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Purchase Demand Is Good, But Not That Good | TRID Juices The #s

Takeaway: This week's Mortgage moonshot will prove short-lived as TRID pullforward will give way to TRID vaccuum, but the organic trend remains solid.

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 Demand Is Good, But Not That Good | TRID Juices The #s - Compendium 100715

 

Today's Focus: MBA Mortgage Applications

 

Purchase Applications rose a moonshot +27.4% week-over-week while accelerating to +49% YoY!  Volume Trends are good, but not that good. 

 

Strength in the latest week can be attributed to a pre-TRID implementation pull-forward in demand. 

 

Redux: What’s TRID Again?  As a reminder, TRID (TILA-RESPA INTEGRATED DISCLOSURE) replaces the current federal disclosure forms with two new forms (Loan Estimate & Closing Disclosure) with the goal of reducing paperwork, simplifying & clarifying language and improving consumer comprehension of loan terms and requirements.  While there is general agreement that, once implemented, the changes will be broadly positive there has been considerable stakeholder angst over the collective ability to effectively integrate and comply with the required changes given the breadth of adjustment to both  internal operations and technology platforms mandated under the Act.  

 

SPEED BUMP or SPIKE STRIP?  The Y2K experience is an apt analog as no one really knows if systems/processes are truly compliant until the switch gets flipped. There is a good chance for a modest speedbump in reported activity following initial implementation (i.e. closing activity lagged 6-8 wks from the Oct 3rd implementation date), but there also exists the possibility for lagged choppiness alongside the seasonal spring pick-up in 2016 – particularly if lenders misestimate staffing levels needed to adequately manage prevailing volume flow.  

 

Despite the integration uncertainty, the current setup probably represents a best-case implementation scenario as the October implementation date with the subsequent enforcement grace period will allow stakeholders to integrate the changes during a seasonally slow period while providing nearly 6 months of ‘live prep’ ahead of the 2016 spring selling season

 

Enforcement Grace Period:  Notably, its expected that the House will consider the Homebuyer Assistance Act this afternoon which would create a formal and defined grace period lasting through the end of the year.  Previously, the CFPB indicated they would provide an enforcement grace period following the Oct. 3rd implementation, but the bureau fell short of providing discrete terms or a defined duration for that grace period.  We reviewed the TRID regulatory issue in our 2Q/3Q themes decks and our summary review slide is below.

 

Short-Term Positive?  While TRID implementation may perpetuate volatility in the data over the intermediate-term its unlikely to catalyze a permanent shift in the demand curve and may, in fact, serve to juice both the New and Pending Home Sales figures for September as the bolus of pre-TRID demand flows through the reported volume figures.  

 

Other Quick Thoughts:  While its likely we give back all of this weeks rise in purchase demand in the coming weeks, the trend has been steady and well above the pace observed in 2H in recent years.  The lower volatility and higher level of demand reflects ongoing organic improvement and the slow march to market normalization with conventional borrowers increasingly taking back share.  Further, rates breached 4.0% to the downside for the first time since May in the latest week and, at current levels, remain a tailwind to both affordability and HPI.  

 

 

 

Purchase Demand Is Good, But Not That Good | TRID Juices The #s - Purchase YoY  

 

Purchase Demand Is Good, But Not That Good | TRID Juices The #s - Purchase 2013v14v15

 

Purchase Demand Is Good, But Not That Good | TRID Juices The #s - Purchase   Refi YoY

 

Purchase Demand Is Good, But Not That Good | TRID Juices The #s - Purchase index   YoY Qtrly

 

Purchase Demand Is Good, But Not That Good | TRID Juices The #s - Purchase LT

 

Purchase Demand Is Good, But Not That Good | TRID Juices The #s - 30Y FRM

 

Purchase Demand Is Good, But Not That Good | TRID Juices The #s - TRID Review

 

 

 

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. 

