As we look at today’s set up for the S&P 500, the range is 42 points or 2.3% (1,076) downside and 1.5% (1,118) upside.
July table revenues rose to HK$14.8 billion. Adding in slots should yield full month revenues of around HK$15.5 billion, up 67% YoY, but down from the 75% pace we had expected just last week.
The last week of the month slowed markedly since through the first 25 days. July’s revenues were tracking up 76% as we noted in our 7/26 post but will end up "only" 67%. Whether the slowdown was volume or hold related, we won’t know until we get the full details.
The only meaningful changes in market share from our 7/26 post is that Wynn lost another 100bps and MGM dropped below 7% again. MPEL actually increased share 20bps from an already strong 14.4% through the 25th.
Here are the table revenues for the full month of July in Macau in HK$.
All Indicators Improved Last Week
In spite of a modest 1% rise in the XLF last week, all 8 of the 8 risk measures we track registered positive readings on a week-over-week basis.
Our risk monitor looks at the following metrics weekly:
1. CDS for all available US Financials (29 companies)
2. CDS for large European Financials (39 companies)
3. High Yield
4. Leveraged Loans
5. TED Spread
6. Journal of Commerce Commodity Price Index
7. Greek Bond Spreads
8. Markit MCDX
1. Financials CDS Monitor – Swaps were mostly positive last week. Swaps for 17 of the 29 CDS reference entities tightened, while 12 widened, with an average change of -1.7%. Conclusion: Positive.
Tightened the most vs last week: MBI, AXP, XL
Widened the most vs last week: PGR, AON, MTG
Tightened the most vs last month: MBI, MS, AXP
Widened the most vs last month: ALL, TRV, AON
2. European CDS Monitor – We include a look at European swaps to gauge risk perception across the Atlantic. Swaps for 37 of the 39 reference entities tightened, while only 2 widened, with an average tightening of almost 10%. Conclusion: Positive.
Tightened the most vs last week: Aviva PLC, Assicurazioni Generali, Banco Espirito Santo S/A
Widened the most/tightened the least vs last week: Sberbank, Caja de Ahorros del Mediterraneo, Investor AB
Tightened the most vs last month: Assicurazioni Generali, Credit Suisse, Aviva
Widened the most vs last month: Banco Pastor, Investor AB, IKB Deutsche Industriebank AG
3. High Yield (YTM) Monitor –High Yield rates fell 16 bps last week. Rates closed the week at 8.44% down from 8.60% the week prior. Conclusion: Positive.
4. Leveraged Loan Index Monitor - Leveraged loans rose steadily last week, closing at 1489 versus 1475 the week prior. Conclusion: Positive.
5. TED Spread Monitor – Last week the TED spread fell 4 bps, closing at 31 bps versus 35 bps last week. Conclusion: Positive.
6. Journal of Commerce Commodity Price Index – Last week, the JOC index rose slightly, closing at 12.6, up just over 3 points versus last week’s close at 9.5. Conclusion: Positive.
7. Greek Bond Yields Monitor – Greek bonds yields and CDS continued to plateau at a high level. Last week yields fell 8 bps, ending the week at 1030 bps versus 1038 bps the prior week. Conclusion: Positive.
8. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices. Spreads continued to fall last week, closing at 204 versus 214 the prior week. Conclusion: Positive.
Joshua Steiner, CFA
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.
“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”
Before I went to bed last night, China reported another sequential deceleration in its manufacturing PMI Index for the month of July. I thought to myself – wow, that explains absolutely nothing in terms of how both oil and copper have been trading for the last 3 weeks (UP). However, it explains everything in terms of why Chinese stocks have underperformed global equities for the last 7 months (DOWN). China has slowed.
In Q1 we called this the Chinese Ox In A Box. In our Q1 slide presentation we even had a fancy looking Hedgeye Macro Theme chart that outlined the forecast that PMI readings in the high 50’s were unsustainable given that the Chinese were going to tighten.
So China tightened… and now the PMI reading has dropped -12% over the course of 6 months into the low 50’s (July’s reading was 51.2% versus 52.1% in June)… and next to Slovakia and Greece, the Chinese stock market is the worst performing in the world for the year-to-date.
