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June could pull GGR growth into negative territory on the year



Based on taxi data and McCarran Airport figures, we project that June Strip gross gaming revenues (GGR) fell 6-10% YoY, assuming normal slot and table hold percentages.  Baccarat is always the wild card - both hold and volume - but if the Strip falls in our predicted range, June will drive YTD gaming revenue down versus the first half of 2011.  Remember that May was disastrous with GGR falling 18%.  It has become clear that Vegas is not only in the middle of a modest recovery, the recovery cannot even be called modest and may not even be a recovery.


WYNN and LVS already reported a 33% and 8% drop in GGR, respectively, on the Strip in Q2 2012.  Despite their awful revenue performance, we believe WYNN and LVS actually gained volume market share YoY, which means the two gaming operators yet to report earnings - MGM and CZR - probably performed poorly as well. 


The number of enplaned/deplaned airport passengers at McCarran fell by 0.1% YoY, the 1st decrease since December 2010.  McCarran's expansion into Terminal 3 is ongoing and may help with the ease of transportation and additional capacity.  Taxi trips increased 2.2% YoY in June.  


June results will also be hurt by lower than normal slot hold due to an accounting rule which defers slot win on the last day to July, since June ends on a Saturday.  Moreover, June 2012 faces slightly higher than normal table and slot hold percentages generated in June of 2011.


Here are our projections:




TODAY’S S&P 500 SET-UP – July 31, 2012

As we look at today’s set up for the S&P 500, the range is 35 points or -1.61% downside to 1363 and 0.92% upside to 1398. 











    • Down  versus the prior day’s trading of 2012
  • VOLUME: on 07/30 NYSE 658.58
    • Decrease versus prior day’s trading of -27.85%
  • VIX:  as of 07/30 was at 18.03
    • Increase versus most recent day’s trading of 7.96%
    • Year-to-date decrease of -22.95%
  • SPX PUT/CALL RATIO: as of 07/30 closed at 1.00
    • Down from the day prior at 1.26 


10yr – both the US and German 10yr fall right back after testing immediate-term TRADE resistance (yields); immediate-term TRADE resistance for the UST 10yr = 1.59%, so we bought back our long-bond TLT position on that yesterday, taking our Fixed Income asset allocation back up to 21%; the bond market has been nailing #GrowthSlowing since March. 

  • TED SPREAD: as of this morning 34
  • 3-MONTH T-BILL YIELD: as of this morning 0.11%
  • 10-Year: as of this morning 1.49%
    • Decrease from prior day’s trading at 1.50%
  • YIELD CURVE: as of this morning 1.27
    • Down from prior day’s trading at 1.28 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am/8:55am: ICSC/Redbook retail sales
  • 8:30am: Annual Revisions: Personal Income and Spending
  • 8:30am: Employment Cost Index, 2Q, est. 0.5% (prior 0.4%)
  • 8:30am: Personal Income, June, est. 0.4% (prior 0.2%)
  • 8:30am: Personal Spending, June, est. 0.1% (prior 0.0%)
  • 8:30am: PCE Deflator M/m, June, est. 0.0% (prior -0.2%)
  • 8:30am: PCE Core M/m, June, est. 0.2% (prior 0.1%)
  • 9am: S&P/CS 20 City M/m, May, est. 0.4% (prior 0.7%)
  • 9am: S&P/CaseShiller Home Price Index, May, est. 137.55 (prior 135.8)
  • 9:45am: Chicago Purchasing Manager, July, est. 52.4 (prior 52.9)
  • 10am: Consumer Confidence, July, est. 61.5 (prior 62)
  • 11am: Fed to purchase $4.25b-$5b notes due July 31, 2018-May 15, 2020
  • 11:30am: U.S. to sell 4-wk bills
  • 2pm: Fed will release tentative outright Treasury operation schedule
  • 4:30pm: API Inventories 


    • House Energy and Commerce subcommittee holds forum to discuss state and federal cooperation on the Clean Air Act, 2pm
    • House Oversight Committee hearing on federal privacy and data security, 10am
    • Senate Committee on Commerce, Science Transportation markup to extend 2006 law to stop spam, spyware, fraud across borders; nomination of Michael Huerta, to be FAA admin., 2:30am
    • Treasury Secretary Timothy F. Geithner speaks to the Los Angeles World Affairs Council on U.S, and world economies, 3pm
    • David Cohen, Treasury’s undersecretary for terrorism and financial intelligence, speaks at department’s public hearing on plans to propose rules on customer due diligence requirements for financial institutions, 9:30am
    • Senate Appropriations defense subcommittee drafts its version of the annual defense spending bill, 10:30am
    • Air Force holds press briefing at Pentagon on latest assessment of oxygen-deficiency symptoms that have affected pilots flying Lockheed Martin’s F-22 Raptor, 3pm
    • FERC Chairman Jon Wellinghoff discusses reliability of electric grid, EPA regulations, climate change in appearance at Platts Energy Podium, 1pm
    • ITC hears evidence in a microprocessors patent-infringement case brought against Apple by Taiwan-based VIA Technologies, which is affiliated with HTC, 9am


