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THE M3: LAND FREEZE/MSC; SJM COTAI; GUANGZHOU-ZHUHAI RAILWAY; GONGBEI PORT; S'PORE HOME SALES; VISA

The Macau Metro Monitor, September 17, 2012

 

 

LAND FREEZE FOR CASINOS STILL ON: FRANCIS TAM Macau Business

Secretary Tam said that the freeze on new land for casinos continues to remain in place.  In 2008, Macau CEO Edmund Ho Hau Wah announced a freeze on new land for casinos but pledged to honour existing agreements with operators.  That included all casino projects filed before 2008 and still under consideration. But Mr Tam said that any gaming operator could still file requests to the gaming regulator to open new casinos, if it didn’t involve a land grant.

 

According to some analysts, this is how MPEL is likely to include a casino at its Studio City project in Cotai. This method has previously been allowed for gambling facilities in new hotel-casinos that are not fully-owned by a gaming operator, as it is the case of Studio City.  Because the land is granted to companies that don’t have a casino licence (or are not fully-owned subsidiaries of a concessionaire), the inclusion of gaming facilities in the land contract could raise legal issues.


In such cases, the request to include a casino is therefore made separately from the land concession request, and by a licenced gaming operator. The gaming licence holder requests government approval to operate gambling facilities as a service provider at those properties.  This is the kind of arrangement that allowed the Ponte 16 and L’Arc casino-hotels to accommodate gaming facilities.

 

SJM WANTS TO HAVE 600 TABLES IN COTAI Macau Business

CEO Ambrose So said SJM wants to have up to 600 live gaming tables in Cotai.  

 

GUANGZHOU TO ZHUHAI RAILWAY COMMENCED IN OCTOBER Macau Daily News

The Guangzhou-Zhuhai Intercity Railway between Jinding and Gongbei, will be operational in October.  The extension connecting Gongbei and Hengqin will open by the end of 2012.  Guangdong and Macau has reached an agreement on the route design so that the extended section will have a seamless connection with Macau's light rail system. The next extension project will connect Hengqin with the Zhuhai Airport.

 

GONGBEI PORT EXPANSION TO BE COMPLETED BY END OF 2012 Macau Daily News

Phase I of the Gongbei port expansion project is expected to be finished in early 2013, expecting to handle a daily passenger capacity of up to 350,000 and when the entire project is completed, the clearance capacity can be raised to 500,000 people daily.

 

SINGAPORE PRIVATE HOME SALES DOWN 27% IN AUGUST Reuters

Developers in Singapore sold 1,421 residential units last month excluding executive condominiums (EC), a category of apartments reserved mainly for Singaporeans, down from 1,946 in July, but higher than 1,371 in June.  Including ECs, August home sales was 1,539 units, down 25.7% from July.  The decline in home sales in August could have been partly due to the Hungry Ghost Month which typically sees fewer buyers in the market. 

 

MAINLAND CONSIDERING MULTI-ENTRY VISA FOR ZHUHAI CITIZENS Macau Daily News

Beijing is considering to grant Zhuhai citizens multi-entry visa to Macau, however, a timetable for such is yet to be confirmed.  Responsible authorities are still studying on the feasibility and consulting the Macau government to assess whether the checkpoint could handle the passenger capacity and also whether Macau can handle an increase in tourist arrivals.  Qualified permanent residents account for 1 million.

 


MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT?

Takeaway: Impressive rallies around the globe. Yield spreads rose as default risk plunged. Even Chinese steel caught a bid.

Key Takeaways

*QE3 has landed, what now? - Banks swaps and sovereign swaps in America, Europe, and Asia all tightened WoW, benefitting from the Fed's QE3 announcement on Thursday. Where do we go from here? We've profiled how the components and subsectors of the financial space in the United States have acted during the last 2 quantitative easing programs in a note entitled "Quantitative Easing Redux: Winners and Losers". In this note we provide a framework for positioning in the months ahead. The note can be found here.

 

*Commodity prices up, junk bond yields down - The JOC commodity index rose again WoW, marking only the second consecutive positive week for the index since the middle of 2011. Meanwhile, junk bond prices continue to make new highs. 

 

* The 2-10 spread widened sharply WoW. Finally, some reprieve for bank margins, though it seems counterintuitive to think this can last given the amount of firepower the Fed is aiming at the long end of the curve.

 

* High Yield rates fell 36 bps last week, ending the week at 6.51% versus 6.86% the prior week.

