The Macau Metro Monitor, February 11, 2011


Melco Crown has filed a lawsuit against a Vancouver player who has not paid a gambling debt of HK$3.5 MM.  The documents, prepared by Vancouver law firm Blake, Cassels & Graydon LLP, say the player has been “unjustly enriched” and should repay his debt in full, with interest.



According to LUSA, the government has sent a letter to SJM asking for clarification regarding Ho's share transfer.  According to sources, the  government will do nothing until the situation becomes clear and the dispute within Stanley Ho’s family is solved.


Sands China said The Venetian Macao, Sands Macao and the Plaza Macao received more than one million visitors in the first seven days of the new Chinese Year.


The bears will cite lucky play for the monster quarter. Adjusting our Street high estimates for normal hold still leaves a big beat.



Despite ever rising estimates, Wynn handily beat consensus and our Street high estimate.  Don’t even try to attribute the strength to favorable luck.  I’m talking to you bears and shorts (4.75% of float).  Yes, Wynn’s hold percentage was high in Macau.  However, only the high Mass hold should’ve been a surprise to anyone. The high VIP hold was well known and should’ve been in the projections.  It certainly was in our model.


So relative to our estimate, Mass hold was around 5% higher than normal.  Normalizing that would’ve decreased EBITDA by $15 million.  Wynn's Macau's EBITDA came in $34 million above our estimate in Macau - and we were handily ahead of the Street.  That amounts to a great quarter in Macau.  Overall, we were 11% ahead of the street for company-wide EBITDA.  Expectations have certainly risen – we were 20% higher when we put out our preview a month ago– but the quarter was even better than we thought.  Apparently, Hong Kong investors agree as 1128.HK was up 3% overnight vs. the average Macau gaming stock down almost 4%.


Beyond the quarter, there were a few interesting takeaways.  Wynn is obviously holding low in Q1 which isn’t a surprise given the low market share.  Volumes are strong and should get stronger as the property added yet another junket this quarter with two more coming on in Q2.  More intriguing was Wynn’s reference to development on which he wouldn’t comment specifically other than to say he would consider US development.  Corporate expense was up $6MM sequentially which wasn’t related to the design of Cotai.  Hmmm.



WYNN Macau

  • Reported revenues of $912MM beat our estimate by 3% or $27MM and EBITDA of $297MMM beat our projections by $34MM or 13%
  • Casino revenues were $21MM higher while net non-gaming revenues were $6MM better
  • VIP gross revenues were $4.5MM better but net revenues were $17MM above our estimate due to lower than estimated rebate rate of 89bps (28.4% of hold) vs. our estimate of 93 bps or 30% of hold.
    • Direct play as a % of total RC volume was 11% or $3.1BN
    • Direct play grew 54% YoY while Junket RC grew 65% YoY
    • The rebate rate of 89bps was the same as 3Q10, despite hold being 27bps higher
    • If hold was 2.85%, revenues would have been $83MM lower and EBITDA would have been $16MM lower
    • We knew that VIP hold was high and our model reflected that
  • Mass table revenues came in $2.4MM above our estimate
    • While the reported number was very close to our estimate, mass drop grew 18% less than our estimate but hold was a lot higher
    • Assuming mass hold was equal to the 7 quarters trailing average of 22.4%, revenues would have been negatively impacted by $24MM and EBITDA would have been $14MM lower
  • Slot revenues were $1MM higher than our estimate
    • Hold was 0.2% better but handle was $23MM lower
  • It appears that fixed expenses were $20MM below our estimate or $90MM, down from $102MM last quarter but up 15% YoY

WYNN Las Vegas

  • Net revenues of $325MM came in $2.4MM below our estimate while EBITDA of $68MM was $2.6MM below our estimate
  • RevPAR was $5 higher than we estimate – with occupancy 3% lower while ADR was $15 higher
  • Promotional spending as a % of casino revenue declined to 32% compared to 36.5% in 4Q09.  In 2010 promotional spend as a % of casino declined 360bps.
  • 27 tables and 79 slot machines were removed from active service in the quarter, sequentially
  • Table drop only increased 3% vs. our estimate of 7% but hold was 1.5% higher than our estimate
  • Using the trailing 7 quarter average table hold of 21.6%, revenues would have been $5MM lower
  • Slot win was $1MM below our estimate due to a 5.9% decline in slot handle vs. our estimate of a 3% decline

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

The Rookie Trader

Lorri: “So how does it feel to be the oldest rookie in the last 30 years?”
Jimmy: “I don't know... I'm tired.”

