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ICI Fund Flow Survey: Return to Normality

Editor's note: This complimentary research was originally published November 13, 2014 at 07:33 in Financials. For more information on our services click here.

After a two month slide, taxable bonds rebounded posting their first subscription in 8 weeks.

 

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

After an exciting month of October whereby over $36 billion alone spilled out from the taxable bond fund category, the latest ICI survey relayed some stability with a $5.0 billion inflow by investors, the first subscription since the week ending September 10th. A post-mortem of the beneficiaries of the October snap redemption shows that broadly bond ETFs hoovered up the most "money in motion," with several select Total Return Funds including the Metropolitan West Total Return Fund (a unit of TCW), BlackRock's flagship fund, and Jeff Gundlach's DoubleLine substantially improving assets-under-management in the month. Interestingly, but not a surprise to us, the Janus Uncontrained Bond Fund, had a very modest benefit and as a result we remain skeptical of the resulting market cap improvement of that company without the support of new assets-under-management (read our JNS research here).

 

ICI Fund Flow Survey: Return to Normality - ICI chart12

 

In other survey data, U.S. equity mutual funds put up another worrisome $1.7 billion redemption making it 25 of the past 28 weeks with outflows. We continue to recommend underweight or short positions to those managers with outsized U.S. equities exposure (read our research here). Passive fund flows via ETFs continue to be substantial with a year-to-date high of $17.7 billion into total equity ETFs last week and another inflow into bond ETFs, the 6th straight week of fixed income subscriptions. The blood letting continued specifically in the Materials Sector SPDR with another 19% of assets-under-management alone coming out of that product over the past 5 days. Conversely there has been strength in Utilities (XLU) and the 20+ Treasury ETF (TLT) products with respective inflows improving AUM by 7% and 8% during the week.

 

ICI Fund Flow Survey: Return to Normality - ici1

 

 

In the most recent 5 day period ending November 5th, total equity mutual funds put up net outflows with $302 million coming out of the category according to the Investment Company Institute. The composition of the outflow was squarely the result of domestic stock fund redemptions as a $1.7 billion loss more than nullified the $1.4 billion which came into international stock funds. The two equity categories have been polar opposites all year with international stock funds having had inflow in 43 of the past 44 weeks, versus domestic trends which have been very soft with inflow in just 15 weeks of the 44 weeks thus far year-to-date. The running year-to-date weekly average for all equity fund flow continues to decline and now settles at a $1.1 billion inflow, now well below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual funds napped their drawdown schedule of the past 5 weeks putting up inflows in both the taxable bond fund category and also in tax-free munis. Taxable fixed income netted a fresh $5.0 billion in investor money with municipal bond funds putting up a $399 million inflow, making it 42 of 44 weeks with positive subscriptions in tax-free bonds. The 2014 weekly average for fixed income mutual funds now stands at a $985 million weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 

 

ETF results were very strong during the week with substantial inflows in equity funds and decent subscriptions into passive fixed income products. Equity ETFs put up a 2014 year-to-date high subscription with a $17.7 billion inflow which made the $564 million inflow into passive bond products look very modest. The 2014 weekly averages are now a $2.1 billion weekly inflow for equity ETFs and a $1.1 billion weekly inflow for fixed income ETFs. 

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the running weekly year-to-date average for 2014 and the weekly quarter-to-date average for 4Q 2014:

 

ICI Fund Flow Survey: Return to Normality - ICI chart2

 

ICI Fund Flow Survey: Return to Normality - ICI chart3

 

ICI Fund Flow Survey: Return to Normality - ICI chart4

 

ICI Fund Flow Survey: Return to Normality - ICI chart5

 

ICI Fund Flow Survey: Return to Normality - ICI chart6

 

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI) and the running weekly year-to-date average for 2014 and the weekly quarter-to-date average for 4Q 2014. The third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey: Return to Normality - ICI chart7

 

ICI Fund Flow Survey: Return to Normality - ICI chart8

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In specific callouts, the blood letting continued in the Materials Sector SPDR with another 19% of assets-under-management alone coming out of that product over the past 5 days. Conversely, the Utilities (XLU) and 20+ Treasury ETF (TLT) had respective inflows of 7% and 8% during the week.

