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SO THAT'S WHY I GOT A $24 EXCALIBUR OFFER

Even after adjusting for low Baccarat hold, May Strip numbers were ugly.  This comes on the day I received an offer from Excalibur for a $24 hotel room.

 

 

Nevada just announced gaming revenues for May.  While the Locals market grew, Strip GGR fell a whopping 18% YoY.  The bulls will no doubt point to low Baccarat hold of roughly 8% versus normal of around 12%, but slot hold was very high: 8.0% versus normal of 7.3%.  Normalizing hold yields negative GGR growth of -11%.  This is even worse than the mid-single digit drop we were expecting and below investor expectations of a slight increase.  MGM's numbers look like they will need to come down and we were already below the Street.

  • Slot handle fell 7% off of a relatively easy comp
  • Slot win lost 3% despite higher than normal hold
  • June hold may be below normal due to end of month on Saturday
  • Bacc win fell 47%, on hold of 8.2% (TTM: 12.5%); baccarat volume fell 22%
  • Table win ex bacc fell 18% on below average hold of 10.3%;
  • Table volume ex bacc grew 2%
  • Hold-adjusted total win was -11%

There is a bit of a divergence here with the Las Vegas Locals market which actually increased 7%.  Probably a positive for BYD.


JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS

Claims: Does Not Compute 

The headline print is that seasonally adjusted initial jobless claims fell 24k in the most recent week to 350k. Meanwhile, rolling claims fell 10k WoW to 377k. We wouldn't get too excited about this print for a couple reasons.

 

First, consider the distortion that's being created by the automakers. As we noted in our post last week, Ford announced earlier this year their intentions to idle 13 manufacturing plants for just one week instead of the typical two. Workers are allowed to collect benefits during this recurring annual furlough. This has the effect of making jobless claims appear significantly stronger than they are. 

 

What's interesting about this morning's number is that the non-seaonally adjusted print was higher WoW by 70k. We show this in the first chart below. That compares with an average increase of 45k in the comparable week over the last five years. As such, it's a bit of a head scratcher how the SA print came in as well as it did. We would expect an extremely sharp reversal over the next two weeks. You can see this in our second chart below. Look at the last two weeks in the current year and look at the comparable periods in prior years.

 

On a YoY basis, NSA claims continue to improve at ~8%. This is the most straightforward measure of evaluating the underlying trend.

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - Ford 2

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - Raw

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - Rolling

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - NSA

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - NSA rolling

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - S P

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - Fed

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - YoY

 

The 2-10 Spread

The 2-10 spread tightened another 8 bp WoW to 124 bps, as the ten-year treasury yield fell 11 bps to 152 bps. 

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - 2 10

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - 2 10 QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - Subsector Performance

 

JOBLESS CLAIMS: BIG DISTORTIONS PAINT A BLEAK PICTURE FOR NEXT TWO WEEKS - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 

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

 


ECB Overnight Deposits Plummet!

No Current Positions in Europe


Conclusion: the deposit level inflection is noteworthy, yet a long way from a signal of credit expansion

 

There was a notable inflection in deposits held at the ECB’s overnight window yesterday, the first day the central bank’s recently announced 0.00% deposit rate went into effect. As we show in the chart below, deposits fell from €808.5B on Tuesday to €324.9B on Wednesday (down -60%), according to the most recently reported figures from the ECB.

 

ECB Overnight Deposits Plummet! - aa. overnight

 

As a reminder, on 7/5 the ECB also cut the interest rate on the main refinancing operations by 25bps to 0.75% and the interest rates on the marginal lending facility by 25bps to 1.50%.

 

While on the margin, the decline in deposits, if sustained, could be a positive signal that funds are being “put to work” for broader public and private lending, we think the "pass-through" is inconclusive and that collectively the rate cuts issued by the ECB offer little incremental stimulus given how low rates already are. 

 

Our view is that encouraging more borrowing through cheaper money is not the solution to Europe's problem of over-indebtedness.

 

To this end, we see the EUR/USD cross challenged over the intermediate term as there are no major planned catalysts on the calendar. Our call-out in the chart below is that the cross just broke through our TREND support line of $1.22. While we don’t see the cross going to parity, as we’d expect Eurocrats to step in to prevent it, the most recent news that Germany’s Constitutional Court could push out a ruling on the ESM and the fiscal pact until the fall (versus the original target of July 1), could add much consternation to the cross and European capital markets over the intermediate term. Our immediate term TRADE range is $1.21 - $1.24.

