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THE M3: MACAU GGR, BROKEN TOOTH

The Macau Metro Monitor, December 3, 2012

 

 

MONTHLY GROSS REVENUE FROM GAMES OF FORTUNE IN 2012 AND 2011 DSEC

Macau gross gaming revenues rose 7.9% YoY to 24.882 MOP BN (3.12 USD BN, 24.15 HKD BN).

 

OUT OF JAIL, 'BROKEN TOOTH' PROMISES "NO TROUBLE" Macau Daily Times

Wan Kuok-koi, aka ‘Broken Tooth’, once accused of plotting to kill the local police chief, was released on Saturday after more than 14 years of imprisonment.  Wan was convicted of loan sharking and triad membership in 1999, a year after he was arrested during an investigation into a car bomb attack on then-Judiciary Police chief António Marques Baptista.  “It definitely won’t happen,” Wan said from the passenger seat of a car when asked whether his release would affect Macau’s law and order, according to footage broadcast by Hong Kong’s Now TV. “Nobody is causing trouble so why would there be any trouble?”


MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL

Takeaway: The Greek debt deal tightened bank and sovereign swaps globally while U.S. high yield followed suit, but Chinese steel continues to sink.

Key Takeaways

 

* Still Positive. Overall, there was more positive than negative again last week in our risk monitor. We saw short term improvements from 4 of the 13 metrics we track (EU Financials CDS, Asia Financials CDS, EU Sovereign CDS, and High Yield). Meanwhile, we saw deterioration in 2 of the 13 metrics (Chinese Steel and U.S. Financials). On an intermediate term basis, the positives (5) narrowly outweigh the negatives (3), while on a longer-term basis, there are decidedly more positives (6) than negatives (2).

 

* European Swaps: European bank and sovereign swaps tightened last week as Europe reached some consensus on a debt deal for Greece. Our European Analyst, Matt Hedrick, wrote the Early Look last Thursday, providing insight into the pros and cons of the deal.   


* U.S. Bank CDS: Swaps tightened for 16 out of 27 domestic reference entities. The majority of the widening week-over-week took place in insurance companies. The money center banks, large brokers, and consumer finance companies mostly tightened.

 

High Yield:  The average rate on high yielding corporate debt fell 22 bps from 6.78% to 6.56%.

 

* Chinese Steel: Chinese steel declined another 107 yuan/ton (or 2.9%). Over the last several weeks, steel prices in Chine have resumed their decline. This comes after a brief rally which peaked on October 10th, 2012. Chinese steel prices are now 7% lower than they were on October 10th. 

 

* Quantitative Setup: Our Macro team’s quantitative setup in the XLF shows 0.8% upside to TRADE resistance and 0.3% downside to TRADE support.

 

Financial Risk Monitor Summary

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

 • Intermediate-term(WoW): Positive / 5 of 12 improved / 3 out of 12 worsened / 5 of 12 unchanged

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

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - Summary3

 

1. American Financial CDS –  There was very little movement in money center bank swaps or major investment bank swaps last week. The largest moves came from GS (-2 bps) and MS (+2 bps). This was the case for the rest of the U.S. financial sector as well, with the exception of the mortgage insurers and MBIA, where there were large declines in swaps. 

Tightened the most WoW: MBI, MTG, SLM

Widened the most WoW: ACE, HIG, AON

Tightened the most MoM: JPM, GNW, C

Widened the most MoM: RDN, AIG, ACE

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - American

 

2. European Financial CDS – European banks were generally tighter WoW with the exception of Greece, where bank swaps rose significantly. Overall, 32 of 37 financial reference entities in Europe were tighter last week on the heels of Monday's Greek debt announcement. 

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - Europe  2

 

3. Asian Financial CDS – Swaps were notably tighter in Asia last week with all reference entities we track in China, Japan and India showing improvement. 

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - Asia

 

4. Sovereign CDS – European sovereign swaps posted another week of significant tightening, led by Spain (-34 bps) and Portugal (-26 bps). Italy was close behind at -22 bps. The only major country that widened last week was the U.S., higher by 1 bp. 

