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DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS

Takeaway: August New Home Sales get a shot of adrenaline from the West, adding to the seeming conflict in various housing-related data series.

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. 

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - Compendium

 

 

Today's Focus: August New Home Sales & MBA Mortgage Applications

 

August New Home Sales

Key Takeaways: 

  • New Home Sales rose +18% MoM vs upwardly revised July figures to 504K SAAR – the highest level since May of 2008 and the largest MoM increase since January 1992  
  • Wild West: Under the Hood, the strength was driven by the South and West regions where growth in new home sales was +27% and +84%, respectively.  New Home Sales were up a moonshot +50% MoM in the West, rising to the highest level since 2007.   New home sales were flat in the Midwest and improved sequentially in the Northeast, but remain negative on a YoY basis.  
  • PRICE:  Median New Home Price fell -1.6% sequentially to $276K although they re-accelerated on a YoY basis to +8% from +6.8% in July.  Mean New Home prices made another new high, rising +0.8% sequentially to $348K.  The more recent divergence between the two series suggests strength in the ultra-high end is pulling on prices.   

 

Taking a quick survey of the current landscape and the prevailing ping-pong match in housing data:  New Home Sales hit a 6 year high in August alongside a big miss out of KBH and soft guidance out of TOL.  Meanwhile, in perfect in-congruency, builder confidence hit a new high in September as both New Home Starts & EHS declined sequentially, Mortgage Purchase demand continues to plumb multi-decade lows, and the rate of change across the primary HPI measures (Case-shiller, Corelogic, FHFA) have begun to diverge for the first time in quite a while.     

 

The ITB took its cues from KBH earlier this morning, but has been rallying since the release of this NHS report. Bigger picture, at -6.5% for the year, housing remains one of the worst performing asset classes YTD in an otherwise largely-teflon tape.

 

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - NHS LT w summary stats

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - NHS Regional

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - NHS Regional Aug YoY

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - New Home For Sale Total   YoY

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - NHS to EHS Ratio

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - NHS total   YoY 3Y

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - NHS New   Median Home Price

 

 

MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended September 19th. 

  • Mortgage Applications fell -4.1% as Purchase demand fell for the 3rd time in 4 weeks and refi activity retreated -7% as rates continued their northward march.
  • Purchase Applications:  Purchase volume declined a modest -0.3% sequentially, holding below the 170-level for an 11th consecutive week.   Purchase Activity is currently tracking -6.2% on a QoQ basis, the lowest level since 2Q95.  On a year-over-year basis, purchase applications were down -15.9% in the latest  week (vs -10% prior) against the last hard compare of the year.  From here, the YoY comps go negative and get progressively easier through the balance of 2H.
  • Refinance activity declined -7% WoW as rates on the 30Y FRM contract rose +3bps to 4.39%.  Rates are now at their highest levels since early May, having risen +13bps in four weeks since bottoming at 4.25% at the end of August.

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - Purchase LT w summary stats

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - Refi   Purchase YoY

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - Purchase Qtrly Ave

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - Composite LT w summary stats 

 

DATA PING PONG - NEW HOME SALES & MBA PURCHASE APPS - 30Y FRM

 

 

 

About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

  

Joshua Steiner, CFA

 

Christian B. Drake

 


McCullough on Fox Business: ‘Fade Like a Flower’ Fed Has a Surprise in Store for Market

Takeaway: It's 'Groundhog Day' at the Fed according to Hedgeye CEO Keith McCullough.

Hedgeye CEO Keith McCullough spent the full hour with Fox Business host Maria Bartiromo on “Opening Bell” this morning. In this clip, McCullough explains his non-consensus call on why the Yellen Fed is set to get easier, why the Russell 2000 is in an epic bubble and how to position yourself right now. 

 



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SBUX: A Well-Timed Transaction

Yesterday, Starbucks announced that it will acquire the remaining 60.5% share of Starbucks Japan in a two-step tender offer process that should be fully completed in the first half of calendar 2015.

 

There are two ways to view this transaction. 

 

On one hand, this is good news for shareholders.  Japan is a large market for Starbucks accounting for approximately $1.2 billion in revenues, boasts high store-level profit margins (20-25%) and will immediately be accretive to adjusted EPS, although to what extent is unknown.  Longer-term, this makes strategic sense as well as it will allow the company to capture the significant growth opportunity left in that region. 

