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MACAU WEEKLY ANALYSIS (JUNE 1-7)

CALL TO ACTION

Yes, this past week’s table revenues were awful. But that’s not the reason we like the Macau stocks on the short side. Following last week’s relief rally, which was totally predictable, valuations are full again and the most disconcerting issue – base mass trends are decidedly negative – is not well understood nor projected by the Street. Thus, even if GGR trends hold, the mix is unfavorable and Street estimated margins and EBITDA need to come down considerably for 2015 and especially 2016.

 

As we discussed in our Macau conference call/presentation on Friday, Sands China (LVS) looks most at risk:  it maintains the most exposure to base mass segment – biggest negative delta to current expectations and most targeted segment by upcoming Cotai supply – and LVS’s competitive positioning should outperform in good times and underperform in bad. It’s clear what environment Macau is in now.

 

Please see our detailed note:  

http://docs.hedgeye.com/HE_Macau_6.8.15.pdf


Rates, Gold and Emerging Markets

Client Talking Points

RATES

We got slammed staying long Treasuries last week as both the Global Yield move (German 10YR Yield doubled in 3 days) and the U.S. jobs report (NFP growth +2.21% year-over-year vs. its cycle peak of 2.34% year-over-year in FEB) and that puts the U.S. 10YR right @Hedgeye TREND resistance of 2.40% - if growth (global and local) wasn’t slowing, we’d reverse the call.

GOLD

No follow through this morning on either the U.S. rates or USD move (up) from Friday – that has Gold up +0.2% off a pretty good zone of $1150-1170 support (which is a higher-low vs. both the NOV and MAR Gold lows).  Fortunately we’re just getting bullish on Gold now and didn’t wear it the whole way (3 years) down. 

EMERGING MARKETS

Emerging everything (ex-China +2.2% Shanghai Composite to +22% in the last month!) didn’t like the #StrongDollar move on Friday either – stocks in Turkey are down -5.7% this morning and after dropping -3.2% last week, India’s BSE Sensex is down another -1% this morning; Emerging Market stocks get more interesting now into the Fed meeting (June 17th).

Asset Allocation

CASH 43% US EQUITIES 5%
INTL EQUITIES 10% COMMODITIES 12%
FIXED INCOME 28% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

Penn National Gaming is a true growth story in regional gaming, finally, ripe with catalysts, same store and new unit growth, and accelerating cash flow.  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. 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

The takeaway on Purchase Activity was mixed as demand declined -3.0% sequentially but accelerated from +13.1% to +13.9% on a year-over-year basis.  More broadly, and inclusive of the latest week, purchase demand in 2Q continues to reflect both sequential and year-over-year improvement with demand growth for the quarter currently tracking +13.6% QoQ and +12.8% YoY. No major callouts in the latest week as the larger trend towards ongoing improvement in purchase activity in 2Q remains intact. CLICK HERE to watch Housing Sector Head Josh Steiner give a brief update on our call on ITB.

TLT

Considering we are already well passed an above average length expansion, and moving into the second half of 2015 growth and inflation comps (i.e. the base effects) become very difficult, growth is likely to continue to slow. We put the likelihood of a rate hike in 2015 as highly unlikely and continue to expect rates to move to make a series of lower-highs through the balance the year (bullish for EDV, TLT, and VNQ. When forward looking growth expectations are downwardly revised and the Fed kicks the can on rate hike expectations, rates and the dollar move lower. Gold has historically performed well in an environment of falling rates and a declining U.S. dollar and we don’t expect anything different this time around. Supporting our view, both gold (GLD) and treasuries (TLT, EDV) remain BULLISH on an intermediate-term TREND duration (3-months or more).   

Three for the Road

TWEET OF THE DAY

NEW | Two-Hitter: Ben Axler Brings One Long Idea & One Short to Hedgeye TV  https://app.hedgeye.com/insights/44526-two-hitter-ben-axler-brings-one-long-idea-one-short-to-hedgeye-tv… via @sprucepointcap + @HedgeyeIndstrls

@Hedgeye

QUOTE OF THE DAY

Destiny is not a matter of chance, but of choice. Not something to wish for, but to attain.

William Jennings Bryan

STAT OF THE DAY

Ralph Lauren in 75 years old, he is the seventh oldest CEO in the S&P and has 81.5% of the voting power at RL.

 

 

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


The Macro Show Replay | June 8, 2015

 


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CHART OF THE DAY: US Non-Farm Payrolls Are In the #Process of Peaking

Editor's Note: The excerpt and chart below are from today's Morning Newsletter by CEO Keith McCullough. Click here for more information on how to subscribe.

*  *  *  *  *  *  *

CHART OF THE DAY: US Non-Farm Payrolls Are In the #Process of Peaking - z 06.08.15 chart

Click to enlarge

 

...As you can see in today’s Chart of The Day (it’s actually a rock solid table of historical labor cycle data), these are the facts about US labor metrics. I’d like you to zero in on the number of NFP months (+/-) vs. economic cycle peaks:

 

  1. DEC 1969 (economic cycle peak) = +4.9 months (# of months after DEC 69’ when NFP peaked)
  2. NOV 1973 =  +5.9 months
  3. JAN 1980 = +3.9 months
  4. JUL 1981 = +2.0 months
  5. JUL 1990 = +1.0 months
  6. MAR 2001 = +1.0 months
  7. DEC 2007 = +3.0 months

 

...unless it’s “different this time”, US non-farm payrolls are in the #process of peaking. And I’m not a big fan of capitulating at peaks.


