THE MACAU METRO MONITOR, FEBRUARY 25, 2014
MGM ENVISIONS SPENDING UP TO $10 BILLION ON JAPANESE CASINO Bloomberg
MGM said it’s ready to spend $5 billion to $10 billion in Japan. MGM Resorts wants to own at least 51% in a partnership with Japanese companies for projects in the country, said CEO James Murren. “We will overinvest early on to ensure, as we have done everywhere else, that we have properties that are built to last and that would stand additional competition,” Murren said
Hiroyuki Hosoda, the chairman of a cross-party group of pro-casino lawmakers, said today he expects the casino bill will win parliamentary approval by June and wants lower house deliberations on the legislation to start around late April.
Meanwhile, WYNN is open to a potential joint venture in Japan, said President Matt Maddox. CZR is in informal talks with at least 30 Japanese companies to discuss potential partnership, Steven Tight, president for international development, said. The company wants to build casinos in Tokyo and Osaka, and sees the possibility of developing projects in Okinawa, Hokkaido and Yokohama, he said.
STUDY FINDS FEWER LOCALS ARE GAMBLING AT CASINOS Macau Business
Macau Social Welfare Bureau says the proportion of residents that admitted to gambling at a casino fell last year. Research by the University of Macau found the gambling participation rate fell from 56% in 2010 to 49.5% last year.
TODAY’S S&P 500 SET-UP – February 25, 2014
As we look at today's setup for the S&P 500, the range is 37 points or 1.71% downside to 1816 and 0.29% upside to 1853.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.42 from 2.42
- VIX closed at 14.23 1 day percent change of -3.07%
MACRO DATA POINTS (Bloomberg Estimates):
- 7:45am/8:55am: ICSC/Redbook weekly sales
- 9am: FHFA House Price Index m/m, Dec., est. 0.4% (pr 0.1%)
- 9am: S&P/CS Home Price Index 20-City m/m, Dec., est. 0.6%
- 10am: Consumer Confidence Index, Feb., est. 80 (prior 80.7)
- 10am: Richmond Fed Manuf Index, Feb., est. 5 (prior 12)
- 10:10am: Fed’s Tarullo speaks in Arlington, Va.
- 4:30pm: API weekly oil inventories
- 10am: Senate Banking Cmte holds hearing on Terrorism Risk Insurance Act
- 12pm: Breitling Energy CEO Chris Faulkner speaks at Natural Gas Roundtable lunch
- Obama delivers remarks/holds event on economy at White House, Organizing for Action event in evening
WHAT TO WATCH:
- JPMorgan holds investor mtg today; may mean shr volatility
- JPMorgan may announce more mortgage unit job cuts today: FT
- Boeing said to struggle to sell $1.1b of early 787s
- Chevron said to be exploring options for U.S. midstream unit
- Deutsche Telekom seeks WhatsApp alliance after Facebook deal
- AT&T offers unlimited intl texts to challenge T-Mobile
- Samsung shows Galaxy S5 reading fingerprints to fight iPhone
- Credit Suisse said to be faulted by Senate over tax dodgers
- Softbank said to seek stake in Naver’s Line messaging unit
- Vivendi 4Q sales trail ests. on mobile price war
- LinkedIn expands in China with local site limiting content
- Microsoft CEO moves Larson-Green to software and services role
- IBM pledges New York job retention a yr after firing workers
- Mt. Gox Bitcoin exchange goes offline as peers lash out
- Ukraine delays picking govt. to Feb. 27, acting leader says
- KKR gets bids of ~$800m for Ipreo from Blackstone, Carlyle: FT
- American Tower (AMT) 7am, $0.47 - Preview
- ARIAD Pharmaceuticals (ARIA) 7:35am, $(0.46)
- Bank of Montreal (BMO CN) 6:30am, C$1.52 - Preview
- Carrizo Oil & Gas (CRZO) 6:30am, $0.37
- DiamondRock Hospitality Co (DRH) 7:30am, $0.06
- Fifth & Pacific Cos (FNP) 7:34am, $0.28
- FirstEnergy (FE) 8:30am, $0.70
- HollyFrontier (HFC) 7am, $0.21
- Home Depot (HD) 6am, $0.71 - Preview
- Macy’s (M) 8am, $2.17 - Preview
- Office Depot (ODP) 7am, $0.03 - Preview
- OGE Energy (OGE) 7am, $0.25
- OGE Energy (OGE) 7am, $0.25
- Realogy Holdings (RLGY) 6:35am, $0.27
