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THE M3: MELCO INTERNATIONAL BARCELONA; MAY GGR; LEVEN INTERVIEW; SJM TABLE LIMIT

THE MACAU METRO MONITOR, JUNE 3, 2013

 

 

MELCO INTERNATIONAL ASKED TO RUN CASINO IN BARCELONA Macau Business

Melco International Development Ltd, one of the controlling shareholders of MPEL, has been invited to take part in a US$1 billion (MOP8 billion) gaming project in Barcelona, Spain at 'Barcelona World', aka BCN World.  The project is being organized via a vehicle called Veremonte.


According to media reports, BCN World will start with a single resort, with 1,100 hotel beds, a casino and a theatre. The project should be in operation by 2016. The long-term aim is for BCN World to have six resorts.

 

MAY GGR DSEC, SCMP

May gross gaming revenues grew 13.5% YoY to 29.589 BN MOP (28.73 BN HKD).  The monthly figures came after torrential rains and flooding hit Macau and nearby Guangdong province.  Macau saw the heaviest rainfall since 1982 during the middle of May while transport access was restricted for close to two days.

 

Infrastructure developments in the coming years are expected to help lift the number of visitors to Macau. Currently most tourists come from Guangdong and other nearby provinces.  A bridge joining Hong Kong, Zhuhai and Macau is set to open by 2016 while expanded intercity rail links will help shorten the time of travel from China’s northern cities to the gambling enclave.  Plans are also in place to upgrade Macau’s capacity-constrained ferry terminals and international airport.

 

MIKE LEVEN IN AN EXCLUSIVE INTERVIEW: "CASINOS WILL BE SMOKE-FREE" Macau Daily Times

LVS COO MIke Leven: "Look I could get fired for telling you this but I think eventually there will be no smoking in these casinos. It’s going to happen like that - or if there is smoking it will be very limited, very limited. And the reason for that is that it’s what’s happening all over the world. I think Angela Leong, who made a big fuss about this, is going to win in the end. Eventually by 2017-18 we’re going to have almost no smoking casinos, inevitably."  The link to the full interview: http://www.macaudailytimes.com.mo/interview/44244-mike-leven-in-an-exclusive-interview%3A-%E2%80%9Ccasinos-will-be-smoke-free%E2%80%9D.html

 

SJM PUSHES MASS-MARKET MINIMUM BETS UP Macau Business

SJM has raised the minimum bets in over 10% of its mass-market tables since the beginning of the year, said CEO Ambrose So.  So explained that the minimum stake is adjusted regularly according to market conditions.  He added that SJM Holdings is looking to increase mass-market tables and raise revenue at the most profitable casinos.  However, So said the company has no plans to purchase any of its own satellite casinos.  Last month, Galaxy announced the acquisition of Grand Waldo, one of its own satellite casinos.


US Is Oversold

Client Talking Points

JAPAN

Monday morning gut check: The Weimar Nikkei is a little tougher to swallow than getting long SPY on a -2.3% correction. Japanese stocks slid -3.7% overnight with the Yen immediate-term TRADE overbought at 100.09 (vs USD). Get this: Nikkei is down -15.1% since May 22! Ka-boom. Here'a a friendly Hedgeye reminder: Abe’s Policy to inflate is not growth.

OIL

The best economic news of last week (alongside a 58.7 in the PMI, falling rolling jobless claims, and new highs for US consumer confidence) was Brent Oil down another -2.5% on the week. This Bearish Formation for Brent remains an ongoing consumer Tax Cut.

UST 10YR

US bond yields like the trending (bullish) US economic data and oil falling. That is clear. The 10yr is up another +2bps this morning to 2.15%. Look, the 10yr is still breaking out .. despite the 2 hour selloff in US Equities on a month end Friday; PMI and ISM reports up next.

Asset Allocation

CASH 28% US EQUITIES 26%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 28%

Top Long Ideas

Company Ticker Sector Duration
IGT

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.  

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. 

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.

Three for the Road

TWEET OF THE DAY

@KeithMcCullough I SOOOOO hate you for all the money @hedgeye has made me over last month. Why won't you let me be a loser you cruel prick?

