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THE M3: S'PORE 1Q GDP CONTRACTS; SMOKING BAN; TRACY ON MACAU GROWTH; FLAT VISITATION EXPECTED

The Macau Metro Monitor, April 12, 2013

 

 

SINGAPORE ECONOMY CONTRACTS IN FIRST QUARTER Channel News Asia

Based on advance estimates from the Ministry of Trade and Industry, the Singapore economy contracted by 0.6% YoY in 1Q 2013 or -1.4% QoQ.  The numbers undershot market expectations of 1% growth.  Despite the contraction in Q1 GDP, the Monetary Authority of Singapore (MAS) says the economy should grow at a modest pace this year, as external demand recovers.

 

GOVT TO DEMAND CASINOS TO IMPROVE AIR QUALITY: TAM Macau Business

Secretary Tam said that the government is “determined” to demand casinos to meet the required air quality standards inside their smoking areas; otherwise, they will be penalized.  He added the government and the operators would improve the implementation of the smoking areas “step by step”.

 

CASINO REVENUE TO GROW IN "MID-TEENS" IN 2013: TRACY Macau Business

Sands China CEO, Edward Tracy, forecasts Macau’s casino gross gaming revenue to grow in the “mid-teens” this year.  He said casino revenue would be positively impacted by the availability of more hotel rooms and because of the opening of the Gongbei station, the last stop of the high-speed railway link connecting Zhuhai to Guangzhou, in late December.  He also said that the Parisian project, to be built by Sands China near the Four Seasons in Cotai, is to be completed by late 2015 or early 2016.

 

VISITOR GROWTH TO BE FLAT IN 2013: MGTO Macau Business

The Macau Government Tourist Office expects the 2013 visitor number to total 28 million, roughly the same as last year, bureau head Maria Helena de Senna Fernandes says. Fernandes adds that the number of tourist arrivals in the first quarter grew at low-single digit rates YoY.  She also said that the H7N9 flu is not expected to have a severe impact on Macau tourism.


Expert Call: China’s New Environmental Policies

Takeaway: China is planning new environmental regulations. We will discuss the changes and their market impact with Dr Melanie Hart on April 18 at 1PM

Expert Call:  China’s New Environmental Policies

 

 

Setting Long-term Course Now:  China’s new government is planning to implement stricter environmental policies in coming months.  The disclosure of more information on air quality in China, as well as greater understanding regarding its impact on health, has generated substantial political pressure for change.  While cleaning-up air quality in cities like Beijing is a long-term process, the new government is setting the course now amid widespread discontent. 

 

Reshaped Industrial Infrastructure:  China is by far the largest consumer of commodities like coal and iron ore, in addition to being the largest player in polluting industries, like steel and rare earth metals.  Dramatic growth in Chinese fixed asset investment and manufacturing has reshaped global industrial infrastructure in the past decade, impacting firms like CAT, VALE, UNP, Siemens and Komatsu. 

 

Benefits and Costs: New policies could drive investment in pollution control technologies, potentially providing opportunities for well positioned competitors, like Siemens or BWC.  Plants are expected to be moved away from population centers, which may provide opportunities for factory automation firms amid higher labor costs and tighter regulations.  There may also be negative impacts, such as limitations on urban automobile permits and potential reduced coal demand.  In addition, increased costs associated with steel production could impact iron ore sales to China.

 

No Easy Task:  While the changes are likely to be implemented slowly so as not to shock markets, the government will need to show steady and independently verified progress.  Balancing economic growth with definite environmental progress may prove more challenging than some expect given the severity of pollution and the nature of Chinese economic output.

 

Topics include:

  • New environmental policy initiatives
  • Natural gas price deregulation and potential for ‘fracking’
  • Potential restructuring of Chinese electrical grid
  • Nature and timing of new emissions policies
  • Enforcement and implementation challenges
  • Discussion of key figures involved
  • Industrial consolidation and relocation

 

Key Tickers: JOY, CAT, VALE, CLF, BHP, RIO, SIE, GE, BWC, GM, ROK

 

Melanie Hart Bio

 

Melanie Hart is a Senior Policy Analyst for Chinese Energy and Climate Policy at American Progress. She focuses on China’s science and technology development policies for energy innovation as well as its domestic energy efficiency program, environmental regulatory regime, and domestic and international responses to global climate change.

