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MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE

Takeaway: Last week saw modest widening in interbank risk measures domestically and in Europe as well as further upward commodity inflation pressure.

Key Callouts:

Looking at the Risk Monitor, we see tightening in US, European, and Sovereign swaps, a change from the slight widening seen in the previous week. On the interbank risk front, the US TED Spread rose 1 bp, Euribor-OIS rose 2 bps and China's Shifon Index fell 57 basis points. Overall, none of those datapoints are terribly exciting, but the +2 bps move in Euribor bears watching going forward.

 

* U.S. Financial CDS - Swaps tightened for 18 out of 27 domestic financial institutions. The Global US banks were all tighter, by an average of 4 bps w/w, as well as 4 bps on a m/m basis. The specialty finance companies we track were tighter on the week and on the month with the biggest moves coming from the mortgage insurers, MTG & RDN and Sallie Mae. The US insurers were little changed aside from the bond guarantor MBIA, where swaps widened out 20 bps w/w and 126 bps m/m.

 

* European Financial CDS – Most swaps tightened marginally in Europe last week. The Greek banks continue to tighten notably, dropping an average of 15 bps in the past week and 195 bps in the past month. Russia’s Sberbank widened by 20 bps this past week; however, the bank remains tighter on the month by 24 bps.

 

* Sovereign CDS – Sovereign swaps either tightened or remained the same over the past week. Japanese sovereign swaps tightened by 4.9% (2 bps to 46) and US sovereign swaps tightened by 4.8% (1 bps to 17).

 

* Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 57 basis points last week, ending the week at 2.18% versus last week’s print of 2.75%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 3 of 12 improved / 1 out of 12 worsened / 8 of 12 unchanged

 • Intermediate-term(WoW): Positive / 7 of 12 improved / 3 out of 12 worsened / 2 of 12 unchanged

 • Long-term(WoW): Positive / 4 of 12 improved / 1 out of 12 worsened / 7 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 15 2

 

1. U.S. Financial CDS -  Swaps tightened for 18 out of 27 domestic financial institutions. The Global US banks were all tighter, by an average of 4 bps w/w, and 5 bps on a m/m basis. The specialty finance companies we track were tighter on the week and on the month with the biggest moves coming from the mortgage insurers, MTG & RDN and Sallie Mae. The US insurers were little changed aside from the bond guarantor MBIA, where swaps widened out 20 bps w/w and 126 bps m/m.

 

Tightened the most WoW: C, XL, MS

Widened the most WoW: MBI, CB, ACE

Tightened the most WoW: MS, GNW, AIG

Widened the most MoM: MBI, TRV, SLM

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 1

 

2. European Financial CDS – Most swaps tightened marginally in Europe last week. The Greek banks continue to tighten notably, dropping an average of 15 bps in the past week and 195 bps in the past month. Russia’s Sberbank widened by 20 bps this past week; however, the bank remains tighter on the month by 24 bps.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 2

 

3. Asian Financial CDS – It was a mixed bag for Asian financials last week as Chinese and Indian banks widened nominally, while Japanese financials tightened by an average of 1.75 bps w/w.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 17

 

4. Sovereign CDS – Sovereign Swaps either tightened or remained the same over the past week. Japanese sovereign swaps tightened by 4.9% (2 bps to 46) and US sovereign swaps tightened by 4.8% (1 bps to 17).

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 18

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 3

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 1.4 bps last week, ending the week at 5.63% versus 5.65% the prior week.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index was unchanged last week at 1855.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 6

 

7. TED Spread Monitor – The TED spread rose 1.3 basis points last week, ending the week at 20.1 bps this week versus last week’s print of 18.85 bps.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 7

 

8. CRB Commodity Price Index – The CRB index rose 0.6%, ending the week at 311 versus 310 the prior week. As compared with the prior month, commodity prices have increased 2.8% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 2 bps to 15 bps.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 45 basis points last week, ending the week at 2.298% versus last week’s print of 2.75%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 10

 

11. Chinese Steel – Steel prices in China rose 0.5% last week, or 16 yuan/ton, to 3383 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 12

 

12. 2-10 Spread – Last week the 2-10 spread widened to 233 bps, 6 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.6% upside to TRADE resistance and 2.8% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: COMMODITIES & INTERBANK RISK MEASURES RISE - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 



