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The Macau Metro Monitor, June 24,2011




Macau Secretary for Transport and Public Works, Lau Si Io has said the Macao Studio City (MSC) project must comply with the 2001 Land Concession contract approved by the Macau government in 2008.  That plan does not contain any gaming elements but does contain hotels, restaurants, residential units, and a film production project, which is "a major component of the property."  However, the secretary has not disclosed whether MSC's developer has applied for gaming tables, stressing that any casino projects are required to meet the 2013 quota where gaming tables cannot exceed 5,500.  Lau confirmed that the government has received the application from the developer to resume construction.


Korea Culture Minister Choung Byoung-gug said that it was time to consider allowing more casinos to admit local Koreans. Currently, only one casino, Kangwon Land in Gangwon Province, admits Koreans.  The government is seeking to allow casinos in the six FEZs (Free Economic Zones) and on Jeju Island to admit Korean nationals in a bid to attract more foreign investment and more tourists.  Under the current law on FEZs, a foreigner can open a casino in the FEZ if he/she invests more than $500MM there to run at least three different types of tourism businesses including a five-star hotel with an international convention center.


The Minister added that if the government decides to take the deregulatory step, facilities like those in Las Vegas--conventions, shopping malls, and entertainment--should be developed along with the casinos.  Choung reiterated that a comprehensive policy plan was required to meet new demands, referring to the deindustrialization in the historical southeastern city of Gyeongju and eastern mountain resort area of Seorak.  “I can clearly say that it is not right for a government to invest in casino businesses... The Korea Tourism Organization has begun reviewing whether to keep running Seven Luck casinos," said Choung.


10 out of 17 casinos in Korea are losing money.  The combined annual sales of the domestic casino industry, amount to 2.2 trillion won, and Kangwon Land accounts for more than half of it. The casino industry has long hoped for the government to lift the ban on Korean citizens’ access to casinos.  In addition, Choung would also like a study on whether to permit casinos on cruise ships.


Galaxy Macau’s opening advertising campaign (HK$28MM) accounted for 57% of hotel advertising in Hong Kong in May.  It was the largest-recorded advertising campaign spending in Hong Kong for a casino hotel opening, beating the previous HK$13.12MM held by the Venetian.  MGM Macau (HK$11.23MM) came in 2nd, followed by Venetian Macau (HK$1.87MM), L'Arc (HK$1.03MM) and City of Dreams (HK$640,000).


Hong Kong tourists are the 2nd largest visitation segment to Macau.



The Transportation Infrastructure Office (GIT) disclosed the budget for the 1st phase of the light rapid transit (LRT) project has increased 46% from the previous 2009 estimate to MOP 11BN.  GIT chief Lei Chan Tong said the higher estimate was a result of "inflation, rising currency exchange rate and continued optimisaztion/adjustments of route designs."

People Minimize Debt

This note was originally published at 8am on June 21, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Unlike neoclassical macro theory, which assumes that private-sector corporations are always maximizing profits, it assumes that some companies may respond to daunting balance sheet damage by minimizing debt.”

-Richard Koo


I’m in the middle of reading Richard Koo’s revised edition of “The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession.” The aforementioned quote summarizes Koo’s thoughts on what he coined in another book as a “Balance Sheet Recession.”


This morning, ahead of this Greek confidence vote, I want to do a little extending and pretending of my own with Koo’s conclusions – you know, just to get the intellectual juices going.


Let’s pretend for a moment that the American Consumer is Koo’s “private-sector corporation.” Then, let’s extend ourselves into the fictional land of nod and go as far as to assume that people, instead of companies, minimize debt when you scare the hell out of them.


I know, I know. This Mucker guy is coming up with some radical economic theory over here on the east side of Yale’s campus. But, seriously, I didn’t need to get into this academic institution to be told how to think.


Lessons from The Greek Gong Show: America needs to re-think, re-learn, and re-consider what makes this economy tick. It’s not that complicated. First, we need to stop what we are doing and get back to the basics of human behavior.


