NKE: Sees What Bernanke Doesn’t

You might not see inflation Ben, but Nike does. There will be ‘ticker shock’ on the event, of course. But the alignment of the story over the course of the next 18 months is one of the best in Consumer. Entry points take center stage.




Let’s get a very important point out of the way real fast… First and foremost – like it or not – Nike’s key takeaway by Mr. Market will be from a Macro Trader/PM vantage point. They could care less about LeBron, NikeID, the new China logistics center, and even positive Futures trends.  They’re going to spank the stock margins.  There are a few Nike-specific items that added to the miss (more on that later), but a PM won’t know or care. The fact is, here’s a Consumer bellwether that’s seeing the long-awaited cost inflation. If it’s going to impact Nike, then what about the average-quality companies out there? What about the junk???   Guess what Bernanke? You might not see inflation, but Nike does.  


Adding to the bear case is that inventories came in hot (+18% on 7% sales growth).  A miss with lower margins and high inventories is usually the kiss of death for anyone in the supply chain – and especially should be this year. Good luck to any perma-bull trying to defend that sort of trend in this tape.




But what’s keeping Nike fundamentally grinding forward is the fact – and it is a fact – that its Futures remain very solid. Orders were up a strong 11% in the US – still double digit despite hitting a point where last years’ compares get tough. 2-yr futures accelerated sequentially from 6 to 7.5% in North America.


Emerging markets accelerated (32.5% 2 yr!). China accelerated as well to a mid teens rate, which is nice to see given that it was a concern of ours coming out of 2Q. Basically…they’re doing everything they said they were going to do. The category realignment is absolutely working and they’re growing in all the right places – apparel, in particular.


As it relates to growth, management’s tone was so dang optimistic on the call that even someone like me (who has high growth expectations and knows the company a bit better than the average guy) did a double-take. For a conservative CFO like Don Blair to feel good enough to step up and say that he’s comfortable with the high end of long term plan of ‘high-single-digit’ growth for the next 5-quarters is pretty big, and that’s an understatement.


One thing I’ve always accused Nike of is not being aggressive enough when times are tough in turning the screws to its competition.  I think that they are FINALLY doing this. Not by price – that’s not their style. But with product innovation and special programs throughout regions and channel partners. To do this, however, you’ve got to have the inventory – especially when we are coming off such tight inventories over the past two years. The best companies are the ones that will grow. To grow, you need inventory. It’s as simple as that.



So we’ve got a miss and high inventories.  But the hardest quarter for Nike is the one that the company just guided for (4Q – w 300bp decline in GM%). Then what? We anniversary excess airfreight costs in the Aug qtr, then we get the benefit of price increases and better utilization on new Asian capacity – which meaningfully eases COGS pressure. Then we cruise right on in to the Olympics – expectations for which will start to build before Nike’s 2Q12 (Nov 11).  And by the way, anyone want to find me a time period where Nike disappointed two quarters in a row?


In Consumer Discretionary, it’s not too easy to find places to hide. Some of us have the opportunity to avoid the space – or even short it. But if you’re looking for quality growth in Consumer, there’s not much to hang your hat on.

We can beat the company up all day for freight costs, oil, growth spending and inventories. But the reality is that…

a)      The long-term call is completely in-tact here.  $20bn company goes to $30bn over 5 years.

b)      The intermediate-term call looks good: Nike-led athletic cycle takes through the Olympics in Summer 2012.

c)       Near-Term: There are definitely question marks. Be smart about entry points – but we definitely think they should be entry – not exit.  Something to definitely keep on your screen Friday is $78.14, which is Keith’s Long-Term TAIL line of support.



We’re looking at $5 in earnings in FY12(May) and $5.75 a year after. Will the stock make you rich here? Probably not. But for a GARP name where the underlying story is very good, the company is taking share, and the balance sheet is like iron ($9.25 per share in cash) we think this is a pretty good spot to be.


Conclusion: In the report below, we analyze clues embedded in the price action across asset classes and key global markets for hints as to what Global Macro trading could look like over the intermediate-term TREND.


While the consensus outlook for risk (be it “on/off”) hinges on the latest update from the grave situation at Japan’s Fukushima Dai-Ichi nuclear power plant, we thought we’d take the opportunity to: a) reiterate our belief that risk is always “on”; and b) provide some clues as to what the Global Macro trading environment may look like over the intermediate-term TREND with a bevy of ideas on how to play it across asset classes.