Before joining American Progress, Melanie was a project consultant for the Aspen Institute. She also worked on Qualcomm’s Asia Pacific business development team, where she provided technology market and regulatory analysis to guide Qualcomm operations in Greater China. She has worked on Chinese domestic and foreign policy issues for The Scowcroft Group and the University of California Institute on Global Conflict and Cooperation, and as a Chinese-English translator for Caijing Magazine in Beijing.

 

Melanie has a Ph.D. in political science from the University of California, San Diego. Her doctoral work focused on China’s environmental regulatory regime and local-level policy enforcement challenges. She studied Chinese at China Foreign Affairs University in Beijing and has a B.A. in international studies from Texas A&M University.


JOBLESS CLAIMS: The Right Stuff

Last week's initial jobless claims numbers were tepid due in some part to the holiday season (Easter, Passover, etc.). But what a difference a week can make; today's report showed that claims fell by 42,000 week-over-week. The lower the number, the better.

 

JOBLESS CLAIMS: The Right Stuff - 1

 

"The time shifting of Easter has historically been a notable challenge for the seasonality department at the Department of Labor," Hedgeye Financials Sector Head Josh Steiner noted. "Looking at the latest two weeks of data, we saw claims spike by 28k two weeks ago and then drop by 39k last week (these are both comparisons vs. the unrevised prior number). On the margin, claims were better by 11k over two weeks."

 

JOBLESS CLAIMS: The Right Stuff - 2

 

On a non-seasonally adjusted (NSA) basis, the data is clearly improving. This week, we saw a decline of -9.3% on a year-over-year basis, beating the consensus expectation and bringing relief to those who had become worried after last week's slew of abysmal labor market data. Overall, the labor market is steadily improving and the charts we've included below show the change that's occurred over time.

 

JOBLESS CLAIMS: The Right Stuff - 3

 

JOBLESS CLAIMS: The Right Stuff - 4

 

JOBLESS CLAIMS: The Right Stuff - 5

 

JOBLESS CLAIMS: The Right Stuff - 6

 

JOBLESS CLAIMS: The Right Stuff - 7

 

JOBLESS CLAIMS: The Right Stuff - 10

 

JOBLESS CLAIMS: The Right Stuff - 11


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INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES

Takeaway: In contrast to last week's soft payroll report, on both an SA and NSA basis, labor conditions improved sharply in the latest week.

Below is the detailed breakdown of this morning's claims data from our head of Financials, Josh Steiner.  If you would like to setup a call with Josh or trial his research, please contact 

 

Easter Bunny Distortions

The time shifting of Easter has historically been a notable challenge for the seasonality department at the Dept. of Labor. Looking at the latest two weeks of data, we saw claims spike by 28k two weeks ago and then drop by 39k last week (these are both comparisons vs. the unrevised prior number). On the margin, claims were better by 11k over two weeks.

 

Market cheering aside, the trend in SA rolling claims is fulfilling its destiny. A look at the first chart below shows this plainly. SA claims are beginning their steadily rising path that they'll follow through August of this year. In the last three years this has been a major factor contributing to the sector's turn in the Feb-April timeframe. 

 

On an NSA basis the data improved. Last week we lamented that the rate of YoY improvement slowed to almost zero. This week, it jumped to -9.3%, one of the strongest prints we've seen in the last six months. Ostensibly, the two should be averaged, producing a blended YoY improvement of around 4-5%, which happens to be precisely what the rolling NSA YoY trend did (-4.5%).

 

Overall, labor market conditions are holding up well, despite last week's scary headlines. We continue to expect the SA data to deteriorate on the margin over the coming months, but the true, underlying trend is strong.

