (TRADE), there is 1.1% vs. 0.8% downside in the XLF.

 

Financial Risk Monitor Summary  

• Short-term(WoW): Positive / 3 of 12 improved / 2 out of 12 worsened / 7 of 12 unchanged  

• Intermediate-term(WoW): Positive / 7 of 12 improved / 3 out of 12 worsened / 2 of 12 unchanged  

• Long-term(WoW): Negative / 0 of 12 improved / 6 out of 12 worsened / 6 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - Summary

 

1. US Financials CDS Monitor – Swaps widened for 19 of 27 major domestic financial company reference entities last week.   

Tightened the most WoW: JPM, AIG, CB

Widened the most WoW: MBI, MMC, AGO

Tightened the most MoM: RDN, MTG, AIG

Widened the most MoM: MS, MBI, GS

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - CDS  US

 

2. European Financials CDS Monitor – Bank swaps were wider in Europe last week for 31 of the 40 reference entities. The average widening was 2.6% and the median widening was 2.4%.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - CDS   Euro

 

3. European Sovereign CDS – European Sovereign Swaps mostly widened over last week. German sovereign swaps tightened by 2.6% (-2 bps to 77 ) and French sovereign swaps widened by 3.3% (6 bps to 181).

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - Sovereign CDS 1

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - Sovreign CDS 2

 

4. High Yield (YTM) Monitor – High Yield rates rose 13.3 bps last week, ending the week at 7.01 versus 6.88 the prior week.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - HY

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index was flat over last week, ending at 1642.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - LLI 2

 

6. TED Spread Monitor – The TED spread fell 2.3 points last week, ending the week at 39.0 this week versus last week’s print of 41.2.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - TED

 

7. Journal of Commerce Commodity Price Index – The JOC index fell 2.7 points, ending the week at -8.12 versus -5.5 the prior week.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - joc 2

 

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 4 bps to 54 bps.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - 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: HOLDING STEADY - ECB liquidity

 

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 the MCDX was flat, ending the week at 129 bps.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - mcdx 2

 

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 rose 53 points, ending the week at 824 versus 771 the prior week.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - Baltic

 

12. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread widened by less than a basis point to 170 bps.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - 2 10

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.1% upside to TRADE resistance and 0.8% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - XLF

 

Margin Debt - January

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 +0.55 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 December and January's print of +0.53 and +0.70 standard deviations.  Overall, however, this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag.  The chart shows data through January.

 

MONDAY MORNING RISK MONITOR: HOLDING STEADY - Margin Debt

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

Trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser 

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 12, 2012


As we look at today’s set up for the S&P 500, the range is 19 points or -0.50% downside to 1364 and 0.88% upside to 1383. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1202 (-575) 
  • VOLUME: NYSE 719.04 (0.34%)
  • VIX:  17.11 -4.68% YTD PERFORMANCE: -26.88%
  • SPX PUT/CALL RATIO: 1.57 from 0.98 (60.20%)

CREDIT/ECONOMIC MARKET LOOK:


USD – the most important (and bullish on the margin for US Consumption Growth) recovery in the last few weeks has been the US Dollar Index recovering its intermediate-term TREND support of $79.36. With short-term Treasuries (2yr) breaking out above 0.26% TREND support and Gold struggling relative to oil, we are out of Gold for now. Considering the short side GLD and looking to buy USD back. 

  • TED SPREAD: 39.22
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 2.02 from 2.03
  • YIELD CURVE: 1.71 from 1.71 

MACRO DATA POINTS (Bloomberg Estimates):

  • 11am: Export inspections: corn, soybeans, wheat
  • 11:30am, U.S. to sell $33b 3-mo., $31b 6-mo. bills
  • 1:00pm, U.S. to sell $32b 3-yr notes
  • 2:00pm, Monthly Budget, Feb., est. -$229.4b (prior -$222.5b)
  • 3:15 p.m. Bank of England’s Fisher speaks in London 

GOVERNMENT:

    • Rick Santorum, Newt Gingrich hold rival events in Biloxi, Miss. ahead of Tuesday primary
    • House not in session this week, Senate in
    • Supreme Court in session, rulings expected 

WHAT TO WATCH:

