MBS was the standout which bodes well for the stock. High hold across the properties helped but volumes at MBS were outstanding.



We felt going into this quarter that MBS was the lynchpin.  If we were right, then it should be a good day for the stock.  MBS beat us by $68MM on EBITDA – and it wasn’t just hold.  Macau was just in-line with our estimate – hold adjusted was in-line with the Street – while Las Vegas beat us mainly due to luck.  Relative to the market, Macau remains disappointing for the company but with the kind of growth we’re seeing, who cares?  Right now it is, and should be, all about Singapore.


Overall, we estimate that higher than normal hold across LVS’s portfolio benefited net revenue and EBITDA by $91MM and $64MM, respectively, although to be clear, high hold was factored into our Macau estimates.  Here are the results by region.







Macau property EBITDA was in-line with our estimate ($2MM lower) and 5% above consensus. However, as mostly factored into our projections, hold benefited Macau net revenues by an estimated $60MM and EBITDA by $37MM.  Despite efforts to grow their junket business, it was apparent that LVS was not making much traction.


Sands Macau

Sands Macau’s net revenues were 2% below our estimate and EBITDA was 9% lower than we estimated.

  • $7MM revenue miss versus our estimate was due to lower gross gaming revenues, and higher fixed expenses led to the $10MM EBITDA vs our estimate
  • VIP net table win was $9MM lower than our estimate due to lower hold
    • We estimate that direct play was 12% in the quarter vs. our estimate of 10%
    • Drop was 3% better than we estimated which resulted in hold that was 20bps lower
    • The rebate rate was 99bps or 33.3% of hold (consistent with 1Q11)
    • While hold was on the high end of the theoretical range, it was in-line with Sand’s hold over the last 2 years. If we use theoretical hold of 2.85%, net revenues and EBITDA would have been $7MM and $4MM lower, respectively
    • Slot win was $2MM below our estimate – handle grew 14% YoY vs our estimate of 18% and the win % was 20bps lower
    • We estimate that fixed expenses were $47MM, up 6% YoY



Revenue and EBITDA results for Venetian Macau were within 1% of our estimate

  • Non-gaming revenue was $6MM better than we estimated due to better retail revenues
  • VIP net revenues were $12MM better than we estimated due to higher drop and higher direct play
    • Direct play jumped up as a % of total drop after decreasing for 3 quarters.  We estimate that direct play was 22% in 2Q compared to 19% last quarter
    • The rebate rate was 1% or 29% of hold
    • Assuming theoretical hold of 2.85%, net revenues and EBITDA would have been $58MM and $35MM lower, respectively.  If we use the 9 quarter average hold of 2.92%, then the high hold impact on net revenue and EBITDA would be $51MM and $31MM, respectively
    • Mass table revenues were $17MM below our estimate mostly due to lower hold
    • Slot revenues were $6MM above our estimate due to 22% growth in handle vs our estimate of 5%. Slot handle increased 15.5% QoQ.
    • We estimate that fixed expenses increased 3% YoY to $104MM

Four Seasons

Net revenue and EBITDA results for Four Seasons were $5MM and $10.5MM above our estimates, respectively

  • Casino revenues were $3MM better than we estimated, non-gaming revenues were $1MM better while promotional expenses were $1MM lower
  • VIP net revenues were $5MM better than we estimated due to 2% higher drop and slightly better hold than we estimated (8bps)
    • Direct play was 41% in 2Q compared to 40% last quarter
    • The rebate rate was 73bps or 32.4% of hold
    • Assuming theoretical hold of 2.85%, net revenues and EBITDA would have been $14MM and $8MM better, respectively.  If we use the 9 quarter average hold of 2.8%, then the low hold impact on net revenue and EBITDA would be $12MM and $7MM, respectively
    • Mass table revenues were $1MM below our estimate despite 38% hold
      • We estimate that high Mass hold benefited the quarter’s net revenue and EBITDA by $9MM and $6MM, respectively, if we use the 9 quarter preceding hold of 28% to normalize results
      • Slot revenues were $1MM below our estimate due to lower win %
      • We estimate that fixed expenses decreased 8% sequentially to $18MM


Marina Bay Sands

Marina Bay Sands results were the crown jewel of LVS’s second quarter results, with EBITDA coming in 23% ahead of consensus and 20% ahead of our estimate.  

