The Macau Metro Monitor, February 25, 2011



The unemployment rate for November 2010 - January 2011 held stable at 2.7% and the underemployment rate remained unchanged at 1.7% from the previous period (October-December 2010). 
Total labor force was 332,000 in November 2010 - January 2011 and the labor force participation rate stood at 71.4%, with the employed population increasing by about 800 over the previous period to 323,000.


DICJ director Manuel Joaquim Das Neves said the Macau government isn't likely to get involved in the Ho drama.  Neves also said that MGM Macau told DICJ that Daisy Ho had stepped down from its board at the end of 2010.  The move raised speculation that Daisy was trying to seek a board seat at SJM.



Casino operator Crown's CEO, Rowen Craigie, said that Crown has lost some of its business to S'pore's 2 IRs and that the VIP market was growing strongly, particularly in Macau.  He said facility upgrades in progress at Crown and Burswood would help boost Crown’s share of VIP numbers.


Craigie added that many VIP gamblers from South-East Asia were now choosing to play locally, and some of Crown’s key VIP customers were spreading their time between Macau, Las Vegas, Australia and Singapore.


The Court of Second Appeal rejected Bombardier’s injunction seeking to cease all administrative actions related to the public tender to supply the rolling stock and system for the light rail transit system.  Bombardier may seek an appeal. The two losing bidders of the LRT contract – Bombardier and Siemens – still have until March 8 to lodge an appeal regarding the tender result.


TODAY’S S&P 500 SET-UP – February 25, 2011


Oil was, once again, a key driver of equity prices yesterday.  The rise in oil reversed yesterday intraday and equities, on cue, finished strongly into the close in New York.  Speculation that the U.S. recovery will be further confirmed by data to be released today also helped stocks as the concerns surrounding oil prices abated.  As we look at today’s set up for the S&P 500, the range is 31 points or -0.85% downside to 1306 and 1.52% upside to 1330.




  • 08:30 a.m.: GDP QoQ, 4Q, Est. 3.3%, prior 3.2%
  • 08:30 a.m.: Personal Consumption, 4Q, Est. 4.2%, prior 4.4%
  • 08:30 a.m.: GDP Price Index, 4Q, Est. 0.3%, prior 0.3%
  • 08:30 a.m.: Core PCE QoQ, 4Q, Est. 0.4%, prior 0.4%
  • 09:55 a.m.: U. of Michigan Confidence, February (final), Est. 75.4, prior 75.1 




Two of the nine S&P 500 sectors are positive from a TRADE perspective while all nine are positive from a TREND perspective.

  • One day: Dow (0.31%), S&P (0.10%), Nasdaq +0.55%, Russell +0.57%
  • Month-to-date: Dow +1.48%, S&P +1.55%, Nasdaq +1.40%, Russell +2.94%
  • Quarter-to-date: Dow +4.24%, S&P +3.85%, Nasdaq +3.21%, Russell +2.62%
  • Sector Performance - (6 sectors up and 3 down): - Consumer Discretionary +0.60%, Industrials +0.58%, Technology +0.35%, Healthcare +0.34%, Financials -0.24%, Utilities -0.39%, Consumer Staples -0.41%, Materials -0.52%, Energy -1.41%



  • ADVANCE/DECLINE LINE: +143 (+1052)
  • VOLUME: 1221.30 (-8.20%)
  • VIX: 21.32 (-3.62%)
  • SPX PUT/CALL RATIO: 2.22 from 1.34 (+65.67%)



  • TED SPREAD: 18.47 from 18.88
  • 3-MONTH T-BILL YIELD: 0.13% from 0.12%
  • 10-YEAR: 3.46% from 3.45%



  • CRB: 346.3 -0.63%; YTD: +3.90%
  • Oil: 97.61 +0.34%; YTD: +5.84%
  • Copper: 440.2 +1.35%; YTD: -0.84%
  • Gold: 1404.72 +0.13%; YTD: -1.13%