- Steve Madden (SHOO) 7am, $0.53
- T-Mobile (TMUS) 7am, $(0.13) - Preview
- United Therapeutics (UTHR) 6am, $1.50
- Annaly Capital Management (NLY) 4:05pm, $0.26
- Avago Technologies (AVGO) 4:05pm, $0.79
- Chicago Bridge & Iron (CBI) 4:01pm, $1.16
- Dreamworks Animation (DWA) 4:02pm, $0.32
- Edison International (EIX) 4pm, $0.68
- EXCO Resources (XCO) 4:01pm, $0.07
- First Solar (FSLR) 4:02pm, $1.02
- Jazz Pharmaceuticals Plc (JAZZ) 4:05pm, $1.78
- Oasis Petroleum (OAS) 4:15pm, $0.63
- QEP Resources (QEP) 4:05pm, $0.40
- Questcor Pharmaceuticals (QCOR) 4:01pm, $1.66
- Range Resources (RRC) 5:01pm, $0.39
- RR Donnelley & Sons (RRD) 4pm, $0.38
- SBA Communications (SBAC) 4:01pm, $(0.03)
- Superior Energy Services (SPN) 4:05pm, $0.31
- US Silica Holdings (SLCA) 4:30pm, $0.32
- Verisk Analytics (VRSK) 4:10pm, $0.55
- Weatherford International (WFT) 4:40pm, $0.07
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Nickel Exceeding $20,000 for Vale on Indonesian Ore Export Ban
- WTI Crude Falls Amid Rising U.S. Inventories; Brent Declines
- Almond Drought Boosts India Sweets to Aussie Farms: Commodities
- Copper Declines for a Second Day as China’s Currency Weakens
- Gold Trades Near 16-Week High as Ukraine Weighed Against Demand
- Sugar Extends Gains as Copersucar Cuts Brazil Area Crop Forecast
- Wheat Holds Near 2-Month High as Cold Leaves Conditions in Focus
- Sugar Rising to 20 Cents for F.O. Licht as Global Deficit Looms
- Winter Natural Gas Price Swings Seen Threatening U.S. LNG Edge
- China Copper Demand to Advance as Much as 7%, Jiangxi’s Wu Says
- ICE Dumps Pepper in Singapore to Pave Way for Asia Expansion
- Rolls-Royce Drone Ships Challenge $375 Billion Industry: Freight
- Global Coal Output Triples Growth Rates of 1980s, 1990s
- Rebar Drops to Lowest Since 2012 Amid Property Loan Curbs
The Hedgeye Macro Team
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On the heels of Bloomberg’s apparent misquoting MGM China’s CEO Grant Bowie, we decided to look at Direct VIP.
- In a recent article, Bloomberg asserted that MGM China is aggressively pursuing Direct VIP business at the expense of the Junkets. MGM China claims they were misquoted and we believe them. Why would Grant Bowie alienate the junkets with such a public declaration?
- Anyway, the chart below shows the stability of the Market Direct VIP segment over the past 2 years relative to the overall VIP business. Direct VIP is lower relative to the 2010 highs. Disintermediation is not likely to happen anytime soon.
- While it’s likely that MGM could be making a push into more higher margin Direct VIP, it’s doubtful they would admit it publicly or even to Wall Street given the relationships with junkets. MGM’s Direct VIP business as a % of total VIP has been on a slight decline.
- MPEL seems to be the one operator making a favorable (for margins) Direct VIP move but it may be costing them some junket market share as can be seen in the second chart.
This note was originally published at 8am on February 11, 2014 for Hedgeye subscribers.
“If I had a mind to rent pigs, I’d be mighty upset. A man that likes to rent pigs won’t be stopped.”
-Larry McMurtry, Lonesome Dove
Lately I’ve been watching the famed late 1980s mini-series, “Lonesome Dove”, on Netflix. It is based off of the Pulitzer Prize winning novel by Larry McMurtry of the same name. The novel tells the story of two former Texas Rangers, Captain Augustus “Gus” McCrae and Captain Woodrow F. Call, who run a livery called the Hat Creek Cattle Company in the desolate Texas border town of Lonesome Dove.
The bulk of the plot involves the decision by McCrae and Call to leave the relative complacency of Lonesome Dove and drive a massive herd of cattle north to the Montana Territory. On the way north, they encounter a plethora of adventures, including proverbial dust ups with the army, bandits, and Indians.