  • Glencore said to have made approach for Viterra; Cargill may have expressed interest: WSJ
  • World Trade Organization may rule on appeal of decision that Boeing got at least $5.3b of illegal U.S. subsidies
  • Boehringer Ingelheim will consider buying Pfizer’s animal health business, provided co. sells it in parts: Economic Times
  • Fed’s extension of maturities, known as Operation Twist, may lower 10-yr yield by 85 bps: Bank of International Settlements
  • Fed said to be pushing back against some banks’ proposals to pay dividends, buy back shares after concluding lenders underestimating potential losses on consumer debt
  • Wells Fargo, Citigroup may join banks unleashing more than $9b in div. increases, shr buybacks if they get passing grades this week on Fed’s annual stress test
  • Chevron aims to catch up on Marcellus gas drilling: WSJ
  • Asahi Kasei agreed to buy Zoll Medical for up to $2.2b
  • Temenos, Misys fail to reach agreement, terminate talks; Misys says talks with Vista, CVC/ValueAct continuing
  • Global banking regulators will seek accord later this month on changes to draft liquidity rules criticized by some govts, lenders as threat to economic recovery
  • Average price for regular gasoline at U.S. filling stations increased 12.31c to $3.8148/gallon over past 2 wks: Lundberg
  • Swatch to contest counterclaim by Tiffany & Co. over end of alliance between the cos.
  • Euro-area finance ministers meet to discuss Greece’s progress in fulfilling commitments under a 130b euro rescue program
  • Craig Bouchard, co-founder of Esmark, said to be close to announcing deal to buy HD Supply’s pipe, valve distribution unit for ~$500m
  • Disney’s “John Carter” took in $30.6m in U.S. Canada, trailing “The Lorax"; est. range: $25m-$38.9m
  • No U.S. IPOs scheduled 

EARNINGS

    • FuelCell Energy (FCEL) Pre-Mkt, $(0.06)
    • Silver Standard Resources (SSO CN) Pre-Mkt, $(0.12)
    • Urban Outfitters (URBN) 4pm, $0.29
    • Carmike Cinemas (CKEC) 4:02pm, $0.16
    • Clean Energy Fuels (CLNE) 4:05pm, $(0.17)  

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Hedge Funds Trimmed Wagers Before Prices Rebounded: Commodities
  • Oil Drops From One-Week High as China’s Exports Miss Forecasts
  • Coffee Declines to 17-Month Low on Speculation of Brazil’s Sales
  • Copper Falls on Signals of Slowdown in China, Largest Consumer
  • Gold Declines as Commodities Slide, Hedge Funds Cut Holdings
  • India Ends Cotton-Shipment Ban, to Revalidate Existing Permits
  • Palm Oil Inventories in Malaysia Climb 2% as Exports Drop
  • Soybeans May Gain After USDA Cut Forecast on Global Inventories
  • Rubber Top May Be 358 Yen, Fibonacci Shows: Technical Analysis
  • Aluminum Stockpiles in Japan Drop From Highest Since 2009
  • TNK-BP Yield Drops Below Gazprom as Oil Beats Gas: Russia Credit
  • Bullish Oil Bets Drop as Tension With Iran Eases: Energy Markets
  • Soybean Imports by China May Rise to Record, Grain Bureau Says
  • Cotton Declines as India Scraps Export Ban
  • Glencore Said to Express an Interest in Grain-Handler Viterra
  • Chesapeake CEO Courts Asians for $100 Billion Resource: Energy 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 


ASIAN MARKETS


CHINA – worst Trade Deficit in 22yrs (let’s call that ever – and ever is a long time) at -$31.5B after last week saw that big sequential drop in Chinese IP growth (to 11% vs 14% in JAN despite Lunar shift). Growth Slowing. Chinese stocks looking for a rate cut.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST

 

ISRAEL someone knows something or someone thinks they do – what we can’t see here makes us call it out as the Tel Aviv25 Index not only moved to red for 2012 YTD last week, but is down another full 1% this morning (down -4% in since Feb 21). Iran?


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 

 


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 80.33%
  • SHORT SIGNALS 78.51%

Entitled Credit

“If your success was due mostly to chance, how much credit are you entitled to take for it?”

