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WHAT HAPPENED TO THE FAVORABLE CALENDAR?

Takeaway: September is coming in pretty weak almost across the board for domestic gaming despite an extra weekend.

Down a Friday but up a Saturday and Sunday, we would’ve expected a 2-4% calendar boost.  Yet, out of the six states that have released September gaming revenues, only Illinois – yes, Illinois – posted same-store revenue growth.  Pennsylvania managed to eke out total gaming revenue growth but same-store growth in that market was negative.  What’s going on?

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart1

 

Clearly, consumers are stretched but gaming seems to be underperforming other consumer sectors.  We would argue that trends are sequentially getting worse. See chart below.  Adjusted for seasonality, July and August were worse than the trend projected, and September looks like more of the same. 

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart2

 

Clearly there is more going on than just a soft consumer.  Here are some additional factors acutely impacting the gaming sector:

  • New competition and market saturation – We’ve seen same-store revenues suffer hits from new properties, indicative of market saturation.  New casinos in Ohio, PA, and Missouri are probably having an impact
  • Gas prices – We’ve shown statistically that higher gas prices negatively impact regional gaming revenues
  • Higher slot hold have masked lower volumes – Slot hold percentage has been on a consistent uptrend for years.  We think higher “pricing” is unsustainable.  Volumes have been under pressure for years.
  • Younger generations not playing slots – We’ve shown that the average age of the slot player continues to increase among other discouraging demographic trends.  The fact is, the post baby boomer generations are not playing slots.  This is a problem longer-term but may be impacting slot play currently.
  • Gaming is more discretionary than other consumer sectors

September probably needed to be a strong month for most of the regional gaming companies to make their Q3 earnings.  It doesn’t look like it materialized so there is near-term earnings risk.  We will be putting out earnings previews over the next week and we expect to be below consensus for most of the regional gaming companies.


THE M3: MGM HK SUIT

The Macau Metro Monitor, October 11, 2012

 

 

MGM CHINA WINS DEBT SUIT AGAINST HK BUSINESSMAN Macau Business

A Hong Kong court sided with MGM Grand Paradise, a subsidiary of MGM China, in a lawsuit over a gaming debt of HK$9.3 million (US$1.2 million) incurred by Chiu Tak Wah, a director of HK-based Richful International Investment Ltd.  Chiu had received a line of credit of HK$10 million and spent HK$9.3 million gambling but he did not pay back the loan.  When MGM resorted to the Hong Kong courts to get the money back, Chiu appealed, arguing that Macau would be the appropriate forum for the proceeding.  According to the judgment handed out on Monday, judges stressed that the businessman “himself has agreed that the loan agreement may be enforced by the plaintiff in the jurisdiction where his assets may be found.”


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 11, 2012


As we look at today’s set up for the S&P 500, the range is 19 points or -0.25% downside to 1429 and 1.08% upside to 1448. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

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EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 10/10 NYSE -737
    • Increase versus the prior day’s trading of -1639
  • VOLUME: on 10/10 NYSE 590.82
    • Decrease versus prior day’s trading of -3.54%
  • VIX:  as of 10/10 was at 16.29
    • Decrease versus most recent day’s trading of -0.49%
    • Year-to-date decrease of -30.38%
  • SPX PUT/CALL RATIO: as of 10/10 closed at 1.67
    • Down from the day prior at 2.35

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 24.62
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.69%
    • Increase from prior day’s trading of 1.67%
  • YIELD CURVE: as of this morning 1.43
    • Up from prior day’s trading at 1.41

MACRO DATA POINTS (Bloomberg Estimates)

  • 8:30am: Import Price Index M/m, Sept., est. 0.7%
  • 8:30am: Trade Deficit, Aug. est. -$44b (prior -$42b)
  • 8:30am: Initial Jobless Claims, Oct. 6  est. 370k
  • 8:30am: WASDE crop statistics
  • 9:45am: Bloomberg Consumer Comfort, Oct. 7 (prior -36.9)
  • 10am: Bloomberg U.S. Economic Survey for Oct.
  • 10am: Fed’s Stein speaks on monetary policy in Washington
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 11am: DoE energy inventory statistics
  • 11am: Fed to buy $750m-$1.25b notes due 1/15/2019-2/15/2042
  • 11am: U.S. announces plans for 30-yr TIPS auction
  • 11:15am: Fed’s Raskin speaks on gender equality panel in France
  • 12:30pm: Fed’s Plosser speaks on economy in Pennsylvania
  • 1pm: U.S. to sell $13b 30-yr bonds in reopening
  • 2pm: Tentative release time for budget statement for end of fiscal 2012
  • 6pm: Fed’s Bullard meets with reporters in St. Louis

