Takeaway: A better month than the headline




October GGR grew 3.5%, on the high end of our latest forecast for the month.  After looking through the data, it appears that October data was better than the headline suggests, as Mass volume growth remained strong but VIP hold was lower YoY.  We believe that November growth will pick up to 7-14% growth YoY and continue to accelerate in December.   


We estimate that total direct play this month accounted for 6.3% of the market, compared with 6.6% in October 2011.  The total VIP market held at 2.90% vs. 3.04% in October 2011.  Adjusting for direct play and theoretical hold of 2.85% in both months, October revenues would have increased 7.2% YoY.


Mass revenues continue to come in strong, posting 30% YoY growth.  Slot revenue growth accelerated to 18% YoY to a monthly record of $155MM.  VIP revenues fell 5% in October on flat RC volume and lower YoY hold.


Here are some property observations: 

  • LVS was the clear winner this month, exhibiting the best GGR growth and largest MoM market share gain.  Part of the strength in LVS’s results was due to easy comparisons, as hold was low across the company’s portfolio last October and last month.
  • LVS reached a three year high in market share on Mass revenue and a 2 year high in slot market share  
  • Wynn’s market share set an all-time low of just 10.1%.  Mass share was near the all-time low set in July and down 50bps from the Q3 average. VIP revenue share set an all-time low.  Part of the poor performance was due to low hold.
  • SJM was the only other concessionaire to record a YoY gain in GGR but its Mass share hit an all-time low
  • MGM was also impacted by low hold
  • For Mass growth, MPEL and Galaxy both once again outperformed the market handily



Total table revenues grew 3% in October, a deceleration over September and August growth rates.  Mass revenue growth was strong at 30%, just a little below the 6M trailing average of 31%.  VIP revenues fell 5% YoY, the biggest YoY drop since June 2009.  Over the last 6 months, VIP revenue growth has bounced around between -5% and +7% and averaged less than 1% growth.  The decline was driven by lower YoY hold and flat junket RC volume.  We expect November and December’s growth rate to pick up considerably with December growth better than November’s.



Table revenues grew 54% YoY (Mass +48%; VIP+58%), garnering the best growth in the market. Growth was aided by an easy hold comparison last year.  We estimate that Sands China’s hold in October 2011 was 2.68%, vs 2.94% last month, adjusted for direct play. 

  • Sands table revenue grew 2% YoY, aided by high hold and a very easy comparison. 
    • Mass grew 5%
    • VIP was flat YoY.  We estimate that Sands held at 3.16% in October compared to 2.13% in the same period last year.  We assume 9% direct play in October vs. 12% in October 2011.
    • Junket RC plunged 30% YoY; aside from September, 10 of the 11 trailing months have seen YoY declines in RC volume. 
  • Venetian table grew 1% YoY, helped by high hold.
    • Mass increased 2%, the property’s lowest growth rate since July 2009
    • VIP was flat
    • Junket VIP RC fell 18%, marking the 9th consecutive month of declines at Venetian.  
    • Assuming 30% direct play, hold was 3.43% compared to 2.91% in October 2011, assuming 28% direct play (in-line with 3Q11)
  • Four Seasons continued to perform well, growing 51% YoY despite very low hold and a difficult hold comparison
    • Mass revenues grew 44%, reversing 2 months of declines
    • VIP grew 53% and Junket VIP RC rose 197% YoY
    • If we assume direct play of 16%, in-line with the first 3Q of 2012, hold in October was just 1.86% vs. 3.01% in October 2011 when direct play was ~27%
  • Sands Cotai Central produced $200MM in October, a record month for the property due in part to high hold and a full month of Phase 2 being open
    • Mass revenue jumped to $72MM, $29MM higher MoM.   
    • VIP revenue of $127MM was a record for the property
    • Junket RC volume of $3,437MM, increased 15% MoM, setting a record for the property
    • If we assume that direct play was 9%, hold would have been 3.39%


