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CHART DU JOUR: DECLINING SLOT CONTRIBUTION

Higher margin slot play lagging

 

  • Strip slot revenue as a % of total gaming revenue has been sliding since its near-term peak in April 2009. 
  • This trend is alarming given the higher margin profile of slots versus tables.  The demographics - post baby boomer generations are not playing slots – suggests that the trend will continue.
  • Strong growth in Baccarat play from China drove all of the increase in table revenue vis a vis slot revenue over the past few years.  International visitors accounted for 16% of all Vegas visitors in 2011, up from 13% in 2000.

 

 CHART DU JOUR:  DECLINING SLOT CONTRIBUTION  - STRIP2


UAL: Fare Warning

Takeaway: Margins are under pressure at $UAL as the company faces competition from American Airlines post-bankruptcy and competitive fares.

We’re currently bearish United Continental (UAL) for several reasons, two being real standouts. The cost cuts involved with the American Airlines bankruptcy will allow the airline to emerge leaner with the ability to offer lower fares. American’s gain is UAL’s loss and the company will need to stay competitive in order to compete against American’s cost advantages.

 

Another issue at hand involves fares across the entire industry. July and August ARC data shows fares declining year-over-year, despite rising costs.  This suggests to us that American’s cost reductions are pressuring industry margins.  A “race to the bottom” for the cheapest flights isn’t what’s going on but staying competitive with price is always a concern.

 

 

UAL: Fare Warning - UALchart3mo

 

 

There are myriad other issues UAL faces as well including issues integrating with Continental post-merger and weak industry structure. Keith has shorted UAL as a real time position and has yet to close it out.


ENERGY: Low Inventory

Takeaway: We're busy exporting and demand for fuel is a bit weak - people are trying to conserve gas, not burn it, when it's at $4 a gallon.

US energy product inventories are low, particularly gasoline and diesel fuel. Despite US refineries cranking at full speed and utilizing a high level of capacity, there are several reasons why we’re running low on gas and diesel. First, we’ve been increasing exports of fuel, sending diesel to Europe and gasoline to South America. We’ve also undergone a drop in refined product exports. Lastly, we’ve had weak domestic demand for refined products. People are busy trying to conserve gas when it’s $4 a gallon.

 

Provided the export market stays open, we expect product stocks to remain depressed relative to prior levels, which is positive for refining margins.

 

 

ENERGY: Low Inventory - INVENTORY 1

 

 

ENERGY: Low Inventory - INVENTORY 2

 


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Another Tale Of Slowing

ANOTHER TALE OF SLOWING

 

 

CLIENT TALKING POINTS

 

ANOTHER TALE OF SLOWING

By now, you’ll clearly understand our case on growth slowing here in the United States. But what about corporate earnings? Are they also slowing? As Sarah Palin would say: “you betcha!” Right now everyone is busy filling themselves on goblets of QE3 Kool-Aid. There’s no worry about getting things “right” in the market. And yet, big corporations seem to know that things aren’t exactly peachy. Remember when Fedex (FDX) came out a month ago and issued lower guidance and then reported earnings and everyone seemed to forget about their previous announcement? Or take Staples (SPLS) which did the same thing. The truth of the matter is that corporate earnings are slowing along with growth and the economy isn’t better because of more QE, it’s getting worse. Keep in mind that Apple (AAPL) is not the economy or the market.

 

 

NO MORE HOLLERING

It has been six consecutive weeks of the US dollar Index falling lower and lower – nearly 2 months since the investment community rallied around the currency for a “Dollar Holler” as I like to call it. We wonder what it’ll take for confidence to construct itself again in the dollar. It seems that no one wants to even bother with it post-Bernanke speeches and it makes sense. He’s busy devaluing our currency while driving up food and fuel prices. We wonder why any of the retail crowd or mass market American public would want this to happen. It’s not like QE is going to get them out of foreclosure or get them a new job.

 

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                  UP

 

U.S. Equities:   DOWN

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

WENDY’S COMPANY (WEN)

Our conversations with Wendy’s franchisees indicate that sales have been trending sequentially higher in 3Q versus 2Q. We believe the company is about to announce the end of the company’s Sisyphean breakfast initiative after a prolonged “testing” phase. Given the capital demands on the company over the next few years as it invests to upgrade its asset base, shifting capital from the distraction that has been breakfast is a positive. The tail is less certain as it will take years for the system to rejuvenate the asset base and push out the older franchisees that don’t want to make the necessary investments to bring the asset base in line with contemporary industry standards..

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

 

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

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Bank Of America To Fire 16,000 By Year End tinyurl.com/ckprfp9” -@zerohedge

 

 

QUOTE OF THE DAY

“I could prove God statistically.” –George Gallup

                       

 

STAT OF THE DAY

Jobless Claims drop less than expected, down 3000 to 382,000; Wall Street expected 373,000.

