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THE M3: CRA INVESTIGATION; MPEL NON-GAMING; PONTE 16; RUSSIA

The Macau Metro Monitor, April 8, 2011

 

 

SINGAPORE INVESTIGATES ALLEGED ILLEGAL ACTIVITIES IN CASINOS WSJ

Singapore's Casino Regulatory Authority said it has to-date received some information alleging illegal activities in the casinos.  It has asked Adelson and MBS to provide details.  Adelson said LVS officials have filed a "suspicious transaction report". Adelson added, "We are not doing business with third parties [junket operators], doesn't mean one doesn't slip though without our knowing about it."

 

Contrary to what Adelson said about the Singapore government having not made up its mind about allowing junkets, CRA said it has received junket applications endorsed by RWS and is currently processing and investigating them.


NON-GAMING TO CONTINUE TO GROW AT MELCO CROWN: NICK NAPLES macaubusiness.com

MPEL Co-COO Nick Naples for operations says non-gaming revenue is set to continue to increase at the company’s properties in 2011.  “It would be conservative to say we expect to see another 10-15% growth in our non-gaming areas. However, we cannot really grow ‘The House of Dancing Water’ much more. But we are seeing very healthy growth over 2010 already. Currently, it is at a break-even level with the occupancy rate hovering around 95-96%," said Naples.  He added that CoD may "add new offerings in 2011 and 2012."

 

DEPARTMENT STORE FOR PONTE 16 macaubusiness.com

Success Universe plans to open a Sogo-like department store at Ponte 16.  Ponte 16 on the Inner Harbour is 49% owned by a subsidiary of Success Universe. The majority share is owned by SJM–Investimentos, an indirect, wholly owned subsidiary of SJM Holdings.  The department store is to be located at Ponte 16’s phase 3, to be completed by the end of 2012.  The HK$800MM development plan needs approval from the Macau government.

 

“We think Japanese-style department stores run better than their peers and we are in talks with some operators,” deputy chairman Hoffman Ma said. As part of the development project, Ma expects the number of gaming tables to grow to 150 from the current 109 by 2013.

 

RUSSIA MAY BUILD CASINO TARGETING CHINESE Global News

Sources say Russia has plans to build a casino in Oblast, a neighborhood of the Chinese province Heilongjiang.


America's Last Entitlement

“The best way to destroy the capitalist system is to debauch the currency.” 

-John Maynard Keynes

 

What’s worse right now, American fiscal or monetary policy? Sadly, that’s a tough call. As the world embraces the idea of a US Government Shutdown this morning (yes, many of us would like to see these people stop what they are doing), even John Maynard Keynes is rolling over in his grave. The US Dollar Index is trading down at fresh YTD lows of $75.14.

 

Let’s take a look at both sides of what drives a country to “debauch the currency” (looking at Europe vs USA, straight up) and the immediate-to-long-term risk management implications for your portfolios:

 

1. Monetary Policy

 

As anyone who has traded a currency market in the last 40 years knows, currencies trade not only on the direction of a country’s monetary policy (hawkish or dovish), but relative to other countries with competing policy views.

 

For the 1st time in 40 years, the Europeans raised interest rates before Americans did yesterday. Notwithstanding the colossal failure of common sense associated with The Bernank opting to starve the American common man with inflation and a zero percent return on his savings account, it’s important to recall that Trichet’s rate hike didn’t come from the zero bound. He was already at 1% and he moved to 1.25%. That’s bullish for Euros versus Dollars.

 

In justifying the interest rate hike, the ex-Finance Minister of France told the world, “You know from our own doctrine that we always do what is necessary to deliver price stability.” In the immediate-term, even for the left-leaning Frenchman, that is pseudo-true. Relative to The Bernank, it’s very true. With the USD down for 11 of the last 15 weeks, Bernanke is perpetuating the highest PRICE VOLATILITY that commodity markets have ever seen.

 

2. Fiscal Policy

 

On a relative basis versus Europe, particularly relative to the United Kingdom, the United States of America isn’t even in the area code of where capital market winds have blown European politicians. Since many European markets can’t mark-their-bonds-to-model like Geithner and Bernanke have attempted to mark US Treasuries, austerity measures have either been imposed by popular vote (UK) or by market vote (Portugal). Both votes count.

