Hedgeye Macro Analyst Darius Dale shares the top three things in CEO Keith McCullough's macro notebook this morning.
Hedgeye Macro Analyst Darius Dale shares the top three things in CEO Keith McCullough's macro notebook this morning.
TICKERS: WYNN, IGT
WYNN - Institutional Shareholder Services, a leading proxy-advisory firm, recommended that shareholders protest governance issues by withholding support for the company’s nominees to the board as well as dissident nominee Elaine Wynn amid a contentious board battle.
WYNN - is promising a swift response to concerns from the MA's environmental secretary, who raised legal questions about the acquisition of MBTA-owned land critical to the casino's traffic plans. Wynn Everett President Robert DeSalvio says Secretary of Energy and Environmental Affairs Matthew Beaton found the gambling company's plan "suitable on substantially all of the 59 conditions" for the project identified by Beaton's predecessor. But Beaton said, "The requirement for the environmental approval will delay, but not derail, the project."
The Boston Herald reports that Beaton also said the state Department of Transportation, working with Wynn to upgrade to state-owned roads to the casino site, must integrate the plans with those of Boston, which has had a long-term federally financed $100 million fix for Sullivan Square and Rutherford Avenue that did not take into account casino trips.
Takeaway: Not surprsingly, a delay in the Everett project. Capex may be inched higher.
GTECH/IGT - announced that 17 of the 20 lenders under its senior revolving credit facilities have proportionally increased their aggregate commitments with respect to the U.S. Dollar revolving credit facility from $1,500M to $1,800M and their aggregate commitments with respect to the EURO revolving credit facility from €850M to €1,050M. To prepare for the transition, GTK has finalized its price paid for IGT: $14.3396 in cash and .1819 shares in the new IGT for every current IGT share.
Crystal Cruises - is offering savings for family travel during than a dozen of its luxury cruises in fall and winter, with free berths for kids and other group perks.
Easter/Ching Ming visitation - Travelers to or from Macau made over 1.28 million border crossings during the Easter and Ching Ming festival holidays from Friday to Sunday. Between Friday and 9pm yesterday, about 570,700 mainlanders and 191,800 Hong Kong people entered Macau, the police say.
The authorities at the Gongbei border post say about 330,000 travelers crossed the border there on Sunday alone, some 160,000 of them Macau people or Hong Kong people.
Takeaway: Border travelers was higher than last year's 1.25m. Tourists were also higher than last year's 412,630. Visitation growth, while slower, is not the problem.
F&B/Luxury -“Many friends and members have said that [in March] the food and beverage business dropped by 20% and the retail sales of luxury [items] also saw a cut of 40%. On the other hand, mass-oriented businesses remain unaffected for the moment. What we are seeing is, a general economic downturn,” said director of the Industry and Commerce Association of Macau, Ho King Lun, adding that rent-related expenses and other living costs in the city seem to be remaining intact in spite of the ongoing economic adjustment.
Takeaway: F&B/retail revenues should also be lower in Q1 2015.
Cambodia - Ros Phearun, deputy director of finance industry for the Ministry of Economy and Finance, said the ministry is close to finalizing the long-delayed draft bill, after which it will proceed to the Council of Ministers, with approval from the National Assembly not expected to take long after that. “We believe that when we have the law in place, we can increase our revenue by two times compared to our current revenue [of $25 million],” he said,
Son Chhay, deputy chairman of the National Assembly’s banking and finance commission, welcomed the draft law, but said the government should issue new gaming licenses only after the law was passed. He said that the law should be strict and reinforce the existing ban on locals gambling. He said once the bill passed the Council of Ministers, it should take the National Assembly no longer than three months to pass it. “I think it won’t take long because the government will try to push it as they need more money to fill up their recent increase of civil servants salary,” he added.
Cambodia currently has 59 licensed casinos as of last year, generating around $25 million, a rise of 15 from 2013. Phearun told the Post in March that three new casinos in Takeo province were awaiting their operating licenses and should be operational in time for Khmer New Year.
Takeaway: With Macau's slump, doubling gaming revenues in Cambodia is a feasible goal.
NY VLTs - The 2015 New York state budget approved the week of March 29 codifies state law with case law in a move to try to thwart potential legal challenges. By doing so, officials said they have opened the door to requests by racetrack gaming facilities to offer new kinds of video lottery games at their facilities, such as electronic three-card poker and blackjack.
Supporters of the measure believe it will give bettors an opportunity to incorporate some skill into their wagers. However, the new devices will still be considered VLTs.
