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MACAU OFF TO SOLID START

Takeaway: Comps are tough but volumes and traffic look solid

Golden Week 2012 was decent with average daily table revenues (ADTR) for the 7 days up 1% over the first 9 days of October last year.  Golden Week and October as a whole are difficult comps (October 2011 up 42%) and hold was higher than normal last year.  Visitation through Golden Week was up 9% YoY (that is an apples-to-apples comparison) and we have reports of strong floor traffic.  This bodes well for high margin Mass gaming revenues.  We are projecting full month GGR of HK$27.0-28.5 billion which would represent YoY growth of 4-9%. 

 

MACAU OFF TO SOLID START - macau4

 

In terms of market share, the first week winners were LVS, MPEL, and GALAXY while WYNN is clearly holding low in the first week.  Again, we don’t put much stock in market shares this early in the month.

 

MACAU OFF TO SOLID START - macau5


European Banking Monitor: More Manipulation By Draghi

Takeaway: Bank swaps tightened across the board globally. Sovereign swaps followed suit.

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 American and European bank swaps tightened across the board fueled by ECB comments about assistance for Spain and an initially strong perception of the US labor situation. However, Friday's softening by the close coupled with this morning's performance around the world is suggesting the labor-based rally may be short-lived.

 

* Sovereign CDS - Sovereign swaps mostly moved in tandem with bank swaps around the world, tightening across the board. The one notable divergence was the United States, which saw its sovereign swaps rise by 26.4% (9 bps) to 42 bps from 33 bps in the prior week.

 

On OMTs 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. There is no indication that the OMTs has been initiated to date.

 

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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 – European bank swaps were tighter across the board with Italian, Spanish and French banks showing the sharpest week-over-week improvement. Overall, swaps were tighter for 35 out of 37 reference entities with an average tightening of 29 bps. 

 

European Banking Monitor: More Manipulation By Draghi  - 22. banks

 

Euribor-OIS spread – The Euribor-OIS spread tightened by less than 1 bp to 13 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: More Manipulation By Draghi  - 22. 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: More Manipulation By Draghi  - 22. facillity

 

Matthew Hedrick

Senior Analyst

 


WMT: Financing The Masses

Takeaway: Walmart and American Express both stand to benefit from the Bluebird program with the former getting shoppers and the latter getting fees.

American Express (AXP) and Walmart (WMT) have teamed up to offer a prepaid debit card targeted at lower income consumers. The program is called Bluebird and what makes it noteworthy is the fact that Walmart is a partner in the program, which allows for  widespread distribution across the United States.

 

The card is similar to existing American Express prepaid cards; you sign up, get the card and can load it up via a checking account, direct deposit or reload packs called Bluebird Feeder Packs. With money going right from someone’s paycheck on to the Bluebird card, Walmart stands to benefit from cardholders spending their paychecks at their stores because they’re suddenly feeling “flush” with cash. 

 

Keep in mind that Walmart already offers prepaid debit card and check cashing services for its customers. This is another move for Walmart as it tries to get a toehold in financial services which it has been trying to do for years. WMT also has an interchange fee advantage. They are likely paying close to nothing on interchange rates when these cards get used in their store. Overall, the program will be a hit with AXP, WMT and lower income consumers.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

The Value Of A Dollar

THE VALUE OF A DOLLAR

 

 

CLIENT TALKING POINTS

 

THE VALUE OF A DOLLAR

If you get the US dollar right, you get a lot of other things right. This is very important to remember when you’re trading and investing on a daily basis. The moves the dollar makes correlate to things like crude oil, commodities and the euro, so you need to keep an eye on it even if you’re not a currency trader. Bernanke has continued to devalue our currency year after year for nearly half a decade at this point. Some claim that it’s the way out of the great recession we’ve been in. We don’t buy that nonsense.

 

 

THE SLOWDOWN

Everything is slowing down, like Neo in The Matrix when he’s dodging bullets. Seriously, though. Growth continues to slow as the recession drags on, cycles continue to peak and roll over and commodities inflate. We also have earnings slowing with the likes of FedEx (FDX) and Caterpillar (CAT) showing us what it’s like when they have to lower guidance for 2013. This sort of thing will continue to happen as more companies report; just watch and see. 

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                UP

 

U.S. Equities:   DOWN

 

Int'l Equities:   DOWN   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • 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

 

UNDER ARMOUR (UA)

This company’s on track to post $3Bn in revenues by ’14 – impressive given a $1.5Bn print in 2011. Perhaps more impressive is the breadth of growth drivers that will get it there – women’s, accessories, new underwear platform etc. in addition to footwear. UA is gaining share in both apparel and footwear quarter-to-date. While some may be concerned over the loss of UA’s SVP/Sourcing we’re 8% ahead of the Street in the upcoming quarter and buyers on weakness.

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

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“#Dow starts the week 3.91% away (554 pts) from an all-time high. $$” -@carlquintanilla

 

 

QUOTE OF THE DAY

“History teaches us that men and nations behave wisely once they have exhausted all other alternatives.” -Abba Eban

                       

 

STAT OF THE DAY

Chile SEP inflation (CPI) rises to +2.8% YoY from 2.6%

 

 

 


Elegant Outcomes

This note was originally published at 8am on September 24, 2012 for Hedgeye subscribers.

