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CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR

Takeaway: The market still keys off Case Shiller even though it's months behind Corelogic and walks you off the cliff at inflection points.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR - Compendium 052714

 

Today's Focus: March S&P/Case-Shiller Home Price Report (& FHFA)

S&P released its monthly S&P/Case-Shiller home price report for March earlier this morning. It's important to remember that S&P/Case-Shiller is a rolling 3-month average repeat sales index, meaning that you're actually seeing the Jan/Feb/Mar timeframe represented equally in this data point. So, in essence, you're looking at February data.

 

By contrast, we've already seen April data from Corelogic. If you were to analyze Corelogic on a rolling 3-month basis and synchronize it with Case-Shiller you'd find a near perfect correlation. What this means is that Case-Shiller is a very lagging indicator, but it remains important if only because the market still takes its cues from the Case Shiller series (despite the shortcoming).  

 

In a nutshell, here's what Case Shiller had to say about home prices:

 

The non-seasonally adjusted Case-Shiller HPI slowed -50bps sequentially on YoY basis (+12.4% y/y in March vs +12.9% y/y in Feb) and continues to track Pending home sales nicely on an 18 month lag.  

 

Broken down by constituent cities, the upside pull in prices from the San Fran + Los Angeles heavyweights over the past year remains apparent (2nd chart below).  Of course, the drag goes both ways, and price growth is currently decelerating across LA, San Fran, and Las Vegas - and the comps get increasingly harder from here. 

 

Separately, we also received the FHFA home price data this morning. FHFA is the regulator that oversees Fannie Mae and Freddie Mac and it uses Fannie/Freddie data on conforming loans to compile a more middle-of-the-road home price index. The FHFA data showed the same trend of decelerating growth on a year-over-year basis. Specifically, FHFA showed March home prices were higher by 6.5% y/y vs +6.9% y/y in February.

 

CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR - Case Shiller vs Pending Home Sales 18Mo Lag

 

CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR - 20 City Scatterplot Index Weight vs TTM price growth

 

CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR - Case Shiller NSA YoY TTM

 

CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR - Case Shiller NSA Index Level LT

 

CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR - FHFA NSA YoY

 

CASE-SHILLER IS A SOLID LOOK IN THE REAR VIEW MIRROR - Case Shiller NSA MoM TTM 

 

 

About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.

 

Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.

 

Joshua Steiner, CFA

 

Christian B. Drake


Fund Flows, Refreshed

Takeaway: In the most recent five-day period, all equity mutual funds experienced net outflows versus all bond funds which captured net inflows.

Editor's Note: This research note was originally sent to subscribers on May 22, 2014 by Hedgeye’s Financials analyst Jonathan Casteleyn. Follow Jonathan on Twitter @HedgeyeJC.

 

Fund Flows, Refreshed - wallstreet2

 

ICI Mutual Fund Data and ETF Money Flow

In the most recent 5 day period, the combination of taxable and tax-free bond funds had another strong week of production with $3.9 billion in inflow, well above the running year-to-date average of $2.1 billion. Conversely, equity funds had only the third net outflow of the year with $1.0 billion leaving all equity mutual funds, well below the year-to-date average of a $3.1 billion inflow

 

Total equity mutual fund flows experienced only the third net outflow of 2014 with $1.0 billion being redeemed through a combination of domestic and international equity funds as reported by the Investment Company Institute (ICI). The culprit was the substantial $2.3 billion that came out of domestic stock funds which was slightly offset by the $1.2 billion inflow into international products for the week ending May 14th. Both equity categories were below the running 2014 weekly averages with the combined weekly mean for all equity products remaining a $3.1 billion inflow, now basically on par with the $3.1 billion weekly average inflow from 2013. 

