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WYNN DRIVES MASS AND OTHER TAKEAWAYS FROM NOV MACAU DETAIL

As we expected, the detail behind what was already a very strong month, was even better.  As you know, Macau gross gaming revenues (GGR) grew 21% YoY in November to HK$29.3 billion.  What you may not know is that VIP hold percentage was approximately 34bps below the year to date average.  We estimate that GGR would have grown 30% YoY with normal hold % in November 2013 and 28% with equal hold % in both periods.  This truly was another outstanding month in Macau.

 

Two company themes we’ve been focused on clearly played out during November and should continue:  LVS is crushing it across the board and WYNN’s aggressive Mass push is beginning to pay off.  These are our favorite Macau names.

 

Here are our initial takeaways:

 

Market

  • Mass revenues increased 39%
  • VIP revenues climbed 15% despite the low hold percentage
  • Estimated VIP hold percentage was only 2.66%, below the normal of 3.00% and last year of 2.88%
  • VIP hold percentage was the lowest since March of 2011
  • Rolling Chip (junket) volume increased 24%, the highest growth rate in almost 2 years
  • Slots were the only disappointment, growing only 2% YoY

LVS

  • While 160bps better than October, market share was just in line with its 3 month average
  • However, VIP hold percentage was almost 60bps below normal – market share would’ve increased sequentially with normal hold
  • GGR outgrew the market (27% vs 21%) but assuming normal hold, LVS’s GGR would’ve grown 40% (vs the market at 30%)

WYNN

  • WYNN’s market share grew 30bps over its 3 month trailing average
  • Hold percentage was 10bps below normal but significantly below last November’s high hold
  • Wynn Macau grew its Mass share 130bps above its trailing average
  • Most importantly, Mass revenue grew over 53% YoY, the highest growth rate since June of 2011, and led the market
  • This was a great month for Wynn Macau

MPEL

  • MPEL was one of the few operators to hold above normal
  • VIP volume and Mass share both fell below recent trend
  • Total revenue growth was in-line with the market despite the relatively high hold
  • We think MPEL could be a share loser over the next year

MGM

  • MGM held well above normal and higher than last November’s low hold
  • High hold contributed to 39% YoY GGR growth, 2nd highest in the market
  • Mass market share was only 6.4%, the 3rd lowest of its history
  • We think MGM has the most to lose by WYNN’s recent Mass push and that indeed played out in November

Galaxy

  • Galaxy led the market in GGR growth for the 2nd straight month
  • Hold was well below normal
  • Mass and Rolling Chip volume share was above recent trend
  • Solid month from Galaxy

December 6, 2013

December 6, 2013 - ja dtr


Looking In The Rear-View Mirroe

Client Talking Points

US DOLLAR

Alas, GDP is a lagging indicator. So... as the 10-year yield makes a lower-high versus the Q313 top, look at what Mr. Market is telling you via the leading indicator in our model: The US Dollar. The greenback is down for four consecutive weeks now after being down -0.41% yesterday. #broken

UST 10YR YIELD

Levels matter versus the prior high. If the 10-year yield can’t make a higher high versus the pre-Fed-no-taper September closing high (and we get anything average in an employment report), no-taper can knock 20-30 basis points out of this rate rally. Fast.

UK

Just awesome. Both home prices (+7.7% year-over-year in November versus 6.9% in October) and autos (+7% November versus +4% October) are loving what Americans loved in Q2-Q3 of 2013. What's that? Strengthening purchasing power via a #StrongCurrency. Go Pound.

Asset Allocation

CASH 38% US EQUITIES 12%
INTL EQUITIES 14% COMMODITIES 4%
FIXED INCOME 8% INTL CURRENCIES 24%

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

3.6% GDP and +200k handles on jobs and these morons are going to try no-taper again @federalreserve

QUOTE OF THE DAY

"I knew if I didn't leave my bitterness and hatred behind, I'd still be in prison." - Nelson Mandela

STAT OF THE DAY

Most British workers under 50 will have to work longer than expected after the government unveiled plans to introduce the highest retirement age in the developed world. Under the reforms, the pension age will be linked to rising life expectancy and reflect the U.K. government's belief that workers should spend no more than a third of their adult life in retirement. The state pension age of 68 will now be enforced in the mid 2030s, about 10 years earlier than planned. And by the late 2040s it will rise to 69.


