“One main factor in the upward trend of animal life has been the power of wandering.”
-Alfred North Whitehead
Rather than get all googly eyed about modern day central planners who are long of social science dogma and short of math, I tend to wander backwards when looking for direction. History is my contextual guide, and so are her credible sources.
Whitehead was one of the British math guys (1) who wandered outside of academia’s box. He co-authored Principia Mathematica with one of the world’s premier strategists (Bertrand Russell) and was an early adopter of what we now call Chaos Theory.
From considering the metaphysical global macro market to the process you have developed to absorb it, what is that you do when markets go against you? What do we do when immediate-term TRADEs wander from the intermediate-term TRENDs? Bull or bear? Personally, I am ok with being called an animal.
Back to the Global Macro Grind…
I had a very bad day yesterday. Yes, for those of us who timestamp every move we make, they do happen. But what, precisely, was happening? Was my first move to do more of what wasn’t working? Or was it a better decision to wait and watch?
The good news about today is that Mr Market gives us direct feedback on however we answered those questions. Right or wrong, we are tasked with always questioning the behavioral side of our decision making process. #evolve
To put yesterday’s -1.38% drop (SP500) in context, it was the 5th worst day for US stocks in 2013:
- February 28, 2013 = -1.83%
- April 15, 2013 = -2.30%
- April 17, 2013 = -1.43%
- May 31, 2013 = -1.43%
When I was a younger man trading on simple moving averages and voodoo technical charting systems that my bosses would push down on me, one-factor price moves could really throw me for an emotional loop.
Now I use a baseline 3-factor model that includes PRICE/VOLUME/VOLATILITY parameters and predictive tracking algorithms. And it’s that last little critter (VOLATILITY) that helps me sometimes front-run the proactively predictable behavior of machines.
What all 5 of the worst US stock market down days have in common is front-month US Equity volatility (VIX) seeing a very short-term capitulation to lower TREND duration highs. Here’s that history of VIX closing prices:
- February 25, 2013 = 18.99
- April 15, 2013 = 17.27
- April 18, 2013 = 17.56
- May 31, 2013 = 16.30
And yesterday, the VIX closed +7.6% on the day at 17.50.
So, what say you Mr Mucker, TRADE or TREND? That’s easy:
- SP500 = bearish TRADE; bullish TREND
- VIX = bullish TRADE; bearish TREND
For those of you who are new to reading my rants, in our model TRADEs are 3 weeks or less and TRENDs are 3 months or more. I built the model this way so that I don’t let my emotions allow me to wander too far away from fundamental research trends.
Freaking out and selling at every higher-low within a bullish TREND is called losing money. And since that would violate Rule #1 in our risk management process, we don’t want to be like that.
Why is the intermediate-term TREND for US stocks bullish and for fear bearish? I think the fundamental research answer to this quantitatively prefaced question is crystal clear – what everyone lives in fear of (#GrowthSlowing) is now #GrowthAccelerating.
Darius Dale will show you this in our Chart of The Day (6 month TREND duration charts)
- US Equity Volatility is still crashing (-23% from its Johnny Boehner sequestration fear-mongering high in December 2012)
- US Equities (SPY) continue to make a series of higher-lows on selloffs as the VIX makes lower-highs
If the VIX can’t close above 18.99 and the SP500 can’t snap my TREND support line of 1577, what I’ll be doing from here is doing more of what we have been doing for the past 6 months (buying the damn dips in US Consumption and shorting almost everything Commodities).
No, that doesn’t mean I bought all the way down yesterday. It actually meant I did a whole lot of nothing. The SP500’s TRADE line broke, so why hurry when I can either buy lower or buy on another TRADE breakout above 1624 SPX when my convictions are confirmed?
Of all the bubbles Bernanke has helped perpetuate, one of the biggest is fear. The fear of change (rates rising) in this market is pervasive. But don’t wander too far from the TREND here my friends. Shorting fear and buying growth has been right; stay with it until the mathematical signals collide with the fundamentals. If they change, we will.
Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $100.24-104.42, $82.21-83.32, 98.71-103.02, 2.01-2.23%, 15.31-17.91, and 1, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
THE MACAU METRO MONITOR, JUNE 6, 2013
EUROVEGAS IN "A COUPLE OF MONTHS" Macau Daily Times
The EuroVegas resort project in Alcorcón, on the outskirts of Madrid could get the go ahead from the Spanish government in “a couple of months.” The assurance was made by the prime minister of Spain to Adelson and Leven last week, when they made a stopover in Madrid on the way to Tel-Aviv and Macau.
