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CHART DU JOUR: JULY STRIPPED DOWN

Takeaway: Better than expected headline but worse underlying metrics

  • In our 9/4/12 note, “LV STRIP: JULY DECEPTION” we had projected a strong headline revenue growth rate of high teens for July due to low slot and table hold last year – actual Strip gaming revenues grew 27% with an additional boost from very high baccarat hold and better baccarat volume
  • The important metrics – slot volume and ex baccarat table drop – fell 7% and 13%, respectively.  This was actually worse than our projection of -3% and -2%, respectively.  Two fewer weekend days versus last year did play a role but the numbers were still bad.
  • July represented the 4th consecutive month of slot volume declines.  For tables, July was the worst monthly decline for non-baccarat drop since August 2009.  

 

CHART DU JOUR: JULY STRIPPED DOWN - LV


European Banking Monitor: Draghi’s Rally

Takeaway: Draghi's "unlimited" asset purchases tip credit markets scales yet long-term Eurozone structural flaws remain.

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:

 

 * Last week saw the largest single week of improvement in credit default swaps ever for EU sovereign credits on the heels of the ECB's Draghi pledging "unlimited" asset purchases via the new Outright Monetary Transactions Program (OMTs). Spanish, Italian, German and French banks as well as sovereign credit default swaps were sharply lower, reflecting optimism that the ECB will avert the crisis.

 

For more on the OMTs see our notes:

Draghi’s Newest Rescue Plan Revealed in September ECB Presserfrom 9/6

Weekly European Monitor: Buying Timefrom 9/7

 

Draghi also announced that with the new buying program the SMP is terminated, effectively meaning that that there will be no more buying but that the existing holdings will be retained until their maturities expire. We will therefore discontinue our reporting of the SMP data and replace it with the OMTs.

 

OMT Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis.

 

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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

 

(o)

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European Financials CDS Monitor Italian, German, French and British bank default swaps were down approximately 20% across the board last week, on ECB commentary

 

European Banking Monitor: Draghi’s Rally - 11. banks

 

Euribor-OIS spread – The Euribor-OIS spread tightened by 3 bps to 18 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: Draghi’s Rally - 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: Draghi’s Rally - 11. facility


STRONG START TO MACAU

Takeaway: Macau jumped out nicely in September, adding credibility to our double digit growth expectation for the month.

Average daily table revenues were HK$789 million, 17% higher than last year at this time and higher even than August’s HK$775 million and July’s HK$735 million.  Taking into account the number of weekend days remaining and about HK$1 billion in slot revenue, we are now projecting full month GGR of HK$23.0-24.5 billion.  That range would represent YoY growth of 12-18%.  Growth in that range would be the highest since April 2012.

 

STRONG START TO MACAU - F1

 

We are not hearing anything out of the ordinary with regard to hold percentage with the exception of some of the LVS properties that seem to be holding below normal.  Wynn has apparently held very high to start the month. 

 

Overall, we believe the numbers are a positive for the Macau and with our daily checks on the Mass floors (all strong), we remain very constructive on the near-term performance of the Macau stocks.  Depending on how much marketing and liquidity pumping is performed by Sands Cotai, the high end of our growth range is certainly within reach.

 

STRONG START TO MACAU - F2


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%

Cheap Money

CHEAP MONEY

 

 

CLIENT TALKING POINTS

 

QE TAKES PRECEDENT

What matters most at the end of the day is how we can continue to juice the market further and further. It’s all about the easing these days and the Federal Reserve looks about ready to deliver another round of it. Friday’s jobs numbers essentially sealed the deal, all but guaranteeing the Fed will step into the markets yet again. We suppose that people don’t mind the high gas prices and $8 boxes of Pop Secret at the supermarket. It’s all part of the plan, so just go with the flow, right?

 

 

CHEAP MONEY

People are still going out and saying that stocks are cheap at these levels and there’s room to buy. They continually remind us that the market is up year-to-date. We kindly ask them to remember October of 2007 when the S&P 500 was at 1565 – was that considered cheap back then? 18 months later Starbucks (SBUX) was at $11 a share and you could go on a buying spree like a kid with a dollar at a penny candy store. Central planners continue to shorten economic cycles and amplify price volatility. This market is not cheap by any means. It is toppish and we are comfortable trading the proper risk and range.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                  Flat

 

U.S. Equities:   Flat

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

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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            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • 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

“Today we learn how much more student debt and subprime GM loans US consumer took out in July” -@zerohedge

 

 

QUOTE OF THE DAY

“A pessimist sees only the dark side of the clouds, and mopes; a philosopher sees both sides, and shrugs; an optimist doesn't see the clouds at all - he's walking on them.” – Leonard Louis Levinson

                       

 

STAT OF THE DAY

$8.5 billion. The amount of money Japan Airlines is expected to raise in an IPO.

 

 


THE M3: MPEL/BELLE; LVS SANCTIONS

The Macau Metro Monitor, September 10, 2012

 

 


MELCO CROWN AND BELLE TO INK CASINO DEAL "BEFORE OCTOBER" Macau Business

According to Belle vice chairman Willy Ocier, talks between MPEL and Belle Corp over its Manila JV should be finalized 'before October'.  