 

ICI Fund Flow Survey: Return to Normality - ICI chart9

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $11.4 billion spread for the week ($17.4 billion of total equity inflow versus the $6.0 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $2.9 billion (more positive money flow to equities), with a 52 week high of $17.7 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

 

ICI Fund Flow Survey: Return to Normality - ICI chart10

 

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey: Return to Normality - ICI chart11 

 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 


European Banking Monitor: Widening in Sovereign Swaps

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 

 

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European Financial CDS - Swaps mostly tightened in Europe last week

 

European Banking Monitor: Widening in Sovereign Swaps - chart1 euro financials CDS

 

Sovereign CDS – European Sovereign Swaps mostly widened over last week. German sovereign swaps widened by 1.3% (0 bps to 20 ) and Portuguese sovereign swaps widened by 25.2% (42 bps to 211).

 

European Banking Monitor: Widening in Sovereign Swaps - chart2 sovereign CDS

 

European Banking Monitor: Widening in Sovereign Swaps - chart3 sovereign CDS

 

European Banking Monitor: Widening in Sovereign Swaps - chart4 sovereign CDS

 

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 1 bps to 10 bps.

 

European Banking Monitor: Widening in Sovereign Swaps - chart5 euribor OIS spread

 

Matthew Hedrick 

Associate

 

Ben Ryan 

Analyst

 


Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    

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1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.

 

The SUGAR, SILVER, AND SOYBEANS markets experienced the most BULLISH relative positioning change in the CRB week-over-week

The ORANGE JUICE, GOLD, AND WHEAT markets experienced the most BEARISH relative positioning change in the CRB week-over-week

 

Commodities Weekly Sentiment Tracker - CFTC Sentiment

 

2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The CORN, NATURAL GAS, AND SUGAR markets are positioned for HIGHER PRICES near-term
  • The COCOA, HEATING OIL, AND RBOB GASOLINE markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - spot 2nd month basis

 

3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

 

  • The CORN, SUGAR, AND ORANGE JUICE markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, NATURAL GAS, AND LIVE CATTLE markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - spot 1yr basisvf

 

4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.

 

Commodities Weekly Sentiment Tracker - open interest         

 

 

Ben Ryan

Analyst

            


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MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS

Takeaway: Our Risk Monitor shows a roughly even mix of positives and negatives across all three durations in the Financial Sector currently.

Current Ideas:

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 19

 

Key Takeaway:

The XLF fell -0.9% last week, the first down week in a month as Financials have also rebounded sharply with the broader indices since their mid-October lows. The XLF is right in the middle of the pack from a year-to-date sector performance standpoint, up 9.7% in 2014, the 5th best performer of the 9 major sector SPDRs trailing the performance of Healthcare (+21.6%), Utilities (+18.5%), Technology (+16.3%), and Consumer Staples (+11.3%). Specifically in the sector from a risk standpoint, Genworth Financial CDS regained some ground, with swaps falling -14.4% week-over-week.  However, Genworth swaps are still up 105.3% month-over-month on news that a review of its claims reserves and goodwill would result in a combined charge of over 1 billion dollars pre-tax. Travelers was the biggest mover for the week with swaps rising 33.4% from 28 bps to 38 bps. The company's CEO announced a neuromuscular condition last week forcing insurance on that company's credit profile higher. High yield spreads continued to back up over the back 5 days, rising 7 bps to 5.99%. Commodities continued to slide, although at a slower pace with the CRB Index falling another -0.6% on the week.

 

Our heat map table below is increasingly more green with intermediate-term measures now mostly positive and short-term and long-term mostly a mixture of improvement and unchanged.