-Rachel Griffiths and Dennis Quaid in The Rookie


Alongside “Invincible” (starring Mark Wahlberg and Greg Kinnear in 2006), “The Rookie” (Dennis Quaid and Rachel Griffiths in 2002) is one of my favorite ‘true story’ Disney movies of the last decade.


I’m an athlete, so these are my confirmation biases. I get it. And I’m proud of it. While trading markets may not be a full contact sport, there’s definitely a score and the non-athletes in the game are some of the most competitive people I have ever played with and/or against.


There are plenty of Rookie Trader mistakes that people make in this business. I am certain that I have made all of them, multiple times. Most of the time, that’s the only way a risk manager can mature in this business – by learning with live ammo.


Currently, we have a Rookie Trader learning on the job as he trades America’s balance sheet. Like Jimmy Morris did, he has some of the credentials to play in the Big Leagues. He’s one of the oldest rookies we’ve put in the game. And, if you didn’t notice, on Wednesday in front of Congress, he looks tired.


Tired and old is hardly a bad thing. I’ll still put the original Thunder Bay Bear (my Dad) up against any young buck who wants to try to hold up a retaining wall (we might just have to jack him up with some coffee first!). But tired, old, and inexperienced is not the kind of trader I want at the helm of my firm or family’s future.


Every week the Federal Reserve issues its version of transparency and shows us both the size and components of the Fed’s balance sheet. In the last 2 weeks, this is what Ben Bernanke has been doing – buying bonds, aggressively:

  1. February 3rd – Fed balance sheet assets expanded +$25.9 BILLION week-over-week to $2.47 TRILLION
  2. February 10th – Fed balance sheet assets expanded $31.3 BILLION week-over-week to $2.50 TRILLION

Yes, I am capitalizing the B’s and T’s so that you can hear me now…


Over the same 2-week period, this is what the US Treasury Bond market was doing:

  1. Week of January 31st – 2-year UST yields were up +37% (week-over-week!) to 0.74% and 10-year UST yields were up +10% w/w to 3.64%
  2. Week of February 7th – 2-year UST yields are up another +10% this week to 0.81% this morning and 10s are up +5% w/w to 3.66%

So… what does this mean? drum-roll … The Rookie Trader at the helm of the US Federal Reserve is committing one of the cardinal sins of risk management – he’s getting bigger and more aggressive on the way down!


Again, remember that The Ber-nank’s promise of perpetually low interest rates and that the Quantitative Guessing II (QG2) is the elixir of Big Government Intervention life has A) never been tried before, B) no risk management scenarios in the case that the trade goes against him, and C) no one to tap him on the shoulder and stop him from trading.


When I was given my first book to trade in 2002 (at our hedge fund we called it a “carve-out”), I had 2 bosses and an entire trading desk overseeing everything I did. Stop losses, shoulder taps, personal embarrassment – there were plenty of governors managing my mellon. But this guy has none.


No real-time accountability. No modern day risk management system to stop him out. Nothing.


And this he’s betting with $25-31 BILLION DOLLARS a week!


To put those Burning Bucks in context for you… and yes I realize our entire culture and country is numb to what a US Dollar is worth anymore… pressing a one-way bet with $30 BILLION Dollars a week would be the equivalent of 3 Steve Cohens taking all of their capital and having them all buy the same security, at the same time, with no hedges and no other positions…


Welcome to Centrally Planned America 2.0. with the Rookie Trader starring as your Almighty Central Planner.


In other news this morning, as US interest rates continue to push higher (2-year yields are now up +166% since Bernanke made his QG2 promises of “low interest rates and price stability” at Jackson Hole), I see nothing but price volatility.


1.  Pepsi (PEP) – a $100 BILLION snack and beverage company cut its EPS targets for 2011, and the stock hit a fresh 3 month low on big volume. Management cited soaring commodity costs and uncertainty about when the said US economic recovery will actually be felt by consumers.


2.  Bunge (BG) – a $10 BILLION agribusiness and food service company said it would no longer issue earnings guidance because volatility in the commodity markets have made forecasting increasingly difficult.


3.  Bolivia – a country with 11 million people saw its President, Evo Morales, pull himself from all public appearances as food riots have erupted across the country and Bolivian miners, who are evidently upset, are starting to throw sticks of dynamite at government people.


I know, who cares about Egypt, India, and Bolivia? The Rookie Trader says US Monetary Policy gone bad has nothing to do with what’s happening anywhere in the world, including his home team’s bond market.


