The Macau Metro Monitor, November 30th, 2010



Melco International Development Limited’s board has granted 51,600,000 share options to the directors of the company; in particuarl, Chairman and CEO Lawrence Ho, the largest shareholder, is granted 38,000,000 share options.  The company stated that Mr. Ho has given financial support and sacrifice for Melco through his waiver of interest on the HK$1.18BN convertible loan notes, his loan of HK$250MM on an unsecured basis, and his decision to accept no salary from Nov 2008 until the company generates profits continuously for at least two years.



SJM gained 10.5% yesterday, the biggest gain since Nov 18.  SJM will be added to the MSCI Hong Kong Index tomorrow.



Belle Corp. is in discussions to team up with a Macau gaming firm for its Manila Bay Project.  Alfredo Benitez, majority owner of Leisure & Resorts World Corp. (LRWC), said he expects to conclude a deal before the end of the year.  LRWC is the local partner for the gaming component of Belle’s IR project.



The RMB 10BN Chime-Long International Ocean Resort will open in 2013 on Henguin Island, which sits directly across from Cotai.  The "Ocean Kingdom" project will be completed in two phases.  The first phase mainly involves the facilities in Fuxiang Bay. The “Ocean Kingdom” will have eight theme zones, each of them consisting of the three main components of amusement designs, performances and animal watching. The dolphin‐themed hotel after completion is set to become the largest ecological‐themed hotel in mainland China.  Angela Leong On Kei announced earlier this year that The Macau Theme Park and Resort Ltd will build a MOP 10.4BN theme park on Cotai.



James Packer is concerned that the two S'pore IRs are hurting Crown's VIP business which fell 10% in turnover volume from July to November.

Old Austerity

“You never see the old austerity. That was the essence of civility; young people hereabouts, unbridled, now just want.”



That’s an old quote from a famous French playwright who has long been dead. “Moliere” was Jean-Baptiste Poquelin’s stage name. His urban legend was born when he collapsed and died in the middle of a play in 1673. He was 51 years old.


I’ll take some editorial liberty this morning and evolve Moliere’s quote for the Age of American Millenials and Baby Boomers: ‘You’ve never seen austerity. That was the essence of our grandparents; Millenials and their parents, unbridled, now just want.’


This is obviously a generalization but, in principle, I can’t imagine that an analyst from outer-space wouldn’t see the hypocrisy in Americans door busting each other on Black Friday for i-Pads at the same time as their Congress fights to keep interest rates on my savings account at zero percent as a result of an alleged depression.


Want, want, want. What can I get out of this market? Pretended Patriotism be damned, what’s in this for me?


The good and the bad news on this front is that we have leaders in this country who can enforce change. Some of that change is going to be slow. Some of it is going to hurt. Some of it is needed or what you’re seeing in European stock and bond markets is going to be playing at an American “Lifestyle” Center near you in 2011.


In proposing a 2-year pay freeze for US Federal employees, President Obama did the right thing yesterday in implementing the first stage of what we have been calling for since July of 2010 (when we were short the US Dollar on reckless government spending). Our Q3 of 2010 Hedgeye Macro Theme was titled “American Austerity” and we think that fiscal conservatism is the only path to US Dollar driven prosperity.


The debauching and devaluation experiments of the Big Government Interventionists have been tested and tried. From Japan to Europe and back home again, they have not worked. We need to fix these deficit and debt to GDP ratios, or the global bond market is going to fix us.


This morning you are seeing Greece’s stock market test its lows from June 2010 when the European Fiats made a conflicted and compromised promise to the world that Piling more short-term Debt-Upon-Debt was the elixir of life. Apparently 8 centuries of Reinhart & Rogoff data has once again trumped political storytelling. This time isn’t different.


Why me? Why now? Shouldn’t this be someone else’s problem?


