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U.S. Government Maturities . . . A Major Pain In the Balance Sheet

Yesterday’s U.S. budget update has got a lot of investors thinking about the U.S.’s balance sheet issues. To recap, April’s contribution to fiscal 2010’s federal budget deficit was a staggering $82.69B – roughly 4x the April 2009 deficit of $20.91B. This most recent sign of the times is especially telling considering that there’s been a budgetary surplus in 43 of the past 56 Aprils (certainly a function of the April 15th income tax deadline). All told, this marks the 19th consecutive month of monthly deficits.

 

The U.S. must rollover 40% of its debt by 2012, which includes issuances of prior years as well as planned and unforeseen intra-year issuance. That number amounts to roughly $3.4 trillion dollars (including estimates) of refinancing needed over the next 2.5 years! In fact, according to Michael Pento of Delta Global Advisors, the U.S. Treasury auctioned $8.8T in debt during fiscal 2009 – more than 100% of all publicly traded debt! The chart below shows the Treasury maturity schedule from now through 2020. The budget deficit is added to give a sense of roughly the minimum amount of treasury issuance needed each year. These numbers are, of course subject to change based on treasury issuance in the coming years, but as of today, the U.S. public debt maturity schedule is outlined in the chart below.

 

We will be hosting an upcoming call on the fiscal future of the United States debt where we present our downside budget scenario, but for the time being keep this chart front and center as you think of whether the United States can keep her AAA rating longer term.

 

Darius Dale

Analyst

 

U.S. Government Maturities . . . A Major Pain In the Balance Sheet - 1


RETAIL WEAKNESS

April Retail Sales rose 0.4% headline, 0.4% ex-autos and 0.4% ex-autos and gasoline.

 

Ex auto’s were in line with expectations but headline was 0.2% above and ex-autos and gasoline was 0.1% above (March was revised higher).

 

Building materials rose by 6.9% after a 7.8% rise in March, motor vehicles/parts rose by 0.5% and gas station sales were up 0.5%.

 

BUT if you take out building materials, autos and gasoline sales (a core figure), retail sales were DOWN 0.3%.  Sales in clothing, sporting goods, general merchandise, furniture, electronics and in food/beverages all fell.

 

Thus, on the surface, sales look good but the core figure of ex-autos, gasoline and building materials fell for the first time since Dec ‘09.

 

Howard Penney
Managing Director


NUMBERS DON’T LIE

The TED spread is widening, credit risk is trading higher.  On the margin this is a bearish sign. 

 

Keith is bearish on France, the S&P 500, and Japan for a variety of reasons.  One of those reasons is that the TED spread has been expanding steadily, indicating an increase in perceived risk in the general economy.  Sovereign debt concerns in Europe are garnering a lot of attention from the investment community over recent weeks.  It is interesting to note that the correlation between the TED Spread and the EURUSD is -0.93.

 

Rory Green

Analyst

 

NUMBERS DON’T LIE    - eurusd


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The Shark Line Returns: SP500 Levels, Refreshed

It’s been so long that we have put up a chart with our old mascot from 2008 (Squeezy The Shark), that the boys on our Macro Desk here in New Haven have resorted to stitching their own plush version of the deadly one from the depths. Hedrick and Dale took a picture of their creation and superimposed it on this chart – this thing looks like a minnow! We’ll work on making this thing look as concerning as the SP500 does on a breakdown through 1144.

 

We call the line that will create accelerating volatility The Shark Line (moves below/above have the propensity to get people leaning on the wrong side of the line eaten). For now, that line is the intermediate term TREND line for the SP500. Its not always the TREND line; it just is now. A lot of the bulls who missed the initial correction in this market got sucked into believing that all weakness was to be bought; expectations are what the Shark Line is built upon.

 

If this market can close at or above 1144, I’ll cover my short position in the SPY. If it can’t, there is no downside support for the SP500 to the immediate term TRADE line down at 1111.

 

If you are betting on another Monday bailout of these waters from professional politicians in Europe, all we’d recommend is to swim at your own risk.

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Shark Line Returns: SP500 Levels, Refreshed - S P


CALIFORNIA DREAMIN’ OF A RECOVERY

California is certainly not a picture of fiscal or economic health, but here is an interesting positive data point.

 

JACK management implied that their primary trouble spot is Texas rather than California.   California is a crucial market for the restaurant industry with many companies, such as JACK, CPKI, CAKE, and PEET having significant percentages of their system units located in the Golden State.   Indeed, Chairman, CEO and President, Linda Lang said that the company has seen an improvement in their California and Texas markets but “significant” improvements in underlying fundamentals at Jack in the Box are not expected until high unemployment rates in these markets for their key customer demographics begin to improve. 

 

While the typical JACK customer has not seen any recovery in California, some companies such as CPKI and CAKE have seen a pickup in their California trends.  The chart below shows the improvement seen in Retail Sales and Use Tax Receipts in California and in Knapp Track casual dining sales trends.  While it may take more time for JACK to see any improvement in its fundamentals, it is clear that that higher-end spending patterns have recovered significantly.  