 

Many Americans have found rhetorical resolve in calling Europeans “pigs”, and that might feel all good and fine if you’re an American living large on a banking fee or a Washington retainer, but that doesn’t change the reality of what the rest of the world rightly started calling Boehner and Reid this week – donkeys.

 

While the “audacity” of President Obama’s “hope” is clearly not an investment process that global currency markets are long of (to the contrary, the largest short position in US Dollars, ever, implies the world is betting against the 112th Congress in size), an earthshaking culture shock to the Big Government Spending model is the only thing Americans can hope for.

 

3. Long Dollar, Short Euro, Short Commodities?

 

That would be the most contrarian (and least profitable) call you could have made in the first 3 months of 2011. And that’s exactly why you should be asking yourself if The People can govern the government as the US Constitution asks them to. Betting against professional politicians of a centrally planned state is easy – betting against the common sense of the sometimes Forgotten Man (Amity Schlaes) in America is a losers’ long-term bet.

 

I think my defense partner, Daryl Jones, asked the most contrarian question on US Fiscal Policy yesterday that you can ask yourself right now, “Could The Ryan Budget Be The Most Economically Bullish Legislation of Our Lifetimes?” (send us an email if you’d like a copy, )

 

This isn’t a partisan point. Remember, I am Canadian – and I edit Big Alberta’s work. If a Democrat or a talking monkey were to put a legitimate spending cut bill on the floor we’d be asking the same question. I really don’t care what it takes, or who sponsors it – arresting the Debauchery of the US Dollar has become a national security issue for America’s standard of living.

 

You don’t have to take my word for it on what happens when you burn your currency at the stake. History is littered with examples. This is not the best long-term path to prosperity. If you are a raging Republican or a dogmatic Democrat who has supported Big Government Intervention for the last decade, all you need to do is take the Keynesian Kingdom call on this from John Maynard Keynes himself – “The best way to destroy the capitalist system is to debauch the currency.”

 

If you’re really long The Inflation this morning (LONG: oil, gold, etc; SHORT: dollars, US Treasuries, etc), this idea of combining fiscal and monetary conservatism should scare the hell out of you. When you consider that The Bernank has not only perpetuated unprecedented Price Volatility AND the largest NET-LONG position that the hedge fund industry has EVER had in commodities – you should be afraid, very afraid. I am.

 

But we are all big boys and girls managing risk out here on the Global Macro gridiron, so suck it up, take a deep breath, and pray. Because, at a new all-time record high price for Gold this morning of $1470/oz and $111.56/barrel oil, there’s a new bubble in town – the bubble of America’s Last Entitlement. Cheap money and donkey politicians won’t last forever.

 

My immediate-term support and resistance lines for oil are now $107.16 and $111.59, respectively. My immediate-term support and resistance lines for the SP500 are 1312 and 1343, respectively.

 

Best of luck out there today and have a great weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

America's Last Entitlement - Chart of the Day

 

America's Last Entitlement - Virtual Portfolio


CHART OF THE DAY: Accountability A'Cometh for the Keynesian Kingdom?

 

 

CHART OF THE DAY: Accountability A'Cometh for the Keynesian Kingdom? -  chart


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The Fiat Flock

This note was originally published at 8am on April 05, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“They would be our shepherds, and we are to be their flock.”

-Frederic Bastiat

 

After watching Maria Bartiromo interview Chicago Federal Reserve Bank President Charles Evans yesterday into the market close and then watching The Bernank shepherd the financial media into taking his word for it on The Inflation last night, I thought about becoming a sheep.