The New York State Gaming Commission estimates about 500 new machines will go to New York's racetrack gaming facilities, of which about 175 will replace existing machines that don't offer the games. Resorts World will add the most new machines. The NYSGC will have to approve any requests to add to the number of existing VLT devices.
Takeaway: Positive for SGMS and a way to existing casinos to better compete with upcoming full-scale casinos in NY.
2014 Global lottery results - In 2014, global lottery sales grew 9.9% YoY. The growth in worldwide lottery sales was once again built on the foundations of strong performances from the Asia Pacific and Latin American regions, with both these locales having recorded unbroken double-digit growth in sales over the past six quarters. The robust performance of the Asia Pacific and Latin American markets was tempered, however, by the performance of the North American region, which saw sales tread water in 2014.
Takeaway: Worldwide lottery sales did well in 2014, although the mature North America market continues to lag, posting flattish results.
TN lottery - The Tennessee Education Lottery Corporation announced today that it had sold more than $10 billion in instant tickets since the Lottery’s inception, reaching that mark in March, or just over 11 years, a faster pace than all but one other U.S. lottery (Texas). Instant ticket sales for March of this year hit $115.8 million, the highest for any month since inception, eclipsing by one million dollars the previous record set in March 2014.
Iowa lottery - Iowa Lottery sales have been "spectacular," with gross sales totaling $217.5 million for the eight months between July and February, Lottery President Terry Rich said. That's 12.5% above the five-year average.
"Our latest monthly results for February show it was a really good month for both scratch and Powerball. March also should be an above-average month, based on current projections," Rich said.
Turks & Caicos - A $224 million Ritz-Carlton hotel planned for Turks and Caicos will include a casino. Construction is expected to begin in November and last three years.
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.
We will be hosting our highly-anticipated Quarterly Macro Themes conference call tomorrow Tuesday, April 7th at 11:00AM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.
Q2 2015 MACRO THEMES OVERVIEW:
#LateCycle USA: Employment, Inflation and Earnings follow an archetypic progression over the course of the economic cycle and always look best before the crest. We’ll detail where we are in the current cycle, the likely trajectory for this trinity of late-cycle macro indicators from here and how best to be positioned in the twilight of the current expansion.
#DemographicYields: Year after year in the post-crisis era, investors, economists and policy-makers alike have consistently seen their estimates for GDP growth, inflation and interest rates surprised to the downside. Perhaps there is some merit to the “secular stagnation” thesis most recently highlighted by Bernanke’s blog. In this theme, we pull back the curtains on the impact of demographics on the domestic and global economy. The conclusion? Lower-for-longer...
Oil’s #DeflationDeck: Taking a birds-eye view of oil prices throughout the peaks and troughs in business cycles provides essential context as deflation’s dominoes continue falling on a global scale. With the U.S. production machine changing the supply/demand dynamics in global energy markets, a deep-dive of this shift is key to generating sector-specific alpha into 2016 and beyond.
Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.
The Hedgeye Macro Team
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03/30/15 Monday Mashup
04/02/15 MCD: Still Lacking Direction
04/02/15 New Best Idea: Long ZOES
Tuesday, April 7
Thursday, April 9
Monday, March 30
Tuesday, March 31
Wednesday, April 1
Thursday, April 2
The XLY outperformed the SPX. Both casual dining and quick service stocks, in aggregate, underperformed the XLY.
From a quantitative setup, the XLY remains bullish on an intermediate-term TREND duration.
We were always 1 bad jobs report away from the Fed coming around to our lower-for-longer view on rates; 1.83% yield for the US 10YR this morning with an immediate-term risk range = 1.80-1.93%, and no intermediate-term support to the all-time closing (yield) lows.
The USD was down hard on Friday, especially vs. the Euro, as the short position in EUR/USD (futures/options contracts -225,776 net SHORT position) is massive; risk range now $1.07-1.10 and we think the rates move is much more important from an intermediate-term point of view.
Gold loves Down Dollar, Down Rates – it’s +1.2% to $1222/oz this am but signaling immediate-term overbought; Oil +3.5% on the same, but tapping the top-end of its current 46.48-51.06 WTI risk range too
|FIXED INCOME||30%||INTL CURRENCIES||10%|
Manitowoc (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. Recent nonresidential and nonbuilding construction data remains firm for 2015, which suggests that MTW’s crane sales should see a pickup in the first half of the year. The Architecture Billings Index (a survey of architects) typically leads nonresidential and residential construction spending by approximately 9-12 months. More importantly, the ABI Index leads MTW Crane Orders by 2 quarters.
iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007. We think the underlying reality is more sanguine with the preponderance of the weakness in the reported February data largely attributable to weather.
