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UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau

It’s shaping up to be a good week for our Gaming, Lodging and Leisure team. Our analysts went long after calling the bottom in Macau casino stocks back in September. Last week, they called the top. Stocks have fallen as much as 10% today.

 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - z cas

 

In a note to institutional clients back in September, Gaming analysts Todd Jordan and Felix Wang wrote that the outlook for casino operators in Macau was looking up. Stocks like Wynn Resorts (WYNN), Melco Crown (MPEL), Las Vegas Sands (LVS), MGM Resorts (MGM), and Galaxy Entertainment had been hammered by a preponderance of bad “junket” news. Our Gaming team correctly noted that the casino operators would soon be lapping last year's easy comps for its “mass” business." 

 

The first week in October was aided by a better than expected "Golden Week." But the rest of the month didn't come in nearly as strong. and our team thinks November will be back to what the longstanding trend. More to be revealed.

 

*From 9/30 until closing out their long call on 11/4 the stocks noted above were up between 27% and 40%.

 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - casino up

 

That rosy outlook reversed last week.

 

In their report, titled “October Not So Golden,” Jordan and Wang wrote “We’ve had a long Macau call on since late September but we fear the end of that trade is near.” After a good run, it was “a good time to book profits.”

 

They got the timing right. Among their chief concerns was gross gaming revenue (GGR) that would revert to the norm, i.e. bad news for gaming revenues. Wall Street remained bullish. But the data confirmed their thinking. Today alone, the casino operators are down between 2% and 10%.

 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - casino down

 

Where do we go from here? Well, the outlook isn’t good.

 

“We think November has started with a dud and fear is GGR could disappoint over the near-term. Moreover, our 2016 estimates remain well below the Street.”

 

Below is a key slide from Jordan and Wang's presentation to institutional subscribers last week laying out their thesis. 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - macau call

 

(If you'd like to read our Gaming team's comprehensive research on Macau please ping sales@hedgeye.com.) 


McCullough: Fed Raising Rates Into Slowdown Is A 'Big Risk'

McCullough: Fed Raising Rates Into Slowdown Is A 'Big Risk' - GDP cartoon 01.30.2015

 

Below is a brief excerpt from The Macro Show earlier this morning. In it, Hedgeye CEO Keith McCullough explains a key risk embedded in financial markets today following Friday’s jobs report, and what to expect if the Fed raises rates:

 

“Notwithstanding people’s visceral reaction to last week’s "Waldo" jobs number, the Federal Reserve’s potential to make a policy mistake, which is that it raises interest rates into worldwide deflation and growth slowing, is a big risk.

 

In particular, I am concerned that our forecast for GDP is right and the Fed’s forecast is wrong. Their forecast is that the jobs market is rainbows and puppy dogs and that GDP is going to be 3% to 4%.

 

We have Q4 GDP between 0.4% and 1.7% so anything in between is way slower than what the Fed thought. God help them if its 0.4%, on the lower end of the range, and they’re raising rates into that.

 

What does that mean for investors?

 

McCullough says that should the Fed tighten into a slowdown that would "blow up oil, China, Emerging Markets and anything tied to the aforementioned.”

 

In other words ... watch out. 

 


The Cyclical & Secular Slowdown Call

 

In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough responds to a subscriber’s question about why a strengthening U.S. dollar and lower commodity prices isn’t necessarily the bullish economic harbinger many believe it to be.

 

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.

 


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 78.57%

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts)

Takeaway: Everything that has been signaling #Deflation in the last year, resumed its crash on Friday.

"A Fed rate hike ensures a depression of a year for Commodity and Emerging Market bulls," wrote Hedgeye CEO Keith McCullough this morning.

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - Oil cartoon 01.05.2015

Here are three charts he's highlighting.

 

"Oil: Barely bouncing this morning post another -4.9% #Deflation last week to -25% YTD. Texas is going to love a rate hike."

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - WTI

 

"Strong Dollar #Deflation matters."

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - USD

 

"Commodities: CRB Index -2.3% last wk to -16.9% YTD #Deflation."

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - CRB


MONDAY MORNING RISK MONITOR | RISING RATES

Takeaway: Friday's employment report poses the risk of catalyzing an ill-timed rate hike, but investors seem focused only on the positive.