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THE M3: TAIWAN

THE MACAU METRO MONITOR, DECEMBER 6, 2013

 

 

CASINO LEGISLATION REVIEW PUT ON HOLD Taipei Times

The review of a proposed casino act was placed on hold yesterday as lawmakers opposed to the legislation demanded more time to study all the relevant information.  Legislators from the transportation, economic and judiciary committees were yesterday scheduled to review the act governing the management of casino resorts bill proposed by the Executive Yuan.  They were also to consider two similar drafts proposed by Independent Legislator Chen Hsuen-sheng and Chinese Nationalist Party (KMT) Legislator Alex Tsai.  They were also supposed to review an amendment to the International Airport Park Development Act proposed by several legislators including KMT Legislator Chen Ken-te, which would allow casinos to be built within the boundaries of the Taoyuan Aerotropolis project.  According to the proposed amendment, casinos would be located in the airport’s free trade zone, and people entering them must hold passports and may be exempt from paying customs tax.



Rear-View Progress

“All progress comes from the creative minority.”

-George Gilder

 

So, US GDP Growth goes from 0.14% (at this time last year) to 3.6% in Q3 of this year, and all I hear consensus whine about are “inventories.” I wonder if that slope of US #GrowthAccelerating’s line had anything to do with the long-end of the yield curve being up +127 basis points (or Gold crashing) year-over-year…

 

Newsflash: businesses build inventories when confidence is rising. These are called coincident indicators. Both the US Dollar and US interest rates peaked in Q3 – so did US consumer and business confidence. So the I (Investment) in C+ I + G = GDP, went up.

 

Would the 2013 growth bears have preferred Investment to go down (and G (government) spending to go up instead)? Who knows. And who actually cares what they think anyway? For them, it’s all rear-view. Mr. Macro Market looks forward.

 

Back to the Global Macro Grind

 

Now that Bond Yields ripped to a lower-high (vs the SEP 2013 high) on a lagging economic indicator (that was a Q3 GDP report; it’s the end of Q4), and the stock market had another little meth withdrawal on that (“taper-talk” drives them batty), what’s next?

  1. TREASURY YIELDS = immediate-term TRADE overbought at 2.88% on the UST 10yr
  2. US EQUITIES = immediate-term TRADE oversold at 1779 on the SP500
  3. US EQUITY VOLATILITY (VIX) = immediate-term TRADE overbought at 15.58

So, would a bad jobs report be good for stocks (and bad for bonds)? Would another good jobs report be bad for stocks (and good for bonds)? Inquiring “lower-class folks” who don’t get to play at the insider Fed Whale tables want to know…

 

We mince no words calling this a centrally-planned-casino at this point. And since some of us are pretty darn good at buying bubbles, we feel lucky when stocks and bonds hit the high and low-ends of our risk ranges. It’s all about playing the probabilities, baby!

 

That’s why, after 5 consecutive no-volume down days for the US stock market (a correction in the SP500 of -1.2%), we bought-the-damn-bubble #BTDB (again) yesterday, taking our Cash position (asset allocation model) down to 38% (started the wk at 58%).

 

Where do we think US Growth goes from here?

  1. Down

That might be the easiest question to answer since we said US growth would go UP (from 0.14%) 1-year ago.

 

What could happen if we’re right about that?

  1. 2014 #OldWall GDP and SP500 consensus will be wrong (again) because it’s taking “forecasts” UP (it’s called anchoring)
  2. Most rear-view macro investors will probably perpetuate one more series of US stock market tops
  3. #GrowthSlowing, sequentially (from 3.6%) starts to give the US stock market multiple compression by Q2 of 2014

As most of you know, I’m not a forensic-US-stock-market-multiple-analyst. In fact, I think picking an “earnings number” for the SP500, then licking your finger on what multiple to slap on that is one of the more laughable things I hear people say with a straight face.

 

I’m more of a market history, math, and behavioral mutt myself. And history tells you that the US stock market:

  1. Sees multiple expansion when A) GROWTH accelerates and B) INFLATION slows
  2. Sees multiple compression when A) GROWTH slows and B) INFLATION accelerates

In other words, US economic STAGFLATION periods (1970s, 2010-2012, etc.) saw the SP500 trade at 7-12x earnings and #StrongDollar (deflating the inflation) periods of US real-consumption GROWTH accelerating saw multiples trade anywhere from 17-35x earnings.

 

Therefore, in my own little mind, provided that I think I know where the slopes of the 2 lines (GROWTH and INFLATION) are going in the next 3-6 months, I can start to prepare the sails of change in my positioning. In Macro, mental flexibility is forward progress.

 

Our immediate-term Risk Ranges (with TREND bullish or bearish) are now:

 

UST 10yr Yield 2.77-2.88%

SPX 1 

DAX 9068-9288 

VIX 13.31-15.58 

USD 80.22-80.66

Pound 1.62-1.64 

EUR/USD 1.35-1.37 

 

Happy b-day to my brother Ryan and best of luck out there today,

KM

 

Rear-View Progress - Chart of the Day

 

Rear-View Progress - Virtual Portfolio


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