My immediate term support and resistance levels for the SP500 are now 1311 and 1334, respectively.


Best of luck out there today and have a great weekend,



Keith R. McCullough
Chief Executive Officer


The Rookie Trader - do1


The Rookie Trader - do2


TODAY’S S&P 500 SET-UP - February 11, 2011

Equity futures are trading below fair value as events in Egypt send investors into defensive mode; safe haven trades are a consequence of the current political uncertainty with dollar assets in demand and the price of oil rising back above $87.00 per barrel. As we look at today’s set up for the S&P 500, the range is 23 points or -0.82% downside to 1311 and +0.92% upside to 1334.



  • 8:30 a.m.: Trade Balance, Dec., est. -$40.5b, prior -$38.3b
  • 9:55 a.m.: U-Mich. Confidence, Feb., est. 75.0, prior 74.2
  • 1 p.m.: Baker Hughes rig count, Feb. 11
  • 9 p.m.: Fed’s Raskin speech in Park City, Utah on mortgage servicing


  • U.S. Treasury Secretary Geithner will present Congress with three options for reducing govt.
  • Nokia says it’s forming a partnership with Microsoft and making Windows its primary smart phone platform, a bet that together the two cos. can better challenge Google and Apple. Nokia shares tumbled as much as 12%
  • Research in Motion is working on software to allow BlackBerry PlayBook to run applications for Google’s Android, three people familiar with the matter say
  • DuPont’s offer for Danisco is ~$320m too low as it doesn’t account for the food-ingredient maker’s market leading position, shareholder Elliott Associates says
  • Creditors including billionaire Carl Icahn and Monarch Alternative Capital are targeting Blockbuster in a possible buyout for < $300m, person familiar with the matter says 71
  • Blue Nile (NILE) reported 4Q EPS 41c vs est. 43c
  • California Pizza Kitchen (CPKI) forecast 1Q EPS 3c-5c vs est. 12c
  • Cephalon (CEPH) forecast 2011 adj. EPS $8.70-$9 vs est. $8.16
  • Chipotle Mexican Grill (CMG) reported 4Q EPS $1.47 vs. est. $1.30
  • DaVita (DVA) reported 4Q adj. EPS $1.13 vs. est. $1.12; sees 4Q oper rev. $1.65b vs. est. $1.66b
  • Expedia (EXPE) reported 4Q adj. EPS 32c vs est. 36c
  • Ford (F) said it will cut debt by $3b through redemption of trust preferred securities in March
  • Kraft (KFT) forecast sees 2011 oper. EPS up 11%-13%, implying $2.24-$2.28 vs est. $2.32
  • Leapfrog Enterprises (LF) forecast 2011 EPS 15c-20c vs est. 29c
  • MannKind (MNKD) said it is cutting ~41% of its workforce
  • Panera Bread (PNRA) forecast 2011 EPS $4.40-$4.45 vs est. $4.35
  • TTM Technologies (TTMI) forecast 1Q adj. EPS 35c-44c, vs est. 39c
  • Wright Medical Group (WMGI) forecast 2011 adj. EPS 88c-95c, vs est. 88c
  • Wynn Resorts (WYNN) reported 4Q adj. EPS 91c vs est. 70c


As has been the case throughout much of the week, high-profile drivers remained few and far between, particularly with another fairly quiet day on the economic calendar. Nevertheless, we have day 4 of perfect = 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow (0.09%), S&P +0.07%, Nasdaq +0.05%, Russell 2000 +0.42%
  • Month-to-date: Dow +2.84%, S&P +2.78%, Nasdaq +3.35%, Russell +4.03%
  • Quarter/Year-to-date: Dow +5.63%, S&P +5.11%, Nasdaq +5.19%, Russell +3.71%
  • Sector Performance: - Energy +1.02%, Industrials +0.54%, Materials +0.18%, Consumer Disc +0.13, Utilities +0.19%, Healthcare +0.03%, Financials 0.01%, Consumer Spls (0.37%), Tech (0.45%)


  • ADVANCE/DECLINE LINE: 93 (+814)  
  • VOLUME: NYSE 1026.84 (+8.41%)
  • VIX:  16.09 +1.39% YTD PERFORMANCE: -9.35%
  • SPX PUT/CALL RATIO: 1.66 from 1.46 (+13.68%)


Treasuries were back on the defensive yesterday after snapping a seven-day losing streak on Wednesday.  

