Due to the magnified impact on MPEL's bottom line of low hold given its junket mix, MPEL may disppoint whisper EBITDA expectations of $145 million. However, volumes were strong. Here is what they said last Q.




  • “We will have some incremental expense associated with new amenities such as Cubic...and the full impact of our labor rate increase, which took place in the middle of the fourth quarter. But net-net, we think we can keep a very tight lid on expenses and FTE increase in 2011.”
  • “We also opened two new junket rooms at City of Dreams.”
  • 1Q11 guidance:
    • “Depreciation and amortization costs is expected to be approximately US$85 million...
    • Corporate expense is expected to come in at US$17 million to US$18 million...
    • Net interest expense is expected to be approximately US$28 million...
    • We do not expect any meaningful pre-opening or capitalized interest in the first quarter of 2011.”
  • “Our first quarter results are off to a good start. We experienced a strong Chinese New Year holiday period, with visitation and gaming volumes well in excess of last year’s results.” 
  • “Our marketing grip has generated significant results through its destinational sales strategy, building relationships with travel trade operators throughout China, and the APAC region, as they continue their 20-city roadshow tour in the first half of 2011.”
  • “We believe the introduction of another integrated resort on Cotai will benefit City of Dreams.”
  • “We expect to continue to reduce our debt balance in 2011 through scheduled amortization payments and cash flow from operations.”
  •  “I think usually after Chinese New Year, which is 15 days after the first day of Chinese New Year, we tend to expect much slower volumes in Macau.”
  • “For the full year of calendar 2011, we’re expecting about US$60 million of total CapEx, the vast majority of that will be growth rather than maintenance.”
  • “In terms of the overall representation from the premium direct, the business represents about 15% to 20% during fourth quarter. And basically, Altira is a junket play.”
  • “I think in the last quarter (3Q), and currently, we stick with the commission cap low 1.25% to the junkets and also we count religiously a significant type idea whereby our revenue share more though in junket and COD stick with the same level of our neighbors. So we didn’t see any changes in terms of rebate to the market in the last couple of months.”
  • “We haven’t seen any need to change our overall provisioning policy and we’ll continue to follow our existing policy. At this point, we think we’re in good shape as far as our reserve and adequately reserved in light of our business volumes.”
  • “It is very clear that tourism promotion and also the fact that China is trying to move into a consumption spending economy is definitely the case, and therefore that benefits Macau and tourism sectors in general. So all in all, we are not concerned about these tightening measures. But with regard to the banking system, I think it provides a solid platform for the Chinese economy to continue to grow at a steady pace for years to come.”
  • [Altira growth] I think it is a combination of both visitation numbers as well as our growing number of membership, and the reason is quite mixed in terms of the growth story. But we did a lot of looking to the opportunity in a lot of direct marketing and also in different tier of the alignment with the customer with the different tiers of customer, including premium mass and mass. I would think that that our premium mass is doing a little bit better than the mass, purely because we put a lot of effort in looking to opportunity going forward to in terms of direct marketing.”
  • “That additional hotel tower together with the podium is a 1.5 million square feet development. So, when we do build it, it’s going to be a significant addition to City of Dreams, not just on the hotel inventory side, but also in addition on the overall proposition being subject to regular government’s approval on additional gaming space or retail restaurant proposition.”
  • “We still have a management contract for Macau Studio City, and we continue to have discussions with the partners of Macau Studio City to hopefully have that project start in one way or the other.”
  • [Cubic opening] “I think we are looking at a end of first quarter, early second quarter date."
  •  “Hard Rock Cafe is certainly a lease that we have with a licensee from Hard Rock International. They plan to start construction within the next month or so and are currently planning a September or Q4 opening for the cafe.”


Notable news items and price action from the past 24 hours as well as our fundamental view on select names.

  • MCD’s $400 million 3.625% 10-year senior unsecured debt has been rated “A” by Fitch Ratings. 
  • CMG’s Jack Hartung and Steve Ells bought 5,000 and 10,000 shares, respectively, on 5/13.
  • PNRA’s “pay-what-you-want” restaurant in Clayton, Mo., is promoting the brand and, surprisingly, making a small profit, according to media reports.
  • CBOU and DPZ gained 2.1% and 1.2%, respectively, on accelerating volume yesterday.
  • CHUX gained 17% on accelerating volume following stronger-than-expected earnings.
  • KONA declined -1.8% on accelerating volume.





