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Poll of the Day Recap: 65% Think $GM Is Hiding Something

General Motors CEO Mary Barra testified before Congress today that the company is still investigating why the company failed to order a recall until February 2014 on cars with flawed ignition switches that killed at least 13 people.
 

“Sitting here today, I cannot tell you why it took years for a safety defect to be announced in that (small-car) program, but I can tell you that we will find out.When we have answers, we will be fully transparent with you, with our regulators and with our customers.”
 

We wanted to get your opinion in today’s poll: Is GM hiding something?
 

At the time of this post, 65% responded YES; 35% said NO.
 

Of those who voted YES, one responder wrote it’s just like when “Ford lied about Pinto and explosive gas tanks on rear view collisions. Too expensive to fix and they felt a ‘little’ loss of life justified saved cost of recall.”
 

On the other side, one NO voter said, “There's a difference between A) malicious intent in hiding or burying information and B) being stupid, poorly structured, mismanaged, and just a piss-poor quality organization. Did someone, somewhere, inside GM hide something? Probably. They should be fired. But is there a valid conspiracy theory that the organization is deliberately hiding information? Probably not. It just needs to be reorganized and run like a real business.”
 

Another NO commenter explained, “If you study the Ford Pinto fires case, you can uncover how recall works and the challenges behind it.  You must identify a problem, find traceable cause, and then decide if the recall is needed.  That can take time.  When thousands die in fully functional cars, it’s hard to identify real traceable problems.”
 

Hedgeye Managing Director Moshe Silver also argued NO, summing up that “someone within GM is probably hiding something, but they've been taking advantage of weak spots in the oversight structure and hiding it from management and the board too. It’s highly unlikely that the corporate entity is hiding anything relating to the recalls. Every organization has its blind spots. The bigger the organization - and the more the compensation is detached from performance - the bigger the blind spots become.”

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LVS TO OWN MORE SCL

Sands China seeks to buy back its stock which would effectively increase LVS’s stake and modest value.

 

 

CALL TO ACTION:

While trading in Macau stocks could be choppy, a fully implemented share repurchase program for Sands China Limited would be positive for LVS shares.  We believe SCL creates value for LVS shareholders with cash that would otherwise be earmarked for dividends or sitting in the bank.  Macau generates LVS’s highest valued cash flow stream so to the extent that SCL represents a higher percent of total EBITDA, that value should accrue to LVS shares.

 

BACKGROUND:

While reviewing our 1Q14 notes and company filings, we were pleased to see a proposal in Sands China’ proxy to repurchase up to 10% of the issued shares.  The proposal is Ordinary Resolution #5 on the Proxy for the Annual Shareholders Meeting scheduled for Friday, May 10, 2014 at 11 am at the Venetian Macao-Resort-Hotel.

 

Since Las Vegas Sands owns 70.17% of the outstanding shares of Sands China Limited, we expect this resolution to pass.  Said differently, because the public float of Sand China Limited is 29.83%, the outcome is pre-ordained. 

 

IMPLICATON/READ THROUGH:

While the resolution if approved would allow for a 10% share repurchase, based on our read of the Hong Kong Stock Exchange listing requirements, Sand China Limited may reduce the public float to 25% without any approval requirements.

 

However, based on its equity market capitalization, SCL may petition the Hong Kong Stock Exchange for an exception to the 25% float requirement as the listing rules allow for a lower float of between 15% and 25% based on large equity market capitalization (see the rules below). 

 

THE MECHANICS:

For LVS to achieve a 75% ownership stake in Sand China Limited, Sand China Limited would need to acquire 519,440,665 shares (based on 8,063,193,845 shares outstanding).  Assuming HKD70.00/share, a 519.4 million share repurchase requires about US$4.69 billion.  The 519.4 million shares represents about 6.44% of the total outstanding Sands China Limited shares.

 

For LVS to achieve a 80% ownership stake in Sand China Limited, Sand China Limited would need to acquire 990,925,239 shares (based on 8,063,193,845 shares outstanding).  Assuming HKD70.00/share, a 990.9 million share repurchase requires about US$8.94 billion.  The 990.9 million shares represents about 12.3% of the total outstanding Sands China Limited shares.

 

RATIONALE:

We believe because the Macau EBITDA is growing faster and is valued higher than the EBITDA from either Singapore or Las Vegas, such a repurchase makes sense.  Also, as a result of the greater ownership interest in Sand China Limited (Macau), this value is beneficial to LVS in the form of greater share of future Macau dividends. 