 GOVERNMENT:

    • SEC holds a closed meeting in enforcement matters, 2pm
    • U.S.-China Economic and Security Review Commission begin two-day  meeting to prepare 2012 annual report to Congress. Agenda includes: trade and economic relationship, 9am
    • Commerce Dept., International Trade Administration meet to discuss environmental technologies trade policies, 9am
    • Former Treasury Secretary Lawrence Summers speaks at Center for American Progress, 1:30pm
    • Energy and Cleantech Conference, with speakers including Green Mountain Energy Co. CEO James Steffes, 9:30am
    • NASA conference call w/ Curiosity updates, 2pm

WHAT TO WATCH:

  • Spain debt is downgraded to one level above junk by S&P
  • U.S. trade gap probably widened in Aug. on higher crude prices
  • Korea joins Brazil cutting interest rates as global economic growth slows
  • AIA to buy ING’s Malaysian insurance unit for $1.73b cash
  • Japan machinery orders slide 3.3% as economy risks shrinking
  • Treasuries hold gains before U.S. trade data, 30y debt auction
  • JPMorgan CFO Braunstein said to weigh return to investment bank
  • United Tech unit says orders for new turbo-fan engine may double
  • Hewlett-Packard overtaken by Lenovo as world’s top PC maker
  • Chamber, 2 oil trade groups sue SEC over foreign payment rule
  • Apollo’s Realogy IPO raises $1.08b pricing at top end
  • Telsa gets $10m California grant for electric SUV project
  • Goldman doesn’t need more deposit funding: COO Cohn

EARNINGS:

    • Fastenal (FAST) 7am, $0.37 - Preview
    • Safeway (SWY) 9am, $0.43 - Preview
    • Novagold (NG CN) Before-mkt, C$(0.06)
    • JB Hunt Transportation Services (JBHT) 4pm, $0.66
    • Bank of the Ozarks (OZRK) 6pm, $0.55

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

GOLD – bought it yesterday as the USD (up on Romney mo and Europe slow) is immediate-term TRADE overbought; any let down in USD strength gets the momentum trade back into commodities and stocks. Correlations are surreal. Risk range in Gold is now 1.

  • Oil Rises as Mideast Tensions Outweigh Forecast of Rising Supply
  • Lead Tops Metal Returns as Shortages Set to Emerge: Commodities
  • Bakries Offer to End Rothschild Bumi Dispute by Acquiring Assets
  • Gold Gains on Renewed Europe Debt Concern After Spain Downgrade
  • Copper Advances as Brazil and South Korea Cut Interest Rates
  • Soybeans May Climb 10% on Rising Trendline: Technical Analysis
  • Robusta Coffee Extends Rally Before Options Expiry; Sugar Drops
  • Record Gas Switching Cuts Glut as Mizuho Sees $4: Energy Markets
  • Iron-Ore Swaps Extend Decline as Chinese Buying Seen Weakening
  • Food Industry Vulnerable to Future Corn, Rice Supply Disruptions
  • Aluminum Stockpiles in Japan Expand to 8-Month High in September
  • Commodity Head and Shoulders Means 13% Drop: Technical Analysis
  • Disputed Islands With 45 Years of Oil Split China, Japan: Energy
  • Soybeans Climb on Signs Demand Is Building as U.S. Supply Gains

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CURRENCIES

 

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EUROPEAN MARKETS


SPAIN – finally getting an immediate-term TRADE oversold signal on the IBEX here this morn at 7609 on a very newsy Spanish downgrade; all this means is that they ask for the bailout sooner; sadly, that’s a bullish short-term catalyst, so just keep that in mind as EUR/USD holds $1.28 TRADE support.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


KOSPI – down another -0.8% overnight and broken on our TRADE duration isn’t new news this morning – it’s a leading indicator; South Korea cutting rates by another 25bps to 2.75% and the market not going up is new; you can have 10,000 global easings but, at a pt, the earnings cycle trumps the funny money – just like Q407-Q308.