 

Frequency:

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

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


LEISURE LETTER (10/7/2015)

TICKERS: MPEL, MAR, HLT, CCL

EVENTS     

  • Oct 8: Hedgeye Macau call 2:30pm
  • Oct 8: Tigre de Cristal opens

headline news

MPEL -  Rumors are circulating that MPEL’s Studio City could be allocated 250 tables versus generally accepted consensus of 150. We had been hearing that the floor was configured for 110 mass and 40 Premium/Direct tables but MPEL will no doubt welcome the additional capacity.

Takeaway: This is good news for Studio City and likely WYNN and MGM who will also open large Cotai facilities. The additional table supply may not be welcomed by Galaxy, LVS, and SJM.

COMPANY NEWS 

MPEL -  Melco Crown announced that it is set to offer a pre-­opening promotional package to Studio City visitors called the “Star Experience.” Package includes:

  • An overnight stay for two in the Star Tower, two tickets to ride the iconic figure-­of-eight Ferris wheel. 
  • A pair of tickets to the Batman Dark Flight Adventure. 
  • The package also includes a buffet breakfast and access to the pools and gym at the resort.
  • Prices for the promotional package start from HKD1,698, and the package will remain available until the official launch of Studio City on Oct. 27.

ARTICLE HERE

Takeaway: And they may have a 250 table allocation to work with versus expectations of 150. Stay tuned...

 

MAR -  Announced yesterday Marriott expects to increase its Caribbean and Latin American distribution between by 75% between 2015 and 2018 including a tripling of the company's presence in Brazil with the addition of 11 new hotels in that market.  

  • Marriott has 93 hotels open today and more than 60 hotels under development in the Caribbean and Latin America, including 11 new hotels across 6 cities in Brazil.  
  • Marriott has plans to invest approximately $400 million Brazilian Reals ($100 million) in Brazil to launch 4 of its modern essential brands: Courtyard by Marriott, Residence Inn by Marriott and Fairfield Inn by Marriott and AC by Marriott.  
  • Seven of these eleven planned hotels are already under construction, which will be owned by Marriott or Brazilian partners.  Over time, Marriott expects to sell its owned hotel assets, retaining long term management agreements.

ARTICLE HERE

Takeaway: Despite this move, MAR will still have over 70% of its room count based in the U.S.  MAR is one of our best ideas (LONG) heading into the end of 2015 and into 2016. 

 

HLT - Announced that eight new hotels will join Canopy by Hilton’s portfolio of more than 20 neighborhoods in various stages of development. Launched last October, Canopy by Hilton is Hilton’s newest hotel brand.  The Canopy by Hilton neighborhood additions include:  

  • Canopy West Palm Beach
  • Canopy Denver | Downtown
  • Canopy Washington, D.C. | Southwest Waterfront
  • Canopy New Orleans
  • Canopy Dallas | Uptown
  • Canopy Baltimore | Harbor Point
  • Canopy Minneapolis | Mill District
  • Canopy Chicago | The Loop

ARTICLE HERE

  

CCL - Fathom, a new Carnival Corp. cruise line focusing on voluntourism, has released the full pricing structure for its fares, which initially went on sale in June.

  • Sailings include itineraries to both Cuba and the Dominican Republic on a single ship -- P&O's Adonia -- feature four cabin types: insides, outsides, balconies and suites. Prices range from $974 per person for an inside cabin in low season in the DR to $8,250 per person for a suite during peak season in Cuba.
  • Fathom is also offering a Single Traveler Share program, which will match solo cruisers with potential roommates so they can share double-occupancy rooms without having to pay singles supplements.

ARTICLE HERE

INDUSTRY NEWS    

Macau Smoking Bill - Secretary of Social Affairs and Culture Alexis Tam Chon Weng has said casino employees must give their consent if the government is to allow any exception to the forthcoming ban on smoking in casinos, Business Daily reports.  

  • “The industry and the operators said it is possible to create a very good smoking lounge. We don’t know. It will be depend upon the conditions. If they really have good proposals, if the workers agree with it, it will be fine,” the newspaper quotes Mr Tam as saying in an interview.  
  • But he said no casino operator had yet proposed to him that it be allowed to have smoking rooms in its premises.

