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THE M3: SJM COTAI; SUEN; CHINA BAD LOANS; PACKAGE DATA

The Macau Metro Monitor, May 15, 2013

 

 

SJM COTAI GETS OFFICIAL APPROVAL Macau Business

According to the official gazette, SJM Cotai has gotten the green light.  The company will pay the government a total premium of MOP2.15 billion (US$269 million) for the land.  It has already paid MOP800 million for the land premium.  SJM first filed its request in 2006.

 

The project was announced in October last year and includes a five-star hotel, a gaming venue and car park. CEO Ambrose So said earlier that he expected that SJM’s Cotai project could break ground this year and be completed by “between 2016 and 2017”.

 

SANDS ORDERED TO PAY $70 MILLION IN MACAU DISPUTE WSJ

A Nevada jury on Tuesday ordered LVS to pay a Hong Kong businessman $70 million for helping the casino giant enter Macau.  The verdict was the latest development in a long-running legal dispute between Sands and Richard Suen over the role Mr. Suen played in helping the company obtain a casino license in Macau.

 

Sands spokesman Ron Reese said the company would "aggressively" appeal Tuesday's verdict. The latest judgment followed a retrial of Mr. Suen's lawsuit, first filed nine years ago, against the company after Sands appealed an earlier verdict awarding him $58.6 million.

 

Suen alleged in his lawsuit that Sands owed him $328 million for introducing company executives to key Chinese officials. Sands officials denied Mr. Suen's claim that his efforts led to the company's securing a license.

 

CHINA BANKS Q1 BAD LOANS UP, CAPITAL ADEQUACY DOWN-CBRC Reuters

The average non-performing loan ratio in China's banking system edged up to 0.96% at the end of March from 0.95% at the end of 2012, the China Banking Regulatory Commission (CBRC) said.

 

The weighted average capital adequacy ratio (CAR) of Chinese banks was 12.3% at the end of March, which is not comparable to previous data as tougher bank capital rules were introduced in January this year, the CBRC said.  "According to calculations based on the new rules, the overall capital adequacy ratio has decreased," the CBRC added.

 

PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR MARCH 2013 DSEC

Macau visitor arrivals in package tours decreased by 2.0% YoY to 739,091 in March 2013.  Package tour visitors mainly came from Mainland China (533,170), with 199,991 coming from Guangdong Province, followed by those from Taiwan (45,703); Hong Kong (41,859) and the Republic of Korea (40,738).  

 

In March 2013, the hotels and guesthouses received 915,766 guests, up by 20.4% YoY. The average length of stay of guests held stable from a year earlier at 1.4 nights.



#StrongDollar Truths

“This means that truth is not a constant but is actually created.”

-George F. Kennan

 

The aforementioned quote comes Kennan’s 1947 State Department memo titled “Psychological Background.” He was writing about Stalin’s Russia, but he could have very well been writing about Putin’s Russia and/or Bernanke’s US monetary policy today.

 

The leadership is at liberty to put forward for tactical purposes any particular thesis which finds it useful to the cause at any particular moment and to require the faithful and unquestioning acceptance of that thesis by members of the movement.” (George F. Kennan, pg 260)

 

Who are the members of the US Dollar Devaluation Movement? Don’t blame the bureaucrat at the printing press for all of this. There’s no fair share in that. You have to lop together the entire Bush and Obama Administrations alongside Bernanke and his pandering press. Weak US Dollar policy created the weakest America you have seen since the 1970s. #StrongDollar is the only way out.

 

Back to the Global Macro Grind

 

This is why Kennan is so very relevant to US history. Truman’s paper pushers in Washington needed someone who not only lived the game (Kennan lived in Russia), but had a completely different perspective on how to play it going forward. Evolving as time and facts do is as American as most Americans want to believe they are. The American collective eventually sniffs out the truth.

 

One of my investing heroes, Ray Dalio, always asks: “What is the truth?” And I suspect that if you are held accountable to the returns in your accounts every day, that’s an important question for you to answer too. But do central planners trying to uphold their academic dogmas and/or the conflicted media who fawns over them want the truth? Or do they want to save face and access?