 

One the other hand, however, we believe the timing of the deal confirms our view that growth in the core business is slowing.  The company could've done this deal at any time in the past three years, but did not need to given strong sales trends and a significant commodity tailwind.  With these trends reversing, expectations for 18% EPS growth in FY15 looked aggressive, at the very least.

 

On the call last night, management said they would update FY15 guidance when they report earnings in late October.  Given the immediate accretion from the deal, 18% EPS growth next year now looks achievable and we suspect they will move guidance from the low-end to the high-end of the 15-20% range.  Given aggressive estimates for next year, it is comforting to know that they will, in all likelihood, not be revised higher from here.  Another important point is that this acquisition will, for now, help mask the margin decline that the company was facing.

 

Despite this news, if the core of our thesis is right (same-store sales decelerating, commodity costs increasing), it will have a bigger impact on the stock than this well-timed transaction.

 

Call or email with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Two Chip Stocks to Key In On as Skittish Investors Rotate Into Large Cap Liquidity

In a macro environment where skittish investors are rotating into the largest capitalization stocks, Hedgeye Semiconductors sector head Craig Berger discusses why he like Texas Instruments (TXN) and Qualcomm (QCOM) as the top mega-cap stocks in his sector. 


LEISURE LETTER (09/24/2014)

Tickers: BYD, IGT, GLPI, PENN, WYNN, HLT, MHGC

EVENTS

  • Sept 24: 9 a.m. Revel Auction
  • Sept 24: MTN 11:30 am FYE 2014 Earnings Call
  • Sept 24: Hedgeye Snakeye in Las Vegas
  • Sept 29 - Oct 2: G2E Las Vegas

COMPANY NEWS

IGT, GTK AMEND MERGER 
The amount of stock and cash to be paid to IGT shareholders is unchanged. However, the amendment eliminates the option for shareholders to elect an all-stock, all-cash consideration.  All IGT shareholders will receive a combination of $13.69 in cash plus a number of shares in the new GTK, which will be equal to $4.56, divided by the dollar value of GTK shares prior to the deal closing.

Takeaway:  This reduces the regulatory and disclosure requirements needed to complete the merger.

 

BYD – launched a new sports wagering application for mobile devices, allowing customers in Nevada to bet on college and professional games and events. 

Takeaway: Boyd taking the next step in on-line gaming, but not likely to impact earnings.

 

IGT –  Maryland has added a new game to its casinos, the "MegaHits" multi-state, progressive jackpot. Maryland is the fifth state approved by the Multi-State Lottery Association to participate, joining Delaware, Ohio, Rhode Island and West Virginia. The game will be available at Maryland Live! in Hanover, the Casino at Ocean Downs in Berlin and Hollywood Casino in Perryville. Megahits is a slot machine game played at selected casinos in the five states. Jackpots range from $100,000 to seven figures, with bets available in penny and dollar denominations.

Takeaway:  The multi-state MegaJackpot link should help IGT

  

WYNN – Mixed messages regarding the investigation into the Wynn Cotai land transaction.  GGRAsia is resporting “The relevant investigation is still underway,” the city’s Commission Against Corruption told GGRAsia on Wednesday. However, On Tuesday, Steve Wynn said the investigative team was satisfied with the information the company had provided on the deal and he further said he believed the investigation had been concluded. 

Takeaway: In Macau, nothing is ever approved or closed until the governing agency or bureau says so.

 

HLT – announced Hilton HHonors, the loyalty programme for Hilton Worldwide’s 11 distinct hotel brands, a new partnership with AirAsia BIG. The partnership allows members of both AirAsia BIG and Hilton HHonors to earn BIG points and HHonors points when they stay at any of the more than 4,200 hotels and timeshare properties within the Hilton worldwide portfolio around the globe, said the companies in a joint statement.

Takeaway: Hilton building out its cross marketing relationships in an effort to promote guest visits to its growing platform of Asian hotels.

 

MHGC – Activist investor Ron Burkle announced his intention to nominate a board member following the resignation of Derex Walker.

Takeaway: Burkle keeping the heat on MHGC.

INDUSTRY NEWS

Cotai Construction Worker Transportation (Macau Business) The Transport Bureau and three unidentified gaming companies are discussing the use of shuttle buses to take construction workers that live in the mainland from the Border Gate to their workplaces in Macau, according to the director of the bureau, Wong Wan.

