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THE M3: JAPAN BILL; MACAU MASS OUTPERFORMANCE

THE MACAU METRO MONITOR, NOVEMBER 18, 2013

 

 

ABE ALLIES DIVIDED ON SENDING CASINO BILL TO DIET THIS YEAR Bloomberg

“I don’t necessarily think we will reach consensus on submitting the bill to the current session and moving forward with it in the limited time we have,” Natsuo Yamaguchi, leader of the New Komeito party, said.  A cross-party group of lawmakers has said it is preparing to submit the casino legalization bill to parliament in the current session, ending on Dec. 6.

 

Yamaguchi said the public lacked “full understanding” of the casino issue and said there were potential drawbacks, such as the effect on young people.  If the bill is not submitted now, it would have to wait for the next parliamentary session starting in January.

 

MASS GAMING REVENUE GROWTH EXPECTS TO OUTPERFORM VIP BUSINESS Macau Daily News

Some operators of VIP business projected that gaming revenue for next year will continue to grow, especially for the mass market.  It is expected that mass market’s revenue growth will outperform that of VIP rooms.  Alvin Chau, CEO and director of Suncity Group, projected the revenue growth in the mass market will maintain an uptrend next year with the increasing purchasing power of Mainlanders and more Mainland cities will be included in the Individual Visit Scheme. He added that revenue growth in VIP business will narrow next year as it has already stood at a high level.


BUSINESS AS USUAL IN MACAU

It was business as usual this past week in Macau, with table revenues coming in just a touch softer than our projections.

 

 

Table revenues for the first half of November continued to come in line with our estimates.  ADTR was down 5% WoW to $886, but still up a healthy 14% YoY.  We took our full month GGR projection down a touch to 16-20% YoY growth.  

 

This week, Galaxy was the big share gainer while SJM gave back the most share.  Month-to-date, MPEL and MGM are tracking well above their trailing 3 month share while SJM and LVS are trending below.

 

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November 18, 2013

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BULLISH TRENDS

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BEARISH TRENDS

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Weird Bubbles

“If we’re in a bubble, it’s the weirdest bubble I have ever seen, where everybody hates everything.”

-Mark Andreesen

 

From both a US economic growth and stock market perspective (not one and the same thing), there was a lot of truth in Andreesen’s general statement – if he said it precisely a year ago (he said it on May 1, 2012 with the SP500 at 1406).

 

A full year ago today, the US economy was tracking 0.14% in the 4th quarter of 2012, US Treasury Yields were a full 100 basis points lower (10yr = 1.70%, all-time lows), and the SP500 was at 1360. So if you bought what everyone hated (growth), and shorted what everyone was clinging too (Gold and Bonds), you crushed it.

 

Does that make today a bubble? Or was there a bubble back then in fear? Up +32.2% from November 16th, 2012 is the SP500 a bubble? Barrons says “Yes” (in a few names), but “No” (in most names)” and our new central planning diva, Janet Yellen, says “No” (anywhere)… So I’ll agree with Andreesen - there are plenty of weird bubbles; some of the weirdest markets have ever seen.

 

Back to the Global Macro Grind

 

Most pundits and politicians who have never forewarned you of a bubble live in their own conflicted and compromised bubble. Most “market-equilibrium” people think bubbles are measured by “valuation.” And most market-practitioners call bubbles things that start to make lower-highs versus their all-time highs in price.

 

Well, maybe not most market-practitioners. But that’s how this one thinks. And yes, I’m perfectly happy to be in my own little bubble as a write about bubbles from my hotel room on the Santa Monica, California coastline this morning!

 

At the end of the day, calling something that’s up a “bubble” is about as useful as having another leg in a one-legged butt kicking contest. If you are going to run around trying to make news calling things bubbles, you better be short them, publicly, with timestamps.

 

To review what we have been calling the Bernanke Bubbles for the last year:

  1. Gold
  2. Bonds
  3. MLPs

MLPs are master limited partnerships. If you don’t know what those are, don’t worry about it. We’ll boil it down for you – they are the sub-asset class of equities that look most like a bond that slow-growth Yield Chasing investors have found tax refuge in.

 

All 3 of these bubbles have 3 things in common:

  1. They had almost bullet proof storytelling narratives that lasted on the order of 1-3 decades
  2. Their asset prices confirmed the storytelling (making higher-highs) until they all topped in 2011-2012
  3. They’re now all making a series of lower-highs as interest rates make a series of higher-lows

Now, as you all know, all-time is a long time. So this concept of US 10yr Treasury Bond Yields making an all-time low when US Growth expectations were bottoming in November 2012 can make for some exciting causal relationships.

