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NEW MARKETS NOT GROWING THE OVERALL PIE

Have we reached saturation?  

 

 

There seems to be increasing evidence that domestic gaming will be a slow growth industry at best.  We will have a series of posts highlighting a fairly negative long-term thesis for US casino operators.

 

The following chart paints a bleak picture for domestic casinos.  Not only has domestic same-store growth been virtually nonexistent, but new markets have failed to grow the overall pie.  The big gap between same-store and total growth is disconcerting.  Following the onset of PA gambling, the gap widened significantly as markets such as Atlantic City and Connecticut lost share.  In Q4 2011, the gap was driven primarily by the opening of the Rivers casino in Illinois and Resorts World NY as well as new casinos in MD and IA earlier in the year. 

 

NEW MARKETS NOT GROWING THE OVERALL PIE - bbb


THE HBM: PNRA, MCD, RT

THE HEDGEYE BREAKFAST MONITOR

 

HEDGEYE VIRTUAL PORTFOLIO POSITIONS

 

LONGS: EAT, JACK, SBUX

 

SHORTS: BWLD, DNKN, MCD

 

 

MACRO NOTES

 

Commentary from CEO Keith McCullough

 

Most Read (Bloomberg headline): “SP500 Caps Longest Drop Since November” – blame Europe? C’mon:

  1. JAPAN – what goes up on no fundamentals comes down hard – Japanese Equities down for 8 consecutive days for a -8% cumulative correction – and unless your major country index has AAPL in it, that’s pretty much the range of corrections across the world in the last 6 weeks = -7-9% (Hong Kong, Germany, Russia, Brazil, Russell2000, etc).
  2. VOLATILITY – so you’re saying it’s the 1990’s, eh? Right, right. Since the Russell2000 and the CRB Index topped on the same day (March 26th), the US Equity VIX is up +43% in a straight line. Buying anything equities/commodities/big beta at 14-15 VIX has not worked since 2008.
  3. TREASURIES – 10yr bond yield snapping my intermediate-term TREND line of 2.03% support this morning and the Yield Spread continues to compress (down 24bps in 3 wks). This is what we call Growth Slowing being priced into Equities, Commodities, and Bonds. You should have taken that Credit Suisse call to “buy stocks b/c bond yields are rising” and done the opposite.

 

On a net basis, I got longer on red yesterday (14 LONGS, 10 SHORTS). The SP500 should bounce today, but if it can’t close > 1391, we sell again on green and tighten that net exposure back up.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: PNRA, MCD, RT - subsector

 

 

QUICK SERVICE

 

PNRA: Panera Bread has appointed Thomas Patrick Kelly Interim CFO.  The company said that it expects the ongoing search for a permanent CFO to take four-to-six months to complete.

 

MCD: McDonald’s is set to franchise in Russia for the first time under a new deal with Rosinter, the country’s largest restaurant holding company.  The company still plans to open 40 to 45 company-owned restaurants per year in the country but the Rosinter deal allows the company to expand its presence to non-traditional locations like airports and train stations.  There are currently ~300 MCD restaurants in Russia.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

GMCR: Green Mountain Coffee Roasters declined on accelerating volume along with CBOU and JMBA. 

 

 

CASUAL DINING

 

RT: Ruby Tuesday closed the deal to acquire Lime Fresh Mexican Grill for $24 million.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

RT: Ruby Tuesday underperformed again yesterday.

 

RRGB: Red Robin Gourmet Burger declined 3.3% on accelerating volume yesterday.

 

THE HBM: PNRA, MCD, RT - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE M3: LVS MACAU/SPAIN; EASTER

The Macau Metro Monitor, April 11, 2012

 

 

SANDS PLANS GLOBAL CASINO PUSH ON SPAIN, ASIA INVESTMENTS Bloomberg

LVS chairman Adelson said his Asian business is seeking Macau government approval for an added 3,600-room casino hotel.  He also plans to spend $35 billion on building Spanish gambling resorts over nine years, building 12 resorts in three phases, each featuring 3,000 rooms intended to attract Eastern European and Russian visitors.  Adelson said with ongoing negotiations with the Spanish government, it will be decided in the next two to three months whether the strip will be in Madrid or Barcelona.  Adelson added that the company’s total investment may amount to as much as $15 billion in Macau, including spending on existing properties and the new location announced today in the territory.

 

TOUR GROUPS NOT INCREASING DURING EASTER HOLIDAY Macau Daily News

The Director of Travel Industry Council of Macau said that Macau's tourism sector was not encountering rapid growth during this Easter holiday as many people from Hong Kong opted for short-haul travel.  With Sands Cotai Central opening on April 11, the increase of guest rooms is believed to help stabilize room rates and attract more package tourists as well as individual tourists.



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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – April 11, 2012


As we look at today’s set up for the S&P 500, the range is 41 points or -0.85% downside to 1347 and 2.39% upside to 1391. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:


VOLATILITY – so you’re saying it’s the 1990’s, eh? Right, right. Since the Russell2000 and the CRB Index topped on the same day (March 26th), the US Equity VIX is up +43% in a straight line. Buying anything equities/commodities/big beta at 14-15 VIX has not worked since 2008. 