Behaviorally, if you want to scare the hell out of people, just fear-monger about “Great Depressions.” That’s Bernanke’s bailiwick. That’s why Washington loves him. That’s why he was appointed by a modern day Republican and cheered on by a modern day Democrat.


Modern day Western economics are partisan. Both Republicans and Democrats pin their hopes on Keynesian economists. Hope, alas, is not a long-term risk management process. Both Bush and Obama had to learn this lesson the hard way. Bernanke’s “confusion” and “frustration” with the economy is finally breeding contempt.


As Koo appropriately notes in the Preface of his 2009 Edition of “The Holy Grail of Macroeconomics”, “I realized that no constructive discussion could occur until I proved that some of the “lessons” from the Great Depression that underpin their views are themselves wrong.”


Koo’s realization is an extension of Nasim Taleb’s idea of a “Narrative Fallacy ( “The Black Swan”, 2007), where Taleb alludes to humans having a propensity to build stories around facts.


The fact of the matter is, and I’ll say this for a 3rd time this morning, when you scare the hell out of them, People Minimize Debt.


Again, people are different than countries – particularly socialist ones. Only a moron would look to solving his or her solvency problems by Piling More Debt Upon Debt, like Greece, Japan, and America have.


Back to this morning’s reality show of extend and pretend, here’s what the Fiat Fool in Chief of Greece had to say this morning ahead of the Greek confidence vote:


“We are determined as a country, as a government, to be on track with the program, to move forward, to do what is necessary, in order to put our country into a fiscally much more viable position.”


Seriously. This guy is serious about maximizing debt until he blows his country’s balance sheet, bond, and stock markets to smithereens.


Global Markets are obviously very nervous about lying Greek politicians. Never mind what the Greek stock and bond markets do today. Don’t forget that the Greek stock market was down -35.6% in 2010 and has crashed, again, down another -27% since rallying to lower-high in February 2011. Markets discount future events.


What got us here is something I have been writing about since 2007. What is going to get us out of it isn’t doing more of what’s imploding the Greek, Portuguese, and Irish markets – Politicians Maximizing Debt.


In the meantime, the entire world is watching and Global Growth Is Slowing. This is largely a function of people being afraid. In the real world, confidence matters.


That’s why US demand for mortgages, stocks, and commodity exposure is falling. That’s why US stock market volumes have been bone dry on this 3-day rally to lower-highs. It’s the Debt Maximization Experiment of the Keynesians, stupid.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1532-1548 (we remain long GLD), $91.29-97.63 (we remain on the other side of the Goldman Oil Bulls), and 1259-1291 (we have no position, but a bearish bias at the top end of the 1291 range).


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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Chinese Cowboy

“We ride and never worry about the fall – I guess that’s just the cowboy in us all.”

-Tim McGraw


My Thunder Bay Bear boys and I are big country music fans. Tim McGraw’s “The Cowboy In Me” is one of our favorite songs. I’ll be heading up to the homeland for some time with the family tomorrow. I’m looking forward to slaying the great Canadian Walleye with my buddies Luch, Gunner, and RM.


The Cowboy In Me” hit #1 on the Billboard Hot Country Singles charts immediately after McGraw’s duet with Jo Dee Messina “Bring On The Rain” did in 2001. Sometimes a bear needs a lot of rain before he gets hungry to buy.


I bought Chinese stocks (CAF) on June 16th … and I must say, not many people agreed with that. I actually don’t think I agreed with it either. But I bought them anyway.


“The things I’ve done for foolish pride

The me that’s never satisfied”


That’s a small part of the why. Most people who know me well know that I love to compete. Sometimes that’s hurt me in this business. Most of the time it’s been my greatest asset. During the sometimes that it isn’t – it’s usually because I am letting my pride get in the way of my process.