-Daniel Kahneman

 

That’s an outstanding question from one of the outstanding contributors to our profession in the last decade. Now that The Baupost Group’s ($22B) founder Seth Klarman focused his recent quarterly letter on Dan Kahneman’s work, I feel special.

 

Do you feel special? Do you need someone “smart” to validate your ideas for them to be good ideas? Kahneman’s focus in Chapter 20 of “Thinking, Fast and Slow”, The Illusion of Validity, at a bare minimum will get you thinking about what you really know.

 

“The illusion of skill is not only an aberration, it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions – and thereby threaten people’s livelihood and self-esteem – are simply not absorbed.” (Kahneman, page 217)

 

Back to the Global Macro Grind

 

Threaten how people get paid in any diameter of this business, and I can assure you they, deep down, want you to fail. That’s the kind of adversity I live for. Welcome to Wall St 2.0.

 

On Larry Kudlow’s WABC Radio Show this weekend, Larry asked me a very simple question related to this topic of what Old Wall Street really wants: “Keith, do you think that Wall Street types want a weak dollar?”

 

Yep. Big time.

 

How else can you explain the US Dollar Index’s most recent history and the Street being willfully blind to its realities?

  1. Down -19% from Bernanke’s start date (2006) to the thralls of Qe2 (Q211)
  2. Down -12% from Obama/Geithner start date (2009) to the lows of 2011
  3. Down -4% from Bernanke’s January 25thpush to debauch to 2014 to the lows 1 month later (last wk of Feb)

Actually, the “smart” people would call this correlation instead of causality. Right. Right. Like there is no causality between the largest money printing and debt monetization in US history and the US Dollar that underpinned it.

 

Let’s get serious here folks. The reason why we’re one of the few Wall St 2.0 firms focused on the US Currency’s Credibility is that we don’t get paid exclusively by the short-term inflations of asset prices (stocks, commodities, etc.) born out of debasing it.

 

This American Purchasing Power point holds plenty relevant for the upcoming US Presidential Election too. There is currently a very high correlation between President Obama’s approval rating and the inflation of the US stock market. That’s why we have back-tested and built the Hedgeye Election Indicator using real-time market indicators. We’ll be updating that every Tuesday morning.

 

Back to the market.

 

Last week was a good week for my Strong Dollar = Strong America theme:

  1. US Dollar Index = recovered a +0.81% appreciation to $80.04
  2. CRB Commodity Inflation (18 commodity index) = deflated by -1.2% to 317
  3. Short-term US Treasury Yields (2-yr yields) = rose +18.5% to 0.32%

Since this all happened on the heels of continued Romney momentum in the Republican primary (sorry CNN fans, I know this wasn’t their headline), we’re left to wonder whether this weekend’s Rasmussen poll of Romney 48% vs Obama 43% will line up with our Hedgeye Election Indicator’s directional signal tomorrow morning.

 

Like everything we build here, our election indicator is built with math, not partisan politics. If you’re a Democrat and it’s hard to read the Rasmussen data point, tough cookies. It should be equally hard for Republicans to read our last Election Indicator of an Obama +58.4% probability to win.

 

I’m not a Republican or a Democrat. I am Canadian – and couldn’t be more proud to not be pigeon holed into being associated with an American political party. So, hopefully, for Election 2012, we can become one of your objective and bi-partisan sources in handicapping the #1 issue in this country – the economy.

 

On that score, there was a lot of spin on last week’s unemployment reporting – so let’s un-spin it:

  1. The US unemployment rate did not improve month-over-month, staying at 8.3% (only down 0.7% year-over-year)
  2. Taking out the government’s random Birth/Death “Adjustment”, the monthly payroll print was +28,000 y/y (yawn)
  3. At 63.9%, the US Labor Force Participation rate was second lowest ever (to January 2012’s print)

The lowest Labor Force Participation rate ever? Yes, ever is a long time. And so is the Entitled Credit that both the Bush and Obama Administrations have taken for stock and commodity market inflations that have netted out to ZERO US jobs added in the last decade. It’s the Weak Dollar Policy, stupid.

 

My immediate-term support and resistance ranges for Gold, Oil (WTIC), US Dollar Index, and the SP500 are now $1, $104.98-108.65, $79.36-80.24, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Entitled Credit - Chart of the Day

 

Entitled Credit - Virtual Portfolio



Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next