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SOLID WEEK IN MACAU

Macau average daily table revenue (ADTR) grew 17% YoY last week, in-line with our expectations.  For the full month, we are projecting YoY growth in GGR of 5-10%, above October’s 4% growth.  We continue to believe that December growth will be even better than November’s.  However, we would caution that there is likely to be some investor consternation surrounding the smoking restrictions which may go into effect either January 1 or 14.

 

SOLID WEEK IN MACAU - macau3

 

Relative to trend, SJM and MGM seem to be outperforming in terms of market share while Galaxy and MPEL lag behind. 

 

SOLID WEEK IN MACAU - macau4


Yields In The Eurozone

As GDP growth slows throughout the Eurozone (-0.1% for Q3), bond yields remain elevated for at-risk countries like Greece and Spain. The 10-year yield for sovereigns ticked slightly lower week-over-week, with Greece falling -49 basis points (bps) to 17.38%, Italy falling -12 bps to 4.88%, Portugal falling -8bps to 8.78% and France falling -6bps to 2.07%. Spain actually saw its yield increase by +6 basis points to 5.89% while Germany gained +2bps to 1.35%.

 

Yields In The Eurozone - 10yr


What's In The Dollar?

Client Talking Points

Dollars and Commodities

The US dollar is driver of many economic events, hence why it’s important to keep an eye on it at all times. If you get the dollar right, you’ll get a lot of other things right. The US dollar is now up for 8 of the last 9 weeks. If this continues, along with the S&P 500 recapturing our TAIL line of support at 1364, we’ll see food inflation come down and the commodity bubble exploding. Institutional bets on commodities cannot withstand these strong dollar gains and they will be forced to fold their hand eventually. 

 

Wheat, Soybeans and Coffee have been big losers on a week-over-week basis. Eventually you’ll see some products coming down in price at the supermarket but it will take time. This is also a positive for stocks like Starbucks (SBUX), Walmart (WMT) and others who are reliant on the price of commodities. Net long contracts at the CFTC continue to drop; it’s easy to see what’s happening in commodity-world right now and it ain’t pretty.

 

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
TCB

After a long downward slide, TCB has finally turned the corner. The margin has stabilized after the balance sheet restructuring. Loans are growing thanks to the equipment finance business. Non-interest income is more likely to go up than down going forward, a reversal from the past 18 months. Credit quality has a tailwind from a distressed housing recovery in TCB’s core markets: Minneapolis, Detroit and Chicago. On top of this, the CEO, Bill Cooper, is one of the oldest regional bank CEOs, which raises the probability that the bank will be sold. Expectations are bombed out at this point, so we think it’s time to move from bearish to bullish on TCB.

IGT

There is improving visibility on 20%+ EPS growth with P/E of only 11x with better content leading to market share gains. New orders from Canada and IL should be a catalyst. Additionally, many people in the investment community are out in Las Vegas at the annual slot show (G2E) and should hear upbeat presentations by management.

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

“Haldane: ‘As UK banks increased leverage, they managed to maintain constant capital ratios by seeking out assets with lower risk weights’” -@edwardnh

QUOTE OF THE DAY

“It is by the goodness of God that in our country we have those three unspeakably precious things: freedom of speech, freedom of conscience, and the prudence never to practice either of them.” -Mark Twain

STAT OF THE DAY

Bad debt at Spanish banks hit new highs as debts that are mostly related to home buyers and property developers reached 182 billion euros or 10.7% of bank assets.


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MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET

Takeaway: We're watching Euribor-OIS, the TED Spread, and high yield. Bank and sovereign CDS remains generally benign, for now.

Key Takeaways

 

*European Bank CDS: The Eurozone officially moved into recession last week. Preliminary Q3 GDP contracted by 0.1% QoQ following a 0.2% contraction in Q2. In response, EU bank swaps widened WoW on concern around deteriorating fundamentals in Europe. Despite Draghi's pledge to do "Whatever It Takes", it seems that risk is creeping back into the markets. Along with swaps widening at the bank and sovereign levels, both Euribor-OIS and the TED spread have stopped their march downward and are now slowly pushing higher. For reference, This is the third consecutive week that the Euribor-OIS has risen WoW.   

