The Macau Metro Monitor, March 11, 2011




In a statement late on Thursday, the 89-year old billionaire said he filed a note of discontinuance on Feb. 21, dismissing a legal case against members of his second and third families, which include daughters Pansy and Daisy Ho.  "A deed of settlement was executed between all branches of the Ho family," Ho wrote in a signed letter.


16 gaming legislation bills



It's still early in 2011 but more and more state bills proposing slots are popping up, which means more opportunities for the slot players.  As we mentioned in TIS THE SEASON (1/12/11), the environment for gaming expansion is hot given the enormous budget deficits that states have to overcome.  While nothing is guaranteed, we believe many of these bills will be given serious consideration later this year or in 2012/2013.


Some key ones to keep an eye on include Ohio, Massachusetts, and Delaware.  Gov Kasich of Ohio doesn't mind slots at the racetrack but he is seeking a gambling consultant to review the impact of slot machines at the state’s seven racetracks.  Massachusetts has had a long history of disappointment in legalizing casinos but an agreement with Gov Patrick may be coming to fruition. Delaware recently introduced a bill promoting two more casinos, which we estimate could bring 6,000 more slots to the state.


And there is the three giant wild cards—Texas, Florida, and Illinois—which would be a significant boost for the slot suppliers.


Here are the 16 bills:



Bill: HB 40: two casinos—one each in Sussex and New Castle counties; three possible gaming venues--Del Pointe Resort and Racino in Millsboro; Old Georgetown harness track off Route 9; Delmar International Speedway off Route 13 in Delmar

Est Slots: 6,000

Status/Details: HB 40 will be assigned to the House Gaming & Pari-mutuels Committee

Timing: 2011

Convene Session Date: Jan 11, 2011

Adjourn Session Date: June 30, 2011



Bill: SB1708: 5 "Destination Resorts"—one in five regions around Florida; 

Est Slots: +10,000

Status/Details: 500k sq ft of MICE space, +1000 hotel rooms; <10% sq ft for gaming; $50MM upfront cense fee; $1MM application fee; {10% tax rate (+2BN cost); 15% tax rate (+1-2BN cost); 20% tax rate (<1BN cost)}; 7-member Destination Resort Gaming Commission; Miami commission said it opposes casinos; Possible developers: LVS, CZR, MGM, PENN, GENTING

Timing: 2011/2012; earliest date for casino opening is 2015

Convene Session Date: Mar 8, 2011

Adjourn Session Date: May 6, 2011



Bill: Rep. Stephens proposal—casino in Special Entertainment Zone; 

Status/Details: Plans to introduce constitutional amendment toward end of legislative session; Possible locations: Jekyll Island, Lake Lanier and Savannah’s Hutchinson Island

Timing: 2011

Convene Session Date: Jan 10, 2011

Adjourn Session Date: Mid-April



Bills: 4 riverboat casinos: 3 near Chicago, 1 in Danville; 4,000 position land casino in Chicago; 1,200 slots at 4 tracks near Chicago; 900 slots each at two St. Louis area tracks; Existing casinos to expand from 1,200 to 2,000 gaming positions in 400-position increments

Est Slots: VLT Bill: 30,000-50,000;

Status: Regarding slot bill, State Appellate Court called Video Gaming Act (VGA) unconstitutional; appealed to State Supreme Court; State Legislature may have to pass VGA again.

Timing: June/July 2011

Convene Session Date: Jan 12, 2011

Adjourn Session Date: Meets year-round



Bill: HB 2002—casino and racetrack slots in Southeast Kansas

Est Slots: 1,500

Status: Referred to Committee on Federal and State Affairs; unlikely to pass given Republican House; 1) minimum casino investment at $100MM (previously $250MM); privilege fee at $11MM 2) Slot payout at 58%

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: Late May 2011



Bill: 3 resort casinos, 2 racetrack slot parlors (Casino resorts located in Western, central and Greater Boston areas; likely racetracks—Plainridge Racecourse, Raynham Park)

Est Slots: 5,000

Status: Passed state legislature in August but Gov Patrick disapproved of slots at tracks. Revisions expected this year.

Timing: 2011

Convene Session Date: Jan 5, 2011

Adjourn Session Date: Meets year-round



Bill: Slots at Prince George's County's Rosecroft harness racing track

Est Slots: 750

Status: Very preliminary; needs House and Senate approval

Timing: Referendum Nov 2012

Convene Session Date: Jan 12, 2011

Adjourn Session Date: Early April



Bill: Biddeford proposal & Great Fall Recreation and Development proposal

Status: Has enough signatures on petitions to force a statewide referendum. If Legislature does not change existing law to open a racino, then proposal would go to referendum. Maine's racino law requires local approval of communities where existing harness-racing tracks were located.

