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Two Way Street

Client Talking Points

The High Road

First off, let us review what's currently going on. The Dow Jones Industrial Average touched another new high yesterday and stocks are in bullish formation. This is in line with our global growth thesis that revolves around economic recovery in the housing and labor markets and increased consumption. We have a strong US dollar driving down commodity prices and in particular, crude oil, which is now at $90 a barrel (WTI). That's bullish for consumption which is ultimately bullish for stocks. Things are all good for the bulls in stockland. 

The Low Road

Conversely, we are bearish on commodities and mining is a sector highly correlated to commodity prices. On March 27th, Industrials Sector Head Jay Van Sciver will hold a Black Book call to discuss his view on the sector and some names that are sure to attract your attention (CAT - anyone?). Why focus on mining? Because they've spent a ton of capital over the last decade and mining is not a growth industry contrary to what others might think.

Asset Allocation

CASH 24% US EQUITIES 24%
INTL EQUITIES 24% COMMODITIES 4%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

"@KeithMcCullough @HedgeyeEntertaining and informative. Great stuff." -@JoshWellerWorld

QUOTE OF THE DAY

"We don't see things as they are, we see things as we are." -Anais Nin

STAT OF THE DAY

U.S. Jobless Claims fall to 340,000. One month average hits five-year low.


WHAT TO EXPECT IN MACAU IN MARCH?

Anything less than double digit growth would be a disappointment

 

 

Based on the last 3 months of actual growth and factoring in seasonality, we’re projecting 10-15% YoY growth for March.  Excluding the impact of low hold, investors should be disappointed with growth less than double digits.

 

Why should we be disappointed with even high single digit growth?  For one, the hold comp is very easy.  March 2012 VIP hold was the lowest of 2012.  Moreover, March VIP volumes and Mass revenues have historically averaged 6% and 5% sequential growth over February in years when Chinese New Year occurred in February.  A simple calculation using these sequential growth rates yields 15% YoY growth for March, at the high end of our projection.

 

Even with flat MoM revenues, March would still exceed last year by 8%.  Our projection methodology is more comprehensive than these simple sequential analyses but we find them useful as a reasonableness check.  Any way we look at it, March YoY growth should be strong and an acceleration from January and February.  A non-hold related miss from our projection could be indicative of a slowdown in the underlying fundamental trends or the impact from the China corruption crackdown.

 

WHAT TO EXPECT IN MACAU IN MARCH? - m123



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Stomping Tom

“Hello out there, we're on the air, it's 'Hockey Night' tonight.
Tension grows, the whistle blows, and the puck goes down the ice.
The goalie jumps, and the players bump, and the fans all go insane.
Someone roars, "Bobby Scores!" at the good old Hockey Game.”

-Stomping Tom Connors

 

It is a sad day back in my home country of Canada.  Iconic Canadian singer Stomping Tom Connors passed away from natural causes.  For those that were born south of the 49th parallel, his name is probably not all that familiar, but in Canada his songs are unofficial national anthems.

 

I know, I know only Canadians would idolize a singer that called himself Stomping and sang about hockey.  To be fair, Connors also sang about more complex topics like potatoes (Bud the Spud) and Saturday evenings in small Canadian outposts (Sudbury Saturday Night).  On some level this simplicity is the beauty of Canada, although one does have to wonder what would be worse – listening to Stomping Tom on repeat for 12 hours or a 12 hour Rand Paul filibuster.

 

As many of you know, one of Canada’s most significant industries is mining.  Our Industrials Sector Head Jay Van Sciver will be presenting his in-depth view of the global mining and construction sector on March 27th in a black book presentation.  We will circulate the information closer to the date.  The most controversial name in this sector is Caterpillar Tractor (CAT).

 

A primary reason we are negative on the global mining sector, and CAT in particular, is simply reversion to the mean.  Mining companies have dramatically over spent for the last decade, as highlighted in the Chart of the Day, and as much as some sell side bankers would have you believe otherwise - mining is not a growth industry.  Margins will revert to the mean, spending will revert to the mean, and so too will capital investment.  After all, cyclicals are cyclical.

 

Switching gears, between Keith and myself, we have been on the road for the better part of the last month from London to San Francisco, and most spots in between.  If there is one consistent theme, it is that most large investors are still very cautious as it relates to equities.  Now I realize this is anecdotal, but it has been a striking observation for us. 

 

In that vein, as I was reviewing the New Tape (aka Twitter) this morning, I noticed this tweet from Ralph Acampora:

 

“This is still the “most hated” bull market I have ever seen in my close to 50 years in this business.  This disbelief is very bullish.”