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - Sov Table

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - Sov 1

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - Sov2

 

5. High Yield (YTM) Monitor – High Yield rates fell 22 bps last week, ending the week at 6.56% versus 6.78% the prior week.

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - HY

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 7 points last week, ending at 1731.

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - LLI

 

7. TED Spread Monitor – The TED spread rose 0.9 bps last week, ending the week at 23 bps.

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - TED

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 2.2 points, ending the week at 0.39 versus -1.8 the prior week.

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - JOC

 

9. Euribor-OIS spread – The Euribor-OIS spread widened by less than a basis point to 12.6 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: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - 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: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - ECB

 

11. Markit MCDX Index Monitor – Last week spreads widened by ~3 bps, ending the week at 133 bps versus 130 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: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - MCDX

 

12. Chinese Steel – Steel prices in China fell 2.9% last week, or 107 yuan/ton, to 3566 yuan/ton. Since their recent highs on Oct 10, Chinese construction steel prices have fallen ~7%. 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: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - CHIS

 

13. 2-10 Spread – Last week the 2-10 spread tightened 5 bps to 137 bps. We track the 2-10 spread as an indicator of bank margin pressure.  

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - 2 10

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.8% upside to TRADE resistance and 0.3% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - XLF

 

Margin Debt  – October: +1.19 Standard Deviations

NYSE Margin debt rose to $318 billion in October from $315 billion in September. 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 October. 

 

MONDAY MORNING RISK MONITOR: MOST METRICS POSITIVE, BUT WATCH CHINESE STEEL - NYSE margin debt

 

Joshua Steiner, CFA

 

Robert Belsky



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

The Rest Of Us

“History rouses man to emulate the deeds of earlier generations.”

-Ludvig von Mises

 

This weekend I forced myself to watch the Sunday morning US political talk shows. While it was sad to watch, it did inspire some leadership thoughts. One was on class warfare. The only two classes I see developing are The Political Class and The Rest Of Us.

 

Politics is a big business. And I have never been more proud to be neither a Bush Republican nor an Obama Democrat. On economic matters, both parties are Keynesian now. Unlike the Austrian school (center right), Keynesians are center-left. There is no center.

 

There’s also the left of center-left (Paul Krugman). And these guys are really amping up the Marxist (way left) rhetoric. If you don’t agree with that, read Krugman’s Sunday piece in the New York Times titled “Class Wars of 2012.” #Scary.

 

Back to the Global Macro Grind

 

In his preface to Classical Liberalism and The Austrian School, David Gordon recently wrote that, “Ideas do not, as Marxists imagine, reflect the interests of conflicting economic classes. The free market rests, not on irreparable class conflict, but on fundamental harmony of interests of people who benefit from social cooperation.”

 

I liked that. It’s progressive and collaborative as opposed to regressive and polarizing. On that score, the latter most definitely applies to our generational debate about the #KeynesianCliff. As far as I can see, the cliff debate has 3 big parts:

  1. DEBT
  2. SPENDING
  3. TAXES

This weekend, the left side of the Political Class was focused on 1 of the 3 (TAXES). Meanwhile, this is what Gene Sperling (Director of Obama’s National Economic Council) is actually asking for (he did the interview with Bloomberg TV this weekend):

  1. “a long-term extension of the legal debt limit”
  2. “some stimulus measures to support the economy”
  3. “a tax rate increase for the wealthy”

Got it on point #3 guys – you want to tax us. But what about points 1 and 2? Did some Democrats vote for social issues (that most Independents and socially liberal Republicans agree with), or did they vote for raising the US Debt and Spending levels? Or both?

 

The Political Class can obfuscate and demagogue all they want about this, but I am pretty sure that The Rest Of Us want to see an arrest of government debt and spending increases, not another moving of the #DebtCeiling goal posts and “stimulus” spending.

