The Macau Metro Monitor, March 2, 2011


Secretary Francis Tam said the government  "is poised to control the level of expansion of the sector."  He added, "We shall only see the industry increasing by a few percentage points” every year.


Tickets for adults to Universal Studios Singapore now cost $66 on weekdays, and $72 on weekends and peak periods. Travel agents expect prices to rise by between $2 and $8 as a result of price hikes by RWS.  RWS will charge travel agents between $1 and $3 more for tickets which they re-sell to tourists from April 30.



Las Vegas Sands has denied the allegations and will cooperate with the probe. Separately,  Sands China has announced David Fleming as an alternate director to Michael Leven starting March 1.  Fleming is the joint company secretary and the general counsel of LVS.



Notable news items/price action from the past twenty- four hours.

  • PEET gained 0.3% on strong volume while other QSR concepts declined on the day.  Interestingly, following the outperformance of the stock yesterday, the company was upgraded today to Buy from Neutral at Janney Capital.
  • CMG was upgraded to Market Perform from Underperform at Morgan Keegan.  The stock has been trading poorly of late as concerns mount over the commodity cost outlook and the ongoing investigation into CMG’s hiring practices by immigration authorities.
  • MCD, according to Bloomberg, is expecting a 20% jump in sales in Malaysia.
  • DPZ reported earnings in line with street expectations yesterday morning but the stock declined on accelerating volume on inflationary headwinds and management’s outlook.  See our posts from yesterday.
  • CBRL declined 3.6% on strong volume.   The significant rise in gas prices at the pump will impact travel plans this summer, which could impact CBRL’s same-store sales trends.



Howard Penney

Managing Director

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Superior Defense

This note was originally published at 8am on February 25, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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


TODAY’S S&P 500 SET-UP – March 2, 2011

Equity futures have traded mixed to fair value, indicating a preference for risk aversion, amid rising geopolitical tensions.  Violence in Iran yesterday, the world's fourth largest oil producer, helped push the Nymex oil contract back above $100/barrel. As we look at today’s set up for the S&P 500, the range is 18 points or -0.94% downside to 1294 and 0.43% upside to 1312.



  • MBA Mortgage Index Drops 6.5%; Purchases, Refis Down; MBA mortgage applications index fell 6.5% week ended Feb. 25.; Purchases slid 6.1%, refis down 6.5%
  • 30-yr fixed rate 4.84% vs prior 5.00%
  • 7:30 a.m.: Challenger Job Cuts
  • 8 a.m.: Fed’s Hoenig speaks on Council on Foreign Relations
  • 8:15 a.m.: ADP Employment Change, est. 180k, prior 187k
  • 10 a.m.: Bernanke testifies before the House
  • 10:30 a.m.: DoE inventories
  • 2 p.m.: Fed Beige Book
  • 2:15 p.m.: Fed’s Lockhart speaks on economic outlook in Atlanta
  • 8 p.m.: Bernanke speaks on state, local challenges in New York, no Q&A


  • Yahoo! is in talks to dispose of its 35% stake in its Japanese J-V with Softbank, according to two people briefed on the matter
  • threatens to sever ties with >10,000 affiliates in California amid a dispute with the state over proposed taxation of Internet purchases
  • The U.S. Senate will vote on a stopgap budget bill need to prevent a government shutdown; it passed the House yesterday 335-91 vote; Ontario public hearings to discuss TMX/ LSE deal begin today
  • FDA advisory panel members discuss draft report on menthol cigarettes
  • NFL collective bargaining agreement is scheduled to expire tomorrow


We have 4 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow (1.38%), S&P (1.57%), Nasdaq (1.99%), Russell 2000 (1.99%)
  • Month-to-date: Dow (1.38%), S&P (1.57%), Nasdaq (1.61%), Russell (1.99%)
  • Quarter/Year-to-date: Dow +4.15%, S&P +3.87%, Nasdaq +3.19%, Russell +2.99%
  • Sector Performance: - Materials (2.3%), Industrials (2.2%), Financials (2.2%), Consumer Disc (1.8%), Telecom (1.7%), Tech (1.7%), Energy (1.5%), Utilities (1%), Healthcare (0.7%), Consumer Spls (0.5%)


