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Is Record Year for M&A Activity a Bad Market Omen?

 

On today’s edition of The Macro Show, Senior Macro Analyst Darius Dale walks through year-to-date M&A activity. The 2015 numbers are already outpacing the two highest years on record: 2007 and 2000. Caution ahead?


McCullough: The Biggest of Motherload Risk

Takeaway: We stuck with the growth and inflation call and we didn’t back off.

Editor’s Note: The commentary below comes from remarks delivered on The Macro Show this past Monday by Hedgeye CEO Keith McCullough. Click here to learn more about how you can subscribe to The Macro Show.

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McCullough: The Biggest of Motherload Risk  - Deflation cartoon 02.24.2015

 

Don’t forget that only a month or so ago, people were talking about 2.75% on the 10-year bond yield in the US and saying the Fed was going to go ahead and raise rates just because “they should.”

 

Not so much.

 

We’re down to 2.25% this morning. And falling. Last week was a fantastic week to be long what we call Quad 4 deflation. Don’t forget that in the Quad 4 deflation, you can get rid of all the things that I outlined in the Early Look this morning—whether you’re long energy stocks, basis material stocks, industrial stocks… Industrials! God, down -6.5% YTD. The almighty Dow naval gazer, Dow Jones, down on the year. That’s a strange bedfellow to a bull market if you ask me.

 

McCullough: The Biggest of Motherload Risk  - Z 07.27.15 chart

 

If you look at what worked last week, it was actually utilities. It was the bond market positioning on the long end of the curve. REITS were okay on a relative basis.

 

So again, this is Quad 4. Classic Quad 4 behavior of markets pricing in deflation. It remains the biggest of mother-load risk out there.

 

Look at the 10-year bond yields, it’s not just in the US:

 

• Swiss Bond yields are all the way down to -9 BPS this morning – that is implicitly and explicitly imputing deflation.

• German Bund yields down sub-70 at .69.

 

These are very big moves in the bond market.

 

And so I ask all my friends that I had to answer to just a couple months ago:

 

Where are you now?

Come on out here!

Let’s have a debate!

 

We were standing on the front line. We didn’t go away. We stuck with the growth and inflation call and we didn’t back off. We were wrong for a couple months, but we did not back off no, no, no!

 

So here I am… Come on out, come on out. Buy side or sell side. I am ready for debate. 

 

Is growth and inflation slowing or accelerating? You know the answer to that question. That’s why you have an asset allocation that’s over indexed to the best way to express that:  long dated Treasury maturities.


RTA Live: July 29, 2015

Below is the replay for today's edition of RTA Live.

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%

LEISURE LETTER (07/29/2015) - IHG, HOT, UBER

TICKERS: IHG, HOT, UBER


 EVENTS   

 

July 28 8:30am: WYN 2Q CC ; PW: WYNDHAM

July 29 10:00am: HLT 2Q CC ; PW: 74328196

July 30 9:00am: HST 2Q CC

July 30 10:00am: MAR 2Q CC ; PW: 66506287

July 30 1:00pm: HOT 2Q CC ; PW: 69941686

July 30 8:30am: STAY 2Q CC (1877)

July 31 10:00am: RCL 2Q CC 

August 1

  • Wild Rose Jefferson opens
  • St Regis Macau opens

August 3: 8:00pm: CTRIP 2Q CC ; PW: 40828276

August 4: 11:00am: MGM 2Q CC ; PW: 0575269

August 4: 10:00am: NCLH 2Q CC Webcast Link Here

August 4: 5:00pm: AWAY 2Q CC

August 6: 8:30am: MPEL 2Q CC ; PW: MPEL

August 6: 8:30-1pm: RCL INVESTOR DAY (NYSE)

COMPANY NEWS      

IHG/HOT - via Twitter and other news outlets, merger talks between IHG and HOT continue. 

 

UBER - In London, Uber faces legal action over cab drivers' rights.  The GMB union (a British Trade Union) will challenge the company's claim that its workers are partners rather than employees. 

  • The union says Uber is breaching its duty on pay, holidays, and health and safety.  

  • The firm says making drivers employees would mean losing their flexibility, which makes the job appealing.

  • The GMB's Steve Garelick said: "Operators like Uber must understand that they have an ethical and social policy that matches society's expectations of fair and honest treatment."

  • In May, Transport for London reported the number of private hire vehicle licences had risen from 52,000 to 77,000 over the previous 12 months, and most of that increase down to new Uber drivers.

ARTICLE HERE

Takeaway: Not the first time UBER has encountered regulatory/union driven headwinds, but London is a crucial market for them.

INDUSTRY NEWS 

Macau Government Spending - Macau’s Chief Executive, Fernando Chui Sai On, has stressed that the city’s public finances “remain sound” despite the ongoing slump in casino GGR.  Mr Chui however confirmed that if Macau’s GGR tally for July comes in at around MOP18 billion ($2.25 billion), his government would introduce austerity measures to control spending, according to an official statement on Tuesday.  