This is in no way an attempt to make a “call” the chaos that is Global Macro risk. Rather, it is our best attempt to analyze the market data provided in the near-week since the current series of tragic events began in Japan in an attempt to offer some clues as to what the major moves will be across the asset allocation spectrum. Understanding that prices often lead fundamentals, we attempt to get you ahead of the storytelling that may be coming down the pike over the next 3-6 months.


In the essence of keeping this report tight, we’ll get right to it by addressing each asset class individually. As always, we encourage you reach out to us if you have any follow up questions or would like to discuss a topic(s) further.




Since the close of 3/10, the average and median percentage change in the 65 global equity markets and nine S&P sectors we track has been (-1.7%) and (-1.6%), respectively. Only 13 of them currently register a positive gain.


Excluding Japan’s Nikkei 225, which is down (-14.1%), the leader board is bookended by countries like Germany’s Dax (-5.8%), Hong Kong’s Hang Seng (-5.6%), and Switzerland’s Market Index (-5.2%) on the losing end and Greece’s Athex (+4.9%), Venezuela’s Stock Market Index (+3.3%), and the XLE (+2.9%) sit atop the winning end. Without reading too much into it, it seems that the “bailout trade” (Greece) and “inflation trade” (Venezuela, XLE, Hong Kong) are still intact. Interestingly, we see currency strength is hurting the more export-oriented countries of Germany (Euro +1.6% vs. USD) and Switzerland (Franc +3.7% vs. USD).


Perhaps even more so than before, keeping an eye on FX volatility will be integral to managing exposure to certain equity markets. For example, Brazil’s Bovespa has appreciated modestly (+0.3%) on its positive exposure to the anticipated increase in the prices of basic materials needed for Japan’s recovery and crude oil via Petrobras. We do caution, however, that this story may be a trap, as further weakness in the real (-1% vs. USD) via Japanese repatriation (Japan is the largest source of foreign demand for Brazilian local bonds) may give the Brazilian central bank the headroom it needs to accelerate rate hikes.


Elsewhere, we expect a further yen strength to weigh on Japanese equity prices; the current sell-side recommendations to buy this dip on “valuation” and “rebuilding” are ill-timed at best, reckless at worst. We don’t subscribe to the Keynesian school of investing which largely follows the “broken window economic theory” followed by a fix of Big Government Intervention and we don’t subscribe to the sell-side’s strategy of using the current crisis in Japan as a “catalyst for growth” and a reason to buy Japanese equities right here.


All told, we made the intermediate-term TREND research call on Global Stagflation in early November and, irrespective of the situation in Japan, this major risk to both corporate margins and equity valuation multiples hasn’t gone away. If anything, the tragic events in the world’s third-largest economy support this Macro backdrop. That said, we do expect Asian equity markets to bottom first and have been watching Chinese stocks with a bullish eye for the past several weeks.




With the exception of Natural Gas (+8.6%), Coal (+5%), and Copper (+3.5%) – all of which benefit from current anti-nuclear power sentiment and the Japanese recovery story – commodity prices have been largely soft since last week’s incident. There’s been particular weakness in agricultural commodities; we posit that investors have aggressively “de-risked” their portfolios by slashing their speculative exposure to Oats (-5.9%), Corn (-5.3%), Cotton (-4.4%), Cocoa (-4.7%), and Wheat (-4.1%).


While the situation in Japan is definitely something to pay attention to as it relates to consensus’ risk appetite in the near term, over the intermediate term, we don’t see any change in the fundamentals of the most dominant of the many factors supporting elevated commodity prices – US Dollar weakness (-1.7%). In fact, the our expectation of continued Japanese repatriation and further unwinding of yen carry trades supports further JPYUSD strength, which, in turn, is a bearish factor for the US Dollar Index (yen = 13.6% of the basket).






After a (+5.2%) up move since in the earthquake and ensuring tsunami first hit Japan, it’s obvious that the Japanese yen is “stealing the show” here. As far as the fundamentals are concerned, we see two reasons for continued yen strength over the intermediate-term: 1) repatriation by Japanese households and corporations to help finance the rebuilding effort (Japan’s net foreign assets total roughly 56% of GDP); and unwinding of yen carry trades, as short-end interest rate differentials relative to Japanese sovereigns continue to compress across the board.