 

* MCDX: Last week municipal default swaps tightened 16 bps, ending the week at 136 bps.  

 

* Even Chinese steel gets a little lift - Chinese steel rose 2.6% WoW.

 

* Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 3.2% downside to TRADE support. 

 

Financial Risk Monitor Summary  

• Short-term(WoW): Positive / 11 of 12 improved / 0 out of 12 worsened / 2 of 12 unchanged

• Intermediate-term(WoW): Positive / 9 of 12 improved / 2 out of 12 worsened / 2 of 12 unchanged  

• Long-term(WoW): Positive / 7 of 12 improved / 2 out of 12 worsened / 4 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - Summary2

 

1. American Financials CDS - QE3 lifts all boats.  

 

Tightened the most WoW: MS, RDN, GS

Tightened the least WoW: COF, MBI, CB

Tightened the most WoW: BAC, GS, MS

Tightened the least MoM: COF, MBI, JPM

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - American CDS

 

2. European Financials CDS -  French, German, Italian, Spanish, and Greek bank swaps all traded lower last week. Spanish banks were notably improved last week, with some reference entities seeing swaps decline by more than 20%.

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - European

 

3. Asian Financial CDS - The global enthusiasm made it all the way to Asia, where Japanese, Chinese and Indian banks all saw default swaps tighten.

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - Asian

 

4. Sovereign CDS – Sovereign Swaps tightened around the globe last week. As the table below shows, the market thinks the ECB and Fed have driven global risk to the lowest levels this year.  

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - Sov table

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - Sov 1

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - Sov 2

 

5. High Yield (YTM) Monitor – High Yield rates fell 36 bps last week, ending the week at 6.51% versus 6.86% the prior week.

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - HY

 

6. Leveraged Loan Index Monitor The Leveraged Loan Index rose 12.3 points last week, ending at 1728.

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - LLI

 

 

7. TED Spread The TED spread fell 2 bps last week, ending the week at 28.6 bps this week versus last week’s print of 30.4 bps.

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - TED

 

8. Journal of Commerce Commodity Price IndexThe JOC index rose 4.3 points, ending the week at 5.34 versus 1.0 the prior week.

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - JOC 2

 

9. Euribor-OIS spread –  The Euribor-OIS spread tightened by 1 bps to 17 bps. We're not sure how much lower this series can go from here.  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: QE3 HAS LANDED ... NOW WHAT? - 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: QE3 HAS LANDED ... NOW WHAT? - ECB

 

11. Markit MCDX Index Monitor – Last week spreads tightened 16 bps, ending the week at 136 bps versus 152 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: QE3 HAS LANDED ... NOW WHAT? - MCDX

 

12. Chinese Steel - Steel prices in China rose 2.6% last week, or 89 yuan/ton, to 3477 yuan/ton. In the last four months, Chinese construction steel prices have fallen ~16%. The trend in this series reflects 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: QE3 HAS LANDED ... NOW WHAT? - CHIS

 

13. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread widened to 161 bps, 20 bps wider than a week ago.

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 3.2% downside to TRADE support. 

 

MONDAY MORNING RISK MONITOR: QE3 HAS LANDED ... NOW WHAT? - 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: QE3 HAS LANDED ... NOW WHAT? - 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.   

 



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.

Vain Hope

“I wouldn’t give much for a man who warms himself with the comfort of vain hopes.”

-Sophocles

 

Hope is a lot of things, but it’s not a risk management process. The higher commodity and stock market inflations go, the less likely it is that the global economy recovers.

 

With a 0% asset allocation to commodities and a time stamped short position in the SP500 (SPY), I obviously lost last week’s battle with Ben Bernanke. That doesn’t make this war with Keynesian Academics over. It means it has just begun.

 

If Bernanke thinks that compressing the next 3 years of Equity returns into the last 3 months before a US Election is “price stability”, that probably means things are just about to get volatile, again.

 

Back to the Global Macro Grind

 

I get things wrong. But when I do, I don’t put the country’s long standing liberties and structural employment at risk. Bernanke does. If I have one sincere hope for this country, it’s that this un-elected man thinks about that before he goes to bed at night.

 

To obfuscate the truth about currency debasement and real-time inflation expectations is one thing. To not be held accountable to these economic realities by the President of the United States is entirely another. Both Bush and Obama own this legacy of Bernanke’s economic storytelling.

