The Macau Metro Monitor, March 10, 2011



Galaxy Entertainment Group Ltd said Galaxy Macau will open May 15, 2011 with 450 tables, 2,200 hotel rooms and +50 F&B outlets.  Chairman Francis Lui said Galaxy will apply to the government to host more gaming tables (room for 150 more) beyond its initial 450 "if and when necessary."  It expects Galaxy Macau to be the only new resort to open in the Chinese gambling territory until "at least the end of 2011."



Chinese banks extended less than $600 billion yuan in new loans in February.  In January, Chinese banks loaned just over $1 trillion yuan.



The daily opening hours of the Gongbei‐Macau border is expected to extend by 2 to 3 hours by the end of the year or early next year.  The first meeting between Guangdong and Macau will be held next month, and both sides have already agreed to put the extension of immigration checkpoint’s opening hours and regulations for cars with Macau registration plates to be driven in Hengqin Island on this year’s agenda. The Macau government has indicated the ultimate aim to operate a 24‐hour border checkpoint.


The Macau government also plans to establish a joint venture with Henguin for developing the business zone. The construction of the Henguin initiative is expected to be kicked off by the end of next month. The government intends to support some high potential emerging industries and may introduce new measures to encourage gaming enterprises to develop non‐gaming businesses.



According to the Public Security Police, Macau authorities yesterday found 23 illegal workers during a raid on the Galaxy Macau construction site.

Dark Moon

“I like to think that the moon is there even if I am not looking at it.”

-Albert Einstein


On this day in 1973 British rock band Pink Floyd released the Dark Side of The Moon. In Hedgeye-speak, that album was multi-factor and multi-duration, focusing on the interconnectedness of the world. Money, war, and death – from time to time, these can be the dark sides of this world. Pretending that their impacts on human behavior cease to exist isn’t my view of a risk management process; neither is hope.


So far, the best strategy we can offer Global Macro Risk Managers is grounded philosophically in Chaos Theory. Some people call it Complexity Theory – mathematically speaking, Chaos and Complexity theories are pretty much the same things.


Much like Einstein’s aforementioned admission of a Dark Moon, there are some things in markets that you can’t see. But, from dark pools, to the “flows”, and inside information – it’s all there. No matter where your concept of your research “fundamentals” go, there it is – either by expectation or by the actual “news”, it’s always being absorbed into the market’s last price.


Where I used to get run-over in positions was when I considered my research on a company the center of the universe. As if Mr. Macro Market knew me and owed me something. You can go get yourself a Yale degree and draw up a “smart” looking slide presentation about your bottom-up investment thesis – and that investment strategy will be all good and fine, until it isn’t.


Usually what hits you like Big Alberta when he has you lined up at the blue-line with your head down is the macro. Or, as some bottom-up only investors like to call it, “the unknown.” Well that excuse, losing your investor’s money, and a few false teeth might get you a ride home on the bus, but it’s certainly not going to give you an entitlement to dress in the next game.


The next risk management game in a globally interconnected marketplace starts now. Like a good Chaos Theorist, you either wake up accepting that Global Macro market risk is grounded in uncertainty, or you don’t. Like the moon, Asian Growth Slowing and Greek Debt Imploding is still there this morning, even if you weren’t looking at it…


Here’s this morning’s Global Macro grind:


1.       Asian Growth Slowing As Global Inflation Accelerates

-Japan revised its Q4 GDP estimate LOWER again to -1.3% (don’t forget that the US has done the same with Q4 GDP, twice)

-China reported a huge sequential slowdown in Exports for February at +2.4% (lowest level of demand since early 2009)

-South Korea raised interest rates to 3% (2nd rate hike for 2011 YTD with the #1 reason being inflation)


2.       European Sovereign Debt Yields Rising As Global Inflation Accelerates

-Credit ratings being cut in Spain this morning aren’t leading indicators – and neither is the assumption that more debt will solve this

-Greek bond yields continue to rise to higher all-time highs (all-time is a long time)

-British and German Equity markets are breaking down through their respective immediate-term TRADE lines of support


3.       US Growth Expectations Slowing (finally) As Global Inflation Accelerates

-US Treasury yields are finally backing off (2s down to 0.68% this morning) dulling one of the “growth signals” the bulls had in FEB

-Oil prices remain elevated and impose a significant sequential tax on US consumption growth (Q4 avg oil price = $85/barrel)

-Volatility (VIX) remains well above our intermediate-term TREND line of support (18.08) as fundamentals challenge the “flows”


So, that’s what we call The Big Stuff here at Hedgeye. And the Risk Manager strategy is to stay ahead of The Big Stuff. Whether you are looking at a company from the bottom-up or a country from the top-down, Growth Slowing as Inflation Accelerates in your cost structure definitely matters.