 

The Numbers

Prior to revision, initial jobless claims fell 39k to 346k from 385k WoW, as the prior week's number was revised up by 3k to 388k. The headline (unrevised) number shows claims were lower by 42k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3k WoW to 358k. The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -4.5% lower YoY, which is a sequential improvement versus the previous week's YoY change of -3.5%

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - JS 1

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - JS 2

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - JS 3

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - JS 4

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - JS 5

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - JS 6

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - JS 7 

 

INITIAL CLAIMS: WHAT A DIFFERENCE ONE WEEK MAKES - 10Y vs NSA Claims 2 041113

 

Joshua Steiner, CFA

 


Yale Hockey and the Frozen Four

Today we'd like to bring your attention to a Bloomberg article written about the Yale Hockey Team. Hedgeye CEO Keith McCullough was captain of the team in the late 1990s and many other Hedgeye employees were on the team at one point in time. 

 

With Yale advancing to the "Frozen Four" and a shot at winning the championship after being seen as the underdogs who didn't have a shot this year, it makes sense that everyone following the team is filled with excitement. Keith was quoted in the Bloomberg article, discussing the challenges the team faced on the road to the championship.

 

"It’s like watching David versus Goliath,” McCullough said in a telephone interview with Bloomberg. “It’s pretty amazing to see Yale beating teams like Minnesota, which has 15 players drafted by NHL teams, while Yale doesn’t even give athletic scholarships.”

 

Both hockey and Yale are core components of our company's esprit de corps. Both Director of Research Daryl Jones and Managing Director Bob Brooke also played hockey at Yale with Brooke going on to play in the NHL for the New Jersey Devils and the New York Rangers.

 

“I am encouraged by the Yale Hockey Team once again proving to the larger Yale community, and all of the Ivy League and more, that being academically qualified and athletically gifted are not mutually exclusive," said Brooke.

 

"Life comes down to a few special moments and this will be one of those for the 20 guys on the ice tonight," said Jones as he geared up for the big game.

 

You can read the full article on Bloomberg by clicking on the following link: http://mobile.bloomberg.com/news/2013-04-11/yale-s-betts-joins-hockey-alumni-on-bulldogs-frozen-four-road.html


Measuring Birth Trends

Baby Steps to Giant Steps

Health Care sector head Tom Tobin walked our institutional clients through his detailed analysis of birth trends today in a presentation titled “US Births: Is the Worst Decline in 40 Years About to Turn?”  Tobin’s work indicates the US is on the verge of an upturn in the birth rate.  While it’s too early to gauge the scope and intensity of the increase, even a small uptrend has implications for health care stocks, and for the broader economy.  

 

We haven’t seen anyone else doing this kind of demographic analysis.  By the time everyone else on Wall Street is reporting on increases in the birth rate, it will be old news.  Today, thanks to Hedgeye and Tom Tobin, it’s fresh.  Read on. 

 

Measuring Birth Trends

Tobin and his team base their work on a proprietary survey of OB/GYN practitioners across the country.  The core survey focuses on four metropolitan areas representing diverse housing and employment trends: Houston, Denver, Tampa, and Cleveland.  

 

Houston, the most robust of the four, weathered the recent Great Recession best, suffering the least decline in employment and housing.  Cleveland, at the other end of the spectrum, continues to show lackluster employment growth and weak housing demand – and correspondingly weak birth rates.

 

The team surveyed established OB/GYN practices who see an average of 104 pregnancies a month.  Perhaps unsurprisingly, the relative strength or weakness of the local economy largely corresponds to maternity trends.

 

Economic cycles have had a demonstrable impact on birth trends.  Tobin points to economic downturns in the 1980’s and early 2000’s that triggered declines in the birth rate.  At the same time, Tobin says positive economic factors presage increased birth rates.  Increased employment drives birth rates because people feel more confident about starting a family when they are earning a living; but Tobin also notes the important correlation between birth trends and private employer-provided health insurance.

 

As the economy grows weaker or stronger, the mix between Medicaid and private insurance fluctuates, with obvious broad implications for health care.  The established OB/GYN practices in the survey had a private insurance / Medicaid mix of about 80% / 20%, meaning that employment is a critical component for most couples planning to have a baby.  An improving employment picture has meaningful implications for a broad range of companies providing everything from pre-pregnancy care, to in-hospital delivery and neonatal care.