  • Federal Open Markets Committee begins 2-day meeting
  • Euro-area unemployment rate reaches record 11.2%
  • Apple said to prepare iPhone redesign for Sept. 12 release
  • Yahoo Interim CEO Ross Levinsohn departs after Marissa Mayer gets CEO job
  • BP 2Q net loss $1.39b vs net income $5.72b Y/y
  • Cantor placed on review for cut by Moody’s amid trading weakness
  • Japan’s unexpected drop in unemployment helps sustain growth
  • UBS, Deutsche Bank profits decline, missing ests.
  • Panasonic 1Q net income 12.8b yen, analyst est. 9.2b yen
  • Honda 1Q net 131.7b yen, est. 150.7b yen
  • Manchester United seeks as much as $333m in U.S. IPO
  • Sanofi’s Genzyme unit sued by Teva over worker-raiding claims
  • RealD fell as much as 21% after missing ests. due to costs to supply theaters with new eyeglasses
  • Humana cuts profit forecast as rising Medicare costs surprise
  • Lehman raises $4.7b in 2Q toward creditor payments
  • Boeing 787’s debris-spewing GE engine to be dismantled in probe
  • Ex-UBS Officers “lied and cheated’ on muni bond deals, U.S. says


    • Yandex (YNDX) 6am, $0.16
    • Tyco (TYC) 6am, $0.93; Preview
    • Aetna (AET) 6am, $1.25
    • NiSource (NI) 6:30am, $0.20
    • Harris (HRS) 6:30am, $1.41
    • Goodyear Tire & Rubber (GT) 6:30am, $0.45
    • Cobalt International Energy (CIE) 6:40am, $(0.09)
    • Foster Wheeler (FWLT) 6:45am, $0.43
    • Delphi Automotive (DLPH) 7am, $0.92
    • Thomson Reuters (TRI CN) 7am, $0.50
    • Pfizer (PFE) 7am, $0.54; Preview
    • Dentsply International (XRAY) 7am, $0.56
    • Coach (COH) 7am, $0.85
    • TRW Automotive Holdings (TRW) 7am, $1.55
    • Archer-Daniels-Midland Co (ADM) 7am, $0.58
    • Entergy (ETR) 7am, $1.41
    • Discovery Communications (DISCA) 7am, $0.70
    • United States Steel (X) 7:05am, $0.49
    • Marathon Petroleum (MPC) 7:06am, $2.51; Preview
    • Public Service Enterprise Group (PEG) 7:30am, $0.45
    • Revlon (REV) 7:30am, $0.32
    • Cummins (CMI) 7:30am, $2.28
    • Valero Energy (VLO) 7:30am, $1.43; Preview
    • HCP (HCP) 7:45am, $0.68
    • Louisiana-Pacific (LPX) 8am, $0.05
    • George Weston (WN CN) 8am, C$0.96
    • Martin Marietta Materials (MLM) 8:05am, $1.01
    • Ecolab (ECL) 8:25am, $0.72
    • TransAlta (TA CN) 8:50am, C$(0.03)
    • Toromont Industries (TIH CN) 11:13am, C$0.36
    • Saputo (SAP CN) 11:58am, C$0.66
    • Edison International (EIX) 4pm, $0.32
    • WebMd (WBMD) 4pm, $0.123
    • Electronic Arts (EA) 4:01pm, $(0.42)
    • DreamWorks Animation SKG (DWA) 4:01pm, $0.25
    • Solar Capital (SLRC) 4:01pm, $0.58
    • Axis Capital Holdings (AXS) 4:01pm, $0.93
    • Life Technologies (LIFE) 4:01pm, $0.97
    • BMC Software (BMC) 4:05pm, $0.75
    • Take-Two Interactive (TTWO) 4:05pm, $(0.66)
    • ONEOK (OKE) 4:05pm, $0.33
    • ONEOK Partners (OKS) 4:05pm, $0.70
    • Allstate (ALL) 4:05pm, $0.52
    • QEP Resources (QEP) 4:05pm, $0.33
    • Genworth Financial (GNW) 4:07pm, $0.18
    • Arthur J Gallagher (AJG) 4:09pm, $0.56
    • Kimco Realty (KIM) 4:09pm, $0.31
    • Verisk Analytics (VRSK) 4:10pm, $0.47
    • Frontier Communications (FTR) 4:11pm, $0.05
    • RenaissanceRe Holdings (RNR) 4:22pm, $2.48
    • FMC (FMC) 4:30pm, $0.91
    • Jones Lang LaSalle (JLL) 4:30pm, $1.24
    • BRE Properties (BRE) 4:30pm, $0.58
    • DDR (DDR) 5pm, $0.25 



GOLD – the #BailoutBulls are going for gold here into this week’s central planning events; TRADE resistance now support at $1606; long term-TAIL risk line up at $1679. Be careful what you beg for; another Qe will cut whatever is left of the US consumption growth phalanx to shreds. 

