We are increasing our February GGR projection to HK$20.5-21.5 billion, or 6-11% growth YoY, up from our previous forecast of 1-9% growth.
Macau generated HK$751 million in table revenue per day in the second week of February versus HK$809 million in the first 5 days. We would’ve expected a bigger slowdown. At this point, it is unclear if hold played a role in the better than expected week in Macau. Remember that February 2012 is a tough month due to the timing of Chinese New Year, partially offset by an easy hold comparison and an extra day this month due to leap year.
In terms of market share, percentages have moderated after a volatile first week. SJM is still trending above but much lower than the 34.9% posted last week. Wynn also moderated downward but is still above trend. On the other side, MPEL and Galaxy are moving back toward normal share after a hold-induced tough first week.
THE HEDGEYE BREAKFAST MONITOR
Comments from CEO Keith McCullough
Consensus continues to clamor for Greek headlines – meanwhile the rest of the world’s globally interconnected risk continues to manifest:
- JAPAN – top 3 economy in the world drops to a -2.3% y/y GDP print in Q411 (brutal); now its full throttle game on for the Japanese as we head toward a massive sov debt maturity in March ($745B!). When we were getting hawked up about Italian debt in Feb of 2011, consensus didn’t have it in the area code of its map either. Stay tuned…
- FRANCE – alongside covering our SPY short, we covered our French Equity short position on Friday as well. Typically, short-and-hold isn’t what I do. That said, I’m watching the long-term TAIL line of resistance for the CAC of 3556 very closely as I think that’s going to be a good proxy for non-German European growth/inflation for the next few quarters.
- OIL – hooo-wah! Big breakout for Brent Oil to $118.28/barrel this morning w/ no immediate-term TRADE resistance to $120ish. If you’re looking for the #1 factor that will slow global consumption growth sequentially here in February (vs what was a big growth ramp in DEC/JAN), the black stuff in the barrel is it.
Immediate-term TRADE range for SP500 is now 1338 (where I covered Friday) to 1360. Keep moving out there.
SBUX: A Starbucks in Athens burned last night as rioters set fire to buildings during unrest following the Greek parliament’s passing of another austerity bill.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
CBOU, WEN and COSI all led the QSR space on accelerating volume
DNKN declined on accelerating volume Friday.
CAKE: Cheesecake Factory is to change its menus at its seven Massachusetts locations to include prices by March 16th, according to the Boston Herald. A Massachusetts based attorney, Ross Mitchell, threatened to sue the chain for deceptive business practices after receiving a check that exceeded expectations.
CAKE: In more bad news for Cheesecake Factory, one of its restaurants in Boise is at the center of a possible Hepatitis A scare, according to local media.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
RUTH: Gained 2.7% on accelerating volume following earnings.
BWLD: Continues higher, up 1.3% on accelerating volume.
PFCB: Down -1.2% on accelerating volume.
KONA: Declined -3.7% on accelerating volume.
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* Interbank risk continues to recede - Euribor-OIS, our preferred measure of systemic risk in the European banking system, tightened 5 bps to 71 bps last week. There is a similar trend occurring in the TED spread, which fell by 3 basis points to 42 bps last week. The next round of LTRO is scheduled for later this month (February 29). This should provide an ongoing tailwind to the interbank market, as it was the last round of LTRO that sparked the move in Euribor-OIS from 98 bps to 71 bps. This should be an ongoing catalyst for reflating the discount at the large-cap US financials. For more details on quantifying that reflation, see our recent notes on the subject.
* Bank CDS was mostly wider in both Europe and America last week, with the notable exception of Greek banks whose spreads tightened.
* Sovereign European CDS were mixed. The most notable takeaway is the ongoing sharp reversal in Portuguese sovereign swaps.
* Bullish Quantitative Set Up - Our firm's Macro quantitative model indicates that there is more updside than downside in the short term (2.9% upside in the XLF vs. 0.3% downside).
Financial Risk Monitor Summary
• Short-term(WoW): Positive / 4 of 12 improved / 2 out of 12 worsened / 6 of 12 unchanged
• Intermediate-term(WoW): Positive / 8 of 12 improved / 2 out of 12 worsened / 2 of 12 unchanged
• Long-term(WoW): Negative / 1 of 12 improved / 7 out of 12 worsened / 4 of 12 unchanged
1. US Financials CDS Monitor – Swaps widened for 24 of 27 major domestic financial company reference entities last week.
Widened the most WoW: JPM, AXP, XL
Tightened the most WoW: RDN, MTG, AGO
Widened the most MoM: MBI, COF, MTG
Tightened the most MoM: AIG, GNW, MS
2. European Financials CDS Monitor – Bank swaps were wider in Europe last week for 26 of the 40 reference entities. The median widening was 10.1%.
3. European Sovereign CDS – European Sovereign Swaps came in mixed last week. Portuguese sovereign swaps tightened by 11.5% (-148 bps to 1136 ) and French sovereign swaps widened by 6.8% (11 bps to 174).
4. High Yield (YTM) Monitor – High Yield rates fell 8.0 bps last week, ending the week at 7.37 versus 7.45 the prior week.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 2 points last week, ending at 1635.
6. TED Spread Monitor – The TED spread fell 3 points last week, ending the week at 42.2 this week versus last week’s print of 45.3.
