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MACAU SLOWS BUT STILL SHOULD BE A RECORD

On track for new monthly record

 

With the 3rd and 4th week of October now in, we think October will squeak out a gain off of a tough comp and set a record for monthly GGR.  We are projecting flat to up 4% for the month.  Average daily table revenue actually increased 7% YoY the past two weeks.  We continue to believe that double digit YoY growth could resume in November and December for two reasons:  easier comparisons and the Beijing government handover.

 

MACAU SLOWS BUT STILL SHOULD BE A RECORD - macau1

 

The past two weeks were good ones for LVS.  Market share has gone from 19.7% to 20.8%, well above trend.  Assuming normal hold, we expect LVS to remain over 20% and slowly increase its share over the coming year up to 22-24%.  This is likely above consensus of around 20%.  Wynn has had an awful month with market share of only 9.5%, mostly due to low hold we're sure but we do expect the property to be a market share loser until Wynn Cotai opens.  MGM also struggled this month.  MPEL is pretty much in-line with the trend.

 

MACAU SLOWS BUT STILL SHOULD BE A RECORD - macau2


Sandy Markets

Client Talking Points

Sandy Markets

US Equity markets are closed today but the rest of the world continues to trade. And in Chicago, down at the Board of Trade floor, S&P 500 futures are moving down with commodities joining the party as the US dollar makes an upward move. What’s interesting about this hurricane here on the East Coast is that retailers will likely blame Sandy for any sort of miss on their next earnings report, whether it’s actually true or not. Some retailers will actually be impacted by the storm, but others have major fundamental issues that need to be addressed anyway. 

Chinese Cycles

China has been crashing for the last six-to-eight months and even longer than that if you use certain metrics. With Chinese stocks obliterated since March, a lot of people are coming out of the woodwork and declaring that “China has bottomed!” They will likely follow that statement up with something along the lines of how Chinese stocks are “cheap.” We have not bottomed and cheap can get a whole lot cheaper. Remember that. 

Asset Allocation

CASH 61% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
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.

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.

HCA

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

Three for the Road

TWEET OF THE DAY

“EVERY retailer will blame #sandy, many genuinely impacted!” -@herbgreenberg

QUOTE OF THE DAY

“Free advice is worth the price.” -Robert Half

STAT OF THE DAY

Italy sells 8 billion euros of 6 month Treasury bills at 1.347% as borrowing costs fell, the lowest since March 28.


POSTPONED: What’s Next For Agriculture Prices? (Corn, Wheat, Soybeans and Protein)

Takeaway: Today's call has been postponed, a new date and time will be circulated once it has been scheduled.

The Hedgeye Macro Team and Restaurants Team will be hosting a Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends. 

 

Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices next year (or next 6 - 12 months) for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken


Current subscribers of our Macro and/or Restaurant verticals will receive notification with the new date and time of this call along with the dial-in information automatically, if you have any further questions please email .

 

Good's Background

Darrel Good has a comprehensive understanding of agricultural markets and their economic implications.

"There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Developed, along with two other faculty members at U of I, a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • Writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts
    • Evaluation of pricing performance of Illinois corn and soybean producers  

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

EXPERT CALL ON AG PRICES POSTPONED

Due to the US markets and many offices being closed, we are postponing today's Expert Call on Ag Prices until a later date.

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 

 

 


European Banking Monitor: Risk Moves with Downgrade

Takeaway: US and EU bank swaps moved higher this week, reflecting concerns surrounding weak earnings and a Moody's downgrade of 5 Spanish regions.

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:

 

* U.S. and EU bank swaps were wider last week as a spate of blue-chip U.S. companies disappointed on 3Q earnings and/or guidance. Meanwhile, Romney's momentum slowed and Fiscal Cliff concerns are again taking center stage. In Europe, French, Italian and Spanish bank swaps showed the most deterioration.

 

* Perennial laggards Spain, Italy and Portugal saw their swaps widen notably last week. However, the U.S., Japan, Germany and France all saw government default swaps tighten.

 

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.

 

 -------

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 – Europe took its cues from America. European bank swaps were wider for 34 out of 37 reference entities WoW. Out of the three swaps that tightened this week, two were German (Deutsche Bank AG & IKB Deutsche Industriebank AG) and one was Belgian (Dexia S.A.). Spanish banks were sharply wider, where the average reference entity widened by 9.2%. This is the result of Moody's downgrading 5 Spanish regions on Monday of last week. Italian and French bank default swaps were also notably wider week-over-week.

 

European Banking Monitor: Risk Moves with Downgrade - 111.banks

 

Euribor-OIS spread – The Euribor-OIS spread tightened by less than a basis point to 10.4 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: Risk Moves with Downgrade - 111. Euribor

 

ECB Liquidity Recourse to the Deposit Facility – ECB Liquidity Facility balances ticked lower again this past week. 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: Risk Moves with Downgrade - 111. facility


MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF

Takeaway: US and EU bank swaps moved higher this week, reflecting concerns surrounding weak earnings and a Moody's downgrade of 5 Spanish regions.