 

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 / 7 of 12 improved / 3 out of 12 worsened / 2 of 12 unchanged

 • Long-term(WoW): Positive / 2 of 12 improved / 1 out of 12 worsened / 9 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 15

 

1. U.S. Financial CDS -  Swaps tightened for 17 out of 27 domestic financial institutions.

 

Tightened the most WoW: GNW, MMC, AXP

Widened the most WoW: TRV, AON, ALL

Tightened the most WoW: MMC, CB, MBI

Widened the most MoM: GNW, TRV, AON

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 1

 

2. European Financial CDS - Swaps mostly tightened in Europe last week

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 2 2

 

3. Asian Financial CDS

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 17

 

4. Sovereign CDS – European Sovereign Swaps mostly widened over last week. German sovereign swaps widened by 1.3% (0 bps to 20 ) and Portuguese sovereign swaps widened by 25.2% (42 bps to 211).

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 18

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 3

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 6.7 bps last week, ending the week at 5.99% versus 5.92% the prior week.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 5 2

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 2.0 points last week, ending at 1880.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 6

 

7. TED Spread Monitor – The TED spread rose 1.4 basis points last week, ending the week at 22.4 bps this week versus last week’s print of 20.96 bps.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 7

 

8. CRB Commodity Price Index – The CRB index fell -0.6%, ending the week at 267 versus 268 the prior week. As compared with the prior month, commodity prices have decreased -2.2% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 8

 

9. 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 1 bps to 10 bps.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 10 basis points last week, ending the week at 2.473% versus last week’s print of 2.569%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 10

 

11. Chinese Steel – Steel prices in China fell 0.3% last week, or 9 yuan/ton, to 3047 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 12

 

12. 2-10 Spread – Last week the 2-10 spread widened to 181 bps, 1 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.1% upside to TRADE resistance and 1.9% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: MIDDLE OF THE PACK IN YTD PERFORMANCE FOR FINANCIALS - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Macro Notebook 11/17: Japan | Oil | UST 10YR

 

Hedgeye Director of Research Daryl Jones shares the top three things in Keith's macro notebook this morning.


LEISURE LETTER (11/17/2014)

Tickers:  CZR, WYNN, CCL, RCL

EVENTS

  • Nov 16-18: RCL's Quantum of the Seas investor event
  • Nov 17:  Carnival Corp announcement in afternoon (Source: Seatrade Insider)
  • Nov 18: BEL Investor Meeting Webcast
  • Nov 19: Sega Sammy Investor Meetings
  • Nov 23: Pacquiao-Algieri bout at Venetian Cotai Arena

COMPANY NEWS

CZR – Local residents/home owners oppose Caesars Entertainment request to expand the Strip’s Gaming Enterprise District to include a 38-acre parking lot behind The Linq.

http://www.reviewjournal.com/business/casinos-gaming/noise-traffic-events-rankle-residents-near-linq

 

1680.HK Macau Legend – The new hotel at Macau Fisherman’s Wharf is ready but not yet open to the public because it lacks an occupancy license. The hotel has no gaming facilities but is connected via skywalks to Babylon Casino. Macau Legend doesn’t have a Macau gaming license in its own right, but instead operates the Babylon Casino at Macau Fisherman’s Wharf and the Pharaoh’s Palace Casino at the nearby Landmark Macau hotel on Macau peninsula under a SJM Holdings Ltd license.

http://www.ggrasia.com/macau-legends-new-hotel-ready-but-lacks-govt-go-ahead/

Takeaway: Macau Legend the hotel is ready but no word on the opening of the casino.  Babylon Casino recently was awarded 35 additional gaming table which are expected to be premium mass focused.  The 35 tables are in addition to the 19 current tables and 120 slot machines that are registered as not currently in operation.

 

WYNN – Mr. Wynn supportive of the new development projects (Resorts World Las Vegas and Packer's project) on the Las Vegas Strip.

http://www.lasvegassun.com/blogs/kats-report/2014/nov/16/wynn-cheerleader-new-strip-projects/

Takeaway: While Mr. Wynn supports additional construction, we are concerned about increasing supply in a no growth Strip gaming environment.  

