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MACAU BACK ON TRACK

Average daily table revenues accelerated from last week’s slow start

 

Average daily table revenues accelerated from last week’s slow start, HK$664 up to HK$757 million.  We had anticipated acceleration on par with historical seasonality.  Note that the corresponding week from last year in August benefited from high hold and had an ADTR of HK$793 million.  Our full month August projection remains unchanged at HK$24.5-26.0 billion which would represent YoY growth of +2-8%, up from July’s 1.5% growth. 

 

For market share, LVS continues to maintain 20% plus market share.  We are hearing the Mass floors at the company’s properties have been extremely busy.  The company’s initial marketing efforts appear to be finally paying off at SCC.  We believe market share will take another big jump in September when the Sheraton rooms open at SCC.  LVS continues to look like a nice long trade into that opening.  Wynn’s share jumped up in the past week while MPEL and MGM remain below trend. 

 

MACAU BACK ON TRACK - 8 13 2012 11 43 31 AM

 

MACAU BACK ON TRACK - 8 13 2012 11 50 13 AM


IDEA ALERT: MGM

Takeaway: The fundamental and quantitative analysis suggest an attractive entry point on the short side.

Keith shorted MGM in the Virtual Portfolio at $9.76.

 

 

MGM management was surprisingly upbeat on ‘improving consumer trends’ in Q3.  However, we are skeptical since companies such as Priceline and Orbitz have warned of worse than expected leisure bookings.  Meanwhile, slot volumes, which are the ultimate barometer of the health of Vegas, have fallen in three straight months and we forecast July volume declines to accelerate.

 

MGM still has a long way to go to get back to acceptable leverage ratios.  De-levering will have to occur in the face of bad demographics and a structurally much different economy than the housing fueled environment of the past 15 years that allowed MGM to thrive.  We are negative on the long-term fundamental outlook of domestic casinos.

 

Keith sees the TRADE line at $10.07 and TREND at $10.84 so the current entry point is below both lines.  There is no support to below $9.


SOFT SINGAPORE: 2Q MARKET REVIEW

In 2Q12 Singapore experienced its gross gaming revenue decline, falling 2% YoY and 17% QoQ

 

 

In 2Q12 Singapore gross gaming revenues fell 2% YoY and 17% QoQ to S$1.736BN.  For comparison, 2Q Macau GGR was flat QoQ and up 14% YoY.  Singapore property EBITDA also experienced its first YoY and QoQ decline to S$734MM, falling 14% YoY and 25% QoQ.

 

Q2 hold was 2.74%, the lowest quarterly hold rate experienced by the market and way below Singapore’s historical hold rate of 3.06%.  Hold was also weak in 2Q11 at 2.82%.  If we use 3% to normalize VIP revenues, GGR would have been S$1.81BN and up 1% YoY but still down 7% QoQ.

 

For the 3rd consecutive quarter, RC turnover declined YoY.  In 2Q, RC turnover was S$28.2BN, down 11% YoY and QoQ.  We estimate that while slot and ETG handle grew 21%, mass drop fell 2% YoY to S$7.2BN and S$2.7BN.  We have seen the number of slots and ETGs expand by 21% YoY to 4,934 while the total number of tables has only grown 2% over the same period to 1,173.

 

As a result of MBS’s very low hold percentage, RWS did manage to gain share sequentially across GGR, net casino revenue, EBITDA, VIP win, and slot win.  MBS gained sequential share across the following metrics: VIP RC, slot handle, mass win and drop.

 

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S1

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S2

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S3

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S4

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S5

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S6

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S7

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S8

 

SOFT SINGAPORE: 2Q MARKET REVIEW - S9


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

The Paul Ryan Trade

Takeaway: With the announcement of Paul Ryan as Mitt's VP, we examine if he has what it takes to turn this economy and country around.

THE PAUL RYAN TRADE

 

 

CLIENT TALKING POINTS

 

THE PAUL RYAN TRADE

Ryan is all about Hayekian economics – that’s the Austrian breed you know. Romney’s pick for vice president is going to change the game with the level at which he is a fiscal conservative. He is bullish on the US dollar and anti-Bernanke. Regarding the central planner, he will likely keep a close eye on the Fed and will delay any sort of QE before the election in November. Ryan will also bring a focus on the debt ceiling debate, an issue of which Congress desperately needs to take care of. Ryan is going to change the market dynamic – no doubt about it. Let’s see how he pulls it off.

