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BYD: OVERTAXED NO MORE

Takeaway: Court’s ruling means big refund for Borgata and higher profits ahead

The bad news:  The Tax Court of New Jersey thinks that Borgata is worth 61% less than previously.  The good news:  who cares because that means Borgata is getting a property tax refund of an estimated $40-50 million for 2009/2010 and likely a similar amount for 2011/2012.  Importantly, that could mean net EBITDA gains of $20-25 million annually beginning in 2013.

 

In our 9/13/13 note, “CATALYSTIC BYD”, we highlighted this ruling as a potential catalyst.  However, we had estimated the refund at $40-50 million for 4 years, not 2.  Assuming BYD wins on appeal, this catalyst is much bigger than even we had imagined.

 

So what is this worth to BYD?  Assuming the $40-50 million is correct and doubling it to reflect 2011 and 2012, that alone increases the value of BYD’s stock by $0.23-0.29 or 2% (BYD owns half of Borgata).  Going forward, the $20-25 million annual tax reduction at Borgata is worth another $0.83-1.03 in value to BYD’s stock price or 6-8%.  If it holds up on appeal, the New Jersey tax situation could be an 8-10% catalyst to the value of Boyd Gaming stock.

 

Maybe the only certainty in life are death and taxes, but lower taxes means more life for this catalystic stock.

 


Dear Mother

This note was originally published at 8am on October 08, 2013 for Hedgeye subscribers.

“You know, men do nearly all die laughing”

-T.E. Lawrence

 

As a young enlightened man in the field of war in the Middle East, that’s what T.E. Lawrence wrote to his Mom in 1916. At the time, he was also tasked with writing a weekly letter to the “Mother” (Britain’s War Office) of his homeland. Not surprisingly, this is when he started to “incense his military superiors” with on-the-ground truths (Lawrence in Arabia, pg 125).

 

“We edit a daily newspaper, absolutely uncensored, for the edification of twenty-eight generals; the circulation increases automatically as they invent new generals. This paper is my only joy. Once can give the Turkish point of view of the proceedings of admirals one dislikes, and I rub it in my capacity as editor-in-chief.” (pg 125)

 

Ah, the power of the pen. You either have it, or you do not. For an amateur writer like me, I get that my moments are fleeting. But, especially when attacking the tyranny of government spin, I feel as liberated as a man who believes in truth and freedom can feel. That’s why I do this at the top of every risk management morning - to feel free.

 

Back to the Global Macro Grind

 

This is not a “free-market.” At least not in its purest definition. At any given moment of the trading day, the government can announce that it is officially saving us from itself. For that, I’ll be damned if I give thanks and praise.

 

Can money buy your freedom? What if the purchasing power of that “money” is being burned at the stake? What if your money is borrowed from the future of your grandchildren?

 

These aren’t new questions this morning. Montaigne started asking these questions in 1571 with “Essais” and Shakespeare personified the money/power/freedom conundrum with the Merchant of Venice too.

 

Can the world’s reserve currency (US Dollar) hold its long-term TAIL risk line of $79.21 support?

 

It’s still the #1 question in my notebook this morning. And I suspect it will be for some time to come. If you ask Gold, the answer is maybe. If you ask Bernanke, Obama, and Boehner, it’s no.

 

In addition to the US Dollar’s TAIL risk line imposed upon us by central planners, here are some critical US TREND lines to consider:

  1. US Treasury 10yr Yield = 2.58% TREND support
  2. US Equities (SP500) = 1663 TREND support
  3. US Equity Volatility (VIX) = 18.98 TREND support

That last one is what’s going to drive the other two. For all of 2013 I’ve been Bearish on Fear (VIX). As of the last 2 weeks, that’s changed. I am as afraid of US government intervention in our markets and economies as the VIX has become.

 

Yesterday’s move on the front-month of fear (VIX) was telling – follow Mr. Market’s flow:

  1. US Equities had a big newsy down-open in the pre-market built on the false media message that the US could “default”
  2. US Bonds and Credit Default Swaps didn’t care about all of the “default” fear-mongering; stocks acknowledge the same
  3. US Equities eventually lifted off the lows and were only down -0.3% by lunchtime

Then …

  1. As the lunch-time lull passed, US Equity market players started to realize that this correction is not just about “default” noise
  2. Almost everything that’s been killing it YTD (Growth Stocks) started to roll over in the early afternoon
  3. Financials (XLF), Consumer Discretionary (XLY), and Small Caps (IWM) all ended up closing down -1.2-1.3% by end of day

And all this happened as US Equity Volatility (VIX) broke out above the @Hedgeye TREND line (18.98) for the 1st time since June. Our process would suggest that there was absolutely no irony in that.

 

I won’t re-hash the Growth “Style Factors” that I outlined in yesterday’s Early Look again, but the risk management point to embrace was a very simple one. As a market expectation, #GrowthAccelerating has plenty of downside.