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011



Bill: Proposal for several new casinos

Status: Very preliminary

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011



Bill: Racino Act—slots each at Canterbury Park and Running Aces; Governor Mark Dayton proposed Mall of America casino

Est Slots: 4,000

Status: Sen. Dick Day (R) says the Racino Act is still shy of 20 votes in the House.

Timing: 2011

Convene Session Date: Jan 4, 2011

Adjourn Session Date: May 23, 2011


North Carolina

Bill: Proposal for VLTs

Status: Gov. Beverly Perdue considering recommending VLT bill to legislature

Timing: 2011

Convene Session Date: Jan 26, 2011

Adjourn Session Date: Early June



Bill: Slots at 7 racetracks

Est Slots: 17,500

Status: Passed Legislature and ready for implementation but facing outside legal issues (Ohio Supreme Court/Let Ohio Gov-elect Kasich looking over slot proposal and will decide whether to seek a court order to determine authority over the matter. Kasich said on 2/25 that he’s in no rush to legalize slot machines at the state’s horse racetracks.

Timing: 2011

Convene Session Date: Jan 3, 2011

Adjourn Session Date: Meets year-round


Rhode Island

Bill: Proposal for 1st full-scale casino

Status: Very preliminary $100 MM, one-time licensing fee

Timing: Referendum Nov 2012

Convene Session Date: Jan 4, 2011

Adjourn Session Date: Late June



Bill: 4 "destination resort" casinos (Dallas, Harris county, Bexas county, South Padre Island); Slots at 13 racetracks and 3 federally recognized Indian reservations;

Est Slots: +15,000

Status: Texas Gaming Association expects to release financial projections in late Jan. No planned date for introduction of bill.

Timing: 2011

Convene Session Date: Jan 11, 2011

Adjourn Session Date: May 30, 2011



Bill: Proposal for one casino

Status: The bill calls for the Vermont Lottery Commission to oversee the casino.  Proceeds would go to the state Education Fund, as they do for lottery tickets now. A $5 million licensing fee and $50,000 application fee.

Timing: 2011

Convene Session Date: Jan 5, 2011

Adjourn Session Date: mid-May


West Virginia

Bill: HB2140

Est Slots: ~500 per year

Status: Passed state House Judiciary Committee; heads to House Finance Committee $10MM per year allocated to racetrack fund intended to help the 4 state racinos

Timing: 2011

Convene Session Date: Jan 12, 2011

Adjourn Session Date: mid-March



March 11, 2011



  • In recapping some of the merchandising mistakes Wal-Mart made last year, the CEO noted that the company actually increased its floor space allocation to entertainment and electronics category by 21%  last year.  Unfortunately, the company ended up increasing exposure to a category with the most pronounced deflation within the store.  This ultimately led to sales pressure as well as a negative return on the “space investment.”  Toys, apparel, and home were categories in which space was cut.
  • Despite coming out of the reported 4Q with inventories up 9% per square foot, ARO noted that the company has been aggressive in clearing inventories over the past two months.  As a result, post 4Q, inventories are currently up 4% per foot.  As for the pricing environment in the mall, management has not seen any major changes although they do note that competitors are testing different pricing schemes and promotions in preparation for higher costs over the back half of the year.
  • Foot Locker noted that as the company’s revamped apparel strategy continues to evolve it’s likely that Nike apparel will be more of a focus at core Foot Locker while AdiColor will be more geared towards Champs.  Sounds like the banner segmentation strategy is continuing to take hold.



Amazon Takes Action in Illinois  -  Inc.'s battle with state governments over sales taxes is escalating. The online retailer on Thursday took action in Illinois, as it had threatened to do, to counter a new law aimed at forcing online retailers to collect sales taxes in the state. Hawaii, North Carolina and Rhode Island have enacted similar laws, and California is weighing action. Amazon is also in a court battle with New York over such legislation. The Illinois law, signed by Gov. Pat Quinn Thursday, requires online retailers that work with affiliates in the state to collect sales taxes on purchases made by Illinois residents and businesses. Amazon responded to the measure by cutting ties to its Illinois-based affiliates, which are blogs and other websites that refer traffic to Amazon's website and get paid commissions if customers make purchases there.<WallstreetJournal>

Hedgeye Retail’s Take:   Another effort to skirt the growing efforts of states to collect sales tax from online only retailers.  We believe Amazon and others will ultimately lose this battle as it makes no practical sense for them to operate under a second set of taxation rules when compared to most of retail.


