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TODAY AT 1PM: MACAU MAY CONF CALL

Takeaway: Research Topic: Who has the most to lose in an increasingly imbalanced supply demand environment over the next two years?

We will host a conference call TODAY AT 1PM ET to discuss the latest Macau data, our outlook on the market and the stocks and the presentation of a new, original research topic.

 

 

RELEVANT TICKERS INCLUDE:

LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.

 

 

DISCUSSION POINTS

  • Details behind May GGR 
  • Discussion of base mass trends
  • The impact of Mass re-classifications
  • Revised 2015 monthly market projections
  • Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) 
  • Who has the most to lose in the increasingly imbalanced supply demand environment over the next two years? 

 

CALL DETAILS

Attendance on this call is limited. Ping  for more information.

 


Jobs Day, Buckle Up

Client Talking Points

YIELDS

What an epic week – the storytelling on why yields ripped higher is as fascinating as the move itself… we’ve gone from “oh, it’s because inflation and growth in Europe are back” to… “uh oh, this is a liquidity event” – those are 2 very different things; one much scarier than the other.

STOCKS

One competitor said something about “global growth and PMIs accelerating”, which is patently false (see our Early Look from yesterday with that data), but also look at 1-month stock market moves: Dow Transports -3.6%, Hang Seng -3.5%, KOSPI -4.6%, Poland -5.7% and Brazil -5.9% #GlobalSlowing

 

GOLD

We like it more than we have in maybe 3 years, and maybe that’s wrong right now, but heading into what we think will be a series of slowing #LateCycle U.S. jobs reports, we think U.S rates can move a lot lower from here; need to see Gold hold $1155-1175 zone.

Asset Allocation

CASH 46% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 12%
FIXED INCOME 28% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility. PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. Both properties should well exceed current Street estimates for win per slot and EBITDA. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.

ITB

Housing went 3 for 3 as the Trinity of Fundamental Data Points released in the latest week continued to reflect accelerating rates of improvement across both the New and Existing markets. New Home Sales in April rose +6.8% month-over-month to +517K.  More notably, sales were up a remarkable 26% on a year-over-year basis as NHS re-converged back to the trend in New Home construction. Pending Home Sales rose +3.4% sequentially in April, accelerating to +14% year-over-year with the Index making a new 101-month high.  Pending Home Sales represent signed contract activity and are a historically strong lead indicator of Existing Home Sales.  The MBA’s weekly Mortgage Purchase Application Index re-captured the 200-level, rising +1.2% week-over-week and accelerating +250bps sequentially to +13.1% year-over-year.  

TLT

We believe the U.S. economy is past peak in rate-of-change terms and sliding down the slope to an eventual cliff (i.e. recession). That’s our call and we’re sticking to it. Friday’s negative revision takes our full-year estimate for real GDP growth down to +2% (from +2.3% prior). Both the Fed and Street are up at +2.5%, both of which continue to careen down from perpetual expectations of rainbows-and-puppy dogs (i.e. 3-plus percent growth) earlier this year. We reiterate our call to be long of long-duration in its many forms:  TLT, VNQ, EDV, and GLD (gold has historically performed well in down-dollar and down-interest rate environments and we think the June 17th FOMC statement has a high probability of being dovish and dollar-bearish).

Three for the Road

TWEET OF THE DAY

This Is The Biggest Risk Facing U.S. Stocks Over The Next Decade https://app.hedgeye.com/insights/44498-steiner-this-is-the-single-biggest-risk-facing-u-s-stocks-over-the-n?type=video… via @HedgeyeFIG cc @KeithMcCullough

$SPY $SPX

@Hedgeye

QUOTE OF THE DAY

A leader has the vision and conviction that a dream can be achieved. He inspires the power and energy to get it done.

Ralph Lauren

STAT OF THE DAY

Amazon will now ship items that weigh 8 ounces or less to you for free.

 

The Macro Show - CLICK HERE to watch today's edition at 8:30am ET.


CHART OF THE DAY: Cowbell & Cannons! (German Bund Yields)

Editor's Note: The chart and excerpt below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here to begin subscribing and staying a step ahead of consensus. 

 

"...Unless it’s different this time, Volatility ↑ + Illiquidity ↑ doesn’t end well...

 

...Cannons, as in unadulterated and obliterating launches of money printings and bond buyings. Cowbell, as in “whatever it takes” when German Bund Yields (10yr) double, in 72 hours!..."

 

CHART OF THE DAY: Cowbell & Cannons! (German Bund Yields) - z 06.05.15 chart


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Cowbell & Cannons!

“To cannon, all men are equal.”

Napoleon Bonaparte

 

If the 2015 “call” on macro markets has been that bad news is good, what happens when bad news is bad? Yesterday was ugly, globally. Darius Dale did a good job outlining why from a global #GrowthSlowing perspective.

 

But what about from a “liquidity” perspective? It’s one thing for strategists to be telling you that European Yields are rising because “inflation is back.” It’s entirely another for others to say that’s happening because growth is too.