I get that line of thinking, but I also get what wearing a team jersey means  - and, as legend USA Hockey Coach Herb Brooks said:


“You're looking for players whose name on the front of the sweater is more important than the one on the back.” 


Back to the construct of our intermediate-term global macro forecast…

  1. Growth Slowing
  2. Inflation Accelerating
  3. Interconnected Risk Compounding

We don’t have a choice but to do this now. European and Emerging Bond markets are telling you this and so are American Bond yields:

  1. European Sovereign Debt Yields continue to make a series of higher-highs as concerns push rightly towards Spain and Italy.
  2. Emerging Market Debt just had its worst month in 2 years (NOV down -2.9% on the EMBI Index with Brazilian and Russian weakness).
  3. US Municipal Debt funds just flashed their 2nd consecutive week of outflows, taking the 2-week total to north of $5 BILLION.

Yes, we recognize that a BILLION or a TRILLION dollars isn’t what it was to our grandparents, but these are still big numbers to consider on the margin. Remember, everything in global macro that matters happens on the margin.


US Treasury yields are bullish on both our immediate and intermediate-term durations (TRADE and TREND) again this morning as well (yes, that’s a very bad leading indicator for bond funds in your 401k). Despite The Ber-nank’s JapanEuro style political promises, Mr. Global Macro Market is saying hey, dude, remember The Lehman Brother?


If you or your parents are baby boomers, you know what a double digit mortgage rate means to your family’s discretionary income. God knows you don’t need a Johnny Come Lately Wall Street “economist” to warn you about that. Maybe it’s time to dig into those Old Austerity boxes of our forefathers this Christmas to remind ourselves that as good as it gets may be gone if we don’t stop ourselves from just want.


My immediate term support and resistance levels for the SP500 are now 1173 and 1197, respectively. I’ve maintained my ZERO percent asset allocation to US Equities. I’m still long the US Dollar (UUP) and short the SP500 (SPY) in the Hedgeye Portfolio.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Old Austerity - 1

Knock Knock Knocking on Austerity’s Door

Conclusion: Today’s proposed federal employee pay freeze by President Obama is an early step in what we expect will be increasing austerity over the coming years.  American Austerity is bullish for the U.S. dollar.


Positions: Long the U.S. Dollar via the etf UUP


In early July, we announced our Q3 2010 investment themes, which included Bear Market Macro, Housing Headwinds, and American Austerity.  On the last theme, we presented at the time that due to burgeoning debt and deficit issues domestically, the U.S. would have to implement fiscal austerity measures.   At the same time we noted in one of our slides that some of the PIIGS in Europe were leaving the trough and implementing aggressive austerity issues, which was bullish for the Euro and bearish for the U.S. dollar versus the Euro.


In the chart below, we’ve highlighted the U.S. dollar index going back 9-month.  As it shows, the U.S. dollar weakened versus the Euro following our presentation in July and then began aggressively strengthening ahead of and in conjunction with the U.S. midterm elections where the Republicans gained 63 seats in the House of Representatives.  The massive shift in political power was and is an indication that there would be, at least, an attempt at implementing austerity measures domestically.


Knock Knock Knocking on Austerity’s Door - 1


Earlier today, President Obama introduced a preliminary austerity step as it relates to the pay of federal employees.  Obama is proposing to freeze the pay of federal employees for the next two years.  Not surprisingly, in the current politically-charged environment the response to this pay freeze was mixed at best.  Speaker Designate John Boehner (R-OH) responded with the following:


“I welcome President Obama's announcement, and hope he will build on it by embracing much-needed steps to reduce both the size and the cost of government, including the net federal hiring freeze Republicans propose in our Pledge to America. Without a hiring freeze, a pay freeze won't do much to rein in a federal bureaucracy that added hundreds of thousands of employees to its payroll over the last two years while the private sector shed millions of jobs.”


The message from Boehner, the defacto leader amongst elected Republican politicians, is clearly that they will be looking for more austerity measures as the new Congress opens in January.