  • USD: 77.149 +0.12%
  • Euro: 1.378 -0.07%



  • FTSE 100: +0.83%; DAX: +0.43%; CAC 40: +1.31%
  • Russian Central Bank Unexpectedly Raises Main Rates, Reserve Requirements
  • Lloyds Tumbles as Rising Funding Costs Threaten 2011 Profit
  • Sentance Says BOE Must Tighten Now to Prevent Tough Moves Later 



  • Nikkei +0.71%; Hang Seng +1.82%; Shanghai Composite +0.00%
  • Asian Stocks Climb for First Time This Week on Oil Price; Hynix Advances
  • India Says Economy May Grow as Much as 9.25% Next Year Amid Inflation Risk
  • World’s Biggest Pension Fund ‘Will Likely’ Sell Japan Bonds



Howard Penney

Managing Director

CHART OF THE DAY: Uncle Sam & Big Government Central Planning Approve this Rally



CHART OF THE DAY: Uncle Sam & Big Government Central Planning Approve this Rally -  chart

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Superior Defense

“Defense is superior to opulence.”

-Adam Smith


Stock market bulls pulled out all of their guns yesterday. From the Fed’s James Bullard beating his chest on the potential for QG3, to the Saudis banging out barrels of oil, and the media professing that the Libyan nut-job had been shot – it was all out there. Central Planners of the world unite!


Yes, it’s sad – but it’s true. The other side of the Big Government Intervention trade has been price volatility. What can the Almighty Government do for us next? Price “stability” mandate of the Federal Reserve Act of 1913 be damned. This casino is open for business.


Can US stock market bulls handle three consecutive down days anymore? The Europeans were amazingly able to stomach four. After a 3-day -2.8% drop from this intermediate-term cycle’s closing high in the SP500 of 1343, the question remains – can the bulls defend their critical support lines?


Government Supports in this market are crystal clear: immediately after the St Louis Fed dove opened his mouth, the US Dollar got Bullarded (new wiki synonym for debauched). At the same time the Saudis predictably defended their Kingdom.


Quantitative Supports are less clear: with so many of Wall Street’s finest still using the 50 and 200 day moving averages as their point and click concepts of revisionist risk management, it’s become both entertaining and frightening to watch. The bulls panic when there’s such a big gap between last price the and nearest one-factor price momentum reference point (the 50-day for the SP500 is down at 1287).


I used to do that – trade on emotion. When I was in college, someone invented the internet. And I was immediately able to punch a moving average into a chart. Then I started doing it with lots of charts. Then I started trading and realized by 2001 that I needed a lot of beers to convince myself that a simple moving average was going to be the elixir of my stock picking life.


I wrote about a basic 3-factor setup that I use in my multi-factor, multi-duration, risk management model earlier this week – PRICE, VOLUME, and VOLATILITY. So rather than attempting to make any more average-at-best jokes in a Friday note, I’ll just get on with it and show you some immediate-term TRADE lines of  support and resistance.


SP500 (see attached chart)

  1. TRADE line resistance = 1326 (that’s both a lower long-term and lower immediate-term high)
  2. TRADE line support = 1295

Volatility (VIX)

  1. TRADE line resistance = 22.96
  2. TRADE line support = 18.14

The inverse correlation between the SP500 and the VIX is a critical one to consider when mapping out the probability of the US stock market holding onto its bullish intermediate-term TREND. What’s most interesting about the current setup is that when you expand your duration to 3 months-or-more (our TREND duration) as opposed to 3 weeks-or-less (our TRADE duration), both the SP500 and the VIX are bullishly positioned. One of the two has got to give.


Here are those two critical intermediate-term TREND lines of support:

  1. SP500 = 1251
  2. VIX = 18.11

For now, the better benefit of the doubt should be given to the stock market bulls. With the SP500 still up +93.2% from where we got bullish on US Equities in March of 2009, a tremendous amount of price momentum has been baked into this bullish cake.