  • With a 21% YoY decline, Wynn table revenues had the biggest drop in October, closely followed by MGM.  Part of the poor performance was a result of low hold.
    • Mass was flat – the worst performance of the 6 concessionaires
    • VIP revenues fell 25%. Wynn has had YoY declines in VIP revenues 6 out of the last 7 months
    • Junket RC declined 10%, marking the 6th consecutive month of declines
    • Assuming 10% of total VIP play was direct (in-line with 3Q12), we estimate that hold was 2.45% compared to 2.90% last year (assuming 11% direct play – in-line with 4Q11)


MPEL table revenue fell 2%.  Hold across MPEL’s 2 properties was comparable YoY at 3.06% vs. 3.10% last year.

  • Altira revenues fell 4%, due to a 6% decrease in VIP.  Mass grew 19%. 
    • VIP RC decreased 12%, marking the 11th consecutive month of declines which have averaged -19%
    • We estimate that hold was 3.02%, compared to 2.88% in the prior year
  • CoD table revenues were flat
    • Mass revenue grew an impressive 42%, while VIP revenue fell 11%
    • RC fell 5%
    • Assuming a 15% direct play level, hold was 3.08% in October compared to 3.24% last year (assuming 15% direct play levels in-line with 4Q11)


Table revenue grew 7%, producing the second best results in the market

  • Mass revenue was up 16% and VIP revenue grew 3%
  • Junket RC grew 2%, breaking the trend of 8 months of consecutive declines for VIP volume across SJM’s portfolio.  Aside from LVS, SJM was the only other concessionaire to report growth in RC volumes.
  • Hold was 2.87%, compared with 2.82% last October


Galaxy’s table revenue fell 5%, the company’s first decline in table revenues since June 2009.  Mass growth still led the market with 49% which was offset by a 15% decline in VIP growth.  Galaxy's hold at its 2 owned properties was 3.27% vs 3.21% in Oct 2011.

  • StarWorld table revenues fell 31%, marking the 4th consecutive month of declines
    • Mass grew 56%, offset by a 37% drop in VIP
    • Junket RC fell 21%, marking the 5th month of consecutive declines
    • Hold was low at 2.47% and the comp was difficult at 3.14% last October
  • Galaxy Macau's table revenues grew 19%.
    • Mass grew 53%
    • VIP grew 12%, while RC declined 4%, marking the 3rd consecutive month of declines
    • Hold was high in October at 3.98% vs 3.28% last year


MGM was the second worst performer in October with table revenue falling 20% in October.  The decrease was due to low hold and a difficult hold comparison.

  • Mass revenue grew 29%
  • VIP revenue fell 28% while VIP RC were flat.
  • If direct play was 8%, then October hold was 2.57% compared to 3.52% last year





In addition to generating the best GGR growth, LVS also had the largest MoM share growth, closing the month at 20.9%, up 3.2%.  October’s share was better than its 6 month trailing market share of 19.1% and better than Sands’ 2011 average share of 15.7%.

  • Sands' share fell 3.5%, down 1% MoM.  For comparison purposes, 2011 share was 4.6% and 6M trailing average share was 3.8%.
    • Mass share fell to 5.3%
    • VIP rev share fell 1.2% to 2.8%
    • RC share was 2.4%, down 1.1% MoM, in-line with the property's prior low hit in February 2012
  • Venetian’s share increased 50bps to 7.9%.  2011 share was 8.4% and 6 month trailing share was 7.7%.
    • Mass share fell 1.5% to 12.2%, the property's lowest market share since opening
    • VIP share increased 1.4% to 6.2%
    • Junket RC share ticked down 10bps to 3.9%
  • FS increased 70bps to 2.9%.  This compares to 2011 share of 2.2% and 6M trailing average share of 2.9%.
    • VIP share decreased 50bps to 3.1%. 
    • Mass share doubled to 2.6%, the property's second highest share after December 2008 (2.8%)
    • Junket RC increased 60bps to 4.3%
  • Sands Cotai Central's table market share grew to a record 6.0% in October from 3.2% in September and the 6M trailing average share of 4.3%.
    • Mass share of 7.7%, marking a property record and coming in just 30bps short of Wynn’s share
    • VIP share of 5.4%, a property record
    • Junket RC share ticked down 20bps or 4.5%, taking the top spot in terms of market share amongst Sands' properties


Wynn was the biggest share loser, dropping 2.7% to 10.1% in October, partly due to low hold.  October marked Wynn’s lowest share since its first full month of operations.  As a point of reference Wynn’s 2011 average of 14.1% and their 6-month trailing average is 11.6%. 