 

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MIDDLE EAST


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The Hedgeye Macro Team

 

 

 

 

 


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Barking Buyem!

This note was originally published at 8am on September 27, 2012 for Hedgeye subscribers.

“A dog is not considered a good dog because he is a good barker.”

-Buddha

 

There are a lot of things I love about Eastern culture. One of them is the deep simplicity of their quotes. If I need to channel my inner-Buddha this morning to make a buy call, so be it.

 

Back to the Global Macro Grind

 

So, after a 41 handle (-2.8%) drop in the SP500 from the Bernanke “Buy Everything” top, US stocks have been down for 7 out of the last 8 days. I heard more crickets than I heard bulls yesterday. Weird.

 

Sometimes I like to bark. And sometimes that means my cage gets kicked by my central planning overlords too. But that’s ok. I’m just that dog in your life that never goes away. I have big teeth. And when I say “Buyem!” (with a smile), I kind of look like a little bull too.

 

“Buyem!”

 

That’s what my intraday note at 11:18AM EST was titled yesterday. In addition to the list of 7 long ideas I listed in yesterday’s Early Look note, we made the following moves:

  1. Covered Gold (GLD) at immediate-term TRADE oversold
  2. Bought Taiwan (EWT) at immediate-term TRADE oversold
  3. Covered Discover Financial (DFS) at immediate-term TRADE oversold
  4. Bought Consumer Discretionary (XLY) at immediate-term TRADE oversold
  5. Covered Burger King (BKW) at immediate-term TRADE oversold

In other words, when I start barking buy/cover or sell/short, it’s always based on the same repeatable process. Infrequently do I get all of my Global Macro signals at the same time as I get my bottom-up (single stock) signals. But when I do, that’s when I lean long or short. The process works both ways.

 

This is where I can get a lot better at this game, and I will. With more reps, mistakes, and successes, I’ve learned the game by playing it. Sure, some of my lovers out there will say “he does it with a paper portfolio”, and that’s fine. I hear them barking too. But I highly doubt they’d have the guts to show the entire world every move they’ve made for the last 5 years anyway.

 

From the day that I started this company, I’ve believed in one very simple set of Canadian-American principles: Transparency, Accountability, and Trust. I care less about the tone of my barking than I do the results. This game can be loud and it can get messy. Anyone who wants me to hold some high level of Ivy League gravitas wants me to be someone I am not.

 

Back to the why…

  1. Immediate-term TRADE oversold is as oversold does
  2. Immediate-term TRADE overbought in both Bonds (UST) and the Buck (USD), complimented that equity oversold signal
  3. Immediate-term TRADE overbought at VIX 17.37 was another critical intraday risk management signal

US Equity Volatility’s (VIX) inverse correlation to the SP500 is as relevant (some of the time) as SPY versus USD is. Never mind the pooch metaphors, those signals were yelling at me yesterday.

 

With my Correlation Risk signal in hand, I then looked forward at my Global Macro Calendar Catalyst playbook, which had the following bullish catalysts:

  1. Q2 US GDP report (this morning) will only add fuel to the Bernanke Bailout fire
  2. Both month and quarter-end markups for Q3 2012 are in play in between today and Monday
  3. China’s Golden Week (and 18th Party Congress) is pending for the next 2 weeks

That last one only matters in terms of the manic media’s perma-perpetuating of rumors about China “stimulus.” All it takes is for Chinese stocks to stop going down and they’ll say it’s because something big is coming. The Shanghai Composite got just that overnight, having one of its biggest bounces (off the lows) in weeks (+2.6%).

 

We have 12 LONGS and 3 SHORTS for this morning’s open. It’s probably fair to stop calling me a bear now – just call me a dog. You can pet and feed me with bullish data points. I won’t bite.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1756-1769, $106.41-111.44, $79.22-79.98, $1.28-1.30, 1.62-1.71%, and 1430-1455, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Barking Buyem! - Chart of the Day

 

Barking Buyem! - Virtual Portfolio



Kentucky Fried Politics

“The American people do not think the system is fair, or on the level.”

-Joe Biden

 

Forget #BigBird. The world’s tweeters will shift to whose political chicken gets fried tonight in Danville, Kentucky. It’s a good thing there’s no bubble in partisan US politics.

 

In terms of political ironies, the aforementioned quote is a beauty. It’s how MSNBC’s Chris Hayes kicks off Chapter 3, “Moral Hazards”, in the most recent book I have been reviewing, “Twilight of The Elites.”

