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Hedgeye Morning Call Q&A

Hedgeye CEO Keith McCullough offers his latest thoughts on the liquidity brouhaha in Beijing. Specifically, just how bad is the situation in China and do people fully appreciate it?

 


Morning Reads on Our Radar Screen

Takeaway: A quick look at top stories on Hedge's radar screen.

Keith McCullough – CEO

Blackhawks' late goals stun Bruins to win Stanley Cup (via NHL.com)

Two Fed Presidents Emphasize Stimulus to Persist After QE Taper (via Bloomberg … KM note: Get out of our lives already)

 

Morning Reads on Our Radar Screen - earth

 

Josh Steiner – Financials

Bankrate US Home Mortgage 30 Year Fixed National Avg pops up to 4.51% (up another 15 bps overnight) (via Bloomberg)

Corzine facing civil charges on MF Global collapse (via Marketwatch JS note: Corzine finally facing (a little) justice. #ItsAboutTime)

Wall Street’s $8 Billion CMBS in Limbo as Bulls Retreat (via Bloomberg)

 

Daryl Jones – Macro

Credit Warnings Offer World a Peek Into China’s Secretive Banks (via New York Times)

 

Brian McGough – Retail

Neiman Marcus Files for IPO (via WWD)

 

Kevin Kaiser – Energy

Apollo's EP Energy looking at IPO – sources (via Reuters)

 

Howard Penney – Restaurants

Restaurant Franchises Are Hiring. Are They Dodging Obamacare? (via Businessweek)

McDonald's To Stop Serving Halal Food At 2 Michigan Restaurants (via HuffPost)

 

Jonathan Casteleyn – Financials

U.S. FTC Said to Open Probe of Oil Price-Fixing After EU (via Bloomberg)


DB MAKES THE MACAU CALL

It was inevitable so what do we do now?

 

 

As we speculated in our Macau note yesterday, a sell side firm would likely make a negative call based on the China credit situation.  Indeed, the Deutsche Bank analyst pulled the plug on a number of Macau stocks today.  We don’t disagree with the call from a Trend (intermediate) perspective, but we think the downgrade could push the stocks into buy territory over the Trade duration.

 

Our call yesterday was to wait for the inevitable downgrade and look to buy on that weakness.  The fact that the downgrade came from an influential analyst creates an even better opportunity. 

 

We like the short-term Trade here and are still bullish on the long-term Tail.  We share DB’s concerns over the Trend intermediate term.  As we wrote about in our 05/22/11 note “A VIP SLOWDOWN IN THE CARDS?”, we’ve found that China central bank moves impact the Macau junket market on a 2-3 quarter lag.  VIP is likely to be under pressure later this year.

 

However, over the near-term, we think the setup is positive as July could be a 20%+ growth month in Macau to go along with June’s high teens growth.  We like MPEL and MGM on today’s likely weakness.  MPEL looks to post another beat for Q2.  MGM Macau’s performance has been surprisingly strong and MGM could also benefit from terrific May Strip revenues which we expect to be reported in two weeks (see our note yesterday “MONSTER MAY”).   


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Talk Is Cheap

Client Talking Points

CHINA

Down hard, then rumor, then bounce ... It looks like a "Bernanke/Draghi" type playbook in Beijing as the entire world attempts to watch what we cannot see. The Shanghai Composite closes down -0.2% overnight. #Oversold, but still crashing. Looks like hell down -19.5% since Feb 5. Bouncing on rhetoric doesn’t solve the long-term issue.

FTSE

Doing the dead cat bounce thing within a developing bearish TREND across all of European Equities. I learn the most during the bounces. This bounce in European Equities hasn’t seen one - not one-  major index recapture any of my intermediate-term TREND lines. The FTSE gained +0.8% to 6075, but it's still well below 6398 TREND resistance. DAX TREND line = 8014.

GOLD

A bear market "bounce" in gold of just +0.14%. Guess what? That is not going to get anyone excited about Gold. Nor will a 10-yr UST Yield of 2.5%. Nor will a US Dollar recapturing $81.21 TREND support. Gold is turning into a good proxy for deflation – deflating Bernanke Bubbles, that is...

Asset Allocation

CASH 63% US EQUITIES 13%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
NSM

Financials sector head Josh Steiner is the Street’s head bull on residential mortgage originator/servicer Nationstar, projecting $9 in earnings for the company in 2014.  This is well above the company’s own guidance range, which tops out at around $7.50. NSM had a successful start to the year as it won servicing bids on substantial mortgage portfolios.  They also reported significant increases in their profit margins on those portfolios, and double-digit increases in their own originations.  Housing prices are ramping significantly higher, as Steiner predicted, as demand continues to exceed supply in both new and existing homes.  Steiner says this quality mortgage company could ride the crest of a sustained wave of sector improvement.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

Three for the Road

TWEET OF THE DAY

We've had a 0% asset allocation to Fixed Income recommended to clients for almost 6 months

@KeithMcCullough

QUOTE OF THE DAY

"I am a man of fixed and unbending principles, the first of which is to be flexible at all times."

- Everett Dirksen

STAT OF THE DAY

Looking for a mortgage? Bankrate US Home Mortgage 30-Year Fixed National Average pops up to 4.51%. That's up another 15 basis points overnight. (Bloomberg)


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 25, 2013


As we look at today's setup for the S&P 500, the range is 26 points or 0.45% downside to 1566 and 1.20% upside to 1592.          

