Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much

Conclusion: Even if it will not be finalized until he gets all 1,144 delegates, Romney’s nomination as the Republican candidate for President is looking increasingly certain. His road to unseating President Obama is much less certain.

According to InTrade, the electronic predictive market, Mitt Romney is now at a greater than 94% probability of winning the nomination. We’ve posted the chart below previously, but this is the highest probability he’s ever held on InTrade. Currently, based on the delegates that have been awarded, Romney has 566 delegates, Santorum has 263 delegates, Gingrich has 140 delegates, and Paul has 67 delegates. In aggregate, Romney has 163 more delegates than all of his competitors combined.


Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much - chart1



Interestingly from a popular vote perspective, Romney has been struggling more broadly against the field than either InTrade or the delegate count would suggest. According to the most recent tally, Romney has received 4.1 million popular votes, Santorum has 2.9 million, Gingrich has 2.2 million, and Paul has 1.1 million. Even from a mathematical perspective the road to the nomination simply based on delegate votes for any other candidate is incredibly challenging, the popular vote shares however, do on some level, support the other candidates staying in the race.

Collectively, Romney has only received 39% of the popular votes in the nominating process, which shows that more than 60% of Republican voters have voted for someone other than Romney. The spoiler, so far, has probably been Newt Gingrich who by staying in the race has denied some key votes from the right wing of the Republican Party for Rick Santorum.


This weekend on Meet the Press, Santorum was very clear about his intention to stay in the race when he stated the following:


“If Gov. Romney gets that required number, then without a doubt, if he’s at that number, we’ll step aside. Right now, he’s not there. He’s not even close to it.”


Although there appears to be an ultimate inevitability to the Romney nomination, Santorum is also correct in his assessment as Romney is more than 500 delegates away from the magic number of 1,144 that he will need to clinch the nomination. As noted, Romney’s challenge has been in galvanizing the more conservative components of the Republican Party. Interestingly, we looked at the actual chart of which states he has won and, as the map below shows, Romney has won in the traditionally liberal parts of the country on the coasts, while Santorum has dominated in the middle.


Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much - chart2



Ultimately, the need for Romney to shift more to the right could come back and haunt him in the main race against Obama. One of the most telling signs of Obama’s momentum against Romney is in recent data from the battleground states. USA Today did a poll of key battleground states from March 22nd to March 26th. The results of the poll show Obama with a statistical significant advantage over Romney at 51%-42% of registered voters. Just a month ago, Obama trailed Romney by two percentage points.

Now clearly this is but one poll, but it does highlight a troubling trend for Romney in these key states versus Obama. The internals are even more disconcerting as they highlight that women, in particular, are moving away from Romney to Obama. In women under 50, Romney is only at 30% support and Obama has almost 2x the support in this demographic based on this battleground state poll. Clearly, this appears to be some backlash against Romney’s shift to the right, in particular related to recent comments to defund Planned Parenthood and his endorsement of an amendment that would allow employers to refuse to cover contraception in health care plans.

A recent poll from Quinnipiac University released late last week provided further validation of Obama’s strength in key swing states. Obama leads Romney 49 to 42 in Florida. In Ohio, Obama beats Romney 47 percent to 41 percent, and he beats Santorum 47 percent to 40 percent. In Pennsylvania, Obama and Romney are locked in a closer race, but Obama still edges Romney 45 percent to 42 percent.

On a head-to-head national poll basis, the story is much the same in Romney versus Obama as in the USA Today Battleground poll. Based on the Real Clear Politics poll aggregate, Obama is at +4.4 spread versus Romney. Further, Romney has only outpolled Obama in 2 of 30 major polls taken since the start of February.


Romney Nomination Fait Accompli . . . The Road To The Presidency Not So Much - chart3



Certainly, a lot can happen between now and the general election, especially with President Obama’s approval rating being mired south of 50 and the price of gasoline escalating across the country. At the same time, Romney is clearly going to have to chart back to the middle so as to not totally lose important demographics like woman under 50. As well, which may be even more critical, he will need to increase his personal likeability, which according to a Washington Post poll shows Romney’s unfavorable rating has soared to an all-time high, leaving him 16 points underwater in the personal approval department.




