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THE M3: VISITOR DATA; CHANGI AIRPORT TRAFFIC; S'PORE INFLATION

The Macau Metro Monitor, August 23rd, 2010

 

VISITOR ARRIVALS FOR JULY 2010 DSEC

Total visitor arrivals rose by 23.2% YoY to 2,162,069.  Mainland China visitors increased by 34.0% YoY to 1,142,017 (52.8% of total visitor arrivals), with 477,119 traveling under IVS, up by 40.3% from July 2009. Visitors from Hong Kong (670,953), Taiwan, China (121,273), Japan (32,892) and the Republic of Korea (28,590) rose by 15.4%, 3.5%, 28.4% and 40.1% respectively.

 

RECORD MONTHLY PASSENGER TRAFFIC FOR CHANGI AIRPORT Channel News Asia

Changi Airport Group said 3.7 million passengers passed through the airport in July, up 16% YoY.

 

JULY INFLATION CLIMBS 3.1% Strait Times

Singapore CPI climbed 3.1% YoY in July, in line with the market forecast.  The cost of housing also went up 2.7% YoY and food prices were 1.5% higher YoY.

 

 

 

The Deuce

"Nobody can really guarantee the future. The best we can do is size up the chances, calculate the risks involved, estimate our ability to deal with them and make our plans with confidence."

- Henry Ford II

 

Staying as far away as I can from America’s professional politicians on Washington’s Sunday talk shows, this morning I’m rolling with an outstanding risk management quote from the man they called “The Deuce”, Henry Ford’s grandson, Henry Ford II.

 

According to my good friend who is currently working for Ford, Henry Ford II “doesn’t quite get the historical credit he deserves and is often remembered for his personal gruffness and feud’s with Lee Iacocca in the 1970’s, but his leadership and accomplishments during his era at Ford were amazing.”

 

After serving in the Navy in WWII, Henry Ford II came home to rid his family’s company of complacency and bureaucracy. He may not have been as “experienced” or as “polished” as some of America’s corporate executives are today, but as President of the Ford Motor Company (1) then CEO (1), he definitely sized up chances, calculated risks, and executed his plans with confidence.

 

Ford came public under Henry Ford II’s leadership in 1956. Don’t worry, I’m not wasting this morning’s missive on General Disaster’s pending IPO.  Instead, I’m going to get right into the math associated with last week’s macro market moves and focus specifically on the impact of another deuce – the US Dollar not going down for the 2nd week in a row!

 

Now before we get into some Dollar correlations, let’s first realize this: a deuce does not a TREND make. In our TRADE, TREND, and TAIL risk management process we are wed to 3s. In order for us to start thinking about shifting a strategy point of view (like covering our short position in the USD), we need to see at least 3 consecutive weeks confirm the direction of price.

 

Last week the US Dollar Index was barely up week-over-week (by +0.13%) for just the 2nd week in the last 12, closing out the week at $83.06. This followed the prior week’s significant +3.2% week-over-week move off of its recent 12-week low after Ben Bernanke didn’t give into the Fiat Fools begging for quantitatively easing America into becoming the debt-laden bureaucracy of Japan.

 

Measuring the math associated with a US Dollar Index not going down on our most immediate term risk management duration (TRADE = 3-weeks or less) is actually quite revealing.

 

The following are the 3 most negative TRADE (or inverse) correlations to the US Dollar:

  1. SP500 = -0.97
  2. Crude Oil = -0.94
  3. Commodity Index = -0.93

Here are the 3 most positive TRADE correlations to the US Dollar (again, using 3-weeks or less as our duration):

  1. Coffee = +0.85
  2. Cotton = +0.79
  3. Gold = +0.75

In other words, the decision by the Fed NOT to obliterate the credibility of America’s currency in one fell swoop has really hammered US stocks and the price of oil. The size of the Fed’s balance sheet actually contracted for once last week by $13.9B to $2.32 TRILLION.

 

Maybe not so ironically, prices at the pump going down also lifted US Consumer Confidence. In the last 2 weeks, despite stocks going down, the ABC/Washington Post Consumer Confidence reading has improved from minus -50 to minus -45.

 

In the very immediate term, could it be that The Deuce  of Dollar UP has provided Americans with some things that they really want?

  1. The value of their currency stopped burning.
  2. The price of oil is down -8.6% in the last 2 weeks.
  3. The probability of their least favorite American politician being voted out keeps going up.

Food for thought on a Monday morning in America where all that is conventional wisdom about the Fiat Republic’s dollar devaluation policy is ripe for change. It’s time we “estimate our ability to deal” with change and start leading this country with confidence.

 

My immediate term TRADE support and resistance lines for the SP500 are now 1059 and 1087, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Deuce - cat


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - August 23, 2010

As we look at today’s set up for the S&P 500, the range is 28 points or 1.2% (1,059) downside and 1.4% (1,087) upside.  Equity futures are trading above fair value in response to gains seen across Europe as a rise in basic materials temporarily offsets deeper economic concerns.

