Todd Jordan (GLL):
Josh Steiner (Financials):
Howard Penney (Restaurants):
Todd Jordan (GLL):
Josh Steiner (Financials):
Howard Penney (Restaurants):
TODAY’S S&P 500 SET-UP – February 14, 2013
As we look at today's setup for the S&P 500, the range is 16 points or 0.68% downside to 1510 and 0.37% upside to 1526.
SECTOR AND GLOBAL PERFORMANCE
*Buy trade and sell trade levels updated as of 02/13/13
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
In a press release this morning, Anheuser-Busch InBev, Grupo Modelo and Constellation Brands announced a revised merger agreement that completely divests Grupo Modelo’s interest in the U.S. in perpetuity. Under the terms of this revised agreement, STZ will acquire (in addition to the Crown JV as originally contemplated) Compania Cervecera de Coahuila, an asset that includes Grupo Modelo’s brewery in Northern Mexico as well as the profit stream associated with the sale of beer to Crown. The total compensation now moves to approximately $4.75 billion ($2.90 billion for the brewery and $1.85 billion for Crown).
This revised agreement provides for STZ’s complete control over all aspects, including production, of Grupo Modelo’s brands in the United States, effectively establishing STZ as the third largest brewer in the U.S
Almost certainly, this revised agreement was created within the context of the ongoing discussions with the Department of Justice, satisfying most, if not all, of the concerns expressed in the DOJ’s complaint, making regulatory approval extremely likely.
What Does it Mean?
As some background, there are two profit streams associated with the sale of Grupo Modelo’s brands in the United States.
STZ will own the entirety of the profit pool associated with the sale of Grupo Modelo’s brands in the United States. The quick and dirty math is as follows (2013):
The Good and the Bad
Obviously, today's news justifies our view that the value of the transaction to Anheuser-Busch InBev was so substantial globally that the company was willing to make significant concessions related to the business in the U.S. With the closing of the deal highly likely now that the transaction has been revised, we believe that STZ should move to the mid-$40's based upon our math. We suspect that the first print of the day will be close to $41 and that buyers come into what will be a very different Constellation Brands going forward. We may even get a couple of upgrades from the shops that downgraded the name at $31 last week.
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“All I really need is love, but a little chocolate now and then doesn't hurt!”
-Charles M. Schulz, Peanuts.
As I set about to find an appropriate theme for the Early Look this morning, I was reminded that it is Valentine’s Day. Now just how I was reminded of Valentine’s Day is interesting in and of itself; watching the news get interrupted by yet another commercial for Kay Jewelers pitching their seemingly endless collection of heart-shaped charms and sparkling pendants. Of course TV isn’t the only place I have been inundated with a Valentine’s Day message to exercise consumerism. All I had to do was to walk into my local pharmacy or discount store where I had to snake my way around displays of candy boxes in every shape, size, and assortment. Honestly, without these less-than-subtle reminders, Valentine’s Day might sneak up on me unnoticed and Hallmark might miss the sale of one additional card.
A lot of chocolates and gifts are bought for Valentine’s Day. According to the National Retail Federation, the average male will spend $175.61 this Valentine’s Day on gifts, jewelry, roses, chocolates, dates and more. Women will spend just less than $89. It is estimated that more than 58 million pounds of chocolate will be sold in the days leading up to Valentine’s Day. All totaled, it is estimated that $13.19 Billion will be spent.
Those same commercials that last night reminded me of Valentine’s Day were also omnipresent both before and after Tuesday evening’s State of the Union message. Thinking about the marketing effectiveness surrounding Valentine’s Day, I wonder if a similarly unavoidable marketing reminder of the rising United States debt, the current Federal deficit, and pending sequestration cuts would drive more timely decision making by the male and female constituents of congress. I bet they made their respective Valentine’s decisions before today!
From candy and gifts to the State of the Union.
Tuesday evening’s address seemed to me a rambling list of the wonderful things this administration is hoping to set in place during the balance of Obama’s term in office. And whenever I hear “hope”, I am now conditioned to question the means behind the anticipated “hoped-for” event. The President spoke of expansive government involvement ranging from building roads and bridges to pre-kindergarten education for four year olds, and from Social Security and Medicare to energy independence. Very little discourse was aimed at the funding of these proposals. Like walking into displays of chocolates around Valentine’s Day, does it not make sense to discover which ones are favored by your sweetheart first? Certainly, buying every option in the store so as not to neglect that one special favorite is less than efficient, if not financially impossible.
Not knowing what chocolates are favored, would you elect to push off Valentine’s Day a couple months if you could? Would you kick the can down the road and address the decision later? What if Valentine’s Day could not be delayed or postponed? What then of your chocolate choices?
