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THE M3: IVS CURBS RELAXED?, SPEEDING UP LAND-USE APPROVALS

The Macau Metro Monitor, May 17th, 2010

 

IVS CURBS RELAXED FURTHER? Intelligence Macau

According to IM, because of the visa restrictions two years ago, mainland visitors switched from IVS to package tours in order to avoid the restrictions on the number of visits per year.  But overall mainland arrivals were up 8.18% in March 2010 as tour package numbers fell overall by 7.7% YoY. Are we starting to see a swing back towards IVS (individual visitor scheme) from package tours? If so, mainland visitors will have more money in their pockets for gaming, seeing as they don't need to pay a middleman to get to Macau. It may also weaken the hand of the junkets who control many of these tours.

 

'BUILD FIRST, APPROVE LATER' POLICY FAULTED SCMP

Approving construction projects long after they are completed has become a common practice of the Macau government in the last few years as a backlog of land-use applications builds up while officials tread warily in the wake of the graft scandal involving former public works minister Ao Man-long. For example, the land-use approval for Sands China's US$4.42 billion project on the Cotai Strip was gazetted on Wednesday - four years after construction began and five years after the government received the application for the project.

 

Jaime Roberto Carion, director of the Land, Public Works and Transport Bureau, on May 7 admitted that his bureau was "a little slow" in approving land-use changes. "The process of changing land uses is a little slow. We will review it and speed it up," Carion said. A bureau spokesman said the government had been improving transparency in land-use approvals. "We are speeding up the revision of the Land Law and other relevant laws and regulations," he said.


Prejudiced Fools

“Prejudices are what fools use for reason.”

-Voltaire

 

Voltaire was a writer, philosopher, and playwright. He was one of the central figures of the Enlightenment. His real name was Francois Marie Arouet, but allegedly used upwards of 178 pen names during his time attempting to stave off being incarcerated.

 

On May 30th we will anniversary the 232nd year of Arouet’s death. While there are plenty of changes that have occurred in France since then, like Voltaire back in his day, we are comfortable being short the aristocracy of French politics. We call them these men the Fiat Fools.

 

Born in Lyon, France, the leader of the Fiat Fools is a 67 year old by the name of Jean-Claude Trichet. After being put on trial (charged with 8 others for banking irregularities at Credit Lyonnais) and cleared in 2003, Monsieur Trichet has led quite a life for himself as President of the European Central Bank. While I have had plenty of criticism reserved for Messrs Greenspan and Bernanke over the last few years, Mr. Trichet was also a critical part of the pied-piping for Fiat Fools.

 

This morning, Trichet is making headlines calling for a “quantum leap” to prevent the “bad behavior” of finance ministers and professional politicians across the fields of the Eurozone that he helped fertilize. Reaching the heights of hypocrisy is apparently something that the Frenchman feels no shame in doing. After all, who is actually going to hold the man accountable for laying the railway tracks of deficit building like he did as the Finance Minister of France?

 

World class leadership in hand, upward and onward we go this morning as the price of Keynesian Political Prejudice is priced into the Euro. The Euro is hitting 4-year lows this morning after the US Dollar traded higher for the 4th consecutive week. The US Dollar Index is up +16% and the Euro down -18% since their November 2009 levels.

 

Have no fear however. Our call this morning will not be to pile on to the “parity call” that has quickly become the most deserved and consensus trade in global macro. Both our immediate and intermediate term duration targets for the Euro are converging in the $1.21-1.22 range. Whenever these durations converge, my own mathematical prejudice is to cover my short position.

 

In Global Macro, for every short position covered there is a new opportunity to consider on the short side elsewhere. I laid out my intermediate term upward bound target for the US Dollar on Thursday, but it’s worth putting in print again here this morning as you have less and less reason to trust the calculus of some sell-side analyst who picks “parity” as his risk management level. My intermediate term upside target for the US Dollar Index remains $86.97.

 

Duration Mismatch is one of the most important drivers of making money in Global Macro. We are in early days of imputing the governing factors of chaos theory into global markets. That is a very good thing. It gives students of the modern day portfolio Enlightenment the edge.

 

The issues that Trichet is facing won’t be dissimilar to what Bernanke has coming down the pike. We’ll go through the timing of Spanish versus American debt maturities on our Monthly Macro Call tomorrow afternoon. This is a trivial exercise even for the most basic of calendar watchers. Please email if you’d like to participate. We will have our customary Q&A where well informed buy-siders can ask questions anonymously.

 

Back to our call for this morning, our call is what our call was in the middle of last week when we sold everything we could on US Equity market strength. Our allocation to US Equities in the Hedgeye Asset Allocation Model remains Bernanke’esque at ZERO percent. We remain short the SP500.