@IllusoryMgmt

QUOTE OF THE DAY

"Great spirits have always encountered violent opposition from mediocre minds." - Albert Einstein

STAT OF THE DAY

From 1960 to 2011, total personal expenditures for hospital care in the U.S. increased from $9.0 billion to $850.6 billion.


Nose Diving Expedition

This note was originally published at 8am on May 20, 2013 for Hedgeye subscribers.

“I was very pleased to read a prediction that the price of gold will nosedive.”

-Ronald Reagan

 

Can you imagine if Obama got up in front of his old media paparazzi and talked about Gold like that? Reagan did in 1980. That’s because someone advising him actually understood the marketing message - #StrongDollar, Strong America. It’s pro-growth.

 

Instead of taking a victory lap on that and talking about the most bullish development in American Purchasing Power in a decade, let’s talk about how the IRS scandal is a “partisan fishing expedition designed to distract” Americans.

 

Distract us from what? Our liberty and freedom being encroached upon by conflicted politicians again, or Gold nose diving?

 

Back to the Global Macro Grind

 

If you’ve never been on a fishing expedition, I can hook you up with my peeps (Luch and RP). They’ll take you up into the bushes of Northern Ontario where you might want to bring a gun.

 

Word has it that this year’s Canadian black bear population could be massive. There’s lots of Gold up near Red Lake, Ontario. And with Gold -19.3% now for 2013 YTD, the Gold Bears are hungry.

 

What happens when a commodity bull comes across a hungry Gold bear on a camp trail in the dark? If for only behavioral observations, last week’s CFTC futures and options data might help answer that:

  1. Total Commodities net long contracts were up +1.1% wk-over-wk to +588,482 contracts
  2. Farm Goods saw the biggest net long buyers +15% wk-over-wk to +270,486 contracts
  3. Silver’s net long position was eviscerated (-72% on the week!) to +1,413 contracts

All the while, bears dog piled the total short position in Gold short contracts to its highest position ever (74,432 contracts).

 

So how is it that a bull becomes a bear in the downward dog pile position so fast anyway?

 

I don’t want anything to do with my nose diving into something like that.

 

How about stocks?

 

Last week’s #StrongDollar bulls brought the thunder, with both the US Dollar Index and the SP500 closing at fresh YTD highs. In the year that even a hockey player could do it, here’s the updated score:

  1. US Dollar +1.3% wk-over-wk to +5.6% YTD
  2. Commodities (CRB Index) -0.4% wk-over-wk to -2.5% YTD
  3. SP500 and Russell2000 +2.1% and +2.2% wk-over-wk, to +16.8% and +17.3% YTD, respectively

Get the Dollar right, and you get a long of other things right.

 

How about bonds?

  1. Treasury Bond Yields lagged again this week, big time, with the 10yr UST Yield rising to 1.95%
  2. UST Yield Spread (proxy for economic growth) widened by another 5bps wk-over-wk to +171 basis pts wide
  3. Financials (XLF) love it when Yield Spread widens like that; they’re already +6.7% for May

Sell in May and go away? If US stock market bears just sold Gold and/or Treasuries in May, they’d have nailed it.

 

What else is ripping in May?

  1. #StrongDollar, Strong Consumer Discretionary Stocks (XLY) = +5.4% in May and +21.3% YTD
  2. High Short Interest Stocks = +12.6% in the last month and +21.0% YTD
  3. Low Yield (Higher Growth) Stocks = +11.4% in the last month and +21.9% YTD

It won’t take Americans or their compromised politicians long into their yield chasing expedition to realize that people are bidding up #GrowthAccelerating as bear scraps are issued to the #EOW (end of the world) trade. You should be very please to read that.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $$1351-1424, $101.32-105.29, $83.18-84.71, 101.21-104.36, 1.88-2.01%, 12.13-13.81, and 1643-1672, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Nose Diving Expedition - Chart of the Day

 

Nose Diving Expedition - Virtual Portfolio


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 3, 2013


As we look at today's setup for the S&P 500, the range is 29 points or 0.41% downside to 1624 and 1.37% upside to 1653.                                   

