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Get Shorty

RIA DAILY PLAYBOOK     

FOR RELEASE ON FRIDAY, JULY 20, 2012

 

CLIENT TALKING POINTS

 

THE JAPANESE DON’T LIE

While the US market is busy getting squeezed amid tepid volume and earnings, the Japanese are showing us how it’s really done. The Nikkei has continued to open post-US close with a solid gain, only to be slammed down into negative territory, closing down -1.4% this time around. The global industrial slowdown is among us and it is quite noticeable.

 

GET SHORTY

You can wax poetic all you want about particular names in stockpicking, but the reality is unless you backup your call with a timestamp, it’s just another idea. We have been short the S&P 500 since 1375 – yes it’s at 1376 now. We’re off by a point. This “rally” will not last, and please keep in mind that hope is not a risk management process.

 

LEAVING OIL BEHIND

It’s about that time. The US dollar has been in a bullish formation and we’ve been liking it since about April. We went short oil yesterday in the Hedgeye Virtual Portfolio. Yes, the US dollar is ready to rip higher. Never mind the bollocks associated with the turmoil in the Middle East, threats or suicide bombings. It simply doesn’t matter. All that talk of $200 a barrel  oil is nothing but laughable at this point.

 

 

ASSET ALLOCATION

 

Cash: Down U.S. Equities: Flat

 

Int'l Equities: Flat Commodities: Flat

 

Fixed Income: Up       Int'l Currencies: Flat

 

TOP LONG IDEAS

 

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

 

THREE FOR THE ROAD

 

Tweet of the Day: “Indeed it looks like a free fall abyss @ekathimerini: Greece, Portugal & Spain are staring into the same economic abyss dlvr.it/1tQPQx”        -@Nouriel

 

Quote of the Day: “When a person can no longer laugh at himself, it is time for others to laugh at him.” –Thomas Szasz

 

Stat of the Day: 4500 jobs to fill at the Solaire Manila Resort & Casino. 


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

 

 

 

 


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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


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



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