Takeaway: Mortgage purchase applications decline for the third week in a row and now point to a sharp and widening divergence vs pending home sales.
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.
Today's Focus: MBA Mortgage Applications
The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended June 27.
We wrote on Monday that the strong Pending Home Sales number for May seemed at odds with the weak June mortgage applications data. We acknowledged, however, that there was still one week left in June that, if very strong, could explain away the difference.
This morning we got that number and it was quite weak. As such, we continue to expect the June Pending Home Sales number to be weak sequentially and likely to be accompanied by a downward revision to the May number. We illustrate the growing divergence between the two series in the first chart below.
Here's a summary look at the data:
* Composite Index: -0.2% sequentially and lower for a 3rd straight week
* Purchase Apps: Down -0.7% sequentially and also down for a 3rd straight week. Ends June -15.9% YoY and +3.0% on a QoQ basis
* Refi: Up +0.10% WoW with the YoY improving to -48.5% from -56.5% prior.
* 30Y Rates: The rate on the 30Y FRM contract returned to the lowest levels YTD at 4.28%, down from 4.33% the prior week. Rates have now been negative on a YoY basis for 2 consecutive weeks and, on a monthly average basis, June marked the lowest cost of conventional home financing since April of last year.
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.
The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.
Joshua Steiner, CFA
Christian B. Drake
This note was originally published July 02, 2014 at 07:42 in Daily Trading Ranges
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Tickers: CZR, LVS, PENN, BEE, HOT, HST, CCL, NCLH
GTech Spa – said it would undertake a share repurchase programme to fulfil management stock incentive plans. The company’s board approved the buyback of up to 1,782,426 of its own shares. Based on Monday’s closing price of EUR17.85, GTech would pay about EUR$31.8 million (US$43.6 million) for approximately 1 percent of its share capital.
Takeaway: Approved a previously announced buyback
CZR – announced that it would invest $223 million toward revamping the 2,256-room Quad Resort & Casino and rebrand it as the Linq Hotel & Casino. Reservations under the new name are on sale and the transition to the Linq brand is scheduled for completion on Oct. 30. The company is introducing the revamped property with $89-a-night room rates.
Takeaway: CZR trying to keep pace its competitors and room renovations and the resulting lift in ADR to $89/night.
LVS – COO John Caparella sold 22,840 shares on Friday, June 27th at an average price of $76.24 and now owns 15,680 shares.
Takeaway: Interesting sale as we don't often see insiders selling at this company.
PENN – Hollywood Gaming at Mahoning Valley Race Course took delivery Monday of the first of what will be a total of 850 video lottery terminals. Approximately 24 VLTs from manufacturer Multimedia Games arrived at the Austintown site. Additional shipments are scheduled over the next several weeks from leading manufacturers including Bally Technologies, Konami Gaming, Aristocrat and WMS.
Takeaway: Opening with 850 VLTs
BEE – announced it closed a $120.0 million limited recourse loan secured by the Four Seasons Washington, D.C. hotel. The loan bears interest at a floating rate of LIBOR plus 225 basis points and has a three-year initial term with two, one-year extension options available to the Company The financing replaces the $130.0 million financing previously encumbering the property.
Takeaway: As expected and a slight savings on interest expense.
HOT – in Dubai, Starwood Hotels & Resorts has officially taken over a two-tower property which previously housed the 260-room Kempinski Grand and 200-room Ixir Hotel, reflagging the towers under the Le Meridien and Westin brands respectively as of July 1 under an agreement signed in April.
Takeaway: Continuing to build the brand network via international conversions.
HST – announced it amended and extended its existing $1 billion revolver scheduled to mature in 2015 and its $500 million term loan scheduled to mature in 2017. The amended facility will extend the final maturity for both the revolver and term loan to 2019 (including extensions) and reduce pricing to reflect current market conditions. At the new pricing level based on our present credit rating, the all-in pricing was reduced 30 basis points on the revolver and 32.5 basis points on the term loan. Therefore, U.S. dollar denominated borrowings today would result in an initial all-in rate of 1.35% and 1.28%, respectively. Today, approx. $220 million is outstanding under the revolver and $500 million under the term loan.
Takeaway: Reshaping the corporate credit facility...could a large acquisition be in the near future?
CCL – Carnival offers agents triple point booking opportunity through July 31 (Travel Agent Central)
In celebration of the launch of Carnival Freedom's new schedule from Galveston, TX kicking off in February 2015, Carnival is offering travel agents a special triple point booking opportunity in its Travel Agent Rewards Program. Beginning today through July 31, travel agents may earn 450 points (compared to the standard 150 points for new online bookings) through 2016 for all “Fun Ship” departures from Texas.
