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INITIAL CLAIMS - CONTEXT IS KING

Takeaway: Using claims to triangulate where we are in the cycle.

Context is King

Claims are now running at sub-300k on a rolling SA basis for the second week in a row. Based on the chart below, in the past two instances (1 & 2006-2007) the market went on to advance for 12-18 months after rolling initial claims first dropped below 300k. We're not suggesting that history will repeat exactly; rather, we're just offering this as context.

 

Initial claims are a leading indicator for the economy, whereas the unemployment rate is a lagging indicator. The market is also a leading indicator for the economy. As such, we use claims principally as a leading indicator for the economy and as a coincident indicator for the market. We think that by looking at both the aboslute level and the trend (and inflections therein) in claims in real time and evaluating it relative to past cycles we can have a decent bearing on where we are in the current cycle. 

 

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The Data

Prior to revision, initial jobless claims fell 13k to 289k from 302k WoW, as the prior week's number was revised up by 1k to 303k.

 

The headline (unrevised) number shows claims were lower by 14k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4k WoW to 293.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -12.1% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -12.6%

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Yield Spreads

The 2-10 spread rose 2 basis points WoW to 202 bps. 3Q14TD, the 2-10 spread is averaging 204 bps, which is lower by -17 bps relative to 2Q14.

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 



LEISURE LETTER (08/07/2014)

Tickers: PENN, NCLH

EVENTS

  • Aug 7:
    • Revel Auction Proceedings (POSTPONED)
  • Aug 8:
    • CHH 2Q 10am: , pw: 30848466
    • DRH 2Q 10am: , pw: 153358818
    • AHT 2Q 11am:
    • SHO 2Q 12n:
  • Aug 11:
    • HPT 2Q 1pm:
    • CZR 2Q 4:30pm: 844.231-441, pw: 55917191
    • STN 2Q 430pm
    • HTHT 2Q 9pm: , pw 7103 4558
  •  Aug 12:
    • HMIN 2Q 9pm: , pw HOME INNS

  • Aug 14:

    • Revel Auction Proceedings

COMPANY NEWS

PENN – Hollywood Gaming at Mahoning Valley Race Course to open Sept 17

  • The $250 million development

  • 850 VLTs

  • Will celebrate a second grand opening on Monday, Nov. 24, when thoroughbred racing begins on the new one-mile all-weather racetrack. 

  • Will be open 24/7

Takeaway:  Opening on schedule. Should open much stronger than PNK's Belterra Park. PENN's new racinos are located in much less competitive areas than BP. CEO buying stock this week a good sign of management's faith in new properties.


CWN:AU – (Bloomberg) Crown's new Las Vegas Strip development with Andrew Pascal will potentially cost as much as $4 billion.  Beyond the Las Vegas development, Crown is currently pursuing a AUD1.3 billion casino hotel in Sydney scheduled to open in 2019 while also working on projects in Brisbane and Sri Lanka.  

Takeaway: Costly development. New supply as a positive is being rolled out again as an investment positive by MGM management.

 

GENT:MK – Despite the unsuccessful attempts by Resorts World Miami to secure a gaming license (whether a transferred slots license or a newly issued license), redevelopment of the Miami Herald site continues. Malaysia-based Genting Group purchased the 14-acre newspaper site in 2011 for $236 million. Genting also purchased surrounding properties, including the Omni Mall, and announced plans for a sweeping $3 billion Resorts World Miami luxury casino with multiple towers, stores and an elevated beach and lagoon.

Takeaway:  Until gaming is approved, Genting will use its Miami foothold as a stepping point for its growing Resorts World Bimini casino operation.

 

NCLH (Seatrade Insider) – No Pride of America change so far as Hawaii readies for 2 hurricanes 

INDUSTRY NEWS

Revel Atlantic City – (Bloomberg) The auction proceeding for Revel AC Inc was postponed one week - from today until August 14.  The delay is to allow time to analyze the "multiple purchase offers".  As a result, Revel will also likely postpone the August 8 hearing for sale approval until August 18.

 

SLS Las Vegas – the operators of the north Strip hotel-casino were recommended for licensing approval by the Gaming Control Board. The 1,600-room resort, a redevelopment of the Rat Pack-era Sahara, is scheduled to open Aug. 23.  Gaming regulators approved the license application for Stockbridge Real Estate of San Francisco and SB Gaming, a subsidiary that will manage the SLS Las Vegas. The Nevada Gaming Commission will make a final ruling on the application on Aug. 21.

Takeaway: Another private equity firm recommended for a Nevada gaming license.  The list of licensed private equity firms is growing.

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.


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Hedgeye Financials Speaker Series Call Today - Is FICC Fixable? A View From The Trading Desk

Takeaway: Please join us today, August 7th at 11 am EST for a call with the Head of Credit Trading at TCW to discuss bond trading trends.

Our financials team led by Josh Steiner and Jonathan Casteleyn is hosting a conference call today, August 7th at 11 am EST with Jerry Cudzil, the Head of Credit Trading at TCW. This call aims to help us understand, from the view of a major buy-side trading desk, the trends in Fixed Income, Currency, and Commodity trading (FICC). Specifically, we'll be focusing on:

 

  1. Cyclical or Secular?: The buy-side's perspective on whether FICC weakness is secular or cyclical.
  2. Share Shifts: Market share shifts that are occurring amongst the broker-dealer community in various markets.
  3. The Fed: How a post-QE bond market may look and the risk/reward setup in fixed income currently.