 

Both our immediate term and intermediate term TRADE and TREND lines for the SP500 are broken. What was longstanding support for US Equities is now resistance at 1144 (TREND) and 1183 (TRADE), respectively. Surely, this market has every opportunity to bounce, but our Q2 Macro Theme of May Showers looks like it will remain as long as A) it’s May and B) the SP500 continues to make a series of lower-highs.

 

Perversely, the Prejudices of Fiat Fools are all of a sudden making German Equities more attractive than most equity markets around the world. If you are a country exporting to China, and you sell the Chinese things that don’t look like Fat Middle Fingers, a Euro of $1.21 might be just what the German doctors of pseudo conservative fiscal responsibility have been waiting 60 years for.  Intermediate term TREND line support for Germany’s DAX is currently intact down at 5,912.

 

Best of luck out there today,

KM

 

Prejudiced Fools - EURO 3.0 YEAR


US STRATEGY - WEEK’S GAINS LACK CONVICTION

Last week stocks finished higher with the Dow, S&P 500, NASDAQ and Russell 2000 up 2.31%, 2.23%, 3.58%, and 6.28%, respectively.  Despite having snapped a two-week losing week, there was no conviction behind the move.  The issues surrounding the Trillion dollar EU/IMF support package drove the bulk of the direction for stocks last week. 

 

At the end of the week, there were no sectors that are positive on TRADE and only three that are positive on TREND (Industrials (XLI), Consumer Discretionary (XLY) and Utilities (XLU)).   Last week, the Industrial sector was the best performing, rising 3.9%.  The XLI was the beneficiary of the EU/IMF bailout as it provides some support for the RISK/RECOVERY trade.  Last week, the S&P Industrial Conglomerates Index and the S&P Machinery Index were up 4.2% and 5.1%, respectively. 

 

China remained a MACRO headwind for US equities as the Shanghai Composite officially crashed last night, falling 5.07%, and is now down 21.9% year-to-date.  

 

On Friday Financials were the worst performing sector, on the regulatory overhang from Washington and the widening criminal probe of the investment banks are weighing on sentiment.  Late last week, there was the unexpected passage of the interchange amendment on Thursday night.  The financial regulations led to a steep drop in credit cards stocks on Friday with V down 9.9%, MA down 8.5% and CATM down 9.8%. 

 

Last week, Energy stocks underperformed as crude drops below $72.  Crude has now declined 17.5% over the past two weeks.  Within the XLE on Friday, E&Ps, oil services and integrated were all under pressure.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (71.27) and Sell Trade (75.26). 

 

At this time of writing the Euro is within a penny of our Q2 downside target of $1.21; getting immediate term oversold finally and USD is now overbought.  While the dollar is trading up again this morning, the Euro is trading down against all major currencies with the exception of British Pounds and Australian dollars.  With growth concerns mounting, the Australian dollar is under pressure and Australian bond yields were up today.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (84.67) and Sell Trade (86.23).

 

Sovereign credit contagion and stability concerns have driven a good chunk of the recent weakness in the Euro, while the outperformance of the headline US economic figures have contributed to driving the dollar higher.  Euro concerns continue to permeate the credit markets; 3 Month LIBOR is up to 0.45 and the TED Spread has widened further, indicating that the perception of credit risk continues to heighten.  The inverse correlation between the TED spread and the Euro has grown tighter; it is now -0.94.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.21) and Sell Trade (1.26).

 

Gold hit an all-time high last week (up 1.2%), while precious metals stocks (XAU +6.9%) also held up fairly well despite the inability of the EU/IMF backstop to put a bid under the euro.  The resilience in gold and gold equities seemed to be a function of heightened concerns surrounding the “fiat fools’” currency debasement following the massive bailout package and the accompanying ECB balance sheet deterioration.  Gold is now trading at $1,230 per ounce.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,211) and Sell Trade (1,259).

 

At the time of writing, equity futures are trading above fair value, but looking unchanged.  Global world volatility is driving MACRO sentiment and today's tone is likely to be driven by ongoing news out of the Eurozone region and the crash in the Asian markets.  As we look at today’s set up, the range for the S&P 500 is 34 points or 4.1% (1,110) downside and 1.2% (1,144) upside.  On the MACRO calendar we have:

  • May Empire Manufacturing
  • March Net Long-term TIC Flow
  • May NAHB Housing Market Index

Copper traded down 3% on Friday and in early trading it’s down nearly another 2% today.  Copper is trading lower on a stronger dollar and on concern that Europe’s sovereign-debt crisis and the decline in the Chinese market may curb demand for the commodity.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.99) and Sell Trade (3.18). 