Howard Penney

Managing Director

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Temporary Safety

“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”

-Benjamin Franklin


In “The Road To Serfdom”, F.A. Hayek ends an excellent chapter titled “Security and Freedom” with that very American quote from Benjamin Franklin in 1755. Compare and contrast that thought with this quote from America’s central planning elite last night at the Harvard Club:


“Fiscal problems are so pressing that they threaten to undermine the foundations of our future economic strength… and the country’s ability to protect our national security interests.” –Tim Geithner


Notwithstanding that Geithner has been a Government Gopher since 1988 (when he joined the Treasury department), the man has since blossomed into a full-fledged storyteller of fear mongering.


Whether it’s been Geithner serving as:

  1. 1 - Squirrel hunter and yes-man in chief of the Robert Rubin/Larry Summers’ era of ‘we’re bigger than markets’
  2. 2003-2009 – President of the Big Broker Club at the Federal Reserve Bank of New York
  3. 2009-2011 – US Treasury Secretary who has overseen a US Dollar Index decline of -16% since he assumed office

It’s no secret that I disagree with Geithner on many scores, but I wholeheartedly agree with him on this - the political strategy of scaring the hell out of whoever he can. With his track record of contributing to this country’s fiscal problems, you should be afraid – very afraid.


How we got here and why it’s not going to change where we are going anytime soon has been compiled in my Early Looks since I decided to start writing about real-time risk management matters 3.5 years ago. Of all the fundamental conclusions I have had about Big Government Intervention, here are two that have achieved the deepest simplicity:

  1. It shortens economic cycles
  2. It amplifies market volatility

“It”, being Big Government Intervention… and the Government Gopher being the last man standing who is dumb enough to fundamentally believe that it’s the American public that’s too dumb to understand what’s going on here.


Now when you call someone “dumb”, the elitists who are concerned with titles and resumes dismiss you – but I care as much about their opinion as I do someone who says there should be no fighting in hockey.


Dumb is as dumb does – and if they want to suit someone up in a Ph.D. in Economics dress and send them on over to 111 Whitney Avenue in New Haven, CT to tell me that what Geithner has been doing since 1988 has been smart, I’ll be waiting for them.


“It” is the Big Government Intervention. “They” are the bureaucrats. We are The People.


Back to this Global Macro Grind


Stocks, Bonds, and Commodities all reminded us yesterday of one fundamental reality that virtually the entire sell-side has had wrong for the past 5 months – GROWTH IS SLOWING. So let’s go through that:


1.   Stocks – closing down for the 3rd consecutive day, the US stock market has been down for the last 3 weeks. The rest of the world’s stock markets, started going down a few weeks before that – immediately following The Bernank’s pandering to the central planning elite to remain what we have coined as being “Indefinitely Dovish” (Q2 Macro Theme).


2.   Bonds – US Treasury Bonds in particular have been ripping to the upside (see Chart of The Day) ever since The Bernank reminded the world that both his growth and inflation forecasts were wrong (again). Growth Slows As Inflation Accelerates. We remain long Long-term US Treasury bonds (TLT) as a way to play the “Indefinitely Dovish” Macro Theme. We’re also long a US Treasury Flattener (FLAT).


3.   Commodities – May has been a mess. And a mess is what you should expect the likes of the Gopher to do to The Correlation Risk that’s imputed in daily US Dollar moves. You cannot experiment with blasting your currency to all-time lows and not assume unintended consequences. Temporary Safety, Mr. Geithner, this is not.


The good news here is that The People get it. They get the principles of individual freedom and national security. They also get that this is the only time in this country’s 235 years of economic history that some central planner has been able to politic on the platform that the markets are “national security” issues.


Geithner has spent the last 23 years of his life working on this. He’s only 49 years old. Imagine spending 47% of your life contributing to the “foundations” of America’s fiscal problems. Trust him – he knows his stuff.


Institutional money managers don’t trust the US stock market rally as much as they did while the stock market was going up – shocker. This week’s Bull/Bear Sentiment reading (Institutional Intelligence survey) saw the spread between Bulls and Bears narrow – big time.

  1. Bulls dropped from 51% last week to 45.6% this week
  2. Bears inched up to +18.5% last week to 19.6% this week
  3. Spread (Bulls minus Bears) narrowed from 32.5 points last week to 26 points this week 

I certainly make my fair share of mistakes, but I generally don’t pose a “national security” issue to our country and I certainly don’t make a habit of chasing markets at YTD highs. That’s where we were 3 weeks ago when the Bull/Bear Spread was +38.5 points wide and I shorted US stocks.


