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MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW

Key Takeaways

* Last week was interesting as rising confidence around an ECB-led bailout gave way to disappointment, only to be followed by an extraordinary rally on better than expected US econ data. All told, both Sovereign and company-specific default swaps were broadly tighter last week. 

 

*The average rate on high yield corporate debt dropped 20 bps last week, another sign that the market thinks risk is off the table in the short-term.


* The MCDX index fell significantly last week. We remain puzzled by this considering the recent spate of muni bankruptcy filings.

 

* XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.5% upside to TREND resistance of  $14.89 and 1.8% downside to TRADE support of $14.56. The XLF is currently bullish TRADE, bearish TREND.

  

Financial Risk Monitor Summary  

• Short-term(WoW): Positive / 7 of 12 improved / 1 out of 12 worsened / 5 of 12 unchanged  

• Intermediate-term(WoW): Positive / 5 of 12 improved / 2 out of 12 worsened / 6 of 12 unchanged  

• Long-term(WoW): Positive / 6 of 12 improved / 3 out of 12 worsened / 4 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - Summary 

 

1. US Financials CDS Monitor – The money center banks (JPM, BAC, C, WFC) and the large U.S. brokers (GS, MS) all saw credit default swaps tighten again last week.

Tightened the most WoW: RDN, AIG, MMC

Widened the mos WoW: COF, MTG, GNW

Tightened the most MoM: MET, ALL, XL

Widened the most MoM: MTG, MBI, GNW

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - American CDS

 

2. European Financial CDS - Spanish, German, French, Italian and Greek banks tightened.  Overall, 37 of the 39 European financial reference entities we track saw spreads tighten last week.

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - European Financials

 

3. Asian Financial CDS -  China and India posted notable tightening, while Japanese financials were largely flat. 

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - Asia CDS

 

4. Sovereign CDS – European Sovereign Swaps tightened across the board last week. In Europe, French sovereign swaps tightened the most:  -18 bps to 154 bps while Portuguese sovereign swaps tightened the least: -4 bps to 852 bps.

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - Sov Table

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - Sov CDS 1

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - Sov CDS 2

 

5. High Yield (YTM) Monitor – High Yield rates fell 20 bps last week, ending the week at 7.09 versus 7.29 the prior week.

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - High Yield

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 5.15 points last week, ending at 1689.

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - LLI

 

7. TED Spread Monitor – The TED spread rose 1.8 points last week, ending the week at 36.1 this week versus last week’s print of 34.3.

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index was flat, ending the week at -9.8. 

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - JOC

 

9. Euribor-OIS spread – The Euribor-OIS spread tightened by 6 bps to 29 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - Euribor OIS

 

10. ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - ECB

 

11. Markit MCDX Index Monitor – Last week, MCDX spreads tightened by 12 bps, the index ended the week at 151 bps. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure at the state and local government level. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. 

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - MCDX

 

 

12. Chinese Steel – Steel prices in China were flat last week at 3,666 yuan/ton, though in the last few months Chinese construction steel prices are down ~10%. Chinese steel rebar prices have been generally moving lower since August of last year. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.    

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - CHIS

 

13. 2-10 Spread – Last week the 2-10 spread widened 2 bps week-over-week to 132 bps. We use the 2-10 yield spread as a broad measure of bank margin pressure.  

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.5% upside to TREND resistance of  $14.89 and 1.8% downside to TRADE support of $14.56. The XLF is currently bullish TRADE, bearish TREND.

 

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - XLF

 

Margin Debt - June: +0.72 standard deviations 

NYSE Margin debt rose in June to $285 billion from $279 billion in May. We like to to look at margin debt levels as a broad contrarian sentiment indicator. For reference, our approach is to look at it margin debt levels in standard deviation terms over the period 1. Our analysis shows that when margin debt gets to +1.5 standard deviations or greater, as it did in April of 2011, it has historically been a signal of extreme risk in the equity market. The preceding two instances were followed by the equity market losing roughly half its value. Overall this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag.  The chart shows data through June. 

