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THE M3: BLOOMBERRY; TAIWAN; MGM COTAI; CPI

The Macau Metro Monitor, July 20, 2012

 

 

BLOOMBERRY POACHES FILIPINOS IN MACAU FOR CASINO: SOUTHEAST ASIA Bloomberg

Bloomberry Resorts is poaching Filipino talent from Macau as it prepares to lure Chinese gamblers from Macau to its $1BN casino resort in Manila.  Bloomberry has already enticed more than 400 Philippine nationals from Macau and Singapore to work at its Solaire Manila Resort & Casino, which will target Chinese and local players.  Solaire needs as many as 4,500 workers and will open in 1Q 2013.

 

COO Michael French said locals will make up a majority of Bloomberry’s patrons in the first year, and it will take 2-3 years to increase the share of international gamblers.  His ideal client mix is an even split of local and foreign gamblers, who are mostly interested in high-stakes betting who can bet as much as $1MM per trip and at times, per hand in baccarat.

 

French said a lower charge or levy for casino operators in the Philippines than in Macau and Singapore will help Bloomberry and other Manila casinos.  The Philippines collects a regulatory fee of 15%-17% on revenue from so-called high rollers compared with Macau’s 40% and Singapore’s 25%.

 

The Philippines estimates the Manila casino development will add 1MM tourists each year and employ 40,000.  Bloomberry plans to hold one more job fair each in Macau and Singapore to fill the remaining 150 management positions in the group, targeting Filipinos who have gained experience working in casinos, hotels and luxury liners.

 

NO TAIWAN SCARE Macau Business

Secretary for Economy and Finance Francis Tam said the Macau government is not worried about the prospects of new jurisdictions in Asia opening casinos and there is still further room for the regional gaming industry to expand.  He added that he believes it is possible for Macau to sustain the actual GGR levels and to ensure a sustainable development for the casino industry in the future, even with more regional competition.

 

MGM CHINA STILL CONFIDENT IN COTAI APPROVAL Macau Business

MGM China CEO Grant Bowie said again that the company is confident about getting a foothold in Cotai.  Bowie told reporters that the government is still handling the application.  MGM China is already in talks with bank syndicates to seal a loan for the Cotai project, but he stressed the gaming operator has not yet finalised any deal.

 

CONSUMER PRICE INDEX FOR JUNE 2012 DSEC

Macau CPI for June 2012 increased by 6.19% YoY.


 


 

 


WEEKLY COMMODITY CHARTBOOK

What news reports are calling “the most expansive U.S. drought in more than a half century” intensified this past week, sending already-high grain prices higher still.  Almost all of the other food-related commodities we track followed suit as the dollar also declined. 

 

With regard to corn, in particular, the response in Food Processor stocks has been as one would expect.  PPC and SAFM have underperformed the group, likely due to the chicken industry’s exposure to corn prices. 

 

Before our post on July 10th, titled “BWLD: WINGSTOP COMPS POINT TO UPSIDE”, we would have argued that this was also a strong negative for Buffalo Wild Wings coming into the quarter, given the food cost headwinds it is facing.  It remains a negative but an upside surprise to comps of the magnitude that our post outlines would likely trump any inflation concerns, at least in the immediate term. 

 

One commodity that has been somewhat surprising to us is beef.  The weak economy is dragging U.S. beef exports lower but, when we consider the impact that last summer’s drought had on the size of the U.S. herd, the fact that rebuilding that herd is becoming more and more difficult, and the continuing loosening of restrictions in Japan on U.S. beef, there are reasons to believe that beef prices could climb higher over the next few months.  The relationship between the two seems quite tight, as the chart below shows.  If corn prices keep gaining or remain at these levels, we would expect beef to rise which would be a negative for TXRH, JACK, CMG, and WEN.

 

WEEKLY COMMODITY CHARTBOOK - beef corn indices

 

WEEKLY COMMODITY CHARTBOOK - commod

 

GAS PRICES

 

WEEKLY COMMODITY CHARTBOOK - RETAIL GASOLINE

 

 

CORRELATION

 

WEEKLY COMMODITY CHARTBOOK - correl

 

CHARTS

 

WEEKLY COMMODITY CHARTBOOK - corn

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

WEEKLY COMMODITY CHARTBOOK - soybeans

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast

 

WEEKLY COMMODITY CHARTBOOK - chicken wings

 

WEEKLY COMMODITY CHARTBOOK - milk

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

WEEKLY COMMODITY CHARTBOOK - coffee

 

WEEKLY COMMODITY CHARTBOOK - rough rice

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 

 

 


GUILOS AND GROWTH

This note was originally published at 8am on July 06, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

Guilo - A term for a Person of white ethnicity used by Cantonese speaking Asians.

