Purchase Apps | Sequentials & Swing-factors

Takeaway: MBA Purchase activity picked up +3% in the latest week, but remains down (slightly) on a 3QTD/2Q basis.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


Purchase Apps | Sequentials & Swing-factors - Compendium 080515


Today’s Focus:  MBA Mortgage Applications

July Closes Strong: A mini grand finale for July Purchase demand with applications rising +3.3% WoW to close out the month.  On a year-over-year basis growth accelerated to +22.9% against still easy comps, marking the fastest rate of growth YTD.  On a quarter-over-quarter basis, growth in 3Q is currently tracking down -0.7%.   


A Tale of Two RoC's: So, the rate-of-change setup is showing an interesting, marginal shift.  Both sequential and year-over-year acceleration in purchase activity characterized the first half of the year, but now, with the data cresting on an absolute basis, sequential growth in 3Q is tracking negative while year-over-year growth is accelerating against trough 4Q comps.  


Notably, growth comps for Purchase Applications (which are used as a ST direction barometer for Pending Home Sales) are showing convergence to zero about 3 months behind PHS with comps in pending home sales steepening in 3Q (relative to 4Q for Purchase Apps).  In thinking about the comps dynamic we’d put greater emphasis on the setup for PHS.


Swing-Factor:  Rates – whose capricious oscillations between breakout and breakdown remain the largest short-term swing factor to price performance and lead marginal (upside & downside) risk to fundamentals - retreated another -4 bps WoW to 4.13%. 


Rates are now down -13 bps off the highs of late June and while mortgage rates in 3Q remain elevated relative to 2Q15 and 1H15, financing costs remain a ~4% tailwind to affordability relative to 2014 at current levels (see Affordability table below) 




Purchase Apps | Sequentials & Swing-factors - Purchase index   YoY Qtrly 


Purchase Apps | Sequentials & Swing-factors - Purchase YoY 


Purchase Apps | Sequentials & Swing-factors - Purchase 2013v14v15 


Purchase Apps | Sequentials & Swing-factors - 30Y FRM 


Purchase Apps | Sequentials & Swing-factors - Affordability Table 


Purchase Apps | Sequentials & Swing-factors - Purchase   Refi YoY 


Purchase Apps | Sequentials & Swing-factors - Purchase LT



About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake


LEISURE LETTER (08/5/2015) - MGM, G13.SI, MPEL, IKGH, 1159.HK, 27.HK, 582.HK, CCL, RCL

TICKERS: MGM, G13.SI, MPEL, 1159.HK, 27.HK, 582.HK, CCL, RCL




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

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

August 7: 11:00am: Hedgeye Macau Call 

August 11: 4:30pm: STN 2Q CC

August 12: 7:00am: 880.HK 2Q CC 

August 13: 6:00am: G13.SI 2Q CC

August 19: 7:00am: 27.HK 2Q CC 


G13.SI - Genting Singapore has warned investors that it expects to report “a significant decline in net profits after tax” for the quarter ended June 30 when they report earnings next Thursday.  “This is due mainly to fair value loss on derivative financial instruments as a result of unfavorable market conditions and unrealized foreign exchange translation losses,” the firm said in a Tuesday filing to the Singapore Exchange.  Genting Singapore added: “Notwithstanding the foregoing, on a theoretical normalized hold basis, the group expects its adjusted EBITDA [earnings before interest, taxation, depreciation and amortization] for the second quarter of 2015 to be comparable to the preceding quarter.”


Takeaway:  Based on gaming tax data and MBS results, we were projecting for Genting S$241m EBITDA for Q2 2015 (vs $230m for Q1). Street Q2 EBITDA estimates were much higher.


Macau Hotel Occupancy - According the Hotelier's Association, "The city will see continual improvement in the hotel occupancy rate in August, although the rate could still show a YoY drop of 5% to 10% in this peak travel month, Macau Hoteliers and Innkeepers Association forecast."  

  • In August last year, when the city had 27,900 rooms in hotels and guesthouses in operation, the occupancy rate hit a high 90.1%, led by 5-star hotels at 91% and 4-star properties at 92.3%.
  • By the end of June this year, there were a total of 29,900 rooms from the 102 hotels and hotels in operation, representing a 7.2% YoY increase. 
  • The average hotel room rate for summer this year shows a YoY drop of 15% to 20%, as the casino operators here have continued to offer discount packages for attracting guests.


Takeaway: Could REVPAR fall 30% in August?


MGM - MGM Resorts sues Connecticut Governor over Tribal Casino Act.  They are suing to prevent the construction of a tribal casino in Connecticut that would compete with the company’s own resort being built in Springfield, Massachusetts.  

  • The company said the measure, signed by Malloy in June, violates federal law because it discriminates against out-of-state competitors who are barred from trying to develop a casino in Connecticut.  
  • “MGM is ready, willing and able to compete for the opportunity to develop a commercial casino gaming facility in Connecticut, but is excluded by the act from competing for this opportunity,” the company said in its complaint.



