The Macau Metro Monitor, August 5, 2011




According to a Dow Jones source, MPEL is looking to raise $400-600MM for its HK IPO.  The source also said the IPO would launch in Q4.



Sands China has signed franchise agreements with Hilton Worldwide and IHG for hotels at Sands Cotai Central.  Hilton's five-star Conrad is expected to open in 1Q 2012 with more than 600 rooms.  A four-star Holiday Inn by InterContinental should also open in 1Q 2012 with more than 1,200 rooms.



If the European Commission fight ends amicably, this would be a positive catalyst for the slot guys.



Yesterday, the Greek parliament passed an omnibus bill which included the VLT/online gaming bill.  While we expected the bill to pass in late 2011 (GREECE: DRAFT GAMING BILL SUBMITTED TO PARLIAMENT (3/21/11)), the fast-track status it obtained by clinging onto a broader legislation package was not foreseen. According to Greek finance minister Venizelos, Greece had to pass the omnibus bill before the EU/IMF audit team arrives on Aug 22.  Under the bill, OPAP will receive an exclusive license to operate all 35,000 VLTs, operating 16,500 machines itself and sub-contracting the rest.


But it’s not smooth sailing yet. Greece passed the bill despite European Gambling and Betting Association’s (EGBA) and European Commission’s (EC) protectionism and discrimination concerns which violate EU law. All eyes will be on August 8—the deadline for Greek lawmakers to reply to the objections. If Greece fails to address the Commission’s objections, the EC could launch infringement proceedings in the European Court of Justice.


However, if Greece work things out with the EC on the gambling bill, here are the next steps:

  • Bill sent to President Papoulias for promulgation and publication in the Government Gazette
  • Setup of new gaming supervising committee
  • Tender process

Repetitive Drills

This note was originally published at 8am on August 02, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Even in his repetitive drills he had a way of making the mundane seem important.”

-David Maraniss (on Vince Lombardi)


That quote comes from an inspirational excerpt on page 212 of “When Pride Still Mattered” where David Maraniss boils down the deep simplicity of Lombardi’s coaching process. If you’re trying to lead a country, company, or family this morning, I confidently submit that consuming this perspective is well worth your time. America needs you, The People, to lead us out of this mess.


Vince Lombardi was “the football variation of a masterly novelist who could take the muddle of everyday life and bring clarity and sense to it, and allow readers to see, for the first time what was in front of their eyes all along. Bart Starr was on the edge of his seat, listening – getting it for the first time. All the crap was gone; this was right to the bone, simple, yet so refreshing and exciting.”


“Everything was accounted for, labeled, identified, put in order, fundamental and sound. You could tell that the coach believed in what he was doing. His tone of voice, his posture, his manner – it all made you believe. It all made sense.”


So let’s grind. This globally interconnected marketplace all makes sense – you just need to account for “everything”:

  1. US TREASURIES – across the curve, 2s, 10s, and 30-year UST yields are making fresh YTD lows this morning in the face of a very wrong bet by some of our industry’s losing teams that suggested there was US “credit risk” coming down the pike. Not today.
  2. US DOLLARS – had a breakout day yesterday, trading right back above an important line of immediate-term support ($74.11 on the US Dollar Index) as clarity on the “Debt Deal” found her way into the market’s currency expectations.
  3. US EQUITIES – not good folks; not good – but are you surprised? With “Debt Deal” being replaced by “Growth Slowing” in this morning’s headlines, many a macro market observer has come to realize that more than just US politics makes globally interconnected risk go round.

Perversely, since La Bernank has addicted the entire Institutional Investing Community to chasing yield, what’s good for America’s currency is quite bad, in the immediate-term, for stocks and commodities.


We’ve labeled this The Correlation Risk (USD up = stocks and commodities down). Sadly, Bernanke and Geithner have been negligent in addressing this massive tail risk to the American people when under oath.


So what do you do with that?

  1. Short the Euro
  2. Short European Equities
  3. Sell US Equity and Commodity exposure

People want “clarity” in this market place. There it is.


On yesterday’s proactively predictable opening market strength, I sold down my US Equity exposure in the Hedgeye Asset Allocation Model to 0%. That’s ZERO. Like my long exposure to European Equities – ZERO.