  • PERFORMANCE LAST WEEK: Dow (0.87%), S&P (0.70%), Nasdaq +0.29%, Russell +0.21%
  • PERFORMANCE MONTH-TO-DATE: Dow (2.41%), S&P (1.5%), Nasdaq (3.32%), Russell (6.16%)
  • PERFORMANCE QUARTER-TO-DATE: Dow +4.5%, S&P +3.98%, Nasdaq +3.34%, Russell +0.21%
  • PERFORMANCE YEAR-TO-DATE: Dow (2.06%), S&P (3.89%), Nasdaq (3.94%), Russell (2.34%)
  • ADVANCE/DECLINE LINE: -502 (+1408) Breadth positive on a down day
  • VOLUME: NYSE - 1124.11 (+4.7%) - Volume up on a down day
  • SECTOR PERFORMANCE: Every sector down but the XLU; XLE notable to the down side
  • MARKET LEADING/LAGGING STOCKS LAST WEEK: McAfee +57.0%, Salesforce.com +15.95% and Intuit +15.66% - Devry -11.07% Supervalue -8.28% and Sears -7.45%

EQUITY SENTIMENT:

  • VIX - 25.49 -3.59% and down 2.86% for the week
  • SPX PUT/CALL RATIO - 2.03 up from 1.31  

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 17.348, -1.070, (-5.812%)
  •  3-MONTH T-BILL YIELD .15% -.01%
  • YIELD CURVE: 2.13 from 2.09

COMMODITY/GROWTH EXPECTATION:

  • CRB: 267.01 -0.45% and -0.66% for the week - 2nd down week in a row
  • Oil: 73.82 -1.27% and down -2.57% for the week - 2nd down week in a row
  • COPPER: 331.15 -0.84% - up 1.19% for the week - Up 4 of the last 5 weeks
  • GOLD: 1,227 -0.42% - up 1.09% for the week; now 3 straight weeks

CURRENCIES:

  • EURO: 1.2712 -0.87%; down 0.33% for the week (2nd down week)
  • DOLLAR: 83.057 +0.74%; up 0.13% for the week (2nd up week)

 OVERSEAS MARKETS:

  • ASIA - Most markets closed mixed with economic concerns offset by strong resource sector. In Japan, the Nikkei extended losses amid worries a strong yen will threaten the economic recovery. Shanghai closed flat after moving in a narrow range as investors took profits in stocks which recently outperformed.
  • EUROPE - Regional markets were firmer boosted by stronger resource and financial sectors with ongoing M&A news/speculation also helping to counter-balance concerns about the sustainability of the economic recovery. Economic data out from the Eurozone proved mixed. Volume remains light.
Howard Penney
Managing Director
THE DAILY OUTLOOK - levels and trends

Early Look

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MGM: NEGATIVE CF YES, IMMINENT DANGER, NO

MGM’s leverage and cash flow troubles are well-known in the credit community.  However, it’s not really an imminent issue if MGM can sell its stake in Borgata and IPO a piece of MGM Macau.

 

 

Actual free cash flow is negative.  Even when MGM’s EBITDA improves over the coming years, much of the increased income will go towards catch up maintenance spend (see 8/22/2010 note, "MGM: MAINTAINING LOW CAPEX").

 

Since 2006, MGM’s FCF (Consolidated EBITDA pre-ESO less gross interest expense (reported interest expense + capitalized interest)) has been on a rapid decline.  In 2006, MGM’s FCF before debt service peaked at $973MM, before declining to $594MM and $410MM respectively in 2007 and 2008. To be fair, the drop is exaggerated by a period of elevated capital expenditure spending.   In 2009, despite meager capex spending, FCF before debt service continued to plummet to just $65MM. 

 

MGM: NEGATIVE CF YES, IMMINENT DANGER, NO - mgm chart1

 

For the next several years, we’re projecting that FCF before debt service turns negative, especially as maintenance capex returns to more normalized levels.  Over the next 3 years, MGM could burn through about $730MM of cash before debt service.  When you layer in $1.25BN of debt maturities through 2012, MGM's cash burn jumps up to approximately $2BN.  However, this in of itself may not be an immiment problem if MGM is successful in selling its 50% stake in Borgata and IPOing part of their stake in MGM Macau in 2011 (including getting back that ~100MM receivable).  Although by 2012, even after generating a combined $900 million from these two transactions, we estimate that cash balances fall to uncomfortably low levels of roughly $400 million.  In addition, after $1.2BN of MGM's bank debt matures in Oct 2011, they will only have a $3.6BN facility, which we estimate will be fully drawn.  Therefore another debt issuance or equity offering seems like a certainty.

 

MGM: NEGATIVE CF YES, IMMINENT DANGER, NO - mgm chart2


A DEEPER DIVE INTO CONSUMER DISCRETIONARY (XLY)

Here's a chart from a insight created for RISK MANAGER subscribers (originally posted on August 18, 2010).

 

 

A DEEPER DIVE INTO CONSUMER DISCRETIONARY (XLY) - chart1


The Week Ahead

The Economic Data calendar for the week of the 23rd of August through the 27th 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


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