 

CALIFORNIA DREAMIN’ OF A RECOVERY    - ca tax receipts

 

Howard Penney

Managing Director

 

 


THE M3: MGM LOAN REFINANCING, LVS RISKS, MBS PROBLEMS, DSEC STATS, MACAU TRAVEL

The Macau Metro Monitor, May 14th, 2010

 

MGM GRAND MACAU TARGETS $850 MLN LOAN Reuters

MGM Grand Macau aims to refinance its existing $1.1 billion facility ahead of its IPO, according to sources.  The refinancing is expected to comprise a term loan and revolving credit, both with five-year maturities.  The $1.1 billion financing was led by Banc of America Securities Asia, Banco Nacional Ultramarino, Bank of China Macau, BNP Paribas, CCB International Finance, Hang Seng Bank, HSBC Holdings, Royal Bank of Scotland and Sumitomo Mitsui Banking Corp.  HSBC is the agent bank.  Sources said MGM was expected to favor a 10-15 bank club to complete its loan.


WHITHER THE SANDS EMPIRE NOW? Intelligence Macau

Even with the loss of Cotai architect Stephen Weaver, Sheldon Adelson is not slowing down in driving his company to capture more and more ambitious ventures.  According to IM, while Adelson is lauded for his vision and achievements in Asia, he is also known for a strong appetite for risk.  Here are some concerns: 1) How can LVS get past the government foreign labor quota?  There are only 2,000 local construction workers available for a project that requires 5,000, half of the estimated 10,000 needed for the Cotai project.  2) Because of the large loans outstanding, cash flow from MBS is not not going anywhere except back into the pockets of the Singaporean banks for the foreseeable future. 3) Risk for LVS debt-holders ballooned after the $1.75BN loan failed to sell down.  4) Using cash flow from Macau to fund other ventures such as Japan, in addition to retiring the Macau debt, could hamper fiscal management, particularly if the Chinese property market blows up.


MBS: THE WORLD'S NO.1 RESORT, JUST NOT YET Intelligence Macau

MBS is facing a number of maintenance problems right now, including power outages and water leakage.  But IM consultants are more optimistic about MBS on a bigger picture.  Consider this: all a VIP player needs to do is deposit S$100,000 in the casino account to qualify as a VIP player.  The amount he loses to the casino will be taxed at just 12%.  Compare that to Macau, where 40% goes to the government and 40-55% goes to the junket operator.  It's a no-brainer: the volumes only need to be a fraction of Macau's in order to generate similar revenues.

 

Will gross gaming revenues be anywhere near the Venetian Macao's?  Not likely, without junkets.  Is the growth trajectory going to be anything like Macau's?  No chance: the number of tables on the MBS mass gaming floor today is the same number that will be there in 2020.  But this is a true integrated resort. It should have no problem paying back its creditors with the cash flow generated by all of its components.

 

VISITOR EXPENDITURE SURVEY FOR THE 1ST QUARTER 2010 DSEC

Per-capita spending of visitors increased by 9% YoY to MOP 1,783 in the first quarter of 2010.  Analyzed by place of residence, per-capita spending of Mainland visitors took the lead, at MOP 2,826.  Although gaming expenses are not considered in the per-capita spending of visitors, about 53% of the interviewed visitors in the first quarter claimed that they had participated in gaming activities during their stay in Macao.  The average length of stay of visitors shortened by 0.1 day to 1.0 day over the first quarter of 2009, with Mainland visitors staying an average of 1.1 day.

 

PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR MARCH 2010 DSEC

Visitor arrivals in package tours decreased by 7.7% YoY to 510,679 in March 2010.  Visitors from Mainland China (355,300) and Taiwan, China (25,225) dropped by 18.8% and 5.9% respectively.  At the end of March 2010, total number of available guest rooms of the hotel sector increased by 1,831 (+10.4%) YoY to 19,408 rooms.  The average occupancy rate of hotels and guest-houses increased by 4.9 percentage points year-on-year to 77.5% and that of hotels reached 78.2%, with 4-star hotels leading at 84.6%.

 

ALTHOUGH NOT YET THE HOLIDAY SEASON, BOOKINGS FOR HOLIDAYS HAVE ALREADY SOARED Macau Daily News

A manager from one of Macau's travel agencies, Li Yong Xuan indicated that holiday travel from Macau is very promising.  A 3% increase for travel bookings in May and June YoY.  Singapore remains the most popular travel destination this year.  Prices for summer tours through Southeast Air is about 1000 yuan more expensive than usual.  Macau Air has launched charter flights during this period but only up until June.


INDONESIAN AIRLINE TO SERVICE MACAU JULY 21 Macau Daily News

Indonesian low cost carrier Mandala Airlines will start flying to Macau on July 21.  Mandala Airlines Managing Director Diono Nurjadin responded to reinstate flights between Macau and Jakarta following the suspension of the Macau-Jakarta route served by Viva Macau.


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