The reality is, though, independent groups have analyzed the Republican Pledge to American and it, too, appears to fall short as it relates to reducing the deficit.  In the chart below, which appeared in Reason Magazine online and was put together by the Congressional Budget Office, the deficit is looked at as if the Pledge to America were fully implemented.  In aggregate, while spending does narrow, it is only marginally and federal government revenue is not projected to increase, so the outlook for the deficit, and growing federal debt balance, does not change dramatically.


Knock Knock Knocking on Austerity’s Door - 2


While the U.S. dollar will continue to strengthen with incremental American Austerity measures as we are seeing proposed today, the dollar will eventually require some dramatic measures to sustain its climb and for us to remain long term bullish of the U.S. dollar.  While their report was widely derided from the left (too much cutting in spending) and from the right (too many implied tax increases), the Presidential Fiscal Commission lead by Alan Simpson and Erskine Bowles presented a number of dramatic proposals to narrow the deficit, which included: 

  • Index the retirement age to longevity -- i.e., increase the retirement age to qualify for Social Security -- to age 69 by 2075;
  • Index Social Security yearly increases to a lower inflation rate, which will generally mean lower cost of living increases and less money per average recipient;
  • The co-chairs suggest capping both government expenditures and revenue at 21% of GDP eventually;
  • In their second plan, they would increase the personal deduction to $15,000, create 3 tax brackets (15, 25 and 35%); repeal or significantly curtail a number of popular tax deductions (including the state and local deduction and the mortgage interest deduction); and eliminate other tax expenditures;
  • They also suggest raising the federal gas tax by 15 cents per gallon;
  •  Eliminate all earmarks;
  • Freeze federal worker wage increases through 2014; eliminate 200,000 federal jobs by 2020; and eliminate 250,000 federal non-defense contractor jobs by 2015; and
  • Reduce procurement by 15 percent, or $20 billion. 

While today’s proposal by President Obama is incremental, for austerity to be long term bullish for the U.S. dollar it will require more dramatic and politically unpopular measures such as the ones outlined above.


Daryl G. Jones

Managing Director

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 80.43%
  • SHORT SIGNALS 78.34%

Strength At Home

This note was originally published at 8am this morning, November 29, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The strength of a nation derives from the integrity of the home.”



Slowly, but surely, the US Dollar is re-capturing some credibility. Yes, we get that credibility amongst the Fiat Fools is a relative measurement. But for now, with the Europeans doing their best to become Japanese, we’re long the US Dollar and we’ll take what we can get.


The strength of a nation is not derived from Piling Debt-Upon-Debt. The strength of a nation is not derived from professional politicians funding long term liabilities with short term fiat paper. The strength of a nation derives from the integrity of a country’s fiscal position.


I am well aware of the deficit and debt risks in America. I am certainly not saying they have gone away. That said, everything that matters in global macro happens A) on the margin and B) relative to everything else. What global currency prices are telling me now is that a strong currency at home could be more than just an immediate term TRADE.


Last week the US Dollar Index closed up +2.37% and +5.84% higher than its November 4th YTD low. That was the 4th consecutive week of gains and all of a sudden the Buck is Breaking Out above both its immediate and intermediate-term TRADE and TREND lines. Critically, what was resistance for US style fiscal conservatism is now support:

  1. TRADE support = $77.89
  2. TREND support = $79.71

As always, trending currency strength needs multiple factors of support - not the least of which are other foreign currencies weakening. When managing foreign currency risk, never underestimate the power of what’s going on in the rest of the currency basket.


In the last 3 weeks, the Euro has dominated headline news. This morning, “news” of an Irish bailout comes with the associated political nonsense. France’s central banking Fiat Chef went as far as to suggest that ze package “is very well tailored and will restore competitiveness in Ireland.” He’s got to be kidding me. Ask someone in Ireland how competitive they are feeling this morning.