Additionally, the immediate-term move in Big Government Sponsored Volatility (VIX) has been surreal (the VIX is UP +37% since February the 11th!). And most 3.5-4.5 standard deviation moves in price (oil just had one too) are subject to immediate-term mean reversion corrections.


All that said, the coming days will be critical to monitor from a PRICE, VOLUME, and VOLATILITY perspective. The fundamental Global Macro overlay of Growth Slowing as Inflation Accelerates will also be key to measure in real-time.


Most Asian and Emerging stock markets are already broken on both our TRADE and TREND durations. Concurrent VOLUME and VOLATILITY signals continue to support the bearish case for our short positions from Emerging Markets (EEM) to Brazil (EWZ).


Here at home, I maintain that the Superior Defense for America’s long-term prosperity is defending the US Dollar rather than debauching it. I want to stand alongside the brave men and women wearing Canadian and American jerseys who recognize that the names on the front of our jerseys mean more than the ones on our backs (Herb Brooks). It’s time to stop begging for Saudi barrels and Quantitative Guessing. It’s time to stand up and be accountable.


My immediate term support and resistance lines for the SP500 are 1295 and 1326, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Superior Defense - na1


Superior Defense - na2

Lethal To Liberty

This note was originally published at 8am on February 22, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The natural progress of things is for liberty to yield and government to gain ground.”

-Thomas Jefferson


I went into this President’s Day weekend writing an intraday note at 3PM EST on Friday titled “Exhaustion.” I wasn’t talking about my physical state. Ex-snow shoveling, I’ve been managing with my peg leg in an air cast just fine. I was writing about the US stock market’s risk management setup.


In the most immediate-term duration (today), US stock-centric investors are going to realize that there is indeed risk to a market that’s been rallying to higher-intermediate-term highs on low-volume and negative skew. From a long-term TAIL perspective, US stocks are simply making lower-highs.


Lower-highs can be lethal to returns, particularly if confirmed by fundamentals that perpetuate lower prices. While plenty a perma-dancing-bull can tell you that the US stock market is “cheap” (if they use the wrong margin and earnings assumptions in their SP500 estimates), this type of storytelling isn’t new to your average American.


After all that we’ve been through in the last 3-years my sense is that Americans get it. Americans get leadership. Americans get liberty. Americans get transparency, accountability, and trust.


Before I take a step back recapping last week’s most important weekly moves, allow me to remind you what risks Main Street Americans see to the US economy:

  1. A 2011 US Deficit of $1,650,000,000,000
  2. A 2011 US Debt balance of $14,173,394,779,991
  3. A 2011 US Dollar Debauchery inspiring inflation

So when the S&P Futures are down 18 points like they are this morning, there are obviously more than a few relatively large risks that the “fundamentalist” might point toward.


There is also this other little risk management critter called The Rest of The World that central planning folks in Washington, DC seem to think are simply being affected by “supply and demand” as opposed to anything that’s right here in our own back yard.


Given that 85% of all foreign exchange transactions are in US Dollars, and the US Dollar continues to be debauched, we think the following week-over-week moves in Global Macro are critical correlated risks to manage around:

  1. US Dollar Index = DOWN a full -1% last week to $77.69 and down for the 6th out of the last 8 weeks.
  2. CRB Commodities Index = UP +1.2% last week to close at a new intermediate-term weekly closing high of 341.
  3. Volatility Index (VIX) = UP +4.7% last week, despite US stocks rallying to new YTD highs.

So how could US investors bid up volatility at the same time as the institutional performance chasing community bids up the price of US stocks? Maybe it wasn’t US only investors…


Maybe, just maybe, The Rest of the World remembers that deficit spending and dollar devaluation strategies don’t work out so well in the end. Maybe some Americans themselves remember what Presidents Nixon and Carter did to the US Dollar in the 1970s. Maybe history remembers The Inflation.


