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MACAU REMAINS ON TRACK FOR 18-22% GROWTH

Average daily table revenues (ADTR) fell 7% week over week, in-line with our expectations, and leaving Macau on track for another strong month.  This past week’s ADTR was +20% YoY, which is in-line with our full month YoY projection of +18-22% growth.

 

In terms of market share, Galaxy, LVS, and SJM are above trend so far this month, at the expense of MPEL, MGM, and WYNN.  For the most part, market share variances appear to be hold-related.  We continue to like the Macau stocks in general, and MPEL and MGM specifically.

 

MACAU REMAINS ON TRACK FOR 18-22% GROWTH - ma

 

MACAU REMAINS ON TRACK FOR 18-22% GROWTH - maa


MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL

Takeaway: Portugal is posting a massive negative divergence vs the rest of the world. Sovereign CDS are going parabolic. Greece/Cypress II?

Key Takeaways:

Portuguese sovereign swaps rose 83 bps last week to 556 bps, and are up 185 bps in the last month (+50%). Since 5/22, Portguese swaps have doubled off their lows of 274 bps. By comparison, the rest of Europe is up 7-12% MoM. It's worth asking whether Portugal is going to soon become a new hotbed of focus. 

 

Meanwhile, the situation in the U.S. continues to improve following Bernanke's talk-down on tapering mid-last week. High yield rates fell 27.0 bps last week, ending the week at 6.31% versus 6.58% the prior week. Currently long-term rates are heading toward what we consider higher lows after recently putting in a higher high.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 7 of 13 improved / 1 out of 13 worsened / 5 of 13 unchanged

 • Intermediate-term(WoW): Negative / 2 of 13 improved / 5 out of 13 worsened / 6 of 13 unchanged

 • Long-term(WoW): Positive / 4 of 13 improved / 0 out of 13 worsened / 9 of 13 unchanged

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 15

 

1. American Financial CDS -  Swaps tightened for 27 out of 27 domestic financial institutions. Mortgage insurers posted sharp improvements WoW, with MTG and RDN dropping 43 and 49 bps, respectively. We've been using MI swaps as a proxy of sorts around sentiment of the rate of recovery in the housing market. After stalling out for a month or so, it's a worthwhile takeaway to see swaps again moving (aggressively) in the right direction.

 

Tightened the most WoW: ACE, XL, GNW

Tightened the least WoW: COF, AGO, WFC

Tightened the most WoW: MET, XL, AIG

Widened the most MoM: GS, MBI, AGO

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 1

 

2. European Financial CDS - Most of Europe's banking system was uneventful last week. Spanish, Portguese and some Italian banks posted noteworthy increases, however.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 2

 

3. Asian Financial CDS - After seeing risk profiles steadily deteriorate for weeks, Chinese and Indian financials saw their high water mark swap quotes recede further last week. Chinese banks were down an average of 16 bps WoW, while Indian swaps came in 31 bps, on average  

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 17

 

4. Sovereign CDS – Sovereign swaps were almost universally tighter last week, with one major exception. Portuguese swaps widened 83 bps WoW to 556. In the past month, Portuguese swaps have widened out 185 bps. This is a significant negative divergence from the rest of Europe. Is it too soon to begin asking whether Portugal is beginning to fulfill its destiny as Greece II? The data is starting to suggest that.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 18

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 3

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 27.0 bps last week, ending the week at 6.31% versus 6.58% the prior week.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 11.0 points last week, ending at 1795.83.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 6

 

7. TED Spread Monitor – The TED spread rose 0.3 basis points last week, ending the week at 23.46 bps this week versus last week’s print of 23.19 bps.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 7

 

8. Journal of Commerce Commodity Price Index – The JOC index rose 2.2 points, ending the week at -0.95 versus -3.1 the prior week.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 12 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 9

 

10. ECB Liquidity Recourse to the Deposit Facility – Deposits fell by 17 billion Euros last week. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 10

 

11. Markit MCDX Index Monitor – Last week spreads tightened 1 bp, ending the week at 95.02 bps versus 96.04 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. 

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 11

 

12. Chinese Steel – Steel prices in China rose 0.1% last week, or 3 yuan/ton, to 3409 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 12

 

13. 2-10 Spread – Last week the 2-10 spread widened to 227 bps, 15 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.3% upside to TRADE resistance and 2.3% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: PORTUGAL, PORTUGAL, PORTUGAL - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


Underneath the Macro Hood

Client Talking Points

CHINA

Newsflash: Chinese growth is slowing. Since virtually everyone already knows that, the reaction to the news is pretty much mute this morning (Hang Seng up +0.12%). China is doing her very best to massage the numbers while we all wait on the next leg down in industrial demand. Industrial Production in China down to +8.9% in June. There is no reason to believe that improves in July or August.

GREECE

Since there’s really nothing else going on out there this morning, let’s go ahead and pick on Greece crashing again. It's yet another negative divergence for the Greek stock market this morning down -1.2%. But the more important point here is that it's down -31% since May 17. Just really ugly. Illiquid markets are becoming more enticing on the short side (weekly) at this point.

EURO

The Euro is backing off at our long-term TAIL risk line of $1.31 vs USD again this morning. This takes some of the bloom off Bernanke’s hopes to devalue the US Dollar. Look, if the EUR/USD fails here, and Ben Bernanke is less dovish during his testimony on Wednesday and Thursday, there is no downside support to $1.27. We're watching this one closely.