 

If both of those lines of reasoning are wrong, and the real reason is the beginning of a liquidity event coupled with #LateCycle growth slowing… to most portfolios, this is going to feel like cannons. Unless it’s different this time, Volatility ↑ + Illiquidity ↑ doesn’t end well.

 

Cowbell & Cannons! - z canon

***Click here to watch The Macro Show at 8:30am ET with Director of Research Daryl Jones.

 

Back to the Global Macro Grind

 

By characterizing European growth and #Deflation risks the way he did, I think un-elected-central-planning-overlord Draghi made his first huge mistake on Wednesday. He tried to talk down stock and bond market volatility, so both ripped!

 

I’ll say this until I’m dead (so bear with me in the meantime): in the long run, central planners cannot smooth economic gravity and/or control market volatility.

 

On that front, one of the biggest mistakes Bernanke made between 2006-2011 (too high on growth expectations; too low on volatility expectations) was the same one Draghi is making right now.

 

If I’m right on Slower-For-Longer (on growth), but wrong on Lower-For-Longer (on rates), that may very well mean we have finally reached the beginning of the end of bad-news-is-good.

 

Why?

 

A)     That would mean real-time growth forecasts and expectations are getting cut (like they are starting to now)

B)      And markets are starting to believe central planners have lost control of the short-term control mechanism for that

 

To be crystal clear on what that control mechanism is – it’s cowbell and cannons.

 

Cannons, as in unadulterated and obliterating launches of money printings and bond buyings. Cowbell, as in “whatever it takes” when German Bund Yields (10yr) double, in 72 hours!

 

In the absence of both, what do you get? (see your portfolio returns from yesterday for details)

 

While many of you have rightly risk managed markets since 2009 by understanding the basic mechanisms of bad news = more cowbell/cannon = good (for stocks), here’s the last month in Global Equities:

 

  1. Dow Transports -3.6% month-over-month
  2. Hang Seng -3.5% month-over-month
  3. South Korea’s KOSPI -4.6% month-over-month
  4. Poland’s stock market -5.7% month-over-month
  5. Brazil’s stock market -5.9% month-over-month
  6. Argentina’s stock market -8.8% month-over-month

 

Bull markets in Global Growth? Cherry picking? Not really. If this table of 6 channel checks isn’t in your “global growth is accelerating” note to clients, at least we agree to agree you’re obfuscating reality in order to appeal to the bullish proclivities of your base.

 

The best month-over-month performer in Global Equities is the Shanghai Composite Index at +16.9%. So, if you want to really make some perma bulls some money, you should just call it A) what it is and B) what it has been – Moarrr Cowbell!

 

At this point, the Chinese are coming out with it daily. That’s right Chinese margin broker. You go bro! That’s how you do this. We taught you how to do this. You get it. So pump it!

 

Japanese stocks keep working because the BOJ gets the joke too. In both Europe and the USA (where secular demographic slowing is as obvious), extending and pretending that “growth is back” is only going to turn the cannon on the Fed and ECB themselves.

 

Our immediate-term Global Macro Risk Ranges are now (with our intermediate-term TREND views in brackets):

 

UST 10yr Yield 2.02-2.39% (bearish)

SPX 2085-2111 (bullish)
RUT 1 (neutral)
Nikkei 209 (bullish)
VIX 13.51-15.75 (bullish)
USD 94.88-96.80 (neutral)
EUR/USD 1.07-1.14 (bearish)
YEN 123.66-125.62 (bearish)
Oil (WTI) 56.80-61.48 (bullish)

Natural Gas 2.53-2.69 (bearish)

Gold 1170-1205 (bullish)
Copper 2.65-2.79 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Cowbell & Cannons! - z 06.05.15 chart


It Gets Late Early

This note was originally published at 8am on May 22, 2015 for Hedgeye subscribers.

“It's tough to make predictions, especially about the future.”

-Yogi Berra

 

Yogi turned 90 last week.  Hedgeye will turn 7 in June.  From the mound to markets, deep simplicities and pithy aphorisms are still ageless. 

 

When Berra donned post-war pinstripes en route to 3 AL MVP’s, 18 All-Star appearances and 13 World Series championships, the U.S. was enjoying a productivity boon, the demographic tide was just beginning to come in, the middle class was ascendant, Buffett was still small enough to perform and the prospects of rising household leverage and modern central banking carried an air of secular opportunity. 

 

“The Future Ain’t What It Used to Be”

 

It Gets Late Early - Housing Signal

 

Back to the Global Macro Grind...

 

Hedgeye’s formal coverage of the Housing sector turned 1 last week and I’ve chronicled our evolving investment view of the sector recurrently in the Early Look over the last year. 

 

Our 2Q15 Housing Themes call, which we presented back on April 2nd, was titled “If it Ain’t Broke” … the allusion being that our reversal from bear to bull in late 2014 was working with Housing outperforming every other sector through 1Q15 and the fundamental strength looked set to continue. 

