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Confusing Them

This note was originally published at 8am on July 14, 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 can’t convince them, confuse them.”

-Harry Truman

 

On the recommendation of my good American friend whose first daughter was born on the 4thof July, I have embarked on reading what my son Jack called the “heavy book” last night – “Truman”, by David McCullough. Whether you are a Republican or Democrat (or neither), you have to love that quote - purely and professionally political.

 

After Truman’s 2ndterm as President of the United States, there was a French storyteller by the name of Charles de Gaulle who suckered the French people into believing that a deficit spending and currency devaluation strategy was the best way to national prosperity.

 

De Gaulle became the 18thPresident of France in 1959 and quickly printed a fresh new fiat currency (issued in January of 1960) that was allegedly going to control ze inflation and spur ze economic growth. Sound familiar?

 

Of course it does.

 

Professional politicians have been obfuscating facts about their policies to devalue their currency and inflate asset prices for eons. By the time the French franc was flipped for another fresh new fiat (the Euro) in 1999, De Gaulle’s Fiat Fool money was worth just north of 10% of the “value” embedded in it at prevailing market prices of 1960.

 

Savvy American politicians introduced this political strategy of “Confusing Them” in the 1970s. Like Bush and Obama, both Nixon and Carter had one thing in common – a modern day Ben Bernanke in Arthur Burns (good ole Art was the last US Federal Reserve Chief to attempt to “monetize” the US Debt, fyi).

 

So from Truman printing US Dollars to finance war (WWII, Korea), to Charles de Gaulle, Richard Nixon, and back again – what have we learned about money printing being a policy to inflate?

 

Obviously a lot.

 

And with this sad and pathetic political reality, like they used to say on my favorite Soap Opera while playing Junior Hockey in Canada, “these are the Days of Our Lives.”

 

Back to the Global Macro Grind

 

Yesterday, the US Dollar Index got hammered for a down -1.1% move as Gold was raging to the upside. Meanwhile, La Bernank (changed from The Bernank in the spirit of his 1960s France) got put on the spot by Ron Paul when asked whether “Gold is money”?

 

Notwithstanding Paul’s marketing challenges in asking concise questions of the Chairman, this one was as simple as simple gets. You can check out La Bernank’s answer to the question on YouTube. Suffice to say, with Gold ripping to a new all-time high in the face of Bernanke Burning The Buck, he didn’t want to tell us he was levered long Gold futures contracts.

 

Rather than listening to card carrying members of the Keynesian Kingdom attempt to explain what the value of money is, I highly recommend reading Niall Ferguson’s “The Ascent of Money.” Give it 30 years and La Bernank will be remembered by the history of money about as kindly as Arthur Burns has been.

 

Qu’es ce qui se passe avec Le QG3?

 

Well, Le Quantitative Guessing Part III caught a bid yesterday as La Bernank opened the door for more of what he’s been doing since becoming the Chairman of the Federal Reserve in 2006 – compromising the credibility of American currency.

 

After about a 3 hour rally, US stocks got tired of the nonsense and sold off aggressively into the close. Why? The People get it – Le QG1 and Le QG2 = Le Inflation Policy, not La Employment.

 

Fool me once, fool me twice…

 

Les Fiat Fools aren’t fooling anyone this week:

  1. Real-time Inflation (CRB Commodities Index) = UP +1.7% for the week to-date
  2. Real-time Stock Market Inflation Returns = DOWN -1.9% for the week to date 

Since Obama, Geithner, and Bernanke can no longer convince markets that Quantitative Guessing is the best path to long-term American prosperity, the only strategy that remains is to attempt to confuse them.

 

Good luck with that.

 

My immediate-term support and resistance ranges for Gold, Oil and the SP500 are now $1536-1592, $96.54-100.03, and 1305-1331, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Confusing Them - Chart of the Day

 

Confusing Them - Virtual Portfolio




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WYNN 2Q11 CONF CALL NOTES

Terrific across the board but Vegas the real standout again.

 

 

HIGHLIGHTS FROM THE RELEASE

  • Net revenues of $1.37BN and Adj EBITDA of $447MM
    • Macau: Net revenue of $977MM and EBITDA of $314MM
    • Las Vegas: Net revenue of $391MM and EBITDA of $133MM
  • "Board of Directors has approved a cash dividend for the quarter of $0.50 per common share... payable on August 11, 2011, to stockholders of record on July 28, 2011."
  • "Charitable contribution made by Wynn Macau to the University of Macau Development Foundation... consists of a $25 million contribution made in May 2011, and a commitment for additional donations of $10 million each year for the calendar years 2012 through 2022 inclusive, for a total of $135 million."

 

CONF CALL NOTES

  • Volume increases in baccarat and other table games.  Had amazing hold in baccarat.
  • In non-casino, they had a 15.7% increase - hotel cash revenue was their highest in history.

Q&A

  • Hold impact in Las Vegas- Normalized EBITDA was in the neighborhood of $115MM
    • We calculate the hold impact on revenue was $30MM and roughly $25MM on EBITDA, much more than management indicated
  • They are still 50% reserved on their receivables bucket
  • Segment margins in Macau?
    • They don't give segment margins but margins are increasing as volumes increase. Competition hasn't dented them yet.
  • Vegas trends:
    • July is usually a black hole for them... August picks up for them and then September is good and October sells out for them
    • July occupancy is actually better than they thought - all of that is last minute bookings - 48 to 72 hours in advance. They have not lowered rates.  
    • The fourth quarter looks great and now that they are getting through July they are doing well.  They're tracking around $1MM/day in July.  Convention business is totally sold out in July.
  • The land granting process in Macau is continuing. They are proceeding with their soil research until then.
    • The latest Gazette just came out and there was no mention of new concessions.
  • Cotai: 1500 rooms - with room to expand, 500 tables. They are thinking about building a separate hotel with 200 rooms with no casino so government officials can stay there.
  • Thinks that Galaxy Macau did a good job but they aren't affected by it.
  • He is naturally interested in Singapore but there is a moratorium on new licenses until 2017.  If they had the chance to be in business in Singapore, they would be thrilled but that decision is not theirs to make now
  • They don't know how their competitors in Vegas are doing. They recently spent $200MM on renovations in Vegas. Their guess is that everyone is doing better this year than last year.
  • For 2012, they are tracking on pace for convention rooms in-line with this year, with any upside from price.  There are some big conferences that benefited 2011 that won't benefit 2012.  Chinese NY and Superbowl fell on 2 weekends vs. one.
  • There are a host of opportunities to expand in Las Vegas, but is afraid of the political environment in Las Vegas from this administration which he thinks is the biggest wet blanket on the economy
  • The government was very specific in stating that they do not want apartments on Cotai
  • Their LV properties are benefiting from international travelers
  • They are keeping a close eye on MA gaming legalization.  They would be interested depending on the legislation.
  • Wynn Resorts has zero debt, which gives them lots of flexibility to fund new projects. Will stay under leveraged. 

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