 

ECB Overnight Deposits Plummet! - aa. eur

 

 

Matthew Hedrick

Senior Analyst


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The End Game

RIA DAILY PLAYBOOK     

FOR RELEASE ON THURSDAY, JULY 12, 2012

 

The End Game - client talking points

 

 

FRONT RUN ‘EM

Since we’re not a prop shop, bank or broker-dealer, we can say what we want. Since 2007, people have been complaining about “the machines.” Yes, we live in an era of electronic trading. If you’re sick of getting smoked by the competition, we recommend hiring brilliant people to help build machines that can front run the “other” machines. Seriously – think about it.

 

SUPER MARIO BAILOUT

Mario Monti is basically bailing on Italy and wants no part of the tidal wave of bailouts that are about to engulf the nation. Can you blame him? Politicians love this sort of short term accountability game. Italy makes Spain look like a walk in the park and will really be the country that makes headlines.

 

FLIGHT TO SAFETY

The 10-Year Treasury yield is astonishing. People cannot get enough of this thing. Yields hit a fresh new low of 1.49% this morning and that sucks for financials.

 

 

The End Game - asset allocation

 

 

The End Game - assets July11

 

 

<chart 4>

 

PSS WORLD MEDICAL (PSSI)

The bulk of the bad news is on the table following disappointing F2012. Rebased F2013 estimates far more reasonable, and revenues should be supported by our expectations for rising physician utilization, and in the near-term, a flu season that is shaping up as a considerable tailwind.

                             

TRADE: LONG

TREND: LONG

TAIL: NEUTRAL

 

HCA (HCA)

SS volume accelerated in 1Q12 and employment remains a tailwind to both admissions & mix. We expect acuity to stabilize and births and outpatient utilization to accelerate out of 1Q12, while supply cost management continues as a margin driver and acquisition opportunities remain a source for upside.

 

TRADE: NEUTRAL

TREND: LONG

TAIL: NEUTRAL

 

UNDER ARMOUR (UA)

The company continues to control its own destiny through investments in all the right areas. We think 30%+ top line and EPS growth for 5+ years. One of its failures, however, has been in penetrating markets outside the US. That will happen. But for now, its failure is a competitive advantage in the face of a strengthening dollar. We like it in sympathy with a LULU sell-off.

 

TRADE: LONG

TREND: LONG

TAIL: LONG

 

The End Game - three for the road

 

Tweet of the Day: “Can you do math? @Wolfrum Spain GDP Sept 2010 +0.4% vs -0.4% March 2012 --- Ireland GDP Sept 2010 +1% vs +1.2% March 2012 #Bloomberg”          -@Convertbond       

 

Quote of the Day: “The We do not write because we want to; we write because we have to.” –W. Somerset Maugham

 

Stat of the Day:  Greece Unemployment Rate 22.5% APR vs 21.9% MAR

 

 

 

 


MAR: CHINKS IN THE LODGING ARMOR?

MAR’s quarter and guidance shows why we are more cautious on hotels over the near-term but also why we like MAR’s business model.

 

 

THESIS

 

MAR’s quarter was in-line but low quality in our opinion.  Guidance on recurring EPS was weaker than expected.  While management may or may not be a little conservative, there are real issues with the world economy and this is an economically sensitive business.  Moreover, our math suggests a sequential slowdown in YoY RevPAR growth in July without even considering a Macro slowdown.  These factors could weigh on the sector over the near-term and MAR which have both otherwise performed relatively well. 

 

The relative strength of MAR’s business model was and will be evident particularly if the economy worsens.  MAR bought back an astounding $400 million worth of stock in the quarter.  The company is a cash generating machine, especially since the spin of the capital intensive timeshare business.  The company’s cash flow is more insulated from softening demand trends due to the almost exclusive fee-based model.  While we are not recommending purchase of any lodging stocks right now, if you have to own one, MAR would be it.  Longer term, this is a great business with favorable supply/demand trends. 

 

We’re hoping for a significantly better entry point.

 

 

Q1 ANALYSIS

 

Marriott reported an in-line quarter that was low quality.  The $400MM buyback in the quarter was impressive though and exceeded our estimate.