  • ADVANCE/DECLINE LINE: -1590 (-2681)  
  • VOLUME: NYSE 1187.03 (-5.60%)
  • VIX:  21.01 +14.50% YTD PERFORMANCE: +18.37%
  • SPX PUT/CALL RATIO: 2.31 from 2.30 (+0.69%)


  • TED SPREAD: 18.27 0.812 (4.649%)
  • 3-MONTH T-BILL YIELD: 0.13%
  • 10-Year: 3.41 from 3.42
  • YIELD CURVE: 2.75 from 2.70


  • CRB: 355.18 +0.74%; YTD: +6.72%  
  • Oil: 99.63 +2.74%; YTD: +7.48% (trading +0.32% in the AM)
  • COPPER: 450.95 +0.29%; YTD: +0.86% (trading -0.49% in the AM)  
  • GOLD: 1,428.55 +1.18%; YTD: +1.02% ( trading +0.34% in the AM)  


  • JPMorgan Takes Delivery of Almost 1 Million Tons of Sugar, Most Since 2009
  • Cotton Jumps by Daily Limit, Rises for Fourth Day as Supply Remains Tight
  • Crude Oil Advances a Second Day in New York on Middle East Supply Concern
  • Farming in Australia Seen `Vulnerable' to Climate Change, Dryness in West
  • Palladium Seen Rising 15% in 2011 as Russian Cargoes Drop: Freight Markets
  • Gold Buying in China Jumps as Inflation Flares, Boosting Demand, UBS Says
  • Copper, Corn May Slump on Mideast Unrest as Gold Jumps to $1,500, UBS Says
  • China's Wheat-Growing Areas May Be Dry After Wetter-Than-Normal February
  • Pan Pacific May Deepen Copper Production Cut on Scarce Raw-Material Supply
  • Soybeans Advance as Rain, Flooding May Delay Brazil Harvest, Wheat Drops
  • Glencore Is Said to Brief 11 Banks as Commodities Trader Weighs Share Sale
  • Gold May Decline as Record Prices Prompt Sales, U.S. Job Prospects Improve
  • Milk Powder Climbs to Record on China Demand, Increasing Global Food Costs
  • Cocoa Arrivals From Brazil's Bahia Decline in Latest Week, Hartmann Says


  • EURO: 1.3806 +0.10% (trading +0.20% in the AM)
  • DOLLAR: 77.049 +0.21% (trading -0.33% in the AM) 


  • FTSE 100: (0.43%); DAX: (0.66%); CAC 40: (0.82%) (as of 07:00AM ET)
  • European markets fell on increasing concerns over the political unrest in the Middle East and North Africa.
  • Bunds and Gilts were buoyed by safe-haven buying though investors remained cautious ahead of the ECB meeting on 3-Mar and the possibility of increased anti-inflation rhetoric.
  • Peripheral debt was pressured ahead of Portuguese T-bill auction and by S&P's warning they may still cut Greece and Portugal's debt rating further depending on the outcome of EU leaders talks over the crisis fund.


  • Nikkei (2.43%); Hang Seng (1.49%); Shanghai Composite (0.18%)
  • Though off their lows for the day, Asian markets closed lower following yesterday's declines in the US markets as higher oil prices and the turmoil in MENA returned to front-and-center.
  • China Railway Construction is among the biggest decliners, down 7.8% after saying it halted work on three projects with combined value of $4.24b in Libya.
  • The Nikkei suffered its worst percentage drop this year.
  • Airlines and automobile manufacturers led shares lower across the region, with All Nippon Airways down 3.05%, Cathay Pacific down 2.51%, Qantas down 2.15%, Toyota down 2.85%, and Honda down 2.49%.
  • Sands China closed down 6.2% after Las Vegas Sands (LVS) said it received a subpoena from the SEC regarding its Macau operations.
  • Yahoo Japan closed up almost 3.7% after Reuters reported Yahoo (YHOO) was in talks to sell its stake.
  • India said it would hold local elections in five states between 4-April and 10-April; the states send a cumulative 116 lawmakers to the lower house of Parliament.