 

I don’t know enough about Ralph’s history to know whether he has a good record of forecasting stock market direction, but I do think that tweet was apropos and consistent with what we are seeing and hearing.

 

A key theme underscoring our relatively bullish call on the U.S. economy and U.S. equities has been what we call #HousingsHammer.  In effect, this is the idea that home prices will improve not at a linear pace, but at a parabolic rate.  This was a thesis developed by our Financials Sector Head Josh Steiner and we continued to see support in this week’s Core Logic numbers.

 

Corelogic released its January home price data Tuesday morning as well as its early look at February 2013. The data was very strong. January 2013 saw home prices rise +9.7% YoY, which was upwardly revised from the preliminary estimate for January one month prior of +7.9%. The preliminary estimate for February is that prices rose +9.7% YoY, unchanged vs. January.

 

Excluding the distressed segment of the market, the story is more bullish. January prices for the non-distressed market rose +9.0%, which was up materially from the +6.7% increase in December 2012. Interestingly, the early read on February prices shows the non-distressed market up +11.3%, a sequential acceleration of 230 bps. So in two months, the rate of appreciation on non-distressed homes has accelerated 460 bps.  This is what we call a parabolic recovery.

 

In our models, housing is a critical variable to the U.S. economy because more than 70% of the U.S. economy is driven by consumption.  In a paper last year, Charles Calomiris, Stanley Longhofer, and William Miles found that the wealth effects from housing “vary depending on whether the homeowner is old or young, poor or rich—but their overall estimate is that a dollar of extra housing wealth triggers five to eight cents in additional spending.”

 

On a high level, the math is compelling in terms of the housing benefit to GDP.  If we assume there are 75 million owned homes in the U.S. and the average price is $175,000, then that is a total housing stock value of $13.1 trillion.   That value of that housing stock would increase by $1.3 trillion if home prices are up 10% this year.  Assuming the midpoint ($0.065) in the study above is accurate, the appreciation in home value at 10% this year will lead to an incremental $85 billion in consumer spending. On a GDP base of $15 trillion this is an incremental tailwind tail wind of 0.6% growth.

 

Clearly, these are all rough numbers and estimates, but we do feel very good about the fact that the home price appreciation will continue to accelerate and this will be additive to consumer spending.  Given that Bloomberg consensus for 2013 U.S. GDP growth is 1.8%, an additional 0.6% could very well lead to an actual GDP number that “stomps” the consensus estimates.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $109.01-111.98, $81.88-82.66, 91.89-94.69, 1.91-1.97%, 11.91-15.18, and 1, respectively.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Stomping Tom - Will MIners stomp capex

 

Stomping Tom - vp 7


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 7, 2013


As we look at today's setup for the S&P 500, the range is 32 points or 1.46% downside to 1519 and 0.62% upside to 1551.      

                                                                                                                         

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: 1.70 from 1.69
  • VIX  closed at 13.53 1 day percent change of 0.37%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: BoE interest rates, monetary policy cmte decision
  • 7:30am: Challenger Job Cuts Y/y, Feb. (prior -24.4%)
  • 7:30am: RBC Consumer Outlook Index, March (prior 49.5)
  • 7:45am: ECB announces interest rates
  • 8:30am: ECB’s Draghi holds news conference
  • 8:30am: Trade Balance, Jan., est. -$42.6b (prior -$38.5b)
  • 8:30am: Non-farm Productivity, 4Q F, est. -1.6% (prior -2.0%)
  • 8:30am: Unit Labor Costs, 4Q F, est. 4.3% (prior 4.5%)
  • 8:30am: Init Jobless Claims, March 2, est. 355k (prior 344k)
  • 9:45am: Bloomberg Consumer Comfort, March 3 (prior -32.8)
  • 10am: Fed’s Powell testifies to Congress on Bank Secrecy Act
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to buy $3.00b-$3.75b notes in 2018-2020 sector
  • 12pm: Household Change in Net Worth, 4Q (prior $1.722t)
  • 3pm: Consumer Credit, Jan., est. $14.7 (prior $14.595b)
  • 4:30pm: Fed releases bank stress test results

GOVERNMENT:

    • 9am: Energy Dept meeting of Natl Coal Council
    • 9am: U.S.-China Economic and Security Review Commission hearing on access to China’s financial system
    • 10am: REI CEO Sally Jewell’s confirmation hearing to be Interior secretary before Sen. Energy and Natural Resources Cmte
    • 10am: Sen. Judiciary Cmte considers gun-control legislation including an assault-weapon ban
    • 10am: Sen. Health, Education, Labor and Pensions Cmte hearing on safety in schools
    • 10am: Sen. Banking Cmte hearing on Bank Secrecy Act
    • 11am: National Transportation Safety Board opens public docket for Japan Airlines Boeing 787 lithium-ion battery fire probe
    • 1:55pm: Obama signs Violence Against Women Act into law