The Big Stuff can also morph into consensus. For example, I think The Inflation that we’ve been belaboring since October is now becoming consensus. This is where managing risk gets a lot trickier. What’s priced in? How long can consensus be right?


Here’s some more Big Stuff with potentially long-term tails:

  1. A Super Sovereign Debt Cycle Structurally Impairing Long-Term Growth
  2. A Global Inflation and Unemployment Problem Inspiring Revolutionary Revolt
  3. A Global Belief In The Fiat Currency System Coming Under Attack

Again, like the Dark Moon – it’s all there…


So, we’ll keep focusing on what we see in our globally interconnected risk management model, trying our best to change our asset allocation and long/short positioning as consensus changes are absorbed into market prices.


My immediate term TRADE lines of support and resistance for WTI crude oil are $102.11 and $108.71, respectively. My immediate-term lines of support and resistance for the SP500 are now 1302 and 1334, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Dark Moon - dark moon


Dark Moon - CH2


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

  • SBUX and GCMR have struck a deal to bring single-cup Starbucks coffee and Tazo pods to Keurig users.  Terms were not disclosed.  GMCR is trading up 13% premarket.
  • BWLD is trading strongly, up 4% yesterday on accerlerating volume, as chicken wing prices continue to slide.  The other key factor to monitor here is the dispute between the NFL Players’ Association and the NFL.  A players’ strike could materially impact traffic at BWLD restaurants.  We continue to follow the developments of the NFL dispute for any impact on BWLD.
  • TAST continues to trade higher on accelerating volume. 
  • DRI has traded strongly of late, rising 1.8% on higher volume  on Ash Wednesday.  Red Lobster is looking forward to a boost in seafood consumers this Lenten season!
  • The U.S. cattle herd is the smallest since 1958 as beef exports surged 19 percent in 2010 to about 2.3 billion pounds (1.04 million metric tons), according to the U.S. Department of Agriculture. Cattle prices have jumped 27 percent in the past year, fueled by a global economic recovery that is boosting meat demand in emerging economies, including China.



Howard Penney

Managing Director

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Paying The Price

This note was originally published at 8am on March 07, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“For every promise, there is a price to pay.”

-Jim Rohn


Paying The Price is what hard working Americans do every morning. They take responsibility for their families. They are accountable for their actions. They’ll also be paying for their government’s promises at the pump this morning.


If you didn’t know that The Inflation is what you get when your government promises the entire world to devalue its currency, now you know. In order to calculate the price of The Petro-Dollars look no further than the price of The Petro and the price of The Dollar.


Here’s what those two prices did last week:

  1. The Petro = UP another 6.7% week-over-week taking its 2-week move to +17.6%
  2. The US Dollar = DOWN another -1.1% week-over-week hitting new YTD lows (DOWN 8 of the last 10 weeks)

Now someone who is in the business of obfuscating the facts will tell you that the price of The Petro-Dollars raging to the upside has to do with something other than the debauchery of the dollar. Of course it does – everything that adversely affects the marketing message of Washington, DC must have to do with someone else – that’s the un-American way.


Pointing the finger at some nut-job wearing shades in Libya just makes the marketing message easier. Since speaking at the American public on economic matters has turned into a world class game of politics, we should expect nothing less. On NBC’s Meet The Press yesterday, President Obama’s newly minted Chief of Storytelling, Bill Daley, reminded the world how Washington’s finest think about risk management plainly:


“Most people don’t know what they are talking about… The President knows…”


OK. Thanks Chief.


We will un-humbly submit that, on Global Macro economic matters, US Presidents and their crony economic advisors haven’t known what they don’t know for at least a decade. That’s a long time. That’s a problem.


Back to those stubborn little critters called real-time market prices that we use to illustrate the problem, here’s what else happened in the US as a result of the US Dollar being devalued last week:

  1. CRB Commodities Index (19 components) = +3.1% week-over-week to close at a fresh weekly closing high for 2011 of 362
  2. Price Volatility (VIX Index) = flat week-over-week, holding its +22% gain above its February 18th YTD low of 15.59
  3. US Stocks (SP500) = +0.15% week-over-week to close at 1321, -1.7% lower than its YTD closing high of 1343 (also established on FEB18)

Altogether what this means is that since the US stock market stopped making higher intermediate-term highs on February 18th, the market has started to price in Slowing US Growth assumptions as US Inflation Accelerates.


For readers of our work, this shouldn’t be a new theme. Our 3 core Macro Themes at Hedgeye have been calling for Global Growth Slowing as Global Inflation Accelerates since October of 2010.


Our call on Accelerating Global Inflation’s impact on both Emerging Markets and Bonds is best captured by the #1 Economics headline on Bloomberg this morning: “Global Bond Rout Resembling 1994 As Inflation Exceeds Rates” – so, globally, people get it. The question is what will it take for US stock-centric consensus to finally get it?