 

Conversely, fixed income mutual fund flows continued on much strong footing for the week ending May 14th, with another solid $3.9 billion flowing into all fixed income funds. While this production was a slight deceleration from the $5.4 billion that came into bond products last week, the inflow into taxable products was the 14th consecutive week of positive flow and the inflow into municipal or tax-free products was the 18th consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $2.1 billion weekly inflow, a vast improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 

 

Exchange traded funds (ETFs) had positive trends on both sides of the ledger this week with a solid equity inflow complemented by a moderate inflow into bond exchange traded funds. Equity ETFs experienced a robust $9.6 billion inflow, while fixed income ETFs put up a $1.0 billion subscription. The 2014 weekly averages are now a $870 million weekly inflow for equity ETFs and a $1.0 billion weekly inflow for fixed income ETFs. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $3.4 billion spread for the week ($8.5 billion of total equity inflow versus the $5.1 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.3 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Mutual fund flow data is collected weekly from the ICI and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. ETF information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Fund Flows, Refreshed - ICI chart 1 large

Fund Flows, Refreshed - ICI chart 2

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product

 

Fund Flows, Refreshed - ICI chart 3

 

Fund Flows, Refreshed - ICI chart 4

 

Fund Flows, Refreshed - ICI chart 5

 

Fund Flows, Refreshed - ICI chart 6

 

Fund Flows, Refreshed - ICI chart 7

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds

 

Fund Flows, Refreshed - ICI chart 8

 

Fund Flows, Refreshed - ICI chart 9

 

Net Results

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $3.4 billion spread for the week ($8.5 billion of total equity inflow versus the $5.1 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.3 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Fund Flows, Refreshed - ICI chart 10 

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European Banking Monitor: Credit Spreads Held Flat On The Week

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

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European Financial CDS - Swaps were little changed in Europe last week, though a big move came at Russia's Sberbank where spreads tightened by 30 bps w/w and are now tighter by 63 bps m/m.

 

European Banking Monitor: Credit Spreads Held Flat On The Week - chart 1 euro financials cds

 

Sovereign CDS – Sovereign swaps were wider across the board last week except for in the US, where they tightened 1 basis point. Portugal and Italy led the charge higher, rising by 16 and 8 bps, respectively. 

 

European Banking Monitor: Credit Spreads Held Flat On The Week - chart 2 sovereign cds

 

European Banking Monitor: Credit Spreads Held Flat On The Week - chart 3 sovereign cds

 

European Banking Monitor: Credit Spreads Held Flat On The Week - chart 4 sovereign cds

 

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 1 bps to 20 bps.

 

European Banking Monitor: Credit Spreads Held Flat On The Week - Chart 5 Euribor OIS Spread

 

 

Matthew Hedrick

Associate

 

Ben Ryan

Analyst

 

 

 


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TUESDAY MORNING RISK MONITOR: EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY

Takeaway: Euribor-OIS has been quietly creeping higher for the past month. Historically, this has been an important risk measure to keep an eye on.

Current Best Ideas:

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 19

 

Key Callouts:

The pre-holiday week saw yield spreads widen modestly (+3 bps) and European interbank systemic risk measures rise further.

 

* 2-10 Spread – Last week the 2-10 spread widened to 219 bps, 3 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

* Euribor-OIS Spread – The Euribor-OIS spread widened by 1 bps to 20 bps, continuing the directional trend that's been in place for the past month. 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. 

 

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 1 of 12 improved / 5 out of 12 worsened / 6 of 12 unchanged

 • Intermediate-term(WoW): Positive / 5 of 12 improved / 4 out of 12 worsened / 3 of 12 unchanged

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

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 15

 

1. U.S. Financial CDS -  Swaps were fairly uneventful for the most part last week across the US Financials. That said, there were notable moves (wider) in the mortgage insurers and (tighter) in the bond guarantors. 

 

Tightened the most WoW: AGO, MBI, AXP

Widened the most WoW: UNM, HIG, CB

Tightened the most WoW: AGO, MBI, MET

Widened the most MoM: BAC, GNW, MMC

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 1

 

2. European Financial CDS - Swaps were little changed in Europe last week, though a big move came at Russia's Sberbank where spreads tightened by 30 bps w/w and are now tighter by 63 bps m/m.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 2

 

3. Asian Financial CDS - Indian banks put on another impressive display of tightening, compressing by an average 21 bps w/w and are now tighter by 66 bps, on average, m/m. Japanese and Chinese banks were narrowly wider on the week.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 17

 

4. Sovereign CDS – Sovereign swaps were wider across the board last week except for in the US, where they tightened 1 basis point. Portugal and Italy led the charge higher, rising by 16 and 8 bps, respectively. 

