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THE M3: JANUARY GAMING REVENUES & TRADE DEFICIT

The Macau Metro Monitor.  February 2nd, 2010.

 

 

 

MACAU’S DECEMBER TRADE DEFICIT WIDENS rttnews.com

Macau’s trade deficit widened to MOP 2.94 billion in December from MOP 2.78 billion in November, according to the Statistics and Census Service.  One year ago, the trade deficit was MOP 2.36 billion.  Exports from Macau dropped 25.5% year-over-year to MOP 680 million in December.  Imports’ value increased 10.6% year-over-year to MOP 3.62 billion in December. 

 

CASINO GROSS RECEIPTS IN MACAU TOP US$1.67 BILLION IN JANUARY macaunews.com.mo

Casino gross receipts in January exceeded MOP 13.3 billion (US$ 1.67 billion), according to The Macau Post Daily.  The revenues beat the previous monthly record of MOP 12.6 billion (US$ 1.58 billion)  in October last year.  Compared with the casino sector's gross receipts of MOP 8.6 billion in January 2009, last month receipts were up around 55 percent.  SJM took market share of 30%, with Sands China taking 22% of revenues in January.


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US STRATEGY - FIREWORKS

Monday’s political undertone was that the Volcker rules could be significantly watered down in the Senate if not just DOA.  Today, Paul Volcker is scheduled to appear before a Senate hearing, with little expectations of presenting anything new.  Today’s set up in the Senate is for party-line grandstanding, with the possibility of a few fireworks from some of the more vocal members of the Senate. 

 

Yesterday, the S&P 500 finished higher by 1.43% on a 34% day-over-day decline is volume.  The upward move was helped by the weakening RISK AVERSION trade, as both the Dollar index and the VIX declined.  The VIX declined 7.9%, to 22.59 and is very close to the TRADE line of 22.51.  The Hedgeye Risk Management models have the following levels for VIX – buy Trade (20.56) and Sell Trade (28.12).

 

On the MACRO front, upbeat manufacturing data out of the US and China helped to underpin the RECOVERY trade.  Yesterday, the ISM manufacturing jumped to 58.4 in January from 54.9 in December, marking the highest level since mid-2004. The production component was a big contributor to the January increase, rising to 66.2 from 59.7. While the orders component only saw a slight improvement to 65.9 from 64.9, it remained firmly in expansionary territory.  Importantly Employment continued to improve, moving up to 53.3 from 50.2 in December.  

 

Nearly every up move in the S&P 500 in 2010 has been associated with very light volume and as I said earlier yesterday, was no exception.  The best performing sectors yesterday were the sectors that have decline the most year-to-date - XLB, XLE and XLF. 

 

Rebounding from an oversold condition, the Materials (XLB) was the best performing sector, rising 4%.  The XLB benefited from its leverage to the ISM manufacturing data and the support provided by the RECOVERY trade. 

 

The second best performing sector was Energy (XLE), up 3.3%.  While all the major commodities were strong yesterday, natural gas prices led the way with t 5.9% increase.  The integrated group snapped a four-day losing streak with help from the better-than-expected Q4 results out of XOM +2.7%. The coal stocks were also very strong following last week’s selloff.

 

The one sector that continues to underperform is Technology (XLK).  While there was some upside leadership coming from the semi space, with the SOX +3.1%, the balance of the group can’t get out of its own way despite the continued trend of better-than-expected December quarter earnings. 

 

As we look at today’s set up, the range for the S&P 500 is 36 points or 2.4% (1,062) downside and 0.8% (1,098) upside.  Equity futures are trading mixed to fair value following yesterday's strong gains with concerns over potential tightening in China, the US housing numbers due out today offset by recent economic data and the fact that most 4Q10 earnings continue to beat estimates.  

 

The Dollar Index decline 0.1% yesterday and the Hedgeye Risk Management models have the following levels for DXY – buy Trade (78.66) and Sell Trade (79.51). 

 

Copper rose for a second day in London on speculation that a weaker dollar will spur demand.  The Hedgeye Risk Management Quant models have the following levels for COPPER – buy Trade (2.99) and Sell Trade (3.13).

 

Gold remained almost unchanged over the past week, though a strong dollar is a negative for gold.  The Hedgeye Risk Management models have the following levels for GOLD – buy Trade (1,077) and Sell Trade (1,113).

 

Crude oil climbed for a second day on speculation that recovering demand in the U.S. is causing fuel supplies to drop.  The Hedgeye Risk Management models have the following levels for OIL – buy Trade (72.03) and Sell Trade (77.13).

 

Howard Penney

Managing Director

 

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US STRATEGY - FIREWORKS - oil4

 

US STRATEGY - FIREWORKS - gold5

 

US STRATEGY - FIREWORKS - copper6

 


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ASCA “YOUTUBE”

ASCA reports Q4 EPS on Wednesday and we are below the Street at $0.11. Below we’ve got a recap of management’s forward looking comments from the Q3 earnings release and conference call.