Of course, we don’t expect the yen to continue appreciating in a straight line and since touching a post-war high of 76.36 in intraday trading overnight, it’s come in to around 78.98 – still a post-war high, nonetheless. Further, we feel much of the current yen strength is actually being driven by investors getting ahead of the aforementioned fundamentals. Given that the speculative bid may be priced in at current levels, we’d expect the yen to continue a gradual appreciation over the intermediate-term TREND.


As always, the risk of Japanese officials intervening in financial markets looms large and we can all but count on their intervention in the FX market in the near future. As we saw late last year, however, their attempts will likely prove futile in reversing the trend of the global currency market. They will, however, succeed in perpetuating the heightened volatility that accompanies Big Government Intervention. The current two-year high on implied volatility for the dollar-yen lends credence to this stance.




Elsewhere in the FX market, the Aussie dollar (-2% vs. USD) and Brazilian real (-1% vs. USD) are two currencies that look particularly vulnerable given the aforementioned Global Macro backdrop. The Aussie looks vulnerable because the market could increasingly start to bake in interest rate cuts if Australian growth falters in any way from slowing growth in its three largest export markets: China (#1), Japan (#2), and Korea (#3). In fact, the market is increasingly sniffing this out, as analysis of swaps trading suggest investors are betting there is a 27% chance the RBA cuts the cash rate by (-25bps) – up from 22% yesterday.


Even though we’re looking to get ahead of the bottoming in Chinese growth and increasingly like Chinese equities, the fact of the matter is that consensus is still far too bullish on Chinese growth, which we expect to slow. And understanding that Australian (or any) central bank action will lag the reported data, the Aussie dollar may be a victim of consternation for quite some time.


Lastly, we continue to remain bullish on the Canadian dollar, insofar as crude oil continues to trade in a bullish quantitative formation on all three of our core investment durations. We remain bearish on the US dollar’s intermediate-term TREND and long-term TAIL; as Japan’s Keynesian Debt & Deficit Crisis gets exposed to the world via this tragic event, we expect the focus of the global currency market will turn to similarly-positioned countries. Though the EU continues to have its issues, we still like EURUSD understanding the following factors: 

  1. The EU has largely gone through the austerity wringer while the US continues to kick the can down the road, instead opting to fund the federal government for two weeks at a time;
  2. We’re inching closer to a full-blown debt ceiling debate and a potential stoppage of the federal government; and
  3. As we saw a few weeks back, the Trichet & co. stand ready and willing to tighten well ahead of the Fed. 





With regard to fixed income, there are two things we’re acutely focused on: QE3 and inflation. Our current bullish stance on crude oil and gold and bearish view of the US dollar implies we expect inflation to continue to remain a headwind over the intermediate-term TREND. That’s bad for bonds.


What’s good for bonds is a rotation out of risk assets like equities over the intermediate term, particularly as consensus forecasts start to come in toward our bearish view on the slope of global growth. That doesn’t make us bullish on bonds, but we could foresee a scenario whereby they continue to get bid up like they have in the wake of the incident in Japan.




Looking at the US Treasury curve specifically, we see that 2’s, 10’s, and 30-year yields continue to trade below what used to be their TREND lines of support. Whether or not this bullish bid is forecasting another round of Quantitative Guessing remains to be seen. Both Bernanke and Dudley have recently stated that the Fed has no intentions at the current time to increase the asset purchases beyond June or the $600B target. By removing phrases like “the recovery is disappointingly slow”, “tight credit”, “modest income growth”, and “lower housing wealth” from their latest statement, the Fed sent a signal to market participants that the US economy is indeed in a better place in their eyes and that no further easing would be required. At the bare minimum, however, as long as Treasuries continue to have a bullish TREND-line bid, QE3 remains a possibility in our model.


All told, the events in Japan have created much consternation in global financial markets and the large amount of news coverage dedicated to this crisis has masked some global economic fundamentals – both positive and negative. Given, we continue to urge investors to acutely focus on all risks, not just those surrounding the Japanese reactors.


Darius Dale


Now That Weak Hands Have Been Shaken Out . . . Oil’s Climb Should Continue

Positions: Long oil via the etf OIL; Long energy producers via the etf XLE; Long Suncor (SU); Long Petrobras (PBR)


Conclusions: Despite the recent correction alongside the global sell-off in risky assets related to Japan, a number of key drivers supporting higher oil prices remain intact.  In fact, West Texas Intermediate is back above $100 per barrel and Brent is back above $114 per barrel.


