Less Is A Good Thing

This note was originally published at 8am this morning, December 03, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Less Is A Good Thing.”

-Jason Fried & Heinemeier Hansson


At our year-end Hedgeye meeting this week, this was the most valuable take-away from the aforementioned bestselling authors of “REWORK.”


My immediate term support and resistance levels for the SP500 are 1197 and 1223, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The loss of lots 7 & 8 should not have been a surprise. 



LVS's 'loss' of sites 7 & 8 shouldn't be a big surprise.  Aside from the recent Macau government news on reclamation of undeveloped land, the fact that LVS has not yet been granted a land concession for sites 7 & 8 is also explicit in all of LVS's filings.  We have also heard for a while now that the Macau government would like each of the concessionaires to have strip facing properties, with the exception of Galaxy due to their development off strip. 


While it's clear that Sands had hoped that given their $6BN of capitalized investments on Cotai, history would repeat itself and the government would grant them the land concession for sites 7 & 8, the Company was aware of a possible rejection of the concession.

"Based on historical experience with the Macau government with respect to our land concessions for the Sands Macao and parcels 1, 2, 3 and 5 and 6, management believes that the land concession for parcels 7 and 8 will be granted; however, if we do not obtain the land concession, we could forfeit all or a substantial portion of the $102.4 million in capitalized construction costs, as of September 30, 2010, related to our development on parcels 7 and 8."

- September 20, 2010 10Q, page 36


In fact, despite having a land concession for parcel 3, should development on that site not be completed by April 2013, Sands is also at risk of losing that site.  Luckily, they have only invested $35MM into that parcel. Our contacts on the ground believe that it would be in Sands's best interest not to appeal and to possibly leverage off any good faith they build from not appealing in negotiations for a Four Seasons apartment deal.


In terms of implications for Sands China, we don't believe that this is a big negative since anything built on sites 7 & 8 would take billions to finish and wouldn’t open until at least 2016.  In addition, any opening would likely cannibalize existing LVS properties the most.  By then, there may be other opportunities for LVS to deploy their billions, like Japan.


The decision to reject LVS's land concession for sites 7 & 8 opens up an opportunity for both Wynn and MGM to move their plans on to the strip, and with the situation surrounding the Macau Studio City site still in the air, it may also open up an opportunity for SJM.


In terms of negative implications to Wynn Cotai, we don't really think there are many.  Wynn is in the process of developing their site now and they only have 1 site in Cotai.  LVS had 8 parcels in Cotai – with no definitive timeline for the development of its 3 remaining sites.  We don’t think that this is a departure from what the government has been saying for some time – basically, use it or lose it.  Remember, a lot of controversy surrounds many of these land grants/ "handshakes" that were done under the previous administration, especially around the award process or lack thereof.  The result was hundreds of parcels which companies are sitting on for over 5 years that are not getting developed--which is not good for the people of Macau or the government.  So bottom line--easy come, easy go.


Appendix of recent government announcements on the potential reclamation of unused land:

  • 3/22/2010: CEO Chui mentioned undeveloped land on Cotai Strip as high priority
  • 5/10/2010: The chairwoman of the Legislative Assembly’s (AL) Provisional Committee for the Analysis of Land and Public Concessions, Kwan Tsui Hang, said that 30 operators who are yet to develop land granted to them by the Macau government will be asked to explain the reasons for their inaction in writing.  Kwan stressed that the 30 cases are not only related to gaming operators.
  • 8/19/2010: Jaime Carion, director of DSSOPT, said the government has no timetable on when it plans to take back idle land.  DSSOPT has received replies from 26 concessionaires explaining why they have left their land parcels undeveloped, which are being studied by the bureau’s legal department.
  • 9/7/2010: SJM interested in sites 7&8. Sands China acting CEO Mike Leven said Sands "certainly will defend (its) positions on sites 7&8" and that historically when the government has allowed operators to invest in land, they've eventually gotten the rights to it.  However, recently, the government warned that undeveloped land on Cotai may be taken back.

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Europe Taking a Breather

Hedgeye Position: Long Germany (EWG); Short Euro (FXE), Short Italy (EWI)


Yesterday we shorted Italy and the EUR-USD off a two-day bounce in equities and declines in peripheral yields. We called out the move as a dead-cat bounce and continue to stress that despite immediate term market swings, over the intermediate to longer term we expect the risk premium across Europe to remain elevated as the risk associated with the sovereign debt contagion spreads to the likes of Portugal, Spain and Italy.


That said, we’re seeing another day-over-day decline in risk via 10yr bond yields from the PIGS (except Italy) that is worth a call-out (see chart below). Further the EUR-USD has gained ground, currently at $1.3365, which we shorted into.


Europe Taking a Breather - mhh1


This lift comes into and out of ECB President Jean-ClaudeTrichet’s announcement yesterday morning to hold the ECB’s benchmark lending rate steady at 1%, and no step-up to its €67 Billion bond purchasing program, which the market was largely speculating on given the Fed’s $600 Billion QE2 injection (Quantitative Guessing) and the Bank of England’s larger bond purchasing program of £200 Billion.


The ECB will keep offering banks unlimited loans through the first quarter over periods of seven days, one month, and three months. That marks a shift from last month, when Trichet said that the ECB could start limiting access to its funds, a position long voiced by Bundesbank President Axel Weber.