 

Back to the government’s math. In last week’s peculiar (but less than ironically inflated) pre-Election US GDP report of +2.67%:

  1. GOVERNMENT SPENDING contributed positively to “growth” for the 1st time in 9 quarters!
  2. At +0.67% in GOVERNMENT (G) contribution (versus -0.14%, -0.60%, and -0.43% in the last 3 quarters), spending is back!
  3. INVENTORIES contributed the rest of the positive delta, going from -0.46% in Q212 to +0.77% in Q312

Our GDP forecasting model (it’s a predictive tracking algo) couldn’t front run that. Government Spending (+0.67%) and an out of nowhere Inventory build (+0.77%) = 54% of US GDP “growth” in Q3 whereas the C (Consumption) in C +I + G + (EX-IM) = GDP fell to +0.99%. Consumption is 71% of the economy or, put another way, The Rest Of US, too.

 

All the while, last week global currency investors took USA looking more and more like Italy on debt and spending and sold down the US Dollar for the 2nd consecutive week. Both European and US stocks liked that – they were both up for the 2nd consecutive week at +0.5% and +0.9% for the SP500 and EuroStoxx600 indices, respectively.

 

Centrally planned stock markets, however, are not the economy. What investors and day traders alike have been trained to do is play the Dollar Debauchery trade that’s in front of them. With the US Dollar under Geithner policy pressure:

  1. CFTC Futures/Options net long contracts jumped +9.8% wk-over-wk (best weekly gain in net long spec since August)
  2. Gold and Silver net long contracts jumped +13% and 12%, respectively (wk-over-wk)
  3. Wheat contracts spiked +35% wk-over-wk

But, if you don’t think rising government DEBT and SPENDING is causal to blowing up the credibility of a country’s currency, you probably think I am just telling you stories this morning.

 

Sadly, the growing number of class warfare demagogues out there who are emulating the “deeds of earlier generations” are starting to story-tell like Karl Marx did too.

 

Our immediate-term Risk Ranges (support and resistance) for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $110.07-111.58, $3.54-3.65, $79.81-80.36, $1.29-1.31, 1.58-1.67%, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Rest Of Us - Chart of the Day

 

The Rest Of Us - Virtual Portfolio


ASCA: CHOOSING THE RE PATH?

Takeaway: ASCA is ripe for a value-adding real estate spin-off or at least a re-value through a real estate/free cash flow lens.

Withdrawing from the MA bidding process probably has a deeper meaning. 

 

 

Following PENN's announcement that they were splitting the company into a REIT and operating company, we noted in our 12/03/12 post "RE-VALUING ASCA", that ASCA was the most likely candidate to follow suit.  ASCA's announcement that they had terminated its effort to obtain a MA casino license sends a signal that the company may indeed be following along the real estate path.  While there is now doubt that the regulatory environment and bidding process would likely eat into returns, we think there is a longer-term play at work here.  In an environment of declining ROIC for domestic casinos, bad demographics, and generational shifts away from slot gambling, there is significantly more value to be created under a real estate type structure.  We applaud ASCA's decision, one of many smart moves this underrated management team has made.  We believe a REIT spin-off will be yet another.

 

On Friday afternoon, ASCA announced it was ending its bid for a casino in western Massachusetts.  The company cited "the local selection process, various project requirements and associated costs"  for the decision.  These are all legitimate issues and ones from which not enough casino companies have walked away.  The truth is, with all the value ASCA can create with a REIT spin-off, the hurdle rate to pursue these types of development projects have gone up.  We continue to believe ASCA could be a double from here even without a near-term REIT transaction as investors re-value the company through the real estate lens and focus on free cash flow.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 3, 2012


As we look at today's setup for the S&P 500, the range is 20 points or 0.72% downside to 1406 and 0.69% upside to 1426.      