While labor supply constraints may serve as a drag to builder confidence, presumably it is rising demand trends that are driving tighter conditions in the resi employment market. All else equal, we’d view improving demand as a net positive. On the New Construction side, while the sharp drop in Housing Starts captured most of the headlines, we believe the real story was in the 3% gain in permits. We'd expect to see a big rebound in the next two months in housing starts as the data plays catch-up to the thaw.
Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.
“Yesterday is not ours to recover, but tomorrow is ours to win or lose.”
-Lyndon B. Johnson
Today in 1808, John Astor (America's 1st millionaire), incorporated the American Fur Company.
This note was originally published at 8am on March 23, 2015 for Hedgeye subscribers.
“One would hope that the Fed will be very cautious about tightening.”
That’s what Global Macro man, Ray Dalio, was hoping for in his Bridgewater’s Daily Observations note from March 11, 2015. He believes that it is “best for the Fed to err on the side of being later and more delicate than normal.”
While hope is not a risk management process, I was hoping for the same last week. And my fundamental research call for lower interest rates for longer (as the rate of change in both Global Growth and Inflation slow) remains intact.
At the same time, I am not hoping for a devalued US Dollar. US companies who are reporting international revenues and earnings are. The only reason why US GDP growth isn’t falling below 2% is because real US consumption growth loves #StrongDollar.
Back to the Global Macro Grind…
The problem, of course, is that when the Dollar is rising and Rates are falling (at the same time), you get #Deflationary forces in asset prices tied to inflation expectations. This is where Wall Street and Main Street are hoping for different things.
Last week, on the dovish Fed “news”, the US Dollar and Interest Rates dropped:
1. US Dollar Index (-2.4% for the week) had one of its biggest down weeks in the last 6 months
2. US Treasury Yields (10yr) dropped 18 basis points on the week to 1.93%
That was the very immediate-term move that Dalio and I were hoping for, as it took out the big bang risk of the Federal Reserve making a policy mistake at the end of multiple cycles.
On Down Dollar:
1. The Euro had one of its biggest up weeks in the last 6 months, +3.1% to -10.6% YTD
2. Gold had a big bounce (Gold loves Down Dollar, Down Rates) of +2.8% to 0.0% YTD
3. Commodities (CRB Index) finally stopped making new weekly lows, +1.6% at -6.9% YTD
4. Emerging Market Stocks (MSCI Index) bounced +3.2% to +1.4% YTD
5. Latin American Stocks (MSCI) had an even bigger bounce +5.4% to -9.6% YTD
Meanwhile, on Down Rates:
1. Biotech Stocks (IBB) ramped another +6.0% to +20.8% YTD
2. REITS (MSCI Index) ripped a +5.6% move to +6.8% YTD
3. NASDAQ tacked on another +3.2% to +6.1% YTD
4. Long Bond (TLT) had a great week, +3.8% to +4.6% YTD
5. SP500 had its 1st up week in the last 3, closing +2.7% putting it back in the black at +2.4% YTD
In other words, most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.
All the while, consensus was setup for a rate-hike. Here’s where futures and options net positioning (CFTC non-commercial positions) are:
1. SP500 (Index + Emini) net SHORT position rose to its highest of 2015 at -76,511 contracts
2. Long-term Treasuries (10yr) net SHORT position came off its YTD highs to -132,900 contracts
3. The Euro’s net SHORT position got pinned at YTD highs of -201,135 contracts
With the SP500, Long-term Treasuries, and Euros all straight up from within six minutes of the FOMC announcement, Consensus Macro getting squeezed provided for a cherry on top of what was an admittedly hoped-for reprieve in policy mistake expectations.
Hence my “buy everything” call on the news. But now what? Do you sell everything? I don’t think so – I’m definitely not selling Long-term bonds and/or anything that looks like a bond. Not if the market is expecting the Fed to deliver on “data dependence.”
While this week’s CPI data should get a small lift from Oil bouncing like it did in FEB, that #deflation data is going to look very dovish when it gets reported for MAR (in April). Friday’s final GDP report for Q414 will also look slower, sequentially.
Fortunately, our rate of change models are not built on hope.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 1.89-2.03%
Oil (WTI) 42.04-48.03
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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