 

This call will be helpful to investors in broker dealer stocks and volume-related market structure companies: GS, MS, JPM, BAC, C, PJC, RJF, CME, ICE, NDAQ

 

CLICK HERE to add this call to your Outlook Calendar or simply dial:

 

Toll Free Number:

Direct Dial Number:

Conference Code: 919219#

 

Jerry Cudzil's Bio:

Mr. Cudzil is head of U.S. Credit Trading at the Trust Company of the West (TCW), overseeing the U.S. Fixed Income group’s trading of corporate and high-yield securities and derivatives. Prior to joining TCW in 2012, Mr. Cudzil was a high yield bond trader for Morgan Stanley and Deutsche Bank, specializing in project finance, aviation, and energy securities. He was previously a portfolio manager for Dimaio Ahmad Capital, managing the multi-strategy credit fund and aviation fund and leading the firm’s risk management team. Mr. Cudzil began his career as a corporate bond trader for Prudential Securities and has also traded investment and high yield debt for Credit Suisse and Goldman Sachs. Mr. Cudzil earned a BA in Economics from the University of Pennsylvania.


MPEL 2Q 2014 CONFERENCE CALL

Another Macau company reports a disappointing quarter. Stock buyback announcement a positive but not enough.

 

 

CONF CALL

  • 2Q Luck-adjusted property EBITDA:  $345m 
    • CoD:  +$20m, brings margins to 31%
    • Altira: +$10m, brings margins to 13-13.5%
  • Expanded market share in mass segments in 2Q
  • Started large development (luxury precinct) on CoD; will be ready in 2016
  • MSC:  will open in mid-2015; will top off the hotel in September
  • CoD Manila:  will open later in 2014
  • Approved $500m stock repurchase program and will be able to pay out special dividends
  • 2Q EBITDA margin:  26.4%
  • CoD:  Unfavorable revenue mix btw revenue and rc sharing programs. 
  • EBITDA margin impacted by $10m due to wage increases
  • Additional labor expense in $10m in 3Q and 4Q 2014
  • Draw down studio city term loan in July
  • 3Q guidance:  D&A: $95-100m; corp expense: $30m; consolidated net interest expense: $35m ($10m CoD Manila, $24m cap interest)

 

Q & A

  • 2Q CoD:  low hold and negative VIP mix.  Utility/maintenance fees of $5m that was not capitalized.
  • Mass slowdown:  mass has held up relatively well; but perfect storm coming - harder comps
  • Feel better about August - early August compared with early July, there is definitely an uptick - Hedgeye notes that August is a seasonally stronger month than July
  • Blames July performance on World Cup
  • No issues on filling up their rooms
  • Premium mass:  healthy business
  • Volumes:  not overly promotional but operate in highly competitive environment.  
  • $500m stock buyback:  similar to how US companies have operated this type of program
  • Investigation: Taiwan branch indicted for banking/foreign related offenses. Will defend vigorously.
  • MSC:  have received construction permits.  Do not need any other construction permits.  Firing at full speed.
  • MSC tables:  will get fair share, may find out table count 9 months ahead of opening; can accomodate 500 tables

ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds

Takeaway: U.S. stock funds put up their 14th consecutive week of outflow with bond fund inflows holding steady

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, the combined equity mutual fund complex eked out a slight $205 million inflow with steady International stock fund subscriptions rescuing now the 14th consecutive week of outflow in U.S. stock funds. Aggregate bond funds conversely, including both taxable and tax free products, netted another $1.7 billion in new money making it 24 of 25 weeks of taxable bond inflows with 28 of 29 weeks of positive subscriptions into tax-free or muni bonds. 

 

Total equity mutual funds put up a slight inflow in the most recent 5 day period ending July 30th with $205 million coming into the all stock category as reported by the Investment Company Institute. The composition of the inflow continued to be weighted towards International stock funds with $1.4 billion coming into the category offset by the ongoing 14 week redemption in domestic equity funds which totaled a $1.2 billion redemption. This drawdown in domestic equity funds has now totaled a $37 billion outflow over the past 3 1/2 months. The running year-to-date weekly average for equity fund flow is now a $1.6 billion inflow, which is now below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual fund flows had another positive week of production with $1.7 billion coming into the asset class. The inflow into taxable products of $1.1 billion made it 24 of 25 weeks with positive flow for the category. Municipal or tax-free bond funds put up a $687 million inflow making it 28 of 29 weeks with 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 were broadly positive during the week with inflows into both equity funds and fixed income products. Equity ETFs put up a robust $9.1 billion subscription, making it 8 of 10 weeks with significant inflows, while fixed income ETFs put up a slight $764 million inflow. The 2014 weekly averages are now a $1.7 billion weekly inflow for equity ETFs and a $822 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 $6.8 billion spread for the week ($9.3 billion of total equity inflow versus the $2.5 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 $4.8 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 - A Running 3 1/2 Month Outflow in U.S. Stock Funds - final recap

 

 

 

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

 

ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 2

 

ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 3

 

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ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 6

 

 

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

 

ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 7

 

ICI Fund Flow Survey - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 8

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $6.8 billion spread for the week ($9.3 billion of total equity inflow versus the $2.5 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 $4.8 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 - A Running 3 1/2 Month Outflow in U.S. Stock Funds - ICI chart 9 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%
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