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Moshe Silver: Money, Riches & Wealth

 

This week, Drew and Tim are joined on air by Moshe Silver, author of Fixing a Broken Wall Street. Moshe authors the regular Hedgeye featured column “Slouching Towards Wall Street” and scours the Latin American press daily to add detail – and the occasional scoop – to Hedgeye’s in-depth coverage of Brazil.


Recovery In The Housing Market

Recovery In The Housing Market - SA YoY

 

 

Five years after the financial crisis, investors are welcoming recovery in the housing market. Several data points that have come out over the last six weeks or so indicate that housing is doing well with inventory falling, home prices rising and mortgage applications increasing. This morning's S&P/Case-Shiller data shows that October home prices increased 4.3% year-over-year, beating expectations of 4.0%. That's the best improvement since May of 2010.

 

We've highlighted some data points over last two weeks from the housing sector:

 

* HOUSEHOLD FORMATION REMAINS STRONG IN NOVEMBER (note 12/20)

* Inventory of existing homes for sale sank 3.8% month-over-month to 2.03 million units, down from 2.14 million units in October. (note 12/20)

* The rate of existing home sales in November was stronger than expected at 5.04 million (SAAR) vs. consensus expectations for 4.9 million and was up 5.9% month-over-month vs. October. (note 12/20)

* Builder confidence rose further in December, as this morning's NAHB HMI reading was 47, up 2 points MoM from a revised composite reading of 45 in November. (note 12/18)

* The MBA Mortgage Purchase Applications Index rose 1.0% last week. This is the fifth consecutive week of positive WoW growth. (note 12/12)

 

Hedgeye Financials Sector Head Josh Steiner breaks down this morning's Case-Shiller data in detail:

 

"Looking at the data on a city-by-city basis, Phoenix and Las Vegas showed the strongest month-over-month improvement, rising 1.4% and 2.8%, respectively. Meanwhile, Boston and Chicago were the laggards. On a year-over-year basis, Phoenix is blowing the rest of the country away, up +21.7% YoY, followed by Detroit +10.0% YoY. Clearly the distressed market has turned from headwind to tailwind. The weakest two markets nationally on a YoY basis are New York and Chicago, both down just over 1%.

It's also worth noting that New York has an enormous weighting in Case-Shiller. New York accounts for 19.4% of the index. Considering NYC is the worst performing market in the country, and accounts for one-fifth of the index, it's a testament to how strong the real estate market throughout the rest of the country is." 

 

 

Recovery In The Housing Market - housing1

 

Recovery In The Housing Market - housing2

 

Recovery In The Housing Market - housing3

 

Recovery In The Housing Market - housing4

 

Recovery In The Housing Market - housing5


HOUSING: ACCELERATING PRICE GAINS AND MORE STIMULUS ON THE HORIZON

Takeaway: More evidence of home prices accelerating, while the government is poised to add further stimulus to an already strengthening recovery.

Home Price Data Reinforces Main Street Confidence

This morning's Case-Shiller HPI reading for October showed further acceleration. On a year-over-year basis, home prices rose by 4.3% in October, up from a 3.0% YoY increase in September. This should come as no surprise as Case-Shiller reflects Corelogic data on a lag, as it is a 3-month rolling average. Nevertheless, the market, media and Main Street continue to ascribe greater significance to this series, which makes it important.

 

Once of the central tenets of our bullish housing call is that good news in housing feeds on itself. As Main Street hears more and more good news about housing's recovery, that begets greater demand as demand is positively correlated with price. That rising demand, in turn, fuels ongoing price increases in a virtuous loop.

 

In our recent Black Book "Housing Heading Higher in 2013" we laid out the bull case for housing's recovery being stronger than expected in 2013. This morning's print is another data point in support of our thesis. 

 

Looking at the data on a city-by-city basis, Phoenix and Las Vegas showed the strongest month-over-month improvement, rising 1.4% and 2.8%, respectively. Meanwhile, Boston and Chicago were the laggards. On a year-over-year basis, Phoenix is blowing the rest of the country away, up +21.7% YoY, followed by Detroit +10.0% YoY. Clearly the distressed market has turned from headwind to tailwind. The weakest two markets nationally on a YoY basis are New York and Chicago, both down just over 1%.