LEISURE LETTER (04/21/2014)

TICKERS:  PENN, MPEL, MGM, IGT, RHP, CCL, RCL

EVENTS TO WATCH

Tuesday, April 22

  • IGT FQ2 earnings:  5 p.m. Conf Call   , Passcode: IGT

Thursday, April 24

  • WYN Q1 earnings - 8:30 a.m. , Passcode: Wyndham
  • LHO Q1 earnings - 9:30 a.m.
  • PENN Q1 earnings - 10 a.m.
  • RCL Q1 earnings - 10 a.m.
  • HOT Q1 earnings - 10:30 a.m. , Passcode: 12049644
  • LVS Q1 earnings - 4:30 p.m. ; PW: 18236529
  • LA March revenues out

Friday, April 25

  • PEB Q1 earnings – 9:00 a.m.

Monday, April 28

  • CHH Q1 earnings – 10:00 a.m. , Passcode: 70683172

Tuesday, April 29

  • VAC Q1 earnings – 10:00 a.m. , Passcode: 4679876
  • MGM Q1 earnings – 11:00 a.m. , Passcode: 20455736 

COMPANY

Macau Legend - Targets high rollers Macau Business Daily 

Macau Legend Development Ltd has done a deal, increasing to 42% from 2% its share of the gross gaming revenue from junket operator New Legend VIP Club Ltd’s gaming tables in its Pharaoh’s Palace casino.  In a HKSE filing, Macau Legend's wholly-owned subsidiary, Hong Hock Development Co Ltd, had formed a variable-interest-entity (VIE) agreement with New Legend.

 

Macau Legend said, “The company believes that the demand for VIP gaming will continue to increase, and therefore it intends to capitalise on the overall growth in VIP gaming in Macau by engaging in the gaming promotion business.”

 

PENN / GLPI - Last Thursday, the Iowa Racing & Gaming Commission ruled Argosy Sioux City must shut down by July 1 because the floating casino's state gaming license has lapsed.   Then on Friday, the Argosy Sioux City officially notified the Iowa Workforce Development agency that the 300-employee floating casino likely will close by July 1. PENN, however, has vowed to ask a judge to suspend the commission action, which would allow the boat to remain open while the company pursues a series of legal challenges against the gaming commission.

 

Hard Rock & Warner Gaming indicate construction of the Hard Rock Hotel and Casino is right on track.  Contractors are working seven-days-a-week to make ensure they meet their scheduled opening this summer.

 

TAKEAWAY:  We estimate PENN EPS dilution of $0.07/share on an annual basis and about $0.80/share of asset value and GLPI NAV dilution of about $0.50/share.  While PENN's Q1 looks fine, we're not sure enough analysts have taken Sioux City out of their estimates. Discontinued Operations?

 

MPEL - (Inquirer) CoD Manila, is expected to open its doors on Oct. 1 this year instead of the earlier announced mid-year opening, in time for Golden Week.  CoD Manila will feature a 950 rooms hotel and 20,000 square meters of gaming space with up to 365 gaming tables and 3,300 slot machines. 

TAKEAWAY:  Delays are almost never a good sign.

 

MGM - Prince George's County approve zoning changes to allow the casino to operate at National Harbor.  In about two weeks, another bill will come up that will focus on the actual development plan – and that ruling will include language dealing with jobs/hiring of minorities. MGM’s casino will feature 3,600 slots, 140 live gaming tables, a 300-room hotel, restaurants, and retail and meeting space.

TAKEAWAY:  Another step in the progress toward ground breaking. 

 

IGT - completed its first multi-state wide area progressive network, linking Deadwood, SD, casinos with Borgata and Caesars properties in Atlantic City.

TAKEAWAY:  This is probably an under appreciated event by investors that could boost play and yields with bigger jackpots.

 

IGT - announced that it has licensed the popular Tokidoki brand to develop compelling, casino slot machine content.  IGT will launch new tokidoki-themed games starting in 2015 at select casino properties in Singapore and Macau, and worldwide thereafter.

TAKEAWAY:  Better late than never to expand in Asia. 

