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Rebound: The Macau Trade

Takeaway: With the boost to Macau, $LVS and $MPEL look attractive. Conversely, $MGM is levered to Vegas and no one is hitting the Strip these days.

Sentiment for Macau has been pretty lousy over the past two months or so. While people abandoned Vegas as a gaming destination long ago (don’t even think about Atlantic City at this point), Macau has for the most part weathered the storm amid the global macroeconomic environment. But in May and June of this year, numbers were down across the board from VIP numbers to slot revenue.

 

 

Rebound: The Macau Trade  - macau tablenumbers

 

 

Things just weren’t looking good and it makes sense considering the state of the global economy at the moment.  But the latest numbers show there is hope out there. Hedgeye Gaming, Leisure and Lodging (GLL) Sector Head Todd Jordan wrote a note this morning showing that trends are improving in the Far East:

 

“Following a bottoming of revenue growth in July and investor sentiment, we expect improving Macau trends. August is off to a great start and September should be even better. Melco Crown Entertainment (MPEL) has the most leverage to a Macau rebound while Las Vegas Sands (LVS) should benefit from the opening of 2,500 additional rooms in mid-september. Both stocks remain attractively valued.”

 

If you’re looking for a Macau trade, going long Jordan’s two favorites (LVS and MPEL) works while conversely going short MGM Resorts (MGM). MGM is highly levered to Las Vegas and no one is excited about the Strip these days – especially in the summer when it’s busy hitting 120 degrees during the day.


CHART DU JOUR: TAXIS ON THE STRIP

Takeaway: Taxi data portends low Strip volumes but hold comparisons are very easy

  • Taxi trips were down 3.3% YoY partly due to two fewer weekend days in July
  • Table volume ex Baccarat correlates very highly with taxi activity
  • Table and slot volumes are likely to be down YoY but low slot and table hold last year make July a likely positive revenue growth month

CHART DU JOUR: TAXIS ON THE STRIP - taxi


AETNA: The Government Healthcare Play

Takeaway: Healthcare providers are gearing up to take advantage of the influx of Medicare/Medicaid customers.

Consolidation in the healthcare sector is on everyone’s mind today with Aetna (AET) buying Coventry Healthcare (CVH) for $42.08 a share – a 20.4% premium. Our Healthcare Sector Head Tom Tobin is not surprised as he sees further consolidation in the industry as a dominant trend going forward. This morning, Tobin noted:

 

• Consolidation and government revenue are the last reliable sources of growth, but ultimately lower quality given the volatile political landscape.

• AET’s presentation promotes increased government sourced revenue from Medicare and Medicaid.

• Forecast accretion is meaningful, as are costs, and extends for several years to 2015.

• Only a few consolidation candidates remain: HNT, HUM, CI

 

 

AETNA: The Government Healthcare Play - AET healthcare

 

The real takeaway here is that Aetna is looking to make a Medicaid/Medicare play. Big government is big business. The company thinks that the Affordable Care Act (aka Obamacare) is going to stick around. This reform will cover millions more people under the government Medicaid umbrella, which bodes well for Aetna and others who are deriving revenues from Washington.

 


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HUGE WEEK IN MACAU

Takeaway: August GGR trending +4-10%

Average daily table revenue jumped to HK$996 million from HK$757 million last week and up 47% YoY.  By monthly sequential comparison, ADTR was HK$735 million in July.  As a result of the strong week, we are raising our full month August GGR projection to $HK25.0-HK26.5 which would represent YoY growth of 4-10%.  We continue to believe that July was the near-term low in terms of YoY growth and growth will accelerate sequentially in August and September.

 

HUGE WEEK IN MACAU - MACAU1

 

It’s unclear whether hold played a major role in the week’s strength.  We have heard anecdotally that the Mass floors have been very busy.  Additionally, the junkets appear to be pretty optimistic about the recent activity.

 

In terms of market share, MGM and MPEL experienced the biggest jump in market share over the past week.  However, both companies are close to recent trend.  LVS’s share dipped from last week but is still above its recent trend as is WYNN.

 

HUGE WEEK IN MACAU - MACAU2


Faceplant

FACEPLANT

 

 

CLIENT TALKING POINTS

 

PLAYING GAMES IN EUROPE

Last week, European credit default swaps are tightening because Germany’s Angela Merkel came out and spun some positive commentary about the situation in the Eurozone. In these dog days of summer when everyone is on vacation (including volume and volatility), a little bit of discourse is all it takes to get the market excited. Despite European bank swaps widening across the board (Spain, Greece, Italy, etc.), participants are generally breathing a sigh of relief as Europe all of a sudden becomes “better.” The EUR/USD remains at $1.23. Any higher, and it’ll be a bull case. Break $1.23 and in particular, $1.225, and you have a bear case.

 

 

THE NEW ISSUE: BONDS

Bond issuance in 2012 is through the roof – it’s like banks and corporations are reproducing like bunny rabbits and the offspring is multi-year paper. Everyone’s doing it, too and with good reason. Refinance with the Fed’s “extended” low rate environment, crank out muni bonds for projects which in turn create jobs. When money is cheap, might as well use it. Looking at the investor  side of things, people are desperately chasing yield. They’ll buy anything offering more than 100 basis points it seems like. When your savings account has been collecting cobwebs for the past 5 years and CDs are as pointless as the media format with the same acronym, you need to get creative. For an idea of just how crazy the bond market has become, check out these facts from our research team:

 

Firstly, in the municipal bond market in the United States, as of May, issuance is up 70% compared to the same period in 2011.  Secondly, in the U.S. corporate bond market issuance is up 5% year-over-year, but has seen a serious acceleration in the last few months with investment grade issuance up 54% and high yield up 30% in July 2012.”

 

 

FACEPLANT

We won’t gloat long here, especially after booking 7 consecutive winning trades last week in the Virtual Portfolio. Facebook (FB) stock tanked last week. On Thursday, Keith went on CNBC’s Fast Money Halftime Report and basically slammed Facebook, saying it could go lower. “Don’t try to catch a falling knife,” he said. Some guests disagreed and said they’d be buying more at “these levels,” which are the time was around $20-$20.50. Friday the stock fell even further and closed at $19.05 a share. Keith thinks it’s going lower and guess what? It probably will.

 

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ASSET ALLOCATION

 

Cash:                  DOWN

 

U.S. Equities:   UP

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: UP   

 

 

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TOP LONG IDEAS

 

NIKE INC (NKE)

Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.

  • 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

  

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THREE FOR THE ROAD

 

TWEET OF THE DAY

“Must. Invent. Products. For. Quantitative. Arbitrage. NASDAQ to create 150,000 Indexes this fall: tinyurl.com/9umevyu $$ #valueadded” -@SalArnuk

 

 

QUOTE OF THE DAY

“Money talks, so listen to it.” – 10cc, Art For Art’s Sake (1975)

                   

 

STAT OF THE DAY

$5.7 billion. The amount Aetna (AET) is offering to buy Coventry Health (CVH) for in cash and stock. The move will boost Aetna’s foray into Medicaid and other government-backed programs.



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