Takeaway: Galveston has been a trouble spot for CCL for bookings and pricing in 2014.
NCLH – Norwegian Gem schedule tweaked to avoid strengthening storm Arthur (Seatrade Insider)
Norwegian Gem is calling at Nassau on Tuesday instead of at Great Stirrup Cay as planned. Gem is due to depart at midnight and begin its return to New York City to stay ahead of the storm in more pleasant weather. Arthur is expected to be a hurricane by Thursday.
Imported workers make up nearly 40% of workforce (Macau News)
According to the Human Resources Office (GRH), Macau’s number of imported workers (commonly known as blue-card holders) reached a record 159,299 at the end of May, 33,699 more than a year earlier. Month-on-month, the number of non-resident workers rose by 3,091
Takeaway: Labor issues will be in the spotlight as we get closer to the new Cotai openings.
Saipan Gaming Expansion – Imperial Pacific International Holdings Ltd, a Macau junket investor, disclosed via a HKSE filing it would distribute cash vouchers totaling US$10 million among all locally born adults in the U.S. Pacific territory of the Commonwealth of the Northern Mariana Islands if the company were to win a casino license. Based on 2010 United States Census Bureau data, 53,833 people lived in Northern Mariana Islands and 74% (39,836) are estimated to be aged 15 or over.
Takeaway: This distribution won't make locals "rich" as the distribution represents about $250/person over age 15.
South Korean Gaming Dispute – (Chosun Ilbo) Four Chinese tourists staged a protest at Jeju airport in May after a casino on the island refused to pay them baccarat winnings of KRW1.1 billion (US$1.09 million) because of suspicions that they cheated. The four individuals were customers at a casino hotel in the tourist resort of Seogwipo and racked up the ‘winnings’ in little more than two hours of play at the baccarat tables. But management at the casino – a venue not named by the police – suspected the Chinese tourists had colluded with casino staff, possibly by asking a dealer to use sleight of hand to swap cards coming out of the card shoe with ones hidden on the dealer’s person. The incident, which allegedly occurred in May but has only just been reported, is now the subject of litigation between the players and the casino.
Takeaway: Interesting controversy as well as timing given Gentings recent announcement to delay the Jeju groundbreaking.
South Korea Replacing Macau – (Xinhua) Chinese tourists no long need to bring a large amount of US dollars when traveling in South Korea, as they can choose to use China UnionPay, or even renminbi in cash in some stores. China is the first source of tourists for South Korea. From January to May this year, Chinese tourists exceeded 2 million. South Korean banks have also witnessed a large amount of renminbi deposits since the second half of last year, with the total volume reaching US$11.3 billion at the end of May. South Korea expressed its intent in April to build up renminbi offshore trading markets.
Takeaway: Some Chinese VIP gamblers could be going to South Korea rather than Macau...
Massachusetts Gaming Support – (WBUR) a new WBUR poll indicated 56% of respondents approve of locating casinos in Massachusetts, while 38% disapprove and 6% don’t know, or refused to answer.
Takeaway: So far, the pro-casino side has the lead.
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.
Client Talking Points
$1.71 vs USD this morning (signaling immediate-term TRADE overbought within a bullish TREND) after another excellent economic data point (UK Construction PMI 62.6 for June vs 60.0 in May), which is unlike the U.S. data (which isn’t showing much as the USD declined in June). #StrongPound is winning.
UST 10YR yield of 2.55% didn’t particularly care for the SPX short squeeze (in fact, day over day, it hasn’t moved) = in line with the sequential slowing in both the June PMI and another bad U.S. Home Price report (June Core Logic Home Prices down to +7.7%year-over-yeary vs +10% in April); buy bonds.
We sent out the cover signal on June 12th and the sell signal again yesterday at 1208; that’s my line, for now (it’s the all-time closing high from March 4th); from a style factor perspective, much prefer being long inflation and slow-growth #YieldChasing to US domestic consumption growth.
|FIXED INCOME||26%||INTL CURRENCIES||15%|
Top Long Ideas
Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration. The first survey tool measures 3-D Mammography placements every month. Recently we have detected acceleration in month over month placements. When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner. With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.
Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.
Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.
Three for the Road
TWEET OF THE DAY
Update to maternity model pointing to acceleration. $MD $HCA
QUOTE OF THE DAY
"Concentration is the secret of strengths in politics, in war, in trade, in short in all management of human affairs."
- Ralph Waldo Emerson
STAT OF THE DAY
19, the age of Australia’s Nick Kyrgios who was victorious against Rafael Nadal yesterday in the fourth round of Wimbledon. Kyrgios became the first player in 22 years ranked outside the top 100 to beat the number one player in the world.
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