Wal-Mart takes same day pick-up national - Wal-Mart Stores Inc. announced today that it will make its Pick Up Today service available at store locations nationwide by June. The service allows consumers to buy online at and pick up their orders at a nearby store in about four hours. The multichannel retailer began testing the service in October in about 800 stores. The test service limited the products eligible for same-day pick-up to select electronics, video games and household appliances. The company says the national rollout will encompass nearly 3,600 stores and up to 40,000 products, including products in additional categories such as baby, toys, home décor, hardware and outdoor living. Food products are not eligible for the program at this time. <InternetRetailer>

Hedgeye Retail’s Take:  Another way to potentially drive incremental store traffic while at the same time adding a customer friendly feature to the Wal-Mart shopping experience.  Sameday service within a matter of hours is certainly impressive.


Williamson to Do Macy's Line - Matthew Williamson is next up in Macy’s designer capsule collection series, a key component in the store’s accelerating strategy to woo younger shoppers and project a hipper image. Williamson will give a bright, bohemian edge to Macy’s selling floors, creating embellished day and party dresses, printed scarves, and day-to-evening rompers, among other items, about 30 styles in all. The line launches April 13 in 225 doors and on Prices will range from $50 for a blouse to $150 for dress, with some more expensive items, such as leather and suede jackets, priced up to $300. An advertising campaign with model Dree Hemingway breaks Tuesday. <WWD>

Hedgeye Retail’s Take:  Macy’s continues to push the envelope with its exclusive, contemporary offerings taking a play out of the playbook of H&M, Uniqlo, and others.


Retailers Brace for Inflation - The recession forced retailers to offer better value. Now they’re scurrying to maintain the proposition as they shop the world for fall goods and confront sticker shock as a result of soaring labor and raw material costs. Prices for fall are expected to be 10 to 15 percent higher — and in some cases could rise even more depending on the product. While it will be mass and midtier retailers like Wal-Mart Stores Inc., Target Corp., Kohl’s Corp., J.C. Penney Co. Inc. and The TJX Cos. Inc. that will be hit the hardest, no company is expected to escape unscathed.  Higher apparel prices will only add to the growing specter of inflation across the economy — from food to gasoline. The skyrocketing price of oil because of turmoil in the Middle East has caused global stock markets to plummet in recent days, with the Dow on Friday closing below the 12,000 mark for the first time in six weeks. <WWD>

Hedgeye Retail’s Take:   Expect this story to remain perpetually in the headlines until prices finally head the other way.  That means we’re looking at 6-12 months of a “costs on the rise” media focus.


Big Retailers Try to Sway Congress on Debit-Card Fees - Thousands of credit-union members visited Capitol Hill on March 3 to warn that a Federal Reserve proposal limiting swipe fees collected on debit-card purchases is anti-consumer. A cap on fees banks collect from merchants will force card-issuing credit unions and banks to cancel reward programs, eliminate free checking, and impose annual fees, they told lawmakers.  A week later, about 170 small business owners flew into town with the opposite message. The Fed plan is pro-consumer, they said, because it will help lower retail prices while preventing card issuers from profiting at their expense, money that goes to fatten bankers’ bonuses.  Framing brawls about money as essentially consumer issues is a time-honored tactic in Washington. However, the debit-card fee issue is primarily a conflict between big business and big banks, Bloomberg Businessweek reports in its March 14 issue. Up for grabs is $16 billion in annual revenue. <Bloomberg>

Hedgeye Retail’s Take: Debit-savings, especially for consumables and discount retailers couldn’t come at a better time with escalating inflation on the horizon.  The question still remains if retailers will choose to enhance overall margins with the potential savings or put the cost savings back into price.


Foreign Businesses Hit by Japan Earthquake - Foreign companies Friday started counting the cost of a giant earthquake in Japan as operations were disrupted across the country.  Truck maker Volvo AB was among those worst hit as its main facility in Japan was forced to halt production. The Swedish company said damage to its UD Trucks facilities in Ageo in the southeast of Japan, seems to be mainly superficial, but it will be days before the company can do a full assessment.  Volvo employs 10,000 people in Japan, while a further 3,000 work at UD Trucks' dealerships. Volvo said the dealership at Sendai, close to the epicenter of the earthquake, had been seriously damaged, and it couldn't yet say how other dealerships had been affected. Food giant Nestlé SA said two of its locations in Japan had been impacted. <Wallstreet Journal>

Hedgeye Retail’s Take:   In retail, Coach comes to immediate focus with its international exposure highly levered to Japan.  Luxury goods companies are also likely to see some near term pressure.

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%


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

  • SBUX/GMCR was the big focus of the day.  GMCR traded up over 40% and Starbucks gained 9.1%, both on strong volume.
  • PEET declined 11.5% on accelerating volume following the GMCR news.
  • MCD and YUM traded well yesterday, on a relative basis, closing up 1.2% and 0.4%, respectively.
  • Casual dining traded softly yesterday, even as oil traded down, with only MSSR declining (5.2%) on accelerating volume.