Takeaway: The gaming operators attempting to make good with the Chief Executive as well as workers.

 

Macau Smoking Ban Investigation (Macau Daily Times) Lawmaker Lei Cheng I and her colleagues from the Macau Federation of Trade Unions (FAOM) met with department heads from the Health Bureau (SSM) and the Gaming Inspection and Coordination Bureau (DICJ) yesterday to discuss the control of smoking inside casinos. The lawmaker requested government official to personally inspect the casinos and determine if the casino operators are trying to exploit a legal loophole, enlarging their smoking areas by partially converting their mass areas into VIP areas.

Takeaway: More pressure on the Health and Gaming Inspection and Coordination Bureaus to address the smoking ban concerns and safeguard the health of the gaming floor workers.

 

Hong Kong National Day Tourism (SCMP)  Hong Kong Inbound Tour Operators Association chairman Ricky Tse Kam-ting said the number of bookings so far was only half of last year's total, and assuming some last-minute bookings, he expected the total to be down 30%. The Chairman noted "There are a lot of good hotel deals in Malaysia [after two tragedies involving Malaysia Airlines planes]. The same goes for Thailand, which is rolling out bargains after political turmoil."

Takeaway: Mainland Chinese tourists pulling back on Hong Kong and shopping trips.

 

Chinese Tourism for Golden Week – (SCMP) The China Tourism Academy predicted that 480 million people would be holidaying during the period, an increase of 13% year-on-year

Takeaway:  A positive trend, but Macau needs to capture some of this increase in tourism. 

 

Cyprus Casino Draft Legislation – The Cypriot Government published the a draft of the law for a proposed integrated resort which include:

  • The law provides for a casino of international standard, and a hotel or hotels of international standards exceeding the requirements for a five-star establishment under existing laws with at least 500 luxury rooms, at least 100 gaming tables and at least 1,000 gaming machines.
  • Under the provisions, the operator can create four other premises ‘off-site’ with a maximum of 50 gaming machines per premises but no casino games. These premises must be located outside the district where the resort is based but cannot be sold, rented, transferred or assigned to anyone other than the resort operator. The integrated resort can stay open 24 hours a day, seven days a week and smoking will be allowed on the gaming floor.
  • The initial fee for the casino resort will be determined as part of the initial offer for the 30-year license with 15 years of exclusivity for the operator. The annual fee to the state each year for the first four years will be €2.5 million, rising to €5 million for years four to eight, after which it may be reviewed upwards by the Cyprus Gaming and Casino Supervision Authority (CGC).
  • On top of that, the government hopes to pick up 15%, a casino tax, from gross gaming revenues per month.
  • The supply of gaming services – to be defined by inland revenue – will be VAT-free but the rest of the resort’s facilities will not be exempt.

Takeaway: Looks like a decent opportunity for suppliers but may be scaled down.


Singapore Punter Exclusion Broadens (GGRAsia) Twenty-three non-casino gambling operators on Tuesday joined Singapore’s centralized self-exclusion scheme, which now covers social clubs with jackpot machines and sports betting clubs. Twenty-three of the city's seventy-three non-casino gambling operators on Tuesday joined Singapore’s centralized self-exclusion scheme, which now covers social clubs with jackpot machines and sports betting clubs. As of August 31, there were over 500 active non-casino self-exclusions, as compared to the 165,000 active self-exclusion applications covering casinos.

Takeaway:  Singapore taking a stance on problematic gambling beyond the two integrated resorts.  

 

Singapore Consumer Confidence Slightly Higher – In the latest ANZ-Roy Morgan Singapore Consumer Confidence Index survey, 27% of respondents said their family are better off financially now than a year ago, higher than the 20% in the previous survey, 33% expect their family to be better off financially in a year's time, up from 28% previously; however, 12% of respondents think they are now worse off financially than a year ago, also rising from the 8% in the previous survey.

Takeaway:  While confidence is higher, it may not translate into a higher gaming budget, with so many restrictions surrounding the IRs.

 

Mixed fortunes for Genoa (Seatrade Insider)

After a record 1,050,085 passengers in 2013, Genoa’s Stazioni Marittime is expecting just over 800,000 passengers on around 200 calls this year.

Takeaway:  European port gives a conservative outlook for 2015.

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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