Key Takeaways

 

* U.S. and EU bank swaps were wider last week as a spate of blue-chip U.S. companies disappointed on 3Q earnings and/or guidance. Meanwhile, Romney's momentum slowed and Fiscal Cliff concerns are again taking center stage. In Europe, French, Italian and Spanish bank swaps showed the most deterioration.

 

* Perennial laggards Spain, Italy and Portugal saw their swaps widen notably last week. However, the U.S., Japan, Germany and France all saw government default swaps tighten.

 

* Rates on high yield corporate debt rose 14bps week-over-week, the first increase in a long time. The leveraged loan market also reflected that reversal. 

 

* The MCDX, our preferred gauge of municipal default risk in the United States, rose 3bps to 135 bps vs. the prior week. 

 

* Our Macro team’s quantitative setup in the XLF shows 1.5% upside to TRADE resistance and 0.9% downside to TRADE support.

 

Financial Risk Monitor Summary

Short-term: Negative / 3 of 12 improved / 6 out of 12 worsened / 4 of 12 unchanged  

Intermediate-term: Positive / 9 of 12 improved / 2 out of 12 worsened / 2 of 12 unchanged  

Long-term: Positive / 7 of 12 improved / 2 out of 12 worsened / 4 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Summary4

 

1. American Financial CDS   Money center banks and large brokers saw their swaps widen by ~6 bps on average. Wells Fargo was the only exception in the group, where swaps tightened 1 bp. The median US Financial swap widened bps, and, overall, 20 out of 27 domestic financial institutions widened.

 

Widened the most WoW: AXP, MTG, AIG

Tightened the most WoW: TRV, WFC, LNC

Tightened the most WoW: HIG, C, BAC

Tightened the least MoM: MTG, XL, MBI

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - America

 

2. European Financial CDS – Europe took its cues from America. European bank swaps were wider for 34 out of 37 reference entities WoW. Out of the three swaps that tightened this week, two were German (Deutsche Bank AG & IKB Deutsche Industriebank AG) and one was Belgian (Dexia S.A.). Spanish banks were sharply wider, where the average reference entity widened by 9.2%. This is the result of Moody's downgrading 5 Spanish regions on Monday of last week. Italian and French bank default swaps were also notably wider week-over-week.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Europe

 

3. Asian Financial CDS – Asian bank swaps were mixed. Nomura Holdings of Japan saw its swaps tighten by 49 bps to 281 while Matsui Securities tightened 24 bps to 226 bps. Those were the largest movers of the week, both Japanese. In China, the China Development Bank tightened 14 bps to 105 bps. Overall, Asian banks were tighter by an average of 7 bps last week.  

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Asia

 

4. Sovereign CDS – European sovereign swaps were mixed last week. Italy, Spain and Portugal widened by 30 bps, 33 bps, and 79 bps, respectively, while Germany and France saw their swaps tighten 9 bps and 7 bps. The U.S. tightened by 2 bps and Japan was tighter by 1 bp.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Sov Table

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Sov 1

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Sov 2

 

5. High Yield (YTM) Monitor – High Yield rates rose 14 bps last week, ending the week at 6.66% versus 6.52% the prior week.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - High Yield

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 4.5 points last week, ending at 1730.99.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - LLI

 

7. TED Spread Monitor – The TED spread fell 2.4 basis points last week, ending the week at 19.9 bps this week versus last week’s print of 22.3 bps.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index fell -4.2 points, ending the week at -4.81 versus -0.7 the prior week. The commodity bubble continues to pop.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - JOC

 

9. Euribor-OIS spread – The Euribor-OIS spread tightened by less than a basis point to 10.4 bpsThe 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: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Euribor OIS

 

10. ECB Liquidity Recourse to the Deposit FacilityECB Liquidity Facility balances ticked lower again this past week. 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: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - ECB

 

11. Markit MCDX Index Monitor – Last week spreads widened 3 bps, ending at 135 bps versus 132 bps in 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: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - MCDX

 

12. Chinese Steel Steel prices in China rose 0.5% last week, or 18 yuan/ton, to 3763 yuan/ton. This index has had a solid bounce from its recent lows on 9/7/12, up 12.7% since then. That said, it remains 25% below its August 2011 levels, reflecting ongoing weakness in China's construction market. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - CHIS

 

13. 2-10 SpreadLast week the 2-10 spread tightened to 145 bps, this was 2 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.  

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - 2 10

 

14. XLF Macro Quantitative Setup Our Macro team’s quantitative setup in the XLF shows 1.5% upside to TRADE resistance and 0.9% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - XLF

 

Margin Debt - September: +1.12 standard deviations 

NYSE Margin debt rose to $315 billion in September from $287 billion in August. 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 September. 

 

MONDAY MORNING RISK MONITOR: RISK RISES ON WEAK EARNINGS AND FISCAL CLIFF - Margin Debt

 

Joshua Steiner, CFA

 

Robert Belsky


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