Howard Penney

Managing Director




Headline consumer sentiment is on the mend, but there is once again a dramatic divergence between consumer expectations and present situation which is driving the over-all improvement.  The divergence between the two is what we call the Optimism Spread.


The Conference Board Expectations Index has gained rapidly since the trough in February 2009 and is now merely 1% from its most recent peak of December 2006.  Coincidentally, the Conference Board Present Situation Index has moved largely sideways since early 2009, remaining a staggering 76% off its most recent high of March 2007.


The topic of the U.S. consumer is foremost in investors’ minds and is of ten used by management teams to express when business may be good or bad in any given quarter.


The recent uptick in consumer sentiment is being driven by the increase in expectations of better times ahead and not by the “present situation.”  On Monday, the inflated optimism was exposed for what it is as the government reported that “real” spending fell 0.1% in January, following a 0.3% increase in December and a 0.2% rise in November.  Importantly, January’s decline was the first since April and puts real spending at 1.2% at an annualized basis in January 2011.  We estimate that the current pace of annual spending needs to double to drive GDP growth above 3%.


Consumption drives approximately 70% of GDP and we have been uncomfortable with the bullish case for consumer spending since the introduction of the Consumption Cannonball theme in September of last year.  We sometimes present themes that can are early, but in this case it is clear that there are acute risks pertaining to the consumer that are largely being ignored by investors.  We are more comfortable with our belief that consumption is set to slow following Monday’s consumer spending data, and are further encouraged by the fact that Hedgeye’s bearish thesis on housing continues to play out.   Although housing hasn’t spooked the market of late, if our Financials team’s forecast continues to play out as it has been, it will have a serious impact in 2011.


In January, personal consumption expenditure was weak despite a 1% surge in personal income.  January’s gain was mainly due to a number of special factors including a $100 billion reduction in contributions for government social insurance.  Social security withholdings were reduced as part of the Tax Relief, Unemployment, Insurance Reauthorization and Job Creation Act of 2010. Although employment grew by just 36,000 jobs in January, wages and salaries also expanded at a fairly strong and steady pace, increasing by 0.3%. The personal savings rate reached 5.8%; the first time since June 2010.


Rising food and energy prices are a drag on real spending and can influence expectations that the economy is getting better.  In addition, the prospect of public sector cutbacks is looming large over broad swathes of the workforce.  With so much inflation uncertainty inherent in the system today, why are consumers so much more about the future versus  the current situation?


(1)    Bernanke/QE is working?

(2)    The republican takeover of Washington?

(3)    Tax cuts?

(4)    The jobs picture’s gradual improvement?

(5)    The S&P 500 being up 5 of the last 6 months?


While our cautious stance on consumer spending appears warrented looking at the January data, it is too early to claim victory.  Winter weather was a drag on January spending.  As we look forward, anything less that 0.7% in personal spending for the next two months will likely lead to the consensus to reduce its GDP forecast. 


Below, we attempt to interpret the usefulness of our Optimism Spread from a market standpoint and the results are interesting but less-than-conclusive.   While the consumer’s rosy expectations have generally been prescient indications of recessions coming to an end, the track record from a market perspective has been less impressive. 


The question I believe is most pertinent from here is whether or not we are in an economic environment that is more anomalous to the 70’s or the period following Volcker hiking rates and the ensuing equities bull market that played out as rates were cut to zero. 


Howard Penney

Managing Director






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