                                                                                            

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1A

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10A


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.88 from 1.84
  • VIX closed at 16.3 1 day percent change of 12.18%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:20am: Fed’s Williams speaks in Stockholm
  • 8:58am: Markit US PMI final, May, est 52.0
  • 10am: Construction spen M/m, April, est. 1% (prior -1.7%)
  • 10am: Annual benchmark revisions of construction spend data
  • 10am: ISM Manufacturing, May, est. 50.5 (prior 50.7)
  • 10am: ISM Prices Paid, May, est. 49.5 (prior 50.0)
  • 11:30am: U.S. to sell $30b 3M bills, $25b 6M bills and $30b 13D cash management bills
  • U.S. Rates Weekly Agenda

GOVERNMENT:

    • Natl conf. on mental health held at White House
    • House, Senate in session
    • UN Human Rights Council in Geneva releases findings on whether Syria used chemicals weapons
    • Bradley Manning trial hearing at Fort Meade for releasing “Afghan War Diary,” “The Iraq War Logs,” and “Collateral Murder Video”
    • 3pm: House Appropriations panel hears from Acting IRS Commissioner Danny Werfel, inspector general J. Russell George on targeting groups seeking tax-exempt status
    • Washington Week Ahead

WHAT TO WATCH

  • BofA $8.5b mortgage deal before judge after 2-yr wait
  • Apple to fight U.S. e-books pricing claims in antitrust trial
  • Apple said to secure Warner Bros music-streaming rights: WSJ
  • Microsoft said to cut Windows for tablet prices amid slump
  • IATA lifts airline profit forecast 20% on record seat occupancy
  • SAC insiders said to see most client cash gone by start of 2014
  • Manufacturing in U.S. probably made little progress in May
  • Yellen urges higher bank capital rather than size limits
  • U.S. light-vehicle sales in May may have risen to 1.43m
  • Chinese manufacturing indexes showed small business struggling
  • Nexteer said to plan kicking off $400m IPO this wk
  • Welsh Carson said close to selling Triple Point for $800m
  • McGraw Hill offers $335m to boost stake in India’s Crisil
  • Rio said to favor diamond IPO after failing to find buyer
  • NYSE shareholders scheduled to vote on ICE deal
  • Euro-Area manufacturing activity shrinks less than est.
  • Draghi sees signs of stabilization in “challenging” economy
  • Infosys jumps in Mumbai; co-founder Murthy returns as Chairman
  • Global interbank lending fell to record low in 2012: BIS
  • “Fast” sequel tops wknd movies again, besting Smith duo
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • North American M&A Agenda
  • Canada Weekly Agendas: Energy, Mining
  • U.S. Jobs Data, ECB, Obama-Xi, NBA Finals: Wk Ahead June 3-8

EARNINGS:

    • Cracker Barrel (CBRL US) 7am, $0.94
    • Verint Systems (VRNT US) 4:05pm, $0.53
    • SAIC (SAI US) 4:05pm, $0.25
    • ABM Industries (ABM US) 5pm, $0.33

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Brent Crude Futures Extend Earlier Gain to Exceed $101 a Barrel
  • Hedge Funds Boost Gold Bull Bets Most in Two Months: Commodities
  • Abu Dhabi, Dubai Merge Aluminum Smelter Companies
  • Freeport Mine in Indonesia Shut as Probe May Take Three Months
  • Gold Advances in London as Weaker Dollar Spurs Investor Demand
  • Oil Traders Cut Bullish Bets Most in Six Weeks: Energy Markets
  • Wheat Advances to Three-Week High as Rains May Damage U.S. Crop
  • Coffee Resumes Decline on Ample Global Supplies; Cocoa Advances
  • Reliance Sees Payoff in U.S. Gas as India Output Slumps: Energy
  • India to Review Gold Import Policy After Slump Spurs Buying
  • China Food-Safety at Heart of Shuanghui-Smithfield Bid, Wan Says
  • China Rebar Gains First Day in Six as Manufacturing Gauge Rises
  • Iron Ore Heading Into Period of Oversupply, UBS Says in Report
  • Copper Gains as Chinese Manufacturing Gauge Unexpectedly Rises

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

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



Speed And Surprise

“He made brilliant use of speed and surprise on the battlefield.”

-Jack Weatherford

 

In Genghis Khan And the Making of The Modern World that’s how Jack Weatherford characterized the self-made boy (Temujin) who became the man (Genghis Kahn) on his battlefield for liberty and freedom from aristocratic rule.

