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THE DAILY OUTLOOK - JUST CHARTS

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. 

 

THE DAILY OUTLOOK - JUST CHARTS - S P

 

THE DAILY OUTLOOK - JUST CHARTS - DOLLAR

 

THE DAILY OUTLOOK - JUST CHARTS - VIX

 

THE DAILY OUTLOOK - JUST CHARTS - OIL

 

THE DAILY OUTLOOK - JUST CHARTS - GOLD

 

THE DAILY OUTLOOK - JUST CHARTS - COPPER


END OF JULY SLOWDOWN IN MACAU

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$.

 

END OF JULY SLOWDOWN IN MACAU - chart1


WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE

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

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - us cds

 

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

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - euro cds

 

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.

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - high yield

 

4. Leveraged Loan Index Monitor - Leveraged loans rose steadily last week, closing at 1489 versus 1475 the week prior. Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - leveraged loan

 

5. TED Spread Monitor – Last week the TED spread fell 4 bps, closing at 31 bps versus 35 bps last week. Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - ted spread

 

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.

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - joc cpi

 

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.

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - greek bonds

 

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.

 

WEEKLY RISK MONITOR FOR FINANCIALS - VERY POSITIVE - markit

 

Joshua Steiner, CFA

 

Allison Kaptur


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Discounting The Obvious

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”

-George Soros

 

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:

  1. TRADE = bullish, with 2491 support
  2. TREND = bearish, with 2693, resistance
  3. TAIL = bearish, with 2988, resistance

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:

  1. Dr. Copper
  2. US Dollar
  3. Gold

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,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Discounting The Obvious - cHH


THE M3: LVS/MGM LOAN REFINANCING TERMS

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.


BYD YOUTUBE

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

  • “We’re starting to see a more rational promotional environment in the locals business and we’re very aggressive about our sales pulling back on the promotional activity of our properties early in ‘08, because we felt like that business activity would not generate profitable revenues.”
  • “We’re seeing our customers come more frequently now. In particular, our rated customers are starting to show up more. Now they are still spending less and that’s been the issue throughout and we won’t see a full recovery until those customers start spending more money. But right now, they’re starting to show up more frequently.”
  • “I would say that our belief that the second half of the year will be better and kind of flattish relative to second half last year is really driven by the belief that the business has kind of plateaued, not so much that we expect consumers to really start spending more.”
  • “In our downtown business, it’s a smaller segment for us. It only represents about 12 to 15% of our EBITDA. That business is very well run. The volatility that you see in that business largely comes from fuel costs associated with our charter business there. But absent that volatility, the businesses themselves are very stable and very well run. So, we really don’t see any issues there.”
  • [Louisiana] “It’s kind of picking up at pre-hurricane levels.”
  • “The outlook from Paradise is pretty good.
  • [Borgata] “That property has been very stable and we really see no change in that property going forward, given the ability of the management team to recognize what it needs to do from a competitive perspective--adjust and execute…. I think we feel pretty good about our ability to continue to manage the business at the levels of EBITDA that we’ve seen historically.”
  • [Foxwoods license] In Pennsylvania, I think we would look at a little bit harder and I think the issue for us really again is just how much capital is required before you get the benefit of that investment. We are really kind of attuned to making sure that we either have minimal Capex upfront and have it more timed to when we align with when we will generate the EBITDA or either outright buying the EBITDA at kind of the right multiples.”
  • “Our first priority is to deleverage Boyd and so if we were to refinance Borgata and we were able to extract a distribution of some sort for each of the partners there, the first priority would be to deleverage the company. Any acquisitions that we would do would be along the same lines. We would not be doing acquisitions to kind of all-in-all leverage up the company from a covenant perspective…. We want to run the company kind of four to five times leverage.”

                                                                                                                                

YouTubing Q1

  • “We’ve reduced the year-over-year EBITDA GAAP to 10% in the first quarter and expect a similar EBITDA GAAP in the second quarter before returning to year-over-year growth in the second half of 2010.” 
  • “Our leverage calculated in accordance with our credit facility was 6.5 times versus a covenant of 6.75 times. Our covenant steps up in the second quarter to seven times.” 
  • “Corporate expense excluding share-based compensation for the quarter was approximately $10 million, and that should be a good quarterly run rate for the remainder of the year. Depreciation is estimated at about $150 million for 2010, and Borgata will add about $50 million in total for the final three quarters of the year.” 
  • “Interest expense was approximately $28 million during the quarter and is expected to be approximately $125 million in total for the year. In addition, due to the consolidation, we will include Borgata’s interest expense, which runs approximately $5 to $6 million per quarter. Given the maturity of the existing Borgata credit facility in January of next year, the run rate of interest expense at Borgata will be impacted by any refinancing of that debt.” 
  • “The opening expense recorded in the quarter was related to Echelon. We expect 8 to $10 million for this item for the full year. Share-based compensation is estimated to be approximately 10 to $11 million for the year and the tax rate was 32% in the quarter. From a capital expenditure perspective at Boyd, our forecasted capital needs are primarily maintenance-related and run about 50 to $55 million for the year. And just as an FYI, Borgata’s forecasted maintenance capital runs about 15 to $20 million per year."

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 78.61%
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