 

Immediate and intermediate-term facts about Inflation Expectations:

  1. 10-yr breakevens (Inflation Expectations) moved right back to record highs last week (not YTD highs, record highs)
  2. CRB Commodities Index Inflation just crashed to the upside, +2.9% wk-over-wk, and +20% since June
  3. Oil price inflation (Brent) was up over +2.7% last week, +33% since June; US gas prices are now pushing back to $4

Sure, US and Russian stocks were up +1.9% and +7.4%, respectively, last week on that – but that’s nothing compared to the +153% YTD move in Venezuelan stocks post a Chavez currency devaluation! What did that do for the economic health of the Venezuelan people again?

 

With Bernanke Burning The Buck (see Chart of The Day), the US Dollar Index was down for the 5th consecutive week. In the face of its -1.7% wk-over-wk inverse “to infinity and beyond” money printing move, here’s what other things priced in Dollars did:

  1. Coffee +11.1%
  2. Natural Gas +10.4%
  3. Rubber +6.7%

I know, I know. Instead of picking Copper, Gold, and Oil that inflated +2-6% last week, I’m cherry-picking some stuff you might need as you take tax-payer funded car service to your office in Washington D.C. every day.

 

Heck, maybe there’s going to be what Keynesian students of economic theories-failed call “substitution” and “multiplier” effects… and you’re going to start drinking Red Bull instead of coffee in the morning – right pumped to chase the market even higher!

 

Another way to look at Inflation Expectations Rising is, of course, the futures and options markets (CFTC data):

  1. Last week’s CFTC options contracts were up another +0.3% at all-time highs (1.33 million contracts outstanding)
  2. Gold contracts = up another +14% wk-over-wk (after being up +35% and +10% in the 2 wks prior) to their February highs
  3. Oil contracts shot north of 203,000, their highest level since Oil topped in February-March 7% higher than Friday’s close

People who trade market expectations, run long-term money, and/or do math obviously get this. That’s why the biggest macro call I missed in the last 6 months was probably issued during a super special deflationary dinner in Jackson Hole in August.

 

Do you think Bernanke and his boys told anyone he was going to do this? That’s just a question, not an answer – and one, looking back, that you should have asked yourself during the Hank Paulson TARP. Does it help people trust our markets more or less?

 

Sadly, this is how the Old Wall still works - but where it counts for The People (cost of living, jobs, etc.), it’s not working. If this man thinks his Vain Hope of a +2.5-3% US GDP recovery in 2013 is kidding this accurate GDP Growth forecasting firm, he’s going to be in for a long battle with some fact-based Tweet-heat. If anything, the probability of a US Recession in 2013 just went up.

 

*2007-2012 Federal Reserve Money Printing Fact: Policies To Inflate via currency devaluation slow real-inflation adjusted economic global growth. China’s stock market fell -2.1% last night (down -15.5% since May) after Singapore reported a nasty -10.6% export growth report for August as commodity price margin pressures continued to rise, dampening demand.

 

My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $114.83-116.94, $78.57-80.31, $1.28-1.31, 1.70-1.87%, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Vain Hope - Chart of the Day

 

Vain Hope - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 17, 2012


As we look at today’s set up for the S&P 500, the range is 40 points or -2.24% downside to 1433 and 0.49% upside to 1473. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT: 

  • ADVANCE/DECLINE LINE: on 09/14 NYSE 1130
    • Decrease versus the prior day’s trading of 1701
  • VOLUME: on 09/14 NYSE 899.79
    • Increase versus prior day’s trading of 12.15%
  • VIX:  as of 09/14 was at 14.51
    • Increase versus most recent day’s trading of 3.27%
    • Year-to-date decrease of -37.99%
  • SPX PUT/CALL RATIO: as of 09/14 closed at 1.06
    • Down  from the day prior at 1.11 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 28.86
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.87%
    • Unchanged from prior day’s trading
  • YIELD CURVE: as of this morning 1.63
    • Up from prior day’s trading at 1.62 

MACRO DATA POINTS (Bloomberg Estimates)

  • Rates Weekly Agenda
  • 8:30am: Empire State Manuf., Sept. est. -2 (prior -5.85)
  • 11am: Fed to buy $4.5b-$5.5b notes due 11/15/2020-8/15/2022
  • 1am: Fed to sell $7b-$8b in notes 12/31/2014-5/31/2015
  • 11:30am: U.S. to sell 3-mo, 6-mo bills
  • 4pm: USDA crop-condition reports 

GOVERNMENT:

    • House, Senate in session
    • U.S. Defense Secretary Leon Panetta begins China visit

WHAT TO WATCH:

  • Homebuilding probably climbed with sales: U.S. eco preview
  • China home sales fall 4.7% in week ended Sept. 14: CEBM
  • Obama administration to announce trade complaints against China in Ohio
  • Ford picked by Canadian auto union as target in labor talks; current labor contact expires at 11:59pm tonight
  • Finance industry warns of “cliff effect” in ECB bond plan
  • Russian central bank starts $5b sale of Sberbank shares
  • India’s central bank unexpectedly cuts cash reserve ratio to 4.5%; holds key interest rate at 8%
  • BAE/EADS merger may flush out other suitors, Moody’s says
  • U.S. junk-bond yields fall below 7% for fist time: index data
  • Shell won’t drill for oil in Alaska this year after dome damaged
  • Emanuel promises suit to end Chicago strike as teacher balk on contract
  • Rosh Hashanah/Jewish New Year begins

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

COPPER – China down, Copper down almost 1% here this morning, after taking a vertical 3wk leap at its Feb/Mar highs; lower-long term highs remain intact.

  • Bullish Wagers at 16-Month High as Citi Sees Gains: Commodities
  • Hedge Funds Boost Bets as QE3 Pushes Oil to $100: Energy Markets
  • U.S. Hooked on Russian Crude Amid Shale Boom: Chart of the Day
  • Copper Falls on Speculation Rally to 4-Month High Was Overdone
  • Oil Trades Near Four-Month High on Signs of Improving Economy
  • Gold Seen Gaining in London as Stimulus Boosts Investor Demand
  • Wheat Drops as Rains Improve Crop Prospects in U.S., Australia
  • Coffee Rises in New York on Brazil Quality Concerns; Cocoa Falls
  • Ex-Touradji Trader Crone Starts Citrine Commodity Hedge Fund
  • Low Prices May Keep Aluminum Surplus Manageable in Near Term
  • Fed’s QE3 Signals Gold Rise to $2,000 by March: Chart of the Day
  • Rebar in Shanghai Declines on China Economic Slowdown Concern
  • Blackouts Spur $18 Billion Power Grid Upgrade: Corporate India
  • Piracy Fight Goes Awry as Nations Fail to Stop Killing Fishermen
  • Myanmar Gets Record Investment After Years of Isolation: Energy
  • Producer Destocking Balances Higher Exchange Aluminum Inventory

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


CHINA – Chinese stocks got smoked for a -2.1% drop, snapping my immediate-term TRADE line of 2107 support on the Shanghai Comp again overnight after China refuses to deliver on stimulus expectations (Food/Oil and Hong Kong property bubble up is not what they want more of via Qe3). Japan vs China heating up the headlines too.

 

SINGAPORE – We may have had the 3wk central planning rip in asset inflation wrong, but that’s making us more right on #GrowthSlowing, globally. Singapore just printed a bomb of a non-oil Export report at -10.6% y/y for AUG. That’s an important Global Macro leading indicator as we head into a very low growth rev/eps season.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


MEMORIES OF MACAU

Anna is back from Macau and Singapore and we’ve got some takeaways exclusively for you

 

 

Relative to sentiment, we are more positive on Macau following Anna’s trip there and our Singapore view remains unchanged.  We still think September will be up potentially in the mid teens but there are a few more catalysts than previously expected.  We also expect LVS and the market to get a nice boost from the opening of Phase 2 at Sands Cotai Central which even the competition seemed to acknowledge.  On the margin, the VIP outlook is probably a little better and we’re getting closer to some real infrastructure improvements that could boost Mass.  While Singapore still appears to be a slow growth market over the next year or so, investor sentiment is already there.

 

LVS and MPEL continue to be our favorite names with Macau exposure.  Here’s a summary of our updated thoughts on Asia gaming:

 

 

VIP SLOWDOWN AND FUTURE ACCELERATION

  • Although there are several theories surrounding the slowdown in Macau’s VIP market, we believe it’s a combination of several factors:
    • Europe is the top destination for Chinese exports, and economic trouble in Europe and the US are impacting the Chinese economy and hence VIP demand
    • Given what’s going on in the economy, many junkets, especially smaller ones have been more prudent in extending credit
    • Given the change over in the government that is about to occur, there is likely heightened uncertainty and sensitivity to being flashy so some players are likely waiting on the sidelines
  • Most market participants believe that the change in government in early 2013 will be a catalyst for improvement in the VIP volumes
    • New governments like to look good during their first year in power and tend to pump stimulus into the economy
    • New governments will likely announce new infrastructure projects
  • Existing infrastructure projects opening soon will help stimulate growth
    • Guangzhou Zhuhai intercity mass rapid transit:  Trial runs of the trains on the Zhuhai section could begin as soon as October.  The railway is expected to be fully operational by the end of 2012, connecting Gongbei to Guangzhou.  This should help boost tourist numbers to Macau.
    • Gongbei port expansion opening at the end of 2012
    • Bottom line is that the combination of the light rail and the border expansion are expected to shave off 4 hours round trip for visitors to Macau.  This could increase length of play by 30% for many day trippers.