Don’t fool yourself by letting some of the Fed’s Fiats fool the media most of the time, whether you look at the stock market performance divergences in US Equities or abroad, Mr. Macro Market is pricing in Global Inflation Accelerating, big time.


US S&P Sector Performance divergences for 2011 YTD:

  1. Best Sector = Energy (XLE) +14.78%
  2. Worst Sector = Consumer Staples (XLP) +0.92%

Global Equity Market Performance divergences for 2011 YTD:

  1. Best Countries = Ukraine +14.3%, Russia +13.8%, and Greece +12.2%
  2. Worst Countries = Tunisia -22.7%, Saudi Arabia -19.6%, and Dubai -17.1%

Obviously when presented with these prices on a real-time basis, the fundamental takeaways are crystal clear:

  1. Countries, Sectors, and Companies that get paid in The Petro-Dollars are getting paid by The Inflation
  2. Countries, Sectors, and Companies that don’t have pricing power are taking it in the margin
  3. Citizens are getting plugged

If this continues, the global economic risk management scenario starts to look a lot more like the 1970s than it does anything that most investors have had to wrestle with for the last 30 years. Stocks aren’t in the area code of “cheap” if inflation finds its way into margin and multiple compression.


The best way to fight this is by breaking the gigantic promise that America has made to the world – cheap moneys forever. If we start promising the world more hawkish monetary policy, the US Dollar will stop being debauched. That, in turn, will deflate The Inflation. And I’ll be the first in line to start investing more of my 49% position in Cash (versus 58% on Monday of last week). Paying the lower price works for me.


My immediate-term support and resistance levels for the SP500 are now 1315 and 1333, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Paying The Price - ab1


Paying The Price - ab2


TODAY’S S&P 500 SET-UP - March 10, 2011

As I said in yesterday’s Early Look (Under Attack), the rose-tinted view that has driven the S&P to current levels, up 4.96% year-to-date, is becoming more and more difficult to justify.  As we look at today’s set up for the S&P 500, the range is 32 points or -1.37% downside to 1302 and 1.06% upside to 1334.



  • 8:30 a.m.: Jobless claims, est. 376k, prior 386k
  • 8:30 a.m.: Trade balance, est. (-$41.5b), prior (-$40.6b)
  • 9 a.m.: Fed’s consumer advisory council hosts meeting
  • 9:45 a.m.: Bloomberg consumer confort index, prior (-39.3)
  • 10 a.m.: Freddie Mac 30-year mortgage
  • 10:30 a.m.: EIA Natural Gas storage
  • 1 p.m.: $13b 30-year bond reopening
  • 2 p.m.: Monthly budget statement   


  • NATO defense ministers scheduled to meet in Brussels today and tomorrow to discuss, possibly decide on alliance involvement in Libya 
  • Ontario Securities Commission Chairman Howard Wetston scheduled to speak in hearing to review proposed sale of TMX Group to LSE
  • Japan’s Tokyo Stock Exchange Group plans to hold merger discussions with Osaka Securities Exchange
  • Galleon Group founder Raj Rajaratnam’s insider trading trial continue.
  • President Obama is seeking to reshape federal government; plan may include folding U.S. Trade Representative’s office into Commerce Department
  • Spain’s credit rating cut one level to Aa2 by Moody’s on bank bailout costs 
  • Barclays, Deutsche Bank, JPMorgan Chase, Wells Fargo said to host lender meeting to discuss Jarden debt refinancing   


For the second day we have 5 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.  The four sectors that are positive on both TRADE and TREND are XLY, XLP, XLE and XLE.

  • One day: Dow (0.01%), S&P (0.14%), Nasdaq (0.51%), Russell 2000 (0.42%)
  • Month-to-date: Dow (0.11%), S&P (0.54%), Nasdaq (1.10%), Russell (0.27%)
  • Quarter/Year-to-date: Dow +5.49%, S&P +4.96%, Nasdaq +3.73%, Russell +4.79%
  • Sector Performance: - Materials (1.62%), Energy (0.69%), Tech (0.41%), Industrials (0.22%), Financials (0.1%), Healthcare +0.15%, Consumer Disc +0.23%, Consumer Spls +0.5%, Utilities +1.1%


  • ADVANCE/DECLINE LINE: -152 (-1710)  
  • VOLUME: NYSE 871.20 (-13.11%)
  • VIX:  20.22 +2.02% YTD PERFORMANCE: +13.92%
  • SPX PUT/CALL RATIO: 2.27 from 1.55 (+46.34%)


Treasuries were stronger yesterday on Libya concerns and a better 10-year note auction.