 

Or should I rethink my being in this interconnected Global Macro game of risk as a lemming? Perhaps a monkey? Or a donkey? Ah, so many attractive career options are available if I were to accept the wishes of the overlords of the Keynesian Kingdom and become a member of The Fiat Flock

 

Born in France in 1801, then orphaned at the age of 9, Bastiat penned the aforementioned quote when he wrote “The Law” in 1850. Not surprisingly, his work wasn’t well regarded by the French Socialists of his time. Neither was it promoted by Charles de Gaulle in the 1950s when his debt-financed-deficit-spending and devaluation programs destroyed both the franc and French credibility in global markets…

 

During days when the General-in-Chief of the US Federal Reserve (Bernanke) is more left leaning and socialist than the ex-Finance Minister of France turned head of the European Central Bank (Trichet), I think it’s worth taking a moment this morning to consider America’s constitutional definition of liberty as an alternative to this wanna be Centrally Planned world.

 

The Bastiat Questions (“The Law”, page 46):

 

“The pretensions of organizers suggest another question, which I have often asked them, and to which I am not aware that I have ever received an answer: Since the natural tendencies of mankind are so bad that it is not safe to allow liberty, how comes it to pass that the tendencies of the organizers are always good? Do they consider that they are composed of different materials from the rest of mankind?”

 

The Implied Answer (“The Law”, page 46):

 

“They have, therefore, received from heaven, intelligence and virtues that place them beyond and above mankind: let them show their title to this superiority. They would be our shepherds, and we are to be their flock.”

 

So how do you feel about that? How do you feel about American central planners debauching the longstanding entitlement we’ve had to the definition of a “free market” system? What’s so free about a market whose every breath of weaning volume depends on The Bernank’s heavy hand?

 

It’s sad to watch.

 

Back to this morning’s Global Macro Grind

 

The Top 3 headlines this morning are:

  1. “UConn beats Butler for the National Championship”
  2. “Texas Instruments To Buy National Semiconductor”
  3. “Bernanke Says Fed Must Monitor Inflation Extremely Closely.”

Great news for UConn and National Semi – but what’s up with The Bernank? What exactly does monitoring inflation “extremely closely” mean? Were our shepherds monitoring The Inflation somewhat closely before food prices hit all-time highs?

 

I don’t know how else to say it, so I’ll say it like the Chinese just did this morning by addressing The Inflation head on and raising China’s benchmark interest rate. If we’re not going to address reality about oil at $108/barrel, a new leader in the global financial system will. Don’t think for a New York minute that China didn’t do this in Bernanke’s face this morning for a reason.

 

China waited on Ben Bernanke’s speech to The Fiat Flock in Georgia last night. This what he said:

 

“So long as inflation expectations remain stable and well anchored… the increase in inflation will be transitory”

 

No, dear hard working red-white-and-blue-collared Americans, I couldn’t make that quote up if I tried. Yes, Bernanke makes up his own “forecasts” about matters like growth and inflation all of the time – and, yes, his forecasting track record speaks for itself. It’s terrible.

 

On Growth:

  1. Bernanke is still forecasting 2011 US GDP growth of 4% to Infinity and Beyond…
  2. The Street, including both Goldman and Bank of America, is cutting GDP growth estimates closer to the Hedgeye estimate

On Inflation:

  1. Bernanke calls inflation expectations well anchored and prices “stable”
  2. The Market, including Commodity and Volatility prices, is flashing the highest food prices and gyrations in price volatility, ever…

As we like to say at Hedgeye, Mr. Bernanke, ever is a long time…

 

There has never been a Federal Reserve Chairman who has overseen more Americans on food stamps (44 million people and counting). There has never been a Federal Reserve Chairman who has overseen 3-week explosions of price volatility (VIX) on the order of +40-60%, and then draw downs to higher-lows that are the most expedited in market history (7 days in March = VIX down -41.6%).

 

We are not your Fiat Flock. We do not trust your “forecasts.” And we want our markets back.

 

My immediate-term support and resistance lines for WTI Crude Oil are $105.91 and $108.92, respectively. My immediate-term support and resistance lines for the SP500 are now 1318 and 1341, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Fiat Flock - Chart of the Day

 

The Fiat Flock - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - April 8, 2011


Both China and Europe raise interest rates this week; Chinese and European stocks both rallied on the decision.  China, which is the country we like most on the long side right now was up for the 3three consecutive following the rate hike to +7.9% YTD.  As we look at today’s set up for the S&P 500, the range is 31 points or -1.61% downside to 1312 and 0.71% upside to 1343.