 

CCL – The 158 passengers and 14 crew members who became ill with vomiting and diarrhea from norovirus were aboard Carnival's Crown Princess, which sailed Oct. 18 from Hawaii across the south Pacific to Los Angeles. The ship had 3,009 passengers and 1,160 crew members. According to Carnival, the Crown Princess was thoroughly disinfected before disembarking Los Angeles for a seven day voyage to Puerto Vallarta, Mazatlan and Cab San Lucas before returning to Los Angeles on Saturday, November 22.   

http://mobile.bloomberg.com/news/2014-11-16/norovirus-sickens-172-on-princess-cruises-ship-cdc-says.html

Takeaway:  Usually only an issue when a few of these events are strung together. This incident shouldn't impact bookings or the stocks.

 

RCL – From a booking perspective, Quantum of the Seas is 'shaping up very nicely in China,' according to Royal Caribbean's international chief, SVP Dominic Paul. The reaction from about 200 Chinese travel agents and media aboard inaugural cruises from Bayonne, N.J.'s Cape Liberty in recent days has been encouraging.

 

The Chinese trade started base-loading sales a few months ago, and there has been a strong communication program in China. But now that they've had the opportunity to see it, Paul said the ship has "completely exceeded their expectations.'

 

Quantum will expand the spectrum of the customer base in China, Zinan Liu, regional VP and MD China for Royal Caribbean and chairman, CLIA North Asia, told Seatrade Insider on board the ship. Previously, younger customers might have viewed cruising as too traditional. In fact, it's turning out that the demographic in China skews younger for Royal Caribbean than elsewhere.

Liu said cruises achieve very high satisfaction levels among Chinese cruisers, and Chinese see cruising as an aspirational, lifestyle, experiential thing—like fine wine. They travel as multigenerational families and with groups of friends. And they love the 'Western-ness' of cruising—especially the younger generation.

 

http://www.seatrade-insider.com/news/news-headlines/quantum-has-blown-away-chinese-agents-media-on-inaugural-cruises.html

Takeaway:  The Chinese agents don't have many options to sell so they have to be enthusiastic. That said, the ship is remarkable, particularly if the Wi-Fi integration works well. We will have more commentary on aboard Quantum in the next few days.

INDUSTRY NEWS

Pansy Ho on Mainland China Corruption Crackdown – Pansy Ho speaking at the Global Cafe business forum claimed there was no direct correlation between the slowdown in Macau and the Chinese government’s crackdown on corruption.

http://www.theaustralian.com.au/business/news/gambling-slowdown-good-for-macau-pansy-ho/story-e6frg122002419

Takeaway: Huh? If that's the case then this downturn in Macau VIP is even more troublesome. Suffice it to say, we don't agree with Pansy.   

 

Chinese Consumer Demand for Gold Drops – According to the New-York based Council, the purchase of gold by the China markets had shrunk by 37% year-on-year to 182.7 metric tons in the third quarter to September, following a slump in demand. The World Gold Council said it expected Chinese demand to be 850-950 tons this year, down from its previous estimate of 900-1,000 tons. Early in the year, the London-based group had said Chinese appetite could even reach 1,100 tons.

http://macaubusinessdaily.com/Business/Demand-gold-falls-foul-Chinese-anti-graft-storm

Takeaway: Evidence and commentary of a decline in Chinese gold consumption/purchases (jewelry and coins/bars) was discussed on several HK jewelery store calls during Q2 earnings.

 

Zhuhai International Convention & Exhibition Center – hosted a media tour over the weekend and according to Doris Wan, the Center's public relations executive, the fact that the Zhuhai center is in close proximity to Macau and has strengthened Zhuhai’s competitiveness in terms of hosting meeting, incentive, conference and exhibition (MICE) events, Doris Wan still believes that the two cities are not in competition, but in a complementary relationship, in which both parties will be able to supplement each other. “After all, Macau is limited in terms of the venues and human resources [for MICE],” she said.

http://macaudailytimes.com.mo/new-zhuhai-exhibition-centre-complements-macau.html

Takeaway: We called out the opening of the Zhuhai Center on November 11 in our Leisure Letter and noted how mainland Chinese attending MICE events in Zhuhai would not need a Macau visa.  We doubt this commentary will rest peacefully with the folks at Sand China Limited and the Venetian Macau.