 

Economic Impact

Private insurers have seen revenues suffer due to weak employment in recent years.  This means private insurance has not recovered, and Medicaid dominates many areas of health care.  Hospitals, OB/GYN practices, and all birth-related providers would benefit from even a modest rise in the birth rate.  Certain companies stand to reap outsized profits if the birth cycle turns positive, because of increased revenues available under the Affordable Care Act (aka  Obamacare).

 

Tobin notes that when couples plan to have babies, other businesses benefit.  As part of his base demographic research, Tobin and his team also follow housing, furniture purchases, sales trends at maternity clothing stores, as well as sales figures in such categories as pet ownership and women’s vitamins.  These areas not only support Tobin’s overall work on birth trends, but week-to-week shifts in buying patterns can confirm employment and family income trends, which has implications for private payer insurance.

 

Tobin lists 6 companies that stand to benefit from a rise in the birth rate:

  • Mednax (MD) – neonatal and maternal fetal care
  • United HealthCare (UNH) – private payer inpatient admissions
  • Hospital Corporation of America (HCA) – inpatient admissions
  • PerkinElmer (PKI) – pre-natal and newborn screening
  • Hologic (HOLX) – OB/GYN practice volume
  • Cross Country Health Care (CCRN) – labor and delivery nursing care

 

It’s About Women

The key demographic group is the 20-34 year old age group.  They are the sweet spot in employment – the age range during which people build professional careers – and in household formation.  It is also, obviously, the demographic group that has the most babies.

 

Tobin says the gap between the growth in the population of women of child-bearing age, and the decline in the birth rate in the period 2008-2012, is the worst it has been in 40 years.  That’s a decline on a scale not seen for two generations – since the economic turmoil of the early 1970’s.  Since the 20-34 year olds were not around in the 1970’s, they have no memory of the economic upturn of the 1980’s.  Many members of this group came of age in the midst of the Great Recession and are not equipped to be optimistic.  In a phenomenon known as the “Zeitgeist” – a German term meaning “the governing mind-set of the age” – when a group turns optimistic, they tend to do it in a sudden surge.  Tobin’s work indicates we may be seeing that right now, with more young adults leaving their parents’ homes to strike out on their own – household formation has been improving since 2010 – improving measures of consumer comfort since the dismal lows of early 2012, and more babies being born.

 

Perhaps the most striking correlation is between women’s employment and births.  Tobin says that, with more women employed today, the combination of employer-paid health coverage and maternity leave is a major contributor to the upturn in birth rates.  Women’s employment growth has returned to pre-Great Recession levels, and a distinct pattern is emerging of women who give birth within 9-12 months after starting a new job.

 

Where Can This Lead?

It is too early to project the magnitude of the births recovery, as we appear to be right at the inflection point.  With couples of family-formation age who have put off having a baby, due to the economic situation, Tobin says there is a “pool of deferred births” that could be between 700,000 and 1.4 million over the coming three to five years.  Think of it as a concrete example of what economists call “pent-up demand.”  

 

The US sees about 3.8 million births a year on average, with first-time mothers accounting for 40% of births.  Between new families and growing ones, Tobin believes it is reasonable to predict 3%-5% growth in the average number of births.  

We also note that immigration reform looks to be almost certain in the next election cycle, as the major political parties are stumbling over one another to attract the Hispanic vote.  A large percentage of illegal immigrants are already employed in one job or another, and legitimizing their presence on US soil should provide a further boost to household formation and basic consumption – not to mention tax revenues.  This provides a population growth wild card that could lead to a mini baby boom in the coming years.

 

Conclusion

Even a small increase in birth rates can have a meaningful impact on a broad cross-section of health care providers, as it will be a significant bounce off of a broad decline in birth rates that has prevailed for four decades.  Obstetrics practices represent 25% of the metric known as “physician utilization “ – meaning that’s what people go to the doctor for perhaps more than any other type of treatment.  On top of that, if 11 million US residents and their children become legitimized, we should expect a corresponding lift in consumption across a broad range of goods and services.

So babies are good for business?  Says Tobin, “You bet!”  

 

 

 

 


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