“We met with the prime minister Mariano Rajoy, the president of Madrid and other officials," Mike Leven told the Times, adding that “we went through the four or five remaining outstanding situations of the deal, and they’ve assured us they are going to get back to us sometime in the next couple of months. And I must say, and Sheldon said this in Israel, the Spanish government is trying very hard [to move ahead with the project].”
The investment in the first phase amounts to USD10 billion, an amount which worries both investors and analysts who have shown their fears with the risk the European LVS mega-bet may pose to the company. To this, Leven responded: “Adelson’s not going to bet the company and he’s not going to risk the company without having the kinds of concessions that reduce the risk of the financial investment.”
EuroVegas resort project in Madrid would emphasize amenities aimed at the meetings and conventions sector, including a total of 2,400 meeting rooms and 12 hotels with about 3,000 rooms each.
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The details behind the May numbers
As you know, May GGR grew 13.5% YoY to HK$28.7 billion. We estimate that including direct play, VIP hold was 2.91% versus a normalized 3.00%. Had VIP hold been normal this May, YoY growth in GGR would’ve grown 16.5%. With normal VIP hold in both periods, GGR growth would have been 13.9% (similar to what was reported). We expect June growth to be similar to May but July could spike close to 20%.
YOY TABLE OBSERVATIONS
Total table revenue grew 14% YoY. Mass market growth continued its streak of around 30% growth rate, growing 32% in May. VIP volume and win rose 8%, in-line with April's growth.
LVS took the top spot for table revenue growth at 43% for the 4th consecutive month. The company had the highest mass revenue growth at 66%. Its RC volume grew 23%. We estimate that LVS held normal at 2.76% in May compared to 2.53% last May, assuming direct play of 15% vs. 23% last year. Venetian and FS played lucky while SCC and Sands Macau held low.
- Sands eked out a 1% gain YoY
- Mass grew 32%, its best monthly YoY growth in a long-time
- VIP fell 27%
- Sands held very low but also had an easier comp. We estimate that Sands held at 1.8% compared to 2.3% in the same period last year. We assume 11% direct play in May vs 9% in May 2012.
- Junket RC fell 8%, its 3rd consecutive month of declines
- Venetian grew 63% YoY, the property's best growth since January 2012
- Mass increased 55%
- VIP revenue skyrocketed 70% due to high hold
- Junket VIP RC fell 5%, its 15th decline in the past 16 months
- Assuming 27% direct play, hold was 3.5% compared to 2.0% in May 2012, assuming 28% direct play
- Four Seasons jumped 42% YoY
- Mass revenues increased 24%
- VIP grew 45%
- Junket VIP RC jumped 32%. May hold (assuming 11% direct play) was 3.1% vs 2.7% in May 2012 when direct play was 16%.
- Sands Cotai Central grew 46% YoY
- Mass jumped 167% to $87MM, a new monthly high
- VIP revenues grew 8% to $110MM
- Junket RC volume of $4.4BN, up 72% YoY
- If we assume that direct play was 11%, hold would have been 2.2%
MPEL had a solid month, lobbing in the 2nd best table growth of 31%. Mass grew 63% while VIP growth was 22%. We estimate that MPEL held at 2.70% vs 2.78% last May. Estimated direct play was 10% vs. 10.5% last year.
- Altira revenues grew 33%, the property's best growth rate in 20 months. Mass rose 28% while VIP saw a 33% YoY increase.
- VIP RC grew 25%
- We estimate that hold was 2.8%, compared to 2.6% in the prior year
- CoD table revenues grew 30% YoY
- Mass increased 68%, continuing its impressive streak of strong YoY double-digit gains since the property opened
- VIP win grew 16% and RC grew 28%
- Assuming a 13.5% direct play level, hold was 2.7% in May compared to 2.9% last year (assuming 14.7% direct play)
Wynn table revenues grew 22%
- VIP revenues grew 25%, while VIP RC increased 1%
- Wynn held at 3.1% vs 2.6% last May
- Mass revenues increased 9%
MGM had a strong performance in May, growing 25% in table revenues.
- We estimate that hold was 3.1% adjusted for direct play of 7% vs hold of 3.2% last year assuming 9% direct play
- VIP RC and Mass both grew 29%
Tables revenues grew 8%. VIP RC had the worst market performance, falling 6%. On the bright spot, Mass growth was very strong at 44%. Hold was 3.2% in May 2013 vs. 3.0% last year.
- StarWorld table revenues rose 20%
- Mass soared 44%
- VIP gained 17%.
- Junket RC rose 6%, breaking 11 straight months of declines
- Hold was 3.1% vs 2.8% last year
- Galaxy Macau's table revenues was flat
- Mass had another great month at 44% growth
- VIP saw a second consecutive decline at -12% and RC also fell 12%.
