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CHART OF THE DAY: Fed Balance Sheet

This chart was published this morning in conjunction with the Early Look note, available to subscribers in real-time at 8am every trading day.

 

 

 

Carelessness at the beginning?  Fed Balance Sheet (Assets; $USD Trillion)

 

 

CHART OF THE DAY: Fed Balance Sheet - Screen shot 2010 08 18 at 9.10.43 AM


THE M3: MBS RETAIL SALES COULD REACH S$1BN; NO GENTING DIVIDEND; ONE OASIS PROPS UP PRICES

The Macau Metro Monitor, August 18th, 2010

 

LAS VEGAS SANDS: SINGAPORE RESORT'S SHOP SALES COULD HIT S$1 BN WSJ

David Sylvester, senior vice president of Sands' Asia retailing operations, said retail outlets at MBS could generate annual S$1 billion sales when the complex is fully operational.  Sylvester said about 50 more shops will open at MBS in September; MBS will have more than 300 stores and restaurants.  To date, the company has signed contracts with future tenants for around 95% of the mall's capacity, said Sylvester.  Sands China has just finished renewing retail contracts at the Venetian with "everybody we wanted to renew," said Sylvester, adding sales in the resort's 1-million-square-foot mall have improved recently.

 

Sylvester also said he will begin marketing Sites 5 & 6 to mid-range retailers in a few weeks.  

 

NO DIVIDENDS FROM GENTING S'PORE Strait Times

At its general meeting, Genting Singapore stated that shareholders will not be receiving dividends this year because the company is bound by a bank loan agreement not to dispense dividends until it has fully repaid its loans.  Also the shareholders voted in favor of the UK divestment. 

 

PROPERTY PROJECT ONE OASIS DRIVES COLOANE FLAT PRICES UP 130% Macau News

The opening sale of One Oasis drove up the average transaction price of residential units in Coloane island by 1.3 times QoQ (191% YoY) to 59,509 patacas per square metre of usable area in 2Q.  According to DSEC, the average transaction price of residential units in the whole region of Macau rose 69.2% YoY. 


Winner's Tranquil

“To play well you must feel tranquil and at peace. I have never been troubled by nerves in golf because I felt I had nothing to lose and everything to gain.”

-Harry Vardon

 

Having tired of reading about the collapse of societies, currencies, and politicians, I have shifted gears in my mid-August reading schedule to something I am much more proud of pursuing in this good life than the fate of the Fiat Fools – winning.

 

What’s most interesting about the aforementioned quote isn’t that it comes from one of the world’s all-time great golfers, it’s that it comes from a man who had a nerve in his right hand that had been impaired by tuberculosis.

 

Despite the obvious disadvantage Harry Vardon had in a critical component of his game (putting), the man didn’t whine or complain. He didn’t point fingers either. He focused his mind and energy on what he could control.

 

In “The Grand Slam – Bobby Jones, America, and the Story of Golf”, Mark Frost wrote, “opponents felt as if Harry wasn’t even aware of their presence, and they weren’t wrong; experience had taught him that his opponent was the golf course, not the other guy.”

 

Vardon graced this good world between May 9th, 1870 and March 20th, 1937, winning the British Open Championship a record 6 times along the way. He was never the longest off the tee. He was never the flashiest player either. Harry Vardon was a Risk Manager.

 

On avoiding losses, Vardon once said that “more matches are lost through carelessness at the beginning than any other cause.” When it comes to modern day US monetary and fiscal policy doesn’t that ring in your ears?

 

Unfortunately it’s a lot easier to read that lesson than to execute on it. President Obama definitely has his work cut out for him on this score. After coming back from some much deserved peace and tranquil with his family on vacation, the President of the United States stepped right up into the tee-box of US mid-term election qualifiers delivering the following shot:

 

“We have a choice between the policies that got us into this mess and the policies that are getting us out of this mess.”

 

OK. Shot made. Predictably, all replays of this opening shot have been recorded by partisan pundits on both sides of the gallery. But can’t Americans do better than this?

 

I’m certain that we can. Both Bush and Obama signed off on empowering a losing economic ideology that’s taken this country and its balance sheet to its knees. It has been all about fear-mongering and now it’s playing on America’s nerves. Confidence is abysmal and spending is slowing. America’s winners are deeply troubled about a colossal “mess” in American politics – not about “the other guy.”