 

The buyback vs dividend use of cash flow is normally a slam dunk from a tax perspective.  However, the Macau Gaming Tax offset already shields SCL dividend from US taxes.  As of December 31, 2013, LVS maintained a deferred tax asset of $1.280 billion for U.S. foreign tax credit carry forwards. LVS’s incentive would clearly lie in owning more of the EBITDA stream and the value creation imbedded therein.  Taxes are not relevant.

 

 

ADDENDUM:  HKSE LISTING REQUIREMENTS

 

Section 8.08

 

There must be an open market in the securities for which listing is sought. This will normally mean that:

 

(1)

(a) at least 25% of the issuer’s total issued share capital must at all times be held by the public

(b) where an issuer has one class of securities or more apart from the class of securities for which listing is sought, the total securities of the issuer held by the public (on all regulated market(s) including the Exchange) at the time of listing must be at least 25% of the issuer’s total issued share capital. However, the class of securities for which listing is sought must not be less than 15% of the issuer’s total issued share capital, having an expected market capitalization at the time of listing of not less than HK$50,000,000.

 

Notes: (1) Issuers should note that the minimum prescribed percentage of securities must remain in public hands at all times. If the percentage falls below the minimum, the Exchange reserves the right to suspend trading until appropriate steps have been taken to restore the minimum percentage of securities in public hands.  In this connection, the Exchange will normally require suspension of trading in an issuer’s securities where the percentage of its public float falls below 15% (or 10% in the case of an issuer that has been granted a public float waiver under rule 8.08(1)(d) at the time of listing)

 

(2) Where the percentage has fallen below the minimum, the Exchange may refrain from suspension if the Exchange is satisfied that there remains an open market in the securities and either:

 

(a) the shortfall in the prescribed percentage arose purely from an increased or newly acquired holding of the listed securities by a person who is, or after such acquisition becomes, a connected person only because he is a substantial shareholder of the issuer and/or any of its subsidiaries. Such substantial shareholder must not be a controlling shareholder or single largest shareholder of the issuer. He must also be independent of the issuer, directors and any other substantial shareholders of the issuer and must not be a director of the issuer. If the substantial shareholder has any representative on the board of directors of the issuer, he must demonstrate that such representation is on a non-executive basis. In general, the Exchange would expect this to apply to holdings of the listed securities by institutional investors with a wide spread of investments other than in the listed securities concerned. Holdings of the listed securities by venture capital funds which have been involved in the management of the issuer before and/or after listing would not qualify. It is the responsibility of the issuer to provide sufficient information to the Exchange to demonstrate the independence of such substantial shareholder and to inform the Exchange of any change in circumstances which would affect his independence as soon as it becomes aware of such change; or

 

(b) the issuer and the controlling shareholder(s) or single largest shareholder undertake to the Exchange to take appropriate steps to ensure restoration of the minimum percentage of securities to public hands within a specified period which is acceptable to the Exchange. (3) At any time when the percentage of securities in public hands is less than the required minimum, and the Exchange has permitted trading in the securities to continue, the Exchange will monitor closely all trading in the securities to ensure that a false market does not develop and may suspend the securities if there is any unusual price movement.

 

(c) Notwithstanding the requirement that the minimum prescribed percentage of securities must at all times remain in public hands, the Exchange may consider granting a temporary waiver to an issuer which is the subject of a general offer under the Takeovers Code (including a privatisation offer), for a reasonable period after the close of the general offer to restore the percentage. The issuer must restore the minimum percentage of securities in public hands immediately after the expiration of the waiver, if granted.

 

(d) The Exchange may, at its discretion, accept a lower percentage of between 15% and 25% in the case of issuers with an expected market capitalisation at the time of listing of over HK$10,000,000,000, where it is satisfied that the number of securities concerned and the extent of their distribution would enable the market to operate properly with a lower percentage, and on condition that the issuer will make appropriate disclosure of the lower prescribed percentage of public float in the initial listing document and confirm sufficiency of public float in successive annual reports after listing (see rule 13.35). Additionally, a sufficient portion (to be agreed in advance with the Exchange) of any securities intended to be marketed contemporaneously within and outside Hong Kong must normally be offered in Hong Kong;


#TimeStamp Productions Announces Opening of Wall Street 2.0: The Story of Hedgeye

 

FOR IMMEDIATE RELEASE

For more information:

Dan Holland, PR Director

#TimeStamp Productions

 

LOS ANGELES, Calif., April 1 – Warner Brothers Studios, in conjunction with #TimeStamp Productions, has announced that Wall Street 2.0: The Story of Hedgeye is scheduled to hit theaters nationwide on July 1, 2014 with a premiere in Thunder Bay, Ontario, Canada.  The film features an Academy-Award winning cast including Patrick Dempsey, Russell Crowe, and Denzel Washington. It was directed by Martin Scorsese, Academy-Award winning producer of The Departed.