 

ADELSON'S SANDS FACES SANCTIONS FOR NOT DISCLOSING FILES Bloomberg

LVS may be sanctioned in a lawsuit brought by Steven Jacobs for not disclosing that evidence it said couldn’t be taken out of Macau was already in the U.S.   LVS was ordered to explain to a Nevada judge in Las Vegas how and why files from its Macau operations, requested by Steven Jacobs as evidence in his breach-of-contract case, ended up in the U.S. while LVS claimed that Macau law prevented it from transferring them overseas.

 

 


MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY

Takeaway: QE3 confidence & "unlimited" ECB asset purchases made for quite the centrally-planned rally last week. China remains a focus of concern.

Key Takeaways 

* Last week saw the largest single week of improvement in credit default swaps ever for EU sovereign credits on the heels of the ECB's Draghi pledging "unlimited" asset purchases. Spanish, Italian, German and French bank as well as sovereign credit default swaps were sharply lower, reflecting optimism that the ECB will avert the crisis.

 

* High yield and leveraged loans found renewed bids last week, pushing both indices to new, post-crisis highs

 

* Commodities were similarly affected. The JOC index turned higher again this week. Expect higher prices at the pump and at the grocery store. 

 

* China seems to be the only country left out of the global rally -  Chinese steel fell another 3.4% WoW.

 

* Negative Short-term Setup: In spite of last week's impressive squeeze higher, our Macro team’s quantitative setup in the XLF shows a negative short-term setup with 0.4% upside to TRADE resistance of 15.74 and 2.9% downside to TRADE support of 15.23.

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 9 of 12 improved / 1 out of 12 worsened / 3 of 12 unchanged  

• Intermediate-term(WoW): Positive / 8 of 12 improved / 2 out of 12 worsened / 3 of 12 unchanged  

• Long-term(WoW): Positive / 8 of 12 improved / 2 out of 12 worsened / 3 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - Summary

 

1. American Financial CDS – Credit default swaps tightened sharply last week across all U.S. Financial institutions. Some of the most improved were BAC & C with 17-18% declines week-over-week along with GS down 15% WoW. Currently, none of the big six banks/brokers are trading north of 300 bps. 

Tightened the most WoW: BAC, C, GS

Tightened the least WoW: MBI, AGO, TRV

Tightened the most WoW: BAC, C, GS

Tightened the least MoM: TRV, COF, ALL

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - American

 

2. European Financial CDS – Italian, German, French and British bank default swaps were down approximately 20% across the board last week, on ECB commentary.   

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - European

 

3. Asian Financial CDS – Chinese and Indian bank CDS tightened while Japanese banks were mixed. 

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - Asian

 

4. Sovereign CDS – European sovereign default swaps plunge. Spanish and Italian sovereign default swap premiums fell by 33% week-over-week on the ECB's "unlimited" pledge. Ireland saw its swaps decline 24%, while Portuguese swaps fell 20%. Even France and Germany benefited with 16% declines each. 

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - Sovereign Table

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - Sovereign CDS 1

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - Sovereign CDS 2

 

5. High Yield (YTM) Monitor – High Yield rates fell 20 bps last week, ending the week at 6.86% versus 7.06% the prior week.

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - HY

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 7.2 points last week, ending at 1,716.

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - Leveraged Loan Index

 

7. TED Spread Monitor – The TED spread fell 4 bps last week, ending the week at 30 bps versus 34 bps last week. 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - TED

 

8. Journal of Commerce Commodity Price Index  The JOC index rose 3.0 points, ending the week at +1.0 versus -2.0 the prior week. This is the first time the index has been positive since  August 8th 2011. 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - JOC

 

9. Euribor-OIS spread The Euribor-OIS spread tightened by 3 bps to 18 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: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - 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: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - ECB

 

11. Markit MCDX Index Monitor – Last week spreads tightened 2 bps, ending the week at 152 bps versus 154 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: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - MCDX

 

12. Chinese Steel - Steel prices in China fell 3.4% last week, or 118 yuan/ton, to 3388 yuan/ton. Over the last four months, Chinese construction steel prices have fallen ~20%. This index continues to reflect 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: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - CHIS

 

13. 2-10 Spread –  Last week the 2-10 spread widened to 141 bps, 9 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure. 

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.4% upside to TRADE resistance and 2.9% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - XLF

 

Margin Debt - July: +0.61 standard deviations 

NYSE Margin debt fell  to $278 billion in July from $285 billion in June. We like to to look at margin debt levels as a broad contrarian sentiment indicator. For reference, our approach is to look at margin debt levels in standard deviation terms over the period 1. Our analysis finds 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 significant risk in the equity market. The preceding two instances were followed by the equity market losing roughly half its value over the following 24-36 months. 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 July. 

 

MONDAY MORNING RISK MONITOR: KEEPING ONE EYE ON CHINA AMID AN IMPRESSIVE RALLY - NYSE margin debt

 

Joshua Steiner, CFA

 

Robert Belsky

 

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