  • TED SPREAD: 22.23 +0.406 (1.860%)
  • 3-MONTH T-BILL YIELD: 0.10% -0.01%
  • 10-Year: 3.48 from 3.56
  • YIELD CURVE: 2.78 from 2.83


  • CRB: 360.23 -0.24% YTD: +8.24%  
  • Oil: 104.38 +0.61%; YTD: +12.09% (trading -0.30% in the AM)
  • COPPER: 421.25 -2.90%; YTD: -5.95% (trading -0.77% in the AM)  
  • GOLD: 1,429.60 +0.12%; YTD: +0.42% (trading +0.40% in the AM)  


  • Oil fell for a second day in New York after supplies surged at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the U.S. benchmark grade. 
  • Gasoline inventories tumbled 5.94 million barrels to 229.2 million, the biggest decline since September 2008, according to the department. Stockpiles were forecast to drop 1.5 million barrels. Supplies of distillate fuel, a category that includes heating oil and diesel, fell 3.98 million barrels to 155.2 million, the lowest level since June. 
  • Gold and silver rose for the third time in four sessions as mounting tension in Libya and higher energy costs boosted demand for precious metals as an investment haven and an inflation hedge.
  • Copper futures fell to the lowest in more than two months on concern that demand will wane as higher energy costs slow the global economy.  Copper stockpiles monitored by the London Metal Exchange have jumped 22 percent from last year’s low on Dec. 10.
  • Arabica coffee extended a rally to the highest price since May 1997 on speculation that global supplies won’t satisfy demand.
  • The U.S. cattle herd is the smallest since 1958 as beef exports surged 19 percent in 2010 to about 2.3 billion pounds (1.04 million metric tons), according to the U.S. Department of Agriculture. Cattle prices have jumped 27 percent in the past year, fueled by a global economic recovery that is boosting meat demand in emerging economies, including China.
  • PepsiCo Inc. is raising prices for its Tropicana juice line by as much as 8% after record cold temperatures slashed this season's orange crop, the company said.


  • EURO: 1.3900 +0.06% (trading -0.40% in the AM)
  • DOLLAR: 76.721 -0.10% (trading +0.36% in the AM) 


  • FTSE 100: (0.93%); DAX (0.76%); CAC 40 (0.64%)
  • Major indices are lower as fighting continues in Libya and Moody's downgrade of Spain's sovereign debt rating one notch to Aa2 from Aa1.
  • Moody's said it expects Spain's bank restructuring will cost more than the government currently expects, "leading to a further increase in the public-debt ratio."
  • Bank of England keeps asset plan and interest rates steady.


  • Nikkei (1.47%); Hang Seng (0.82%); Shanghai Composite (1.51%)
  • Regional indices followed Wall Street and closed lower on concerns about Libya, with the situation exacerbated by disappointing macroeconomic data.
  • Japan fell on futures selling spurred by higher oil prices.  Japan was led lower by weaker exporters as the yen rose.
  • Seoul rose after the Bank of Korea raised interest rates by 25bps to 3%.
  • Property developer’s dragged Hong Kong lower.
  • Weak financials weighed on the Shanghai Composite.
  • Japan Feb domestic CGPI +1.7% y/y vs cons +1.8%. Q4 revised real annualized GDP (1.3%) vs prelim (1.1%)
  • China Feb trade balance ($7.3B) vs cons $3.9B
  • Australia down 1.43% February unemployment 5.0%, net job creation (10,100) vs cons +20K

 Howard Penney

Managing Director




Nothing unexpected. BYI reiterates opportunities for systems business.



  • Canada: BYI currently undergoing consulting process regarding slot implementation
  • $3MM upfront investment in Sightline
  • Pechanga now has 1200 iViews on their floor.
  • Last few years, operators have been focused on development and is now deleveraging/ fixing cost structure and less on gaming technology
  • Next step is to send marketing offers to mobile devices; thinks it's a big opportunity
  • iView penetrated 40% of slots connected to their system without any content
  • Average size of installs has declined as they are getting into smaller casinos with sds windows.
  • 50/50 growth in domestic/international footprint
  • Service revenues have increased from $3MM to $6MM per quarter--upgrades/add ons, etc. As they penetrate smaller casinos - which have smaller IT departments, they require more outsourcing of services.
    • Wants Software to Services revenue ratio to be 1:1
  • 386,000 units that are still not serviced by an iView. Have 160k iViews installed today vs 120k in FY08. BYI has 420k slots connected to their network. Not only can they upgrade their iViews to DM but they can also start putting apps on those units, which BYI believes is a $1BN revenue opportunity.
  • Additional opportunities include:
    • If BYI can capture 30% of their domestic competitor biz, they can add 120k slots to their system, which would equate to a $420MM opportunity.
    • If BYI can capture 50% share of the new casinos, then BYI can add 70K slots, representing a $245MM opportunity.
  • All-in, they think they have a $1.8BN addressable opportunity in systems.

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