“Not everything I say is elegant.”

-Mitt Romney

 

For 5 straight weeks both Romney and the US Dollar took a public brow-beating from both Obama and Bernanke. We’ll see where the Hedgeye Election Indicator scores Romney tomorrow. For now, all I can tell you is that last week the US Dollar just had its 1st up week in six.

 

Can Policies To Inflate, deflate? Oil just did, fast. Gold, Silver, and US Stocks are on their way lower this morning too. Did last night’s 60 Minutes moment for Romney mark a short-term top for Obama? Intrade had him at a fresh new high of 70% last week. At a bare minimum, that has some short-term mean reversion risk heading into the 1st debate (October 3rd).

 

From Greenspan/Bernanke asset price bubbles (Internet stocks in 2000, Housing in 2007, and Commodities in 2012) to mean reversion and correlation risks, Macro hasn’t been elegant over the course of the last 15 years. Neither is writing about the truth.

 

Back to the Global Macro Grind

 

With 43 days to the #Election and 99 days to the #FiscalCliff, both the US Dollar’s direction and the Obama vs. Romney Spread matter to markets – big time. Causality (policy) is driving correlation in market pricing right now. When that changes, we’ll let you know.

 

Correlation Risk Update (30-day immediate-term USD correlations, across asset classes):

  1. Gold = -0.98
  2. Copper = -0.97
  3. Silver = -0.96
  4. Coffee = -0.84
  5. CRB Commodities Index = -0.82
  6. SP500 = -0.89

In other words, if Obama gets the Dollar right (down), he should be fine for the next 30 days. If he doesn’t, Dollar up may very well be read as Romney building momentum off his mid-September lows.

 

Partisan people may not like this analysis, but the math is quite elegant when you show it in bullet point form. With the US Dollar Index up +0.6% last week, here’s what Big Macro data did:

  1. CRB Commodities Index = down -3.8%
  2. Oil = down -6.2%
  3. Copper = down -1.6%
  4. Coffee = down -4.1%
  5. SP500 = down -0.34%
  6. Russell2000 = down -1.0%
  7. Chinese stocks = down -4.6%
  8. Italian stocks = -3.8%
  9. Russian stocks = -3.8%
  10. Gold = +0.2%

Yes, Gold prices diverged from the rest of reality last week – but they aren’t this morning. That’s an interesting callout, if only because Gold was the last holdout in Bernanke’s Bubble (Commodities) to not make higher all-time highs.

 

The all-time high (not pricing it in rice beans or Thai Baht) in nominal Gold was established in February of 2012. And if you really want to think bubbly, it makes sense for it to potentially have topped before Bernanke printed to “Infinity & Beyond.” After all, Gold has been up for 12 consecutive years, discounting something, no?

 

What’s next?

 

If the US Dollar falls again from here and Gold recovers this morning’s losses to make higher-all-time-highs, I’ll likely cover my short position in GLD. If it doesn’t, well, I guess that’s not going to be my problem.

 

Within the weekly CFTC futures/options contract data, Gold is as frothy right now as Corn was in mid-August (Corn, by the way, is down -11% since then, in a straight line):

 

Here’s the update on Commodity speculation within that CFTC data:

  1. Total contracts finally fell wk-over-wk (-1.7%) after hitting their February 2012 highs of 1.33M contracts last week
  2. Gold contracts ripped another +8% wk-over-wk (up 5 weeks in a row with USD down) to a February high of 178,426 contracts
  3. Oil contracts made higher YTD highs into and out of Bernanke = +6% wk-over-wk to 214,647 contracts

All the while, Commodity speculation on Farm Goods (corn, wheat, soy, etc.) dropped -7% wk-over-wk, AFTER corn prices fell, not before. Super secret: hedge funds chase commodity beta high and sell it low (they’ll sell oil today, watch) – that’s why these prices whip around so much within the construct of Bernanke’s broken promise of “price stability.”

 

In other Contrarian Signal news, Fund Flows may be negative in Equities (ex-ETFs, Equity Fund outflows were another -$1.9B last wk), but they dog-piled into Raw Material/Commodity funds last week at +$2.36B (per EPFR data), and Goldman just upped their “Commodities” forecast to another +18% from here!

 

If Goldman and Obama are right, I’ll be wrong on Gold and Oil highs for 2012 being in the rear-view mirror. And the USA will probably be in a recession within 6-12 months. Don’t take my word for it on that - ask the bond market. Policies To Inflate slow growth. To Keynesians advising Bush and Obama, that hasn’t been an elegant economic outcome either.

 

My immediate-term risk ranges in Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1731-1762, $107.60-111.44, $78.69-79.96, $1.28-1.30, 1.69-1.79%, and 1455-1474, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Elegant Outcomes - Chart of the Day

 

Elegant Outcomes - Virtual Portfolio



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