 

SANDS COTAI CENTRAL: SUCCESS OR FAILURE?

 

While the rooms at Conrad and Holiday Inn are quite nice, after visiting “Site 5,” it’s hard not to notice that what’s currently open lacks the “wow factor.”  Put less nicely, Site 5 lacks a draw factor.  That said, the property is only partially open at the moment and “Site 6” is a lot more impressive than what’s currently open.  Moreover, the opening of Site 6 will also be followed by opening of the covered bridge connecting SCC to Four Seasons/Venetian which should greatly increase traffic between LVS’s Cotai Corridor.

 

Will the vanilla offering at SCC cause it to be a flop? We don’t think so.  Why?

  • The opening of Site 5 didn’t really do much to boost LVS’s market share and expectations are fairly low
  • Macau is still massively under-supplied on the room front
  • Holiday Inn brand offers compelling value since the rooms are a lot nicer than the moniker suggests and Chinese tend to like a good deal.  So worst case scenario, SCC can serve as a dormitory for Venetian which should drive Mass revenues.
  • LVS has finally begun advertising the amenities of SCC this week

 

PROMOTIONAL ENVIRONMENT

  • Seems to be stable
  • While junket commissions have increased, this seems more of a function of junket consolidation and large players reaching higher volumes and therefore, getting a larger revenue share percentage. 
  • The other reason for an uptick in commissions is that for a while now, more and more junkets are moving to a revenue share compensation plan from a RC compensation plan.  Given that market hold in Macau averages around 2.95%, revenue sharing agreements with volume targets allow junkets to achieve higher compensation thresholds then just getting paid 1.25%

 MEMORIES OF MACAU - macau2

  • While many casinos operators have gotten more savvy on their Mass rewards program, we saw no evidence that anyone aside from SJM was providing rebates on Mass (SJM has been providing rebates for several years now).  Operators are getting to know their premium mass players and in an effort to retain their loyalty, they offer free rooms, F&B comps and transportation.  

 

MASS

  • Mass hold percentages can vary significantly between those properties that include chip redemption at the cage as drop and those that only include markers
  • Recent higher Mass hold percentages look sustainable (CoD, Galaxy Macau)

 

ELECTRONIC GAMES

  • Noticeably more popular than a few years ago.  Hybrid Stadium seating games where there is a live dealer and four different games played are quite popular at many casinos (Galaxy, LVS, MGM, MPEL).  Other electronic table games were also popular.

 

SINGAPORE

  • The government’s desire to drive tourism vs. gaming is abundantly clear.  While RWS and MBS couldn’t be more different, they are both similar in the respect that the casinos are discretely placed amongst a vast array of non-gaming attractions.  It’s entirely possibly to stay at RWS and not even see the casino.  The same is true of MBS – there was a massive high end mall, and lots of other attractions at this cavernous complex to keep non-gaming visitors intrigued.
  • The government is keen on protecting the countries’ residents from evils of gaming.  They have recently passed legislation including invention programs for patrons perceived to be gambling “too” much and have a fairly long list of factors that put Singaporean residents on the exclusion list.  There are also extension restrictions on casinos being able to promote gaming in Singapore, as evidenced by the recent fine on RWS. Given that about 50% of slot play and likely about 1/3 of mass play come from the local population, the 2 IRs will have a tough time growing this mature market. Any material growth of Singaporeans gambling will also likely bring further operational restrictions
  • International mass growth is constrained by the lack of hotel inventory in Singapore, and there likely won’t be much relief on that front for a few years
  • VIP play seems to be dominated by a small group of super high rollers. We believe that growth on this front will be dominated by the economic health of Asia and likely correlated to resumption of growth in Macau.  Bottom line, no one really knows what the growth profile of this market will look like.
  • The good news is that both IRs are generating a lot of cash, expectations for growth are low to non-existent from US investors, and the probability of additional gaming licenses seems extremely unlikely.

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