TODAY’S S&P 500 SET-UP – May 13, 2014
As we look at today's setup for the S&P 500, the range is 28 points or 1.35% downside to 1871 and 0.12% upside to 1899.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
So far so good on our 20% growth forecast for May in Macau. Here is some of the math behind it.
CALL TO ACTION
Macau stocks may rebound as May GGR continues to display acceleration from recent months. The 20% YoY growth forecast is based on our quantitative model with a little special sauce context thrown in, but it’s mostly the math. We believe that level of growth exceeds most sell side projections and investor sentiment. WYNN remains our favorite.
We’ve been consistent with our belief that May growth will accelerate from March/April and allay the doom and gloom VIP fears. Not to say there aren’t some liquidity issues in the junket system. We’re probably seeing that with MPEL – rolling chip volume fell 20%+ in April and market share is down again here in May. However, the flow through of some side betting into the legitimate system has probably and certainly could provide the VIP cushion to stem some of the pressure. Mass growth, on the other hand, needs no push – volumes are terrific.
So how do we handicap May? If we assume year to date volumes continue and seasonally adjust May along with an extra Saturday, growth should approximate 20% assuming a normal hold percentage. Looking at it another way, May faces one of the easiest comps of the year as can be seen below. Moreover, May’s 2 year and average comp (average of 1 and 2 yr) are the easiest of the year. Given the inherent volatility of this business, looking at last year’s comp is not enough analysis.
We expect the tenor and investor sentiment around the Macau gaming operators to improve as senior management teams, sell-side analysts and investors converge on Macau for G2E Asia at Venetian Macao on May 20-22.
Month to date, average daily table revenues are 16% above the comparable period of last year. Going forward, the comps appear to ease as can be seen below. While this week’s comp looks tough at 22%, that number comped off of a -6% base. Week 4 is easy on a 1 year basis and moderate on a 2 yr basis. Based on these numbers, it appears that growth should accelerate in the back half of May.
The Macau gaming stocks have bounced off the recent lows achieved on 4/29 (see our note “WE’VE BEEN PLACEHOLDERED”) but they remain well off their highs. If we’re right on May, all the Macau stocks should do well. We’re partial to WYNN because we think they have a unique ability to garner more share, particularly on the VIP side if they are willing to improve their junket offering – specifically in the credit area where Wynn Macau advances commissions only on a 15-30 day basis versus the competition at 2-4 months.
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
Takeaway: REMINDER: We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on today, Tuesday May 13 at 1pm ET.
We will be hosting a call titled KSS Short: Why JCP is the Risk (And Opportunity) on Tuesday, May 13th at 1:00pm ET to discuss our current short thesis on KSS. We will detail some of the underappreciated dynamics that currently exist between Kohl's and JCP.
HIGHLIGHTS WILL INCLUDE:
A) Results of our latest consumer survey on department stores
B) Explore incremental trends in e-commerce
C) A deep dive into each company's real estate profile examining where the greatest risk/opportunity exists for store closure and subsequent share shifts
SPECIFIC TOPICS WE'LL EXPLORE:
Takeaway: We are content to “book” the gain in India here, as we now see risk/reward favoring short-sellers in the near term (~1-3M).
The cyclical component of our thesis (i.e. improving GIP fundamentals + tightening fiscal and current account balances + speculation around political reform into the 2014 general elections = buy India) has as played out in spades in both the data and the early exit polling results.
Indian capital and currency markets have performed quite remarkably since we outlined our bullish thesis back on OCT 29th of last year. Specifically, the EPI etf has appreciated +21.6% since then, which compares to a sample mean of -1.4% across the 24 country-level EM etfs we track and good for the second-best performance over this duration. Moreover, the INR has appreciated +3.2% vs. the USD since then, which compares to a sample mean of -2.4% across the 21 currencies we track across Asia and Latin America and good for the third-best performance over this duration. Going back to the EPI etf, this fund has ripped +19.2% in the last ~3M alone (note: we reiterated our bullish bias in a detailed note on JAN 22) – implying some degree of investors crowding into this trade.
Given the recent performance, the risk that election results disappoint and lack of near-term positive catalysts, we think astute investors will look to book gains in Indian capital markets over the next ~1-3M. A diminished macroeconomic tailwind is cause for concern in the summer months as our GIP model has Indian real GDP growth slowing in the third quarter.
Key question: How much better is Indian economic growth going to get in the near term if consumer price inflation accelerates in 2Q?
Additionally, there’s a fair degree of open-the-envelope risk on Friday’s final vote tally, given India’s shaky history with exit polling. Specifically, the SENSEX dropped -11% in a single day in 2004 when the BJP coalition’s share was found to have been overstated by 70 seats in exit polls and the index rallied +17% in a single day in 2009 when the BJP coalition’s share was found to have been overstated by 30 seats in exit polls. Thinking longer-term, that’s an [potential] correction we’d want to buy – assuming Modi and the BJP capture enough of a ruling mandate to implement noteworthy economic reforms.
We continue to think what Dr. Rajan is doing on the monetary policy front is equally as critical – if not more critical – to structural improvement in India’s GIP fundamentals. While recent political rhetoric suggests that both his job and the RBI’s long-term policy guidance are safe, we can’t rule out investors speculating on an attack on the central bank’s sovereignty given that Dr. Rajan was appointed by the [likely] incumbent Congress Party and that his hawkish bias conflicts with Modi’s emphasis on promoting growth (albeit via proper economic management). That would be bad for the rupee and, historically, what’s bad for the rupee is bad for India (i.e. Quad #3 on our GIP model) because of the country’s dependence on foreign capital.
Feel free to ping us with any follow-up questions. Have a wonderful evening,
Associate: Macro Team
Takeaway: 81% said YES; 19% NO.
Bestselling, “Death of Money” author Jim Rickards discussed with Keith McCullough on HedgeyeTV last week how central bankers are destroying America.
We wanted to know if you agreed with Rickards, so we asked in today’s poll: Are central planners destroying America?
At the time of this post, a clear 81% majority said YES; 19% NO.
These YES voters firmly (and even passionately) explained their choice:
Of those who explained why they voted NO, one person said to “Buck up and play the game,” while another said, “Don't be consensus.”
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.