Howard Penney

Managing Director

CHART OF THE DAY: We Call this a Correction



CHART OF THE DAY: We Call this a Correction -  chart

Quake or Correction?

“We learn geology the morning after the earthquake.”

-Ralph Waldo Emerson


Emerson was an American Patriot who championed individualism during the mid-19th century. He was born in 1803 in Boston, Massachusetts and lived his life out loud during a time of great American leadership. I don’t think he’d care so much for today’s Big Government Interventions.


Today, not unlike any other day, we’ve woken up to the risk management reminder that the world is grounded in uncertainty. From Japan’s earthquake to the Saudi “Day of Rage”, not matter where you go, there it all is…


The morning after risk should have been proactively managed is as crystal clear as the mirror you have to look in every morning. Those who are Perma-Political obviously don’t like to do that so much on mornings like this. Sadly, the modern day Japanese, European, and American bureaucrat lives a life of finger pointing as opposed to introspection.


I’ll get to answering the Quake or Correction question about the US stock market by the end of this note, but I really think that there’s  a much more critical long-term leadership question that we need to be asking ourselves of the government we should be governing this morning.


If we want to make this country Japanese in its fiscal and monetary union, that might be fine for the sake of a 2-year stock market trade – but not in preventing a long-term societal Quake.


The Ralph Waldo Emerson years were very formative in terms of how Americans thought about self-directedness and individual liberties. During Emerson’s adult years, Andrew Jackson was the President of the United States (1). Like all of us, Jackson had plenty of faults associated with living in the moment, but one of them wasn’t accepting the tyranny imposed by a socially elite Big Central Bank.


In fact, “after the First Bank of the United States was established by Hamilton, followed by a Second Bank put in by pro-bank Democratic-Republicans after the War of 1812, President Andrew Jackson managed to eliminated the Central Bank after a titanic struggle during the 1830s.” (Murray Rothbard, “The Case Against The Fed”, page 73)


On the banking front, Jackson’s battle against Big Central Planning was won against a young Princeton economist by the name of Thomas Biddle, who was serving in a quasi-Bernank seat as the president of the Second Bank of The United States. It gives me chills to think that Big Princeton Keynesians like Paul Krugman and Ben Bernanke have generated so much political power with the same academic dogma since.


Unfortunately, after the Jefferson-Jackson libertarian ideals of free markets were fortified via democratic vote, the Civil War came (where Jackson obviously had plenty of accountability issues to deal with on another topic -  slavery) and bankers who hoped for Big Government Intervention capitalized on the crisis.


The phrase “Not Worth a Continental” is derived from the same strategy that the Japanese will look toward to solve for event risk in their economy today – issuing fiat paper. During the American Revolution, that’s exactly what the Continental Congress did (print money) – with the bigger problem being that those Continental dollars were non-redeemable in gold (neither are trillions of Yens).


“The common phrase, “Not Worth A Continental” became part of the American folklore as a result of this runaway depreciation and accelerated worthlessness of the Continental dollars.” (Rothbard, “The Case Against The Fed”, page 29)


Now getting back to living in the today, if we don’t want this country to be hostage to event risk like Japan is this morning (I mean economically), like any good American household or company, we need to get this American balance sheet problem fixed. There comes a tipping point where you can’t print money to internally finance a recovery from a natural disaster, or God forbid, a war.


I’m not being alarmist. This is a very serious matter that history certainly has taught us to respect. Ask the German bankers like Paul Warburg who constructed both the German Reichsbank (founded in 1876) and, to a degree, the US Federal Reserve (founded 1913), how being hostage to The Inflation associated with an addiction to printing money ends when calamity strikes…


Back to the risk management Question of The Day: Quake or Correction?


I’ll grind through the levels here and keep this answer as tight as it needs to be. After all, you should be asking a firm who called for this Asian and US stock market correction for the levels to manage your way out of it…


As a reminder, we’ve been calling for a 3-6% correction in both US and Japanese Equities since Valentine’s Day:

  1. JAPAN - This morning’s selloff in Japan makes the cycle-peak-to-drop correction in the Nikkei -5.6% since February 21, 2011
  2. USA - Yesterday’s pounding of US stocks (4th down day in the last 5) makes the cycle-peak-to-drop correction in the SP500 -3.6% since February 18th, 2011

My immediate-term TRADE and intermediate-term TREND targets for the SP500 are now:

  1. SP500 immediate-term downside support = 1283
  2. SP500 intermediate-term downside support = 1265

So, I say Correction. The Quake is already another historical event. Let the Perma-Bulls learn from that again, on the morning after.


Go Yale Hockey in The Haven tonight (Game 1 of the playoffs against St Lawrence), and best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Quake or Correction? - emerson


Quake or Correction? - 3 11 2011 8 02 17 AM

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