 

MONDAY MORNING RISK MONITOR: RISK TAKES A HOLIDAY, FOR NOW - NYSE margin debt

 

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.  

 

 


Riding Horses

This note was originally published at 8am on July 23, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Comanches adapted to the horse earlier and more completely than any other plains tribe.”

-S.C. Gwynne

 

Man is competitive. So am I. As a team, we wake up to this world every risk management morning looking for a better way. That’s progressive. That’s how we evolve as a people. Anyone in this profession who does not get this will be left behind.

 

The aforementioned quote comes from the American Indian history book I have recently cited, Empire of The Summer Moon. It’s a stiff reminder of how harsh life has been. Not every man who attempted to settle in 18th century Texas was given a sticker.

 

Since launching our Q3 Global Macro Themes in early July, we’ve been riding the same horse that has had us calling for #GrowthSlowing since March. Our horse uses modern day math and machines. We don’t ask the Old Wall for permission to make calls on the direction of Growth Slowing’s Slope. We let Mr. Macro Market tell us which way our horse needs to ride next.

 

Back to the Global Macro Grind

 

Evidently, shorting the SP500 at its 1375 TREND level was a better than bad risk management decision to make. Friday’s -1% selloff in the US stock market came on the heels of both Spain and Italy closing down -6.3% and -4.7%, respectively, week-over-week.

 

Not to be confused with the fictional storytelling that global growth is “decoupling”, one of our most stealth front-running horses of Global Economic Growth, South Korea’s KOSPI index, told us the same story as structurally impaired Western Europe did. The KOSPI was down -4.3% week-over-week, testing its YTD lows.

 

This morning, neither Asian nor European Equities are telling you that anything about #GrowthSlowing has changed. Neither is the US bond market. Nor are corporate revenues. Neither are the prices of oil and copper.

 

Before I come back to touching dogmatic taboo of “growth is fine and earnings are great”, let’s grind through some of the aforementioned risk management signals:

  1. US Equity Futures down 14 handles
  2. Japanese Stocks (Nikkei 225) = -1.9% (down -17% since March, remaining in a Bearish Formation)
  3. Chinese Stocks (Shanghai Comp) = -1.3% (down -13% since May, remaining in a Bearish Formation)
  4. Hang Seng -3.0%, KOSPI -1.8%, and India’s Sensex -1.4% (all Bearish Formations)
  5. European Stocks (EuroStoxx50) = -2.2% (down -16% since March, breaking TREND again)
  6. Spanish Stocks (IBEX) = -4.3% (crashing, down -33% since March)
  7. Italian Stocks (MIB) = -3.3% (crashing, down -26% since March)
  8. Russian Stocks (RTSI) = -3.2% (crashing, down -23% since March)
  9. Oil (Brent) = -3.2% (backing off hard from where we shorted it on Thursday)
  10. Copper = -2.7% (backing off at its intermediate-term TREND line of 3.64/lb, much like the SP500 did)
  11. Treasuries (UST 10yr) = down another -5bps this morning to 1.41% (new lows)
  12. Yield Spread (10s minus 2s) = down another -6bps this morning to 120bps wide (narrowest YTD)
  13. Euro (vs USD) = down, again, testing $1.20 (after snapping its 2010 lows last week and now confirming)

I’ll stop there, at lucky thirteen.

 

How about that beloved “earnings season”? With almost 200 of 500 companies in the SP500 having reported, at least 50% of them have already missed on revenue expectations (worst quarter since 2008).  Two of the key Sectors in the SP500 (Financials and Industrials) look nothing like the “SP500 is flat for July” as they are down -1.8% (XLF) and -1.4% (XLI) for the month-to-date.

 

Oh, but never mind the revenues, ‘earnings are good.’ Really?

  1. Earnings are lagging indicator (not a leading one) anyway
  2. Revenues are leading indicators for Growth Slowing’s Slope

As our everything Financials guru, Josh Steiner, wrote in his research note to clients on Friday afternoon, the expectations mismatch between “reported” earnings and revenues is widening to the bearish side of Growth’s Slope:

 

1.   EPS: 17 out of 33 companies (52%) have beat consensus EPS estimates, while 11 were in line, and 5 have missed. Keep in mind that we are looking at the optical (unadjusted) numbers.