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 18

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 3

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 1.3 bps last week, ending the week at 5.53% versus 5.51% the prior week.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 1.0 points last week, ending at 1870.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 6

 

7. TED Spread Monitor – The TED spread fell 1.5 basis points last week, ending the week at 19.6 bps this week versus last week’s print of 21.06 bps.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 7

 

8. CRB Commodity Price Index – The CRB index rose 0.1%, ending the week unchanged at 308 vs the prior week. As compared with the prior month, commodity prices have decreased -1.3% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 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 1 bps to 20 bps.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 14 basis points last week, ending the week at 2.51% versus last week’s print of 2.37%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 10

 

11. Chinese Steel – Steel prices in China fell 1.1% last week, or 37 yuan/ton, to 3,221 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 12

 

12. 2-10 Spread – Last week the 2-10 spread widened to 219 bps, 3 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.0% upside to TRADE resistance and 0.6% downside to TRADE support.

 

TUESDAY MORNING RISK MONITOR:  EURIBOR-OIS CLIMBING SLOWLY BUT STEADILY - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



LEISURE LETTER (05/27/2014)

Tickers:  HOT, IHG, STAY, MAR, RCL

EVENTS TO WATCH

  • Tuesday, May 27 - Aristocrat Leisure: 11pm (Live Phone Number: , Passcode: 9068797)
  • Monday, June 2 - Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference 

COMPANY NEWS

HOT - sold its leasehold interest in the Park Lane Hotel in London, UK, to Sir Richard Stutton's Settled Estates for an undisclosed sum.  Starwood will continue to 303-room, Sheraton-branded, Art Deco property under a new long-term management agreement.

Takeaway: Don't have terms but Strategic Hotels sold its leasehold interest in the 237-room Marriott London Grosvenor Square hotel for £125.15 million ($207.7 million), or approximately £528,000 per key ($877,000). 

 

IHG - turned down a £6B takeover approach.  Sources believe it was either Starwood Hotels or Starwood Capital.  Industry observers in London expect the buyer to return with a rebid.

Takeaway: Given HOT's share repurchase announcement, we doubt HOT is still involved, if they ever were. IHG recently announced a large capital return so nothing is imminent from their end either.

 

STAY - the IPO lock-up covering 172.3M shares (84.1% of outstanding) expired on May 25. 

Takeaway:  STAY listed at $20/share vs. Friday's closing price of of $21.49/share.

 

MAR - insider J Marriott, Jr. sold 97,043 shares of stock on Friday, May 23rd at an average price of $59.09, for a total transaction of $5,734,270.87. Following the sale, the insider now directly owns 188,229 shares in the company.

Takeaway: More insider selling in hotel companies.

 

RCL - announced its year-round deployment in Singapore for the first time from 2015, starting with its ship Legend of the Seas in the summer season and followed by Mariner of the Seas in the year-end.  

Takeway: Continued focus on Asia in 2015

 

MSC: Sees Fantasia class ship in UK by 2017 (Cruise Business Review)

MSC is reported to be considering a return to the UK after a break next year and to have a 137,000 gross ton Fantasia class ship based in Southampton by 2017.

Takeaway:  MSC is certainly surprising some folks on how fast the company is growing.

 

MSC: Sasso makes the case for MSC's growth, disputes pricing alarm (Seatrade Insider)

MSC North America chief, Rick Sasso said, "We need more capacity and we have the momentum to fill [all the new ships].  Some of our competitors have had trouble filling the increased capacity in the Caribbean.  We held our pricing even as the other major brands were heavily discounting last fall and early winter. We eventually had to make our own pricing decisions as well but...we are only a small percentage of Caribbean inventory and their stress and needs were much greater."

Takeaway:  Sasso comments suggest MSC's upcoming new ships may be focused on the North America markets e.g. New York/Miami.