“Sometimes I’m my own worst enemy

I guess that’s just the cowboy in me”


Back to the Global Macro Grind


This morning’s bullish immediate-term TRADE action in Asia was led by the biggest rally Chinese stocks have seen in 4 months. The Shanghai Composite Index was up a big +2.2% (up for the 4th consecutive day).




The actual data was bad (the HSBC PMI print came in at 50.1, an 11 month low). But bad data in China isn’t new. The leadership call to action of Chinese Premier Wen last night was. Away from the #1 Bloomberg headline this morning being some version of European socialist hope for Greece, one of the   “Most Read” stories was about the Premier’s comments about Chinese inflation:


“I am confident prices will be firmly under control this year.”


Now I typically don’t believe a Chinese politician inasmuch as I don’t trust an American one, but the actual inflation data we’ve been modeling into our Chinese Consumer Price Inflation (CPI) forecast for the back half of 2011 is in line with Premier Wen’s forecast.


On the 2 things that really matter to Chinese stocks – Growth and Inflation – here’s Hedgeye’s call for the 2nd half of 2011:

  1. Growth Slows At A Slower Rate (+7-9% GDP growth instead of 10-12%)
  2. Inflation Starts To Deflate (4-5% CPI instead of 5.5-6.5%)

If we are right on Growth and Inflation, the only big thing left to solve for is Monetary Policy. Premier Wen’s comments also have a huge implication for Chinese interest rates – Deflating The Inflation (Hedgeye Q2 Macro Theme) means he can STOP raising rates!


On Chinese Monetary Policy, here are the facts:

  1. China has raised interest rates 4x during La Bernank’s policy to inflate cycle
  2. China has not raised interest rates in 11 weeks
  3. China’s swap spreads are already discounting an arrest of interest rate hikes

So what does The Cowboy In Me do with that?

  1. I BUY Chinese stocks (CAF)
  2. I SELL Chinese currency (CYB)

If my Macro Team continues to be right that:

  1. The US Dollar is done going down (for now)
  2. The CRB Commodities Index and Oil are going to keep going down (for now)

Then Premier Wen and I are probably going to be right. Deflating the Inflation in the CRB Commodities Index and WTI Crude Oil has been -10.8% and -19.5%, respectively since May.


Deflating The Inflation will be good for US Consumers inasmuch as it will be for Chinese consumers. Between now and then, Chinese stocks have much more upward potential to this trade than US stocks do. The SP500 is still lathered with The Inflation Trade (Financials, Energy, Basic Materials), and The Correlation Risk to US Dollar UP is much more severe to the SP500 than it is to the Shanghai Composite.


Does my craw constantly consider the time and price relationship between being long China (CAF) and short US Equities (SPY)? Of course. Managing risk in the most globally interconnected marketplace that investors have ever faced is the game that we are in.


But I won’t wake-up every morning worried about the guys who are playing this game with hope and fear as their governor. I have enough on my plate in not letting my pride get in the way of my own process.


“The face that’s in the mirror when I don’t like what I see

I guess that’s just the cowboy in me”


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1511-1532, $90.44-95.11, and 1, respectively.


Enjoy your weekend and best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Chinese Cowboy - Chart of the Day


Chinese Cowboy - Virtual Portfolio


TODAY’S S&P 500 SET-UP - June 24, 2011


Hedgeye’s most controversial LONG idea is being long China (long the CAF since June 16th). What's interesting about the debate is that the people who tend to disagree with me are still bullish on US Equities. To me, that makes no sense; if you are that bearish on Chinese demand, after the market has gone down for 15 months, how can you be bullish on anything equities?


China was up another +2.2% overnight and up for the 4th consecutive day (higher-lows).  Meanwhile European stocks and US futures are rallying to lower-highs this morning.  In the FX market, my Euro 1.42 line continues to be my line in the sand (intermediate-term TREND line); if it breaks, mostly everything else that's trading inversely to the US Dollar will. Conversely, If EURO 1.42 holds, the US and Western European Equity bulls get to live to play another day.