That, however, doesn’t mean that in the face of a monster 2-month rally in European equities (i.e. the other worst performing stock markets for the YTD – Greece, Spain, etc.) that Chinese stocks don’t have every opportunity to A) mean-revert to the upside alongside global equities or B) show you that they have already Discounted The Obvious.
On the heels of this “bearish” economic data last night, China closed up another +1.3% to 2672 on the Shanghai Composite Exchange, taking its rally from its YTD low established on July 5, 2010 to +13.5%. Chinese equities are up basically in a straight line – closing up on 9 out of its last 11 trading days.
So what do you do with that? Inclusive of this rally, the Shanghai Composite Index is still -18.5% YTD. Economic growth is still slowing, but everything that slows finds a time and a price where it gets baked into the Mr. Macro’s cake. Should you chase it here? Should you short it? Should you do nothing?
Whenever I miss a big move like this, I tend to try my best to do nothing. Particularly if the math in my TRADE versus TREND model isn’t yet clarifying the risk management decision for me. Here are our TRADE, TREND, and TAIL lines for the Shanghai Composite Exchange:
Since the Shanghai Composite closed at 2672 last night, you’ll notice that it’s game time now for the intermediate term TREND in Chinese equities. We’re either at an inflection point where price momentum is making the turn from bearish to bullish, or we’re right where the long term bearish case for Chinese stocks fortifies itself.
Since I don’t have a long or short position in China right now other than long the Chinese Yuan (CYB), I don’t feel compelled to make a “call” on which way this is going to go. I’m much more comfortable letting the macro math tell me what to do. Chinese growth has every opportunity to re-accelerate from here, but it could just as easily continue to slow. The big money on the short side has already been made.
Looking at a multi-factor global macro model for the answer is also going to be critical here. Let’s consider some critical signals relative to the summer of 2008:
Both the prices of copper and gold are all of a sudden doing what they did at the end of July and early August of 2008. Much like it is doing now, the US Dollar was getting creamed (down for the 8th consecutive week last week, taking the USD down -8% since early June) and all of a sudden the “reflation” trade in gold decoupled from that in copper (DOLLAR DOWN equaled copper up, but gold down and a lot of people couldn’t figure out why).
Chinese equities also based and rallied in July of 2008, but that was a sucker’s rally in as much as it was in Copper. Gold and the US Dollar were actually leading indicators for almost everything else going down back then. I don’t see that same setup right here and now, but “betting on the unexpected” can pay the bills. Food for thought on a Monday while we’re all Discounting The Obvious of the China slowdown that’s in our rear-view.
My immediate term support and resistance levels for the SP500 are now 1076 and 1118, respectively. The SP500 hasn’t had an up day in the last 4, so we took midday weakness in US equity trading on Friday as a buying opportunity, moving our allocation to US Equities from zero up to 3%.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
The Macau Metro Monitor, August 2nd, 2010
LAS VEGAS SANDS SEEKS TO EXTEND, PAY DOWN LOAN Reuters
Reuters sources said LVS seeks to amend its $5 billion credit facility by paying down $750 million of the outstanding $3.9 billion and extending ~$2.25 billion for 2.5 years. Thus, ~$900 million of the amount outstanding would not be extended. The paydown piece applies only to those who extend for 2.5 years. Lenders who extend would receive 75 more bps in coupon to 250 bps + Libor. Consenting lenders would also receive a 10 bps amendment fee. The amendment requires 50% approval from lenders to pass.
MGM MACAU SIGNS USD 950 MILLION LOAN MGM
MGM Macau has signed a five-year refinancing loan worth $950 million. The new credit facility consist of a HKD4.290 billion (US$550 million) term loan and a HKD3.120 billion (US$400 million) revolving credit facility, which mature in July, 2015.
In preparation for the BYD Q2 earnings release on August 3rd, we’ve put together the pertinent forward looking commentary from BYD's Q1 earnings release/call.
Post Q1 Conference Commentary
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