ARTICLE HERE

 

Macau Tourism Strategy - Secretary of Social Affairs and Culture Alexis Tam Chon Weng’s tourism strategy is to make the flow of visitors to Macau more even, instead of peaking at certain times of the year, and to get visitors to stay longer.  The newspaper quotes Mr Tam as saying in an interview that he would present to the Legislative Assembly this month his plans for more enticements for tourists.   “For example, we would build more museums or themed buildings to attract more tourists to stay in Macau for longer,” Mr. Tam said.

ARTICLE HERE

Takeaway: We're still not sure what the government can do to increase near term visitation

 

Macau Airport Traffic - Macau International Airport (MIA) recorded 6% YoY in passenger traffic volume during the first three quarters of the year, to 4.30 million from around 4.06 million.  MIA also revealed that Korean companies Jeju Air and T’Way Airlines are considering launching flights to the territory. During this period, visitors from the Mainland China market decreased by 1% although MIA did not disclose the precise number. Passengers from Southeast Asia increased 14%, while travellers from Taiwan increased 4%.

ARTICLE HERE

  

REGIONAL REVENUES (SEPT):

 

Maryland (SS GGR): +6% YoY

Takeaway: Consistent with our thesis of a strong September rebound from August. We still like BYD and PENN on the long side


CHART OF THE DAY: Early Innings of a #LateCycle Slowdown

Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye macro analyst Darius Dale. Click here if you're interested in learning more and getting ahead of consensus.

 

CHART OF THE DAY: Early Innings of a #LateCycle Slowdown - Chart of the Day

 

"...With respect to the current economic and financial market cycle, our Macro Team’s most differentiated view remains that the U.S. economy is in the early innings of a #LateCycle Slowdown, which implies domestic economic growth has moved past peak and is likely to decelerate on a trending basis into an eventual recession – likely commencing in mid-to-late 2016. Our #EuropeSlowing theme – whereby our models are forecasting a sustained deceleration from cycle-peak rates of European economic growth toward a likely recession as early as 1H16 – continues to register as fairly non-consensus as well."

 


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 80.64%
  • SHORT SIGNALS 78.61%

Change

“Progress is impossible without change, and those who cannot change their minds cannot change anything.”

-George Bernard Shaw

 

Yesterday at our semi-annual, firm-wide meeting, Retail Sector Head Brian McGough asked Keith how many former Yale athletes Hedgeye employs now. In response, he had each of us stand up. Ten men from two sports (football and ice hockey), three generations (baby boomer, gen-x and millennial) and all walks of life arose – perfectly scattered about the room of 55-60 people. Coincidentally, if Brian had asked Keith what the total number of people employed at Hedgeye was when I joined what was then a startup research boutique in mid-2009, the same number of people would have stood up.

 

I thought that juxtaposition was really powerful – specifically because it really spoke to the progress we have made as a firm. In a generally difficult year for our industry, we have been blessed to experience another record year from the perspective of revenue (both absolute dollars and the associated YoY growth rate), employee headcount and charitable giving via our internal 501(c)(3) organization, Hedgeye Cares.

 

Irish Playwright George Bernard Shaw – the only person to have been awarded a Nobel Prize (Literature, 1925) and an Academy Award (Best Adapted Screenplay, 1938, for what would eventually become “My Fair Lady”) – was a lifelong supporter of philanthropy and socialism, as well as a longtime contributor to the efforts of the highly influential Fabian Society, which was a British organization founded to promote gradual (rather than revolutionary), left-leaning political change. The group would eventually become the foundation of the British Labour Party in 1900 – 16 years after its inception.