This coming Wednesday, we will host a conference call that updates our outlook on energy, with a specific focus on oil.   We will be looking at the energy market from three perspectives, the geo-political perspective, the supply and demand perspective, and the monetary policy perspective.  The call is titled:


“HEDGEYE OIL VIEW:  Launched positive at $75, Reiterated at $90, Reiterated at $97. WHAT'S NEXT?”


While the title itself is somewhat self-adulating, the point is not to pat ourselves on the back; rather it is to contemplate what is next for prices in the oil markets, and the implications therein.


Currently, we are long oil in the Virtual Portfolio, and remain bullish.  In the attached chart, we’ve highlighted our current levels and quantitative view on WTI.


Now That Weak Hands Have Been Shaken Out . . . Oil’s Climb Should Continue - wti   dj


Below, we’ve updated two of the three key factors that we will discuss in more detail next week, both of which continue to support being long of oil.


1. Geo-politics – While the natural disasters in Japan have led to a flow of funds to, theoretically, safe assets and flow of money out of more risky assets, like oil, the geo-political underpinning of a strong oil price have only accelerated in the Middle East. 


The primary issue, currently, is Libya and its 1.6MM barrels per day of production.  As of yesterday, it appeared that the defeat of the Libyan rebels was imminent, but with the Arab League unanimously supporting a no-fly zone, and an expectation that the U.S. could back the same in the United Nations Security Council, the dynamic has shifted quickly.  The implications of these actions are that the civil war in Libya will be prolonged, which will extend the decline in Libyan oil production (estimated to be down by two-thirds from its norm).  Further, it accelerates the potential for the “nuclear” option by Libyan leader Muammar Qaddafi, in which he blows up his own oil fields to heighten the chaos.


The other key issue, currently, relates to demonstrations in Bahrain.  Yesterday, Bahraini troops cleared out a central square of protesters using what is being described as military style force.  The government then followed up by arresting key leaders of the opposition.  The Bahraini military was backed by allies, such as Saudi Arabia who sent 2,000 troops.  This support is in stark contrast to Libya, where the Arab League is subtly working to aid in defeating Qaddafi.  While the Day of Rage in Saudi Arabia was largely a non-event, the role of the Saudi army in suppressing pro-Democracy demonstrators is only likely to inflame reformers within Saudi Arabia.  The risk premium in oil will accelerate as protests against the Saudi royal family heighten.


2. Monetary policy – One of the key factors, if not the primary factor, driving the inflation of all commodities has been U.S. dollar weakness.  Oil has a long term inverse correlation to the U.S. dollar, which for WTI is (-0.78) over the past three years. This has become more pronounced in the last six weeks.  In the prior six weeks, WTI’s correlation is (-0.88) and Brent’s correlation is (-0.86) to the U.S. dollar.


We recently covered our short position in the U.S. Dollar, but continue to have bearish bias on the U.S. Dollar over the intermediate-term TREND and long-term TAIL.  The three primary reasons are debt, deficit, and monetary policy.  U.S. government debt is currently an estimated $14.2 trillion, which is bumping very close to the debt ceiling.  Meanwhile, as we recently wrote, the U.S. federal deficit continues to accelerate with February being the largest monthly deficit on record at $223 billion.  Collectively, we would argue that this fiscal situation is negative for the dollar from an investor confidence perspective, but more importantly this situation makes it very difficult for monetary policy makers to raise interest rates due to the substantial potential interest rate burden associated with $14.2 trillion in debt outstanding.  Further, it seems the current Federal Reserve will continue to lead the world on dovish policy, which is negative for the U.S. dollar, based on their most recent statement two days ago:


“The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.”


In a scenario of heightened geo-political tension in MENA and continued weak dollar policy from the U.S. Federal Reserve, it is difficult to see much downside in the short term for the price of oil.


Daryl G. Jones

Managing Director

Daily Trading Ranges

20 Proprietary Risk Ranges

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Europe’s Interest Rate Pause

Positions in Europe: Sold Long Germany (EWG) today; Covered Short Spain (EWP) on 3/16


In the last two days both the Swiss National Bank (SNB) and Norway’s Central Bank (Norges Bank) kept their main interest rates on hold, at 0.25% and 2.00% respectively. The decisions are worth considering within their own context, and as it relates to ECB policy.


