Please note that we are removing PowerShares DB US Dollar Bullish ETF (UUP) for now from Investing Ideas on today's bounce.
In this brief Q&A excerpt from today’s Q2 quarterly macro themes call, Hedgeye CEO Keith McCullough explains his thinking behind a “Wait-and-Watch” approach for the Fed and why the central bank should not raise rates right now.
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Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Takeaway: March volumes a little worse than GGR indicates as market played lucky. Trends in grind Mass should be the focus on Q1 earnings calls.
The Macau stocks appear to be in a trading range with March coming in essentially in line with expectations. While we definitely picked up on some potential bright spots while in Macau, 2015 EBITDA estimates look high to us, particularly LVS which maintains more exposure to the grind Mass segment. While exposure there should prove beneficial over the long-term, we fear the Street is overestimating growth in that segment this year. Disappointing results in the highest margin segment will impact profits disproportionately. We believe this is the major driver of the disparity between the Street and us, despite similar GGR forecasts (-25%).
We will be hosting a call on Friday morning at 11am to discuss our Macau outlook and to provide an in-depth look into the Direct VIP segment.
Sands China (LVS)
Here are the relevant market shares:
Please note that these hold percentages are estimated for 2 reasons. First, total VIP revenues included direct VIP while Rolling Chip volume only includes junket volume. Thus, direct VIP volume needs to be estimated. Second, the revenues reclassified from premium mass to direct VIP need to be estimated and subtracted out of reported VIP revenues.
Our 2015 GGR forecast of -24% YoY change remains unchanged.
While a little less negative than we’ve been in a long time, this coming earnings season could shine a light on the deterioration of the high margin grind Mass segment. The Street still appears to be projecting decent growth in this segment in 2015, despite recent monthly declines. The weekly and monthly data do not break out grind Mass and premium Mass but table minimum bet levels and anecdotal evidence suggests a negative trend. Looking ahead, we’re encouraged by some recent trends in Direct VIP and some stability in the grind Mass segment, albeit at levels likely lower than Street expectations.