 

ARTICLE HERE

Takeaway: We do not anticipate the government to use austerity measures.  

 

Macau Migrant Labor Force - Macau had 180,523 migrant workers at the end of last month, 16.2 per cent more than a year earlier, official data indicate.  The construction industry employed 48,692 of them, hotels and restaurants employed 45,680 and 22,555 were domestic servants.

ARTICLE HERE

Takeaway: A more detailed view of migrant labor in Macau versus yesterday's commentary. Construction hiring is good news for the casino operators. 

 

Nevada Gaming - Steep decline across the board for Nevada GGR. 

  • NV GGR (8.37%) YoY
  • Las Vegas Strip GGR (16.31%) YoY
  • Downtown Las Vegas GGR +2.25%
  • Boulder Strip GGR +6.28%
  • Balance of County GGR (1.15%)
  •  Breakdown of major segments on the Las Vegas Strip
    • Blackjack +0.27% YoY
    • Baccarat (57.00%) YoY
    • Total games (27.84%) YoY

 

Las Vegas Visitation - In June, there were 3.55 million visitors, +2.40% YoY.

  • Hotel Room Inventory - 149,071 rooms - (0.2%) YoY
  • Hotel Occupancy - 93% - +0.4% YoY   
  • ADR - $114.34 - (0.7%) YoY
  • RevPAR - 

Takeaway: Slots and Baccarat were particularly weak on the Strip. Combined with disappointing RevPAR we ask, where is the recovery? 

 

Pennsylvania Lottery - The Pennsylvania Lottery achieved a new sales record of $3.82 billion for the 2014-15 fiscal year and again generated more than $1.06 billion in net revenue.  Lottery sales in fiscal year 2014-15 surpassed the prior year's all-time sales record by $20.1 million, or 0.53%.  Instant games sales for the fiscal year totaled $2.59 billion, which was $146.7 million, or 6%, higher than the previous year. Instant games accounted 67.84 percent of fiscal year 2014-15 sales, up from 64.34% of total sales in the previous year.   

ARTICLE HERE

Takeaway: Lotteries remain white hot. 

MACRO 

Hedgeye Macro Team is incrementally bearish on U.S. consumption growth, based on the consumer's continued efforts to deleverage their household balance sheet combined with the peaking of consumer confidence and stagnating labor productivity.   

Takeaway:  For now, US regional gaming slowed in June but North American cruise pricing still doing well.


TWTR: Déjà Vu (2Q15)

Takeaway: Keeping this brief. TWTR’s conflicting growth drivers can’t appease the bulls, so TWTR remains a short until it grabs them by the horns.

KEY POINTS

  1. CAN’T MAKE ANYONE HAPPY: TWTR produced upside to estimates off its subdued 2Q15 guidance, with the high end of 3Q guidance edging above consensus.  But TWTR lost the crowd when it tempered MAU expectations during its call.  This remains a recurring theme given its conflicting growth drivers; any upside to revenues comes at the expense of MAU growth since its monetization strategy is driven off surging ad load, which has historically pushed its users away.  Since the streets demands upside on both, TWTR can’t make anyone happy (see note below). 
  2. ACCELERATION IN THE WRONG SPOT: Even as bears, we were very encouraged by TWTR’s new-found CPE tailwind on its 1Q15 print, which speaks volumes to advertiser demand (product mix and/or advertiser counts).  That reversed course in 2Q15, with CPE yielding in favor of a reacceleration in ad engagements, which we believe is synonymous with a spike in ad load (see note below).  Our bearish thesis has centered on this monetization strategy; there is only so much ad load its users are willing to absorb, especially since the bulk of its revenues comes from mobile.
  3. GRAB THE BULL BY THE HORNS: While we remain short, we were uneasy into the print since it all came down to how management addressed the street.  TWTR’s problem throughout its short public history has been that mgmt has been too scared to manage the lofty expectations that have crippled its stock to date.  While we are encouraged that TWTR didn't overextend itself on 2015 guidance, consensus 2016 advertising revenue estimates remain a stretch.  TWTR will need to rebase expectations again, so we remain short.  But if TWTR can get to the point where it doesn't make questionable near-term business decisions in attempts to appease shortsighted sell-side expectations (see point 2), then there could eventually be a long here.  

 

TWTR: Rock and a Hard Place (1Q15)

04/29/15 08:15 AM EDT

[click here]

 

TWTR: Déjà Vu (2Q15) - TWTR   Ad engage vs. MAU 2Q15

TWTR: Déjà Vu (2Q15) - TWTR   Ad eng vs. Price y y 2Q15

TWTR: Déjà Vu (2Q15) - TWTR   FC Ad Revenue 2Q15

 

Let us know if you have questions, or would like to discuss in more detail.

 

Hesham Shaaban, CFA

@HedgeyeInternet


Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at today's Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to begin your subscription.

Keith's Daily Trading Ranges [Unlocked]  - Slide1

BULLISH TRENDS

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BEARISH TRENDS

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Keith's Daily Trading Ranges [Unlocked]  - Slide13


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