Today’s decision from the SNB to HOLD comes as no great surprise as a hike would likely encourage the appreciation of the Swiss Franc (CHF) vs most major currencies, in opposition to the SNB’s mandate to limit appreciation to protect the country’s exports; further, inflationary pressures remain benign with Swiss CPI at +0.1% in February Y/Y.


As a safe haven play, the CHF vs most major currencies has gained steadily over the long term; intermediate term (vis-à-vis the Eurozone’s sovereign debt contagion); and immediate term in the wake of the earthquake in Japan (+2.2% since March 14th). The chart below shows just how prevalent the currency’s appreciation has been since a low in early May 2008:


Europe’s Interest Rate Pause - swissy



Norges Bank also left rates unchanged yesterday, despite threats of rising home price inflation (+9.2% in February Y/Y) and household credit growth on the rise. CB Governor Jan F. Qvigstad said there is a “50/50 chance in May or June” of a rate increase.


Both bank decisions to keep rates on HOLD give credence to the recent pause in global economic sentiment following the earthquake in Japan. In our mind, the events in Japan may well tame the hawkish commentary of ECB President Trichet at the last ECB meeting on 3/3 in which he signaled that a hike (likely 25bps) could come as soon as next month. While the Eurozone is feeling pressure from rising inflation  -- CPI in February came in 10bps higher than January at 2.4% Y/Y -- given the threat of stagnation from the world’s third largest economy (Japan’s GDP equals ~ 9%  of the global economy), persistent European sovereign debt contagion concerns, and further unrest in the Middle East and North Africa, Trichet and the rest of the ECB governing board may reconsider the impact a rate hike will have on the region, especially for the periphery which shows a strong negative divergence across fundamentals, including high debt and deficit levels, poor GDP growth prospects for this year and next, and high inflation and unemployment levels.


Under these global conditions, Trichet may well elect to push out a rate hike decision.



Matthew Hedrick


Short Covering Opportunity

This note was originally published March 17, 2011 at 07:55am

“It isn’t as important to buy as cheap as possible as it is to buy at the right time.”

-Jesse Livermore


Having been a market practitioner for the last 12 years, I’ve come to respect that a Risk Manager needs to be as well versed in the tactical thinking of a Jesse Livermore (“Reminiscences of a Stock Market Operator”) as the libertarian theorizing of a Bastiat (read “The Law”, 1850).


Valuation isn’t a catalyst. Price momentum is. When the slope of price momentum changes to the bearish side, valuation becomes a trap. When price momentum is bullish, it justifies the best storytelling in the world.


I’m not so much interested in being a valuation-guy, a perma-bull, or a perma-bear. Been there, tried all three. I’m interested in being right. Livermore taught me the same – “There is only one side of the market and it is not the bull side or the bear side, but the right side.”


Whether you are on the buy-side or the sell-side, I’ll assume your goal is also to be on the Right Side. That’s how you get paid. Sure, we all have different durations and risk tolerances in being exposed to our respective investment decisions. But the market doesn’t care about how we think about these things individually. The market waits for no one.


This is why I am trying my best to evolve my Multi-Factor Global Risk Management Model so that it is Duration Agnostic. That’s where the concept of our TRADE/TREND/TAIL framework was born. And the mathematical principles of interconnectedness embedded in Chaos Theory support it.


As a reminder, here’s how we think about TRADE/TREND/TAIL durations:

  1. TRADE = the immediate-term (as in 3-weeks or less, which I’ll get to in a minute in terms of seeing a Short Covering Opportunity)
  2. TREND = the intermediate-term (3-months or more, which is how we think about companies and countries sequentially)
  3. TAIL = the long-term (3-years or less, which is how we think about our key Global Macro Themes like “Housing Headwinds”)

Of course, some of you invest beyond what I am defining as the TAIL. I do too. When I invested 1/3 of my net wealth to create Hedgeye Risk Management, I considered that a fairly long-term and concentrated investment idea.


But when it comes to managing Global Macro market risk in an environment of Heightening Price Volatility (which is what these Fiat Fool central planners from the US Federal Reserve to the Bank of Japan are perpetuating via their unprecedented money printing experiments), I think you need to acutely manage the shorter-term duration risk - the TRADE and TREND.