  • Most-Accurate Gold Forecasters Splitting After Rout: Commodities
  • Oil Supplies Decline in Survey on Refining High: Energy Markets
  • Grain Cargoes Seen Slowing Most in 19 Years on Drought: Freight
  • Corn Climbs to Record as Futures Head for Best Month Since 1988
  • Weak India Rains to Spur Record Cooking-Oil, Lentil Imports
  • Rubber Demand in China to Contract 5% as Truck Sales Tumble
  • Palm-Oil Shipments From Indonesia Set to Gain on Lower Duty
  • WTI Crude May Slump to $83 Fibonacci Level: Technical Analysis
  • Copper Rises as China Increases Spending on Railroad Network
  • Gold Seen Extending Monthly Gain on Monetary Easing Stimulus
  • Australia Wins as Buyers Shift to Wheat From Corn on Drought
  • Rice Stockpiles in Japan Seen Declining, Boosting Prices
  • Iron Ore Price Decline in China Seen by Arctic as Import Spur
  • Gold-Backed Loans to Climb at Indonesian Banks: Islamic Finance
  • Chinese Steelmakers Profit Tumbles 96% on Lower Demand, Prices
  • Oil Rises, Set for First Monthly Gain in Three on Stimulus Talk















CHINA – last day of the month, so why not throw some Chinese rumoring on top of the markup pile? Regardless, Chinese stocks make fresh new lows, down another -0.3% (down -14.5% since May); we do not think they cut rates w/ $106/barrel Brent Oil.











The Hedgeye Macro Team


President Obama’s Reelection Chances

Since the de facto central planning standard is back to bailing out everything in sight, markets have rallied and in turn, that bodes well for President Obama. After holding flat last week, the President saw his reelection chances jump by 1.1% to 58.2% according to the Hedgeye Election Indicator. These Keynesian groupthinkers will likely do “whatever” it takes to get each other reelected/reappointed.


Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.


Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.


President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.



President Obama’s Reelection Chances - HEI

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Idea Alert: BA Consensus Isn’t Always Wrong

BA Long:  Consensus Isn’t Always Wrong


Keith added Boeing to the Virtual Portfolio today and a summary of why we are positive on BA is below.




  • Cycle:  Boeing is in the midst of a long up cycle in commercial Aerospace, with 7 years trailing revenue in backlog.  The company also has a major product cycle in the 787.
  • Industry Structure:  Boeing has a largely unassailable competitive position in a highly consolidated industry.
  • Valuation: The valuation of Boeing is attractive at these levels on a sector relative basis, in our view, both in a DCF and on screening metrics like relative EV/S  (0.5 standard deviations below the trailing 8-year mean).
  • Sector Relative: With growth slowing and estimates in the industrial sector under pressure, we believe BA remains an attractive destination for investors.
  • Sentiment:  Unfortunately, consensus seems to agree with us.  We note that consensus can be right.

Idea Alert: BA Consensus Isn’t Always Wrong - aircraft deliveries

  • Global aircraft fleet aging has set-up robust backlogs for commercial aircraft makers
  • Strong deliveries in the late 1980s/early 1990s were partly driven by deregulation (US, UK, Japan in the 70s and 80s and, in the early 90s, Europe), which drove demand growth
  • Late 1980s/early 1990s deliveries are now retired or approaching retirement (20 to 25 year sum)
  • Boeing and Airbus have very high backlogs as deliveries have trailed orders for much of the last decade 

Fleet aging is particularly noticeable in the US.  Though only about 15% of commercial aircraft orders, the US aircraft fleet will need to be replenished over time. 


Idea Alert: BA Consensus Isn’t Always Wrong - fleet age 2


Masked by low hold, both WYNN and LVS likely gained volume share in Q2


  • Following May’s 18% GGR decline, we’re already projecting a down June for the Strip but MGM and/or CZR may have lost volume share too
  • On a YoY basis, both WYNN and LVS likely improved volume share in both slots and table
  • Estimated GGR share in 2011 was MGM – 28%, CZR – 25%, WYNN – 13%, LVS – 8% for a total of 75% of the market




CONCLUSION: We think Brazil is officially in a box from a fiscal and monetary policy front and any further dovish policy on either front would be in direct conflict with increasing fear of policymakers losing control over guiding domestic inflation towards official targets. As a result of this “box” we think Brazilian equities, currency and bonds could all be headed lower over the intermediate term as confusion about the outlook for policy breeds increasing contempt across Brazil’s financial markets.