 

“Year by year, he gradually defeated everyone more powerful than he was… Genghis Kahn conquered more than twice as much as any man in history… In American terms, the accomplishment of Genghis Kahn might be understood if the United States had been founded by one of its illiterate slaves who by sheer force of personality, charisma, and determination liberated America from foreign rule.” (Introduction)

 

Needless to say, I am loving this case study in human history. We aren’t all Keynesians yet.

 

Back to the Global Macro Grind

 

Got speed and surprise? How about that move in the last few hours of trading on a summer Friday into month end? With the US stock market down -1.4% on the day (only -2.3% from its all-time high), the US stock market bears claimed victory over the weekend.

 

Winning a no volume battle doesn’t mean they’ve won the war. Ironically enough, it was US #GrowthAccelerating to the upside (again) on Friday that drove the Fed fear (PMI 58.7 vs 49 last month and US Consumer Confidence hitting another new YTD high).

 

Context is always critical. To put the 2 hour selloff in perspective, this is what happened to markets in May:

  1. SP500 +2.1% to +14.3% YTD
  2. US Financials (XLF) +6.1% to +21.1% YTD
  3. Utilities -9.1% to +7.9% YTD

In other words, May was the best month of 2013 to be long US #GrowthAccelerating, and short the #GrowthSlowing trade.

 

To review why getting the slope of growth (accelerating or decelerating) matters to markets:

  1. When Growth Accelerates, Treasury Bond yields rise – Gold and low growth (high yield chasing) Equities weaken
  2. When Growth Decelerates, Treasury Bond yields fall – Gold and low growth (high yield chasing) Equities strengthen

And the speed really catches the growth bears by surprise when inflation slows as growth accelerates.

 

On that score, for 2013 YTD:

  1. #StrongDollar = +4.4%
  2. #CommodityDeflation (CRB Index) = -4.5%

Reminder - the highest multiples ever paid for US stocks have occurred when:

 

1.       Growth is accelerating

2.       Inflation is slowing

 

That was the mid to late 1990s. US Consumption Growth was ripping alongside #StrongDollar and then people ultimately paid way too much for the growth that became more a perception than a reality.

 

But there was speed and surprise coming out of the 1 recession too don’t forget. And, from a US economic cycle perspective, today is a lot more like 1992 than 1999.

 

During Clinton’s presidency, here’s what the American people had:

  1. Average US Dollar Index price of $97.89
  2. Average price of Brent Oil of $19.69/barrel
  3. Average pace of US GDP +3.5%

That last part of the equation is what I really care about next. What will the speed and surprise be on the downside for prices at the pump? Last week, the price of Brent Oil (lead pump prices by 3-4 weeks) dropped another -2.5% to -9.9% YTD. Alongside a ripping consumer confidence report from the University of Michigan in May (new YTD high), what did we hear from bears about that?

 

#crickets

 

US Consumption bears (@DougKass) being rattled don’t matter as much as the speculators in the Oil markets. Last week’s CFTC (futures and options) data finally showed the 1st downtick in net long oil contracts since April 23rd. Oil bulls don’t like the idea of Bernanke getting out of our way either. There’s still a +217,531 net long position to burn off in Oil. Oh what a #TaxCut for consumption that would be.

 

I’m tired of our conflicted/compromised governments getting paid to burn our currency. Getting Bernanke out of the way is the most misunderstood bullish catalyst I can think of. #StrongDollar is already sniffing that out. There are huge benefits. It will pulverize the bubbles Bernanke has left – two of the biggest ones being Commodity Prices and 0% you earn on your hard earned savings accounts.

 

“As he smashed the feudal system of aristocratic privilege and birth, he built a new and unique system based on individual merit, loyalty, and achievement… Genghis Kahn insisted on laws holding rulers as equally accountable as the lowest herder … (Introduction, pg xix)” and with more speed and surprise, the American People I know best will surprise governments and bears on growth too.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $100.27-102.95, $82.91-83.79, 100.27-103.34, 2.06-2.19%, 14.27-17.21, and 1, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Speed And Surprise - Chart of the Day

 

Speed And Surprise - Virtual Portfolio


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