 

Sadly, those are rhetorical questions at this point. When it comes to Fed front-running, policy leaks, selective disclosures, IRS preference checks, spending scandals, etc etc. at this point, The People actually expect the government to be lying. That’s not good. Until it is. And I think, with CNBC ratings hitting all-time lows as markets hit all-time highs, conflicted and compromised sources are getting the message.

 

Americans may not be as smart as a TV pundit, but they generally know the truth when they see it.

 

If you have studied the last 40 to 100 years of US Federal Reserve Policy and the US Dollar history born out of its causal maneuverings, you’ll come to a very different definition of the truth about what Americans trust and respect. The highest confidence, hiring, and consumption periods in post WWII history were 1 (Reagan) and 1 (Clinton). They were also the strongest periods for the US Dollar.

 

If you need a Canadian to explain that to your elected Congressman and/or wanna be financial market TV star who has never actually played the game, fine – it will take some time though – take it from someone who spent the last 3 years at CNBC trying to explain this to them. In the meantime, the market is doing a really good job explaining it to everyone else who gets paid to listen.

 

What is the truth? Forget about what I think – let’s look at the scoreboard:

  1. US Dollar up another +0.4% yesterday to a fresh YTD high of $83.79 = +5.0% YTD
  2. #CommodityDeflation (CRB Index – 19 Commodities) -0.4% yesterday to 287 = -2.4% YTD
  3. US Stocks (SPY) up another +1% yesterday to a fresh new all-time closing high of 1650 = +15.7% YTD

Indeed fellow Americans (and Canadian green card holders), a #StrongDollar sponsored US #TaxCut!

 

And yeah, I heard the loser whining about how Bernanke’s Friday night whispers to the WSJ about tapering QE was going to create a swoon in stocks. It didn’t though. It ripped my Dollars and rates of return (on my hard earned savings account) higher. The swoon came in the end of the world #EOW trade instead.

 

If you want #EOW, get out there and beg for more of what Gold and Treasury bulls really want – Bernanke to debauch the hard earned currency of the American People and our credibility as a creditor nation while they’re at it.

 

If you want your economic liberties and freedoms back, get out there and start yelling like this crazy Canuck is about #StrongDollar.

 

If you want real (inflation adjusted) US Consumption Growth (ie 71% of US GDP), you want what I want. If you want to spend the rest of your years trying to sell fear to goose your ad revs or ratings, you want crisis. That’s un-American.

 

I may not be able to love this country as much as those of you who were born here. But my wife, kids, and Made In America company can.

 

If my speaking the truth needs to come across as aggressively as a Patriot ripping across British lines did, so be it.  I care more about results than political style, in case you couldn’t tell.

 

The truth about #StrongDollar, Strong America that I speak of doesn’t need to be created. It’s always been there – it’s a constant. This isn’t Russia.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are $1, $100.39-103.89, $82.63-83.94, 100.06-103.09, 1.82-1.99%, 12.12-13.49, and 1, respectively.

 

Best of luck out there today and God Bless America,

KM

 

Keith R. McCullough
Chief Executive Officer

 

#StrongDollar Truths - Chart of the Day

 

#StrongDollar Truths - Virtual Portfolio


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Trade of the Day: EPU

Takeaway: Keith covered his short today of EPU, an ETF that tracks the Peru stock market.

Keith covered his short today of EPU, an ETF that tracks the Peru stock market.

 

Keith covered his short of EPU at 3:28pm at $40.36, booking a nice gain for his efforts. EPU is the iShares MSCI All Peru Capped Index Fund.

 

Keith writes of his trade, “Short commodity-linked countries; Buy consumption - risk manage the range - rinse and repeat.”

 

Peru produces more silver than any country in the world, and also is a major gold producer.

 

Trade of the Day: EPU - epu


IS EVEP STILL A SHORT?

Takeaway: Here's our assessment of EV Energy Partners (EVEP), following the company's earnings report last Friday.

This note was originally published May 10, 2013 at 13:09 in Energy

EV Energy Partners (EVEP) remains a high conviction short idea for us.  Today’s result changes little, except for that it seems as if we gave the Company too much value for its Utica package, and EVEP’s funding situation is now even more precarious given that it will JV the oil window acreage instead of sell it outright.  We would be adding to short positions today on the back of the poor 1Q13 result and outlook.