 

FIXING THE DOLLAR

Monetary policy and fiscal policy are the two main drivers of our currency. When Ryan is pounding the table over an issue and Ben Bernanke is lowering rates, it moves the dollar. This is the only thing that has been certain over the last 100 years. According to our numbers, it looks like a Reagan-era surge is about to occur, particularly if Romney wins. The dollar has been down for about three weeks now and a reversal is coming. I mean, show us one person who’s a big fan of these prices of crude oil. Go for it. Consumers are proponents of a strong dollar. They are tired and sick of inflation and expensive fuel and food.

 

 

ALL THAT DEBT

Getting our ducks in order with regard to America’s debt problem is paramount. This country is being driven apart over issues that really need to be addressed at this point. Too bad no one in Congress can agree on anything. We’re not cheerleading for any particular side, but Paul Ryan is the closest thing we have to fixing our debt problem. Our President apparently would rather focus on his career rather than pushing Congress to get things done. Whatever the outcome, we better come out of this election with jobs and a better economy or heads are going to roll.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:               Flat   

 

U.S. Equities:   Flat   

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat   

 

Int'l Currencies: Flat   

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

JACK IN THE BOX (JACK)

This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

FIFTH & PACIFIC COMPANIES (FNP)

The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

LAS VEGAS SANDS (LVS)

LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TRADE:  LONG
  • TREND:  NEUTRAL
  • TAIL:      NEUTRAL

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Zambia has banned dollar-denominated transactions. Offenders can face 10 year jail term. WSJ       ” -@insidegame

 

 

QUOTE OF THE DAY

“Every composer knows the anguish and despair occasioned by forgetting ideas which one had no time to write down.” – Hector Berlioz

 

 

STAT OF THE DAY

$114. The price of Brent crude oil, which is now at a 3-month high.

 

 


THE M3: MELCO RUSSIA; SMOKING BAN; MACAU HAND-OUTS;FOREIGN MACAU POPULATION

The Macau Metro Monitor, August 13, 2012

 

 

MELCO CROWN INTERESTED IN RUSSIA PLAY Macau Business

According to the August issue of Macau Business Magazine, Marina Lomakina, the general director of Nash Dom Primorye, a state-owned company that will manage the Vladivostok entertainment zone, confirmed Melco expressed interest in investing in a new gaming and entertainment facility in the area along with Malaysia’s Genting Group.  Nash Dom Primorye issued a request for concepts last month; an invitation for gaming companies to submit ideas for the first phase of the development of the zone. As of mid August, no proposals have been submitted; the deadline for submission is September 21.

 

RULES FOR SMOKING AREAS IN CASINOS "ALMOST" READY Macau Business

In response to an enquiry by Legislative Assembly member Lee Chong Cheng, “The government will publicise the requirements for setting up a smoking area in casinos within a short-time period,” wrote Manuel Joaquim das Neves, director of the bureau. The smoking ban was implemented earlier this year with enforcement beginning in early 2013. When the grace period expire, casinos will be able to set up dedicated smoking areas.

 

CHUI SAI ON SHOWERS MORE CASH Macau Business

On Friday, Chief Executive Fernando Chui Sai announced that the government will increase a series of subsidies to help people deal with raising inflation and continue the cash hand-out policy in 2013

  • Increase the monthly electricity subsidy it gives all households from MOP180 (US$22.5) to MOP200
  • Increase the income ceiling to qualify for subsidized housing units to MOP19,355 for one-member households, up from MOP17,000, and to MOP38,710 for two-member families, up from MOP34,018. The increase should cover 80% of households in Macau
  • Increase the temporary cash allowance to households waiting for public housing by 8%

 

NON-LOCAL WORKERS RAISE POPULATION TO NEARLY 570,000 Macau News

At June 30, 2012, Macau’s population rose to 568,700, increasing 5,800 March 31rst. The number of non-local workers (blue-card holders) was 102,557, up by 3,893 1Q12 and accounting for 18% percent city’s population at the end of June.


MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST

Takeaway: While China's steel prices break still lower, U.S. Financials bailout speculation-driven momentum wanes. We're getting down to crunch time.

* The U.S. financials rallied further last week, but in much more subdued fashion with the XLF up 0.4%. The XLF remains the only sector still broken from a TREND standpoint (intermediate term) on our macro team's quantitative setup. 

 

* European financials acted a lot like European sovereigns, both tightening week over week. The Draghi rally continues for now.

 

* Meanwhile, on the other side of Earth, steel prices in China fell another 1.2% last week, or 44 yuan/ton, to 3,622 yuan/ton. In the last few months, Chinese construction steel prices have fallen ~10%. This index is reflecting significant weakness in China's construction market.

 

* Last week the 2-10 spread widened 8 bps last week to 140 bps, and is now up more than 20 bps from its late July lows. After the battering net interest margins took in 2Q, this is a positive development, on the margin. That said, the 2-10 spread averaged 151 bps in 2Q12, so even with the rally of the last few weeks it is still trending down 20 bps QoQ thus far in 3Q. 

 

* Our Macro team’s quantitative setup in the XLF shows 0.7% upside to TREND resistance of  $14.90 and 0.9% downside to TRADE support of $14.57.

 

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 / 8 of 12 improved / 2 out of 12 worsened / 3 of 12 unchanged  

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

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - Summary

 

1. US Financials CDS Monitor – Credit default swaps across U.S. financials were tighter week over week. Overall, 25 out 27 reference entities that we track saw credit default swaps tighten last week.

  

Tightened the most WoW:  MTG, RDN, LNC

Widened the most/ tightened the least WoW: GS, UNM, MBI

Tightened the most MoM: MMC, AIG, ALL

Widened the most MoM: GNW, UNM, MTG

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - American 

 

2. European Financial CDS - French and Italian banks tightened, alongside the sovereigns. Spanish banks were mixed, with a few of them posting sizable widening. Overall, however, swaps throughout Europe's financial system were notably tighter. 

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - Europe

 

3. Asian Financial CDS - 10 of 12 reference entities we track across Asia had tighter credit default swaps week over week. 

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - Asia 

 

4. Sovereign CDS – Sovereign swaps were tighter around the globe last week. Portugal, Spain and Italy all saw their sovereign swaps tighten by more than 9%.

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - Sov Table

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - Sov 1

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - Sov 2

 

5. High Yield (YTM) Monitor – High Yield continues to tighten, as rates fell another 2 bps last week, ending the week at 7.07% versus 7.09% the prior week.

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - HY

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 4.6 points last week, ending at 1693.

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - LLI

 

7. TED Spread Monitor – The TED spread fell 3 bps last week, ending the week at 33.3 bps this week versus last week’s print of 36.08.

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 4.2 points, ending the week at -5.59 versus -9.8 the prior week.

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - JOC

 

9. Euribor-OIS spread –  The Euribor-OIS spread tightened by 3 bps to 28 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: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - 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: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - ECB

 

11. Markit MCDX Index Monitor – Last week spreads tightened 10 bps, ending at 141 bps versus last Friday's print of 151 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. 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. We track the 16-V1. 

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - MCDX

 

12. Chinese Steel – Steel prices in China fell 1.2% last week, or 44 yuan/ton, to 3,622 yuan/ton. In the last few months, Chinese construction steel prices have fallen ~10%. This index is reflecting significant weakness in China's construction market. 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: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - CHIS

 

13. 2-10 Spread –  Last week the 2-10 spread widened 8 bps last week to 140 bps, and is now up more than 20 bps from its late July lows. We track the 2-10 spread as an indicator of bank margin pressure. 

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - 2 10

 

14. Our Macro team’s quantitative setup in the XLF shows 0.7% upside to TREND resistance of  $14.90 and 0.9% downside to TRADE support of $14.57.

 

MONDAY MORNING RISK MONITOR: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - 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: RALLY MOMENTUM FADING, TROUBLE BREWS IN THE EAST - NYSE margin debt

 

Joshua Steiner, CFA

 

Robert Belsky

 

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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 80.64%
  • SHORT SIGNALS 78.61%
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