This morning, Brazil’s JUL IGP-M inflation index (60% wholesale, 30% consumer prices and 10% construction costs) came in rather hot at +6.7% YoY from +5.1% in JUN; +6.7% is the highest YoY reading since OCT ‘11. Further, the MoM acceleration of +1.3% from +0.7% in JUN is the fastest sequential gain since NOV ’10 – the month QE2 was officially commenced. This acceleration of inflation in Brazil is very  much in-line with our written work on the subject (from our MAY 3 note titled, “WHAT THE HECK IS GOING ON IN BRAZIL?”):


“Additionally, recent weakness in the BRL/USD cross is eroding the currency’s marginal strength relative to global food and energy prices – which serves to threaten reported inflation statistics to the upside in the coming months. Notably, the IGP-M inflation index, which has been known to lead the benchmark IPCA CPI index by 2-6 months, bottomed in MAR. While we don’t see material upside in Brazil’s headline inflation rate over the intermediate term, this data point is in support of our model’s view that Brazilian CPI bottoms here in 2Q and accelerates in the back half of the year – likely preventing the central bank from reaching the midpoint of its inflation target of +4.5% (+/- 200bps), which it has repeatedly promised to accomplish by year’s end.”




We maintain the aforementioned conclusion, which, coincidentally, is a view that is becoming more consensus on both the sell-side (via central bank survey data) and the buy-side (via an inflection in expectations for incremental monetary easing in the OIS market). We’d be remiss to not mention the fact that over 100,000 civil servants in Brazil – including employees of the central bank itself – are currently striking for wage increases that keep pace with the country’s consistently elevated rates of inflation.






As a result of this proactively-predictable pickup in inflation, Brazil’s central bank is officially in the box we had been calling in MAY – which we identified then as a supportive factor for the BRL exchange rate(s) and, subsequently, Brazilian equities. Now, however, because they over-stimulated in recent months (-450bps of cuts since last AUG) and failed to adequately protect the currency from rising international price pressures, speculation that they’ll have to actually tighten monetary policy over the intermediate term should continue to grow.


Speculation around monetary tightening – or rather, the consensus realization that Brazil’s central bank has greatly exhausted its bullets on the stimulus front – will likely introduce incremental economic growth concerns that we’d view as negative for Brazilian equities on the margin. Additionally, the both the central bank and central government of Brazil have signaled that they are likely to continue implementing dovish policy over the intermediate term (Tombini indicated such in his latest statement; the Finance Ministry is actually planning to introduce further fiscal stimulus measures in AUG); that should drive future expectations for Brazilian real interest rates lower as inflation expectations pick up. That would be an incremental negative for the BRL over the intermediate term, which, in turn, would be an incremental negative for Brazilian equities for the following two reasons: 

  1. An increasingly subdued outlook for currency appreciation/an outlook for outright depreciation limits the appeal of Brazilian assets to international investors. Brazil, with a current account deficit of 2.1% of GDP, needs steady flows of international capital in order to sustain economic growth.
  2. A weaker currency – particularly vs. the USD – drives up the cost of servicing international debt as well as expenditures on FX and interest rate hedges for Brazilian corporations. Additionally, it drives up the cost of imports – from raw materials to capital goods – and erodes the gross margins of Brazilian corporations. All of this acts as a headwind to earnings growth. 

While not necessarily a factor in our TREND-duration outlook for the BRL, we do see the central bank’s planned failure to roll over the $4.5B of maturing currency swaps coming due tomorrow as a TRADE-duration negative for the currency (though a fair amount might be getting priced in today, as it BRL is down nearly -80bps vs. the USD intraday).


The quantitative setup in Brazil’s benchmark Bovespa equity index is akin to the outlook for Brazilian monetary and fiscal policy – stuck between a rock and a hard place. A sustained breakout above the TREND line (58,131) would signal to us that we’re wrong on our intermediate-term bearish thesis. A breakdown below the TRADE line (54,843) would be a signal to short Brazilian equities on any/all rallies to lower highs.




All told, we think Brazil is officially in a box from a fiscal and monetary policy front and any further dovish policy on either front would be in direct conflict with increasing fear of policymakers losing control over guiding domestic inflation towards official targets. As a result of this “box” we think Brazilian equities, currency and bonds could all be headed lower over the intermediate term as confusion about the outlook for policy breeds increasing contempt across Brazil’s financial markets.


Darius Dale

Senior Analyst

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