 

It's also worth noting that New York has an enormous weighting in Case-Shiller. New York accounts for 19.4% of the index. Considering NYC is the worst performing market in the country, and accounts for one-fifth of the index, it's a testament to how strong the real estate market throughout the rest of the country is.

 

Further Government Involvement Is a Positive for Housing

Normally, weekly mortgage application volume data is released on Wednesday morning, but in light of the holiday it seems to be on a delay. We will provide an update once the data hits. That said, we wanted to flag an article in the Wall Street Journal as an interesting read.

 

The article describes new initiatives by the Obama administration to expand the refinancing programs backed by the government. The idea is to allow non-GSE loans that are underwater to be refinanced, though it's unclear how this would be achieved. One proposal has these loans being transferred to Fannie and Freddie, but there doesn't appear to be any consensus around whether this would also entail putback immunity for the banks underwriting the refi. This would be a major undertaking, however, as it would require a change to Fannie and Freddie's charters, which can only be done by Congress. Another proposal would allow non-GSE borrowers to refinance underwater loans through HAMP. This would be the path of least resistance as it would require no involvement by Congress. Currently, HAMP only allows underwater refis for borrowers at imminent risk of default. The proposal would modify those guidelines to include underwater borrowers not at risk of default.

 

While it remains to be seen what, if anything will come of this, it seems clear that the two scenarios here are either status quo or further stimulus for housing. As such, the expected outcome is another positive for housing. Our Black Book had flagged further government initiatives as an ongoing catalyst to the strengthening recovery in housing and this article appears to support that conclusion. Here is the link to the article WSJ.

 

HOUSING: ACCELERATING PRICE GAINS AND MORE STIMULUS ON THE HORIZON - SA YoY

 

HOUSING: ACCELERATING PRICE GAINS AND MORE STIMULUS ON THE HORIZON - NSA YoY

 

HOUSING: ACCELERATING PRICE GAINS AND MORE STIMULUS ON THE HORIZON - YoY

 

HOUSING: ACCELERATING PRICE GAINS AND MORE STIMULUS ON THE HORIZON - MoM

 

HOUSING: ACCELERATING PRICE GAINS AND MORE STIMULUS ON THE HORIZON - NSA MoM

 

Joshua Steiner, CFA

 

Robert Belsky


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ANOTHER GOOD WEEK IN MACAU

Average daily table revenues were HK$775 million over the past 9 days, same as the prior week and up 14% the comparable period last year.  We believe the market is on pace for December YoY growth of 13-17% which would be above our original expectations of 12%.  High hold percentage may be the main driver of the better than expected results.

 

ANOTHER GOOD WEEK IN MACAU - 1

 

Wynn has been unable to recapture much share lost in the first 10 days of December and remains well below trend.  LVS and MGM continue to outperform their recent trend.  We think LVS will continue to gain share over the coming months while MGM appears to be more of an anomaly.  

 

ANOTHER GOOD WEEK IN MACAU - 2


Cliffhanger

Client Talking Points

Edge Of The Cliff

Now that the holidays have come to a close, it’s time to get back to business. Congress in particular really needs to reach into their mahogany desks and pull out their thinking caps. It’s going to be extremely difficult getting the political class to work together with President Obama to come to a solution on the fiscal cliff, but it must be done. We are fast approaching our debt limit of $16.39 trillion and guess what? Americans have little faith that Congress can get its act together to come to a compromise on spending cuts, taxes and the like. InTrade’s odds of the debt ceiling being raised by year-end are currently at 10% - so much for confidence.

Raise The Roof

Housing is one sector that’s on the fast track to a bright recovery. For the last six weeks or so, we’ve seen positive data from nearly every spectrum of the housing market. This morning October home prices are up 4.3% year-over-year according to S&P/Case-Shiller. Mortgage lending is up and the amount of inventory is decreasing. This is the kind of recovery investors have been wanting/needing for some time now.