So that’s how we think about it and this is what I did about it yesterday in the Hedgeye Portfolio:

  1. Covered short position in SPAIN (EWP)
  2. Covered short position in EMERGING MARKETS (EEM)
  3. Covered short position in WALMART (WMT)
  4. Covered short position in INDUSTRIALS (XLI)
  5. Bought long positions in HEALTHCARE (XLV)
  6. Added to long position in GERMANY (EWG)

Overweighting one of the key risk management relationships we’ve been working with in calling for this 6.5% correction (the inverse relationship between the SP500 and the VIX), yesterday I finally registered a signal that I considered an explicit Short Covering Opportunity.

  1. The SP500 is immediate-term TRADE oversold (3.0 standard deviation move)
  2. The VIX is immediate-term TRADE overbought (3.5 standard deviation move)

Now there is a difference between what The Street and a bullishly-bias media amusingly label a “buying opportunity” and what Risk Managers recognize as a Short Covering Opportunity.


A Short Covering Opportunity is reserved for those Risk Managers who had the sobriety to short things before they started going down. A “buying opportunity” is a decision to deploy cash and expand you gross exposure to the market. 


I did both yesterday (you are allowed to do both):

  1. Hedgeye Portfolio (a proxy for my net exposure to the market): I moved to 16 LONGS and 4 SHORTS, by covering shorts
  2. Hedgeye Asset Allocation (a proxy for my gross exposure): I moved to 43% CASH yesterday, down from 46% the day prior

Again, I fully respect and understand that how I am expressing my risk management views may not be found in a Yale economics textbook on portfolio theory. I am trying to evolve the risk management process and show the financial services community that there is a transparent and accountable way that a firm can both originate ideas and manage risk, without being on the other side of our clients’ trades.


I also fully understand (but do not fully respect) the marketing message behind being “fully invested.” Sure, there will be a time for that (Q2 of 2009), but not when our fundamental Global Macro research is proactively calling for Global Growth Slowing As Global Inflation Accelerates. When the winds of price momentum blow from bullish to bearish, that’s called being fully exposed.


I’m not trying to take a “victory lap” this morning. I am deeply interested in trying to explain what we are doing here and why. I don’t think it’s credible for the said savants of Wall Street “strategy” to keep missing huge draw-downs in global markets like they have for the last decade. Instead of whining about it, we are passionately pursuing a better way.


My immediate term support and resistance lines for WTI crude oil are now $97.02 and $102.60, respectively, and I took our asset allocation to oil up to 6% on Monday from 3%. My immediate term support and resistance lines for the SP500 are 1256 and 1274, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Short Covering Opportunity - Chart of the Day


Short Covering Opportunity - Virtual Portfolio


We use a couple of different assumptions to project 2011 growth.


Based on the first few months of 2011, Macau should be set for another terrific year of growth.  While undoubtedly a slowdown from the growth rate generated in 2010 – 58% is pretty tough to top – we think investors would be happy with 25%+ every year.


So, 25% is our low estimate for 2011 gaming revenue growth.  We derive this growth rate based on our March projection of HK$18 billion (based on two weeks of data), carried forward and seasonally adjusted for the remaining months of the year.  This low case estimate assumes no growth off of the March level except for normal seasonality. 


Our base case uses the February/March seasonally adjusted average as the base and uses the same methodology as above.  Under this scenario, we would project 2011 gaming revenue growth at 32%.  Our high estimate is the same as the base case but assumes that revenues grow an additional 9.5% (0.8% per month sequentially) throughout the year for total 2011 growth of 36%.  Current consensus China GDP growth estimates for 2011 is 9.5%.


Of course, a lot can happen to force revenue growth outside of the 25-36% range.  A bear might say that Beijing’s attempts to rein in inflation and liquidity will impact VIP volumes.  Possible – it has happened in the past but Beijing has been tightening for 9 months and volumes continue to expand.  A bull would point out that Mass growth is typically at least the rate of GDP and market penetration (visitation).  Good point – visitation continues to rise, pushing Mass revenue growth beyond just GDP-fueled revenue per visitor. 


We are also not adding in any incremental growth from the opening of Galaxy Macau which should grow the market.  The new Galaxy property on Cotai will add 10% to table supply and should detract from same store revenue, unless the property is an absolute smashing success.


Here are our estimates:



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