Daryl G. Jones

Director of Research


European Banking Monitor: Italian and Spanish Swaps Widen

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 .


Key Takeaways:

* Italian and Spanish sovereign swaps widened along with European Bank swaps over the week, underscoring increasing risk in the Eurozone.



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 2 bps to 41 bps.


European Banking Monitor: Italian and Spanish Swaps Widen - 11. Euribor


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. Banks deposited €778.7 billion in the latest reading. 


European Banking Monitor: Italian and Spanish Swaps Widen - 11. ECB facility


European Financials CDS Monitor – Bank swaps were wider in Europe last week for 35 of the 40 reference entities. The average widening was 3.4% and the median widening was 7.8%.


European Banking Monitor: Italian and Spanish Swaps Widen - 11. Banks


Security Market Program – The ECB's secondary sovereign bond purchasing program purchased no sovereign paper in the week ended 3/30, for a third straight week of zero buying. February-to-date the Bank has purchased a mere €210 Million versus €2.2 BILLION in the week ended 1/20 and €3.8 BILLION in the week 1/12. When questioned on the lack of buying over recent weeks, ECB President Draghi has only answered that the SMP is a non-standard measure that is “neither eternal nor infinite.” Clearly, with the some €1 Trillion injection of liquidity across the LTROs, the Bank is paring back buying and watching the results of sovereign bond auctions. We are far from the opinion that the lack of buying from the ECB’s SMP is a signal that sovereign risk is off the table in Europe.


European Banking Monitor: Italian and Spanish Swaps Widen - 11. SMP


Matthew Hedrick

Senior Analyst


Including slots, Macau gaming revenues came in around HK$24.3 billion, up 24% YoY.



Average daily table revenues (ADTR) for the last week in March increased to HK$749 million, bringing the March average up to HK$745 million.  ADTR was HK$776 million in February.  As a reminder, March 2011 was the lowest hold month of year at just 2.66% (adjusting for direct play volume of ~6.6% or HK$4.5BN), so the comparisons are tougher the rest of the year.  While Sands Cotai Central (SCC) should grow the market, 2011 also had the opening of Galaxy Macau, so the stimulation from new supply could be similar.  We have seen a YoY deceleration play out throughout the last 3 weeks where YoY growth fell from +51% for the week ending 3/11 to +24%, +17%,  and flat for the week ending 3/18, 3/25, and 3/31, respectively.




With the exception of Wynn, market shares were little changed from last week.  Wynn apparently got clocked on hold this past week as full month market share dropped 90bps in only one week.  Relative to the 3 month trend, Wynn and LVS were the losers while Galaxy was the clear winner with MPEL also gaining.  We expect Wynn to continue to lose share while LVS will clearly rebound with the opening of SCC. 



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LIZ: Risk/Reward Still Favorable


We think the risk/reward, even after LIZ’s 13% move on the last day of the quarter to $13+, remains favorable. The move certainly begs the question of what to do with the stock here, but we think this is just the latest step function reflecting the realization in value of what continues to be an undervalued portfolio of brands.


The reality is that LIZ is not like most companies whereby discussions with private equity firms or bankers made public will now open the dialog to unlocking significant unrealized value in the stock. Sure, Friday’s news sent the stock up over 10%, but let’s keep in mind that the Board has been talking with bankers and PE firms for the better part of the past 4-years – these discussions aren’t new news.


In the process of selling nearly $500mm in assets over the last 6-months do you think the value of the LIZ portfolio in total didn’t come up? Not a chance. But that doesn’t suggest that the Board is ready to sell at this stage in the process either. If it is to seriously consider offers, we think the $20/sh price tag mentioned sounds about right, if not low (see our sum-of-the-parts table below). As such, despite $1-$3 of near-term volatility that we could see as the company reports results over the next few quarters, we think it’s worth it for the $7+ in upside from current levels. With over 50% upside, LIZ is still one of our top long ideas.