 

This film follows the rise to prominence of Hedgeye Risk Management from the company’s humble beginnings with a handful of employees on the outskirts of Yale University’s campus in New Haven, CT, to their central role in bringing transparency, accountability and trust to Wall Street from the firm’s brand-new global headquarters in Stamford, CT with over 50 employees.

 

This “David Versus Goliath” drama features Patrick Dempsey in the starring role of CEO Keith McCullough, who, along with his team of hockey playing vagabonds, battle a hodgepodge of conflicted behemoths in the merciless Wall Street trenches. 

In one poignant scene, McCullough sits behind his computer during #TweetShow and calls out CNBC “Mad Money” host and TheStreet.com luminary Jim Cramer for his lack of accountability (#BuyBearStearns). A vicious Twitter war ensues which finally ends with Cramer capitulating, yelling various obscenities and “blocking” the entire team of Hedgeye analysts on Twitter. (Shortly thereafter, Cramer sells LINN Energy in his charitable trust.)

 

In another scene, maverick Hedgeye Energy Analyst and “Forbes 30-Under-30” notable Kevin Kaiser (played by Justin Bieber) goes head-to-head with Houston-based energy leviathan Kinder Morgan and its billionaire Overlord/CEO Rich Kinder.  A board room shouting match ensues where Kaiser accuses Kinder of drastically under-spending on capital expenditures.  After numerous ad hominem rebuttals (including incessant reminders of Kaiser’s age, and the fact that his Kinder Morgan presentation uses two kinds of font) Kinder beats a hasty retreat as a pipeline explodes in midtown Manhattan.

 

The finale occurs as Hedgeye Asia Analyst Darius Dale (played by Denzel Washington) bursts onto the floor of high frequency trading firm Virtu with Michael Lewis (played by Michael Lewis). Dale demands to know how Virtu can possibly have a batting average of 99.2% (even higher than Hedgeye’s 80% batting average on Real-Time Alerts).  The scene ends when an FBI agent enters the trading room waving copies of Lewis’s most recent book, “Flash Boys”, and exclaims, “Shut her down boys, it’s rigged.”

 

Russell Crowe is receiving early Academy Award mention for his brilliant depiction of Hedgeye Director of Research Daryl Jones, a Zen-like presence throughout the film.

 

 

ASSORTED REVIEWS

Two words for you: Dog sh*t.” -Rich Kinder, Kinder Morgan Letter to Shareholders


THE FED KEITH MCCULLOUGH KNOWS NOTHING!” -TheStreet.com, Jim Cramer

 

“One of the best movies of the year—a bolt of brilliance. Martin Scorsese may have just topped his Wolf of Wall Street masterpiece.” -New Haven Register


“I hate this movie. It failed from the opening scene. I give it an “F.” That said, I haven’t seen it yet. I don’t even plan to. I don’t know anything about it.” -Linette Lopez, Business Insider


“I know Kevin Kaiser. I interviewed Kevin Kaiser on Fox Business. Justin Bieber? He’s no Kevin Kaiser.” -Charlie Gasparino, New York Post

 

“Hedgeye the Movie is this generation’s Slapshot.  At once a cult classic, and a piercing reflection on our times.” -Yale Daily News


“Will Patrick Dempsey win Best Actor for his portrayal of Hedgeye CEO Keith McCullough? Take it to the bank. It doesn’t hurt that Dempsey’s hair looks absolutely gorgeous—almost as good the flow on Hedgeye’s no-nonsense CEO.” -Stamford Advocate

 

“Good enough movie. One question though: Why did they go with Patrick Dempsey to play McCullough? Ron Duguay makes a lot more sense. Have you seen Duguay’s flow lately? Plugs or not, that guy’s still got it.” -Thunder Bay Chronice-Journal

 


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BREAKING: #TimeStamp Productions Announces Opening of Wall Street 2.0: The Story of Hedgeye

FOR IMMEDIATE RELEASE

 

For more information:

Dan Holland, PR Director

#TimeStamp Productions

(203) 562-6500

dholland@hedgeye.com

 

BREAKING: #TimeStamp Productions Announces Opening of Wall Street 2.0: The Story of Hedgeye - marty2

 

LOS ANGELES, Calif., April 1 – Warner Brothers Studios, in conjunction with #TimeStamp Productions, has announced that Wall Street 2.0: The Story of Hedgeye is scheduled to hit theaters nationwide on July 1, 2014 with a premiere in Thunder Bay, Ontario, Canada.  The film features an Academy-Award winning cast including Patrick Dempsey, Russell Crowe, and Denzel Washington. It was directed by Martin Scorsese, Academy-Award winning producer of The Departed.

 

This film follows the rise to prominence of Hedgeye Risk Management from the company’s humble beginnings with a handful of employees on the outskirts of Yale University’s campus in New Haven, CT, to their central role in bringing transparency, accountability and trust to Wall Street from the firm’s brand-new global headquarters in Stamford, CT with over 50 employees.

 

This “David Versus Goliath” drama features Patrick Dempsey in the starring role of CEO Keith McCullough, who, along with his team of hockey playing vagabonds, battle a hodgepodge of conflicted behemoths in the merciless Wall Street trenches.

 

In one poignant scene, McCullough sits behind his computer during #TweetShow and calls out CNBC “Mad Money” host and TheStreet.com luminary Jim Cramer for his lack of accountability (#BuyBearStearns). A vicious Twitter war ensues which finally ends with Cramer capitulating, yelling various obscenities and “blocking” the entire team of Hedgeye analysts on Twitter. (Shortly thereafter, Cramer sells LINN Energy in his charitable trust.)

 

BREAKING: #TimeStamp Productions Announces Opening of Wall Street 2.0: The Story of Hedgeye - 557

(Image from Wall Street 2.0: The Story of Hedgeye)

 

In another scene, maverick Hedgeye Energy Analyst and “Forbes 30-Under-30” notable Kevin Kaiser (played by Justin Bieber) goes head-to-head with Houston-based energy leviathan Kinder Morgan and its billionaire Overlord/CEO Rich Kinder.  A board room shouting match ensues where Kaiser accuses Kinder of drastically under-spending on capital expenditures.  After numerous ad hominem rebuttals (including incessant reminders of Kaiser’s age, and the fact that his Kinder Morgan presentation uses two kinds of font) Kinder beats a hasty retreat as a pipeline explodes in midtown Manhattan.

 

The finale occurs as Hedgeye Asia Analyst Darius Dale (played by Denzel Washington) bursts onto the floor of high frequency trading firm Virtu with Michael Lewis (played by Michael Lewis). Dale demands to know how Virtu can possibly have a batting average of 99.2% (even higher than Hedgeye’s 80% batting average on Real-Time Alerts).  The scene ends when an FBI agent enters the trading room waving copies of Lewis’s most recent book, “Flash Boys”, and exclaims, “Shut her down boys, it’s rigged.”

 

Russell Crowe is receiving early Academy Award mention for his brilliant depiction of Hedgeye Director of Research Daryl Jones, a Zen-like presence throughout the film.

 

 ASSORTED REVIEWS


Two words for you: Dog sh*t.”

– Rich Kinder, Kinder Morgan Letter to Shareholders


THE FED KEITH MCCULLOUGH KNOWS NOTHING!”

–TheStreet.com, Jim Cramer


“One of the best movies of the year—a bolt of brilliance. Martin Scorsese may have just topped his Wolf of Wall Street masterpiece.”

– New Haven Register


 “I hate this movie. It failed from the opening scene. I give it an “F.” That said, I haven’t seen it yet. I don’t even plan to. I don’t know anything about it.”

– Linette Lopez, Business Insider


 “I know Kevin Kaiser. I interviewed Kevin Kaiser on Fox Business. Justin Timberlake? He’s no Kevin Kaiser.” 

Charlie Gasparino, New York Post

 

“Hedgeye the Movie is this generation’s Slapshot.  At once a cult classic, and a piercing reflection on our times.”

Yale Daily News


“Will Patrick Dempsey win Best Actor for his portrayal of Hedgeye CEO Keith McCullough? Take it to the bank. It doesn’t hurt that Dempsey’s hair looks absolutely gorgeous—almost as good the flow on Hedgeye’s no-nonsense CEO.”