Euros bulls are obviously having trouble swallowing that weekend old French toast. After losing -3.6% of its value last week, the Euro is trading down another -0.61% this morning at $1.32 versus the USD. It’s broken on both our TRADE and TREND durations:

  1. TRADE = $1.38
  2. TREND = $1.33

All the while, there is this large island of compromised Bureaucrats called Japan that is seeing its currency weaken as the #1 driver to economic-hope slows to a screeching halt. For the month of October, Japanese exports were effectively HALVED in term of their sequential (monthly) growth rate (+7.8% OCT versus +14.4% in SEP). As Asia slows, Japan slows… and these are the globally interconnected days of our lives.


Euro DOWN + Yen DOWN = US Dollar UP. Cool. Now Americans need to have the political backbone to maintain the integrity of the home currency. Can we do it? Yes, We Can.


I’ve got no problem cheering this Buck Breakout on. Yes, it will equate to immediate term US stock volatility, but I’m already proactively prepared for that. I cut my position in US Equities to The Ber-nank’s favorite exposure (ZERO percent) before the current 3% correction in US Equities started to take hold and this morning I have a 64% asset allocation to Cash waiting, as les bulls like to say, on ze sideline, eh.


The Volatility Index (VIX) was up a monster +23.2% last week to 22.22, so at least we’ve dropped some of the levered-long kids off at the pool. Volatility is a concurrent measurement of emotion and can quite often be a contrarian indicator of future performance. Naked swimmers may want to bear that in mind as the price momentum tide rolls out.


Strong Dollar nips The Ber-nank’s global inflation race in the bud. Strong Dollar also helps drive up short-term interest rates on my hard earned personal and corporate savings accounts. No, no, Mr. Hard Core Leverage Man, that doesn’t help you too. Strong Dollar helps men and women who are debt-free run strong like bull all over you when you are least expecting it. And this is where the true strength of this Nation lives.


My immediate term support and resistance levels for the SP500 are now 1173 and 1197, respectively. I remain short the SP500 (SPY) in the Hedgeye Portfolio.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Strength At Home - buck


The 7 bills designed to breathe life into AC’s casino industry



Last week the NJ Senate approved 7 bills to improve the casino and racing industry in NJ which are now moving to the Assembly for consideration.  Bill (1) S-490 seeks to legalize internet gaming for existing casino operators.  The second bill, S-1866, would allow for 2 additional “boutique” casino hotels.  Bills (3-7) S- 829, 1866, 1980, 2229, 2290, and 2394 seek to help the horse racing industry by allowing exchange based wagering, implementing a use it or lose it policy of OTW licenses, combining wager pools reducing volatility of payouts, lower minimum number of racing dates, and dedicate more funds to improve and promote horse racing.  


Thoughts on the 7 bills:

With the help of politically connected industry experts, we’ve come up with some thoughts on the proposed legislation. The takeaway is that if these bills get signed or passed, there will still be a lot of issues that need to be resolved before anything can be implemented – especially as it pertains to Bill S-490.

