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THE MACAU METRO MONITOR

ZAIA TO GET THE AXE? destination-macau.com

LVS is considering cutting a show from the Venetian: Cirque du Soleil’s Zaia. “Well-placed sources” are cited in saying that a year-end closing in a possibility for the show.  DM believes that the move would amount to giving up too soon on a big audience that Zaia could begin to draw once the brand develops.  City of Dreams is preparing to launch its own show in the near future.

 

 

ANOTHER BUDGET AIRLINE LOOKS TO FLY INTO MELBOURNE smh.com.au

Viva Macau is looking to fly directly into Melbourne, should negotiations with the Victorian Government and Melbourne airport go smoothly.  The airline is also talking to other Australian cities about establishing direct flights from Macau in place of the proposed Macau-Melbourne flight.  Government officials in the State of Victoria are pushing for the Macau-Melbourne route to go ahead. The direct route would allow Crown to attract high rollers to its recently opened City of Dreams casino in Macau from Melbourne.




Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.30%
  • SHORT SIGNALS 78.51%

WORKING WITH WHAT'S AVAILABLE

Our model portfolio is limited to investments in the securities universe. This is by design, since the majority of investors in the US do not actively participate in the futures, physical commodity or spot currency markets and a founding principal of our firm was to make our work accessible and useful to investors of all types. As a result, we deploy our investment ideas in the non-security markets via ETF and ETN products, many of which have structural features that can be non-intuitive. We have recently received a number of inquiries regarding the products that we use to gain exposure to oil as a commodity.

 

The two most liquid products are the United States Oil Fund, and ETF that trades under the ticker USO, and the iPath Oil ETN, which trades with the symbol OIL.

 

USO, as an ETF, is a company that holds futures contracts on oil (primarily front month NYMEX and ICE contracts) as well as swaps and treasuries. The fund presents exposure to oil that can be traded like a stock inside a securities account. From a tax perspective, the fact that the company issues k-1 created tax complexities for some holders. OIL, on the other hand, is an Exchange Traded Note that provides a potentially simpler tax scenario for investors, but which also creates credit risk on investors since it is ultimately a debt security issued by a division of Barclays.

 

The chart below illustrates how significantly both products have underperformed the continuous front month contract for NYMEX Light Sweet Crude year-to-date  --the benchmark they were created to emulate.

 

WORKING WITH WHAT'S AVAILABLE - a1

 

This divergence is a result of a structural feature: While the continuous front month contract is calculated hypothetically, both USO and OIL must roll into successive contracts on a monthly basis to replicate the economic exposure. As a result, period of steep contango –such as the market experienced during the start of the year in the wake of collapsing prices, will have a negative impact on USO and OIL as they roll into newer, more expensive contracts.  In the charts below we illustrate the steep maturity curve which created a divergence in returns.

 

WORKING WITH WHAT'S AVAILABLE - a2

 

WORKING WITH WHAT'S AVAILABLE - a4

 

As the curve steepness moderated, the products began to trade with a close correlation again with an underperformance factor “baked in” going forward (unless of course the curve inverts, creating positive divergence for holders of USO and OIL).

 

We strive to provide actionable tactical ideas in our model portfolio and, as such, the liquidity of these products and near term correlation to front month futures makes them the best tools available. For subscribers who execute in non securities markets, either spot, futures or OTC swaps or for those who have a different investment duration than that of our model portfolio, these ETFs and ETNs may not be the best option.

 

 

Andrew Barber

Director

 


Bear Cubs

Headwinds Ahead for the Eurozone

 

As we have measured the health of the European patient this year, we’ve anchored our thesis on a critical catalyst: employment.  We’ve held that Eurozone unemployment would rise into year-end and next year and that would create a grave headwind for the improving fundamentals that we’ve seen across multiple metrics and contribute to economic divergence between individual countries over the intermediate term.

 

Today Eurostat reported the Eurozone jobless rate rose to 9.6% in August from 9.5% in the previous month. The upturn came as no surprise: we’ve forecast a sequential rise in joblessness across the region as the part-time jobs that buoyed employment over the last months for numerous countries expire into year-end. This rollover occurs as employers, who under government pressure and inducements, opted for part-time contracts rather than outright layoffs face the choice of calling workers back full-time or not. As we move out in duration we’d expect the total rate to tack on at least another 100 bps as we enter the new year, with significant national divergence.  