Asset Allocation

CASH 55% US EQUITIES 21%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
NKE

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

“When the #Fed & #ECB truly bring systemic risk in the banking system back to 2004 levels, they will lose complete control over yield curve” -@Convertbond

QUOTE OF THE DAY

“Nature is trying very hard to make us succeed, but nature does not depend on us. We are not the only experiment.” -R. Buckminister Fuller

STAT OF THE DAY

October S&P/Case-Shiller Home Prices rise 4.3% year-over-year.


THE M3: SMOKING BAN; GUANGZHOU-BEIJING RAILWAY; CORRUPTION; UNEMPLOYMENT

The Macau Metro Monitor, December 26, 2012

 

 

NO GRACE PERIOD FOR SMOKING BAN: GOVT Macau Business 

According to Macau Health Bureau director Lei Chin Ion, the partial smoking ban on casino floors will take effect next week, even though some casinos will not be ready on time.  Lei says there would be “no room for exercising discretion or another grace period” for enforcing the partial smoking ban in casinos.  If a casino fails to get its project on smoking areas approved by the government by the deadline of January 1, it will be considered a full non-smoking area.

 

He pointed out that the bureau has already received requests for approval from all six gaming operators and is now conducting site inspections.  Lei added that he is confident that the bureau would conclude all the proceedings on time.

 

WORLD'S LONGEST HIGH-SPEED RAIL LINE OPENS IN CHINA AP

China has opened the world's longest high-speed rail line, which runs 2,298 kilometres (1,428 miles) from the country's capital in the north to Guangzhou.  Trains on this high-speed line will initially run at 300 kph (186 mph) with a total travel time of about eight hours.  Before, the fastest time between the two cities by train was more than 20 hours.  Railway is an essential part in China's transportation system, and its government plans to build a grid of high-speed railways with four east-west lines and four north-south lines by 2020.

 

MACAU CASINOS WEIGH THE ODDS OF IMPOSING SMOKING BAN London Times

85% of gamblers in Macau are reckoned to be smokers - representing the upper estimate by the casino operators.  The 50% floor space rule presents casinos with a clear choice: they will not ban smoking in any of the VIP rooms because they cannot afford to annoy the high-rolling smokers.  By taking that decision, and using their quota of smoking area on the VIPs, most casinos will end up having to have total bans on their mass gaming floors.  When American and Australian casinos enacted such bans, gaming revenue fell by an average of 12% in the first year, and that was in countries where only about a third of gamblers smoked.

 

CHINA AUSTERITY MAY CRIMP LUXURY DEMAND WSJ

China's new leaders have come out swinging against official excess and corruption. Expensive banqueting and lavish overseas trips are out. Clean living and austerity are in. Some senior officials are under investigation. The antigraft dragnet could catch more than just corrupt cadres.

 

Luxury retailers have benefited from the inflated incomes and gifting culture of China's officials.  It is difficult to say how much luxury spending is tied to corruption. But a recent Bain survey found about a quarter of all luxury goods are purchased for gifting.  Foreign auto makers that sell to the official fleet or cater to China's princeling set could also be affected. The likes of Audi and Ferrari now count China's wealthiest class as key customers, including bureaucrats, business owners and their offspring.  Macau's gambling sector could also suffer.

 

It is difficult to know how effective the new leadership will be with efforts to clean house.  Hu Jintao has railed against corruption for years to little apparent effect.  Rule changes that would force officials to disclose their assets and subjecting party members to the law would help.  But antigraft rhetoric without a change in the rules will likely have little permanent effect.  Still, corruption and excess have been important components of revenue growth for some sectors. If Beijing gets serious about stamping it out, the impact will be meaningful.

 

EMPLOYMENT SURVEY FOR SEPTEMBER - NOVEMBER 2012 DSEC

Macau unemployment rate (1.9%) and the underemployment rate (0.8%) for September-November 2012 held stable as the previous period (August-October).  Total labor force was 356,200 and the labor force participation rate stood at 72.5%.  Total employment reached 349,600, an increase of 2,900 over the previous period. 


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