Positive Data, on the margin


-The Bundesbank revised upward its GDP forecast for Germany in its bi-annual economic outlook today:


3.6% in 2010 (vs June estimate of 1.9%)

2.0% in 2011 (vs 1.4%)

1.5% in 2012


-Final readings of November Manufacturing and Services PMIs, released on Wednesday and today, respectively, showed month-over-month gains for the majority of the reporting countries:


Positive Divergences: UK Manufacturing rose to 58.0 in November versus 55.4 in October and Germany Services jumped to 59.2 vs. 56.0.


Negative Divergence: Spain Services rose M/M to 48.4 but remain under the 50 line, denoting contraction. Italy Manufacturing fell to 52.0 vs 53.0.


Europe Taking a Breather - mhh2



Keep your risk management pants on and have a great weekend!


Matthew Hedrick



TODAY’S S&P 500 SET-UP - December 3, 2010

As we look at today’s set up for the S&P 500, the range is 26 points or -2.01% downside to 1197 and 0.12% upside to 1223.  The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today. S&P 500 futures dropped sharply on the number. 

  • Coldwater Creek (CWTR) 3Q loss-shr narrower than est.
  • Emergency Medical Services (EMS) bought Milford Anesthesia
  • Novell (NOVL) 4Q rev. beat est.
  • Phillips-Van Heusen (PVH) forecast 4Q EPS below est.
  • Sunoco (SUN) agreed to sell Toledo, Ohio, refinery to Toledo Refining for $400m
  • Ulta Salon Cosmetics & Fragrance (ULTA) sees 4Q rev. inline with est.
  • VeriFone Systems (PAY) Sees FY2011 adj. EPS, sales above est.


  • One day: Dow +0.95%, S&P +1.28%, Nasdaq +1.17%, Russell 2000 +1.08%
  • Month-to-date: Dow +3.24%, S&P +3.47%, Nasdaq +3.25%, Russell +3.33%
  • Quarter-to-date: Dow +5.32%, S&P +7.04%, Nasdaq +8.90%, Russell +11.10%
  • Year-to-date: Dow +7.94%, S&P +9.54%, Nasdaq +13.67%, Russell +20.12%
  • Sector Performance: Financials +2.56%, Materials +1.52%, Industrials +1.55%, Energy +1.49%, Consumer Disc +1.30%, Tech +1.19%, Healthcare +0.78%, Utilities +0.29%, Consumer Spls +0.07%


  • ADVANCE/DECLINE LINE: 1270 (-416)  
  • VOLUME: NYSE - 1115.48 (-0.28%)
  • VIX:  19.39 -9.22% - YTD PERFORMANCE: -10.56%
  • SPX PUT/CALL RATIO: 1.58 from 1.67 -5.45%  


  • TED SPREAD: 15.74 -0.101 (-0.640%)
  • 3-MONTH T-BILL YIELD: 0.16%
  • YIELD CURVE: 2.46 from 2.44


  • CRB: 312.10 +1.03%
  • Oil: 88.00 +1.44%
  • COPPER: 397.90 +0.80%
  • GOLD: 1,386.95 -0.28%


  • EURO: 1.3204 +0.57%
  • DOLLAR: 80.303 -0.51%




  • FTSE 100: 0.00%; DAX (0.08%); CAC 40 +0.34%
  • Markets are mixed to unchanged in light trading following strong gains seen in the previous two sessions as investors rediscover an appetite for risk.
  • ECB bond purchases during the previous session threw down the gauntlet to euro skeptics who doubted the bank's resolve to back up its rhetoric with decisive action.
  • Strong headline economic data and the fact that equities currently offer investors better returns than government or corporate bonds are also factors underpinning sentiment in the asset class.
  • Last night, S&P warned it could cut Greece's BB-plus credit rating if it becomes clear that the proposed European Stability Mechanism will favor public creditors to the detriment of private bond holders
  • EU Commission makes unannounced inspections in pharmaceutical sector
  • Eurozone Nov Final Services PMI 55.4 vs prelim 55.2
  • Eurozone Oct Retail Sales +1.8% y/y vs cons +1.0%
  • Germany Nov Final Services PMI 59.2 vs prelim 58.6
  • France Nov Final Services PMI 55.0 vs prelim 55.7
  • UK Nov Services PMI 53.0 vs cons 53.0


  • Nikkei +0.10%; Hang Seng (0.55%); Shanghai Composite (0.04%)
  • Closed mixed with Shanghai and Hong Kong lower on nagging fears China may take more steps to rein in inflation.
  • Investors are starting to price in another increase in banks' required reserve ratios and a rate rise by the end of the year.
  • Gold miners fell on profit-taking, and coal miners declined on a report that Beijing has frozen prices for next year in a bid to control inflation.
  • The Nikkei ended marginally higher having earlier hit a 6-month intraday high, lifted by stronger than expected US economic data and on talk of ECB activity in bond markets  

Howard Penney
Managing Director


The Macau Metro Monitor, December 3rd, 2010



The Office of the Secretary for Transport and Public Works said, "The government will announce the result [of Sands China's application for sites 7 & 8] in the most convenient time." This is in reference to Sands' right to appeal the rejection of its application for parcels 7 & 8 within 30 days.


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 80.46%
  • SHORT SIGNALS 78.35%