Takeaway: A cheap stock with a number of catalysts

Keith bought LVS in the virtual portfolio at $42.05.  



LVS TRADE range:  $41.99-44.47.  TREND support:  $39.69

LVS is way down off of its $60+ high reached in April of this year owing to a halt in VIP growth in Macau, a rough start from Sands Cotai Central (SCC), and slowing growth in Singapore.  With the stock down 30%, we believe concerns have been adequately discounted in the stock.  However, there are signs that VIP is picking back up in Macau and the SCC performance has improved.  Singapore expectations have moderated to only slight EBITDA growth for 2013 which might actually be too low.


The stock trades at 11x 2013 EV/EBITDA, close to a historical low.  Meanwhile, there are a number of positive upcoming catalysts.  The opening of 2,500 Sheraton rooms at SCC should provide a big boost.  Sheraton is probaby the top hotel brand in China and combined with the associated marketing and potential infusion of junket liquidity, should provide more market share juice for LVS as well as grow the market.  Additionally, with its significant free cash flow - enough to easily fund another Cotai project - and low overall leverage, we think LVS could announce a stock buyback.  For the market, look for continued sequential improvement in YoY growth off of the July low.





Takeaway: Mass is on a roll and higher hold is the new normal.

Mass gaming revenue has been on a tear yet visitation growth has been fairly modest.  What’s going on?  Aside from misleading visitation data which we will get to, the Macau Mass tables have been holding at an increasingly higher rate.  As the following chart shows, average Mass hold percentage grew from around 18% in 2Q07 to over 27% in Q2 2012 – and it’s not luck.




So what’s driving hold percentage higher?  The consistency of the up move suggests luck is not a factor.  We believe players are playing longer (more hands) and bringing more cash with them.  Our experience in Las Vegas is that hold moves higher in good economic times and down in bad.  Unlike the VIP business where hold is measured as a % of roll, there is no way to measure roll in the Mass sector so the denominator in the hold calculation is simply cash converted to chips.  So hold will theoretically climb if velocity of play goes up.  On the other hand, if players are cautious they may still take out the same amount of chips but spend less time gambling.  Thus, the denominator would be the same but the player would lose less.


There are likely other factors at work driving Mass hold higher.  Refined rewards programs and customer database marketing have been providing more and better incentives for longer play.  A better mix of higher end players also helps.  We’ve seen this occur in other more mature markets as well. 


Higher hold is not the only driver.  As seen in the above chart, estimate Mass volume has been growing nicely, albeit below the rate of revenue growth.  Yet visitation growth remains modest as shown below:




So what’s causing this phenomenon?

  • Higher Mass hold percentage discussed above
  • Hotels running at high capacity on the weekends so lower-end Mass getting shut out
  • Better yield management from the casinos so lower-rated players getting less
  • Higher table minimums – both City of Dreams and Galaxy Macau have successfully pursued this strategy to focus on the Premium Mass business
  • More of a Mass to VIP mix in the hotels – again a yield management strategy which improves margins
  • Visitation data is not perfect – we’ve heard that the Macau government has cut down on its citizens crossing the borders for short visits to buy cheaper goods.  Visitation data reflects re-entry back into Macau.  Also potentially impacting visitation is fewer visas available for tour groups that are primarily non-gaming visitors.
  • Visitation from outer provinces is growing but lower-end players in the close-in provinces are getting shut out due to yield management

Now What? SP500 Levels, Refreshed

Takeaway: Now What? Sometimes the answer to that question is another series of questions.

POSITIONS: none in Sector or US Equity Index ETFs


Now What? Sometimes the answer to that question is another series of questions.


Will we continue to make lower-highs? What if we make a higher-high on no-volume? What if Bernanke drives for Oil $150 and a Weimar #GrowthSlowing redo?


I don’t know. From a US Equity beta risk management perspective, all I can tell you is where I buy/cover and where I sell/short.


Across the core durations in our model, here are the lines that matter to me most: 

  1. Immediate-term TRADE overbought = 1419
  2. Immediate-term TRADE oversold = 1402
  3. Intermediate-term TREND support = 1389 

Simplicity born out of complexity.


The Fed, ECB, and their Bailout Beggars would have to embrace uncertainty before accepting how chaos theory drives our real-time decision making.