  • Bill S-490 conflicts with the NJ constitution which states that gambling is only allowed in Atlantic City or through the lottery. A section of this bill would allow for state wide gambling as long as the servers sit in AC. This issue could require a referendum to resolve.
  • Bill S-490’s international player provisions complicate the bill, beyond just the expected Department of Justice (DOJ) issues.  According to sources, New Jersey Senator Raymond Lezniak (D) has said that those could be negotiated away and are “throw away issues”, but it’s interesting that the Senate passed with it in. 
    • Apparently the international player provision would be a way to beef up state-ringed liquidity. However, we question why international players would bother going to NJ for their internet betting needs.
    • Individual operator sites are also likely to face fierce competition from Full Tilt Poker and Poker Stars which still operate illegally in the US market and basically own it.
  • The international provision in S-490 and just the Bill itself may force the DOJ to take a position on intrastate gaming.  There have been discussions in Illinois and New York as it relates to intrastate gaming for some time, yet the DOJ has not taken a position.  The DOJ position as it relates to the Internet in other areas such as child porn, makes this a very complicated situation.  In the past the DOJ has taken the position that anything that relates to the Internet is considered interstate.   Allowing this to happen in NJ would acknowledge that use of the Internet can be intrastate.
  • The international provision in S-490 can also raise WTO issues
  • Apparently S-829 (account based wagering) initially included a provision to include international players which was later excluded given the DOJ complications
  • It’s puzzling that while the Governor has all but written off the horse racing industry, S-490 proposes to use 15% of the tax proceeds from I-gaming to fund purses
  • It’s still unclear whether the Governor will sign this package of bills; although given the GOP support, it’s likely that he will at least consider it
  • Harrah’s, AC’s largest operator, is opposed to the proposed bills as it believes passage of these bills will complicate their Federal play for internet gaming legalization, which still appears to be a viable option


Proposal Summary:


Bill #1:  S-490

Sponsored by Sen. Raymond J. Lesniak; approved by a 29-5 vote

  • Proposes to authorize Atlantic City's 11 casinos to operate intrastate and international Internet wagering
  • All games, including poker, that are played at a casino, as well as variations or composites, may be offered through Internet wagering
  • Internet-based games would be available to New Jersey residents and international bettors, but would be prohibited for bettors across state lines, to conform to federal interstate Internet gambling prohibitions.

Bill #2:  S-1866

Sponsored by Whelan; approved 32-0

  • State Casino Control Commission to create a pilot program to offer two new classifications for casino licensure in addition to the traditional 500-plus room capacity, minimum 60,000 square foot casinos that the commission currently licenses:
    • 1 Small-scale casino project:  no more than 24,000 feet of casino space and at least 200 hotel rooms
    • 1 Staged casino facility project:  begin with no more than 34,000 square feet of casino space and at least 200 hotel rooms initially, increasing to 500 rooms within 5 years and would be required to build up to the 500-room requirement within five years of licensure

Bill #3:  S-829

Sponsored by Sen. Richard J. Codey; approved 34-1

  • Authorize the state Racing Commission to issue a license to the state Sports and Exposition Authority to establish an exchange wagering system in New Jersey
  • Allows New Jersey residents who are at least 18 years of age to open an account; bettors would be able to set up exchange wagering accounts; and two or more bettors would be able to place directly opposing wagers on the outcome of a horse race or races
  • Bets could be paired against opposing wagers in New Jersey or any other state that has a legal exchange wagering system. Exchange wagering could also be set up so that bettors can place their bets in person at the racetrack, by direct telephone call, or by communication through some other electronic medium, including over the Internet.

Bill #4:  S-1980

Sponsored by Sen. Paul A. Sarlo; approved 32-1

  • Changes to the state's "Off-Track and Account Wagering Act," to ensure that off-track wagering (OTW) facilities are being built in New Jersey.  Under the bill, the 15 current permit holders would have to show progress by Jan. 1, 2012, or those permits would revert to the horsemen organizations, and if the horsemen organizations cannot show progress, the permits would go to the open market to allow any private investor to bid on the development rights for those facilities.

Bill #5: S-2229

Sponsored by Codey; approved 34-0

  • Allow racetracks to combine all wagers placed on the results of one or more runnings or harness horse races into a single pari-mutuel pool.  By creating larger pari-mutuel pools, racetracks can handle a greater variety of wagers and reduce the adverse effect of large pay-outs to the racetrack's bottom line.

Bill #6:  S-2390

Sponsored by Sarlo and Whelan; approved 34-0

  • Lower the minimum requirement for the number of standardbred horse racing dates scheduled at the Meadowlands Racetrack and Freehold Raceway to 100 dates per season at each track; ensuring larger purses and more prestigious races at the racetrack each year

Bill #7:  S-2394

Sponsored by Sarlo;  approved 31-3

  • Dedicate an amount equal to the sales and use taxes associated with horse racing, breeding, training, raising or boarding to programs designed to improve and promote thoroughbred and standardbred horse breeding in New Jersey.