 

Certainly a rise in unemployment should grind into economic performance, however we’ve yet to see this make an impact across all fundamental measures.  Importantly, forward-looking European confidence rose in September to 82.8 (the highest level in 12 months) and the manufacturing Purchase Managers’ Index rose in the Eurozone to 49.3, with manufacturing improving for the three largest economies sequentially:  German and Italian manufacturing improved to 49.6 and 47.6 but held below the 50 level signaling contraction, while the index for French manufacturing shot up to 53.0 from 50.8 in August, holding its level in expansionary territory.

 

Importantly consumer spending should deteriorate alongside sentiment as unemployment rises.  Although a lagging indicator, retail sales released this week for Germany fell 1.5% in August sequentially, an inflection point from July’s +0.7% reading. Further, Eurozone retail sales as measured by Reuter’s PMI held below the 50 level in August, with sequential improvement for France and Italy and a decline in Germany to 47.9.  

 

Eurozone inflation has also been a main focal point for us. September’s initial CPI reading of -0.3% year-over-year released this week was surprising directionally (if confirmed); we expected an incremental rise off of the August -0.2% number, as energy prices on an annual compare move the dial into (mild) inflationary territory. While we may need to push forward our timing slightly, the data suggests that food prices also drove the number deflationary.  This of course is a net benefit for consumers, who’ve also realized purchasing power with a strong Euro versus the USD.

 

Returning to our thesis that all European economies were “not created equal”, inflation is running a variant levels across countries. Spain measured -1% in September Y/Y, [from -0.8% in August Y/Y] while Italy recorded +0.3% in Sept. Y/Y. We continue to hold that German inflation should be flat to moderately positive over the next two quarters [from an initial reading of -0.3% in September Y/Y], a set-up we like as the economy returns to growth.  

 

The take-away here is that countries that were levered up into last year’s crash (like Spain or Ireland) should see deeper deflationary numbers (Irish CPI at -2.4% in August Y/Y), which should extend recovery on the TAIL (3 years of less) and put the ECB in a precarious position when it considers raising rates. 

 

All of this has led us to become incrementally more bearish on Europe’s advanced economies, many of which are faced with rising government budget deficits that will force them (in some cases) to cut public spending and raise taxes, placing additional downward pressure on economic performance on the TAIL. The IMF today issued its updated projections on global growth and forecasts the Eurozone to grow a paltry +0.3% in 2010, while Central and Eastern Europe should grow 1.8% and Russia 1.5% next year. The release suggests commodity producing countries and the emerging economies should drive global growth, with Brazil and Mexico forecast to expand 3.5%; the Emerging market and developing economies 5.1%; China 9.0%; and Developing Asia 7.3%. 

 

We’re currently long Germany via EWG in our model portfolio.

 

Matthew Hedrick
Analyst

 

Bear Cubs - a1

 


GC: NEW CASINOS IN BC? NOT LIKELY

Earlier this week certain media outlets mentioned the possibility of a new destination casino in Surrey, British Columbia. We think this is highly unlikely.

 

On September 24th, the Surrey North Delta Leader published an article on three applicants proposing a destination casino in Surrey, BC.  Clearly a new casino in BC would not be positive for Great Canadian. However, shareholders can relax; the probability of Surrey getting a destination casino anytime in the intermediate future is highly unlikely.

 

One article mentions that the  town of Surrey has three pending applications for gaming facilities.  Two of the applications are for a destination casino, one of which proposed a C$100MM project with a 200-room hotel and 800-seat convention center. The third application is to spend C$25MM to upgrade an existing bingo hall.  Apparently, several of Surrey's council members have spoken out in favor of a destination casino.

 

Curiously, the article doesn't mention the BCLC (British Columbian Lottery Commission), the organization in charge of managing and operating all gaming in the province of British Columbia.  The article also omits the small issue of the  moratorium on new licenses in BC, which will pose a pretty tall obstacle for the two new applicants.  We suspect that this is why the BCLC was not cited in the article.

 

 


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