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MACAU JUNE DETAIL

While an ugly report was expected, on a hold-adjusted basis, June was positive. 

 

 

As we noted before, we believed June was affected by low hold.  Adjusting for direct play, market hold was 2.8% vs 3.0% in June 2013.  Assuming normal hold (3.0%) in both June periods, June GGR would have grown +1% YoY.  While VIP volume fell almost 10%, the biggest decline since May 2009, June mass revenues continued its strong performance of 27% YoY growth – although it was slower than the growth seen from Jan-May 2014 of +37%

 

VIP was certainly the story in June.  MPEL had a disastrous June, owning to poor VIP performance and very low hold.  Galaxy was easily the best performer, despite lower VIP hold.

 

MACAU JUNE DETAIL - M

 

MACAU JUNE DETAIL - mm

 

Here are some takeaways:

 

Market

  • Mass revenues grew 27%, off of a 31% comp
  • Rolling Chip (RC) volume tumbled 10%, worst performance since May 2009
  • VIP revenues fell 17%, its worst performance since June 2009
  • Slots revenue grew 2%
  • Assuming normal hold in both periods, GGR would’ve grown +1% YoY 

 

LVS

  • GGR grew 4% YoY – the slowest rate since Sept 2011
  • The LVS properties held at 3.3%, higher than the 2.8% seen in June 2013
  • Still, VIP revenues fell 14% and RC dropped an alarming 28%, the worst performer in the market
  • One would expect high hold to negatively impact volumes but not this much
  • Mass grew 25%, the slowest rate since February 2012 

WYNN

  • GGR declined 10%
  • WYNN held 2.7% on VIP vs 3.0% last June
  • WYNN VIP revenues dropped 26% while RC volume fell 20%
  • Thanks to easy comps, mass growth of 55% led the market.  For Q2 2014, WYNN mass have grown 48%.

 

 MGM

  • GGR declined 10% for the 2nd consecutive month
  • MGM held close to normal, in-line with last June
  • Mass growth of 39% is relatively consistent with the YTD average growth
  • VIP revenue and VIP volume fell 23% and 21%, respectively.

MPEL

  • Held well below normal on VIP (2.1%) compared with 3.2% last June
  • MPEL had the worst GGR performance at -20%, worst performance since June 2009
  • RC volume continues to be a major drag – falling double digits for the 4th consecutive month
  • Mass grew 34%, in-line with recent trends

Galaxy

  • Galaxy’s +6% GGR growth is what kept the market from tumbling further.  It was the best performer despite lower hold.
  • Hold was 2.8% vs 3.3% last June
  • Mass grew only 17% - the slowest in the market
  • Galaxy was the clear winner in the VIP race with RC volume growing 19% and VIP revenue up 2%

Spanning the Globe

Client Talking Points

SWEDEN

The Swedish Riksbank cut its main repo rate to 0.25% from 0.75%, double what was expected. This was the first time the central bank lowered borrowing in six months. In response the Swedish krona has plummeted to a three-and-a-half year low against the euro.

JAPAN AND CHINA

Japanese June Services PMI came in at 49 from 49.3, in line with recent post tax hike stabilization. We are seeing more mixed signals out of China on the growth and policy front.  It appears Chinese Premier Li is out threatening further mini-stimulus, although we aren’t convinced the statement has much bite. All told, we maintain our dour second half view on the Chinese economy, citing a likely void of meaningful stimulus measures amid continued deterioration in the property sector.

IRELAND

GDP in Ireland rose 2.7%, the most since 2012. Finance Minister Michael Noonan has said the budget

adjustment needed next year to bring the deficit below 3% GDP may be less than the 2 billion euros ($2.7 billion).

Asset Allocation

CASH 13% US EQUITIES 8%
INTL EQUITIES 12% COMMODITIES 24%
FIXED INCOME 28% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

OC

Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.

LM

Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road

TWEET OF THE DAY

Semis a growing Cash Return story. Firms that can pursue LARGE dividend hikes are: $SNDK, $QCOM, $BRCM, $NVDA, $MRVL, $ALTR, $AVGO, $POWI

@HedgeyeBerger

QUOTE OF THE DAY

He loves his country best who strives to make it best. 

-Robert G. Ingersoll

STAT OF THE DAY

Non-farm payrolls goes >200K for five months in a row for 1st time since January 2000.


INITIAL CLAIMS: SLOW & STEADY

Takeaway: One more step forward.

Winning the Race ...

The labor market news flow is heavy this morning with both the jobs report and jobless claims being reported at the same time. The data, however, represents neither acceleration/deceleration or any noteworthy inflection. Bottom line: the claims data indicates another week of solid progress in the labor market. The year-over-year rate of improvement in NSA claims came in at 8.7% this week, roughly in-line with last week's 9.0% y/y improvement. 