 

Back to the Global Macro Grind

 

Shaw’s quote above is as much about “change” as it is “progress” – as was yesterday’s Hedgeye firm meeting. The bottom-up analysts among you can cite all-too-well a myriad of examples of confident-turned-cocky management teams after a recent trend of outperformance. Pro-cyclical management teams that overinvest at cycle peaks and/or underinvest at cycle troughs tend to be the best destroyers of value over time. Sometimes just changing things up by implementing well-timed counter-cyclical investment strategies can make all the difference between falling victim to an economic downturn and growing into a sustainable, value-creating corporation.

 

Running a company is not unlike running money. Investors need to know when and how to invest counter-cyclically – if for no other reason than the fact that there are and always will be economic and financial market cycles.

 

With respect to the current economic and financial market cycle, our Macro Team’s most differentiated view remains that the U.S. economy is in the early innings of a #LateCycle Slowdown, which implies domestic economic growth has moved past peak and is likely to decelerate on a trending basis into an eventual recession – likely commencing in mid-to-late 2016. Our #EuropeSlowing theme – whereby our models are forecasting a sustained deceleration from cycle-peak rates of European economic growth toward a likely recession as early as 1H16 – continues to register as fairly non-consensus as well.

 

These views continue to be confirmed across global financial markets and via the underlying economic data:

 

  • Consumption Growth Slowing:
    • In the U.S. Retail Sales growth slowed sequentially in AUG +2.2% YoY from +2.6%. While +2.2% is in line with the trailing 3 and 6 month averages, it remains a far cry from the TTM average of nearly +3%. Moreover, domestic consumption growth is likely to trend lower throughout the balance of the year amid negative trends in both Employment growth and Consumer Confidence as of SEP, as well as materially steepening comparative base effects.
    • In the Eurozone, Retail Sales growth slowed sequentially from a cycle peak to +2.3% YoY in AUG.  What’s interesting to note is that the current 3MMA growth rate of +2.4% is in the 93rd percentile of all monthly readings over the previous 10 years. Making the Case for Eurozone consumption growth to accelerate from these levels is a bold call with comparative base effects steepening to cycle highs over the next three quarters.
    • In the U.K., Retail Sales growth is slowing on both a sequential and trending basis. The latest YoY growth rate of +3.5% (AUG) is below its 3MMA of +3.9%, which is below its 6MMA of +4.3%, which is below its TTM average of +4.6%.
  • Manufacturing Growth Slowing:
    • In the U.S., Industrial Production growth is slowing on both a sequential and trending basis. The latest YoY growth rate of +0.9% (AUG) is below its 3MMA of +1.0%, which is below its 6MMA of +1.5%, which is below its TTM average of +2.8%.
    • In the Eurozone, Industrial Production growth is accelerating on a both a sequential and trending basis. That said, a confluence of factors suggests it is highly unlikely to accelerate from the +1.9% YoY reading in JUL – specifically this morning’s contracting sequential readings in Germany (-1.2% MoM) and Spain (-1.4% MoM) (Eurozone AUG IP to be released next Wednesday), as well as the region’s benchmark Manufacturing PMI slowing on both a sequential and trending basis to 52 in SEP. The ZEW Eurozone Economic Expectations Index is also slowing on both a sequential and trending basis as of SEP (to 33.3).
    • In the U.K., this morning’s data showed Industrial Production growth is accelerating on a sequential and trending basis as of AUG. Is that sustainable with both the country’s Manufacturing PMI and Lloyds Economic Optimism Index slowing on both a sequential and trending basis to 51. 5 and 34, respectively, as of SEP and comparative base effects steepening to cycle highs over the next two quarters? Probably not.
  • Export Growth Slowing:
    • In the U.S., Export growth is slowing on both a sequential and trending basis. The latest YoY growth rate of -6.2% YoY (AUG) is below its 3MMA of -4.8%, which is below its 6MMA of -4.4%, which is below its TTM average of -3.5%.
    • In the Eurozone, Export growth is slowing on both a sequential and tending basis. The latest YoY growth rate of +6.6% (JUL) is below its 3MMA of +7.2%, which is below its 6MMA of +7.6%.
    • In the U.K., Export growth is slowing on a sequential basis and the breakdown is threatening to weigh on the formerly positive trend. The latest YoY growth rate of -1.0% (JUL) is well shy of its 3MMA of +2.5%.
  • PMIs Slowing:
    • In the U.S., the Markit GDP-weighted Composite PMI is slowing on both a sequential and trending basis. The current 55.0 reading (SEP) is in line with its 3MMA, but remains below both its 6MMA and TTM averages of 55.7 and 56, respectively.
    • In the Eurozone, the Markit GDP-weighted Composite PMI is slowing on both a sequential and trending basis. The latest reading of 53.5 (SEP) is below its 3MMA of 54.2, which is below its 6MMA of 54.4.
    • In the U.K., the Markit GDP-weighted Composite PMI is slowing on both a sequential and trending basis. The latest reading of 53.3 (SEP) is below its 3MMA of 55.1, which is below its 6MMA of 56.1, which is below its TTM average of 56.5.
  • EPS Revisions Negative:
    • NTM earnings revisions for benchmark equity indices in the U.S., Eurozone and U.K. are all flat-to-negative across any meaningful observation period going out to at least six months. Betting on multiple expansion as economic cycles roll over across developed markets is not a market call you will receive from Hedgeye.
  • Markets Signaling Bearish:
    • Despite the “bad news is good news” relief rally from generally oversold conditions and bombed-out sentiment, the S&P 500, DAX, EuroStoxx 600, FTSE 100 or FTSE All-Share indices are all still signaling bearish from an intermediate-term TREND perspective.