                                                                                                                     

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.13 from 2.15
  • VIX closed at 20.11 1 day percent change of 6.40%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: Dur Goods Orders, May, est. 3.0% (prior rev to 3.5%)
  • 8:30am: Durables Ex Transportation, May, est. 0.0%
  • 8:30am: Cap Goods Orders Non-Def, Ex-Aircraft, May, est. 0.5%
  • 8:55am: Johnson/Redbook weekly sales
  • 9am: S&P/Case Shiller 20 City M/m, April, est. 1.2%
  • 9am: S&P/CS Home Price Index, April (prior 148.65)
  • 9am: FHFA House Price Index, April, est. 1.1% (prior 1.3%)
  • 10am: Richmond Fed Manufacturing, June, est. 1 (prior -2)
  • 10am: Conference Bd Cons Conf, June, est. 75 (prior 76.2)
  • 10am: New Home Sales, May, est. 460k (prior 454k)
  • 10am: New Home Sales M/m, May, est. 1.3% (prior 2.3%)
  • 11am: Fed to buy $1.25b-$1.75b debt in 2036-2043 sector
  • 11:30am: U.S. to sell $25b 52W bills, 4W bills
  • 1pm: U.S. to sell $35b 2Y notes
  • 4:30pm: API weekly inventory data

GOVERNMENT:

    • President Obama unveils his plan to address climate change
    • Supreme court may rule at 10am on cases including:
    • Calif. initiative banning same-sex marriage, law denying federal benefits to legally married gay couples
    • Whether Voting Rights Act can require some states to get “preclearance” from federal government before changing voting rules
    • Markey takes on Gomez in Mass. special election for U.S. Senate
    • Sperling, Krueger, Biden speak on federal minimum wage
    • Senate Appropriations Cmte panel marks up FY2014 Energy and Water Development Appropriations Bill, 10am
    • Senate Energy and Natural Resources Cmte holds hearing on management of forests on federal lands, 10am
    • Senate Appropriations Cmte Financial Svcs and General Government panel hears from CFTC Chairman Gary Gensler, SEC Chairman Mary Jo White on FY2014 budget, 3pm
    • Senate Banking, Housing and Urban Affairs Cmte holds hearing on regulation of private student loans, 10am

WHAT TO WATCH

  • Google may get win in case over privacy data on other websites
  • U.S. senators to introduce bill to end Fannie Mae, Freddie Mac
  • China money-market rate increase temporary, PBOC official says
  • Benchmark rate alternatives to be studied by regulators: Carney
  • U.S. said to explore possible Chinese role in Snowden leaks
  • Men’s Wearhouse founder Zimmer said studying options: Reuters
  • S&P mortgage ratings trial sought for Feb. 2015 by U.S.
  • Ford F-150 tops Toyota Camry as No. 1 in American-made ranking
  • Cerberus plan to boost Seibu control rejected by investors
  • Spain sells EU3.07b bills vs EU3b maximum target

EARNINGS:

    • Lennar (LEN) 6am, $0.33, preview
    • Walgreen (WAG) 7:30am, $0.91
    • Barnes & Noble (BKS) 8:30am, ($0.90)
    • Carnival (CCL) 9:15am, $0.07
    • Synnex (SNX) 4pm, $0.81
    • Apollo Group (APOL) 4:01pm, $0.86
    • Smith & Wesson (SWHC) 4:05pm, $0.43

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • HKEx’s Li Targets Chinese Growth After $2.2 Billion LME Purchase
  • Palm Reserves Rising Most Since 1999 After Oil Rout: Commodities
  • Morgan Stanley to Goldman Cut Gold Forecasts on Fed Outlook
  • Copper Advances in New York After China Comments on Money Rates
  • EU Officials Said to Agree to 30% Cap on Some Farm Subsidy Cuts
  • Corzine May Soon Face CFTC Lawsuit Over MF Global, NYT Reports
  • Morgan Stanley Maintains 3Q, 4Q Iron Ore Price Estimates
  • Iron-Ore Cargoes Double Ship Rates as China Seen Buying: Freight
  • WTI Rises a Second Day on Supply Data; Goldman Sees Demand Gain
  • Crude Supply Drops in Survey Amid Driving Season: Energy Markets
  • Yingluck Risks Farmer Ire to Curb Fiscal Burden: Southeast Asia
  • Corn Belt ’Good or Excellent’ Corn Hits Seven-year High, Week 25
  • Gold’s Price Slide Seen by Credit Suisse ‘Shattering’ Confidence
  • Russia, Kazakhstan Join Turkey in Raising Gold Holdings in May

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 


ADDING TO THE MACAU VOLATILITY…

The HK$775M placeholder - we don’t believe in coincidences and we haven’t believed in this one.

 

 

As we wrote about yesterday, average daily table revenues for Macau came in at HK$775 million for last week.  Hmmm, where have we seen that number before?  Oh yeah, 14 times over the past 105 weeks.  If you’re saying to yourself, “that’s next to impossible”, well, it gets even more unlikely.  The weekly revenues released each of those 14x divides to a daily number of exactly HK$775,000,000 when carried out to the full decimals. 

 

So what is happening?  Clearly, HK$775 million is a placeholder, probably because not all the data came in to the government in time.  Statistically, that means that the following week’s data is likely to be volatile since it will be a catch up.  We calculate a standard deviation that is 40% higher for the week following a HK$775 million week than for the average week over the same period.

 

As if Macau stocks need another dose of volatility.


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