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MACAU: STEADY AS SHE GOES

Macau average daily table revenue (ADTR) remained unchanged from last week at HK$775 million.  For the full month, we are projecting YoY growth in GGR of 5-9%, above October’s 4% growth.  December growth should be even better than November’s.  We believe hold was normal this week and that mass traffic continues to be strong.

 

MACAU: STEADY AS SHE GOES - macau234

 

Relative to market share trend, Galaxy continues to be the laggard in November while LVS is pushing towards 20% again, above its trailing 3-month share of 18.8%.

 

MACAU: STEADY AS SHE GOES - macau345


Natgas On The Move

There’s been a lot of talk about how natural gas is poised to make moves in 2013. Looking at the amount of natgas rigs out there, we see that rig count increased by 11 on a week-over-week basis according to data from BHI. That’s the biggest week-over-week increase since September 2011. 4 rigs were added in the PA Marcellus and 3 gas rigs were added in Louisiana. Energy Sector Head Kevin Kaiser notes that the best way to play the resurgence in natgas drilling is to go long pressure pumpers like C&J Energy Services (CJES).

 

Natgas On The Move - natgasrig


Move It

Client Talking Points

Strong Markets

There’s a strong correlation between the S&P 500 and the US Dollar vis-a-vis the 90-day inverse correlation (-0.90). That means if you can get the dollar right, you can get a lot of other things right. Take the inverse correlation into account and a down week for the dollar makes sense as stocks, junk bonds, and commodities moved higher last week. Want a stronger equity market with volume to boot? We’re going to need stronger growth in America first. Grow GDP and quit pussyfooting around in Congress and we might just make this happen.

Consider Treasuries

Last week’s selloff in Treasuries brought the yield on the 10-year up to 1.68%, up 11 basis points on a week-over-week basis. That came close to our immediate-term TRADE line of resistance at 1.69% but we couldn’t break on through to the other side. As the 10-year drops back to 1.66% this morning, we find ourselves in a bearish formation so in turn, we raised our fixed-income asset allocation up to 27%. You have to go with what’s right, not with what’s wrong. 

Asset Allocation

CASH 46% US EQUITIES 9%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 27% INTL CURRENCIES 18%

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

“You know it's Monday morning when a @NYSEEuronext trader is still whistling the @NBCSportsfootball anthem #NYGiants” -@carlquintanilla

QUOTE OF THE DAY

“It is impossible to defeat an ignorant man in argument.” -William G. McAdoo

STAT OF THE DAY

UBS fined $47.5 million in insider trading case as #OldWall keeps with tradition.


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.

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME

Takeaway: Fiscal cliff optimism drove last week's impressive rally. Meanwhile, Europe remains dysfunctional. This week, more housing data.

Key Takeaways

 

* European and American Bank CDS: Bank swaps were tighter in the U.S. and Europe last week on perceived optimism around progress toward averting the Fiscal Cliff. In Europe, however, the news was less positive. Moody's downgraded France (admittedly, a lagging indicator) and there was no concrete agreement on a debt reduction package for Greece after the Eurogroup and IMF meeting. This week, among other things, there is a spate of housing data on tap. Overall, we'd expect the momentum to remain strong in housing, potentially providing a further tailwind to financials. 

 

* Sovereign CDS: Sovereign CDS traded in tandem with bank swaps, broadly declining across all sovereign reference entities. Portugal, Italy, and Spain saw the largest improvements. U.S. swaps were tighter by 1 bp, while Germany tightened by 2 bps. Japan was flat WoW.

 

* Markit MCDX: The MCDX, our preferred measure of municipal default risk, fell 3 bps last week. 

 

* Chinese Steel Prices: Chinese steel prices fell 47 yuan/ton (or 1.3%) to 3673. Over the last few weeks, steel prices in China have resumed their decline. This comes after a brief rally which peaked on October 10th 2012.

 

* 2-10 Spread: The 2-10 spread was 8 bps wider than it was a week ago.

 

*Quantitative Setup: Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 1.0% downside to TRADE support.

  

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 6 of 12 improved / 1 out of 12 worsened / 6 of 12 unchanged

 • Intermediate-term(WoW): Negative / 2 of 12 improved / 4 out of 12 worsened / 7 of 12 unchanged

 • Long-term(WoW): Positive / 6 of 12 improved / 3 out of 12 worsened / 4 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - Summary 6

 

1. American Financial CDS   Last week saw significant improvement in large cap U.S. financials. MS and GS were tighter by 19 and 15 bps, respectively, while BAC and C tightened by 11 and 10 bps. JPM and WFC were also modestly tighter. Overall, 25 of 26 domestic financial institutions tightened last week (AGO was the lone exception, widening by 14 bps).  