 

Q2 would’ve been a miss if not for:

  • Higher termination fees and unusually high increases in branding and credit card fees
  • A $2MM receipt of business interruption insurance related to the Japanese Tsunami.    
  • The $400MM buyback in the quarter was impressive though and exceeded our estimate.

Somewhat offsetting the non-recurring positives above was higher SG&A that had $7MM of “one time charges” and $5MM of higher reserves. 

 

On the surface, it looks like MAR raised EPS guidance, but when you exclude the $40MM gain on the sale of the Courtyard JV guidance for 3Q12, EPS would have been about 8 cents lower and below consensus. Offsetting the gain on the Courtyard JV sale could be the loss of income from the sale of the corporate housing business which MAR has yet to quantify.

 

Some takeaways:

  • Room growth was disappointing in the quarter.  Excluding the sale of the Courtyard JV, rooms at the end of 2Q were still 5k lower than we estimated.  System-wide room growth was only 1.7%.  Gross room additions for the year were reduced by 5,000 at the midpoint due to opening delays.
  • On the positive side, absolute dollar ADRs were higher than we modeled
  • Fee income of $342MM came in $8MM below the midpoint of MAR’s guidance
    • Base fees only grew 4.4%.  Base fees as a % of estimated managed room revenues decreased to 4.7%, down 20bps YoY.  2Q was the 3rd consecutive quarter of declines.
    • Incentive fees increased 12%, below the 20% growth annual rate given on the last call.  NA fees grew 15% and International fees increased 10.4% - both slowed sequentially.  The % of hotels paying incentive fees increased by 1% QoQ.
    • Excluding fees on timeshare, which we estimate at $15MM in 2Q, franchisee fees grew 8.4% YoY.
  • For owned, leased, corporate housing and other gross margin came in $23MM above the midpoint of MAR’s guidance
    • Termination fees were up $12MM YoY
    • We believe that the $9MM jump in branding and credit card fees include some one-time items and do not expect to see this type of growth for 2H12
    • Benefit of $2MM of business interruption related to the Tsunami in Japan
    • Excluding branding and termination fees, we believe that gross margin would have been $22MM, which still represents a nice 5% increase in margin to 10% YoY.
    • Marriott mentioned that it sold its corporate housing business as one of the reasons for lowering guidance but made no further mention of the transaction in the release
  • SG&A would have increased 6% if not for some one-time charges and higher reserves for guarantees in the quarter.  MAR’s full year guidance for a 3.4% increase SG&A implies a YoY decrease in SG&A for the 2H12.

THE M3: RWS PROBE; PARCEL 3; TAIWAN

The Macau Metro Monitor, July 12, 2012

 

 

RWS IN LEVY PROBE? Today Online

Singapore's Casino Regulatory Authority (CRA) probe against Resorts World Sentosa (RWS) is underway over alleged reimbursements of casino entry levies.  The investigation, which started almost a year ago, is understood to allegedly involve hundreds of incidences of these illegal reimbursements.  The probe is believed to have prompted RWS to take the decision to suspend several senior executives, including one Senior Vice-President. 

 

Breaches of the Act can result in the following disciplinary actions: Cancel or suspend the casino license, vary the terms of the license, issue a letter of censure, or impose a financial penalty up to S$1 million.  Multiple reimbursements can constitute just one breach.  

 

In May 2011, RWS was fined S$200,000 for illegal reimbursements of casino entry levies.  The penalty was for an incident in July 2010 when a senior management staff member paid for the entry levies of more than 10 reporters and photographers covering the launch of the casino's Ladies Club.

 

SANDS CHINA IN TALKS TO DELAY PARCEL 3 MACAU RESORT DEADLINE Bloomberg

According to Melina Leong, a spokeswoman for Sands China, the company is in talks to get an extension of the April 2013 time limit the government set to develop Parcel 3.  The company said in a May SEC filing that it planned to seek the extension.  If the extension is not approved, the company could have to take a charge for some or all of its $96.7 million in capitalized construction costs and land premiums as of March 31, 2012.

 

TRANSPORT MINISTRY TO REGULATE CASINO GAMING IN TAIWAN Macau Business

The Taiwanese government awarded regulatory powers on casino gambling to the Ministry of Transportation and Communications.  


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