 

RCL - Jorge Vilches Named President and CEO of Pullmantur

Takeaway:  Good leadership change to turn around a struggling brand

INDUSTRY NEWS

Macau Unemployment (DSEC) - The unemployment rate for February-April 2014 was 1.7%

Takeaway:  Low unemployment remains - and many of the 1.7% may be in the underground economy.  Where will the new dealers for Cotai come from?

 

Hong Kong Visitation - (Bloomberg) Mainland Chinese represent 75% of Hong Kong's 54.3 million tourist arrivals in 2013. Recent protests have caused the SAR to consider limiting Mainland tourist arrivals. The city may need measures to “slow the gains in tourist arrivals or stop increases, or cut visitors,” said Hong Kong's Chief Executive Leung. “We’re making studies and will seek feedback.”

Takeaway:  Any curtailing of mainland visitation to Hong Kong will result in a slowdown in retail sales as well as potentially a minor slowdown in Macau visitation as some Mainlanders appear to be accessing Macau via Hong Kong.

 

Chinese Illegal Gaming Crackdown - (Shishi Daily) RMB400 million (US$64 million) of alleged gambling money was seized by the Public Security Police in a raid on a hotel in Fujian province.  The action was the result of information from the public that an illegal casino operation was taking place at night in a “downtown hotel” in Shishi, a county-level coastal city of 300,000 inhabitants in the municipal region of Quanzhou, in southern Fujian province. 

Takeaway: Not relevant to Macau. 

 

Japan Gaming - Japan's Prime Minister Shinzo Abe plans to visit a casino and resort complex in Singapore to assess the facility's economic benefits and effect on society.  Abe will be in Singapore to deliver a keynote speech on May 30 at an annual Asia Security Summit.

Takeaway:  Good for LVS's prospects in Japan

 

Macau Infrastructure - the Light Rapid Transit railway system which was expected to open between 2015 and 2018, appears to be facing major delays.  While the loop serving Taipa and Cotai is expected to be ready by late 2016, the Peninsula portion of the network is experiencing major setbacks and cost overruns. 

Takeaway:  Infrastructure delays have been persistent and not good for an area in desperate need.

  

Cambodia Gaming - Roxy Casino, located in Bavet City, Svay Rieng Province and 200 metres from the border from Cambodia to South Vietnam, re-opened, after undergoing refurbishment and renovation. Roxy Casino features a main gaming hall with 15 gaming tables and eight online gaming tables, plus a premium gaming area with five tables offering high-stake games, slot machines and a sports betting area focused on international football games and will operate 24 hours a day.  The property includes a four-star hotel with 20 rooms and a restaurant. The property is currently part of a reverse-listing process that will see it listed on the Australian stock exchange via a shell company, Cell Aquaculture Ltd.

Takeaway: A new, albeit small competitor for NagaWorld.  

 

Massachusetts Gaming Commission - is seeking a change in the gaming tax structure that would benefit operators. Reportedly the most-discussed change has been eliminating the withholding of taxes each time a $600 or larger jackpot or hand is won.

 

Wisconsin Tribal Gaming - The Menominee Indians disclosed Phase I of the Hard Rock casino, located on the former Dairyland Greyhound Park in Kenosha, would include 2,700 slot machines, 100 table games and 24 poker tables.

Takeaway: Potential competition for Greater Chicagoland gaming dollars. Weezer should be a constant on the play list.

 

Medcruise:  Western med opportunities and challenges (Cruise Industry News)

The Western Mediterranean will continue to see a build-up of capacity, according to cruise line executives speaking at the MedCruise general assembly in Castellon, Spain, May 21 – 23.  2014 is expected to be strong with further growth in 2015, including the Allure of the Seas, and a spike in 2016 with more new ships.  The executives expressed optimism about the economic recovery in North America and noted that Europe was starting to pick up as well and that they are focused on growing their European sourcing.

Takeaway:  The Med has been a bright spot this year.  Expectations will be higher in 2015.

MACRO

Asian Political Tensions - A Chinese vessel rammed and sunk a Vietnamese fishing boat in disputed waters in the South China Sea.

Takeaway: Unrest in Asia continues to concern us.

 

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.

 


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