MPEL - Studio City will open on Oct 27.  Lawrence Ho Yau Lung, co-chairman and chief executive of Melco Crown, said at the press conference that he hoped Studio City could open with 400 tables.  A Melco Crown spokesman confirmed that the entry fee for the Ferris wheel will be MOP100 (US$12.50) for adults, and MOP80 for children. The property is designed to appeal in particular to mass-market visitors that might wish to see non-gaming attractions as well as play casino games.


Takeaway: MSC is unlikely to receive 400 tables. We're hearing 150 but wouldn't be surprised if it's 250.  The Oct 27 opening date is later than previously forecasted Q3 opening. 


1159.HK - Hong Kong-listed, Jimei International Entertainment Group Ltd on Monday issued a positive profit alert for the first half of 2015.  The casino junket investor said it expects a consolidated profit for the six months ended June 30, as compared to a loss recognized for the corresponding period in 2014.

  • The turnaround is “mainly attributable to the profit contributions from the group’s newly established gaming and entertainment business since February.”
  • On June 30, Jimei International Entertainment announced that one of its units had agreed to operate at least seven VIP gambling tables at NagaWorld casino resort in Cambodia.



27.HK - A Galaxy Entertainment Group Ltd executive has called for Macau to develop more tourist attractions other than gaming, the Hong Kong Economic Times reports.  “Do the customers already find Macau boring? We think that the city needs an adjustment period,” the Chinese-language newspaper quotes the company’s director of business development, John Au, as saying in an interview.



582.HK - Landing International has agreed to acquire a half stake in a South Korean casino from its partner Genting Hong Kong for 130 trillion won (HK$864 million), as it bet on the opportunities brought about by the influx of Chinese tourists.

  • “[The Jeju casino] will provide a good platform for the group to build up its own brand name and goodwill in the gaming industry, and to develop its own professional team in casino operation and management,” Landing said in a statement to the Hong Kong stock exchange. 
  • Jeju is one of South Korea’s visa-free entry points for mainland Chinese tourists, whose visits to the country surged 58 per cent to 2.9 million last year, the statement shows.



CCL - AIDA Cruises has made adjustments to its winter deployment as the voyages of the AIDAprima from October 2015 can not take place as originally planned, said the German cruise line. The Mitsubishi Heavy Industries Ltd. (MHI) shipyard in Nagasaki, Japan, announced that it is not able to maintain the schedule for completing the vessel.  The actual delivery date will be announced at a later date and the ship will debut in Hamburg next spring.  The AIDAstella will assume some of the winter routes, as she will be moved out of Europe this coming winter.


 Takeaway: Delay in AIDAprima delivery

RCL -  Insider Transactions:

  • Adam M Goldstein , Pres., Chief Operating Officer of Royal Caribbean Cruises Ltd sold 4,184 shares on Aug 3, 2015. The Insider selling transaction was disclosed on Aug 3, 2015 to the Securities and Exchange Commission. The shares were sold at $91.08 per share for a total value of $381,094.19.
  • Chairman & CEO Richard Fain sold 151,032 shares on August 03, 2015. The reported shares were unloaded at an avg market stock price per share of $90.4, for a total trade of $13,650,151. Richard Fain holds around 0.64% of RCL's market cap or 1.42 million shares.




Macau Suspect Gaming - Macau’s Financial Intelligence Office says there was a 14% YoY increase in suspicious transaction reports – also known as STRs – in the city during 2014.  There were 1,812 STRs in 2014, compared to 1,595 such reports in 2013. The lodging of such reports does not in itself indicate criminal activity has occurred, but does indicate that a transaction had been earmarked for closer scrutiny.



Macau Airport Passenger Volume - The city’s local airport posted a year-on-year increase of 3.6% last month for passenger volume, while aircraft movements jumped 10.7% compared to the same period last year, the airport operator Macau International Airport Company Ltd (CAM) announced yesterday.  Last month, the local airport welcomed more than 510,000 passengers and managed over 4,800 aircraft movements, according to CAM.



Hengqin - Zhuhai Hengqin Chimelong Ocean Kingdom theme park received 30% more visitors from January to July compared to the same period last year, according to a press statement by the Guangdong Chimelong Group Co., Ltd.  The statement doesn’t specify the number of visitors received during the period but says in 2014 Ocean Kingdom welcomed more than 8 million visitors.



Chinese Tourism - 4 Million Chinese tourists are expected to head to Japan this year for vacation, with Shanghai residents comprising the bulk of those travelers.

  • More than 40% were from the greater Shanghai area last year, according the local Japanese consulate, while Beijing accounted for about a quarter of Japanese visas granted.
  • Japan saw 2.7 million Chinese arrivals last year, rising 47% from a year earlier and boosting a trade relationship battered by the island dispute
  • The Chinese tourists spend between 200k-400 yen (~US$1,600-~US$3,200) per trip, according to a March survey by advertising firm Hakuhodo DY Holdings.


Takeaway:  With MERS concerns in Korea, Quantum has diverted sailings to Japan for the summer season. The avg Chinese tourist spend of $1600-$3,200 is quite bullish. 


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.

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KATE | Quick Thought on EPS

Takeaway: All-in, enough to stop the bleeding. When people start to look at ‘16 numbers, KATE looks downright cheap -- 90% growth and 17x pe.