 

While I’d love to debate Hayes and/or my boy Biden on their respective concepts of “fairness”, here’s something Hayes wrote that I completely agree with: “ … we cannot have a just society that applies the principle of accountability to the powerless and the principle of forgiveness to the powerful. This is the America in which we currently reside” (page 102).

 

Back to the Global Macro Grind

 

With the SP500 down for the 4th consecutive day, we got longer yesterday, for a trade. To be clear TRADEs (3 weeks or less) in our model are not to be confused with TRENDs (3 months or more). TRADEs get overbought and oversold. TRENDs (like #EarningsSlowing) last longer.

 

Some people don’t like the whole Duration Agnostic thing. Some people love it. I don’t wake-up every morning looking for love or loathing. I focus on doing what I can do to make our risk management process more dynamic and repeatable, across durations.

 

From an immediate-term TRADE perspective, at $630 AAPL was evidently oversold on Tuesday. What was oversold on Wednesday?

 

1.   Tech (XLK) – First, understand that this S&P Sector ETF is 1/5 AAPL, so buying XLK yesterday gets me more of what I really want - in a slowing growth scenario, I want to buy the cheap growth that I can find.  

 

2.   Utilities (XLU) – If I am going to buy what’s getting smoked in October (Tech), I also want some asymmetry on the long side in owning something that works if Tech doesn’t. Utilities are one of the top performing S&P Sectors since The Bernanke Top.

 

3.   Gold (GLD)Hedgeye Playbook long, for a trade, here as the US Dollar Index moves to immediate-term TRADE overbought. Remember, get the US Dollar right, and you’ll get a lot of other things right.

 

Yes, one of our intermediate-term TREND Themes for Q4 is Bubble #3 (Commodities), but that doesn’t mean I can’t fully embrace understanding what people do with bubbles (they chase them when they are green), and trade the risk of the position both ways.

 

Gold’s long-term TAIL risk (3 years or less in duration) is much more daunting than its intermediate-term TREND risk. Why?

  1. TAIL risk = lower long-term highs from the $1900/oz zone (2011 all-time highs) make a bubble look like a bubble; look backwards
  2. TREND support = Gold has recently proven to test its YTD highs established in February ($1794); that keeps mo mo bulls in it
  3. TRADE range = $1; you don’t have to be bullish or bearish to understand that; it’s just math

Agreed. It’s a lot harder to keep countervailing thoughts, across durations, in your head than being perma – but that’s precisely why I think about risk that way. The market doesn’t care about your politics or your positioning.

 

So, if I sell Gold at $1792, it will probably be because it’s immediate-term TRADE overbought, the USD is immediate-term TRADE oversold, and Romney’s momentum in the polls keeps firing Bernanke in play (no Bernanke is not good for Gold).

 

Back to Tech…

 

I’m not a techie, but I have built a #WallSt2.0 firm that’s been able to monetize Twitter. So you can just call me social. Risk managing Tech (XLK) is not for the faint of heart, but where it closed yesterday illustrates the Duration Mismatch of price momentum quite well:

  1. Tech (XLK) = down -2.5% for the month of October is the worst performing Sector of the 9 in the S&P Sector Model we track
  2. Tech (XLK) = up +18.1% YTD is the 3rd best performing Sector in the S&P for 2012
  3. Tech (XLK) = has a heavy weight in AAPL (20.73% of the ETF) and AAPL is up +58.25% YTD

So, if you want to get Tech (XLK) right, you probably have to get AAPL right. That’s why timing and factoring your position risk matters.

 

Now some people pay a lot of attention to what is up for the YTD. I personally couldn’t care less. My net wealth (and most people who don’t measure it on Old Wall’s calendar bonus schedule) compounds or is drawn-down, daily.

 

If AAPL is up +58.25% YTD, but down 10% in a straight line (from The Bernanke Top in September) from where your money manager bought it for you, you need to be up +11.1% (from the down 10%) to get your money back to break-even. That’s not Kentucky Fried Politics. That’s just risk management math.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, Tech (XLK), and the SP500 are now $1, $112.54-115.05, $79.43-80.03, $1.28-1.30, 1.68-1.76%, $30.02-30.69, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Kentucky Fried Politics - Chart of the Day

 

Kentucky Fried Politics - Virtual Portfolio


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