  • Mass market share fell 70bps to 8.0%, just 10bps above their all time low set in July
  • VIP market share plunged 3.8% to 10.7%, an all-time low for Wynn
  • Junket RC share decreased 40bps to 12.2%


MPEL lost 20bps of share in October to 14.0%, above their 6 month trailing share of 13.3% but below their 2011 share of 14.8%. 

  • Altira’s share fell 10bps to 4.3%, above its 6M trailing share of 3.8% but below their 2011 share of 5.3%. 
    • Mass share ticked up 10bps to 1.4%
    • VIP fell 20bps to 5.5%
    • VIP RC share increased 10bps to 5.4%
  • CoD’s share fell 10bps to 9.6%.  October’s share was above the property’s 2011 and 6M trailing share of 9.3% and 9.4%, respectively.
    • Mass market share increased 1.0% to 10.0%
    • VIP share fell 50bps to 9.4%
    • Junket share fell 60bps to 8.1%


SJM’s share decreased 30bps to 26.9%.  October’s share compares to its 2011 average of 29.2% and 6M trailing average of 26.6%.

  • Mass market share declined 1.8% to 30.2%, an all-time company low
  • VIP share increased 50bps to 26.6%
  • Junket RC share increased 1.9% to 28.7%


Galaxy's share grew 1% to 19.2% in October, but was still below its 6M trailing share average of 19.7%

  • Galaxy Macau's share grew 1.9% to 12.2%, aided by high hold close to 4%.
    • Mass share grew 50bps to 9.7%
    • VIP share increased 2.5% to 13.2%
    • RC share fell 50bps to 10.5%, marking the 5th consecutive month of share declines
  • Starworld's share dropped 80bps to 6.2%, the property's lowest share since July 2008
    • Mass share increased 30bps to 3.5%
    • VIP share dropped 1.4% to 7.3%
    • RC share fell 20bps to 9.1%


MGM lost 90bps of share to 8.9% in October, below its 6M average of 9.7% and 2011 share of 10.5%.

  • Mass share fell 80bps to 6.9%
  • VIP share declined 1.1% to 9.2%
  • Junket RC grew 70bps to 10.3%




Slot revenue grew 18% YoY to $155MM in October, hitting an all-time market high.

  • LVS took the top prize for YoY growth of 51% to $51MM, a company record.
  • MGM had the second best growth YoY at 23% to $25MM, an all-time property high
  • MPEL grew 14% YoY to $26MM
  • Galaxy’s slot revenue grew 11% to $18MM, also setting a company record
  • SJM grew 4% to $15MM
  • WYNN had the worst YoY performance in slots with a 14% YoY decline to $21MM  







Energy Expert Call: Misconceptions in the Oil Market

Energy Expert Call: Misconceptions in the Oil Market - AA


Whether oil bull or bear, any investor involved or interested in energy markets should listen to this call. Chris Cook is experienced, unbiased and thoughtful.


"The end game is about to begin. On the one hand you have the noise and rhetoric.  Greedy speculators gouging gasoline prices; mad mullahs preparing to wipe Israel off the map; bunker buster bombs and fleets being positioned; huge demand for oil from the BRIC countries; China's insatiable thirst for oil; the oil price will head for $200 a barrel and will never again fall below $130... On the other hand you have the reality..."   

