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Cartoon of the Day: Currency Wars

Cartoon of the Day: Currency Wars - currency wars

In the latest signal of central bank monetary mayhem, Switzerland has triggered unprecedented turmoil in the currency market.

 

"My long-term call has always been that the next crisis would be perpetuated by the central planners themselves," wrote Hedgeye CEO Keith McCullough earlier today. 


Daily Trading Ranges, Refreshed [Unlocked]

This is a complimentary look at Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers every weekday morning by CEO Keith McCullough. It was originally published January 15, 2015 at 07:48. Click here to learn more and subscribe.

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BULLISH TRENDS

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BEARISH TRENDS

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INITIAL CLAIMS | ONE STEP BACK FOR THE US AND TWO STEPS BACK FOR ENERGY STATES

Takeaway: Energy states continue to see their labor markets decoupling from the broader US trend.

Below is the detailed breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

EYEING THE ENERGY STATES:  The principal risk to the labor market's otherwise healthy disposition is the potential hit to energy-sector jobs from the collapse in energy prices. In an effort to stay vigilant and monitor the situation, we've been tracking weekly state-level filings for the eight energy-heavy US states relative the country as a whole. Those states include AK, LA, NM, ND, OK, TX, WV, WY and further details on them can be found here: Link

 

What we've observed is that energy state initial claims are diverging from the country as a whole since the fall in oil prices began in earnest in late September last year. The first chart below illustrates. The black line represents US initial jobless claims, while the blue line represents the eight energy-heavy states (indexed into a basket). These are NSA claims so we’re interested in the divergence between the two series. 

 

INITIAL CLAIMS | ONE STEP BACK FOR THE US AND TWO STEPS BACK FOR ENERGY STATES - Claims 18

 

INITIAL CLAIMS | ONE STEP BACK FOR THE US AND TWO STEPS BACK FOR ENERGY STATES - Claims states yoy

 

The Data

Prior to revision, initial jobless claims rose 22k to 316k from 294k WoW, as the prior week's number was revised up by 3k to 297k.

 

The headline (unrevised) number shows claims were higher by 19k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 6.75k WoW to 298k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -10.9% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -16.2%

 

INITIAL CLAIMS | ONE STEP BACK FOR THE US AND TWO STEPS BACK FOR ENERGY STATES - Claims 10

 

INITIAL CLAIMS | ONE STEP BACK FOR THE US AND TWO STEPS BACK FOR ENERGY STATES - Claims 2

 

INITIAL CLAIMS | ONE STEP BACK FOR THE US AND TWO STEPS BACK FOR ENERGY STATES - Claims 3

 

 

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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Macro Notebook 1/15: Swiss | Oil | Financials

 

Hedgeye Macro Analyst Christian Drake shares the top three things in Keith's macro notebook this morning.


Hedging the Storm in Energy

Hedgeye’s Macro and Energy teams will host a guest speaker call on Wednesday, January 21st at 1 p.m. EST to discuss current trends in and implications of the commodity hedging practices of US E&Ps, natural gas processors, and various industrial commodity consumers.

 

Hedging the Storm in Energy - E Marketing Image


The call will feature Wayne Penello and Andy Furman of Risked Revenue Energy Associates (“R^2”).  R^2 is an independent hedge advisor serving E&P companies, midstream service providers, and large consumers.  Wayne Penello is the President and Founder of R^2, and has 30 years of experience in commodity options trading, market-making, and asset management.  Andy Furman has 25 years of experience in energy trading and is an expert at valuing and trading options.

 

Topics for Discussion:

  • Overview of R^2’s services, clients, and proprietary risk management systems;
  • The mechanics of entering into a commodity hedge;
  • Assessment of current industry hedge positions;
  • R^2’s commodity price outlook for crude oil, natural gas, and NGLs;
  • Client psychology – what E&Ps are currently thinking and doing in the oil, gas, and NGL markets;
  • The challenge and opportunity in hedging NGLs;
  • And more…

About Risked Revenue Energy Associates:

R^2 is a consultant and market agent in the energy space serving upstream, midstream, and end users of energy-related commodities (including private equity interests).  R^2 brings over 150 years of experience including but not limited to market-making, trading, asset management, and industry expertise. The firm utilizes a patented risk management strategy to help implement and stress test a company’s hedge book, leverage, and cash flows, among a long list of other metrics under various scenarios. R^2 suggests the most relevant hedging strategies and negotiates/executes on behalf of their clients on a daily basis.

 

Wayne Penello is the President and Founder of R^2. He has 30 years of market-making, option trading and asset management experience in the energy industry. Mr. Penello began his career on the New York Mercantile Exchange, where he was a market maker and served as Ring Chairman of options trading. Subsequently, he held positions managing globally distributed energy assets for Vitol S.A., Vitol U.S.A., Tenneco Gas Marketing and Torch Energy. Mr. Penello was formerly a research scientist. He holds a Masters degree in Marine Sciences from Stony Brook University and an undergraduate degree in Marine Biology from Southampton College.

 

Andy Furman was co-founder and CEO of Atlantic Capital Consultants, an options market-making firm on the NYMEX from 1987 – 2001. After leaving the NYMEX trading floor in 2001, Mr. Furman traded for hedge funds. Most recently he held the position of Managing Director for Hudson Capital Group, LLC where as Manager and Trader for Energy Futures and Options he used spread arbitrage and option strategies to achieve consistent profitability. Mr. Furman holds a Bachelor of Science degree in Chemical Engineering from MIT.