WHAT TO WATCH

  • Fed to release preliminary results of bank stress tests
  • ECB, BOE to keep their benchmark interest rates unchanged
  • BOJ rejects earlier asset purchases as Shirakawa exits
  • Trade gap in U.S. probably widened on costlier energy imports
  • Feb. retail sales hurt by tax concerns, cold weather
  • Banks said to weigh disregarding Fed with payout-plan disclosure
  • SEC to consider technology standards to avoid automated trading meltdowns
  • Time Warner will split from magazine unit in 3rd major spinoff
  • Apache said to weigh sale of deep-water assets in Gulf of Mexico
  • Artisan Partners raises $332m pricing IPO above range
  • NGP said to solicit buyers for pipeline operator Teak Midstream
  • MGIC raises $1.1b as investors bet on mortgage insurance
  • Facebook names UCSF Chancellor Desmond-Hellmann to board
  • Keystone pipeline decision may influence oil-sands development

EARNINGS:

    • Smithfield Foods (SFD) 6am, $0.50
    • EPL Oil & Gas (EPL) 6am, $0.50
    • Navistar International (NAV) 6am, $(1.76) - Preview
    • Nationstar Mortgage (NSM) 6:30am, $0.69
    • Ciena (CIEN) 7am, $(0.14)
    • John Wiley & Sons (JW/A) 8am, $0.83
    • Baytex Energy (BTE CN) 8am, C$0.34
    • Canadian Western Bank (CWB CN) 8am, C$0.60
    • Kroger (KR) 8:15am, $0.70 - Preview
    • Cooper Cos. (COO) 4pm, $1.19
    • Quiksilver (ZQK) 4pm, $(0.07)
    • Finisar (FNSR) 4pm, $0.16
    • H&R Block (HRB) 4:02pm, $(0.03)
    • Pandora Media (P) 4:02pm, $(0.05)
    • Westport Innovations (WPRT) 4:05pm, $(0.44)
    • Main Street Capital (MAIN) 4:05pm, $0.50
    • Workday (WDAY) 4:05pm, $(0.21)
    • Paramount Resources (POU CN) After-mkt, C$(0.30)
    • Boise Cascade (BCC) N/A, N/A

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • BHP Billiton Rebuffs China Claims of Iron-Ore Price Manipulation
  • Oil Crop for McDonald’s Fries Rising Most Since ’08: Commodities
  • WTI Crude Trades Near Lowest in 10 Weeks; Brent Pipeline Resumes
  • Copper Rises as Portuguese Upgrade Eases Euro-Crisis Concern
  • Putin Pipeline to Send 25% of Russia’s Oil East: Energy Markets
  • Corn Advances on Speculation U.S. Will Lower Supply Estimate
  • Paulson Gold Fund Plunges 18% as Metal’s Decline Foils Rebound
  • Sugar Climbs for Fourth Day on Port Congestion; Coffee Advances
  • Rebar Falls to Near Two-Month Low Amid Rising Inventory in China
  • Lumber Futures Double Top Signals Price Chop: Technical Analysis
  • World Wheat Output May Rise 4.3% on Europe, Russia, UN FAO Says
  • Maersk Sees Tanker Slump Persisting Amid Biggest Glut Since 1996
  • Sumitomo Sees Aluminum Surplus at Highest Level in Two Years
  • Gold Swings Between Gains and Losses as Investors Weigh Outlook

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 


THE M3: MGM EXITS VIETNAM DEVELOPMENT

The Macau Metro Monitor, March 7, 2013

 

 

ACDL SAYS MGM NO LONGER INVOLVED IN VIETNAM CASINO RESORT Reuters

Asian Coast Development (Canada) Ltd (ACDL), which is developing Vietnam's first large-scale integrated resort, said on Thursday its partner, MGM Hospitality, will no longer manage the project.  MGM Hospitality gave its decision on March 4.  "We thank MGM for its assistance in the hiring and training of our 2,000-strong team of Vietnamese hospitality professionals," Chief Executive Lloyd Nathan said in a statement. "We are delighted that we have completed the construction of the first phase of our first resort," he added.

 

Vancouver-based operator ACDL's principal shareholders, Harbinger Capital and PNK, said in the statement they remained committed to the project.

 

ACDL's Ho Tram development includes 541 five-star rooms and suites, nine restaurants, gaming facilities and luxury retail.  The company said it is now constructing Tower 2 of the first resort, which will add 559 five-star rooms and is constructing an 18-hole Greg Norman-designed championship golf course.


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