The Macau Metro Monitor, December 1st, 2010


According to a source, MGM China Holdings Ltd will target its IPO for 1Q 2011 at the earliest.  During its 2Q CC, CFO Dan D'Arrigo said the company hoped to list by the end of 2010.  Sources say BNP Paribas, Bank of America-Merrill Lynch, JPMorgan Chase & Co. and Morgan Stanley are the bankers on the deal, which seeks to raise about US$500 million.



In November, Macau’s casinos took in $17.354 MOP BN (US$2.17 BN), up 42.1% YoY.

Surviving The Future

"Every organization must be prepared to abandon everything it does to survive in the future."

~ Peter Drucker


After closing down for the 3rd consecutive day, the S&P500 ended up closing down -0.23% in November, doing less-bad than both the Nasdaq Composite and Dow Jones Industrial Indices which were down -0.37% and -1.01% for the month, respectively.


If you were long virtually anything other than the US Dollar (best major global asset class allocation for November of 2010, closing up +5.2%) in the last 3 weeks of November, you probably felt some pain. I did. The MSCI All World Index underperformed US Equities closing down -2.2% for the month and, depending on which Fixed Income strategies you had assets allocated to, November probably didn’t feel very good either.


So where do we go from here?


GAME ON: It’s DAY 1 of a new month and the perma-bulls are blasting out of the box, taking US futures up to another lower-long-term-high, repeating what they’ve said since the October 2007 peak – the world is “awash with liquidity” and “don’t fight the Fed.”


For us, it’s always a game of US versus THEM. Yes, we have a culture of picking fights. But we pick the ones we expect to win. When we lose, we are prepared to abandon almost every theoretical and qualitative assumption in our macro model.


It’s critical to keep them (Wall Street consensus) in the game. Without them, I don’t know how we’d go about Surviving The Future.


For them, it’s going to be very interesting to see who survives getting wiped out the 2nd time around. Sure, the world is “awash” with liquidity, but it’s also laden with sovereign debt. Absolutely, “fighting the Fed” was painful in October of 2007 and 2010, but it’s also been the fight worth fighting in both Novembers of those respective years. You have to know what you are fighting for. We are fighting the academic dogma of the Fiat Fools.


So let’s throw down and get at it this morning…


The #1 Headline on Bloomberg (most read) is: “Contagion May Force EU to Expand Arsenal To Fight Debt Crisis”


TRANSLATION: Predictably, the Big Government Interventionists (them) are out in full force this morning trying to get investors to believe that the solution to this European Sovereign Debt disaster = QE/EU.


The quants @Hedgeye are already tweeting about this phenomena of buy-and-hope – they’ve interpreted this academic solution as:


QG = QE/EU = Inflation


I know. This is the kind of quant that we spend hours on, laboring throughout the night. It’s amazing that we get any sleep over here at all. But it’s always encouraging to wake-up to real-time market prices and global activity that supports or refutes our case.


Here’s the real-time, globally interconnected, market response to QE/EU:

  1. Asian Equities UP
  2. European Equities UP
  3. US Futures UP

Oh wait, that’s just the stock market response. Silly Mucker.

  1. Fiat Euro UP
  2. Commodities UP
  3. Bonds DOWN

Right, right…


So, after getting powdered for the last 3 weeks, stock markets around the world have a dead cat bounce to lower-highs (on low volume), global inflation reignites to the upside (Oil is bullish TRADE and TREND at $85.10, Gold is blasting higher to $1392, and Copper is up +2.4% in a straight line), and the real global contagion on risk managers minds remains a flashing red light in the bond market.


All the while, Chinese stocks (which are down more than -10% in the last month and down -13.8% for the YTD) closed up a whole 12 basis points after China reported its highest INPUT PRICE number (73.5) since June of 2008. Yes, like QG (Quantitative Guessing) = QE/EU, the Chinese see inflation.


Chinese interest rate swaps just had their biggest melt-up since April of 2007 (+58 basis points = biggest monthly move in 3 years). That’s an explicit signal that China gave us then as it is now. It’s also similar to the one they gave us on global inflation in June of 2008 when The Ber-nank said he saw no inflation with $150 oil. China is going to continue to raise interest rates to fight Fed and ECB stoked inflation.


During the recent -3.7% correction in US Equities (from their November 5th high of 1225 on the SP500 when we had 15 SHORTS), I’ve pared back our SHORTS in the Hedgeye Portfolio to 9 positions. I’ll be looking to re-populate our short book on today’s strength. My immediate-term support and resistance lines for the SP500 are now 1173 and 1189, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Surviving The Future - div


TODAY’S S&P 500 SET-UP - December 1, 2010

As we look at today’s set up for the S&P 500, the range is 16 points or -0.64% downside to 1173 and 0.72% upside to 1189.  Equity futures are trading back above fair value following Tuesday's choppy and ultimately weaker session. Markets in Europe are trading higher but braced for the results of a small yet important Portuguese 350 day bill auction which if unsuccessful may result in renewed pressure on the single currency and further widening of sovereign spreads. Economic data includes ISM manufacturing, ADP Employment, US auto sales, with the Fed's Beige Book in play.