 

RHP - City of Aurora this week will ask Arapahoe County District Court Judge Charles Pratt to lift a stay placed on a countersuit Aurora filed against 11 mostly Denver hotels seeking to block tax incentives awarded to the massive Gaylord hotel project.  If the stay is lifted, Aurora may review communication between the hotels involved in the lawsuit. 

TAKEAWAY:  RHP looks poised to become a development, growth story.

 

CCL - canceled various Alaska port calls by Carnival Miracle previously scheduled for this summer due to a "technical issue" impacting the ship's cruising speed.  The cancelled port callings include Skagway and Ketchikan.  Additionally, several Hawaii cruises will also see itinerary modifications, though no canceled ports.  Repairs to the propulsion unit will not be completed until a scheduled dry dock in early 2015.

TAKEAWAY:  At least this didn't happen in the Caribbean

 

RCL - Azamara Club Cruises is offering Vacation.com members a High Value Guest Incentive Commission where vacation.com members can earn as much as 5% over their preexisting Royal Caribbean Cruise Line family commission level and up to 21% for a high value guest booking

TAKEAWAY:  Aggressive commission policy

 

CCL - Seatrade Insider Princess 'Summer Clearance Sale', up to 40% off fares 

Receive as much as $200 onboard spend for Caribbean, Alaska, and Europe itineraries.  Promotion ends on April 30.

TAKEAWAY:  More onboard coupons but less price cuts compared with last summer's Princess promotion.  Last year's Princess summer clearance sale (May 1-8, 2013) offered up to 50% price cut for Alaska and Europe and up to $100 off onboard spend.  

  

INDUSTRY

Chinese cancelling visits to Singapore as well after MH370 incident Strait Times

Travel agencies in Singapore have been getting fewer bookings from Chinese tourists in the aftermath of Flight MH370's disappearance.  The National Association of Travel Agents Singapore (Natas) said current bookings for packages which include Singapore as a stopover have fallen by more than 50% at some agencies.

 

Anita Tan, COO of Natas, which represents more than 300 firms, added that the industry is hopeful that bookings will recover by the July school holidays, which is a peak period for Chinese travellers.

TAKEAWAY:   There were fears several weeks ago that a backlash may happen.  Well, it has.  Not great for LVS and Genting Singapore.

 

No China headwinds for Macau Macau Business Daily 

“I don’t think the recent slowdown in China will affect Macau in the near future. Only in a scenario where the disposable income of Chinese families drops more than 5% could we talk about an impact on the territory’s economy”, said the economist, José João Pãozinho.

 

Despite worrying January-March figures - housing sales dropped 7.7%, construction starts fell 25% and retail sales trailed estimates- the backbone of China’s economic peace, the growing middle class, is still intact.  Urban per capita income rose 7.2% in the first quarter and 3.44 million jobs were created in this period, 40,000 more than compared to a year ago, Beijing’s statistic’s bureau reveals.

TAKEAWAY:  We tend to agree.  Look for a May bounce back.

 

Cotai stores require 20,000 workers Macau Daily News

Retail spaces in the new mega casino resorts opening in Cotai from 2015-17 will require as many as 20,000 workers to man the operation, says Terry Sio Yuen Yee, founder and CEO of a Macau-based distributor and agency of luxury branded products, Rainbow Group. 

 

Proposed monthly rents, however, have already increased to about 300-450 patacas (US$37.5-56.3) a square foot, compared to 100-150 patacas when the first slew of resorts opened in 2007, said Sio.  Nevertheless, her company still aims to invest some 500 million patacas in opening 30 new stores in the new resorts within the next five years, said Sio.

TAKEAWAY:  Retail positions are easier to fill than dealers.  We continue to worry about dealer wage inflation and the supply of dealers to support the Cotai growth.  Remember that dealers are required to be Macau citizens. 

 

Massachusetts Gaming – Boston Mayor Martin J. Walsh's administration is calling on the state's top gambling regulator to recuse himself from the casino licensing process in eastern Massachusetts.  The Walsh administration accused Massachusetts Gaming Commission Chairman Stephen Crosby of making "prejudicial" statements critical of the city's request to be declared a host community for proposed casinos in nearby Everett and Revere.  If granted host community status, Boston residents would have an opportunity to vote on casino proposals by Mohegan Sun in Revere and Wynn in Everett.