 

It’s worth noting that in both Hedgeye speak and in factor exposure performance, going from great-to-good and then from good-to-bad is bearish.

 

Sticking with the theme of change, if and/or when the aforementioned fundamental data and market signals become unsupportive of our view(s), we will be sure to change our minds with them.

 

Going back to yesterday’s company meeting, there are a myriad of planned changes to our mass market product offering and key additions being tacked on to our institutional research platform for Hedgeye subscribers all across the value-added curve to celebrate in the coming weeks and months. The most noteworthy of those changes would have to be our inaugural “Macrocosm” industry thought leader conference, which will be held Wednesday November 18th from 1-7:30pm at the Loading Dock in Stamford, CT.

 

Please note that there is a fee to attend the aforementioned conference and seating is extremely limited to existing top clients and key prospective clients of Hedgeye macro research. Email to the extent you’d like to RSVP. We look forward to enjoying the thoughtful debates with those of you who plan to attend and, to the extent you do, remember what George Shaw said about change:

 

“…those who cannot change their minds cannot change anything.”

 

Not even their prospective portfolio returns.

 

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

 

UST 10yr Yield 1.96-2.09% (bearish)

SPX 1 (bearish)
VIX 18.55-28.77 (bullish)
EUR/USD 1.11-1.13 (neutral)
YEN 119.01-121.65 (bullish)
Oil (WTI) 45.59-49.68 (bearish)

Gold 1125-1161 (bullish)

Copper 2.24-2.39 (bearish)

 

Keep your head on a swivel,

 

DD

 

Darius Dale

Director

 

Change - Chart of the Day


MACAU CONFERENCE CALL TOMORROW (OCT 8TH) AT 2:30PM

We will host a conference call on Thursday, October 8 at 2:30PM ET to present analysis on the September numbers, our updated model projections and outlook, Q3 earnings previews, and a more quantitative look at the implications of a rapidly declining junket business.  As always, we will entertain questions at the end of the presentation.

 

RELEVANT TICKERS INCLUDE:

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

 

DISCUSSION POINTS

  • Update to our recent long Macau trade call
  • Hedgeye company EBITDA estimates vs the Street for Q3, 2015, and 2016
  • Revised 2015/2016 monthly market projections
  • "True" Mass trends
  • Research Topic: What happens if the junkets go away? - a more quantitative look at this topic first presented in our February 2015 Macau conference call
  • Q&A

CALL DETAILS

Attendance on this call is limited. Ping  for more information


The Macro Show Replay | October 7, 2015

 


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