 

* Sovereign CDS: Sovereign swaps followed (or led?) bank swaps wider in Europe last week for 4 out of the 6 EU sovereign reference entities. The notable exceptions were Germany and Ireland, where swaps tightened nominally. French sovereign (and bank) swaps were noticeably wider WoW. 

 

* Rates on High Yield corporate debt in the U.S. rose 26 bps week-over-week to 7.03% vs 6.77% in the prior week. This is the fourth consecutive week that rates have moved higher. Rates are now 50 bps higher than where they stood a month ago.

 

* Our Macro team’s Quantitative Setup in the XLF shows that it is broken from an intermediate term TREND duration. On a short-term TRADE basis there is 3.5% upside to TRADE resistance and 3.1% downside to TRADE support.

 

Financial Risk Monitor Summary  

• Short-term(WoW): Negative / 1 of 12 improved / 5 out of 12 worsened / 7 of 12 unchanged  

• Intermediate-term(WoW): Negative / 2 of 12 improved / 6 out of 12 worsened / 5 of 12 unchanged  

• Long-term(WoW): Positive / 5 of 12 improved / 4 out of 12 worsened / 4 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - Summary

 

1. U.S. Financial CDS – U.S. large cap financials were more or less flat WoW, but remain significantly wider MoM. MS, GS and BAC are wider by 32 bps, 28 bps and 22 bps, respectively. Overall, default swaps widened for 21 out of 27 U.S. financials. MBIA widened by 415 bps WoW on the news that BofA was buying MBIA debt in an effort to block the separation of the the muni business from the structured finance business.  

  

Widened the most WoW: MBI, AIG, LNC

Tightened the most WoW: BAC, C, MTG

Widened the most MoM: MBI, AIG, CB

Widened the least/ tightened the most WoW: GNW, UNM, MTG

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - American

 

2. European Financial CDS – French banks continue to widen on the news that Europe is officially back in recession. BNP and Credit Agricole were wider WoW, bringing their MoM changes to +44 and +35 bps.  Soc Gen was flat WoW, but is up a similar +42 bps MoM. Italian banks are also notably wider MoM.

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - Europe

 

3. Asian Financial CDS Japanese brokers continue to tighten. Daiwa, Matsui and Nomura tightened by 14, 10 and 6 bps, respectively bringing their MoM change to -32 bps, -47 bps and -63 bps. The Japanese banks have been stable over the same time period. Chinese banks were slightly wider WoW, but are more or less flat MoM. Indian banks also widened this past week. 

 

Chinese and Indian banks continued to widen across the board week-over-week.  In contrast, Japanese banks were mostly tighter with swaps falling for 4 out of 6 Japanese reference entities.

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - Asia

 

4. Sovereign CDS –  Portuguese sovereign default swaps widened by 46 bps WoW to 641 bps, an increase of 8%. However, outside of Portugal it was a fairly benign week for sovereign swaps. Italy was flat. Spain widened by 8 bps. France widened by 7 bps. Ireland, Japan, the U.S. and Germany all moved by 3 bps or less.

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - Sov Table

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - Sov1

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - Sov 2

 

5. High Yield (YTM) Monitor – High Yield rates rose 26.1 bps last week, ending the week at 7.03% versus 6.77% the prior week.

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - HY

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 11.6 points to 1722 points last week. Leveraged loans are off ~1% in the past month.

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - LLI

 

7. TED Spread Monitor – The TED spread rose 1.7 bps points last week, ending the week at 23.3 bps this week versus last week’s print of 21.6 bps. This gauge of U.S. interbank risk has risen roughly 3 bps in the last month.

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 1.5 points, ending the week at -2.08 versus -3.6 the prior week.  

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - JOC

 

9. Euribor-OIS spread – The Euribor-OIS spread widened by less than a basis point to 12 bps. This series has been moving essentially sideways for the last month. 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. 

