Trending Lower In Vegas

The situation in Las Vegas continues to worsen with October Strip data poised to show yet another negative month of data. We estimate that October gaming revenue for the Las Vegas Strip will fall between -5% to 9% on a year-over-year basis. The fact that October had one less Sunday and Saturday in the month certainly doesn't benefit the data. Meanwhile, McCarran airport passengers fell 1.5% while taxi trips fell 3.6% in August marking the fourth consecutive month of declines. Taxi trips tend to correlate to gaming revenues so when trips decline, revenue declines. We also believe that slot volume will continue its downward trend in October after a respite in September.


Trending Lower In Vegas - image005

Bearish Notes In Energy

In addition to Techology and Utilities, Energy is one of three sectors that is bearish on our TRADE (3 weeks or less) and TREND (3 months of less) durations. The Energy Select SPDR ETF (XLE) continues to fall from September with a dead cat bounce occurring late last month. Our key levels to watch are Trade resistance at $71.64 and Trend resistance at $72.09. Our adage of “get the dollar right and you get a lot of other things right” applies to energy too. Watch the aforementioned levels as they get tested with the strengthening USD.


Bearish Notes In Energy - xle


DB upgrades IGT ahead of Thursday’s analyst day



We take some flak for being critical of some of our competitors' research but we try to limit our criticism to times when we think it could affect a stock price and we disagree.  It’s only fair, however, that we give credit where credit is due.  We agree with DB’s upgrade of IGT.  It probably comes as no surprise to our clients as we’ve been consistently positive on the stock since our management visit and 10/1/12 post “IGT: IMPROVING 2013 EARNINGS VISIBILITY."


Here are the DB thesis points that we agree on (5 out of 6):


1) accelerating earnings and beatable Consensus numbers, which has historically correlated strongly with stock price performance

2) real free cash flow relative to peers which allows for accretive buybacks

4) two years of solid expansion demand which is likely to curb “earnings cliff” fears that center around F2014

5) a relatively free option on expansion in the social gaming segment

6) a historically inexpensive valuation and inexpensive valuation relative to peers despite the most stable outlook and most ample liquidity


To be fair, we are less confident on thesis point #3:

3) a gaming ops yield inflection in the F2H13 which should curb the primary bear case in the stock


We think gaming ops yield could stabilize but wouldn’t go so far as call it an inflection point.  Yield is still at risk but this is well-known so even stabilizing yield would probably be good for the stock.

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The Good Fight

Client Talking Points

Tax Battles

As we head into December, the number one issue for America’s political class is the Fiscal Cliff. We have about three weeks until we hit our federal spending limits; can Congress get its act together to come to a compromise that will fix everything without kicking the can down the road? We don’t recommend holding your breath. Both Democrats and Republicans are battling over taxes and if they can’t form an agreement, everyone in the country suffers as tax cuts expire. Simply put: it doesn’t look good.

Dollar Debauchery

Years of devaluing the US dollar has had a material effect on everyone. You see it when you pay $6 for gas in California and you see it when you go to the supermarket to buy groceries. Don’t like it? Tough. Thank the Federal Reserve for its Keynesian actions and constant quantitative easing. With the dollar under pressure recently, we’ve seen precious metals and wheat spike considerably with wheat futures contracts jumping +35% week-over-week alone. That’s not a laughing matter. Remember: get the dollar right and you get a lot of other things right.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.


Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.


We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road


“Sell on the news? Spanish 10 year bond up 5 points since Nov 20th near 105, +17 since July 20th, 5.16% yield” -@Convertbond


“You can never underestimate the stupidity of the general public.” -Scott Adams


Greece initiates a $13 billion bond buyback program to help stabilize its debts.

European Banking Monitor: Swaps Tighter on Greece

Takeaway: Bank swaps reflect Greek news.

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:


European Swaps: European bank and sovereign swaps tightened last week as Europe reached some consensus on a debt deal for Greece.


ESM - Moody’s downgrades ESM to Aa1 from Aaa (Friday after the close), saying the decision was driven by the recent downgrade of France to Aa1 from Aaa and the high correlation in credit risk which it believes is present among the entities' largest financial supporters.


ECB and OMT-  Over the weekend Spanish PM Rajoy said it may be “very complicated” to achieve 6.3% deficit to GDP target in 2012 given revenue problems and high financing costs. He reiterated that if an intervention request is in Spain's interest in the future, he would not have any doubts about turning to the ECB for help.


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





European Financials CDS Monitor – 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. 


European Banking Monitor: Swaps Tighter on Greece - ff. banks


Euribor-OIS spread – The Euribor-OIS spread widened by less than a basis point to 12.6 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: Swaps Tighter on Greece - ff. euribor


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.  


European Banking Monitor: Swaps Tighter on Greece - ff. facility


The Macau Metro Monitor, December 3, 2012




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



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?”

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 80.43%
  • SHORT SIGNALS 78.35%