 

MONDAY MORNING RISK MONITOR | RISING RATES - RM11

 

Key Takeaway:

Global risk perception eased last week. In the U.S., investors reacted positively to Friday's jobs report. In China, the rising stock market has taken focus away from the real risk of slowing economic growth. In Greece, the ECB released a stress test showing that the country's banks require a €14.4 billion recapitalization, and investors reacted positively to the upcoming capital inflow.

 

Looking ahead, the biggest risk we highlight is that of the Federal Reserve raising interest rates into slowing economic growth.

 

Our heatmap below is predominantly green on both the short and intermediate term. Long-term measures are mixed.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | RISING RATES - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 4 of 12 improved / 0 out of 12 worsened / 8 of 12 unchanged
• Intermediate-term(WoW): Positive / 8 of 12 improved / 2 out of 12 worsened / 2 of 12 unchanged
• Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

MONDAY MORNING RISK MONITOR | RISING RATES - RM15

 

1. U.S. Financial CDS – Swaps tightened for 20 out of 27 domestic financial institutions on Friday's jobs report, which surged to 271k.

Tightened the most WoW: CB, ALL, JPM
Widened the most/ tightened the least WoW: GNW, AIG, SLM
Tightened the most WoW: MMC, ALL, BAC
Widened the most MoM: GNW, RDN, CB

MONDAY MORNING RISK MONITOR | RISING RATES - RM1

 

2. European Financial CDS – Swaps mostly tightened in Europe last week, due in part to the positive U.S. jobs report. Additionally, Greek bank CDS tightened between -811 bps and -2434 bps in response to the upcoming  €14.4 billion recapitalization of the country's banks. 

MONDAY MORNING RISK MONITOR | RISING RATES - RM2

 

3. Asian Financial CDS – China's stock market surged, the government released its ban on IPOs, and financials CDS tightened modestly.

MONDAY MORNING RISK MONITOR | RISING RATES - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly tightened over last week. Italian sovereign swaps tightened the most, falling -4 bps to 99.

MONDAY MORNING RISK MONITOR | RISING RATES - RM18

 

MONDAY MORNING RISK MONITOR | RISING RATES - RM3

 

MONDAY MORNING RISK MONITOR | RISING RATES - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Brazilian swaps tightened the most, falling -35 bps to 405.

MONDAY MORNING RISK MONITOR | RISING RATES - RM16

MONDAY MORNING RISK MONITOR | RISING RATES - RM20

6. High Yield (YTM) Monitor – High Yield rates rose 2 bps last week, ending the week at 7.42% versus 7.39% the prior week.

MONDAY MORNING RISK MONITOR | RISING RATES - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index fell 1.0 point last week, ending at 1845.

MONDAY MORNING RISK MONITOR | RISING RATES - RM6

8. TED Spread Monitor – The TED spread was unchanged last week at 26 bps.

MONDAY MORNING RISK MONITOR | RISING RATES - RM7

9. CRB Commodity Price Index – The CRB index fell -2.1%, ending the week at 191 versus 195 the prior week. As compared with the prior month, commodity prices have decreased -5.8%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | RISING RATES - 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 tightened by 1 bps to 11 bps.

MONDAY MORNING RISK MONITOR | RISING RATES - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index fell 1 basis point last week, ending the week at 1.79% versus last week’s print of 1.80%. 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 | RISING RATES - RM10

12. Chinese Steel – Steel prices in China rose 0.1% last week, or 2 yuan/ton, to 2152 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 | RISING RATES - RM12

13. 2-10 Spread – Last week the 2-10 spread widened to 144 bps, 2 bps wider than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | RISING RATES - RM13

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.5% upside to TRADE resistance and 3.4% downside to TRADE support.

MONDAY MORNING RISK MONITOR | RISING RATES - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


CHART OF THE DAY: #Deflation Resumes Its Crash

Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe. 

 

CHART OF THE DAY: #Deflation Resumes Its Crash - 11.09.15 EL chart

 

"... Everything that has been signaling #Deflation to you in the last year, resumed its crash on Friday and has not improved upon where it might be “reflating” in a Down Dollar scenario. It’s right back into what we call Quad4."


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