Please don’t let America’s central planning storytellers promise you Temporary Safety in exchange for their long-term job security.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are $1, $94.91-99.67, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Temporary Safety - Chart of the Day


Temporary Safety - Virtual Portfolio

Year of the Chinese Bull

This note was originally published at 8am on May 13, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“If you do not change direction, you may end up where you are heading.”

-Lao Tzu


Lao Tzu, born in the sixth century B.C., is known as the founder of Taoism and the author of Tao Te Ching.  In this book, Lao Tzu describes the Tao “as the mystical source and ideal of all existence”.   Interestingly, in some legends he was born after being in the womb for 62 years – as a grown man with a grey beard and long ear lobes (a sign of wisdom).


The quote above from the founder of Taoism is apropos as it relates our investment views of China over the past couple of years.  Early last year we introduced the Chinese Ox in a Box theme, which encapsulated our view that Chinese central banking authorities would be forced to raise interest rates due to broad measures of inflation, which would lead to a negative delta in Chinese growth and the likely underperformance of Chinese equities.


This theme played out according to plan as China led the world in tightening monetary policy and the Chinese stock market was one of the worst performers last year, finishing down -14.3%.  Of course, markets trade on future expectations, not trailing facts.  With China’s dismal equity performance in the rearview mirror, it is now time to focus on those future expectations.  Our view is that those expectations are sufficiently low versus the potential upside in Chinese equities.  That is, we see asymmetric risk / reward in being long of China.


This “change in direction”, has also led to change in theme name, which we introduced in April on our Q2 Theme Call as Year of the Chinese Bull.  That’s right, the hockey heads in New Haven are all bulled up on China.  Giddy up! On a serious note, as our subscribers well know, we are far from being cowboys when it comes to managing risk and making recommendations.  In fact, there is an omnipresent sense of accountability standing behind all of our research at Hedgeye.  As such, the key tenets of our latest thesis on China are outlined below and predicated on a lengthy research trip that Analyst Darius Dale took to Asia last fall.


Firstly, expectations are subdued for Chinese equities.  This is reflected in two measures, the performance of the Chinese equity market last year and the valuation, broadly speaking, of Chinese equities.  Last year the Shanghai Composite was down -14.3%, which was a negative outlier amongst the world’s largest economies.  Despite this, China continued to grow, and so did the earnings of Chinese companies.  As a result of lower prices and higher earnings, the Chinese stock market, based on the Shanghai Composite, is trading at roughly14x NTM earnings, which is at the bottom of its long run valuation range.


Second, China is at an inflection point in growth versus global growth more broadly.   After five quarters of Chinese growth narrowing versus global growth, Chinese growth bottomed on comparative basis in Q3 2010 and is now reaccelerating versus the rest of the world.  In our view, this will primarily come from global growth slowing, as seen in the United States last quarter, versus Chinese growth necessarily accelerating.  Even so, as global growth slows, Chinese growth will become much more attractive on a relative basis.  In the Chart of the Day below, we highlight this graphically.


Finally, we believe both of the key factors of monetary policy and inflation will begin to work to benefit equities.  On the first point, China is not starting to tighten monetarily, but in fact is likely closer to the end of its tightening regime.  In fact, as of yesterday’s increase, Chinese banks’ reserve requirement ratios are now at an all-time high of 21.5%, with some exceptions.   In addition, China has been raising rates steadily since October 2010.  The impact of this proactive tightening can be seen in declining money supply growth in China.  Not surprisingly then, our models see tightening being reflected in a gradual decline in the year-over-year growth rates of Chinese CPI.


Now we certainly get that there are risks to being long of China, but on our factors of growth, monetary policy, and inflation, the Chinese equity outlook looks promising over intermediate term.  The obvious pushback we get on this thesis relates to our willingness to be long of a Communist nation that formally utilizes central planning.  We get that, but also get that things aren’t all that different in many Western nations as it relates to governments trying to influence the economy.  In fact we stumbled upon the following quote in our morning grind this morning:


“I absolutely see a continuation of QE2 in some form; the economy certainly isn’t strong enough to survive on its own.”


This quote came from Keith Springer, president of Springer Financial Advisors.  Now we don’t know Mr. Springer, so we’ll leave it at that, but admittedly we do find it sad that this nation has gotten to a place where investors legitimately believe the “economy can’t survive” without another dose of Keynesian Kryptonite.  Last time I checked my Yale history books, the economy of this great republic has survived – and thrived – over the 230+ years that preceded The Quantitative Easing.