 

Tightened the most WoW: MBI, MS, GS

Widened the most/ tightened the least WoW: AGO, ACE, ALL

Tightened the most WoW: JPM, GNW, C

Widened the most MoM: CB, RDN, AIG

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - American

 

2. European Financial CDS – 34 out of 37 financial reference entities in Europe tightened last week, with most of the financial system mirroring what was seen at the sovereign level. French, Spanish, Italian and British banks saw the sharpest WoW improvement.    

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - European Financials

 

3. Asian Financial CDS – Bank swaps in Asia were mostly tighter, falling for 10 out of 12 reference entities. Chinese and Indian swaps saw broad improvement while Japanese swaps were mixed, but mostly improved. In Japan, 4 out of 6 reference entities tightened. 

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - Asian

 

4. Sovereign CDS European sovereign swaps tightened across the board last week with large improvements seen in Italy, Spain and Portugal. Portugal saw the largest week-over-week decline as its sovereign swaps tightened -117 bps to 524 bps. Meanwhile, Italy and Spain saw their swaps tighten by 44 and 33 bps, respectively.   

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - Sov Table

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - Sov1

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - Sov 2

 

5. High Yield (YTM) Monitor  High Yield rates fell 22 bps last week, ending the week at 6.81% versus 7.03% the prior week. Data was only available for this series through Wednesday (11/21)

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - HY

 

6. Leveraged Loan Index Monitor  The Leveraged Loan Index rose 2.5 points last week, ending at 1724.

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - LLI

 

7. TED Spread Monitor – The TED spread fell 1 basis point last week, ending the week at 22.3 bps this week versus last week’s print of 23.3 bps. 

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 0.1 points, ending the week at -1.8 versus -1.9 the prior week. Data was only available for this series through Wednesday (11/21)

  

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - JOC

 

9. Euribor-OIS spread – Euribor-OIS spread widened by less than 1 bps to 12.5 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.

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - Euribor OIS

 

10. 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.  

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - ECB

 

11. Markit MCDX Index Monitor – Last week spreads tightened 3 bps, ending the week at 130 bps versus 133 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: BIG RALLIES ON LIGHT VOLUME - MCDX

 

12. Chinese Steel –Steel prices in China fell 1.3% last week, or 47 yuan/ton, to 3673 yuan/ton. Since their recent highs on Oct 10, Chinese construction steel prices have fallen ~4%. 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: BIG RALLIES ON LIGHT VOLUME - CHIS

 

13. 2-10 Spread – The 2-10 spread widened 8 bps to 142 bps. We track the 2-10 spread as an indicator of bank margin pressure.  

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 1.0% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: BIG RALLIES ON LIGHT VOLUME - XLF macro

 

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: BIG RALLIES ON LIGHT VOLUME - Margin Debt

 

Joshua Steiner, CFA

 

Robert Belsky


THE M3: NEW SLOT RULES; ANGELA LEONG

The Macau Metro Monitor, November 26, 2012

 

 

NEW RULES FOR SLOTS TO BE ENACTED TOMORROW Macau Business

The new set of rules on slot machines was published today in the Official Gazette. The bylaw, which oversees the location of slot parlours and several technical issues, will be enacted tomorrow.

 

The rules open the way for mobile gambling using wireless networks, but “only inside gambling areas especially authorized” by the gaming regulator.  The bylaw also stipulates that slot parlours are only to be located inside five-star hotels, in non-residential buildings located within a 500-metre range of a casino or within a resort “not integrated in a densely populated area”.

 

The government has one year to adopt “adequate measures” to solve the issue of slot parlours located in residential areas, the bylaw states.  According to Secretary Tam, the new rules will impact half of the 11 slot parlours currently operating outside casinos.

 

The bylaw also states that gaming manufacturers that want to supply their products in Macau must be authorized by the Gaming Inspection and Coordination Bureau.  It adds that all slot machines must have a minimum return to player ratio of between 80% and 98%.


Starting January, gaming manufacturers can only supply products compliant with the new bylaw.  Gaming concessionaires are offered a six-month period starting from tomorrow to replace or fix all non-compliant slot machines in their casinos.  Gaming operators must also inform the gaming regulator at least 20 days before they install a new jackpot or linked jackpot.

 

ANGELA LEONG CALLS FOR COMPLETE SMOKING-BAN IN CASINOS Macau Daily Times

SJM managing director Angela Leong On Kei proposed that an all-inclusive smoking ban should be imposed on casinos instead of the current partial one.  She expected limited impacts on the gaming business if proper publicity is carried out.  Leong opted for a thorough ban instead of the partial ban, which she said is difficult for casinos to enforce because they operate round the clock and because of insufficient publicity that she worried might cause disputes between casino-goers and managers.  Some legislators immediately expressed support for the recommendation.



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