Require the director of the state Division of Taxation to annually deposit an amount equal to the sales and use tax revenue collected in association with horse racing and breeding into a new fund within the state Department of Law and Public Safety - the "New Jersey Standardbred and Thoroughbred Racehorse Incentive Fund" - which will be maintained by the state Racing Commission.

Do Washington and the IMF have your back?

Washington continues to spend US taxpayers’ dollars with reckless abandon.  Who is looking out for the US tax payer? 


After the fact, the International Monetary Fund has conceded it could have done better in predicting Ireland’s property and banking crash that led to this weekend announcement of a $113 billion bail-out by the IMF, of which the USA is the largest contributor with a 17.67% quota. 


Ajai Chopra, deputy director of the IMF’s European department, who leads the mission to Ireland, said in an interview with the Financial Times: “we are a learning institution” and “there is no question that we – and other observers – could have done better.”


While the comments from the Ajai Chopra appear candid and forthcoming they do not instill a lot of confidence in an institution that has the responsibility of doling out US tax payer money to bail out the European Union. 


On November 5, 2010, Timothy Geithner (with a nod from Chairman Bernanke) agreed to increase the commitment of the US tax payer share of bailing out the world’s problems from $60 billion to $133 billion.  In total, the total size of the IMF quotas – the contributions of the 187 member states to the fund’s capital – will be doubled from $340 billion to about $756 billion. 


I could be wrong, but I don’t think the Treasury wrote a memo to the 2 million Americans whose unemployment benefits are expiring informing them that their benefits are less important than helping the Irish government shore up its hemorrhaging banking system.


Also on November 5th the IMF’s Executive Board realigned the quota shares to better reflect the changing relative weights of the IMF’s member countries in the global economy, but the USA 17.67% quota is the largest share and bigger that the BRIC’s combined.  In the most recent realignment, China jumped Germany, France and Britain in the Fund's rankings, with its quota share rising to 6.19% from 3.65%.  India is eighth, Russia is ninth, and Brazil is tenth in terms of their share.  Together, the four countries will have 14.18% of IMF quotas. 


This weekend, the $113 billion bailout of Ireland sheds some light on why the IMF expedited the decision to rush through a 122% increase in the size of the fund.  Ireland alone accounted for 33% of the total funds previously available.   

Today the press is making a big deal about Obama putting in a pay freeze for government employees, citing it will save $2 billion on 2011.  Where was the manic media when the head of the treasury and Federal Reserve agreed to spend an incremental $73 billion of US taxpayer money on “bail-out” money for the IMF? 


These savings being made by the administration need to be put into perspective because they pale in comparison to the figures being spent on bailing out other countries.  Why is there not more attention being focused on this?


Today’s FT provided a list of banks called the Inter Alpha Group of Banks.  They represent everything that went wrong in European banking from 2005 to 2010;

  • Commerzbank — Subprime exposure, disastrous acquisition, 2008 blow-up, government capital injection, peripheral exposure
  • ING — Subprime exposure, 2008 blow-up, government capital injection, forced break-up, peripheral exposure.
  • Allied Irish Banks – too painful to recount
  • Banco Espirito Santo — peripheral exposure
  • National Bank of Greece — peripheral exposure from hell
  • KBC Bank – subprime exposure, 2008 blow up, government capital injection(s)
  • Royal Bank of Scotland – subprime exposure, disastrous acquisition, 2008 blow-up, government capital injection
  • Société Générale — subprime exposure,  weird derivatives stuff, weirder staff management
  • Santander – Spanish property exposure, peripheral exposure


How does it make you feel that the US taxpayer is providing $133 billion to keep these bankers solvent?


Howard Penney

Managing Director 

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