 

Singapore Condo Sales Rise in October – According to data from the Urban Redevelopment Authority, home buyers bought 765 private condo units during October, an 18% increase over September's 648 units. The result came on the heels of a dismal quarter of sales for the three months to Sept 30, during which developers shifted just 1,596 condo units - the lowest quarterly figure since just 419 units were sold in the fourth quarter of 2008.

http://www.straitstimes.com/news/business/property/story/new-condo-sales-jump-18-oct-driven-buying-city-centre-ura-20141117

Takeaway: A strong uptrend in condo sales during October - could this be the start of an upturn in consumer confidence in Singapore?

 

Trump Taj Mahal Casino Atlantic City Closing –  Attorneys for Trump Entertainment Resorts said in papers filed in federal bankruptcy court that because the owners of the casino "had not obtained the tax relief and incentives" they had sought, the company's board of directors approved closing it around Dec. 12.   

http://www.businessinsider.com/r-atlantic-city-taj-mahal-casino-set-to-close-within-four-weeks-2014-11

Takeaway: We're skeptical the Taj will go dark but if it does, that's more good news for Borgata and Caesar's.  

 

Spain – Alfredo Serrano, CLIA's director general for Spain, described a ‘good pace’ in 2015 bookings. He noted that Spain retains its second rank as a European cruise destination, and as the fifth largest source market, despite the country's ongoing economic difficulties.

 

Adam Sharp, RCCL's Port Services and Guest Port Services for the UK, Northern Europe and Middle East, said that publicity surrounding September's short cruise season in Spain by Oasis of the Seas had produced an unprecedented spike in enquiries and bookings for the Allure of the Seas’ 2015 Mediterranean program.

 

MSC Cruises ceo Gianni Onorato pointed out in a separate press briefing that his company is increasing its offer in the Spanish market by 66% for 2015, to 6,115 cabins per week aboard four vessels, clearly reflecting confidence in this market. Two ships will sail from Barcelona and one each from Valencia and Palma. He cautioned, however, that Spain still lags behind Italy and France as source markets for fall and winter cruising. 

 

http://www.seatrade-insider.com/news/news-headlines/cruise-industry-execs-report-spanish-market-has-stabilised.html 

Takeaway: Optimism on Spain ahead of summer 2015 Wave but FQ4/FQ1 2015 sailings will be challenging.

 

Virgin Cruises – Bain Capital has agreed to become a major shareholder in Virgin Cruises, the latest in a string of transport ventures set up by Sir Richard. Virgin Group will invest more than US$100 million (£63m) in shares in Virgin Cruises, using funds recycled from the proceeds of the two recent flotations (Virgin Money and Virgin America). Bain will also not be the only external shareholder, with at least one Middle East sovereign wealth fund and a number of family offices and high net worth individuals also believed to be participating, according to private equity sources.

http://news.sky.com/story/1374512/branson-lures-bain-to-virgin-cruises-venture

Takeaway:  Potential new competition for the cruise industry longer term

MACRO

Japan Economic (Recession) Indicators:

Q3 preliminary GDP (0.4%) q/q vs consensus +0.5% and revised (1.9%) in Q2

Annualized (1.6%) y/y vs consensus +2.2% and revised (7.3%) in Q2
Capex (0.2%) q/q vs consensus +0.6% and (5.1%) in Q2
Public investment +2.2% q/q vs (0.5%) in Q2
Consumption +0.4% q/q vs consensus +0.9% and (5.0%) in Q2
Housing investment (6.7%) q/q vs consensus (6.2%)
Deflator +2.1% y/y vs +2.0% in Q2

 

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 2014 earnings release, we recently turned negative on those stocks based on the negative European thesis. 

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.


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