In terms of other important perspectives, this is what The Economist had to say this weekend in its commentary about US Leadership:


“Neither the President nor Republican leaders have had the courage to support them. In the absence of statesmanship, the chances are that only a crisis in the bond markets will provide the necessary impetus. Economic management by fiscal heart attack is not a very prudent remedy.”


This is what a massive international pension fund manager (Gerald Smith, Deputy Chief Investment Officer of Baillie Gifford, who oversees $117 Billion in assets) had to say about American monetary policy:


“If Bernanke wants inflation he’s going to get it.”


And, finally, for all of the professional politician fans who are still left out there in America, this is what Presidential candidate, Mitch Daniels, had to say about US deficit and debt spending:


“We face an enemy lethal to liberty and even more implacable than those America has defeated before.”


It’s all out there now. You don’t need this Canadian with an American family and firm to remind you of the risks. You get it too.


In the Hedgeye Asset Allocation model, last week I invested 6% of our large Cash position in a combination of Swedish stocks and soft agricultural commodities, taking the cash position down from 61% last Monday to 55% this morning.


The current exposures in the Hedgeye Asset Allocation Model are a follows:

  1. Cash = 55%
  2. International Currencies = 24% (Chinese Yuan and Canadian Dollars – CYB and FXC)
  3. Commodities = 9% (Oil and Grains – OIL and JJG)
  4. International Equities = 6% (Sweden – EWD)
  5. US Equities = 6% (US Healthcare – XLV)
  6. Fixed Income = 0%

As you can see in the Hedgeye Portfolio (see attached), I’m short both emerging markets (EEM, IFN, EWZ) and US Treasuries (SHY), so that’s one of the main reasons why I have such a large asset allocation to Cash – I don’t own any fixed income or emerging market exposure as I realize that inflation can and will continue to be lethal to these markets.


As to whether or not the Almighty Central Planners of America are infusing interconnected Global Macro market risks into our way of life … that will be an American history that writes itself on its own time… In the meantime, deficit and debt spending will remain lethal to our liberty.


My immediate term support and resistance levels for the SP500 are now 1330 and 1346, respectively. If the SP500 breaks down and closes below 1330, I have no support to 1306.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Lethal To Liberty - ted1


Lethal To Liberty - ted2


A normalizing quarter



Now that all the public companies have released their earnings, we can take a look a slot ship share trends.  Total shipments into North America decreased 11% YoY to approximately 16k in 4Q10 from an estimated 18k in 4Q09.  We estimate that a total of 63k units were shipped in NA in 2010 compared to an estimated 71k units in 2009.  Replacements increased an estimated 3% YoY in 2010 to 47k units from approximately 45.5k units in 2009.

  • We estimate that new and expansion units decreased almost 40% YoY to 3.9k from 6.3k in 4Q09
  • Replacements in the quarter were about 12.4k, up 4% YoY and up from roughly 10.0k replacements shipped in 3Q10

Going forward, we think ship share for IGT and BYI will likely rise throughout the year while WMS and Konami will fall slightly.


Slot Ship Shares

  • IGT:  28% in 4Q up 1% from last quarter and down from 29% in 4Q09.  For 2010, IGT’s share dropped to 27% from 34% in 2009.
  • WMS:  24%, up 1% from 3Q share and flat with their 4Q09 ship share.  For 2010, WMS’s ship share was 25% compared to 22% in 2009.
  • BYI:  14% in 4Q2010 - flat sequentially and down 400bps YoY.  In 2010, BYI’s ship share fell 3% to 15%.
  • ALL:  2H2010 results were at 12%, flat YoY.  Based on company commentary on the earnings call last night, we believe that their 4Q2010 share was 13%, up from 3Q share of 11%.
  • Konami: 13% in 4Q, down from 16% in 3Q2010 and up 2% from their 4Q09 shipshare of 11%.  In 2010, Konami’s ship share stood at 13% compared to 10% in 2009

The chart below summarizes slot ship share trends:



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