 

The US Government is not going to default on its debt, but it may very well slow growth.

 

Put another way, the longer that both the fiscal and monetary policy sides of the US House lean on:

 

A)     Down Dollar

B)     Falling US Interest Rates

 

The less likely it is that the US economic cycle will be allowed to occur.

 

Policies to Inflate (devaluing the Dollar) don’t create economic growth; they perpetuate inflation. Under our #StrongDollar + #RatesRising scenario (that may have died 2 weeks ago), inflation is not an issue. Now it is. Mother, be forewarned.

 

Our immediate-term Risk Ranges are now as follows (we do all 12 Global Macro ranges in our Daily Trading Range product):

 

UST 10yr Yield 2.60-2.68%

SPX 1671-1685

VIX 16.23-20.15

USD 79.67-80.71

Euro 1.34-1.36

Brent 107.97-109.99

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dear Mother - Chart of the Day

 

Dear Mother - Virtual Portfolio



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Look Forward

“Look forward all the time.”

-T.E. Lawrence

 

That’s what T.E. Lawrence, aka Lawrence of Arabia, wrote home to his Mom at Christmas time in 1915. He’d just lost two of his British born brothers to WWI within the span of 5 months. He was only 27 years old.

 

On the road, on your own, no one teaches you to look forward in life. You have to learn that lesson yourself. Been there, done that. I left home when I was 16 years old. And for me at least, looking forward has always been born out of adversity, failure, and loss. That’s my only way out.

 

Context at life’s crossroads is critical. Lawrence needed to become the change he wanted to see in his world. “In the 11 months since he had arrived in Cairo, he had largely been confined to a suite of offices in the Savoy Hotel, a world away from the Western Front…(Lawrence in Arabia, pg  149). Few in Middle Eastern history decided to look forward like he did in 1916. That’s why he’s remembered.

 

Back to the Global Macro Grind

 

When you don’t believe in the central-planning command of an economy, it’s really hard to look forward. In fact, I’ve had to fight off my personal confirmation bias that Bernanke is going to wreck whatever is left of our said “free-market” for the better part of a year now – not buying Gold or Bonds on any of these “pullbacks” has been a personal victory. I was tempted.

 

That’s why I’m using the T.E. Lawrence analogy. He didn’t believe in “mother” (British Military Command) any more than I believe in the US Federal Reserve. I certainly don’t think I’m going to save the world taking on these received wisdoms, but I don’t think my son or daughter will read about me standing down to un-elected and unaccountable tyranny either.

 

Scott Anderson starts off Chapter 7 of Lawrence in Arabia with a now infamous British Military quote from the Director of Military Intelligence in 1916:

 

“It seems to me that we are rather in the position of the hunters who divided up the skin of the bear before they had killed it. I personally cannot foresee the situation in which we may find ourselves at the end of the war, and I therefore think that any discussion at the present time of how we are going to cut up the Turkish Empire is chiefly of academic interest.”

-General George McDonough

 

In other words, the tyranny of government is in the certainty it assigns to the outcomes of its policies. Allowing government to A) trash your savings accounts and B) burn your currency pays the wealthy and punishes the poor.

 

Ben Bernanke has no business promising the “folks” in America’s heartland that 0% rates of return on their hard earned savings accounts will result in economic prosperity. He should be held in contempt for fear-mongering Americans out of tapering too.

 

So what will today’s employment report bring?

 

With Bernanke bought and paid for by the bond bull lobby, does it matter? I have no idea what this guy is going to unilaterally decided in spite of the data. That’s because he’s politicized; not data dependent.

 

With that accepted, all I can do today is look forward. I can only react to Mr. Market’s read-through on what today’s employment data means. In order to do that, I’ll be focused mostly on the following 3 things:

  1. US DOLLAR – will it hold its long-term TAIL line of $79.21 support on the US Dollar Index (DXY)
  2. US BONDS – will the 10yr US Treasury Yield’s intermediate-term TREND line of 2.57% hold?
  3. GOLD/OIL – will the Bernanke Burning Buck trades of the century continue to come unglued?

Other than in Bernanke’s ideological world, the first 2 things are trivial pro-growth signals. As economic growth stabilizes then accelerates (provided that an un-elected central planner doesn’t try to arrest them) the currency and sovereign yields of a country rise. When gravity isn’t banned, this is called an economic cycle.

 

The 3rd thing is less obvious. That’s because a lot of people in high places get paid by Gold and Oil inflation via a US Policy to Devalue its currency. So how are those Bernanke Gold and Oil bubbles doing this morning?