  • Net gaming revenues were $94MM, 19% above our estimate
  • Slot revenues were $13M higher
    • Sequential handle growth accelerated to 17% from 11% last quarter
  • Mass table revenue was $27MM higher
    • Sequential drop growth accelerated to 13% from 5% last quarter
  • Net VIP revenue was $54MM higher
    • Drop increased 21% sequentially
    • Hold was 19bps above our estimate of 2.8% and accounted for 30% of the EBITDA outperformance ($20MM) vs our estimate. The prior 4 quarter hold rate for MBS was 2.63%. If we include this current quarter, the property’s average hold since opening has been 2.7%. 
    • If hold had been 2.85% net revenue and EBITDA, would have been $17MM and $15MM lower, respectively.
    • The rebate rate was 1.23%
    • Non-gaming revenues, net of promotions, were $13MM better than we estimated
    • We estimate that fixed expenses were $201MM up from $182MM in 1Q




Las Vegas

Revenues for Venetian and Palazzo came in 6% ahead of our estimate while EBITDA was 21% better than we estimated

  • Better revenues were primarily driven by better F&B, retail and other revenues and lower promotional expenses as well as better casino results which were slightly offset by lower rooms revenues. 
  • Non-gaming revenues (ex-rooms) grew an impressive 38% YoY, however, that growth should taper off in the 2H11 as the two properties had non-gaming growth of 50% in the 2H10 vs a 6% decline in 1H10.
  • We estimate that better than favorable luck across tables and slots helped the quarter by $14MM on revenues and $12MM on EBITDA
    • Slot handle plummeted 39% YoY due to less promotional activity. However, a continued rise in win percentage to 8.8% helped offset weakness in handle. Slot win decreased 28%. 
      • Had hold been 8% - which is still on the high side for most slot operators, revenues would have been $3MM lower
  • Table win benefited from better than average hold.   If we use a 9 quarter average of 17.4%, revenues would have been $11MM lower.
  • Operating expenses (excluding taxes) grew 14% YoY to $232MM vs our estimate of $229MM. Expense growth should moderate in the back half of 2011 as comps get easier.



Sands Bethlehem revenues and EBITDA were $5MM and $7MM lower than we estimated due to lower net non-gaming revenues and higher operating expenses in the quarter


Exceptional Day

This note was originally published at 8am on July 22, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The ignorant man marvels at the exceptional.”

-George D. Boardman


George Boardman was an accomplished American man from Maine. Graduating in 1822, he was Colby College’s first graduate. He had exceptional success as a global missionary.


Most of the people I know who accomplish great things in this good life don’t marvel at their accomplishments. They wake up every morning expecting it of themselves. They also expect adversity. In fact, most of them can’t live without it.


Yesterday was an Exceptional Day for Europe. I, for one, got royally squeezed in my European shorts by it. After going through the wringer on plenty of these centrally planned short squeezes since 2008, I’ve stopped marveling at them. This is what the Fiat Fools do. Whether it was TARP in 2008 or what you saw yesterday, short-term volatility only perpetuates the long-term problem.


Members of the European Keynesian Kingdom (EKK) emerged from their 3 hour lunch yesterday with a statement that Greece needed an “exceptional and unique solution.”


Then, they offered the bankrupt nation $229 BILLION in new aid (~75% of GDP!)…


Then, they spent the rest of the day gloating about their short-term political success…


That’s what professional politicians promising the arrest of gravity do.


Germany’s leader of Short-Termism, Angela Merkel, emerged from the meetings in Brussels proclaiming her mystery of faith saying: “I am satisfied with the outcome because the euro countries showed today that we are up to the challenge, we can take action.”