 

2.   Revenues: 6 out of 33 companies (18%) have beat consensus revenue estimates, while 20 were in line and 7 missed. For reference, we consider 2% or greater above the estimate a beat.

 

In other words, whether it’s GDP in Spain or the top line revenues of a company, get Growth’s Slope right, and you’ll get a lot of other things less wrong.

 

Oh, and if you’re in a performance foot race and want to be right instead of less wrong, ride a Global Macro horse.

 

My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1556-1578, $103.01-108.16, $83.18-83.99, $1.20-1.22, 5965-6558, and 1347-1376, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Riding Horses - Chart of the Day

 

Riding Horses - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – August 6, 2012


As we look at today’s set up for the S&P 500, the range is 38 points or -1.65% downside to 1368 and 1.08% upside to 1406. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2a

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 08/03 NYSE 1998
    • Up  versus the prior day’s trading of -722
  • VOLUME: on 08/03 NYSE 753.60
    • Decrease versus prior day’s trading of -8.72%
  • VIX:  as of 08/03 was at 15.64
    • Decrease versus most recent day’s trading of -10.98%
    • Year-to-date decrease of -33.16%
  • SPX PUT/CALL RATIO: as of 08/03 closed at 1.27
    • Up from the day prior at 0.97 

CREDIT/ECONOMIC MARKET LOOK:


UST 10yr – We guess it’s becoming summer 2012 fashion to slam bonds on Friday and chase Equities to higher lows; 10yr yield faded fast from Friday’s intraday highs; back under TRADE resistance of 1.56% this morning – watch that line alongside 1.23 EUR/USD. 

  • TED SPREAD: as of this morning 36
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.55%
    • Decrease from prior day’s trading of 1.56%
  • YIELD CURVE: as of this morning 1.32
    • Down from prior day’s trading at 1.33 

MACRO DATA POINTS (Bloomberg Estimates):

  • 9am: Fed’s Bernanke speaks on economic measurement via prerecorded video to Cambridge, Massachusetts, audience
  • 11am: U.S. Fed to purchase $4.5b-$5.5b notes in 8/15/2020 to 5/15/2022 range
  • 11:30am: U.S. to sell $32b 3-mo., $28b 6-mo. billS
  • 4pm: Crop conditions

GOVERNMENT/POLITICS:

    • House, Senate not in session
    • FERC holds meeting by audiocast on coordination between natural gas, electricity markets -- Central Region, 9am
    • Environmental Working Group, Defenders of Wildlife release report showing impacts of high crop prices, unlimited insurance subsidies on wetlands, grasslands, wildlife, 11am
    • NASA’s Curiosity Rover landed safely on Mars at 1:32am

WHAT TO WATCH: 

  • Knight Said to Avoid Insolvency With $400m From Investors
  • Advent Agrees to Buy Ares’ AOT, Maker of Serta Mattresses
  • Greece, Troika Agree on Need to Strengthen Policy Efforts
  • Monti calls for more crisis-fighting urgency to avoid breakup
  • Pimco Stock Expansion Stumbles as Gross Says Equities Cult Dead
  • USDA issues weekly crop report as drought erodes yields
  • Weekly U.S. agendas: Tech, Finance, Energy, Real Estate, Consumer, Industrials, Health, Transports
  • Weekly Canada agendas: Mining, Energy
  • Canadian mkts closed today for civic holiday
  • China Exports, Mars Landing, Usain Bolt: Week Ahead

EARNINGS:

    • AES (AES) 6am, $0.27
    • Cognizant Technology Solutions (CTSH) 6am, $0.80
    • Cinemark Holdings (CNK) 6:36am, $0.39
    • Crestwood Midstream Partners (CMLP) 7am, $0.19
    • Isis Pharmaceuticals (ISIS) 7am, $(0.10)
    • Health Care REIT (HCN) 7:30am, $0.88
    • Kosmos Energy (KOS) 7:30am, $(0.10)
    • Tyson Foods (TSN) 7:30am, $0.54
    • HCA Holdings (HCA) 7:49am, $0.78
    • MFA Financial (MFA) 8:30am, $0.87
    • Caesars Entertainment (CZR) 4pm, $(0.96)
    • JDA Software Group (JDAS) 4pm, $0.57
    • Plantronics (PLT) 4pm, $0.61
    • Warnaco Group (WRC) 4:03pm, $0.64
    • McDermott International (MDR) 4:05pm, $0.22
    • Chesapeake Energy (CHK) 4:06pm, $0.07
    • Plains All American Pipeline (PAA) 4:09pm, $1.63
    • Innophos Holdings (IPHS) 4:10pm, $0.88
    • CF Industries Holdings (CF) 4:15pm, $8.76
    • Concho Resources (CXO) 4:15pm, $1.00
    • Manitowoc (MTW) 4:31pm, $0.25
    • Vornado Realty Trust (VNO) 4:55pm, $0.94
    • Boston Properties (BXP) Aft-mkt, $1.24
    • Brookdale Senior Living (BKD) Aft-mkt, $0.01
    • KAR Auction Services (KAR) After-mkt, $0.26
    • Retail Properties of America (RPAI) Aft-mkt, $0.22

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Hedge Funds Cutting Oil Bets Caught in Rally: Energy Markets
  • Chesapeake Cash Crunch to Widen Without Oilfield Sales: Energy
  • Speculators Lift Wagers in Longest Streak on Record
  • Copper Processing Fees to Climb as Mining Projects Boost Output
  • Tin Spot Sales Curbed by PT Timah to Fight Slump in Prices
  • Deutsche Bank Said to Close Tokyo Commodity Unit, Relocate Staff
  • FAO Pares Global Rice Output Forecast as Indian Rains Falter
  • Indiana Farmer Puts Purchases on Hold as Drought Breeds Doubt
  • Oil Drops After Biggest Gain in Five Weeks; Atlantic Storm Slows
  • Palm Oil Ends Unchanged as Rising Reserves Counter Demand Growth
  • AngloGold to Boost Third-Quarter Output to Mitigate Cost Rise
  • Strait of Hormuz Attack Probably Iran ‘Last Resort,’ Author Says
  • Fortescue Secures $1.5 Billion Debt After Expansion Cost Overrun
  • Sugar Falls a Third Day as Global Surplus Looms; Cocoa Retreats
  • Monti Warns Germany That Euro Crisis Threatens Europe’s Future
  • Palm-Oil Inventory in Malaysia Set to Jump Most in 10 Months

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


EURO – after seeing the net short position in the Euro peak around 156,000 contracts in the 3rd wk of July, the squeeze here has been obvious; now, with short covering taking that net position down, it will be important to wait/watch for Euro $1.23 to either hold or give way to lower lows. No position for us here, watching.

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


ASIA – after 4 straight down days, Asian equities melted right back up alongside everything else short covering in USA/Europe on Friday; Nikkei and KOSPI both up a full 2%, but both stopped just inside of immediate-term TRADE lines of 8766 and 1913 resistance; watch those levels this week for follow through/confirmation, or lack thereof.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.63%

Brave Bears

“Your father doesn’t believe in magic.”

-Elinor

 

This weekend I took my son Jack to Pixar’s latest animation, “Brave.” The original story, set in the 10th century Scottish highlands, was called “The Bear and The Bow.” Since the McCullough Clan genuinely loves bears, we thoroughly enjoyed the movie.

 

Brave’s King Fergus doesn’t like bears anymore than modern day Eurocrats do. In fact, the King’s entire life is centered around fighting one demon bear in particular by the name of “Mor’du.”  

 

I won’t ruin this European short squeeze (or the rest of the movie for you), but having gone to French Canadian school until the 5th grade, I must give you a hint – “mordu”, en Francais, is the past participle of “death.”