 

 

 

 


THE M3: SITE 3; CASINO LAND GRANT; CHANGI TRAFFIC

The Macau Metro Monitor, September 20, 2012

 

 

WORK ON SANDS' PARCEL 3 TO START IN 60 DAYS: ADELSON Macau Business

Sands China is planning to invest at least US$2.5 billion (MOP20 billion) on Site 3.  Sheldon Adelson said that construction is set to begin in 60 days.  The project, to be named “The Parisian”, will include 3,000 hotel rooms and have an Eiffel Tower replica.

 

NEW CASINO LAND GRANTS IN 2012 "UNLIKELY": REPORT Macau Business

According to a source close to the matter, it is “unlikely” that the Macau government will approve any new casino land grants this year.  The government is currently analyzing requests filed by both MGM China and SJM.  MGM China’s land request proposal is the one closer to approval, but it is only likely to receive the final nod in 2013.

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

Singapore's Changi Airport handled 4.28 million passengers in August, +10.9% YoY.

 

THE M3: SITE 3; CASINO LAND GRANT; CHANGI TRAFFIC - changi

 


Gambling #Unlimited

This note was originally published at 8am on September 06, 2012 for Hedgeye subscribers.

“Rather than a gambler, he was a speculator with an eye for good risks.”

-Carl Sandburg

 

That’s a quote from one of the better opening chapters I have read in 2012, “God’s Chosen Instrument”, in Jay Cooke’s Gamble – “The Northern Pacific Railroad, The Sioux, and The Panic of 1873.” (by M. John Lubetkin)

 

Few in this profession want to admit that there is a degree of gambling in what they do. But what, per se, would you call what we have all been forced to do in the last 6 months? Even if you have perfect inside information on what Draghi is going to do this morning, the market could do the exact opposite of what you think it should do on that.

 

Inside information? If you don’t think someone always knows something, you need “more time” on the job too. That’s as old as Jay Cooke’s legend in becoming the “financier of the Civil War.” One of the market’s richest men (before it all crashed in 1873), “Cooke bought members of Congress, bribed 2 Vice Presidents, built churches…” (page 1) etc., but still blew up his unlimited capital bet, in the end.

 

Back to the Global Macro Grind

 

#Unlimited – that’s what she said. As in the woman who wrote this morning’s manic media headline on why the US stock market futures were up 8 handles. “Stocks rise on possibility of unlimited ECB bond buying.”

 

Imagine that for 3 more minutes. Never mind the most money ever printed into a central planning event… ever… by 9AM EST, “unlimited” moneys will fall from the heavens, Gold will go to $3000 and Oil will go to $200?

 

The storytelling out there is just getting awesome.

 

I’m short Gold here. On balance, until turning bearish on Gold in Q1 of 2012, I have been a Gold bull since 2003. I have #timestamped 35 long/short positions in the GLD since founding the firm in 2008 (been right 30x).  

 

The more wrong I am on Gold (from here), the more right I’ll be on #GrowthSlowing.

 

Why?

  1. Inflation is not growth
  2. Inflation slows growth

So, if you are still hoping for economic growth, but at the same time want the Italian Eurocrat to go “unlimited”, Weimar-style, on the printing presses this morning, just be careful what you are cheering for.

 

Rather than roll the bones on what rumor is going to hit my tweet-stream next, this is what I am going to do on green this morning.

 

Drum-roll: sell.

 

That’s not my perma position (7 of my last 10 booked gains have been on the long side, and we’ve bought almost 50 tickers since the May-June 2012 lows). That’s just what I do (on green) at the high end of what we call our Risk Management Range.

 

When I give you my Risk Ranges at the bottom of the Early Look every morning, those are the immediate-term ranges of price risk that I am using to make my buy and sell decisions. Rather than a gambler, I’m just good at being disciplined, not swinging at outside pitches.

 

Since I wasn’t a good baseball player (I am Canadian), what other choice do I have? It’s hard enough to hit the big fat fastball of perfect information in this market when you feel like you see your pitch.

 

If markets haven’t humbled you yet, they will. If central planners think they have markets nailed now, they are about to get nailed.

 

With those long-term risk management realities vs. short-term rumors in mind, here are your risk ranges, across asset classes this morning:

  1. US Dollar Index = 81.11-81.89
  2. EUR/USD = 1.24-1.26
  3. US Treasury 10yr Yield = 1.54-1.63%
  4. CRB Commodities Index = 303-309
  5. SP500 = 1398-1414
  6. VIX = 16.91-18.92
  7. Russell2000 =  812-825
  8. Shanghai Composite = 2016-2089
  9. Nikkei (Japan) = 8532-8768
  10. EuroStoxx50 = 2407-2475
  11. DAX (Germany) = 6899-7065
  12. IBEX (Spain) = 7357-7611
  13. Oil (Brent) = $111.96-115.36
  14. Gold = $1675-1712
  15. Copper = $3.47-3.52

People can call me a gambler. They can call you a lover. They can call us “perma” whatever they want if the storytelling makes them feel certain about something that’s uncertain. The only thing I am certain about this morning is what my process is telling me to do next.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gambling #Unlimited - Chart of the Day

 

Gambling #Unlimited - Virtual Portfolio


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