 

The relationship between interest rates and 0%-rates-forever-bubbles isn’t weird at all. It makes perfect sense. That’s why the upside down of repressed growth expectations (US Growth Stocks) have bubbled up to bring the US stock market to all-time highs:

 

From a US stock market “Style Factor” perspective, check out the score:

  1. LOW YIELD (i.e. GROWTH) stocks = +40.4% YTD
  2. Top 25% EPS GROWERS (by SP500 quartile) = +37.2% YTD
  3. HIGH BETA stocks = +35.8% YTD

As my boy Jesse Pinkman would say, that growth stuff is “awesome!”

 

At the same time, the slow-growth-end-of-the-world-fear trade score for 2013 YTD is:

  1. US Equity Volatility Fear Index (VIX) = crashing -32.4% YTD
  2. Gold = crashing -23.6% YTD
  3. UST 10yr Bonds Yields = +54% YTD

In other words, there was this Weird Bubble in fear-mongering that consensus got sucked into last year that popped as everyone trying to call the top in a said “US stock market bubble” ended up being a bubble themselves.

 

US stock market bears hate that. Another way to measure their “hate” is how well short-interest has performed in 2013. As a “Style Factor”, High Short Interest stocks in the SP500 are currently +31.8% YTD, outperforming the SP500 by +570 basis points.

 

And that’s why I’ve been so quick to cover “growth” shorts throughout October. Holding the bag on a bubble of fear isn’t exactly how I roll. Neither is holding onto the long side of bubbles (like Gold and Bonds) that are still very much in crash mode.

 

My holding period on Gold was 72 hours. And I’m not going to apologize for that. I had my catalyst (Yellen being who she is) and I booked that small gain on the event day. I cut my “crazy eights” exposure to both US stocks and bonds in half on that too.

 

Bubble or no bubble. Weird or not weird. Mr. Macro Market couldn’t care less what we think about markets. He is designed to punish the largest amount of people (consensus) at the most inopportune time. So #GetActive out there, and keep moving.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.66-2.81%

SPX 1

VIX 11.91-14.35

USD 80.54-81.39

Brent 106.04-108.69

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Weird Bubbles - Chart of the Day

 

Weird Bubbles - Virtual Portfolio


Expert Call TODAY on MLP Non-GAAP Accounting

Continuing our work in the MLP space, we will host an Expert Call TODAY at 1pm EST with Roger Burks, Founder and Managing Director of WG Consulting (WGC) and formerly the Lead Partner for Deloitte’s energy practice.

 

Dial-In Info…

Toll Free Number:

Direct Dial Number:

Conference Code: 536617#

 

Given the importance of non-GAAP financial measures to MLPs (distributable cash flow, adjusted EBITDA, maintenance CapEx, etc.), we are looking to gain a better understanding of how and why MLPs use them.  We also seek to understand how the use and calculation of non-GAAP measures is audited (independent auditors) and regulated (SEC), if at all.

 

A few questions on our mind…

  • What is “maintenance CapEx”?  What is this measure supposed to represent?
  • Is “maintenance CapEx” a non-GAAP financial measure?  Why isn’t “maintenance CapEx” reconciled back to its nearest GAAP financial measure?
  • Why are recurring, non-cash expenses like stock-based compensation and non-cash interest expense added back to non-GAAP financial measures like adjusted EBITDA and distributable cash flow?  What is the rationale for doing so?
  • To what extent are non-GAAP financial measures audited?
  • To what extent are non-GAAP financial measures regulated by the SEC?
  • With the SEC’s renewed focus on accounting fraud, do you think that MLPs’ use of non-GAAP financial measures will come under increased scrutiny?  Have you any indication of this already happening?
  • And more...

About Roger Burks…

 

Roger Burks is Founder and Managing Director of WG Consulting (WGC).  Mr. Burks is a CPA with over 30 years of experience, including over 20 years with Deloitte & Touche and 10 years as a senior executive in the energy industry.  Prior to WGC, Mr. Burks led Deloitte’s energy practice.  He served as Lead Partner for many of Deloitte’s energy clients, and led various transaction projects including external audits, acquisitions, divestitures, public and private stock, debt offerings, and merger integration, many involving early Master Limited Partnerships (MLPs).  In 2012, Mr. Burks founded a financial advisory firm that was effectively merged into WGC.  Today, Mr. Burks and his team at WGC serve as the Interim-CFO for a number of companies and provide all financial, operational, and transactional services to them.  Additionally, Mr. Burks serves on the Board of STR Marketplace, The Houston Chapter of CPAs, and has previously served on the Board of Superior Offshore International as well as various other private company and non-profit boards.

 

If you have any questions for Mr. Burks, email them over to me.

 

Kevin Kaiser

Managing Director


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