                                                                                                                                                         

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.38 from 1.37

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Corelogic Oct. foreclosures
  • 8:58am: Markit US PMI Final, Nov. est. 51.7 (prior 51.4)
  • 10am: ISM Manufacturing, Nov. est. 51.5 (prior 51.7)
  • 10am: Construction Spending, Oct. est. 0.5% (prior 0.6%)
  • 11am: Fed sells $7b-$8b debt due 12/31/2015-1/31/2016
  • 11:30am: U.S. Treasury to sell $32b 3-mo., $28b 6-mo. bills
  • 12:15pm: Fed’s Rosengren speaks at New York Fed conference
  • 1:40pm: Fed’s Bullard speaks in Little Rick, Arkansas

GOVERNMENT:

    • House, Senate in session
    • Secretary of State Hillary Clinton in Prague
    • Democratic Governors to being 2-day conference in Los Angeles
    • Federal Housing Finance Agency closes public comment on plan to create standardized system for issuing mortgage bonds
    • U.S. High Speed Rail Association opens 3-day conference; to discuss California’s plan for $68b bullet train

WHAT TO WATCH

  • Auto sales may have increased 12% in Nov. to highest monthly pace in 4 years
  • Rupert Murdoch chooses WSJ editor Robert Thomson to lead publishing spinoff
  • UBS said to be close to settlement over Libor-rigging
  • EADS says talks on changes to shareholder structure are ongoing
  • Starbucks in discussions with U.K. Treasury regarding taxes
  • Health Management pressured doctors to admit patients to increase revenue, CBS’s “60 Minutes” reports
  • Carl Icahn’s offer to buy Oshkosh expires at midnight; will drop offer if <25% of shares tendered by deadline
  • Northrop, other defense contractors speak on fiscal cliff in DC
  • Macau gambling rev. climbed 7.9% in Nov. vs est. 8%
  • California may fine makers of mobile apps over piracy: San Francisco Chronicle
  • North Korea continues plans to test long-range rocket, Japan says will shoot it down if deemed necessary
  • Yahoo facing $2.7b non-final verdict in Mexico on charges related to a Yellow Pages listing service

EARNINGS:

    • Conn’s (CONN) 7 a.m., $0.27
    • Exa (EXA) 4:05 p.m., $0.08
    • Casella Waste Systems (CWST) 4:30 p.m., $(0.09)

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Crude Trades Near Two-Week High as China Manufacturing Improves
  • Hedge Funds Increase Bullish Bets Most Since August: Commodities
  • Gold Gains as Physical Demand Improves After Price Decline
  • Crop Futures Advance as Demand Increases Amid Supply Concerns
  • Copper Swings Between Gains and Drops on Manufacturing Gauges
  • Sugar Rises for Third Day on Lower Indian Output; Coffee Falls
  • Rebar Jumps Most in Six Weeks on Chinese Manufacturing Data Gain
  • Palm Oil Drops for Fifth Day on Indonesian Stockpile Concerns
  • Oil Bulls Boost Bets as U.S. Economy Strengthens: Energy Markets
  • Russia’s Grain Exports Fall 18% as Wheat Takes Smaller Share
  • Auto Aluminum Gains on Steel Thanks to Tighter Fuel Standards
  • Nickel-Ore Cargoes from Philippines to China Delayed by Storm
  • Goldman Forecasts 7% Return on Commodities in a Year on Energy
  • Rubber Climbs to Six-Week High as China Manufacturing Improves

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


USD – get the dollar right and you get most things beta right; last wk was the 2nd consecutive down wk for the Dollar (European and US stocks were up for the 2nd consecutive wk as the inverse correlation on a TREND duration remains close to -0.9 b/t USD and SP500).

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


GREECE – thank goodness this is the bullish catalyst every Monday; after rallying last Monday on whatever the news was, Greek stocks closed the wk down -4.2%, but rally +1.3% to another lower-highs on this morning’s funny money news. Net net, the Athex is down -8.2% from the OCT lower-high.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


CHINA – the Chinese get it; Washington update: Geithner’s “deal” includes changing the rules on the Debt Ceiling (rising debt) and raising, not cutting, “stimulus” spending; Shanghai Comp dropped another 1% to a fresh YTD low before the Greek “news”; China crashing again (-20.4% from the March global #GrowthSlowing peak).

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


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