  • ADVANCE/DECLINE LINE: on 4/10 NYSE -2133
    • Down from the prior day’s trading of -1747
  • VOLUME: on 4/10 NYSE 972.15
    • Increase versus prior day’s trading of +34.17%
  • VIX:  as of 4/10 was at 20.39
    • Increase versus most recent day’s trading of +8.40%
    • Year-to-date decrease of -12.86%
  • SPX PUT/CALL RATIO: as of 04/10 closed at 1.52
    • Decrease from the day prior at 2.10 

CREDIT/ECONOMIC MARKET LOOK:


TREASURIES – 10yr bond yield snapping our intermediate-term TREND line of 2.03% support this morning and the Yield Spread continues to compress (down 24bps in 3 wks). This is what we call Growth Slowing being priced into Equities, Commodities, and Bonds. You should have taken that Credit Suisse call to “buy stocks b/c bond yields are rising” and done the opposite. 

  • TED SPREAD: as of previous day trading 39
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 2.01
    • Up from the prior day 1.98
  • YIELD CURVE: as of this morning 1.72
    • Increase from prior day’s trading at 1.70 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, week of Apr. 6 (prior 4.8)
  • 7:30am: Atlanta Fed’s Lockhart to discuss economy at Stone Mountain, Georgia
  • 8:20am: Lockhart gives welcome remarks at Atlanta Fed conference on financial reform in Stone Mountain
  • 8:30am: Import Price Index (M/m), Mar., est. 0.8% (prior 0.4%)
  • 9:30am: Kansas City Fed’s Esther George speaks at conference on debt, deficits, financial instability in New York
  • 10:30am: Boston Fed’s Rosengren speaks as part of panel at Atlanta Fed conference on financial reform in Stone Mountain
  • 10:30am: DOE inventories
  • 1pm: U.S. to sell $21b 10-yr notes (reopening)
  • 2pm: Fed Beige Book
  • 2pm: Monthly Budget Statement, Mar., est. -$196b (prior -$188.2b)
  • 4pm: St Louis Fed’s Bullard meets with reporters before lecture at St Louis Fed
  • 5pm: Bullard delivers welcoming remarks for lecture at St. Louis Fed
  • 5:30pm: Fed Board’s Yellen speaks on economic outlook, policy before Money Marketeers of New York University 

GOVERNMENT:

    • Mitt Romney holds campaign events in Connecticut, Rhode Island
    • Secretary of State Hillary Clinton hosts G-8 foreign ministers discussion at Blair House in Washington. 11:45am

WHAT TO WATCH:

  • Oaktree Capital, Aleris, Brightsource Energy among IPOs expected to price as most capital may be raised in 13 months
  • Swiss court rejects U.S. push on disclosure of Credit Suisse client’s data
  • Carlyle said to seek IPO value of as much as $8b
  • Las Vegas Sands plans to spend $35b building Spanish gambling resorts over next 9 yrs
  • Japan machinery orders unexpectedly rise in recovery boost
  • China March car sales rise 4.5% on widening discounts
  • Prepaid card  use rose by about 18% in 2011 as consumers dropped traditional banking products: Javelin Strategy
  • Romney holds campaign events in Connecticut, Rhode Island day after Rick Santorum leaves race
  • Carl Icahn set deadline for today for Amylin to respond to his request for books, records 

     EARNINGS:

    • Astral Media (ACM/A CN) 7:25 a.m., $0.66
    • Dollarama (DOL CN) 7:30 a.m., $0.69
    • Adtran (ADTN) 8 p.m., $0.20 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Wheat Seen Declining as Stockpiles Expand to Record: Commodities
  • Oil Rises From Eight-Week Low as ECB Signals Support for Spain
  • Corn, Wheat Gain on Rising China Demand Prospects; Soybeans Drop
  • Gold May Decline as Some Investors Sell Amid Europe Debt Concern
  • Copper Rises as Chinese Car Sales, Japanese Orders Top Estimates
  • Billionaire’s India Strategy Dims as Oil Deal Deadlocked: Energy
  • France Remains ‘Open’ to Oil Stockpile Release, Besson Says
  • Indonesia Asahan Aluminium Smelter Unaffected by Earthquake
  • Rubber Declines to Two-Month Low as European Crisis Saps Demand
  • Kenyans Almost Dead on Worst Roads Getting New Highways: Freight
  • U.S. Beef Sales to Japan May Gain 24%, Exporter Group Says
  • Alcoa Posts Surprise Profit After Aluminum Orders Increase
  • Soybean Key Reversal Signals 8.9% Price Drop: Technical Analysis
  • Gold May Decline Amid European Debt Concern
  • China’s Aluminum Demand to Grow at 8-10% Annually, Novelis Says
  • Sugar Output in India to Drop for First Time in Four Years
  • Japan’s Zinc Consumption May Climb to 4-Year High, Mitsui Says

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 


ASIAN MARKETS


JAPAN – what goes up on no fundamentals comes down hard – Japanese Equities down for 8 consecutive days for a -8% cumulative correction – and unless your major country index has AAPL in it, that’s pretty much the range of corrections across the world in the last 6 weeks = -7-9% (Hong Kong, Germany, Russia, Brazil, Russell2000, etc).