 

 

We are projecting Q4 EBITDA and EPS of $72.3 million and $0.11 versus the Street at $74.1 million and $0.13.  For 2010, we are only slightly behind the Street estimate, $1.02 versus $1.05.  ASCA is the only regional gamer where our 2010 estimate is close to the Street.

 

While lacking a catalyst, ASCA is unique in that it carries a significant free cash flow yield on net free cash flow, not just cash flow before discretionary capex.  This company is a cash cow.  We calculate a 13% net FCF yield, even after today’s big 4% stock move.  It is conceivable ASCA could grow it’s free cash flow by at least 3% over the next several years.  Management’s cash flow outlook will be an important topic of discussion on the call.

 

 

YOUTUBE FROM Q3 RELEASE/CONF CALL

 

Property level commentary

  • Blackhawk: “We've had a substantial improvement in net revenues during October and an even more substantial improvement on adjusted EBITDA.”
  • “But at least during the month of October, the first month of the hotel being opening, the characteristics of the occupancy and the cash demand and cash ADRs are generally more of what we would see on a mature hotel instead of a brand-new one”
  • “We're starting to see some signs of impact from an intensive management effort including in Vicksburg.”
  • “Well, I think part of the issue with Vicksburg is the general economy. The Mississippi economy has never been the strongest that we operate in and with the current recession, there's been significant impact there. And there is additional competition, there's more gaming supply in the market which has affected our market share. I think we're seeing a little bit of light at the end of the tunnel in relationship to operating our new facility very efficiently and maximizing the customer satisfaction of coming to the new facility now…We're starting to see some margin improvement down there.”
  • “The changes we're making at Vicksburg will actually be completed during the fourth quarter. I don't know how much benefit we're going to really see in the fourth quarter that's demonstrable from that. I think we'll hopefully see some focus on margins down there irrespective of the changes.”

 

General Trends & Outlook

  • “We're seeing a little bit less spending per trip by patrons.”
  • “I do think it's going to be a longer and slower trajectory in terms of recovery from that in consumer spending but I think it's going to happen.”
  • “I think in East Chicago, we're looking a little bit more at the global issue with the economy and starting to see unemployment come back down. And I think in that particular market, unemployment is going to continue to go up for another quarter or two, no matter what your economist say.”

 

Balance Sheet/ Cash Flow and other

  • “We obviously don't anticipate borrowing any money in the fourth quarter.”
  • “We expect our leverage ratio will continue to improve. However, our fix charged coverage ratio is expected to decline slightly due to the increase in interest payments resulting from the unsecured notes offering.”
  • 2010 Capex: “What we're looking at for the coming year is somewhere in the neighborhood of say $75 million to $80 million.”
  • 2010 Capitalized Interest: “It's going to be very, very minimal. Nothing that you wouldn't want to take into account and booking at EPS.”
  • 2010 tax rate: “Next year, it should still be 42%, 43% on an annual basis.”

China's Chart Of The Day

In our presentation of our Hedgeye Macro Themes for Q1 of 2010, we used this Chinese PMI chart to emphasize our point. Our call was quite simply that the PMI was elevated and setting up to roll over from its recent 2009 highs. This morning the data reported for January did just that.

 

China’s PMI report for January slowed sequentially to 55.8 versus 56.6 in December.

 

While the sequential slowdown wasn’t material, the point is that the PMI stopped accelerating to the upside. Everything that matters in our macro model happens on the margin. The change of the slope of this line is a good example of that.

 

Did it matter? With Chinese stocks closing down another -1.6% overnight, taking them to -10.3% for the YTD, apparently it did. We are not calling for a crash in China. Our Chinese Ox In A Box call is simply that inflation will accelerated sequentially as growth slows. This is obviously starting to be priced in.

KM

 

Keith R. McCullough
Chief Executive Officer

 

China's Chart Of The Day  - PMICH

 


He Who Sees No Inflation?

This morning’s Prices Paid component of the ISM Manufacturing report for January was inflationary (see the chart below). Yes, unfortunately Ben, Main Street actually has to pay for things with marked to market prices. On a year-over-year basis, Prices Paid are up a staggering +133%!

 

I know, I know… the Federal Reserve claims to see none of this; 'tis the narrative fallacy of He Who Sees No Inflation (Bernanke). But the bond market sees it – that’s another reason why bonds are selling off today. For those who support this Bubble in US Politics, inflation is easy to ignore. Sadly, that doesn’t mean it goes away.

 

This Prices Paid reading of 70 (January) was a +13.8% sequential monthly acceleration from the December report. With headline Producer Prices (PPI) recently reported at +4.4% year-over-year, and Q4 GDP posted at +5.7%, this unsustainable and unreasonable policy of maintaining a ZERO percent “emergency” level for the Fed Fund rate is starting to really eat into the Times Man of the Year’s credibility.

KM

 

Keith R. McCullough
Chief Executive Officer

 

He Who Sees No Inflation? - PP


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