  • TED SPREAD: 20.45 +0.203 (1.003%)
  • 3-MONTH T-BILL YIELD: 0.12% -0.02%
  • 10-Year: 3.70 from 3.65
  • YIELD CURVE: 2.85 from 2.84


  • CRB: 339.95 +0.15%; YTD: +2.15%  
  • Oil: 86.73 +0.02%; YTD: -5.71% (trading +0.20% in the AM)
  • COPPER: 454.35 +0.43%; YTD: +1.33% (trading -0.86% in the AM)  
  • GOLD: 1,362.02 -0.07%; YTD: -4.07% ( trading -0.35% in the AM)  


  • China, the world’s biggest grains consumer, will spend 12.9 billion yuan ($1.96 billion) to bolster grain production and fight drought, China Central Television reported today, citing Premier Wen Jiabao.   
  •  Oil rose for the first time in six days as Egyptian state television said the president would address the nation. Egypt’s top military body is staying in session in response to the “legitimate” demands of the people, according to a statement.  
  • Australian coal’s premium over Europe is poised to widen as economies in China and India expand after narrowing 57 percent in the past month as floods in Queensland receded and demand for winter heating eased.  
  • Copper rose for the first time this week on renewed concern that the world’s mining companies will struggle to boost output fast enough to keep pace with rising demand in emerging markets.  
  • Corn rose to a 30-month high for a second day on signs that global demand is increasing for supplies from the U.S., the world’s largest grower and exporter.  
  • Wheat futures plunged the most since November on speculation that the highest prices in 29 months will slow demand and encourage farmers to plant more.  
  • Cotton futures climbed to a record for the second straight day after a report showed strong demand for fiber from the U.S., the biggest exporter.  
  • Buying interest was encouraged by newspaper reports in the U.S. Thursday morning highlighting tightening supplies of grain, cattle and hogs and projecting higher food costs to consumers.



Australian dollar falls below parity with dollar as Reserve Bank Governor Glenn Stevens says policy makers judged it was “sensible” to keep interest rates on hold.

  • EURO: 1.3626 -0.61% (trading -0.72% in the AM)
  • DOLLAR: 78.25 +0.78% (trading +0.46% in the AM) 


  • FTSE 100: (0.27%); DAX: (0.18%); CAC 40: (0.90%); IBEX: (-0.86%) (as of 06:45 ET)
  • European markets mostly trade lower for the 4th day; a choppy session as investors review the implication of Egypt's President Mubarak not immediately resigning
  • Nokia dents Europe down 10%
  • Germany Jan final CPI +2.0% y/y consensus +1.9%
  • UK Jan PPI core +3.2% y/y vs consensus +3.0%; input +13.4% vs consensus +12.6%; output +4.8% vs consensus +4.4%
  • Post the German Finance Minister and French Economy Ministers meeting today, German Finance Minister Schaeuble said he wanted a comprehensive EuroZone crisis package to be delivered in Mar, says Germany and French economic recovery is progressing well.


  • Nikkei (closed); Hang Seng +0.53%; Shanghai Composite +0.33%
  • Up until this week, the US demand side of Asian markets (South Korea, Taiwan, and Japan) was holding up just fine. In the last 48 hours however, both tech demand (earnings reports) and inflation concerns have infiltrated the KOSPI, registering a breakdown in both our TRADE and TREND durations. This is new.
  • Garuda Indonesia plummeted on its trading debut, though the market rose +0.54%.
  • Hong Kong reversed a morning decline to finish higher, but a 1% fall in HSBC Holdings limited the index’s gains.
  • China turned a morning loss into a slight gain despite fears about the country’s monetary policy when the property sector rallied on a report that house prices rose in January. China Enterprise soared 10%.
  • Australia fell -0.68% on concerns about Egypt, with major banks giving back some of their gains from earlier this week. Rio Tinto (RIO.AU) fell 2% on disappointment over the size of its share-buyback plan announced yesterday.
  • On fears the shoe is still going to drop, South Korea fell -1.56% even though the country left interest rates unchanged, vs an expected 25 bp increase.
  • Taiwan declined -2.57; Taiwan’s dollar had its biggest daily decline this year.
  • Japan was closed for Foundation Day.


Howard Penney

Managing Director


THE HEDGEYE DAILY OUTLOOK - 2 11 2011 7 12 10 AM


CAKE reported earnings for 4Q10 after the close, announcing revenues of $416.7 million versus $400.6 million for the same period one year prior.  Earnings came in at $0.36 versus the Street at $0.35.  This was a low quality quarter, however, with the tax rate coming in at 23.8% due primarily to a higher manufacturing tax deduction on the significant increase in the production of bakery products.  Bakery sales were a bright spot for CAKE this quarter, surprising management, coming in at $31.9 million, or up 22.3% on last year.  Of course, this level is unsustainable and management said as much during its commentary, stating that Bakery sales should remain at approximately 5% of sales.