 

SECTOR AND GLOBAL PERFORMANCE

 

We are on DAY 5 of perfect with 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND. 

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -758 (-1178)  
  • VOLUME: NYSE 907.05 (+2.43%)
  • VIX:  16.90 -2.87% YTD PERFORMANCE: -4.79%
  • SPX PUT/CALL RATIO: 1.93 from 1.48 (+30.35%)

CREDIT/ECONOMIC MARKET LOOK:

 

Treasuries fell, sending 10-year yield to 3.57%, as traders added to bets on inflation, Fed Bank of Richmond President Jeffrey Lacker said may raise interest rates this year. 

  • TED SPREAD: 25.40
  • 3-MONTH T-BILL YIELD: 0.04% -0.02%
  • 10-Year: 3.58 from 3.56
  • YIELD CURVE: 2.71 from 2.66

MACRO DATA POINTS:

  • 8 a.m.: Fed’s Lockhart to speak in Knoxville, Tenn.
  • 8:30 a.m.: WASDE grains
  • 10 a.m.: Wholesale inventories, est. 1.0%, prior 1.1%
  • 10:15 a.m.: Fed’s Fisher speaks in Dallas to business writers
  • 1 p.m.: Baker Hughes rig count 

WHAT TO WATCH:

  • Royal Bank of Canada has gotten expressions of interest to buy or merge its US operations - Globe and Mail (C$60.29)
  • Moody’s downgraded covered bonds issued by Portuguese banks including Banco BPI, Banco Comercial Portugues and Banco Espirito Santo following the April 6 cut in the lenders’ ratings.
  • Petrobras Discovers More Evidence of Oil in Offshore Lula Field
  • Disney, partners break ground on Shanghai Disney resort
  • Fed reports balance sheet assets of $2.65T on Wednesday, +$26.2B w/w and +$341.9B y/y
  • CNBC reports that AIG submitted some of the winning bids in yesterday's Federal Reserve auction of Maiden Lane II bonds
  • Expedia (EXPE) to split into two by separating TripAdvisor unit into publicly traded company

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Commodities Rise for Seventh Day to Two-Year High, Led by Cotton, Silver
  • Copper Rises to One-Month High in London on Growth Outlook: LME Preview
  • Gold Jumps to All-Time High on Concern About Inflation, Weakening Dollar
  • U.S. Corn Supply Shrinking as Meat, Ethanol Demand Send Crop Price Higher
  • Thailand’s Rice Bowl May Get Smaller as Farmers Curb Output to Spur Prices
  • Oil Rises to 30-Month High Above $111 in New York, $124 in London on Libya
  • Sugar Rises for a Second Day on Supply Speculation; Cocoa Prices Decline
  • Japan To Restrict Rice Planting in Fukushima After Testing for Radiation
  • Wheat Imports to China Will Drop as Drought Ebbs, Analyst Says After Tour
  • India’s Commodity Futures Market to Grow 25%, Express Says, Citing Khatua
  • Quake Lifts U.S. Diesel Cargoes on Three-Month High Profit: Energy Markets
  • Equinox Says Minmetals' $6.3 Billion Offer Is ‘Lowball,’ Understates Value
  • Sugar May Drop Next Week on Rising Supply From Brazil, India, Survey Shows

CURRENCIES

  • Yen fell after crippled Fukushima nuclear plant escaped damage from the biggest earthquake to strike Japan since March 11.
  • Pound at the strongest level since January 2010.

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

EUROPEAN MARKETS

  • Rate hikes work! European market are broadly higher today.
  • UK Mar Core PPI +3.00% y/y vs consensus +2.90% and prior +3.10%; UK Mar Core PPI +0.40% m/m vs consensus +0.30% and prior +0.10%%.

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIA PACIFIC MARKTES:

  • Japan and China lead Asia higher.  India, Thailand and Malaysia were the outliers on the downside.
  • Japan February current account surplus +3.0% y/y to ¥1.641T vs cons ¥1.704T.

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 47

 

 

Howard Penney

Managing Director



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