                                                        -Chris Cook



The Hedgeye Energy Team will be hosting an Expert Call on the Misconceptions in the Oil Market at 1:00pm EST on Monday, November 12th. The call will feature Chris Cook, former Compliance and Market Supervision Director of the Intercontinental Exchange (ICE). Mr. Cook is now a strategic market consultant, commentator and entrepreneur. He specializes in many facets of global commodity markets, with a particular focus on how geopolitics, speculators, and central banks impact the crude oil prices. His views on the oil market are both fascinating and controversial. 


Key topics will include: 

  • The past, present, and future of global oil prices
  • Geopolitical factors influencing the oil markets, including the impact of the sanctions on Iran and the motives of the Saudis
  • Demand and inventories
  • Impacts of quantitative easing and the new political agenda  


Please dial in 5-10 minutes prior to the 1:00pm EST start time using the number provided below. Contact  if you have any further questions. 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 166147#

ECB on Hold Tomorrow

Takeaway: No change in interest rates as the ECB monitors inflation and the ongoing political scene.

Positions in Europe: Long German Bonds (BUNL)


The ECB meets tomorrow. Our call is that there will be no change to its main interest rates and there will be no material update on when the Outright Monetary Transactions (OMTs) could be activated to buy sovereign bonds.


Our interest rate position is in agreement with consensus -- 46 of 47 economists polled by Bloomberg expect no change in the main interest rate. We think the ECB is holding its bullets even as inflation remains sticky and above the 2% target (currently at 2.5% in OCT Y/Y).


ECB on Hold Tomorrow - 44. interest rates


The bank is also wrestling with an uncertain political climate focused on:

  • The extent to which the ESM can directly recapitalize troubled banks, and
  • How to set up banking and fiscal union

And the Bank is also aware of weak loan results, as displayed in the first chart below, and weakness in the broader economy, as witnessed in the Services and Manufacturing PMIs below the 50 line indicating contraction. That said, we do not expect these figures to influence a rate cut tomorrow.


ECB on Hold Tomorrow - 44. ECB loans


ECB on Hold Tomorrow - 44. pmis


On OMTs buying, we expect Draghi to continue to be tight lipped, mostly given the political climate and the moderation in Spanish and Italian sovereign yields (currently the 10YR is at 5.69% for Spain and 4.91% for Italy).


The Eurogroup holds its next meeting on November 12th; the hot topic will likely be Greece. The Greek government announced that it will have a decision on a €13.5B package of spending cuts, tax increases and structural reforms ahead of the meeting, on November 11th, which is pursuant to a €31.5B aid tranche intended for delivery on November 27th.   Both a divided Greek Parliament and strong populace resistance to austerity suggest challenges to passage, as an ultimate decision has been promised and delayed for weeks.



We do not have a Real-time position in the EUR/USD (FXE) but our immediate term TRADE levels are $1.27 – 1.29 with intermediate TREND resistance at $1.31.


ECB on Hold Tomorrow - 44. eur usd


Matthew Hedrick

Senior Analyst

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.

The NYC Gas Shortage

The current gasoline shortage in the New York metropolitan area isn’t expected to last very long by our calculations. The refining, distribution and marketing of refined product were the sectors that bared the brunt of Sandy. Storms aside, inventories were already at a five year low in the New England/Atlantic districts due to weak refined product demand, futures contracts in backwardation (higher prices today than in the future), and poor margins at Northeast refineries that resulted in a decrease in production.


Power outages are the primary reason why there has been a gasoline shortage in New York City. With more than 50% of gas stations without power last week, those that were open quickly ran out of fuel. Now that nearly all gas stations have power, the current shortage should fade out rather quickly.


The NYC Gas Shortage  - gasnyc


Takeaway: We are not expecting an upside surprise from MCD October sales data.

McDonald’s reports October sales tomorrow morning before the market open.   Consensus is calling for a sequential deceleration in two-year average global trends in October.  We are expecting US comps to miss already-subdued expectations. 