7. Journal of Commerce Commodity Price Index – The JOC index rose 3.0 points, ending the week at -9.54 versus -12.5 the prior week.
8. 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 tightened by 4.7bps to 70.9 bps over last Monday.
9. ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB. Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system. An increase in this metric shows that banks are borrowing from the ECB. In other words, the deposit facility measures one element of the ECB response to the crisis.
10. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1. Last week spreads widened, ending the week at 123 bps versus 121 bps the prior week.
11. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production. Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion. Last week the index rose 68 points, ending the week at 715 versus 647 the prior week.
12. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure. The 2-10 spread widened to 171 bps, 2 bps wider than a week ago.
13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.9% upside to TRADE resistance and 0.2% downside to TRADE support.
NYSE Margin Debt - December
We publish NYSE Margin Debt every month when it’s released. NYSE Margin debt hit its post-2007 peak in April of 2011 at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did last April, that has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May 2011. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. This is important because it means that margin debt, which retraced back to +0.53 standard deviations in November, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend runs its course. There’s plenty of room for short/intermediate term reversals within this broader secular move, as we saw in November and December's print of +0.55 and +0.53 standard deviations. Overall, however, this setup represents a headwind for the market. One limitation of this series is that it is reported on a lag. The chart shows data through December.
Joshua Steiner, CFA
Trouble viewing the charts in this email? Please click the link at the bottom of the note to view in your browser
The Macau Metro Monitor, February 13, 2012
SJM TO SUBMIT COTAI PROJECT THIS WEEK Macau Daily Times, Macau News
SJM will submit the master plan for its Cotai resort to the government as early as this week and expects the government to formally approve the land grant 'hopefully in the middle of this year'. “The Cotai plots, we’re still waiting for the Macau Government’s formal approval of the land grant. We hope that this will come very soon... We’re doing it now because without this master plan, it is not possible for the government to calculate the premium to be charged and to start the land grant [process]. We’ll submit it as quickly as possible because we’ve got the parameters of the design now," said Ambrose So, CEO of SJM.
So promised that SJM will set aside more space for non-gaming attractions in its Cotai project, which he said would take about three years to construct. "I think in Cotai it’s a different market, unlike those in the [Macau] peninsula which is gaming-oriented, gaming-centric. Of course we have to put in more non-gaming elements into our complex,”” said So.
So added that joining the ‘Cotai race’ later than everyone else could actually be a good thing for SJM. “This is something we have to think about. Being the latecomer we have the advantage of knowing what can be done and what cannot be done, what is successful and what is not successful." In December 2011, Ambrose So confirmed that the government had agreed to grant a plot in Cotai to SJM but the land premium had not yet been decided.
SJM CEO EXPECTS GAMING REVENUE TO GROW 25% IN 2012 Macau News
SJM's CEO, Ambrose So expects GGR to grow 25% in 2012. So pointed out that although casinos located in the Macau peninsula hold a 60% market share of the city’s total gaming revenue, his company was ready to compete in Cotai where he said the market was gradually picking up.
2 NEW RESORTS WORLD SENTOSA HOTELS TO OPEN ON THURSDAY Strait Times
Two eco-luxurious hotels are set to redefine resort-style vacations in Singapore on Thursday. The Equarius Hotel and Beach Villas, opening at Resorts World Sentosa, will come with 360-degree views that take in the waterfront, the harbourfront skyline and a lush tropical rainforest.
New Co-President at Juicy. We’ll reserve final judgment until we look him in the eye, but initially, the overlap in respective backgrounds seems like it’s just what the Dr ordered.
So…LIZ FINALLY announced a new Co-President of Juicy Coture, something we’ve been waiting for about 2 months to see. LIZ hired David Bassuk. To be clear, I have never met the guy, and as of now, know little about him. That will change shortly. But in looking at his background, there’s much to like.
- The ‘go to’ MD on softlines retail at AlixPartners, a global brand consulting group with presence in virtually every sector.
- Unless his profile was embellished on the website (we’ll front him the benefit of the doubt on that one), he seems to have very good experience across multiple disciplines within retail – such as supply chain, enterprise planning, and turnarounds.
- He ‘gets’ the fashion biz, having been on the Board at Kurt Salmon – a well known retail consulting firm – a frequent lecturer at FIT.
Slap all this into a package of incentives to fix and globalize a brand like Juicy, and I can see why a) he’d want the job and b) why they’d want him to do it.
Clearly, we have to look him in the eye before making any real judgment, but initially it smells right.
A quick point on Co-Presidents. Our rather strong view in that Co-C-suite jobs rarely work. There are a few exceptions. One of which is in the fashion business, where there is a fashion leader, and a business leader. Rarely can one person do both jobs. Mickey Drexler is one of the few, and to a point he ultimately failed.
Take a look at Roger Farah and Ralph Lauren. I’ve never heard Ralph Utter the words Return on Capital. But I don’t care. Roger knows the numbers in his sleep. We saw similar dynamics at GES. Let’s also not forget Kate Spade, where a similar structure is in place.
The point here is that when the product people can simply be left alone to drive that part of the model, it usually works – so long as there is an exceptional operational team to offset any and all holes in execution, brand management, sales, marketing, and strategic planning.
This is a positive development from where we sit.
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