 

The core of the 2Q call could be sufficiently captured in the context of the following four factors:    

  • The Data:  The cocktail of easy comps, improving fundamentals, credit box expansion and rebound demand (i.e. deferred housing consumption due to weather) should conspire to drive accelerating rates of change in reported housing data in 2Q. 
  • The Dilemma:  Housing equity performance shows pronounced seasonality with 4Q/1Q being periods of marked outperformance and 2Q/3Q generally being periods of relative softness.  At the same time, the implementation of new TRID regulations on August 1st could emerge as a mild-to-large speedbump to reported activity.
  • The Distillation:  The convergence of performance seasonality and new regulation (TRID) – along with emergent issues such as the California drought and step function back-up in global bond yields - pose a collective risk to housing activity into the end of 2Q.  While we remain mindful of those quasi-latent risks, it’s likely accelerating rates of change in both demand and price dominate investor mindshare in the more immediate-term.  
  • The (tactical) Decision:  Let’s stay long accelerating improvement in the immediate-term and then look to lower exposure into the collective crescendo of concern as it builds into mid-late summer

To frame it another way:  If I told you housing would put up the best rate of change numbers in all of domestic macro – and, arguably, in all of global macro – would you want to be long or short that?

 

So, how has the data come in thus far in 2Q? 

  • Housing Starts:  New 7-year high in the latest month
  • Purchase Applications (existing market):  2Q15 Tracking +14% QoQ and +13% YoY, on pace for best quarter in two years. 
  • Pending Home Sales (existing market):  PHS are up an average of +11.8% year-over-year the last two months
  • New Home Sales (new market):  NHS are up an average of +22.5% year-over-year the last two months
  • HPI:  After a year of discrete deceleration in home price growth in 2014, 2nd derivative HPI has seen 3 consecutive months of acceleration through the latest March data. 

How have the stocks performed?

  • April (Rate Rise + Builder Margin Concerns):  Of the four categories we profiled in our 2Q themes call as being beneficiaries of Housing's ongoing improvement, only one, the Mortgage Insurers, beat the market in April.  The builders underperformed significantly and the Title Insurers and Home Improvement chains underperformed moderately.
  • May:  Housing got its mojo back in May, rebounding strongly over the last couples weeks alongside the moderation in rates and ongoing strength in reported price/volume data.

The somewhat confounding part is that even if I knew then, what I know now in terms of how the fundamental housing data would come in in 2Q, I would have made the same decision to lean long in April.   

 

What about Existing Home Sales yesterday, that missed right?

 

EHS in April were certainly underwhelming, missing estimates and declining -3.3% sequentially (although they were still +6.1% YoY).  Below is how we contextualized the data in our institutional note yesterday:

 

Here’s the primary issue at play:   Pending Home Sales and Existing Home Sales have shown recurrent bouts of divergence and re-convergence in recent quarters.   Definitionally, Pending Home Sales (PHS) represent signed contract activity while Existing Home Sales (EHS) represent actual closings.  The two measures are invariably tethered and, given the mechanical nature of the relationship, PHS serve as a strong leading indicator for EHS with the relationship strongest on ~1mo lag. 

 

There is some chop in the data from month-to-month but, absent some acute shock to the qualifying ratio, the two only diverge for so long and so much in magnitude before re-convergence between the two series occurs.  Practically, this can only occur in a few ways – one series can fully re-couple with the other on a lag, both see subsequent revisions in opposite directions and/or both series (for whatever reason) move in opposite directions with spread compression from both directions.  

 

As can be seen in the Chart of the Day  below, the recent tendency has been for EHS to re-converge with PHS.  Given the prevailing pattern, unless PHS in April (released 5/28, next Thursday) are very soft and/or March sees a significant negative revision, the path of least resistance is for upside in Existing Sales over the next couple months.  Further, the trend in the high frequency mortgage purchase application data, which is currently running +14% QoQ and +13.3% YoY, argues in favor of that expectation more so than not.   

 

Universality is the hallmark of acute observation.  Clever linguistics provide the effervescence and perdurability.   Ahead of the holiday weekend – and just because they’re good – I’ll leave you with a few of Berra’s best (annotated with associated investment applicability):

 

“It gets late early out there” (counter-cyclical investing… remember, the data always looks best before the crest)

 

Nobody goes there anymore because it’s too crowded” (consensus’s thinking about consensus’s positioning)

 

“You can observe a lot just by watching” (no annotation needed)

 

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.97-2.24% 

SPX 2110-2144 
RUT 1233-1267 
USD 92.92-96.17 
EUR/USD 1.10-1.15 
Oil (WTI) 56.98-61.64 

 

Have a great weekend!

 

***Click here to watch The Macro Show live at 8:30am.

 

It Gets Late Early - EHS vs PHS



The Macro Show Replay | June 5, 2015

 

 


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