Stamford Advocate

 

“Good enough movie. One question though: Why did they go with Patrick Dempsey to play McCullough? Ron Duguay makes a lot more sense. Have you seen Duguay’s flow lately? Plugs or not, that guy’s still got it.”

– Thunder Bay Chronice-Journal



EMERGING MARKETS LOVE JANET YELLEN

Takeaway: The recent convoluted, “data-dependent” guidance out of the FOMC has been and should continue to be a boon to EM asset prices.

Don’t look now, but the EM relief rally is happening. We’re not going to spend too much time on the “why” in this note, having already done that 2x last week and in a 72-slide presentation and conference call a little over 1M ago. Today, we’re content to merely call attention to the weather: it’s sunny outside in EM land.

 

EMERGING MARKETS LOVE JANET YELLEN - 1

NOTE: Please refer to the explanation at the conclusion of this note for color on how these signals are derived and how to incorporate them into your investment process. Email us if you have additional questions.

 

EMERGING MARKETS LOVE JANET YELLEN - EM Divergence Monitor

 

This concomitant breakout across EM capital and currency markets and across the capital and currency markets of commodity-producing nations is extremely newsworthy in the context of #GrowthSlowing and systemic risk accelerating in China in 1Q14. We’ve argued this ‘til we were blue in the face over the past 12-18M, but if you didn’t know that Chinese demand was NOT the primary factor in determining asset prices in these markets, now you know.

 

In reviewing the MAR 19 FOMC statement and Janet Yellen’s recent commentary around the FOMC’s intention to: A) become incrementally more data dependent; and B) keep interest rates well below what they consider appropriate, at every step of the way, for the foreseeable future, one has to come to the conclusion that the Fed is less hawkish on the margin – despite the fact that the board continues to actively and rhetorically support tapering.

 

We think the market, at least marginally, is starting to sniff out what we’ve been communicating ad nauseam throughout the YTD: both the Fed and the Street are likely to be surprised to the downside with respect to GDP growth and that catalyst is likely to cause the former entity to decelerate the pace of tightening and/or pursue a strategy of outright monetary easing at some point over the intermediate term. That measure can take on various forms – including dovish rate guidance and general ambiguity (vs. communicating a clear path of tightening) – which is exactly what we’ve seen in recent weeks.  

 

EMERGING MARKETS LOVE JANET YELLEN - 3

 

EMERGING MARKETS LOVE JANET YELLEN - 4

 

EMERGING MARKETS LOVE JANET YELLEN - UNITED STATES

 

It’s worth noting that the Bloomberg consensus 2014 real GDP forecast has come in -20bps since an early-MAR peak of +2.9%. We already expect 2014E to come in towards the low end of our forecast range, so once again consensus is playing catch up to our preexisting expectations for domestic economic growth – this time in the opposite direction (recall that we were the growth bulls in 2013).

 

EMERGING MARKETS LOVE JANET YELLEN - 6

 

At some point, we expect consensus to start playing catch up to our preexisting expectations for the slope of US monetary policy. Until a marginally dovish Fed (vs. expectations) is fully priced in, we reckon you can continue to go bargain hunting across the spectrum of bombed-out EM assets. That sure beats the heck out of buying the dip in a bubbly social media stock at these ridiculous valuations!

 

Cheers,

 

DD                                                                                                                                                                                                                                                  

 

Darius Dale

Associate: Macro Team

 

TACRM Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI):

TACRM™ is specifically designed to provide tactical security selection, general global macro market color and suggested dynamic asset allocation weightings. One of the ways it does this is by providing a standardized measure of momentum across various asset classes and systematically making sense of those signals.

 

This VAMDMI score is derived by calculating three independent z-scores of closing price data on a weekly basis and then calculating the arithmetic mean of this sample.

 

  • Short-term z-score: 1-3M sample
  • Intermediate-term z-score: 3-6M sample
  • Long-term z-score: 6-12M sample

 

Each independent sample size is determined dynamically by prevailing trends in global macro volatility. Specifically, if the BofA Global Financial Stress Index is making lower-lows on an intermediate-term basis, then each of the sample sizes are larger in duration; if the BofA Global Financial Stress Index is making higher-lows on an intermediate-term basis, then each of the sample sizes are smaller in duration.

 

The momentum signaling indicator chart we highlight above generates a signal(s) when a particular market(s) crosses a critical quantitative threshold after having been above/below that level for at least 3M:

 

EMERGING MARKETS LOVE JANET YELLEN - 7


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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