Asset Allocation

CASH 58% US EQUITIES 14%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
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. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

Both the US Dollar and 10yr Treasury Yields have stabilized at higher-lows again; Bernanke is back at it on Wednesday

@KeithMcCullough

QUOTE OF THE DAY

The real truth of the matter is,as you and I know, that a financial
element in the large centers has owned the government ever since
the days of Andrew Jackson…

-Franklin D. Roosevelt (in a letter to Colonel House, dated November 21, 1933)

STAT OF THE DAY

5.37%: The average yield on 10-year Treasuries over the past 25 years. (Bloomberg)


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.30%
  • SHORT SIGNALS 78.51%

July 15, 2013

July 15, 2013 - dtr

 

BULLISH TRENDS

July 15, 2013 - 10yr

July 15, 2013 - spx

July 15, 2013 - dax

July 15, 2013 - dxy

July 15, 2013 - oil

 

BEARISH TRENDS

July 15, 2013 - HSI2

July 15, 2013 - VIX

July 15, 2013 - euro

July 15, 2013 - yen

July 15, 2013 - natgas

July 15, 2013 - gold
July 15, 2013 - copper

 


Looting The Aristocracy

This note was originally published at 8am on July 01, 2013 for Hedgeye subscribers.

“All looting would wait until after complete victory.”

-Jack Weatherford

 

Of all the successful wartime innovations of Genghis Kahn versus oppressive 13th century kingdoms, his looting policy was one of the most unique.

 

“He ordered that a soldier’s share be allocated to each widow and to each orphan of every soldier killed” … “this policy ensured him of the support of the poorest people in the tribe, but it also inspired loyalty among his soldiers.”

 

“By controlling the distribution of all the looted goods, he had again violated the traditional rights of the aristocratic lineages...” (Genghis Kahn and The Making of the Modern World, pages 50-51).  The trust of The People was his currency.

 

Back to the Global Macro Grind

 

You can study the last 80 years of economic history or the last 800 and you will come to the same basic conclusion: Politicians eventually plunder The People, until The People push back. The pattern of behavior is not that complicated really. Think it through.

 

On and off for the last 40 years or so, the United States of America has engaged in the same economic plundering that European Aristocratic regimes tried inasmuch as the Ming Dynasty of 14th century China did. It works, until it doesn’t.

 

Economic plundering occurs when people who get paid by their political ascent devalue the purchasing power of their people. Nixon started it in 1971 and Carter continued it; Reagan and Clinton got rid of it; then Bush II and Obama resuscitated it. The only sustainably strong periods of US economic growth (1983-89 and 1993-99) in the last 40 years occurred when the Dollar wasn’t being devalued.

 

But you already know that…

 

As a result, you also know why both real (inflation adjusted) US GDP growth and the US Consumption side of the US stock market has performed so well in the last 6 months. #StrongDollar = #CommodityDeflation.

 

To review the last 6 months:

  1. US Dollar Index = +4.3% YTD
  2. CRB Commodities Index = -6.6% YTD
  3. US Consumer Discretionary Stocks (XLY) = +18.9% YTD

No, this is not new – but last week was a friendly reminder to those who live in fear of #StrongDollar Commodity and Debt Deflation that there is indeed another side to this globally interconnected trade.

 

Last week’s absolute and relative performance of the same was pronounced:

  1. US Dollar Index = +1.1% wk-over-wk to $83.19
  2. CRB Commodities Index = -0.9% wk-over-wk to 275
  3. US Consumer Discretionary (XLY) = +2.5% wk-over-wk to $56.40

And, of course, after the worst month for US stocks in 2013 (SP500 -1.5% for the month of June), Consumer Discretionary (XLY) was the only S&P Sector to close up (+0.5%) for the month.

 

Can we handle a 3-6% stock market correction? Can we handle #RisingRates? Can we handle the truth?

 

Since most Commodities trade via the world’s reserve currency, pervasively bullish moves in that currency (US Dollar) can perpetuate a global consumption #TaxCut.

 

Guys who are marketing 2 and 20 on levered long Gold Funds and/or Super Sovereign Credit Bubble funds (whose base premise is that savers should earn 0% rates of return in perpetuity, and like it) don’t like this at all.

 

But I do. I think The People do too.

 

And why, by the way, should it be any other way? Why should we support aristocrat bond fund managers like Bill Gross begging for Bernanke to superimpose more slow-growth policies on the US Economy?

 

But don’t worry, Paul Krugman agrees with Gross now – so we’ll have to deal with Bernanke being pressured by both “intellectual” and asset management aristocrats for the next 3 months as we try to handicap their tapering whispers.

 

Where to from here? I don’t know. I think I know what the two potential paths look like though:

  1. Fed tapers; the US Dollar continues to strengthen, and we buy back our US Consumption #GrowthAccelerating position
  2. Fed doesn’t taper; the US Dollar is devalued (again), Food, Gold, and Oil prices rip, and we’re back to US #GrowthSlowing (again)

Americans have a choice. But the scarier reality is that so do their politicians. So stand up and be heard, before it’s too late.

 

Our immediate-term Risk Ranges are now:

 

UST 10yr 2.47-2.74%

SPX 1558-1618

DAX 7613-8078

VIX 15.26-20.97

USD 82.46-84.04

Gold 1171-1278

 

Best of luck out there this week. And Happy Canada Day!

KM

 

Keith R. McCullough
Chief Executive Officer

 

Looting The Aristocracy - DXY vs CRB   XLY

 

Looting The Aristocracy - vp71



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