 

I thought about this term when watching Steve Leisman on CNBC yesterday morning.  CNBC’s senior economics reporter (oxymoron, I know) was incredulous that Feng Shui could have anything to do with the PBOC’s number choice for the lending rate cut.  Yes Steve, the Chinese are a superstitious bunch and they do believe that numbers matter.

 

Now I’m not the China expert at Hedgeye.  That role belongs to Darius “da gezi” Dale.  However, I did just get back from a 3 week trip to China and some other Asian countries (of course, I went to Macau) so I feel like an expert. 

 

A few general observations from my trip are in order before I get to the sector analysis:

  • More than one Mainlander commented to me that there are a lot of people being paid to do worthless things like digging ditches, filling them in and then re-digging
  • A lot of construction – hope there is demand
  • Government development contracts are done on a big scale – instead of building one hotel, they want you to build 10 for instance – again, hope there is demand
  • Flying domestically sucks but the trains are great
  • Saw a lot of buildings outside the main cities but not a lot of people
  • The best jokes in China are the ones ridiculing the central government – quietly of course – maybe playing to the audience

And now on to the subject that’s near and dear to my heart and the main reason for my trip to Asia:  the leisure sector.  First, the hotels in Beijing and Shanghai are great – all new and all very well-staffed.  I couldn’t pick my nose without a Chinese finger there to help.  Loved the service.  I visited quite a few and they were all overstaffed.  Chalk one up for the Americans who manage but do not own any of these hotels.  Margins, shmargins.  Many of the hotels were also part of mixed use development, so it’s difficult for the owners to determine ROI on the hotel piece.  This might explain the extravagance of the hotels and the favorable management contracts for Starwood and Marriott. 

 

On to the gambling world and its capital – China.  As most of you know, China plays a major role in the world of gaming.  Las Vegas has become almost an afterthought.  Macau is the largest gaming market in the world with the vast majority of the business originating from mainland China.  In June, Macau gaming revenues grew 13% MoM on top of 7% growth YoY.  Investors would be cheering most markets with that kind of growth, but not here.  Macau gaming stocks traded in the US (LVS, MPEL, WYNN) are down 25-30% since their YTD highs in April.  The concern lies in the sharp VIP slowdown.  VIP comprises about 70% of gaming revenues in Macau and although margins are lower than in the Mass business, VIP volumes really haven’t grown sequentially since June of last year.  In fact, VIP YoY growth went negative in June 2012 for the first time in 3 years.

 

For the purpose of this Early Look, we will update the rather timely analysis we did on 5/22/11 in a note entitled “VIP SLOWDOWN IN THE CARDS”.  Yes, we’re pimping our research a little here (somebody’s gotta do it – this is a business after all), but there is also an interesting macro angle to the analysis that’s appropriate for this forum and once again timely.  At that time, we found that Macau VIP volumes were highly negatively correlated to changes in the China Reserve Requirement (peaked at a lag of 9 months at -0.85) and the China 1-Yr Lending Rate (peaked at a lag of 11 months at -0.75).

 

The timeliness comes in because China began loosening on June 7th followed by another rate cut yesterday.  If history is a guide, we’re still 3 quarters away from material improvement in VIP but at least there is a light at the end of the tunnel.  From a near-term perspective, the rate cut is probably indicative of a weaker economy than many thought.  If weak VIP volume growth continues to drag these stocks down, there will be a tremendous buying opportunity – a la 2009, the last time VIP cracked.  As long as growth in the Mass segment continues its strength – up 30% in June – further estimate reductions, while likely, shouldn’t be devastating. 

 

While it may not be time to back up the truck just yet or even start it, the keys should be in the ignition because these stocks are cheap and help is on the way.  Stay thirsty my friends.

 

Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Germany’s DAX, and the SP500 are now $1586-1622, $97.21-102.74, $82.30-83.21, $1.22-1.25, 6359-6563, and 1359-1376, respectively.