Keith R. McCullough
Chief Executive Officer


Now What? SP500 Levels, Refreshed - SPX

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European Banking Monitor: Moving Away From Risk

Takeaway: Germany, France, Italy and Spain all saw material widening in their sovereign swaps last week. Winners were Portugal and Ireland.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


Key Takeaways:


* Europe takes a breather from its rally. Germany, France, Italy and Spain all saw material widening in their sovereign swaps last week. Rising uncertainty around both Germany's economic health and Spain and Italy's ability to manage through the crisis without recession-inducing austerity commitments weighed on the continent's outlook. The relative winners this week were Portugal and Ireland. Portuguese and Irish sovereign swaps tightened by 53 bps and 8 bps, respectively.



If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





Security Market Program – For the 23rd straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 8/24, to take the total program to €208.5 Billion.


Following President Draghi’s conference call remarks on 8/2 in which he addressed rising yields in the periphery and said that the ECB “may undertake” non-standard  measures, the market continues to be disappointed – there has been no buying.


We also think it’s unlikely that we’ll get definitive color on secondary peripheral buying at the ECB’s next meeting on Thursday 9/6, however this is the next immediate catalyst. Instead, we expect Draghi to be on hold with rates and will likely not act (buy) until after there’s clarity from the German Constitutional Court’s decision on the ESM and fiscal compact on 9/12. Improving preliminary PMIs from Europe and the CPI on hold at 2.4% help support this position.


European Banking Monitor: Moving Away From Risk  - aa. smp


European Financials CDS Monitor German bank swaps widen while Spanish bank swaps tighten. 


European Banking Monitor: Moving Away From Risk  - aa. banks


Euribor-OIS spread – The Euribor-OIS spread tightened by 4 bps to 22 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. 


European Banking Monitor: Moving Away From Risk  - 11. euribor


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.  


European Banking Monitor: Moving Away From Risk  - aa. facility


Average daily table revenues were a strong HK$775 million last week, down from the HK$996 the prior week, but the 2nd highest since Golden Week in May.  For the full month of August including slots, we have narrowed our projection range to HK$25.5-26.0 billion, up 6-8% YoY.  We continue to believe that July marked the low of the year and September YoY growth should be better than August.  We are hearing of a little more liquidity for the junkets here in August and more activity on the Mass floor.  Obviously, we are closely monitoring the China macro situation.




LVS lost share in the past week, probably due to hold, but its share is in-line with the 3-month average.  We expect share to go back up even before the September 20th opening of the Sheraton rooms.  MPEL seems to be having the best month of the bunch when measured by market share gains. 




Begging For QE







The time has come and rightfully so. With the Federal Reserve meeting this  week at Jackson Hole, everyone and their mother is expecting some form of quantitative easing that they can swallow and use to buoy the market higher. This, despite lower highs being made in European equities over the last two weeks and Chinese equities continuing to go lower like it’s going out of style. People need to remember that Bernanke has not delivered on the last two meetings he’s participated in. Basically, everyone is riding the wave of hope, thinking he’ll come through despite essentially proving he won’t.




You need to manage the risk and the range. We’ve said this over and over again. Look at the levels, see what the market’s doing and make proper decisions. Last week, many investors were keen on putting on shorts at covering highs and selling fixed-income on the lows. That’s not proper risk management! With the S&P 500 and 10-year yield dropping, we covered shorts in the Virtual Portfolio and our Asset Allocation Model, which we should note are two entirely different products.




As you’ve probably noticed, our asset allocation for commodities remains 0%. For believers in QE, that’s just wishful thinking. To quote Keith: “what’s really happening here is that people are front-running him, getting all lathered up in what slows real (inflation adjusted) consumption growth (rising commodity prices).” Yeah. That’s about right. People are going gah gah for gold and oil contracts. And when the Fed comes out at Jackson Hole and is all like “Sorry, no relief, bozos.” A lot of people are going to be disappointed.






Cash:                  UP


U.S. Equities:   DOWN


Int'l Equities:   Flat   


Commodities: Flat


Fixed Income:  Flat


Int'l Currencies: DOWN  








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.

  • TAIL:      LONG            



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.

  • TAIL:      LONG



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.

  • TAIL:      NEUTRAL







“$CL_F trendguide...nice spike up overnight on Issac heading towards the oil producing GOM...high of $97.72 so far.”.-@Bain_Energy




“A man is not idle because he is absorbed in thought. There is a visible labor and there is an invisible labor.”–Victor Hugo




Sinopec posted a 40% decline in earnings as high crude costs squeezed its refining unit and exposure to government-mandated price controls.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.