  • Copart (CPRT) 1Q EPS inline, rev beats est.
  • Corinthian Colleges (COCO): Former CEO Jack Massimino named CEO effective immediately, replacing Peter Waller
  • Enterprise Products Partners LP (EPD) will sell 10.5m units representing partner interests and use the proceeds to cut debt
  • Health Care REIT (HCN) plans to sell 9m shares
  • OmniVision Technologies (OVTI) forecast 3Q profit above est.


  • One day: Dow (0.42%), S&P (0.61%), Nasdaq (1.07%), Russell 2000 (0.67%)
  • For-the-month: Dow (1.01%), S&P (0.23%), Nasdaq (0.37%), Russell +3.36%;
  • Quarter-to-date: Dow +2.02%, S&P +3.45%, Nasdaq +5.47%, Russell +7.52%
  • Year-to-date: Dow +5.54%, S&P +5.87%, Nasdaq +10.10%, Russell +16.25%
  • Sector Performance: Tech (0.99%), Healthcare (0.92%), Financials (0.55), Consumer Spls (0.46%), Industrials (0.24%), Energy (0.35%), Consumer Disc (0.22%), Utilities (0.13%), Materials 0.06%.


  • ADVANCE/DECLINE LINE: -964 (-464)  
  • VOLUME: NYSE - 1536.22 (+66.24%)
  • VIX: 23.54 +9.34% - YTD PERFORMANCE: +8.58%
  • SPX PUT/CALL RATIO: 2.12 from 2.24 -5.07%  


  • TED SPREAD: 13.80 -0.710 (-4.894%)
  • 3-MONTH T-BILL YIELD: 0.17% -0.01%  
  • YIELD CURVE: 2.36 from 2.32


  • CRB: 301.41 -0.49%
  • Oil: 84.11 -1.89% - NEUTRAL
  • COPPER: 382.55 +1.54% - BEARISH
  • GOLD: 1,388.42 +1.56% - BEARISH


  • EURO: 1.3038 -0.50% - NEUTRAL
  • DOLLAR: 81.195 +0.45%  - BULLISH




  • European markets opened higher and extended gains before becoming range bound slightly below the session highs. The FTSE100 and CAC gained as much as +1.2%, the DAX +1.5% as constructive economic data out of China and India aided sentiment.
  • European economic data was broadly supportive.
  • Peripheral markets bounced after recent losses and credit markets improved despite S&P putting Portugal's sovereign credit rating on negative watch yesterday. Market participants await the results of Portugal's T-bill auction. Banks up +3.2%, insurance +2.2% and basic resources +2.0% lead sector gainers.
  • The retail sector (2.3%) is the only sector trading lower led by Carrefour down (8.3%).
  • UK Nov house prices +0.4% y/y vs consensus +0.5%
  • German Oct preliminary retail sales +2.3% m/m vs consensus +1.3%
  • Eurozone Nov final Manufacturing PMI 55.3 vs prelim 55.5
  • France 57.9 vs preliminary 57.5
  • Germany 58.1 vs preliminary 58.9
  • EuroZone 55.3 vs preliminary 55.5
  • UK Nov Manufacturing PMI 58.0 vs consensus 54.6


  • Nikkei +0.5%; Hang Seng +1.1%; Shanghai Composite +0.1%
  • Asian markets ended the day higher after being mixed at lunch.
  • South Korea went up when its November PMI rose on the back of US numbers that beat expectations. Carmakers went up, while tech stocks were mixed.
  • Hong Kong was higher in low volume.
  • After remaining flat in thin trade on a stronger yen and weakness in China, offset by bargain hunting, for most of the day, Japan rallied to a rise by the close.
  • China was flat in extremely low volume, due to a cash squeeze and concerns about inflation data due next week. Retail investors avoided commodity, banking, and transportation shares, seen as vulnerable in case of policy tightening.
  • Australia rallied to finish flat after declining on lower-than-expected economic growth.
  • China November PMI 55.2 vs 54.7 seq.
  • Australia Q3 GDP +2.7% y/y vs survey +3.5%.
  • Japan October housing starts +6.4% y/y. 

Howard Penney
Managing Director

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Macau doesn’t disappoint with November YoY growth of 42%.



The month of November finished a touch stronger than expected and total gaming revenues slightly exceeded the top end of our HK$16.2-16.7 projection range.  The following table shows the HK$ total gaming revenue for November for BOTH tables and slots. The market share numbers are for tables only, but slots shouldn’t make a material difference to percentages.  We don’t yet have the breakdown between Mass, VIP, Rolling Chip, and Slots.




We believe that Wynn had an exceptionally high VIP win percentage - greater than 3.4%.  LVS probably held below 2.5%.  MPEL’s share rebounded in the last few days.

Squeezing Japan’s Jugular

Conclusion: Japan’s economy continues to underperform its regional counterparts and the factors driving our Japan’s Jugular thesis remain supportive. We welcome the Nikkei 225’s recent strength as a shorting opportunity within the context of this bearish fundamental backdrop.