TAKEAWAY:  Feels to us like Wynn should walk away and let the Mayor take the blame for failing to create jobs and increase state tax revenues.

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive.

TAKEAWAY:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

 


Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Food Prices Racing Higher

Takeaway: Stick with the inflation slows consumption growth theme.

The CRB Food Index jumped another +2.7% last week. It’s now closing in on +22% year-to-date.

 

Food Prices Racing Higher - d45


Soybeans were up +3.8% last week to just shy of +19%, Coffee was up another +0.3% to over +77%, etc, etc.

 

This is a major tax on US #ConsumerSlowing.

 

Our advice? Stick with the inflation slows consumption growth theme.

 

Subscribe to Hedgeye.


Marijuana Legalization: The Debate Begins

We look forward to hosting a special call Marijuana Legalization: The Debate Begins, featuring Dr. Beau Kilmer, Codirector of RAND Corporation’s Drug Policy Research Center, on Thursday, April 24th at 2:00pm EDT.

 

 

CALL OBJECTIVE 

Dr. Kilmer will provide a framework for assessing the marijuana policy landscape, incorporating his studies on drugs as a RAND researcher and specifically his work on marijuana legalization. He’ll discuss such topics as State versus Federal regulation, the key decisions policy makers face, his “8 Ps” framework, and social costs. We look forward to a robust Q&A on this very hot topic.

 

Marijuana Legalization: The Debate Begins - pic. Smoking Marijuana Hit 

 

ABOUT DR. BEAU KILMER

Beau Kilmer is a senior policy researcher at the RAND Corporation, where he codirects the RAND Drug Policy Research Center. He is also a professor at the Pardee RAND Graduate School. His research lies at the intersection of public health and public safety, with a special emphasis on substance use, illicit markets, crime, and public policy.

 

Some of his current projects include estimating the size of illegal drug markets, assessing the consequences of alternative marijuana policies, measuring the effect of South Dakota's 24/7 Sobriety Program on drunk driving and domestic violence outcomes, and evaluating other innovative programs intended to reduce violence.

 

Dr. Kilmer's research has appeared in leading journals such as AddictionAmerican Journal of Public HealthJournal of Quantitative CriminologyProceedings of the National Academy of Sciences, and his essays have been published by the BBCCNNLos Angeles TimesNew York TimesWall Street Journal, and USA Today.

 

His book Marijuana Legalization: What Everyone Needs To Know (co-authored with Jonathan Caulkins, Angela Hawken, and Mark Kleiman) was published by Oxford University Press in 2012. Before earning his doctorate at Harvard University, Kilmer received a Judicial Administration Fellowship that supported his work with the San Francisco Drug Court. 

 

 

CALL DETAILS

Toll Free Number:

Direct Dial Number:

Conference Code: 547194#

Materials: CLICK HERE (materials will be available approximately one hour prior to the start of the call)

 

Please email  for more information.

 

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst

 


New Best Ideas: Short Atlas Energy LP (ATLS) and Atlas Pipeline Partners LP (APL)

What will investors pay for aggressive non-GAAP accounting and financial engineering?  Apparently more than $2 billion, the current market cap of ATLS.

 

As the General Partner (GP) of Atlas Pipeline Partners LP (APL) and Atlas Resource Partners LP (ARP), Atlas Energy LP’s (ATLS) only material source of income is from the distributions that ARP and APL pay it.  However, we believe that the majority of ARP and APL’s “Distributable Cash Flow (DCF)” is a function of aggressive non-GAAP accounting, which those MLPs use to justify distributions to its LPs and ATLS. 

 

In our view, ARP and APL’s distributions are funded with capital raises – not real profits – and that can only go on for so long.  ATLS is most at risk, as we believe that neither ARP nor APL can support an LP distribution that would trigger an incentive distribution right payment (IDR) to ATLS.  We believe that fair values for all three Atlas MLPs are well below their current market valuations.  The downside is considerable, particularly for ATLS.

 

We will publish a full report with our investment thesis and valuation analysis on Thursday morning, April 24th.  We will hold a brief conference call on Thursday at 12:30pm EST to discuss the key points and field questions.

 

Conference Call Details

Thursday, April 24th at 12:30pm EST

Participant Dial-In:

Participant Code: 169921#

Send questions to

 

Kevin Kaiser

Managing Director


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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