By far, the savvy plains Indians (Native Americans) are the most formidable challenge McCrae and Call face on their journey. In reality, this is no surprise since the Natives occupied the land for thousands of years before the European settlers arrived and developed many proprietary ways of surviving off the land without the benefit of modern technology.
One such proprietary method of hunting was the Buffalo Jump.
It was a simple, but very effective method of collecting a massive amount of buffalo meat. On horses or foot, the Natives would chase buffalo herds towards, and eventually over, a sharp cliff. Tribesmen waiting below would finish off the buffalo and butcher the meat. The key of course was that buffalo had no idea they were running towards, and eventually over, a cliff.
Back to the global macro grind . . .
While it is an apt analogy, we are not yet ready to say that the global economy is going over the cliff, but the fact remains that much of the data we’ve been collecting and watching is getting incrementally more negative. Yesterday in our morning meeting, Hedgeye’s Asian Analyst Darius Dale emphasized that he is getting a little more cautious on China.
They key reason for his shift is that money market rates continue to back up. This is a point that is emphasized in the Chart of the Day. Further, while the government could choose to intervene, the People’s Bank of China is instead opting to let the markets settle on their own. According to a February 8th PBOC report:
“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that. The market needs to tolerate reasonable rate changes so that rates can be effective in allocating resources and modifying the behavior of market players.”
In the long run, this is likely a positive for the Chinese economy. In the short run, of course, higher money-market interest rate volatility is likely a headwind.
The caveat on getting aggressively negative on China is that GDP comps are relative easy for China and seasonality should also be a positive in the reported numbers this quarter and next. In part, this is likely why the Shanghai Composite is up +0.85% this morning and +3.5% this month – a move that may have some legs if the PBOC decides to cut the Reserve Rate Ratio (RRR) as is rumored this morning.
The novel Lonesome Dove is also somewhat apropos as newly minted Federal Reserve Chair Janet Yellen is scheduled for her debut in front of the House Financial Services Committee this morning, which will include Q&A. Interestingly, there will be a second panel of witnesses that will react to Dr. Yellen’s testimony and will include:
- Dr. John Taylor, Professor of Economics, Stanford University;
- Dr. Mark Calabria, Cato Institute;
- Abby McCloskey, American Enterprise Institute; and
- Dr. Donald Kohn, Brookings Institution.
So, we will see soon enough if Dr. Yellen is a Lonesome Dove or as my colleague Keith McCullough called her in this video the "Mother of All Doves." Either way, her commentary this morning is likely to have some impact on a stock and bond market that continues to be myopically focused on interest rates and Federal Reserve policy.
Speaking of headwinds, one of our Best Idea short positions Boardwalk Pipeline Partners (BWP) faced a few of them yesterday as the stock closed down -46%. We obviously don’t get them all right, but our Energy Sector Head Kevin Kaiser nailed this one. Interestingly, BWP didn’t miss its EBITDA estimate by all that much, but did cut its distribution by more than 80%.
A key tenet of our short call on MLPs in general is that their distributions are quite often an illusion as MLPs borrow money, issue equity and buy companies to maintain the distribution. Investment bankers then “value” MLPs based on the yield, rather than the actual intrinsic value of the assets, and sell these financial products to unsuspecting retails investors. This whole scheme works fine until the proverbial company goes over the Buffalo Jump and distributions get cut.
If you are invested in MLPs and / or looking for good shorts, I’d highlight recommend you subscribe to our Energy Sector research. Anyone on our sales desk, email@example.com, can help get you signed up. The best risk management is to avoid blow ups like BWP and we seem more MLPs on the horizon that are headed for the cliff.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.60-2.76%
Keep your head up and stock on the ice,
Daryl G. Jones
Director of Research
Macau blew it out again this past week with table revenues averaging HK$1,132 million, down only 5% from the prior week even though the CNY celebration was winding down. With only 5 days left in the month, we now expect full month gross gaming revenues (GGR) to grow 31% YoY to HK$34.5 billion.
Aggregating the disappointing January GGR of (7% YoY growth) with big February to mitigate the CNY calendar shift, we project GGR to grow 19% YoY for the 1st two months. While we were too high on January and too low for February, the aggregate level of revenue was consistent with our projections before the year began. Remember that January and February are the two easiest comparisons of the year. March should look comparatively weak.
In terms of market share, LVS continues to dominate with share well above trend although down slightly from last week. Galaxy is also having a good month. On the minus side, MGM, MPEL and SJM are tracking below trend.
Here are the tables:
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