 

The Data

Prior to revision, initial jobless claims rose 3k to 315k from 312k WoW, as the prior week's number was revised up by 1k to 313k.

 

The headline (unrevised) number shows claims were higher by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.5k WoW to 315k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.7% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.0%

INITIAL CLAIMS: SLOW & STEADY - 1

 

INITIAL CLAIMS: SLOW & STEADY - 2

 

INITIAL CLAIMS: SLOW & STEADY - 3

 

INITIAL CLAIMS: SLOW & STEADY - 4

 

INITIAL CLAIMS: SLOW & STEADY - 5

 

INITIAL CLAIMS: SLOW & STEADY - 6

 

INITIAL CLAIMS: SLOW & STEADY - 7

 

INITIAL CLAIMS: SLOW & STEADY - 8

 

INITIAL CLAIMS: SLOW & STEADY - 9

 

INITIAL CLAIMS: SLOW & STEADY - 10

 

INITIAL CLAIMS: SLOW & STEADY - 11

 

INITIAL CLAIMS: SLOW & STEADY - 12

 

INITIAL CLAIMS: SLOW & STEADY - 19

 

 

Yield Spreads

The 2-10 spread rose 7 basis points WoW to 214 bps. 3Q14TD, the 2-10 spread is averaging 212 bps, which is lower by -9 bps relative to 2Q14.

 

INITIAL CLAIMS: SLOW & STEADY - 15

 

INITIAL CLAIMS: SLOW & STEADY - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


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ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue

Takeaway: The latest survey of mutual fund trends displays continued inflows into all fixed income categories with outflows in US stock funds

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, aggregate bond funds including both taxable and tax free products netted another $3.2 billion in new investor subscriptions. Conversely, the combined equity mutual fund complex had slight outflows to the tune of $29 million with domestic equity funds contributing their 9th consecutive week of redemptions. The broad take-away is that the U.S. retail investor has been retrenching for most of the first half of the year (with only one week of outflows in the past 20 weeks in taxable bonds and 24 consecutive weeks of tax-free or muni bond inflows) compared to over 2 consecutive months of outflows in U.S. stock funds. Interestingly however, equity ETF flows last week continue to be impressive with another $7.2 billion coming into passive equity products versus a $100 million outflow in bond ETFs. We think this reflects stronger institutional demand for equities with non-retail firms allocating into the stocks at current levels despite the strong run this cycle with institutional investors also positioning for more pain in fixed income over a longer term perspective with outflows over the past several weeks. 

 

Total equity mutual funds put up a slight outflow in the most recent 5 day period ending June 26th with $29 million coming out of the all stock category as reported by the Investment Company Institute. The composition of the $29 million redemption continued to be weighted towards domestic equity funds with $1.3 billion coming out of domestic stock funds which was offset by a $1.2 billion inflow into international products. This outflow within domestic equity funds has become an intermediate term trend with now the ninth consecutive week of outflow in the category. The aggregate redemption of $29 million for the recent five day period was below the year-to-date average for equity funds of a $2.3 billion inflow, which is now running below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual fund flows had a solid week of production with the aggregate $3.2 billion that came into the asset class besting the 2014 running year-to-date average inflow of $2.1 billion. The inflow into taxable products of $2.7 billion made it 19 of 20 weeks with positive flow for the category and the inflow into municipal or tax-free products of $562 million was the 24th consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $2.1 billion weekly inflow, an 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). 

 

ETF results created the tale of two tapes with equity ETFs putting up another strong week of production offset by weak passive bond flows. Equity ETFs produced another robust subscription of $7.2 billion this week, off of the back of a 2014 best $11.2 billion inflow the week prior, while fixed income ETFs suffered another outflow of $102 million. The 2014 weekly averages are now a $1.7 billion weekly inflow for equity ETFs and a $937 million 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 $4.0 billion spread for the week ($7.2 billion of total equity inflow versus the $3.1 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 $6.7 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 Investment Company Institute (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. Exchange traded fund (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.   

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 1

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 2

 

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product:

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 3

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 4

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 5

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 6

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 7

 

 

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

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 8

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - 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 $4.0 billion spread for the week ($7.2 billion of total equity inflow versus the $3.1 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 $6.7 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). 

 

ICI Fund Flow Survey - Beast Mode In Bonds - Domestic Equity Outflows Continue - ICI chart 10 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA


CHART OF THE DAY: $VIX > New Lows Forever?

Takeaway: Nothing gold can stay.