 

Todd Jordan

Guilo and Managing Director – Gaming/Lodging/Leisure

 

GUILOS AND GROWTH - ch 1

 

GUILOS AND GROWTH - ch 2

 

GUILOS AND GROWTH - vp 7 6


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – July 20, 2012


As we look at today’s set up for the S&P 500, the range is 27 points or -1.64% downside to 1354 and 0.33% upside to 1381. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 07/19 NYSE 109
    • Down versus the prior day’s trading of 742
  • VOLUME: on 07/19 NYSE 756.55
    • Increase versus prior day’s trading of 4.00%
  • VIX:  as of 07/19 was at 15.45
    • Decrease versus most recent day’s trading of -4.39%
    • Year-to-date decrease of -33.97%
  • SPX PUT/CALL RATIO: as of 07/19 closed at 1.24
    • Down from the day prior at 1.32 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.48%
    • Decrease from prior day’s trading at 1.51%
  • YIELD CURVE: as of this morning 1.27
    • Down from prior day’s trading at 1.29 

MACRO DATA POINTS (Bloomberg Estimates): 

  • 11am: Fed to sell $7b to $8b notes maturing Sept. 15, 2014- April 30, 2015
  • 1pm: Baker Hughes rig count

GOVERNMENT:

    • House, Senate in session
    • House Financial Services panel holds hearing on impact of Dodd-Frank Act on municipal finance, 9:30am
    • House Armed Services panel meets on shipbuilding, defense industrial base amid fiscal uncertainty, 11am
    • House Natural Resources panel holds hearing on helium shortages, impact on defense, economy, 9:30am
    • House Energy and Commerce panel holds hearing Energy Dept.’s “Nuclear Weapons Complex,” 9:30am
    • House Armed Services panel meets on shipbuilding, defense industrial base amid fiscal uncertainty, 11am
    • Super-PACs, presidential campaigns required to report monthly fundraising, spending to Federal Election Commission by midnight
    • Effective date for final Fed rule on implementing section 618 of Dodd-Frank, Treasury’s assessment of fees on bank holding companies and non-bank financial firms supervised by Fed to cover costs of Financial Research Fund
    • Commerce Dept.’s Bureau of Industry and Security meets on export controls
    • FCC Open Internet Advisory Committee holds first meeting

WHAT TO WATCH: 

  • Google revenue surges on Motorola deal, growth in ad clicks
  • Microsoft unearned revenue tops estimates on upgrades
  • Yahoo discloses compensation for new CEO Mayer in filings
  • Heineken bids as much as $6b for Asia Pacific Breweries
  • Palo Alto, Kayak raise more than planned in IPOs
  • Citigroup sees significant charge after Smith Barney valuation
  • Vodafone sales trail ests as Spain, Italy spending sinks
  • Euro-area finance ministers hold conference call on Spain’s bailout; Spain insists $15b aid for regions won’t swell debt
  • Japan seeks to criminalize underwriters on insider breaches
  • U.S. GDP, Facebook Earnings, Olympics: Week Ahead July 21-28

EARNINGS:

    • SunTrust Banks (STI) 6am, $0.44
    • Baker Hughes (BHI) 6am, $0.77; Preview
    • Schlumberger (SLB) 6am, $1.00; Preview
    • General Electric (GE) 6:30am, $0.37; Preview
    • American Electric Power (AEP) 6:57am, $0.72
    • Ingersoll Rand (IR) 7am, $0.91
    • First Horizon National (FHN) 7am, $(0.49)
    • IDEXX Laboratories (IDXX) 7am, $0.90
    • Xerox (XRX) 7:15am, $0.26
    • Manpower (MAN) 7:30am, $0.71
    • Sensient Technologies (SXT) 7:57am, $0.71 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL – we shorted Oil yesterday because it ran right back up to my intermediate-term TREND line ($108.79 Brent) and failed. We’re getting longer of USD and Treasury Flattener here. We know it’s the hardest thing to do at 15 VIX, and we like it.

 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


ITALY – after all the rumoring, the MIB Index is leading losers in Europe this morning and back in crash mode (-21% from March); a General Strike is finally pending and there is no functional bailout mechanism for the Italians until the Germans ratify whatever the bailout is supposed to look like on September 12th.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


JAPAN – the Nikkei (and Shanghai Comp) have been flashing the most glaring bearish divergences vs this no-volume squeeze in US equities all week. Post the US green close, Japanese stocks opened up, then closed down hard -1.4% as this Global Industrial slowdown accelerates on the downside (Nikkei draw-down = -15.4% since March, 5x that of the SPY here).