 

Back to the Global Macro Grind

 

No worries, no short sellers from New Haven, CT actually died in Friday’s latest no-volume squeeze (we cut the SHORTS in the Hedgeye Portfolio to only 5 by Friday morning). Evidently, neither did as many people perish in the government’s now infamous “birth/death adjustment” for US payrolls.

 

In today’s Chart of the Day, Darius Dale contextualizes the July 2012 Jobs Report with a picture that nets out the effects of the NSA’s “birth/death adjustment” from the NSA Non-Farm Payroll month-over-month figure.

 

In addition to that picture telling you 1,000 words, here are some other quick hits on the jobs report:

  1. For June (last month’s report), the government revised non-farm payrolls down to 64,000 vs 80,000 prior
  2. For July, the “birth/death adjustment” of +52,000 jobs was the highest “adjustment” on record (since July 2000)
  3. For July, the actual unemployment rate ticked up +10bps (month-over-month) vs June to a very elevated 8.3%

But, but… provided that you believe in magic during an Election Year, America’s jobs crisis is over and it’s time to buy stocks with both hands at VIX 15, again. *Note, every time you’ve bought US Equities at VIX 14-15, in the last 5 years, you’ve been killed.

 

Killing the shorts is cool, until it isn’t. Don’t forget that short covering is one of the only ways left for these markets to go up. Inflows into US Equities remain dead. So is trust.

 

While it was funny to see the perma-bulls of the manic media blame Europe for the April-June US stock market declines, I don’t see too many of these cats championing Europe as the reason for a US stock market rally. #weird

 

Looking at the short squeezes we’ve seen off the June 2012 lows, here are some noteworthy ones:

  1. Oil (Brent) = +23%
  2. EuroStoxx50 Index = +15%
  3. SP500 = +8.7%

Centrally planned black magic or not, Americans of the 30th Olympiad better be thanking Europe for hosting one mother of a short squeeze in commodity and stock prices, even if the volume of fans is low.

 

The commodity side of this Reflation Rally to lower-highs is worth wasting a few more bullets on:

  1. CFTC (US Commodities Futures Trading Commission) contracts ripped another +5% wk-over-wk to 1.22 million contracts
  2. Agricultural bets (net long contracts) were up another +3% wk-over-wk at a new high of 884,477 contracts
  3. Gold bets put on their biggest wk-over-wk move (+36%) since November of 2008 (96,200 contracts)

Got Inflation Expectations? Brooksley Born, do you hear her now?

 

How about causality (central planning policies) and correlation (US Dollar Correlation Risk to stock and commodity prices)? Yep, Obama and Axelrod understand this full well. So did Bush and Bernanke. If you want commodity and stock market inflations to re-flate those political chances, you just need to spend like mad and debauch that US Dollar.

 

With the US Dollar down another -0.4% last week (down for 2 consecutive weeks), this keeps Oil (and Energy stocks) leading the latest charge. Oh, wait. The US stock market is down 8 of the last 11 days,  and the Russell2000 was down another 1% last week…  

 

So you better be either a Brave Bear when covering those shorts on Thursdays, or just get right loaded to the gills in commodity leverage and, at the same time, say there’s no inflation at the pump. Jack’s Dad tells him magical fairy tales at bedtime too.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and the SP500 are now $1, $106.05-110.84, $82.06-82.95, $1.20-1.23, 779-791, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Brave Bears - Chart of the Day

 

Brave Bears - Virtual Portfolio


WMS YOUTUBE

In preparation for WMS's FQ4 earnings release Monday, we’ve put together the recent pertinent forward looking company commentary

 

 

1Q CONFERENCE CALL YOUTUBE

 