As you head off into the weekend, I’ll leave you with a quote from Confucius to contemplate:


“Men's natures are alike; it is their habits that carry them far apart.”


Or in hockey speak: back check, fore check, pay check.


Enjoy the weekend with your friends and family,


Daryl G. Jones

Managing Director


Year of the Chinese Bull - Chart of the Day


Year of the Chinese Bull - Virtual Portfolio


TODAY’S S&P 500 SET-UP - May 18, 2011

US stocks have been down for the last 3 days and the last 3 weeks – and after taking a good hard looking at the intermediate term TREND line of 1319 in the SP500, we should see another low-volume bounce to lower-long-term highs; resistance = 1340.  As we look at today’s set up for the S&P 500, the range is 17 points or -0.75% downside to 1319 and 0.53% upside to 1336.





THE HEDGEYE DAILY OUTLOOK - daily sector view








  • ADVANCE/DECLINE LINE: -483 (+584)  
  • VOLUME: NYSE 971.43 (+7.07%)
  • VIX:  17.55 -3.78% YTD PERFORMANCE: -1.13%
  • SPX PUT/CALL RATIO: 1.89 from 1.88 (+0.77%)



  • TED SPREAD: 22.96
  • 3-MONTH T-BILL YIELD: 0.04%
  • 10-Year: 3.12 from 3.15
  • YIELD CURVE: 2.57 from 2.61 



  • MBA mortgage applications index up 7.8% week ended May 13; Refis up 13%, largest gain in 10 weeks;  Purchases fell 3.2%; Avg. 30-yr fixed rate 4.60%, lowest since end Nov., vs 4.67% prior week
  • 10:30 a.m.: DoE Inventories
  • 11:30 a.m.: U.S. to sell $5b 56-day cash mgmt bills
  • 2 p.m.: FOMC Minutes
  • 7 p.m.: Fed’s Bullard speaks in New York  



  • U.S. Treasury Secretary Geithner said the IMF needs to name an interim leader because Strauss-Kahn is “obviously not in a position” to run the fund; Europe seeks to keep top position
  • EU Commission completes quarterly review of EU/IMF financial assistance program to Ireland; authorizes the release of the second installment
  • Bullish sentiment decreases to 45.6% from 51.1% in the latest US Investor's Intelligence poll
  • Banking groups opposed to simpler mortgage forms - Bloomberg
  • Fed wants to subject US banks to annual stress tests - FT
  • Russian President Dmitry Medvedev says he doesn’t exclude that some oil companies are colluding to increase prices for gasoline on the domestic market.
  • Google’s First Bond Sale Drew Orders Exceeding $10b: WSJ 




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Milk Rally Causing Higher Prices at Wal-Mart Also Spurring Gains in Output
  • Commodities Rebound on Outlook for Stronger Demand From Emerging Markets
  • Oil Rises From Three-Month Low as Supplies of Cushing Crude, Gasoline Drop
  • Copper Climbs to One-Week High as Commodities, Equities Rebound From Drops
  • Corn Advances for Fifth Straight Day as Wet Weather May Delay U.S. Seeding
  • Gold Gains for First Day in Four on Weaker Dollar, European Debt Concern
  • Drought in China’s Hubei Withers Rapeseed, Wheat Crops, Delays Plantings
  • Oil, Gold Will Drive Rebound in Commodities on Shortages, JPMorgan Says
  • Coffee Rises on Concern About Limited Supplies; Sugar, Cocoa Prices Gain
  • Silver May Slide 16% After Breaching 100-Day Average: Technical Analysis
  • Drought Spells EU Power Squeeze as Nuclear Reactors Halt: Energy Markets
  • Copper Demand From China’s Cable Makers May Double as Cities, Grids Expand
  • Bunge Offers $138 Million for Tully Sugar, Above Louis Dreyfus-Backed Bid
  • India Shipping to Gain From Japan $30 Billion Steel Bill: Freight Markets




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • UK Mar ILO unemployment rate +7.7% vs consensus +7.8% and prior +7.8%; UK Apr claimant count +12.4k vs consensus unchanged
  • BOE keeps 6-3 vote in May to hold rates at record low
  • Greek Banks Surge as ECB Officials Rule Out Debt Restructuring
  • Irish Household Wealth Rises 6% in Q4 2010 , Central Bank Says






  • Asia was strong overnight
  • Vietnam was a negative divergence down 2.03%
  • Japan March tertiary activity index (6.0%) m/m – the biggest drop in 22 years -- to 93.5.













Howard Penney

Managing Director