 

Macro Team


LEISURE LETTER (01/15/2015)

TICKERS: CZR, SJM, H, RCL

EVENTS

  • Jan 15:   LA Dec Revs
  • Jan 29:  PENN 4Q CC
  • Feb 2: Cod Manila Grand Opening

COMPANY NEWS

The David Group –  there is chatter that the David Group, a top-10 junket with 3-5% of total VIP rolls in Macau, is closing its VIP rooms. David Group has 2 VIP rooms at Wynn Macau, 1 at Galaxy, 1 at Sands China, 2 at MGM China and 1 at SJM (via 3rd party casino).

 

The junket operator had already closed VIP rooms in the Venetian Macao and City of Dreams last year.

Article HERE

Takeaway:  Should be a drag on VIP and we will see more junkets close up shop. However, it's market dictated and not really an incremental negative.  

 

SJM – Sociedade de Turismo e Diversões de Macau SA (STDM) says it will look into complaints by employees of the Palacio Lisboa restaurant in the Lisboa Hotel that they are overworked and underpaid.

Article HERE

 

CZR has declared voluntary Chapter 11. 

  • CZR's plan, which has received support from more than 80% of first-lien noteholders, is intended to significantly reduce long-term debt and annual interest payments, while providing for significant recoveries for creditors and ensuring no interruption of operations across the company's network of properties.
  • To implement the balance sheet deleveraging, CEOC and certain of its U.S. subsidiaries have voluntarily filed for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois in Chicago. All Caesars Entertainment properties, including those owned by CEOC, are open for business and are continuing to operate in the ordinary course. All properties are continuing to host meetings and events and provide the facilities, amenities and experiences that guests expect.

 

 H – announced the sales of five select service hotels for a total gross sale price of ~$53m. The transactions closed in December 2014. As part of the sales, Hyatt entered into franchise agreements with the purchasers, with all hotels retaining their existing Hyatt Place branding. The purchasers intend to spend a total of approximately $6 million in additional capital expenditures at the hotels. 

Takeaway:  These worn-down upscale properties sold at a low average price per key of $84k. There are consistent with Hyatt's asset recycling strategy.

 

RCL – Azamara Club Cruises is planning one of the largest drydock upgrade programs since it has owned Azamara Quest and Azamara Journey.  While it's preliminary to share details, the vast majority of this 'significant' work will focus on passenger areas and accommodations, according to Azamara president and ceo Larry Pimentel, who called the projects 'an opportunity to ensure the ships stay in the up-market space. 'We're a destination-immersion product,' he added, 'but with this clientele it's incumbent to maintain the appropriate decor.'

 

Azamara Journey would begin its docking at the end of December and Azamara Quest in early January. Each project would stretch an estimated 3.5 to 4 weeks.

Article HERE

Takeaway:  Dry docks costs for Q1 are heading higher.

INDUSTRY NEWS

Higher labor costs – The opening of Studio City and of Galaxy Macau Phase II will require gaming labor to expand by 16,000 to 18,000 within this year, which represents an expansion of 28%-31%. As the currently unemployed population of Macau accounts for just 6,900, labor costs in the industry are expected to soar as operators fight to staff their new resorts.

 

However, and bearing in mind that Galaxy started a recruitment process to hire 8,000 workers this month, MPEL CEO Lawrence Ho admitted that he was “a bit worried” about how this could be achieved.

 

While immigration is the main key to solving the problem, there are two factors that will contribute to increasing labor costs for gaming operators: the competition of gaming operators for the most experienced and talented workers and the prohibition of hiring non-resident workers as croupiers. 

Article HERE

Takeaway:  Finding sufficient labor for the upcoming Cotai resorts are not new news but it is a risk that cannot be discounted this year. Despite negative revenue growth, there is little the concessionaires can do to offset wage inflation.  Volunteer, unpaid leaves of absences are one tool being employed.

 

Reno to NYC  Non-stop flights between Reno and New York City will be offered by JetBlue Airways starting on May 28. The route will make JetBlue the first carrier to offer daily nonstop service between New York City and Reno, which bills itself as the "Biggest Little City in the World."
Article HERE

 

Cyprus – According to Cyprus Commerce and Tourism Minister Yiorgos Lakkotrypis, 13 casino operators have expressed interest in running a casino.

Officials hope to pass casino legislation by end of January. There will be a competition process three weeks after the legislation is passed and to award the project to the successful bidder two months later.

 

Initial cost is projected at 500,000 euros (589,350 U.S. dollars) and the project includes at least 500 luxury rooms, at least 100 gaming tables and at least 1,000 gaming machines.

 

But the chosen operator can establish four other premises outside the casino with a maximum of 50 gaming machines each but no other casino gambling. The operation will be controlled by a 7-member Gaming and Casino Supervision Authority which will be tasked overseeing all casino activities and with making sure that it will be kept away from organized crime.

Article HERE

 Takeaway:  A small expansion opportunity for the Macau operators and slot suppliers. 

MACRO

Singapore macro

Home sales –  According to URA, developers sold 230 units of new homes in December, down 45.6% from the 423 units sold in November 2014. This was the lowest monthly sales figure since January 2009, when just 108 units were sold.   Property sales are typically slower towards the festive year-end period.  Home sales in Singapore have weakened considerably since the Government rolled out a series of cooling measures and loan curbs in recent years.

       Article HERE

 

Retail sales – Retail sales gained 6.5% YoY in November due to strong auto sales. Ex motor vehicles, retail sales fell 0.4% YoY and 0.9% MoM in November 2014.  However, Watches/Jewelry segment rose 4.2% MoM and 3.9% YoY.

Article HERE

Takeaway: Mixed macro signals for Singapore but the trend is tilting worse.

 

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. 


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