Position: We are not currently invested, but remain bearish on Japanese equities and bearish on the Japanese yen for the intermediate-term TREND.


Strategy Update


Regarding the title, the pun is most definitely intended, as Japanese equities have experienced a monster short squeeze since the dollar bottomed on November 4th. The Nikkei 225 has outperformed nearly every other major world equity market since then (with the exception of Ukraine and Bangladesh) to the tune of +6.2%, aided by a positive 0.72 correlation with the U.S. dollar in that time period.


Squeezing Japan’s Jugular - 1


Given that persistent yen strength was outlined as one of the key drivers in our bearish Japan’s Jugular thesis (email us if you need a copy of our 4Q10 Macro Themes presentation), it comes as no surprise that Japanese equities have rebounded off their lows alongside weakness in the yen (JPYUSD down -3.8% in the above time period).


Squeezing Japan’s Jugular - 2


With the dollar trading comfortably above its TREND line of support of $79.71, it appears the Bullish Buck Breakout has some legs and is supported by a confluence of supporting factors – American Austerity, Sovereign Debt Dichotomy, and Quantitative Guessing backlash.  Given this setup, we anticipate further weakness in the yen from here over the intermediate-term TREND.


So that must equate to a bullish outlook on Japanese equities over the same duration, right?




In a report published on 10/26 titled: Japan’s Jugular Continues… Don’t Buy the Hope, we outline three reasons why Japanese equities will continue to look attractive on the short side once we sift through near-term strength associated with yen weakness. Those reasons are: 

  1. The Consumption Cannonball looks to conquer an ailing U.S. consumer in 4Q10 and 1H11 (the U.S. is Japan’s second largest export market at 16.4% of total exports);
  2. Tightening in China and elsewhere in Asia as inflationary headwinds brought on by QG force economies throughout the region to rein in speculative growth via rate hikes, tax hikes and price controls (China, Korea, Taiwan and Hong Kong combine for ~39% of Japan’s export demand); and
  3. Rising tensions with Asian rivals China and Russia (note: this looks to have taken a back seat, but the damage to Prime Minister Naoto Kan’s approval rating has been done – 35% in November vs. 53% in October). 

In addition to those factors, the bulk of global economic data continues to be supportive of the Hedgeye Global Macro outlook, which suggests: 

  1. Growth is slowing;
  2. Inflation is accelerating; and
  3. Interconnected risk is compounding. 

Under this setup, we remain extremely cautious on equities as an asset class, in general, over the intermediate-term TREND.


While we’d certainly like to see an additional 2-3% short squeeze in the Nikkei 225 before we re-short it, the reality is that it just broke its TREND line overnight. Should it fail to close above 10,001 in the immediate-term, last night’s (-1.9%) decline is an explicitly bearish quantitative signal.


Squeezing Japan’s Jugular - 3


Macroeconomic Update


Overnight, Japan released its October economic data and, by and large, the slowdown continues.


Export and Industrial Production growth slowed again in October, coming in at +7.8% YoY and +6.1% YoY, respectively. The comps only get tougher from here…


Squeezing Japan’s Jugular - 4


As we show in our Japan’s Jugular slide deck, Japan is an economy that is highly levered to manufacturing and exports for growth and employment. Considering, it’s not a conceptual leap to see Japan’s Unemployment Rate tick up for the first time since June, as the economy shed 180,000 jobs – the most since May.


Squeezing Japan’s Jugular - 5


A second-derivative effect we outline is that the pain felt by the manufacturing sector would eventually reverberate throughout the rest of the Japanese economy, causing consumer confidence and spending to decline. In October, both Consumer Confidence and Retail Sales growth continued to slow, coming in at 40.9 and (-0.2%) YoY, respectively.


Squeezing Japan’s Jugular - 6


Going forward, it’s important to keep in mind that stimulus measures and policy changes helped buoy the Japanese consumer in 3Q10, including a subsidy for energy-efficient cars and a tobacco tax hike scheduled for October 1st. Both programs pulled forward consumer demand to the tune of a 0.7 point contribution to 3Q10 GDP, after having no contribution from private consumption in 2Q10. In addition, Japan’s hottest summer in over a century fueled demand for cooling products.


These tailwinds helped boost 3Q10 GDP growth to +3.9% QoQ SAAR and their absence will create a drag on growth in 4Q10 and potentially into 1Q11 – just around the time bearish 4Q10 economic data is being reported in globally. Japanese equities have nowhere to turn but to the hopeful promise of additional stimulus. As we have shown, stimulus won’t matter when it’s all said and done; it merely helps the Nikkei rally to lower highs as it has done for much of the past two decades.


Squeezing Japan’s Jugular - 7


FYI, Japanese equities haven’t always gone up during periods of yen strength historically. Throughout the past twenty years, the inverse relationship has waxed and waned over various durations.


Squeezing Japan’s Jugular - 8


Needless to say, Japan’s chin is exposed.


Darius Dale


Old Austerity

This note was originally published at 8am this morning, November 30, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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

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