True, Mrs Merkel – for a day. But what shall you do tomorrow? Another European summit? How about next week? Any plans for August?


In all things risk management tomorrow starts today. Rather than marveling at your wins or loses, you’re job is to put on the trades today that will position you to not lose money tomorrow. Being awestruck by an exceptional market move can freeze you. Don’t let that happen. Out of sight, out of mind – onto the next.


My short-term performance problem in Europe yesterday aside, we had a great day on the long side of everything we’re long in US Equities. Covering my short position in the SP500 on July 5thhas allowed me to broaden my horizons and move to our most invested position in Global Macro for 2011 YTD (drawing down my Cash position to 43%).


What that doesn’t mean is that I should be marveling at those gains. Given our Q3 Macro Theme of “Risk Ranger”, I should be selling some of my gross long exposure in the US today and adding to my short exposures in Europe. The core tenant of the Risk Ranger theme is implied in the name – manage your risk within proactively predictable ranges of market prices.


So let’s do that – in Global Equities here are the intermediate-term TREND ranges we plan to use in Q3, until the plan changes:

  1. USA – SP500 range of 1241-1377
  2. CHINA – Shanghai Composite range of 2629-2849
  3. JAPAN – Nikkei range of 9670-10227
  4. INDIA – BSE Sensex range of 17611-19409
  5. GERMANY - DAX range of 7075-7451
  6. SPAIN - IBEX range of 9251-10405
  7. ITALY – MIB range of 17614-20889
  8. GREECE – ATG range of 1151-1346
  9. BRAZIL – Bovespa range of 58521-63929
  10. CANADA – TSE range of 12811-13765

That’s it. There’s nothing exceptional about today or how we are going to manage risk around it. We have our intermediate-term strategy and, as we whip around both the US Debt Ceiling debate and European Sovereign Debt Crisis, we’re sticking to it. As you can see, not 1 of the top-side’s in our intermediate-term TREND ranges was violated to the upside yesterday.


My immediate-term TRADE ranges (different duration than the TREND) for Gold (we’re long, and we bought Silver yesterday too), Oil (no position), and the SP500 (no position) are now $1585-1619, $97.21-99.76, and 1319-1351, respectively.


Enjoy the storytelling of the Fiat Fools and, of course, an exceptional weekend,



Keith R. McCullough
Chief Executive Officer


Exceptional Day - Chart of the Day


Exceptional Day - Virtual Portfolio


TODAY’S S&P 500 SET-UP - July 27, 2011


If you’re leaning long US Equities and Short Italian/Spanish ones, you’re having a good week. This is where Global Macro gets fun.  As we look at today’s set up for the S&P 500, the range is 27 points or -0.45% downside to 1326 and 1.58% upside to 1353.




Being long cyclicals under the assumption that their margins and earnings aren’t cyclical has been one of the more perplexing bull cases we have heard in 2011. The Industrials (XLI) got hammered on that reality today, closing down -1.9%.  Selling in the Industrials (XLI) was broad based.   Only 4 members of the XLI were up on the day and GE has effectively gone straight down since reporting on Friday. This makes the Industrials the worst looking sector in the market all of sudden. Comparing to the Financials (XLF), that’s saying something.




THE HEDGEYE DAILY OUTLOOK - daily sector view






  • ADVANCE/DECLINE LINE: -974 (+875)  
  • VOLUME: NYSE 837.02 (+9.61%)
  • VIX:  17.52 -0.23% YTD PERFORMANCE: -1.30%
  • SPX PUT/CALL RATIO: 1.99 from 1.65 (+20.32%)


  • TED SPREAD: 19.16
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 2.99 from 3.03   
  • YIELD CURVE: 2.58 from 2.61


  • 7 a.m.: MBA Mortgage, prior 15.5%
  • 8:30 a.m.: Durable goods, est. 0.3%, prior 2.1%
  • 10:30 a.m.: DoE inventories
  • 11:30 a.m.: U.S. to sell $12b 5-day cash mgmt bills
  • 1 p.m.: U.S. to sell $35b 5-yr notes
  • 2 p.m.: Fed’s Beige book