Casey Flavin



LIZ: Risk/Reward Still Favorable - LIZ SOP



The Macau Metro Monitor, April 2, 2012




March gross gaming revenues were up 24.4% YoY to MOP 24.989 billion (HKD 24.26 billion, USD 3.12 billion).



According to the Urban Redevelopment Authority, Singapore home prices fell 0.1% QoQ in Q1 2012.  That is the first drop in prices since June 2009.  Singapore has been attempting to rein in prices since 2009, when it barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments still being built.  Foreigners and corporate entities have to pay an additional 10% stamp duty following measures introduced in December.



According to the China Real Estate Index System, housing prices in 100 major cities in China were lower for the seventh consecutive month in March.  Average home prices slipped to CNY 8,741/ sq mt, compared with CNY 8,767 in February and CNY 8,793 in January.  On a YoY basis, the average price of a new home in March climbed just 0.03%, from CNY 8,738/ sq mt, much slower than February's 0.93% rise.






Commentary from CEO Keith McCullough

Plenty were hoping for a “China bounce” this morning, nope:

  1. PMI’s – China had two (1 beat, 1 missed – they probably made up both), but the rest of the world’s PMI prints (other than the UK’s, which beat by a 1 pt) were awful. Germany in particular was bad, down to 48.4 vs 50.2 in FEB (France = 46.7 vs 50 in FEB and Spain was nasty at 44.5); India’s missed too. #GrowthSlowing, globally
  2. GOLD – under pressure again this morning which surprises me given that bond yields stopped going down; Gold has had issues when Commodities broadly weaken – both the CRB Index and Gold are trading below their intermediate-term TREND lines of 312 and $1692, respectively. That’s new. Deflating The Inflation = in motion.
  3. BOND YIELDS – they’ve been the front runner in signaling Spanish credit problems and US Growth Slowing – no need to ignore that until they stop calling the broader intermediate-term TRENDS. UST 10yr yields failed at TAIL line resistance of 2.47% 3 weeks ago and are currently trading 2.22% (below immediate-term TRADE resistance of 2.26%).

Welcome to Q2.











WEN: Wendy’s ran advertisements in eight major U.S. newspapers stating that the chain has never used “pink slime” in its products.  CEO Emil Brolick explained the advertising campaign by saying that the company has only used fresh beef in the 40+ years the company has been in existence.


YUM/MCD: Yum and McDonald’s were two brands named in a study by India’s Center for Science and Environment which alleged that popular “junk food” brands were misleading the public through “wrong health claims and insufficient labeling, according to Forbes. The companies deny that they are misleading the public with their labels.


SBUX: Starbucks is planning a bigger push into smaller cities in China as the world’s largest coffee-shop operator triples stores in the country.  The country is set to become the company’s second-biggest market by 2014, Bloomberg news reports.


GMCR: Green Mountain was mentioned in an interview with Howard Schilit, forensic accountant, published in Barron's this weekend.  On the company's accounting practices, he had the following to say: "When you are telling me the business is still booming, but in order to make that assertion, you changed how you are accounting, that's just not fair play. Is it illegal? No. The auditors signed off on it. But the auditors are part of the problem."





COSI: Cosi declined on accelerating volume.





DENN: Denny’s COO Robert Rodriguez left the company for “unexplained reasons after 18 months, effective immediately”, according to a statement from the company.




BJRI: BJ’s restaurants gained 2.1% on accelerating volume after being rated Overweight at Morgan Stanley.


RRGB: Red Robin Gourmet Burgers declined -1.3% on accelerating volume.  The company is reporting 3QFY12 earnings on Wednesday.





Howard Penney

Managing Director


Rory Green



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