 

With all due respect Mr. President, it’s your ball now and you need to play it as it lies. Planning to have our central government’s economic planners come up with more plans to change the rules won’t work.

 

The solution here is to find a message that doesn’t focus on insulating America’s losers. We have to find a way to get back to winning. That starts with confident messaging. Confidence breeds success. Success builds confidence.

 

My immediate term supports and resistance lines for the SP500 are now 1062 and 1099 respectively. For now, we remain most confident in our short positions. We shorted the SP500 (SPY) at 1098 yesterday and we remain short the US Dollar (UUP).

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Winner's Tranquil - dd1


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CHARTS: 2008 Crash, 2010 Set-up

These charts were extracted from a larger MACRO SELECT post (available to RISK MANAGER SUBSCRIBERS), dubbed "CHINESE DEMAND CONTINUES TO SLOW . . . COULD THE CORRECTION TURN INTO A CRASH?"  from August 11, 2010.

 

 

CHARTS: 2008 Crash, 2010 Set-up - chart1

 

 

CHARTS: 2008 Crash, 2010 Set-up - chart2



THE PENT UP DEMAND THEORY

We think current RevPAR dollar levels are unsustainable. While YoY growth rates may stay strong that won’t tell the whole story.

 

 

RevPAR is at an unsustainable dollar level, in our opinion.  Lodging should be in recovery mode given the depth of the recession last year.  However, the macro variables do not support a continuation of these current high levels.  So why is RevPAR so strong? 

 

We believe in the pent up theory of recent lodging demand, for lack of a better phrase.  Essentially, business transient travel was restricted for a long enough period that business suffered and people had to play catch up.  Pent up demand was apparent in April through July.  August will look stronger but in absolute dollar terms, seasonally adjusted, will mark a slowdown unless growth exceeds 13%.  See our 08/10/10 post, “DOLLAR REVPAR MORE RELEVANT THAN %” to see why.

 

The recovery bulls are quick to point out the strong and lasting RevPAR growth during the last recovery.  Indeed, from Q1 2004 to Q4 2007, quarterly RevPAR ranged from 5-11% and an average of 8%.  Good stuff.  Even the current high valuations would grow into those numbers.  The problem is that the macro environment isn’t supportive this time.  During that nearly 4 year mega recovery, quarterly nominal GDP growth YoY was 5-7% and averaged 6%.  Q2 2010 YoY nominal GDP growth was only 4.0%.  Looking ahead, 2H consensus expectations is for 3.3% GDP growth and only 2.8% for 2011.  Hedgeye is projecting even less, 1.7% next year and our Macro team has been much better than consensus.

 

What else is missing this time versus last time?  Housing for one.  The peak of the housing bubble helped propel GDP and lodging demand.  Unemployment – which we’ve proved was a more important driver of lodging demand over the last few years – does not look like it is coming down anytime soon, certainly not to the 5% average from 2004-2007.

 

Evidence of Pent Up Demand

  • Q1/04 to Q4/07 RevPAR range was 5-11% (ave 8%), GDP range was 5-7% (ave 6%) – current recovery GDP growth is significantly lower yet Q2 RevPAR growth was 8.3%. 
  • The spread between occupied rooms and employment has never been higher
  • Occupied room nights are only 7.5% below the prior peak
  • August RevPAR is up 9%YoY through the first two weeks – a sequential increase in growth but an actual deceleration of seasonally adjusted dollar RevPAR
  • Conversations with private owners

Here are some charts to back up those assertions:

 

THE PENT UP DEMAND THEORY - LODGING1

 

THE PENT UP DEMAND THEORY - LODGING2

 

THE PENT UP DEMAND THEORY - LODGING3

 

So if we are right about pent up demand when will it show up in the numbers?  Certainly not August.  The sell side cheerleaders will no doubt roll out the pompoms and dance moves to celebrate “accelerating growth”.  In terms of estimates, 2H guidance and consensus look reasonable.  However, whisper expectations are significantly higher.  Moreover, 2011 RevPAR estimates actually look aggressive.  Street consensus is 6.0-6.5%.  Assuming April-July represented a period of pent up demand and the inevitable RevPAR correlation to the typical macro drivers returns, 2.5-4.0% might be the better range.  Given the valuations, we don’t want to be around when numbers start coming down.


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