  • House Speaker Boehner is facing resistance from within his own party; presidential candidate Michele Bachmann said she wouldn’t back his plan
  • Daimler said 2Q operating profit rose 23%, led by sales of Mercedes-Benz S-Class and E-Class sedans
  • Senate Finance Committee hears from Wal-Mart, Kimberly- Clark, CVS Caremark CEOs on how the tax code affects hiring. 10 a.m.
  • U.S. banks are arguing over how costs of planned deal with federal, state officials over home foreclosures should be divided, people familiar tell WSJ



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Oil Falls on Bets Rising U.S. Stockpiles Show Demand Is Slowing
  • Corn Drops as Rainfall in U.S. Eases Concerns on Yield Losses
  • Copper May Decline Before Figures on U.S. Durable-Goods Orders
  • Cocoa Falls as Ivory Coast Crop May Reach Record; Coffee Slides
  • Palladium to Gain on Japan Auto Demand, China Capital Says
  • Mumbai Blasts May Hasten Diamond Traders Relocation to Bourse
  • Rice Stockpiles in Japan May Drop to 4-Year Low After Quake
  • DP World Digs London Gateway as Economy Slows: Freight Markets
  • U.S. Steel Joins 9-Out-of-10 Club With Slump: Chart of the Day
  • India Winemakers Tap Growth as Duties Boost Imports’ Prices
  • Ethanol to Brazil Hits Record on Soaring Sugar: Energy Markets
  • BHP Rejects Escondida Talks as Coal Strikes Resume in Australia


  • EUR/USD – I would have expected to see the Euro side of this pair down hard this morning, but it’s down 10bps; away from hedge funds capitulating (covering Euros) yesterday, the big support mechanism for the Euro is Obama getting nothing done on debt deal


THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: Italy getting smoked again, down another -2% with no support on MIB Index to 17,760; we are long US stocks and short European ones.
  • European Banks – Goldman is out with a similar call that Josh Steiner (our Financials Sector Head) made 2 weeks ago; this is not new but it’s good to see consensus focusing on it this morning; 13 European banks have over 200% of their Tier1 Cap in “Europig” bonds
  • ITALY – CDS is up +22bps this morning testing the Lehman Line (300bps CDS) and the MIB Index is getting hammered for another -2% drawdown; don’t forget that Italian stocks have already crashed in 2011 (peak to trough), so this is a resumption of TREND






  • ASIA: solid session where we care with China up +0.8% in day2 of rail recovery; Indonesia blasting higher to +12.4% YTD; KOSPI holds support











Howard Penney

Managing Director


Congress Holds Court

“If we get jammed up, we're holding court on the street.”

-Jimmy Coughlin, “The Town” (2010)


Just when I thought the biggest tail risk to whatever remains of our free-market lives (Congress) couldn’t find lower-lows, the Republicans redefined the ridiculous yesterday.


In a must read section of a Bloomberg News article by Julie Hirschfeld Davis this morning, Republican Congressman Kevin McCarthy of California gets YouTubed for playing a clip from “The Town” to inspire the Republican troops at their party headquarters yesterday.


I don’t think Julie could have made up this scene if she tried. To put this movie in context (in case you haven’t seen it, it’s an outstanding movie directed in 2010 by Ben Affleck with a 4.5 star rating on Netflix), this is a Boston bank robber movie where the aforementioned character that I quoted (“Jim”, played by Jeremy Renner) is as emotionally unglued as the VIX.


Back to the Global Macro Grind


The VIX (the Volatility Index) is up +15.6% in a straight line this week as Congress Holds Court, watches gangster movies, and does their best to implode the US Dollar (down another -0.9% yesterday, taking its cumulative losses to -2.2% in the last 7 trading days).


This is not only a national embarrassment for the country, but a professional embarrassment for each and every one of these morons who don’t realize that the entire world is watching them – real-time.