As we have recently written, we expect further negative revisions to McDonald's earnings estimates as several headwinds come into view.  Difficult compares in the US for 4Q and 1Q, driven by strong underlying performance and favorable weather, and continuing macro headwinds in Europe, are the primary pillars of the bear case.  We are looking for reasons to become more constructive but, as yet, especially given managements tone on the recent 3Q12 earnings call.  Global macroeconomic factors are suggesting continuing sluggish conditions and, as we wrote earlier this week, FX headwinds are also set to impair earnings growth in the immediate-to-intermediate term.





Below we go through what we would view as good, bad, or neutral comparable restaurant sales numbers for McDonald’s three regions in October.  For comparison purposes, we have adjusted for historical calendar and trading day impacts (but not weather).


Compared to October 2011, October 2012 had one less Saturday, one less Sunday, one additional Monday, and one additional Tuesday.  We expect this to have a positive impact on October’s headline numbers.   Our estimate of this impact, on average, is -1.5% during the month of October.


United States – facing a compare of 5.2% including a calendar shift of -1.6% to -0.7%, varying by area of the world:


GOOD: A print above -1% would be received as a strong result as it would offer the best possible clarification of management’s guidance of “negative” global comps in October.  While the guidance was not specific to the US, the domestic business is McDonald’s largest division and was likely trending negative at the time management provided the aforementioned guidance.  It is also worth noting that guidance was offered before the onset of Hurricane Sandy and all of the resulting disruption in the North East.  We are anticipating comps of -1.5% in October. 


NEUTRAL:  Same-restaurant sales growth between -1% and -2% would be received as neutral by investors as it would imply roughly flat calendar-adjusted same-restaurant sales and traffic growth versus August. 


BAD: A headline comp of less than -2% same-restaurant sales growth would be negative for MCD, especially given that the company is taking roughly 2.7% price in the US.





Europe - facing a compare of 4.8% including a calendar shift of -1.6% to -0.7%, varying by area of the world:


GOOD: A same-restaurant sales growth number greater than zero for Europe would be deemed a positive result by investors.  October is a sequentially easier compare for the Europe division versus September.  We are expecting comps in Europe to come in at roughly -1%.


NEUTRAL: A print of between 0% and -1% would be received as a neutral result for Europe as it would come in close to consensus and would imply only slightly-negative-to-flat calendar-adjusted two-year average trends from September.


BAD: A result of less than -2% would imply two-year average trends, on a calendar-adjusted basis, at the lowest levels of 2012. 


MCD OCT SALES PREVIEW - mcd europe sss



APMEA – facing a compare of 6.1% including a calendar shift of -1.6% to -0.7%, varying by area of the world:


GOOD: A result better than -2.5% would be received positively by investors as it would imply sequentially stable-to-improving two-year average trends even as concerns about Chinese economic growth persist.


NEUTRAL: A print between -2.5% and -3.5% would suggest a stabilization in calendar-adjusted two-year average trends within APMEA.  Management highlighted the “uneven” recovery in Japan and the Chinese slowdown as negatively impacting sales for the APMEA division as recently as October 19th.

BAD: Same-restaurant sales growth worse than -3.5% would imply trough AMPEA calendar-adjusted two-year average trends in October. 


MCD OCT SALES PREVIEW - mcd sss apmea


Howard Penney

Managing Director


Rory Green




Much Ado About Nothing

This note was originally published November 07, 2012 at 08:20 in Early Look

“A fool thinks himself to be wise, but a wise man knows himself to be a fool.”

-William Shakespeare


Depending on your political affiliation this morning, last night was either a Shakespearean tragedy or a Shakespearean comedy.  Republicans are obviously sad and Democrats are clearly quite happy.  But, did anyone really win? The President was re-elected with a very small margin and Congress remains in gridlock with a Republican House and Democratic Senate. 


We went into this election launching our Hedgeye Election Indicator (HEI), which attempted to assign a probability to the President getting re-elected based on real time market prices.  In our Q4 themes presentation, we then flagged that all the consensus polls were pointing against Romney.  The key discrepancies we saw to this consensus were the potential for a relatively higher turnout for Republicans and an economy that, based on historical standards, should not have led to a re-election for the incumbent.  In the end, neither Republican turnout nor the economy mattered as much as we expected.