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team



The Other Side

“If one side of every transaction is wrong, we have to ponder why we should think it’s not us.”

-Howard Marks

 

Yesterday afternoon, as I was flying back to New York from California, I was watching the market go against me by -0.12% (I’m short the SP500 at 1375). It’s never easy taking The Other Side of a market up move. Being a successful short seller in this business is the ultimate game of survival. Your skin needs to be thick, and you need to be able to take a punch.

 

I’ve made thousands of short sales in my career. Each time feels different. Feeling in this profession is what you’re not supposed to do. But you do. You’re going to feel the love when you are right. You’re going to feel shame when you are wrong. No matter what you are feeling, the best advice I can give is to keep searching – keep asking yourself what you’re missing.

 

Mr Macro Market is usually pretty good at reminding you when and where you could be wrong. That makes our search easier. Embracing the uncertainty that each and every dynamic risk management factor throughout each day brings is at the core of what I do. As Howard Marks wrote in his recent June letter: “Active management has to be seen as the search for mistakes.”

 

Back to the Global Macro Grind

 

The Other Side of the bear case for the SP500 is the current bull case – bailouts. Yesterday’s US economic data was awful. US Leading Indicators (LEI) slowed -0.3% in June versus +0.4% in May. Existing Home Sales for June dropped -5.4% and weekly US jobless claims shot straight back up to their YTD highs of 386,000.

 

So, on the “news” the market sold off and went red for an hour or so, but quickly recovered and went green as more #BailoutBull calls for Qe5 re-surfaced. In conjunction with the Bernanke Begging, the US Dollar went down, Oil went straight up, and all was well in the land of another no-volume stock market rally to lower long-term highs (-12% from the 2007 peak).

 

So what’s on The Other Side of the other side? What happens if the Global Macro and US Economic data goes bullish? Would that make me more wrong being short the SP500 (and Oil, we shorted that at yesterday’s highs too)? Or would that just make me wrong on my research view which, in turn, takes out the #BailoutBull and makes me more right for the wrong reasons?

 

Who knows…

 

Regardless, this is starting to sound all too complex for we commoners being centrally planned by the 112th to simplify.

 

The Other Side of the bull case for this SP500 rally to continue has 3 core factors:

  1. PRICE – SP500 immediate-term TRADE overbought anywhere > 1375
  2. VOLATILITY – VIX immediate-term TRADE oversold anywhere < 16
  3. VOLUME – continuing to register the nastiest volume signals ever in my model

That last factor was easily the most controversial topic I debated with clients in CA this week. Since US Equities continue to see outflows, where is the stock market’s bid coming from? I say short covering. And the ultimate question we need to answer this morning is how much of that do we have left?

 

The good news is that short interest data is trivial. Darius Dale highlights one way to look at long-term short-interest as today’s Chart of The Day. What you’ll note in this chart is that short interest as a % of the NYSE shares outstanding has been oscillating between 3-5% since this whole gong show of free money bailouts started in late 2007.

 

What you’ll also notice is that short interest spiked back up to 3.86% in June 2012, but that it came from a relatively low place (on a 5 year basis) for the 4-6 months prior to that. Yes, Beta Hedgies short low and cover high.

 

Are the consensus hedge fund short sellers covering high when the VIX goes low, again? I can literally see it in each security I am bear hunting in. Where I could be wrong is if I am hunting in the wrong neck of the woods. If I am right, eviscerated short interest looks like it’s turning into a huge market liability. Markets fall fastest after the consensus shorts have covered.

 

Where else could I be wrong on this? All over the place. What if short interest is absolutely ripping to the upside (4-5% of total shares outstanding) here in July? What if no one has covered any of their shorts this week? What if it really is different this time and 15 VIX is a cover all your shorts signal?

 

Only time will tell. But, in the meantime, I can assure you of this – very few PMs understood this in Q4 of 2008. Remember when every fundamental #GrowthSlowing short seller was being dared to cover their shorts in fear of the next central plan? Remember “shock & awe” rate cuts and Hank Paulson’s “bazooka” daily whip around in the market?

 

I do. And so does Santayana: “Those who cannot remember the past are condemned to repeat it.”

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Italy’s MIB Index, and the SP500 are now $1, $102.28-108.79, $82.75-83.94, $1.21-1.23, 13,468-13,703, and 1, respectively.

 

Best of luck out there today and have a great weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Other Side - Chart of the Day

 

The Other Side - Virtual Portfolio


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