On the Quarter


Open EBITDA (before hedges) was $31.4MM, down from $36.7MM in 4Q12 due to a 1% decline in production and higher operating costs.  Excluding a 1Q-only G&A expense of $3.2MM, open EBITDA was $34.6MM (this is not a one-time item, but a recurring 1Q-only item).

 

On EVEP’s management metrics – which are pretty meaningless to us even though everyone else uses them – “adjusted EBITDA” was $48.5MM vs. $56.7MM expected and $69.6MM in 4Q12.  “Distributable cash flow (DCF)” was $21.8MM ($0.51/unit) vs. $37.9MM ($0.89/unit) in 4Q12, for a distribution coverage ratio of 0.67.

 

The main reason for the miss was the hedge book rolling off, especially on the NGL side.  Realized cash gains from commodity derivatives were $12.3MM vs. $28.4MM in 4Q12.

 

Discounted cash flow (DCF) would have been lower had it not been for the generous (and inexplicable)  approximately $5MM haircut to “maintenance CapEx” in the quarter.  Production fell 1% q/q and EVEP invested $21.1MM into its E&P operations in the quarter, though deducted only $13.6MM ($0.91/Mcfe) of maintenance CapEx from DCF vs. a consistent run-rate of $18 - $19MM ($1.25/Mcfe) over the prior four quarters.   

 

EVEP defines maintenance CapEx as “expenditures necessary to maintain the production of our oil and gas properties over the long term.”  But, EVEP could not manage to keep production flat on $21.1MM of total E&P spending.  In our view, EVEP slashed maintenance CapEx this quarter to make the already poor coverage ratio look a little better, and that a realistic maintenance CapEx number is  approximately $20MM per quarter.  If maintenance capex were $20MM in 1Q13, the coverage ratio would have been 0.47.

 

IS EVEP STILL A SHORT? - evep1

 

On the Utica Shale Sale Process


EVEP is no longer looking to sell its acreage in the oil window of the play, which it once boasted would fetch more than $15,000/acre.  It will now attempt to find a joint venture partner for the majority (~82%) of its marketed acreage, which is in the oil window.  If any deal gets done, it will likely be for a drilling carry (and maybe a small cash bonus); we won’t be holding our breath – CEO John Walker said on the call,

 

“There are not enough wells drilled there yet and through one or more joint ventures we intend to find the completion technique that will solve this problem. It could take one to two years for us to find these solutions and maximize the value of our position in the supply.”

 

That leaves EVEP with 18,200 net acres (18% of marketed acreage) to sell in the wet gas window (majority in NW Carroll county).  Timing and price remains uncertain.

 

On Valuation

 

EVEP is still trading above a price that would reflect anything close to the intrinsic value of the assets.  We’ve updated our NAV analysis taking into account the change in plans for the Utica acreage, the decrease in FV of the hedge book, and the increase in net debt.  Our NAV is $22/unit.

 

IS EVEP STILL A SHORT? - evep2

 

On conventional E&P valuation metrics, the story is the same: EVEP trades at 40x 2013e earnings, 16x Adjusted EV/2013e Open EBITDA, 1.9x book value (despite having acquired the majority of its assets), and 3.1x standardized measure.  The Company is over-levered with net debt of $925MM exceeding the value of its proven reserves (YE12 PV-10 $867MM), and adjusted net debt/2013 open EBITDA at 5.0x.  Leverage ratios will tick higher this year without meaningful asset sales or equity-funded acquisitions as the Company invests heavily in its nascent midstream businesses.

 

IS EVEP STILL A SHORT? - evep3

 


Commodity Deflation: Copper

Takeaway: Copper is taking its turn as the latest commodity price to go lower.

Commodity deflation is taking turns, and Copper is tagged as "it" on the downside, writes Keith this morning. Keith, as usual, is keeping a close eye on all commodity prices, but noted specifically the decline in Copper this morning.

 

With the US Dollar intermediate-term TREND overbought here, Keith says commodities prices can be a bit whippy, but that the overall TREND in commodities prices, like copper, remains decidedly bearish. 

 

Here's a three-month chart of Copper.

 

Commodity Deflation: Copper - copper 051413


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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