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - Euibor OIS

 

10. ECB Liquidity Recourse to the Deposit Facility – In a positive sign for the stability of the EU Banking System, the ECB Liquidity Deposits continued to decline in the latest 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: MIXED SIGNALS FROM THE CREDIT MARKET - ecb

 

11. Markit MCDX Index Monitor – Last week spreads tightened by 1.4 bps, ending the week at 133 bps versus 134 bps 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: MIXED SIGNALS FROM THE CREDIT MARKET - MCDX

 

12. Chinese Steel Steel prices in China fell 0.5% last week, or 18 yuan/ton, to 3720 yuan/ton. Since their recent highs on Oct 10, Chinese construction steel prices have fallen ~3%. The broader downward trend, which started August of last year, remains intact and is a sign of ongoing weakness in the Chinese 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: MIXED SIGNALS FROM THE CREDIT MARKET - CHIS

 

13. 2-10 Spread The 2-10 spread tightened 1 bp to 134 bps. We track the 2-10 spread as an indicator of bank margin pressure.  

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows that it is broken from an intermediate term TREND duration. On a short-term TRADE basis there is 3.5% upside to TRADE resistance and 3.1% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: MIXED SIGNALS FROM THE CREDIT MARKET - 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: MIXED SIGNALS FROM THE CREDIT MARKET - Margin Debt

 

Joshua Steiner, CFA

 

Robert Belsky

 


THE M3: S'PORE HOTELS; JAI ALAI; SJM COTAI; OKADA

The Macau Metro Monitor, November 19, 2012

 

 

SINGAPORE HOTELS FEEL THE SQUEEZE AS CORPORATE BUDGETS TIGHTEN Reuters 

The best may be over for Singapore's booming hotel market as tightening corporate budgets and bank job cuts leave more luxury rooms empty.  "We will see a slight drop in occupancy rate (in Singapore) mainly due to new supply that is about to come on board in 2013," said Jonas Ogren, Asia director at hotel data provider STR Global, based in Singapore.  According to CBRE, the supply of four- and five-star hotel rooms in Singapore is expected to increase by 17.4% from 2011 to 2014. 

 

The city-state's high-end hotels have been hit harder than moderately priced rooms, which suggests that weaker corporate travel rather than tourism is weighing on demand. 

 

JAI ALAI TO UNDERGO REVAMP Macau Business

SJM said it has reached an agreement to continue leasing the Jai Alai Palace complex, where it operates a self-promoted casino, owned by Angela Leong On Kei.  The gaming operator now plans to revamp the run-down property.  

 

The new contract, which has a duration of three years, starts on January 2014.  SJM Holdings will pay monthly rental of MOP10.3 million (US$.1.3 million) for the property.  CEO Ambrose So said that the redevelopment project would cost up to MOP700 million.  He added the project would start “soon” and be completed in 2013.

 

SJM EXPECTS COTAI PROJECT TO COST OVER MOP20B Macau Daily Times

SJM Cotai is set to have as high as 70% non-gaming business.  SJM said it’s planning to have 700 gaming tables in Cotai but CEO Ambrose So stressed that the number is what the company initially applied for, but the government is yet to give an answer on the precise figure. 

 

US INVESTIGATING OKADA'S PHILIPPINES PAYMENT Macau Business

U.S. gaming regulators are looking at a payment made by a subsidiary of Kazuo Okada’s Universal Entertainment Corp to a former consultant for the Philippine gaming authority, the Philippine Amusement and Gaming Corporation (Pagcor).  An investigative report from Reuters says a Universal subsidiary made a US$5 million (MOP40 million) payment in May 2010 to a firm wholly-owned by Rodolfo Soriano, a close associate of Efraim Genuino, who headed Pagcor at the time of the events.


Universal has already filed a suit against an ex-employee saying he acted without proper authorization in channelling the US$5 million to Mr Soriano. The payment is part of US$40 million in transfers by Universal that are being looked at by the U.S. regulators.



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