While not a blowout quarter, KATE did not need one. The 10% comp was solid against a 7% consensus. Just as important to us is that EBITDA margins were +300bp, in-line with our model and double the consensus. Inventories up only 5.6% on 20% adjusted sales growth. The company took up EBITDA guidance by $5mm with a $2.8mm beat on the quarter. Similarly, comp guidance for the year was taken up from HSD to 9-11%, which implies 12% in the back half to get to the top end of the range – a number we think KATE can, and will beat.


One concern people might have is that e-comm was flat vs last year. But we were looking for a sequential slowdown due to the significant pull-back in FLASH sales. Also note that store comps accelerated from 6% to 12%, and on a 2-year basis from 14% to 22%. Not many retail stores are putting up a meaningfully accelerating comp trend these days.


Is this print enough to get KATE back up to where it was ($32) before the precipitous KORS-inflicted sell-off started in May? Definitely not. But it shows a level of consistency in sequentially improving results at a time when ‘perceived’ competitors are falling apart (note Coach put up a -19% comp yesterday, and threw KORS under the bus on its conference call by implying that it was driving down the category).


We think that at a minimum, these results should put a floor on KATE, which otherwise couldn’t seem to find a bottom. Its continued bifurcation in results between KORS and COH should make this much tougher to short, and when people turn the clock forward and look at 2016 numbers, KATE begins to look downright cheap relative to its growth – i.e. 90% growth and a 17x p/e.


USD, UST 2YR and China

Client Talking Points


In the end, Americans should like our long-term #StrongDollar theme, but not all macro markets and corporates will in the meantime – this is the tug-of-war and #deflation is winning it. That said the USD is signaling immediate-term TRADE overbought at $1.08 vs Euro today, so be careful with grossed up Energy/Metals shorts.


This is the 4th time the chartists have called for a “breakout” in the 2YR at 0.73-0.75% (since March) and every time that’s been wrong as both growth and inflation data slowing continue to back Fed Fund Futures off the SEP rate hike – we’re one bad jobs report away from rates breaking down faster (again).  


Slower-for-longer (pretty obvious from a bottom up or top down research perspective)? But how about lower-for-longer for the propped up A-Shares? Couldn’t hold anything more than a 1-day gain with the Shanghai Composite down another -1.7% overnight, continues to signal bearish TREND in our model with no support to 3,441.

Asset Allocation


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Company Ticker Sector Duration

HOLX’s earnings release were as good as we expected, and in some spots, much better than our optimistic view. Given the move in the price, we did begin to do some work on Hologic’s Diagnostic segment. We touched base with a lab Director who currently does his testing on Hologic/Gen-Probe’s Panther system. During the call management made some positive comments about uptake of the systems and rising utilization per box. Our contact suggested the benefit from the Affordable Care Act was substantial  over the last 12 months, pushing volume up to a mid-teens growth rate, but that trends were flattening. But on the positive side Qiagen continues to cede share with an out of date test and the alternatives are primarily Roche and Hologic, but not Cepheid’s system. The bottom line is that we may be too conservative with our estimates for Diagnostics, which we’ve been assuming treads water from here.  However, we’re starting to think there is some incremental acceleration that’s possible, which would be welcome news indeed.  


After attending PENN’s analyst day at the Plainridge Casino in Massachusetts our Gaming, Lodging & Leisure Team struggled to find any negative takeaways. The property opened very strong in late June, and the strength continued in July. We are now raising our win per day per slot assumption to $500 from $400. Terrific highway access, a lower gaming tax rate and garage parking provide a competitive advantage in what seems to be a deeper market than the consensus view. Our 2015 and 2016 estimates are materially above the Street for EBITDA and EPS. Most importantly, we think PENN should generate an ROI of 28% on Plainridge, much higher than the Street anticipates.


As largely expected a sequential acceleration in GDP from Q1 to Q2 on a seasonally adjusted annual basis pulled forward the market’s expectation for a rate hike which = USD strength. The USD finished positive on the week (+0.50% on Thursday’s print alone).

  • U.S. GDP reported Thursday for Q2 came in at +2.3% on a Q/Q seasonally-adjusted annual rate and the market took it as a positive print à rate hike expectations pulled forward.
  •  Remember that 1) Consensus focuses on this SAAR number and 2) The GDP acceleration came off of an awful Q1 print (Q1 revised to a measly +0.60% for Q1 vs. initially reported -0.20%)
  • On a Y/Y basis (crazy Hedgeye speak) GDP for Q2 actually decelerated to +2.3% YY vs. 2.9% prior
  • With very difficult base effects in our model for 2H 2015 GDP we expect Q2 data (especially the GDP print) to provide support for the USD
  • Our expectation for Y/Y GDP in Q3/Q4 are +1.6% Y/Y (+1.4% Q/Q SAAR) and +1.5% Y/Y (+1.7% Q/Q SAAR) respectively; These prints (Q3 will come in October) will stoke a relatively more dovish FED for a short time (USD headwind) but until then we’ll ride the Q2 data train.   


Three for the Road


VIDEO: This is What Deflation Leads You To $TLT… via @hedgeye



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