At Hedgeye, we tend to simplify our thinking wherever possible and bring complicated matters down to sporting metaphors where appropriate. In this case, I think of the Federal budget as the foundation of any game plan for our government. Pending decisions for our congressional leaders seem too easily kicked down the road. Congress has failed to pass a Federal budget since 2009! How should we expect our leaders to make decisions that potentially influence our enemies and allies alike, positively and negatively, without a game plan? I played for some Hall of Fame coaches in Herb Brooks and Bob Johnson. Like Keith and Daryl, I also played for the legendary Tim Taylor at Yale. Whether it was hockey, football, volleyball, softball, tennis, golf, or any other sport, there was always a game plan!
The Federal Debt level is fast approaching $16.5 Trillion. It is estimated that 2013 will add another $900 Billion-$1 Trillion. Rienhart and Rogoff will argue that “Countries with debt to GDP ratios above a certain level (90%) tend to experience slower economic growth.” It certainly appears that the U.S. has reached the point where our debt levels significantly dampen growth.
Of particular interest to me during the State of the Union speech were the President’s plans projecting out a decade and longer. At Hedgeye we talk about duration and believe projections longer than three years out are highly subject to forecasting error. Already the US economy is showing anemic growth. The most recent figures showed a decline of -0.1% in US GDP during the fourth quarter. The CBO office is projecting 1.4% growth for fiscal 2013. And projecting 2.6%, 4.1%, and 4.4% in ’14, ’15, and ’16 respectively. Unfortunately, much of the US expenditure projections are not as flexible or easily manipulated as the revenue and economic growth assumptions.
Just for reference, the average US GDP growth rate over the past ten years was 1.7%. What is the real plan and how does Congress make it flexible enough to adjust for the game changing and to embrace the unknowns?
And what about the sequester and Congress? Referring to Congress after the State of the Union speech by President Obama, House Speaker John Boehner stated, “None of them have ever lived under a sequester. For that matter, neither have I…This is going to be a little bleak around here when this actually happens and people actually have to make decisions.” A sobering thought during times when decisions have to be made that will affect the lives and finances of so many.
My Valentine’s wish is for Congress to develop a game plan; one with real metrics, transparent to voters, and offering accountability.
As for chocolate choices, I know yours will be easier than the decisions that face our Congressional leaders. My Valentine’s Day game plan is simple. My wife will wake to a card on the counter under a package of Reese’s Cups. And I am likely to read my card from her as I down a handful of plain M&M’s with my morning coffee.
Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $116.98-118.91, $79.71-80.31, 92.78-94.46, 1.96-2.01%, and 1, respectively.
Happy Valentine’s Day!
The Macau Metro Monitor, February 14, 2013
VISITATION GROWTH RATE SLOWS ON FOURTH DAY OF LUNAR NEW YEAR Macau Business
The Year of the Snake continues to bring thousands of tourists to Macau, although the growth rate has slowed down. Yesterday, Macau welcomed close to 162,000 visitors, an increase of 16.4% YoY. That marked a growth slowdown in comparison with the day before, when Macau welcomed almost 167,000 visitors, up by 28.4% YoY. Note that the figures provided by the Tourist Office also include non-resident workers and students, some of whom exit and re-enter Macau during the holiday period.
Of the total tourist arrivals recorded yesterday, close to 114,000 were from the mainland, up by 24.6% YoY. The soaring number of tourists is putting heavy pressure on Macau’s borders, in particular on the Border Gate checkpoint, which is the busiest. Media reports said that people had to wait for several hours either to enter or leave Macau. Some chaotic scenes and scuffles were recorded, though there have been no reports of people being injured.
In the first four days of the Year of the Snake, Macau welcomed close to 566,000 tourists, up by 21.5% YoY.
MBS FINED $475,000 BY REGULATOR FOR SURVEILLANCE BREACHES Strait Times
Marina Bay Sands was fined $475,000 by the Casino Regulatory Authority of Singapore (CRA) on Wednesday for surveillance breaches. The integrated resort had failed on three counts and were fined under Regulation 3(2) of the Casino Control (Surveillance) Regulations. The first breach, which led to a $150,000 fine, was for failing to retain casino surveillance footage during the period of Sep 14, 2011 to April 12, 2012. Casinos have to retain footage for a specified time period. The time period was not disclosed. The second fine of $100,000, was for failing to ensure continuous recording of casino surveillance footage from Dec 17, 2011 to June 14, 2012. The third fine of $225,000, was for the lack of notification system to alert the casino of failures to their surveillance system.
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.