  1. GOLD – down again to $1312 and still crashing for both the YTD and from the all-time USD low (-22% and -30%, respectively)
  2. OIL – after snapping our long-term TAIL risk line of $101.37 this past wk, WTIC is still crashing (-30% since 2008)

I know, I know. Bernanke said his whispering to #OldWall in the summer of 2008 that he was going to “cut to zero” had nothing to do with that all-time high in oil that’s priced in the Dollars.

 

I know, I know. After multiple whisperings of multiple QEs in 2011 where the US Dollar was pulverized to an all-time low, Gold hitting it’s all time high must have been pure irony.

 

Then came the all-time high in food prices (2012), and the rest is history. According to Bernanke self-serving fictional account, there was “no inflation” at the all-time high in global inflation (in Dollars) in 2011-2012, so now we’ll have Dollar based deflation in commodities and debt, and he’ll have nailed it, right?

 

Not so fast. Even though deflation in commodity prices pays the consumer via a real-inflation-adjusted tax cut at the grocery store and at the pump. And even though #RatesRising gives frugal bastards like me who have a starved savings account some risk-free fixed income too – Bernanke says no.

 

No, no, no “folks” – not now. But Ben, if you won’t taper and give us our currency back now, will you ever? Or, from here, is this no longer within your control? Interestingly, but maybe not surprisingly, Mr. Market is already tapering that answer for the perma bulls in Gold, Oil, and Bonds in real-time. Markets look forward; central planners don’t.

 

Our immediate-term Risk Ranges (all 12 are in our Daily Trading Range product) are now as follows:

 

UST 10yr Yield 2.57-2.69%

SPX 1

USD 79.49-80.23

Yen 96.83-99.03

WTIC Oil 98.12-101.37

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Look Forward - Chart of the Day

 

Look Forward - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 22, 2013


As we look at today's setup for the S&P 500, the range is 52 points or 1.87% downside to 1712 and 1.11% upside to 1764.                                     

                                                                                          

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.29 from 2.29
  • VIX closed at 13.16 1 day percent change of 0.92%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: Nonfarm Payrolls, Sept., est. 180k (prior 169k)
  • 8:30am: Unemployment Rate, Sept., est. 7.3% (prior 7.3%)
  • 8:55am: Johnson/Redbook weekly sales
  • 10am: Richmond Fed Manuf. Index, Oct., est. 0 (prior 0)
  • 10:30am: EIA weekly natgas storage 10:30am (orig. Oct. 17)
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 11:30am: U.S. to sell 4W bills
  • 4:30pm: API weekly oil inventories

GOVERNMENT:

    • Senate out of session, House in session
    • Labor, Commerce Depts. begin to issue economic indicators delayed by 16-day federal govt shutdown
    • Supreme Court hears oral arguments in suit challenging certificates of conformity that allow diesel engines produced by Navistar to exceed EPA emissions standards
    • SEC Chairman Mary Jo White delivers opening remarks at National Society of Compliance Professionals membership meeting, 8:30am

WHAT TO WATCH:

  • BofA said to face 3 more U.S. probes of mortgage-bond sales
  • U.S. employers probably expanded payrolls at faster pace in Sept.
  • Apple to debut new iPads
  • Beechcraft said to attract possible bidders Embraer, Mahindra
  • Texas Instruments forecasts profit that trails analyst ests.
  • Netflix sign-ups beat ests. as U.S. total Hits 31.1m
  • Nokia shows larger devices to help Microsoft’s wireless push
  • Apple preparing 65-inch TV for release in 2014, analyst says
  • RadioShack said to boost liquidity with $835m credit line
  • Goldman Sachs said to seek up to $402m in LEG share sale
  • U.S. shoppers in Deloitte survey to boost holiday spending 9.1%
  • Jana Partners boosts QEP stake and seeks Midstream unit breakup
  • Faith in U.S. ’badly shaken,’ Blackrock CEO Fink writes in FT

AM EARNS:

    • AK Steel (AKS) 8:30am, $(0.25)
    • Carlisle (CSL) 6am, $1.20
    • Centene (CNC) 6am, $0.84
    • CIT Group (CIT) 6am, $0.95
    • Coach (COH) 7am, $0.76 - Preview
    • Delta Air Lines (DAL) 7:30am, $1.35 - Preview
    • DuPont (DD) 6am, $0.41 - Preview
    • EMC (EMC) 6:47am, $0.45 - Preview
    • Entegris (ENTG) 7am, $0.13
    • FirstMerit (FMER) 7:30am, $0.34
    • Forest Laboratories (FRX) 7am, $0.14 - Preview
    • Freeport-McMoRan Copper & Gold (FCX) 8am, $0.63 - Preview
    • Gentex (GNTX) 8am, $0.32
    • Harley-Davidson (HOG) 7am, $0.72
    • IDEXX Laboratories (IDXX) 7am, $0.83
    • Ironwood Pharmaceuticals (IRWD) 7:05am, $(0.57)
    • Kimberly-Clark (KMB) 7:15am, $1.40 - Preview
    • Lexmark International (LXK) 7am, $0.91
    • Liberty Property Trust (LRY) 8am, $0.61
    • Lockheed Martin (LMT) 7:25am, $2.27 - Preview
    • McGraw Hill Financial (MHFI) 7:10am, $0.77
    • Nu Skin Enterprises (NUS) 6:35am, $1.42
    • Pentair (PNR) 7am, $0.86
    • Polaris Industries (PII) 6am, $1.61
    • Regions Financial (RF) 7am, $0.21
    • Reynolds American (RAI) 6:58am, $0.86 - Preview
    • Ryder System (R) 7:55am, $1.45
    • Sigma-Aldrich (SIAL) 7am, $0.99
    • State Street (STT) 7:13am, $1.18
    • Synovus Financial (SNV) 7am, $0.04
    • Travelers (TRV) 6:57am,$2.09
    • United Technologies (UTX) 6:58am, $1.54 - Preview
    • Waters (WAT) 7am, $1.23
    • Whirlpool (WHR) 6am, $2.63 – Preview

PM EARNS:

    • ACE (ACE) 4:01pm, $2.25
    • Altera (ALTR) 4:15pm, $0.34
    • Amgen (AMGN) 4pm, $1.78 - Preview
    • Apollo Group (APOL) 4pm, $0.25
    • Broadcom (BRCM) 4:05pm, $0.68
    • Canadian National Railway (CNR CN) 4:01pm, $1.62 - Preview
    • Celestica (CLS CN) 4pm, $0.21
    • CR Bard (BCR) 4:05pm, $1.40
    • Cree (CREE) 4pm, $0.39
    • Cubist Pharmaceuticals (CBST) 4pm, $0.33 - Preview
    • FMC Technologies (FTI) 4pm, $0.59
    • Fulton Financial (FULT) 4:30pm, $0.20
    • Juniper Networks (JNPR) 4:05pm, $0.31 - Preview
    • Nabors Industries (NBR) 4:02pm, $0.19
    • Panera Bread (PNRA) 4pm, $1.35
    • RF Micro Devices (RFMD) 4pm, $0.10
    • Robert Half International (RHI) 4pm, $0.48
    • Total System Services (TSS) 4pm, $0.46
    • Trustmark (TRMK) 4:01pm, $0.47
    • Unisys (UIS) 4:30pm, $0.94
    • Waste Connections (WCN) 4:05pm, $0.50

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Oil Trades Below $100 a Second Day as U.S. Stockpiles Gain
  • Overflowing Canada Grain Bins Compound Global Glut: Commodities
  • Nickel Reaches 8-Week High as Export-Ban Prospect Spurs Buying
  • Soybeans Fall on Prospects for Weather to Speed Up U.S. Harvest
  • Raw Sugar Declines as Traders Assess Santos Fire; Cocoa Retreats
  • Gold Swings as Investors Await U.S. Jobs Data to Gauge Stimulus
  • Rebar Declines on Concern China Home Price Gains May Spur Curbs
  • Palm Oil Imports by China Set to Slow as Soy Shipments Surge
  • Iron Ore Backwardation Signals 22% Price Drop: Chart of the Day
  • Copper Has Less Support From Speculators Than Three Months Ago
  • Gazprom China Deal Revives as LNG Prices Soar: Energy Markets
  • U.K. Nuclear Future Relies on Reactor Plagued by Delays: Energy
  • StanChart Hires Liam Pepper From JPMorgan for Agriculture Sales
  • WTI Crude Seen Extending Drop Below $100 as U.S. Supplies Surge

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

 

 

 

 

 

 

 

 

 

 

 

 

 


All-time Highs: SP500 Levels, Refreshed

Takeaway: If the reaction to the employment report is bullish, 1764 is next; if its bearish, 1712 is next. So #GetActive.

This note was originally published October 21, 2013 at 10:46 in Macro

POSITION: 7 LONGS, 5 SHORTS @Hedgeye

All-time Highs: SP500 Levels, Refreshed - bull8

All-time is a long time. And fighting a setup like this (higher-lows and higher-all-time-highs) is as tough as tough gets. Forget about Fed fighting – don’t fight Mr. Market.

 

Across our core risk management durations, here are the lines that matter to me most:

  1. Immediate-term TRADE overbought = 1764
  2. Immediate-term TRADE support = 1712
  3. Intermediate-term TREND support = 1671

In other words, the US stock market remains in what we call a Bullish Formation (bullish on all 3 of our core durations – TRADE, TREND, and TAIL). If the reaction to the employment report is bullish, 1764 is next; if its bearish, 1712 is next.

 

So #GetActive.

KM

 

Keith R. McCullough
Chief Executive Officer

All-time Highs: SP500 Levels, Refreshed - km1


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