 

Howard Penney

Managing Director

 

US STRATEGY - WEEK’S GAINS LACK CONVICTION - S P

 

US STRATEGY - WEEK’S GAINS LACK CONVICTION - DOLLAR

 

US STRATEGY - WEEK’S GAINS LACK CONVICTION - VIX

 

US STRATEGY - WEEK’S GAINS LACK CONVICTION - OIL

 

US STRATEGY - WEEK’S GAINS LACK CONVICTION - GOLD

 

US STRATEGY - WEEK’S GAINS LACK CONVICTION - COPPER

 


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YUM - TACO BELL'S NEW LOW

Taco Bell has a storied history of being a brand that is disruptive to the pricing structure of the industry. 

 

In 1Q10, the same-store sales performance (down 2%) at Taco Bell was the biggest disappointment.  I recently had breakfast with in NYC with Greg Creed, president of Taco Bell, and he commented that while the new products and marketing initiatives were working well, it did not offset the decline in the sales of drinks and combo meals.  In 1Q10, 40% of the decline in average check was due to lower drink sales. 

 

More importantly, the sales of its combo meals - peaked at 31% of all sales in 2008 - are now down to the “low 20’s” of sales.  What he would not tell me at breakfast was what he was going to do to fix what was causing the decline in same-store sales.  At the time he said they were testing a $2 combo meal, but there were no plans to roll it out nationally.  I guess now that has changed! 

 

While there is no official press release from YUM, there are media reports talking about the new combo meal and a quick stop by our local Taco Bell confirmed these reports (see picture below).  As was reported in USA Today, you get a taco or burrito, a medium soft drink, and a bag of Doritos chips - all for $2.  If you compare three items at MCD (a protein, a side dish and a drink), you end up paying $3. 

 

The interesting twist to this combo meal is the bag of Doritos.  At breakfast Greg mentioned a new partnership with Frito-Lay, but did not provide any details.  Since our meeting there has not been a press release about that either, but we can see where this may be going now they are including a bag of Doritos’s in a combo meal.  The new combo meal does not seem to be discounting any of the core items on the menu. 

 

I have no doubt that the YUM marketing machine will be going heavy and hard to get the news out on a $2 price point, which is sure to help Taco Bells’ declining sales trends.

 

YUM - TACO BELL'S NEW LOW        - 5 16 2010 9 36 46 PM

 

Howard Penney

Managing Director


TELLING FOOD STAMPS DATA

In this High vs. Low Society that we live in, participation levels in the Supplemental Nutrition Assistance Program are soaring.  The higher end consumer, meanwhile, continues to come back strongly.

 

Since late 2009, Keith has referred periodically to the participation levels in the USDA’s Food Stamps Program.  Each time, it was noted that the percentage of the population participating in the program has increased drastically since Bernanke took the helm at the Federal Reserve.  February’s data shows that almost 40 million people, or one-in-eight Americans, received food stamps (chart 1, below).  While this is a staggering number, it could grow even without deterioration in the consumer; researchers are commenting that one-in-three people eligible for the program are not taking advantage of the benefits.

 

For context, in November 2008 we wrote a note entitled, “EYE ON POVERTY: FOOD STAMPS”, that discussed the number of participants in the program exceeding 30 million for the first time.  According to USDA forecasts, the number of participants will increase to 40.5 million by the end of this fiscal year, ended September, and will grow to 43.3 million in 2011.  New highs have been set, monthly, since December 2008.  Interestingly, as Director of Hedgeye’s Retail Team, Eric Levine pointed out in a recent note, the sequential growth in monthly Food Stamps Program participants is slowing for now (chart 2).  Levine points out that this is “marginally good news for those concerned about the state of the U.S. consumer”.  However, over the longer term, should our Q2 theme, Inflation’s V-Bottom play out and high unemployment levels persist, the situation could continue to deteriorate.  As unemployment benefits run out for some of America’s jobless, it seems clear that a larger proportion of eligible people will take advantage of the program.

 

At the end of the day, numbers don’t lie; people do.  Since March 2009 the S&P500, fuelled by the Fed-sponsored Piggy Banker Spread, has shot up almost 70% (taking into account recent market declines).  From March 2009 to February 2010, the number of people enrolled in the Food Stamps program increased 20%.  Our view on Inflation’s V-Bottom continues to be confirmed by the data (see the Early Look from May 11) and will only serve to exacerbate the situation lower and middle class families face with the stagnant employment outlook.  The employment outlook, along with mounting inflation, is taking a toll.  We have said it before; many of those on Main Street are not experiencing the “recovery” that has bolstered Wall Street.” 

 

TELLING FOOD STAMPS DATA - 5 11 2010 9 44 59 AM

 

TELLING FOOD STAMPS DATA - 5 11 2010 1 21 39 PM

 

Howard Penney

Managing Director


The Week Ahead

The Economic Data calendar for the week of the 17th of May through the 21st is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

The Week Ahead - c1

The Week Ahead - c2


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 80.65%
  • SHORT SIGNALS 78.63%
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