- Hold was 3.2%, similar to May last year
SJM performed relatively poorly in May, partially due to hard comps and lower hold. Total table revenue fell 12%, with the worst mass market share growth (none) and VIP revenue decline of 16%. RC volume dropped 2%. SJM held at 2.8% vs 3.2% last year.
SEQUENTIAL MARKET SHARE - April to May
Market share lost 90bps to 20.9%. May’s share is in-line with LVS’s 6-month average of 21.1% and better than its 2012 average share of 19.0%.
- Sands' share fell 20bps to 2.8%. For comparison purposes, 2012 share was 3.9% and 6M trailing average share was 3.4%.
- Mass share jumped 130bps to 5.9% in May
- VIP rev share fell 80bps to 1.5%, a new all-time low
- RC share was 2.2%, flat MoM and in-line with the all-time low for the property set in March
- Venetian’s share was flat at 8.5%. 2012 share was 7.9% and 6 month trailing share was 8.3%.
- Mass share decreased 1.5% to 14.4%
- VIP share improved 50bps to 6.0%
- Junket RC share gained 40bps to 3.9%
- FS gained lost 20bps to 3.7%. This compares to 2012 share of 3.7% and 6M trailing average share of 3.2%.
- VIP was flat 4.7%
- Mass share fell 20bps to 1.5%
- Junket RC was flat at 4.1%
- Sands Cotai Central's table market share fell 50bps to 5.5%, which compares to the 6M trailing average share of 5.8%.
- Mass share improved 40bps to 8.2%.
- VIP share fell 0.9% to 4.4%
- Junket RC share was flat at 5.5%
MPEL lost 2.3% in share in May to 14%. Its 6 month trailing share is 14.0% and their 2012 share of 13.5%.
- Altira’s share fell 20bps to 3.8%, above its 6M and 12M trailing share of 3.9%
- Mass share was flat at 1.3%
- VIP lost 40bps to 4.8%
- VIP RC share fell 40bps to 5.2%
- CoD’s share lost 2.1% to 10.2%, but still above the property’s 2012 and 6M trailing share of 9.4% and 10.0%, respectively.
- Mass market share grew 1.5% to 12.5%
- VIP share tumbled 3.6% to 9.2%
- Junket share ticked down 20bps to 9.3%
Wynn was the largest share gainer in May, gaining 260bps to 12%. 2012 average share was 11.9% and their 6M trailing average share has been 11.0%.
- Mass share was fell 50bps to 7.3%
- VIP share gained 4.1% to 13.9%
- Junket RC share increased 80bps to 12.5%
MGM’s market share rose 2.5% to 11.4%, above its 6M and 2012 average of 9.6% and 9.9%, respectively
- Mass share gained 40bps to 7.8%
- VIP share improved 3.4% to 12.6%
- Junket RC gained 1.0% to 11.8%
Galaxy's share gained 1.2% to 18.8%, below its 2012 average share of 19.0% but above its 6-month average of 17.9%
- Galaxy Macau share improved 0.5% to 10.8%
- Mass share gained 1.1% to 10.8%, an all-time property high
- VIP share improved 30bps to 10.8%
- RC share lost 10bps to 9.8%
- Starworld share gained 2% to 7.8%
- Mass share was lower by 40bps at 3.4%
- VIP share jumped 3% to 9.6%
- RC share gained 70bps to 9.5%
SJM was the largest share donor, losing 3% MoM to 22.9%, which is below their 2012 average of 26.7% and their 6M trailing average of 26.4%, and a new all-time low
- Mass market share declined 70bps to 24.7%, an all-time company low
- VIP share fell 4.3% to 22.8%
- Junket RC share fell 2.2% to 25.6%
Slot revenue grew only 5% YoY to $152MM in May
- Galaxy had the best YoY growth at 43% to $20MM
- LVS grew of 9% YoY to $43MM
- MPEL gained 5% YoY to $25MM
- MGM fell 1% to $25MM
- WYNN dropped 8% to $21MM
- SJM had the worst YoY slot performance, losing 9% to $18MM
TODAY’S S&P 500 SET-UP – June 6, 2013
As we look at today's setup for the S&P 500, the range is 23 points or 0.49% downside to 1601 and 0.94% upside to 1624.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 1.80 from 1.80
- VIX closed at 17.5 1 day percent change of 7.56%
MACRO DATA POINTS (Bloomberg Estimates):
- 7:30am: Challenger Job Cuts Y/y, May (prior -6%)
- 7:30am: RBC Consumer Outlook Index, June (prior 50.2)
- 7:45am: ECB seen holding benchmark interest rates at 0.50%
- 8am: Fed’s Plosser speaks on economy in Boston
- 8:30am: ECB’s Draghi hold news conference on rate decision
- 8:30am: Init Jobless Claims, June 1, est. 345k (prior 354k)
- 8:30am: Cont. Claims, May 25, est 2.974m (prior 2.986m)