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 



Yesterday's Pile

“Here yesterday, gone today.”

-Niall Ferguson

 

Yesterday’s Early Look note about my Pile yielded some very thoughtful replies. I don’t do this enough, but I’d simply like to say thank you - thanks to all of you who take the time to send me your thoughts. I read each and every one of your emails. I learn from you every day.

 

Going back to the well this morning, here’s what came out of my Pile on last night’s flight to Kansas City, Missouri:

  1. Jeremy Grantham: “Longest Quarterly Letter” (February 2012)
  2. Niall Ferguson: “Western Civilization – Decline or Fall?” (March 2012)

Grantham’s long-term quibble is one we write about a lot – getting quantitatively oriented: “It would certainly help if the general public were better educated, especially in science… it is said that 8 of the 9 senior leaders in China’s government are scientists. At that high a level, of our 535 Congressmen and the President, less than a handful – arguably only 2 or 3 – would pass the test.”

 

Ferguson’s thoughts preface his latest book. They’re very much in line with Grantham’s when it comes to reminding the American People, Media, and Markets to wake-up to a non-US centric world before history’s lessons really start to rhyme: “The bad news is that its shape is more like an exponentially steepening slope that quite suddenly drops off like a cliff.

 

Two of the world’s Top Economic Historians warning us that The Fed and Congress have un-qualified opinions and un-checked policies that infect globally interconnected markets, every day. Think about it.

 

Back to the Global Macro Grind

 

“Here yesterday, gone today”, whatever happened to that no-volume “bull market” in US Equities?

 

Instead of calling a trivial 1-factor model like the 50-day Moving Monkey a risk management process, let’s get real with the 21st century here and get quantitative. Multi-factor, Multi-Duration is what we do and using a very simple 3-factor baseline model, here’s what we see in the SP500:

 

1.   PRICE – since immediate-term TRADE support (1391) snapped, our intermediate-term TREND line (1331) is now in play. Managing your risk within this dynamically evolving range of 1 is how you should think about gross and net exposure.

 

2.   VOLUME – there was no volume on the elevator up, and now that it looks like some are taking the window route on the way down, we’re seeing Volume Studies confirm the gravity of the situation. Yesterday’s volume was an animal, up +46% day-over-day! And up +15% versus my composite average of market down days in 2012.

 

3.   VOLATILITY (VIX) – since immediate-term TRADE (16.24) and TREND (18.76) resistance are now support, US Equity Volatility can continue to put on one heck of a move from here, provided that 18.76 holds. It’s critical to acknowledge that our long-term TAIL zone of 14-15 VIX support held like the rock of Gibraltar, again.

 

Now if you only look at US Equities through the prism of the SP500, you’re missing part of the point. Looking at the correction in the SP500 versus the Russell2000, you can start to see what index is overweight Apple:

  1. SP500 – stopped going up on April 2nd(1419) and has since corrected -4.3%
  2. Russell2000 – stopped going up on March 26th(846) and has since corrected -7.3%

Unlike the SP500, which is holding its intermediate-term TREND line of 1331 support, the Russell2000 has already broken its TREND line of 795. So, inasmuch as you should be watching 1391 resistance in the SP500 today/tomorrow, watch 795 in the Russell.

 

Globally Interconnected?

 

There’s 0% irony that when Small Caps (Russell2000) stopped going up on March 26th, the following occurred:

  1. CRB Commodities Index stopped going up at 326 = down -8% since
  2. Japanese Equities (Nikkei225) stopped going up at 10,255 = down -8% since
  3. US Equity Volatility (VIX) stopped going down at 14.24 = up +43% since

Got an “exponentially steepening slope” (turn the VIX upside down), that “suddenly drops off like a cliff”? Got Apple? Got Global Macro Risk Management?

 

After cliff diving from the Q1 highs in 2008, 2010, and 2011, how many more times do we have to do this? Do you blame the little guy (Old Wall Street still calls her the “Retail Investor”) for not getting sucked into the Storytelling vortex of another Q1 high?

 

And if you still doubt that collapse comes suddenly, just think of how post colonial dictatorships of North Africa and the Middle East imploded this year… One minute rulers had legitimacy in the eyes of their people, the next they did not.” (Ferguson)

 

When it comes to managing what’s left of their own money, The People of America do not appear to be as mathematically inept as either their Congress or Central Planner in Chief. In the long-run, if you break the trust of The People in markets, volumes are dead.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Russell2000, and the SP500 are now $1, $116.92-123.12, $79.58-80.28, 774-795, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Yesterday's Pile - Chart of the Day

 

Yesterday's Pile - Virtual Portfolio


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