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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


Anti-Gravity

Client Talking Points

CHINA

Stealing the central planning headlines from the Federal Reserve and European Central Bank bureaucrats this morning is a welcome change: the Shanghai Composite rips a +2.8% move back above its 2,162 TREND line as reform plans are applauded. Hang Seng up +2.7% on that as well.

DAX

Germany's DAX is up +0.5% to +21% year-to-date. Like the S&P 500, the German stock market is clocking another overbought all-time high. Since both Barron's and Yellen say no bubbles, they are officially developing bubbles. (Is there a better reference point than the all-time high?). Risk managing them from here will be our task. The DAX going up with the EURO as Yellen trumps the ECB cut.

OIL

Brent fails right at our Hedgeye TAIL risk line of $108.69. So we would be shorting that here. Right now, at +336,294 net long futures/options contracts, this is still by far the most consensus net long position to fade in all of Big Macro. Incidentally, we sold our Gold on the Yellen bounce last week. We're just trading that in a bearish 1260-1308 range for now.

Asset Allocation

CASH 64% US EQUITIES 6%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Last week was another friendly reminder that if you don't do macro, macro will do you. Hard, fast and often.@HedgeyeDDale

QUOTE OF THE DAY

Never bend your head. Always hold it high. Look the world straight in the eye. -Helen Keller

STAT OF THE DAY

Bitcoin was off to the races this morning, soaring to new highs above $600 — to $618.94 — and last at $610 in choppy trade on Mt. Gox. Washington D.C.’s blessing and a Chinese feeding-frenzy: What more could a virtual currency ask for?


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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