- 9:45am: Bloomberg Consumer Comfort, June 2 (prior -29.7)
- 10am: Freddie Mac mortgage rates
- 10:30am: EIA natural-gas storage change
- 11:00am: Fed to buy $3b-$3.75b notes in 2019-2020 sector
- 12pm: Household Change in Net Worth, 1Q (prior $1.174t)
- 9am: U.S.-China Economic and Security Review Commission holds briefing on China and the Middle East, focusing on energy security, trade, investment flows
- 10am: Consumer, telecom industry representatives testify before House Judiciary panel on Courts, IP and the Internet on H.R. 1123, a bill which would allow cell phone unlocking
- 10am: Senate Foreign Relations Cmte meets on labor conditions in Bangladesh
- 10am: Senate Finance Cmte hears from USTR nominee Michael Froman at confirmation hearing
- 10:45am: Attorney General Eric Holder testifies at Senate Appropriations panel hearing
- 3pm: President Obama discusses jobs in speech at Charlotte middle school
WHAT TO WATCH
- May Retail Sales likely rose on pent-up seasonal demand
- NYSE Euronext glitch halts trading from Paris to Amsterdam
- PepsiCo in talks to buy SodaStream for $2b, Calcalist says
- Cohen is said to vow keeping SAC open as billions pulled
- Fed grants foreign banks leeway in Dodd-Frank swap pushout rule
- BOJ said to split on measure to quell bond market volatility
- P&G reorganizes into 4 industry groups as Lafley takes over
- AT&T discussing joint bid for Hulu with Chernin: AllThingsD
- Simon & Schuster CEO says she didn’t discuss Apple e-book talks
- NSA said to cull millions of Verizon records, Guardian says
- Newsweek CEO to leave after Diller puts magazine up for sale
- JPMorgan loses challenge to California cost-recovery program
- EU considering handing Libor oversight to ESMA from the U.K.
- IMF says Greece may need faster debt relief, cites own mistakes
- GM replaces H.J. Heinz (HNZ) in S&P 500 post-close
- Netflix replaces Perrigo in Nasdaq 100 pre-open
- JM Smucker (SJM) 7am, $1.16
- Ciena (CIEN) 7am, $(0.01)
- Conn’s (CONN) 7am, $0.56
- Ferrellgas (FGP) 7:30am, $0.46
- UTi Worldwide (UTIW) 8am, $0.03
- ANN (ANN) 8am, $0.40
- Canadian Western Bank (CWB CN) 8am, C$0.57 - Preview
- Cooper Cos. (COO) 4pm, $1.38
- Quiksilver (ZQK) 4pm, $0.04
- Vail Resorts (MTN) 4pm, $2.74
- Ferrellgas Partners (FGP) 4pm, $0.44
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Copper Drops From Two-Week High on Clouded Prospects for Demand
- Goldman Sees Bull Run Over as Returns Trail Stocks: Commodities
- WTI Crude Advances for Second Day as U.S. Stockpiles Decline
- Food Prices Little Changed in May as Dairy Falls and Corn Climbs
- Coffee Heads for First Second-Quarter Drop Since 2009 on Vietnam
- Chalco Shutters Aluminum Output for First Time Since 2009
- Gold Erases Decline in London to Rebound Above $1,400 an Ounce
- Scientists Unswayed by Monsanto’s Conclusions on Rogue Wheat
- Harper EU Trade Pact Hinges on Access for Canadian Meat Exports
- Rebar Falls as Equity Drop Spurs Concern China May Be Slowing
- Abe’s Power Plan Lifts Renewables at Utilities Expense: Energy
- Natural-Gas Price Break May Aid Motor-Fuel Use: Chart of the Day
- Iron Ore Trading in May Said by The Steel Index at Record High
- Commodities Daybook: Goldman Sees Bull Run Over as Returns Trail
- Bigger Wheat and Corn Crops Seen Boosting 2013-14 Stocks by AMIS
The Hedgeye Macro Team
We will be hosting a conference call Tuesday, June 11th at 10:00am EDT titled "Where Does Europe Go From Here?"
Highlight the best investment opportunities in Europe and assess the overall economy of the region.
KEY TOPICS WILL INCLUDE
- Contextualizing the fundamental and structural headwinds in the region
- The key actions of the ECB and its impact across markets
- European bifurcation will remain with clear winners and losers
- Updates from the periphery and other risks investors should be aware of
- Our investment outlook across asset classes over the intermediate term
- Toll Free Number:
- Direct Dial Number:
- Conference Code: 187759#
- Materials: CLICK HERE (Slides will download one hour prior to the start of the call)
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