GENERAL

  • “We believe that WMS has turned the corner on our efforts to restore growth in our gaming operations business. Looking out over the next few quarters, we expect our normalized flow of innovative new products for our product sales and participation operations scheduled to launch during the next 12 to 24 months.”
  • “I am excited by the prospects to reenergize our customer slot floors with the innovation and potential that will come with the launch of our first games, our next-generation CPU-NXT3 operating system…We are on track to commercialize this new operating system on the Sensory Immersion 2.0 platform, with initial approvals and the launch of the Aladdin & Magic Quest game in the latter part of the June quarter.”
  • “Another driver of revenue by the end of calendar 2012 will come from the expected launch of My Poker video poker platform.”
  • “We anticipate the placements of VLTs in Illinois and Italy, which we expect to begin in fiscal 2013, may result in a greater amount of operating leases, which will require gaming operations capital.”
  • “We also will have several exciting opportunities in fiscal 2013 provided by VLT markets. In addition to Alberta, where the lottery authorities expect to replace and ultimately upgrade the entire installed base of 7,000 VLTs, we also expect favorable opportunities from replacement VLT initiatives planned by other Western Canada Provincial Authorities.”
  • “Looking to fiscal 2013, we expect capital expenditures for property plant and equipment to decline as we'll complete two significant projects over the next few months.”
  • “In the June 2012 quarter, we expect to continue to demonstrate ongoing progress with a quarterly sequential improvement in revenues and operating margin over the March 2012 quarter.  Our rate of revenue improvement is less than what we expected earlier in the year. As a result, we expect total revenues in the June 2012 quarter to be modestly below year-ago June quarterly revenues, while our operating margin is expected to improve on a year-over-year basis, adjusting out the net impact of restructuring, impairment and other charges in the prior year.”
  • “We now have our wage net system connecting 1,280 gaming machines at 64 casinos worldwide generating a continued strong play performance.
  • “June quarter… it's likely that CapEx in gaming operations is going to be at or a little above what it was in Q3 as we now get to the point of – as we're incrementing the installed base:”
  • “Typically we see our Q4 ramping up to be our seasonally busiest quarter of the year. It goes Q4, Q3, Q2, Q1. And so I think April was a little bit softer than we would like in our gaming operations business. But our order book is building dramatically, so that offsets that.”

GAME SALES

  • “Ongoing benefits from our cost containment and continuous improvement initiatives more than offset the roughly $1,100 decrease in average selling prices that primarily reflected a greater mix of lower priced VLT sales, the impact from higher discounts given on larger volume orders, fewer premium for sale units, and the continued impact of a competitive marketplace.”
  • “Our floor share for new casino openings this year is expected to be in the high teens”
  • “We expect over time to recapture ship share and reestablish our fair share of the market.”
  • “I would expect us to get back to more the mid-20%s here in fiscal 2013 based on the performance of our content and we're very excited”
  • “I would think that from a modeling standpoint, you'd probably want to use the last three quarters or so as a more typical ASP price going forward. I think given the competitive pressures, you're not going see us have great pricing leverage in the next two to three quarters, but I think it will be a more normalized run rate going forward, call it the $16,000 range.”
  • "We've had great success in getting game conversions out on the floor and by having those game conversions out and the high performance of those games, that's always a good metric and indicator for future game sales”
  • “I think that going forward, you're going to continue to see us be competitive with pricing. I wouldn't use the word aggressive but we're going to be competitive.”
  • “We have several premium for sale products coming out in fiscal 2013 that we hope will drive ASP. “
  • Q: “You shipped 759 of the 957 previously shipped games last quarter that you didn't recognize revenue on. Do you expect to recognize the balance of that in 4Q?
    • A: “Related to Maryland, we shipped the preponderance of the games for that opening in the March quarter and relative to the units that we still have yet to recognize revenue on, our belief is we will be able to recognize revenue on those in the fourth quarter.”

GAMING OPERATIONS

  • “With current open orders for now over 2,100 units and five new participation games expected to receive their regulatory approvals this quarter. and with our improving product performance, we expect further growth in the installed participation base and revenue per day in the June quarter and beyond.”
  • “We're confident that the unusually high number of refreshes in the last several quarters will moderate over the next several quarters and slowly return to more historical rates, which would lead to more incremental placements to increase the installed base.”
  • “This is the most prolific stable of products we've ever launched in any one quarter, this is fQ4. And I think, heading into Q1 of fiscal 2013, we're going to be back in business here and that's going to – we're going to have some tailwind for once.”
  • “We've had great success in some of our more fixed lease products in the last year. And so it's really a mix of business issue there as well.”

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