Did I call them morons? Sorry, I meant Market Morons. Not all of them, some of them, couldn’t tell you what a EUR/USD currency trade in swap means or where to execute it. All the while the entire world’s globally interconnected risk trades off of their unawareness. Nice.


Domestically, this analytical incompetence isn’t lost on people. Actually, it isn’t Internationally either. In terms of scoring the Fiat Fools globally, consider the following polls:

  1. USA – Congress hits new low in yesterday’s Rasmussen reading; only 6% of Americans think Congress is doing a good job
  2. JAPAN – Japanese PM Naoto Kan’s approval rating hit a fresh new low yesterday of 17.1% (that’s lower than Obama’s!)
  3. ITALY – Embattled hot-tubing Prime Minister, Silvio Berlusconi’s approval ratings are dropping 1000 basis points a month

What do all of these countries and their said/sad leadership have in common? Print LOTS OF MONEY!


Yeah baby, print it – and if you get jammed up with a 17 year-old while swimming naked or swilling with some Republicans in de Club, just bust out some fear-mongering and hold court on the manic media’s streets. They need content.


If you didn’t know this is all ending the way that gravity predicted it would, now you know. Thank God for that.


What to do with your hard earned money?


I’ve actually taken this gong show as an opportunity to get invested. Yesterday, on weakness, I bought the US Dollar (UUP) and Indian Equities (INP), taking my Cash position in the Hedgeye Asset Allocation Model down to its 2nd lowest level of the year (37%).


This doesn’t make me a raging bull. This simply makes me a buyer on red and a seller on green. As we outlined in our Q3 Macro Themes call a few weeks ago, as the Fiat Fools of our world play “Policy Pong” with our markets, we should stop getting frustrated by it – and just trade it. Be a “Risk Ranger” (another Q3 Theme) and trade risk around the range.


Yes, buy-and-hold fans, trading is a required exercise in modern day risk management. Doesn’t that make me a “short-termist” when our longest of long-term views have been what has really led us to being right on 2011 Growth Slowing As Inflation Accelerates? The Fiat Fools and their policies do 2 very specific things to your economies and markets:


1.       They shorten economic cycles

2.       They amplify market volatility


And on that note about volatility, I’ll end this morning’s missive where I began – with a preview of the next episode of “The Town’s” Debt Ceiling from our squirrely friend Jimmy, who so seemingly inspired Republican Congressman McCarthy yesterday: “Secrets with this one.”


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $98.06-100.81, and 1, respectively. Buy low. Sell high.


Best of luck out there today and enjoy the show,



Keith R. McCullough
Chief Executive Officer 


Congress Holds Court - Chart of the Day


Congress Holds Court - Virtual Portfolio


We were convinced from our analysis of KONA that the company was going to perform well through 2011 and viewed the stock favorably as a result.  Over the past month KONA has been the best performing casual dining name over the past month (up 23.4%) and is now up 62% year-to-date. 


Early in the quarter, there were some serious questions raised about the future following former CEO Mark Buehler's resignation.  As we wrote on June 9th, the departure of the CEO was not related to weakness in the business and the 2Q financial performance confirmed our thesis. 


KONA 2Q EPS came in at $0.08 or $0.11 ex-special charges.  Same-restaurant sales came in at +9.1%, implying two-year average trends 180 basis points above those in 1Q11.  Management also provided some conservative sales guidance for the upcoming quarter.  Guidance is for 6% same-restaurant sales in the third quarter, including 3% price.  This comp guidance, implies two-year average trends of 3%.  This would be a sequential slowdown from the two-year average trend in 2Q but it would likely bolster investor confidence in the company’s ability to continue to grow share.  The 3Q trends suggest that the company will post positive SSS for seven straight quarters. Currently KONA is running about 2.2% in pricing; the company took about 150 basis points in June to help offset higher commodity costs.


Restaurant level margins also increased year-over-year during 2Q11to 17.2% versus to 16.3% last year. On a sequential basis, restaurant operating profit improved 320 basis points over 1Q11.


We continue to like the KONA story.








Howard Penney

Managing Director


Rory Green


Early Look

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