As we look at today’s set up for the S&P 500, the range is 39 points or -1.91% downside to 1259 and 1.13% upside to 1298.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -486 (+35)  
  • VOLUME: NYSE 1117.47 (+30.49%)
  • VIX:  19.29 +4.16% YTD PERFORMANCE: +8.68%
  • SPX PUT/CALL RATIO: 2.41 from 2.01 (+20.04%)



  • TED SPREAD: 24.14
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.93from 3.01
  • YIELD CURVE: 2.58 from 2.62 



  •  8 a.m.: Richard Fisher, Dallas Fed president, speaks on Bloomberg TV
  • 8:30 a.m.: Durable goods, est. 1.5%, prior (-3.6%)
  • 8:30 a.m.: GDP, 1QT, est. 1.9%, prior 1.8%
  • Noon: Treasury Secretary Geithner meets with business leaders in NH, speaks at Dartmouth at 4 p.m.
  • 1 p.m.: Baker Hughes rig count
  • 3 p.m.: USDA hog inventory


  • Fed Chairman Bernanke’s viewed favorably by 30% surveyed in Bloomberg National Poll, lowest in 2 yrs of polling on issue
  • New York, California said to start antitrust investigation of Google, along with Texas and Ohio
  • EU leaders pledged to stave off a Greek default as long as Prime Minister Papandreou pushes through a package of $111b in budget cuts next week
  • Breakdown of deficit talks puts onus on President Obama, House Speaker Boehner to bridge partisan differences before Aug. 2 deadline
  • China to Cut Import Tariffs on Some Oil Products, Zinc, Alloys



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Sarkozy’s Fight Against Agriculture Speculators Moves to Finance Ministers
  • Commodities Rebound From Four-Month Low Amid Speculation Demand to Climb
  • Oil Rises on Concern IEA Emergency Crude Release May Limit Future Supplies
  • Pasta Price May Surge as Swamped North Dakota Cuts Supply of Durum Wheat
  • Copper Advances for First Day in Three as Commodities Rally After Selloff
  • Sugar Mills in India Seeking More Exports May Widen Supplies, Lower Prices
  • Gold May Rebound From Slump as U.S. Interest Rate Policy Increases Demand
  • Palm Oil Set for Worst Run of Losses Since January 2010 After Crude Slumps
  • Korea Said Buying Corn as Price Rebounds From Lowest Level in Three Months
  • Cotton Demand in India May Miss Estimate as Textile Mills Lower Production
  • Corn Rebounds From Lowest in Three Months Signs of Improving Global Demand
  • U.S. Leads Emergency Oil Release as Price Surge on Libya Threatens Economy
  • Gold Demand in China to Grow at Least 20% in 2011, Association Tells Daily
  • Gold May Advance Next Week on Europe Debt Woes, Fed Policy, Survey Shows




THE HEDGEYE DAILY OUTLOOK - daily currency view




  •  EUROPE: Germany +1.6% (were long) holding steady above my support line of 7166 this morn on better than bad data; Spain +0.96% (were short)
  • The euro-area debt crisis poses the biggest risk to the stability of the U.K. financial system and banks should build up capital when earnings are strong, BoE said today in the minutes of the June 16 meeting of the new Financial Policy Committee.


THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: awesome week for us being long China - up +2.2% overnight making it 4 consecutive up days and a very nice hedge against short USA.

THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director

DKS: Shorting for a TRADE


Keith re-shorted DKS in the Hedgeye virtual portfolio today with the stock back up at its TRADE line of $37.99. Our thesis remains unchanged. While we don’t think the fundamental story is broken, we continue to be concerned near-term with the Street above management’s guidance for the quarter implying a sequential acceleration in business.


DKS: Shorting for a TRADE - DKS VP 6 23 11



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 80.51%
  • SHORT SIGNALS 78.32%