Turning to the company’s costs, cost of sales increased to 26.3% of revenue for 4Q10 compared to 25.3% of revenue for 4Q09.  This increase was attributed to higher bakery sales as well as continued pressure from dairy costs, as expected.  Labor costs were a major help to earnings during 4Q, ending up at 30.8% of revenue for the fourth quarter, down 120 basis points from 32% in the prior year.  Of this, management stated that perhaps 30 bps was due to improved management of labor while approximately 90 bps was due to two unusual items: lower equity compensation and a benefit from the Federal Hire Act, which resulted in lower FICA costs.  The 90 bps was split fairly evenly between these two factors. 


G&A expenses decreased 60 bps to 5.9% of revenues due to lower bonus accruals and depreciation was 4.3% of revenues versus 4.8% a year prior.  This favorability was due to sales leverage and an impairment charge in 4Q09.  In addition, net interest expense was $1.5 million versus $5.4 million a year ago; a $2.2 million expense to unwind an interest rate collar a year prior, as well as a higher debt balance, resulted in this year-over-year decline.


Clearly this quarter, by happenstance, several factors fell into place for CAKE.  Operating margins improved by 90 bps year-over-year to 7.4%. 


Outlook was obviously the primary interest, given that comps had been preannounced in January.  For 1Q11, diluted EPS guidance was given as $0.29 to $0.33.  Full-year 2011 guidance was reiterated at $1.55 to $1.70, based on a comparable store sales projection of 1-to-3%.  Clearly the implication here is that management is hoping for a pickup in earnings power after the first quarter.  The first quarter, management said, is being impacted by record snowstorms in the Midwest and Northeast as well as elevated food costs.  Dairy sales have continued to skyrocket since January 1st and, quarter-to-date, management estimates that weather has cost CAKE 1% from a comp perspective. 


Management is forecasting food inflation of 4% in the front half of the year followed by 3% in the second half.  Since management first gave FY11 guidance in October, their outlook for food costs alone has risen by “at least” $0.05.  Nevertheless, management unconvincingly stated that by “actively managing our cost structure, including ongoing improvements in labor productivity and tight G&A controls”, the company will absorb these costs.   In my experience, a nearby penny is worth a distant dollar – I certainly was less than convinced by management’s assurance. 


Firstly, their comparable-restaurant sales guidance may prove difficult.  While mix is trending less negative than it did for the first three quarters of 2009, the compares facing top line trends step up meaningfully from 1Q onward. 


The company is implementing a 0.7% menu price increase in their winter 2011 menu change, lapping a 0.6% menu price increase from the winter of 2010.  This will leave 1.4% pricing on the menu by the end of the year.  With only 60% of its food basket on contract, it seems that the company may have to ponder taking additional pricing.  Management knows from experience that The Cheesecake Factory’s customer is fairly price sensitive, hence the average check problems that have hurt the top line for the last number of quarters. 


Secondly, the cost outlook is less-than-positive.  As of now, dairy, cheese, and fresh fish are not contracted.  Rather than proactively passing costs along to the consumer, unsurprisingly, management stated that it would prefer to be a follower than a leader in this regard.  Depending on how spot markets behave throughout the year, some competitors may be better insulated from food inflation than CAKE; the company may have difficulty waiting for other chains to blink first.


It is instructive to bear in mind that, for CAKE, as management stated at the Cowen Conference, “every 1% increase in annual comparable sales is about an incremental $0.08 in earnings per share, based on 40% flow through, although many times we have been able to achieve a flow through better than 40%.”


The labor cost initiatives intended to make up the $0.05 of food costs (from what management knows of the quarter so far) may also prove a stretch.  Management stated that the magnitude of labor savings in 2011 will depend on what comps are; “At the higher end of our range, we should be able to sustain some improvement in the labor line.  At the lower end, it’s going to be a little more challenging.”  Given the difficult comps ahead from a top-line perspective, exposure to food inflation and management’s revealing hesitancy to proactively raise prices, I believe that the outlook for 2011 is decidedly negative for CAKE.


CAKE: PUNT AND HOPE - cake sigma


CAKE: PUNT AND HOPE - cake pod 1





Howard Penney

Managing Director

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