When the political scientists write the story of this election, it will likely come down to a few failures by the Republicans.  First, they didn’t make the economic case strongly or clearly enough against Obama.  Second, a number of demographic groups turned sharply against the GOP, namely women. 


Obama, on the other hand, did a few things very effectively.  His re-election team consistently painted Romney as unfit to be President and the characterization largely stuck -- or at least stuck enough to matter on Election Day.  More importantly, Obama implemented a number of policies that aided him. Indirectly loose monetary policy aided the stock market and inflated some asset classes, which as we show in the Chart of the Day of the Hedgeye Election Indicator aided his re-election chances.  The second key policy was the auto bailout, which mattered disproportionately in the key battleground states.


But now the election is behind us.  To the victors go the spoils, or at least the gloating tweets and Facebook status updates, and to the stock market operators comes another day of playing the game in front of us.  Some questions to consider as a result of this election are as follows:


1)      How will the Fiscal Cliff ultimately play out? The timing on this step up in taxes and step down in government spending is January and no resolution is imminent.


2)       Will the Republicans hold the economy hostage over the debt ceiling again? Based on our analysis, the U.S. is slated to hit the debt ceiling again in early 2013.  With less of a mandate for Obama, it’s unlikely the Republicans in Congress acquiesce on this.


3)      Who will replace Treasury Secretary Tim Geithner?  We’ve made our stance clear on Geithner, we aren’t big fans.  But based on the proverbial writing on the wall, he is on his way out and who takes his spot is very much an open ended question. 


4)      What will Obama’s economic policy look like in 2013 and beyond?  Regardless of your partisan affiliation, you must admit this was and is a very tepid recovery.  Early in his first term, the President will have pressure to do more to stimulate.  How will he juxtapose this with the need to cut government spending?


5)      Is this Chairman Bernanke’s last term? On some level this is irrelevant in the short term as his term doesn’t end until January 2014, so we should expect to see absurdly loose monetary policy until at least then.  As always though, markets will price in a new Fed Chairman before it happens, so determining Bernanke’s replacement will be key to thinking about the future of monetary policy.


We will be digging into these questions and more this morning at 11:00am with Neil Barofsky, the former Inspector General of the Troubled Asset Relief Fund.  By his own admission, Barofsky is a life-long Democrat and as a former senior official in the Treasury Department will have some keen insight into the future of policy in the Obama administration.


One of our favorite quotes from Barofsky, who wrote “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street”, is the following:


“We need to convince those seeking or trying to retain power that they will not get our votes unless and until they commit to meaningful change of our financial system.”


Regardless of the specific policy path, it is hard not to agree with that quote.


In terms of your portfolios, the biggest immediate term factor to focus on is the U.S. dollar.  As long as Chairman Bernanke is leading the Federal Reserve, monetary policy will remain implicitly dovish.  This is and remains bearish for the U.S. dollar.  Conversely, this is positive for those asset classes that are inversely correlated to the dollar.  Chief among these is gold, which currently has a high 90-day inverse correlation to the dollar. 


Dollar down  and commodities up, sound familiar? As Yogi Berra famously said, “It’s déjà vu all over again.”  Unfortunately for corporations and the stock markets, dollar down means increased input costs and earnings headwinds. 


As my colleague Darius Dale highlighted yesterday, for the 3Q12 earnings season to-date, 59.8% of S&P 500 companies have missed on the top line and 28.7% have missed on the bottom line (388 total). That compares with 57.8% and 26.8%, respectively, in 2Q12. Similar to the political landscape, we would expect more of the same in terms of our Q4 theme of #EarningSlowing.


Our immediate-term risk range for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1701-1733, $108.46-111.44, $3.46-3.53, $80.24-80.85, $1.27-1.29, 1.67-1.75%, and 1419-1432, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Much Ado About Nothing - Chart of the Day


Much Ado About Nothing - Virtual Portfolio

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