 

CHART OF THE DAY: $VIX > New Lows Forever? - Dradhi VIX Chart


Changing With The Times

"Show me a hero and I'll write you a tragedy."   

- F. Scott Fitzgerald

 

Along with the likes of T.S. Elliott and Ernest Hemingway, F. Scott Fitzgerald is widely regarded as one of the most recognized young American writers of the “Lost Generation” of young Americans who fought in and emerged disillusioned out of WWI.

 

Changing With The Times - fscx

 

With the time-tested truths of human nature, we are forced to accept the unconscious anchoring biases and contextual frame of references shaped by our experiences. We then observe and perceive through this ever-changing lens. 

 

Consequently, Fitzgerald’s frame of reference stems out of some epic undulations in popularity and wealth:

  • Two world wars
  • Jazz Age (a term he coined)
  • Currency and Wealth Destruction:
    • Great Depression
    • Weimer Republic Collapse; followed by
    • Ascension and destruction of Hitler’s rule

 

Without searching for self-proclaimed similarities between the two of us, I can say without a doubt Fitzgerald and I have one thing in common:

 

We spent a large part of our early years in a cold climate. 

 

Walking across Notre Dame's campus during my junior year for a morning Econometrics class (the subject matter of the class reserved for a future "Early Look"), making a stop for breakfast and coffee was a ritual. Unfortunately, in the dead of winter in South Bend, Indiana, this stop required a small detour, and it was cold! 

 

Now I've heard it was even colder this winter. Even so, convincing me I would not have taken a detour this past winter for a little breakfast and coffee given the colder weather is highly unlikely.

 

Back to the Global Macro Grind

 

Here we are at the midpoint of 2014, a year that has been full of surprises relative to consensus expectations moving into the year.

 

  • Growth (miss): -2.9% Q1 final GDP revision (miss and seventh consecutive year of downward revision from the Fed)
  • Inflation (surprise): Headline CPI +0.4% vs. +0.2% expected for May
  • Yield Spread: -50 bps (Net Short contracts in the ten-year down to 2.4K from 175K in the first week of January)
  • Commodities: CRB (+9.6%); CRB Food (+23.3%)
  • VIX: 10-handle; Hovering at all-time lows  

 

So where do we go from here?

 

The Financial Times published an article yesterday on Hedge Fund beta tracking at all-time highs. Hedge Funds are levered long and yield chasing. Our team consumes and analyzes high-frequency data points across the globe to generate alpha. Alluding to the risks inherent in the market does not mean we are preparing for an epic crash. Sure it could happen, but front-running the sector variances that manifest as growth slows and inflation accelerates is the goal.

 

  • XLU (+13%); CRB (+9%); GLD (+10%) YTD
  • XLY (+1.08%); IWM (+3.2%) YTD
  • SPX (+7%)

 

Rather than predicting third and fourth quarter consequences, we absorb the ever-changing landscape and re-adjust the inherent risk across durations in real-time. As 2H growth comps indicate a consensus miss to the downside, we believe the following sequence of events is a probable in today’s centrally-planned environment:

 

  • A Fed revision for 2014 full-year GDP from 3.0% to 2.1 - 2.3% at the last FOMC meeting will likely face a further downward revision after a -2.9% Final Q1 print last week (hint: not weather-related)
  • The Fed gets more dovish with the data
  • The bond market adjusts for growth expectations and the prospect for future dollar devaluation perpetuates the yield spread compression
  • Commodities as a complex, which are priced in U.S. dollars globally, face continued pressure to the upside net of unpredictable external factors

 

As the outlook changes, we will contextualize the data and be forced to change. After all, we are paid to be right on both sides of the tape.

 

With growth DECELERATING and inflation ACCELERATING central planners will try to convince you there’s no inflation in our everyday consumption habits. That coffee and breakfast would have been more expensive this year, but we all have to eat (bad weather or not). Just last year, the central bank adjusted its model for allowing a longer grace period for wage growth to catch up with commodity inflation. Now this seems like a rather convenient way to keep the accommodative power at the expense of the middle class.

 

F. Scott Fitzgerald could probably pencil quite a symbolic ending to this story. Give Janet Yellen a break for her nervousness. She is new to the scene. However, as you can see in today’s Chart of the Day below, the ECB's Mario Draghi has mastered that red carpet stoicism.  

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

RUT 1170-1208

VIX 10.61-12.81

USD 79.71-80.27

WTI Oil 104.01-107.12

Gold 1

 

 

Good luck out there today and Happy 4th!

 

Ben Ryan

Analyst

 

Changing With The Times - Dradhi VIX Chart


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