Education of A Bond Bull

“Education is what happens after one has forgotten what one has learned in school.”

-Albert Einstein

 

After rates rise, we learn that consensus hasn’t learned a whole heck of a lot about cyclical investing. It’s too bad they don’t teach that in school.

 

I don’t know about you, but I got schooled last week. Both stocks and bonds were down. With German Bund Yields doubling in 3-days, then US yields rallying on  another “good” jobs report, bond yields ripped.

 

No, I’m not capitulating on the Slower-For-Longer (lower rates) cycle call this morning. If US growth was accelerating, I would. On jobs, #history students know that Non-Farm Payrolls rising is what happens AFTER the US economic cycle has already peaked.

Education of A Bond Bull - Jobs cartoon 06.05.2015

*Click here to watch The Macro Show at 8:30am ET with special guest, U.S. macro analyst Christian Drake.

 

Back to the Global Macro Grind

 

As you can see in today’s Chart of The Day (it’s actually a rock solid table of historical labor cycle data), these are the facts about US labor metrics. I’d like you to zero in on the number of NFP months (+/-) vs. economic cycle peaks:

 

  1. DEC 1969 (economic cycle peak) = +4.9 months (# of months after DEC 69’ when NFP peaked)
  2. NOV 1973 =  +5.9 months
  3. JAN 1980 = +3.9 months
  4. JUL 1981 = +2.0 months
  5. JUL 1990 = +1.0 months
  6. MAR 2001 = +1.0 months
  7. DEC 2007 = +3.0 months

 

Yeah, I know – the Fed and its Old Wall research departments are all over it, reminding you about that this morning. But, unless it’s “different this time”, US non-farm payrolls are in the #process of peaking. And I’m not a big fan of capitulating at peaks.

 

Zooming into this #LateCycle (2015), here’s what the rate-of-change in Total Non-Farm Payrolls (NFP) has looked for the last year:

 

  1. JUL 2014 = +2.01% year-over-year growth (y/y)
  2. OCT 2014 = 2.04% y/y
  3. NOV 2014 = 2.11% y/y
  4. ***FEB 2015 = 2.34% y/y
  5. APR 2015 = 2.18% y/y
  6. MAY 2015 = 2.21% y/y

 

And if you want to data mine, Total Private Payrolls (PP) peaked in rate-of-change terms in FEB 2015 as well = 2.71% (vs. 2.53% in Friday’s jobs report).

 

In other words:

 

A)     The US economic cycle (see recent GDP report for details and/or April/May economic data) already peaked

B)      The latest of #LateCycle indicators (employment) is in the process of peaking, as it always does

 

“So”, Janet, what do you say you raise rates into that?

 

You know, with the almighty Dow down for 3 straight weeks (-1.6% in the last month) – why not give it a try, just to see what happens? Not that you care about the stock market, or any other asset bubble that your boy Bernanke perpetuated… give it a whirl!

 

While this note contextualizes the latest GROWTH cycle component of the Fed’s decision on June 17th, here’s a friendly reminder on the other big economic factor that some say bond yields are rallying on – INFLATION:

 

  1. CRB Commodities Index was down another -0.3% last wk and is still in crash mode at -26.9% year-over-year
  2. Oil (WTI) remained in TAIL risk mode (TAIL resistance = $67.92/barrel) -2.3% last wk and -36.7% year-over-year

 

Not to be confused with the counter-TREND bounce off the January 2015 #deflation scare lows (when the Long Bond tested all-time highs), year-over-year inflation’s TREND remains as bearish as the rate of change in US growth is.

 

I’m thinking that if the Fed raises rates in this environment, equity volatility (VIX) is going to start looking like FX and Fixed Income volatility (venti!). Don’t forget that horse has already left the barn (VIX +21.7% year-over-year) too.

 

If I’m wrong on US Treasury Yields from here, the re-education of perma stock market bulls is officially back-to-school.

 

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

 

UST 10yr Yield 2.02-2.44% (bearish)

SPX 2079-2109 (neutral)
RUT 1 (neutral)
Nikkei 209 (bullish)
VIX 13.04-14.99 (bullish)
USD 95.01-98.05 (neutral)
EUR/USD 1.08-1.14 (bearish)
YEN 123.76-125.81 (bearish)
Oil (WTI) 56.77-61.30 (bullish)

Natural Gas 2.52-2.75 (bearish)

Gold 1170-1200 (bullish)
Copper 2.62-2.78 (bearish)

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Click to enlarge

Education of A Bond Bull - z 06.08.15 chart


June 8, 2015

June 8, 2015 - Slide1

 

BULLISH TRENDS

June 8, 2015 - Slide2

June 8, 2015 - Slide3

June 8, 2015 - Slide4

June 8, 2015 - Slide5

 

 

BEARISH TRENDS

June 8, 2015 - Slide6

June 8, 2015 - Slide7

June 8, 2015 - Slide8

June 8, 2015 - Slide9

June 8, 2015 - Slide10


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