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REPLAY: MACAU UPDATE CALL

The Hedgeye Gaming, Lodging, and Leisure Team hosted a call last Thursday updating our Macau long trade call, analysis on the September numbers, and our outlook/forecast. Please see the links to the video and presentation materials below.  

 

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

click here for the presentation materials 

 


MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN)

Takeaway: Investors seemed to shift from fears about growth to relief over further accommodation by the Fed last week.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - Lower Highs cartoon10.07.2015

 

Key Takeaway:

The focus seemed to shift last week from the negatives of the U.S. jobs report the week prior to the positive effects from ongoing accommodative central bank policy. In other words, bad news once again became good news. With the Federal Reserve holding interest rates steady, CDS spreads tightened globally and the High Yield YTM fell -65 bps to 7.5%. Short-term readings in our heatmap below are mostly green. However, the intermediate term is the opposite with mostly negative warning signals, and long-term measures are mixed.

Current Ideas:


MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 5 of 12 improved / 1 out of 12 worsened / 6 of 12 unchanged
• Intermediate-term(WoW): Negative / 1 of 12 improved / 6 out of 12 worsened / 5 of 12 unchanged
• Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM15

 

1. U.S. Financial CDS – Swaps tightened for 24 out of 27 domestic financial institutions. With the Federal Reserve holding interest rates steady at its September policy meeting, insurance against default for domestic financial institutions got cheaper; the median CDS spread tightened from 94 bps to 87 bps.

Tightened the most WoW: ALL, CB, MTG
Widened the most/ tightened the least WoW: SLM, SLM, SLM
Tightened the most WoW: CB, ALL, ACE
Widened the most MoM: GNW, LNC, TRV

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM1

 

2. European Financial CDS – Swaps mostly tightened among European financials last week, likely following the U.S.'s lead after Federal Reserve minutes showed rates being held steady for now.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM2

 

3. Asian Financial CDS – Investors looked favorably on central bank policy last week with CDS spreads in Asia tightening, likely in reaction to both the U.S. Federal Reserve holding rates steady and a top Chinese central banker stating that the PBOC would allow the yuan exchange rate to be more flexible. In the past, China allowing its currency to depreciate has stirred fears of slowing economic growth; however, the focus last week seemed to be more on the positive effects of accommodative monetary policy.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM17

 

4. Sovereign CDS – Sovereign swaps were flat to tighter on the week. Spanish sovereign swaps tightened the most, by -5 bps to 103.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM18

 

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM3

 

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM4


5. Emerging Market Sovereign CDS – With commodity prices rising last week, emerging market swaps tightened across the board. Russian swaps tightened the most, by -51 bps to 320, followed by Turkish swaps, which tightened by -48 bps to 266.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM16

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM20

6. High Yield (YTM) Monitor – High Yield rates fell 65 bps last week, ending the week at 7.51% versus 8.16% the prior week.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 5.0 points last week, ending at 1844.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM6

8. TED Spread Monitor  – The TED spread fell 1 basis point last week, ending the week at 32 bps this week versus last week’s print of 33 bps.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM7

9. CRB Commodity Price Index – The CRB index rose 4.6%, ending the week at 203 versus 194 the prior week. As compared with the prior month, commodity prices have increased 3.0%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 10 bps.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM9

11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 8 basis points last week, ending the week at 1.91% versus last week’s print of 1.99%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM10

12. Chinese Steel – Steel prices in China fell 0.5% last week, or 11 yuan/ton, to 2176 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM12

13. 2-10 Spread – Last week the 2-10 spread widened to 145 bps, 4 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM13

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.9% upside to TRADE resistance and 4.6% downside to TRADE support.

MONDAY MORNING RISK MONITOR | BAD NEWS IS GOOD NEWS (AGAIN) - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII)

Takeaway: We are flagging JPMorgan (Score: 96) (short) and Federated Investors (FII - Score:15) (long) on sentiment and short interest.

This morning we are publishing our updated Hedgeye Financials Sentiment Scoreboard in conjunction with the release of the latest short interest data last night. Our Scoreboard now evaluates over 300 companies across the Financials complex.

 

The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.  

 

We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.

 

Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.

 

The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors. 

 

This week we're flagging First American (FAF - Score: 19) as a long as our call to "hide out" in Housing favors the title insurers. We are also highlighting Federated Investors (FII - Score: 15) as screening well from both a sentiment/short interest and a fundamental research standpoint.

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI1

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI2

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI3

 

The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”

 

Let us know if you would like to receive a copy of our black book, which explains this system and its applications.

 

BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.   

 

SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms. 

 

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - Absolute 12 mo

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


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MACAU WEEKLY ANALYSIS (OCT 1-11, 2015)

CALL TO ACTION

 

The fundamentals are still in rough shape but the stocks could continue to move higher. The first 11 days of October were better than expected, owing to a decent start to Golden Week. Mass comps are finally easing - October 2014 posted the first negative Mass comp ever - and Macau Studio could provide a late month boost. Given some public commentary and the apparent increase in table allocations to Galaxy and Macau Studio City, the government appears more accommodative, and could announce an expansion of the IVS to additional cities. However, keep a trade a trade since stability, and certainly growth, remains elusive and 2016 EBITDA estimates look much too aggressive to us.

 

Please see our detailed note: http://docs.hedgeye.com/HE_Macau_10.12.15.pdf



New Best Idea: Short Genesis Energy LP (GEL)

We are adding Genesis Energy, L.P. (GEL) to our Best Ideas list as a short.  We see more than 50% downside to fair value.

 

GEL is $4.8B market cap MLP with a variety of midstream businesses: Gulf of Mexico (GoM) offshore pipelines, marine transportation, crude-by-rail terminals, refinery sulfur removal services, onshore crude oil and CO2 pipelines, trucking and other marketing assets.  The asset base has been put together largely via acquisition over the last 10 years – the Company has an impressive history of growing its distribution with “accretive” deals, its largest being the July 2015 purchase of Enterprise Products’ (EPD) offshore GoM pipelines and services business for $1.5B.  The market lauded this acquisition, and it is a big reason why GEL is one of the best performing MLPs in 2015, +4% vs. the AMZI Index (25)%.

 

But we are far less optimistic on the prospects of that acquisition … one of the many topics we’ll cover in our conference call presentation on GEL on Thursday, October 15th at 11am ESTAll Hedgeye Energy subscribers will receive the dial-in information and slide deck early Thursday morning.

 

Key Topics 

  • Cyclical and Structural Headwinds Emerging: Near-term and long-term outlook for GEL’s key operating segments: offshore oil pipelines, marine transportation, and crude-by-rail
  • A Gift Horse from EPD?  What did GEL acquire?  And was it really a great deal?   
  • What’s in a Distribution?  A critical look at GEL’s non-GAAP financial metrics and distribution policy
  • Valuation - What’s GEL Worth?  We go far beyond the run-of-the-mill MLP valuation methods to show that GEL has more than 50% downside to fair value
  • Catalysts and Risks:  When and how might our thesis play out?  And what are the risks to this idea?

 

Kevin Kaiser

Managing Director

 


CHART OF THE DAY: Fed Rate Hike Expectations Crashing

Editor's Note: The chart and excerpt below are from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you would like to learn more about how you can subscribe and stay ahead of consensus.

 

CHART OF THE DAY: Fed Rate Hike Expectations Crashing - z cod bbb

 

"...Last week’s Down Dollar move was the 2nd in as many weeks. As you can see in our Chart of The Day (Fed Fund Futures), post the #LateCycle US employment slowdown, the probability of a “rate hike” has crashed again."

 


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