As of yesterday’s close, here’s how the Hedgeye Asset Allocation Model is positioned:

  1. Cash = 52% (up from 43% last week)
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener – TLT and FLAT)
  3. International Currencies = 12% (US Dollar and Canadian Dollar – UUP and FXC)
  4. International Equities = 12% (China, India, and S&P International Dividend ETF – CAF, INP, and DWX)
  5. Commodities = 6% (Silver – SLV)
  6. US Equities = 0%

Now the Hedgeye Portfolio (14 LONGS and 12 SHORTS) is a different product obviously than long-only asset allocation. Neither of these products are perfect. No one’s risk management process in this business ever will be. We get that – but every move we make is based on a repeatable process that changes as the math does. And, believe me, the coach over here believes in what he is doing.


My goal is simple. I want to win. And my team will stand here alongside you on the front lines of Global Macro market risk, just as we did during the thralls of 2008, so that you don’t lose your hard earned net wealth. We don’t make excuses. We make moves.


Since January 2011, we have led the debate that Global Growth Slowing was going to equate to lower than expected US Equity returns. Every morning since, we have been banging the drums with our often Repetitive Drills to remind you what we are seeing and when.


That doesn’t mean I am going to own US Treasuries (TLT), Flatteners (FLAT), or Silver (SLV) forever. I could sell them all today and nothing will have changed unless I deviate from the process in order to make those decisions. If the process changes, I better know why. And I damn well better be able to explain it to my troops.


In a world where people have no reason to believe their country’s leaders…


In a world where politics trump objectively scored performance…


That’s the best we can do as leaders. We have to be accountable. We have to make sense.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1611-1637, $94.11-96.21, and 1275-1316, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Repetitive Drills - Chart of the Day


Repetitive Drills - Virtual Portfolio


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Anniversary Day

“He who will not economize will have to agonize.”



I lost over three hundred dollars of my net wealth yesterday. Happy Anniversary Laura.


Actually, if you back into the valuation of my largest holding (Hedgeye)… assume a 3-month Treasury discount rate of 0.00% (this morning you almost have to pay the government to hold your money)… and infer that our team’s analytical competence added some value to our clients’ risk management process this week… I think I made back my three hundred bucks.


Like a lot of things manic media and the Wall Street/Washington they cover, their concept of CASH can be amusing. I personally invested approximately 1/3 of my CASH in this company during the thralls of 2008. I considered that a relatively “high conviction” idea.


But when Wall Street talks about CASH, bankers and brokers are usually talking about your money. There is a gargantuan marketing machine that stands behind this basic compensation mechanism – they need other people’s money to make money.


People are always asking me “what’s your best long term idea”? Away from Hedgeye, I think CASH is the best weapon for self defense in the modern Fiat Fool world in which we live. CASH saves you on a day like yesterday (worst day for US Equities since 2008). CASH also provides you the opportunity to make long (or short-term) investments when your competition is not allowed to make them.


Back to the Global Macro Grind


Before the price of Silver collapsed intraday, I raised another 12% CASH in the Hedgeye Asset Allocation Model. That takes my CASH position to 67%. I sold my 6% allocations to the US Dollar and Silver (total = 12%) at 10:27AM and 11:06AM, respectively. At the time, they were both up on the day. I was pleased.


Now a lot of people (and I mean a lot) told me I “couldn’t” go to 96% CASH in Q3 of 2008. Less people will tell me I can’t go to 67% CASH in 2011. Why? Most likely because I just did.


The idea here this morning isn’t to take a victory lap (although these things do occur for winning teams). The idea is the same idea I have been pounding on since 2008. Our industry needs new ideas, new risk management processes, and new blood. Re-think. Re-work. Evolve. Old Wall Street knows that. They are Too Big To Change as fast as Hedgeye has changed – Old Wall Street knows that too.


Today’s Hedgeye Asset Allocation is as follows:

  1. CASH = 67%
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener – TLT and FLAT)
  3. International Equities = 9% (China and S&P International Dividend ETF – CAF and DWX)
  4. International Currencies = 6% (Canadian Dollar – FXC)
  5. Commodities = 0%
  6. US Equities = 0%

Again, this is an asset allocation product, not a hedge fund or a book of long/short ideas (that’s the Hedgeye Portfolio – different product). When I think about this product, I think about Laura, Jack, and Callie. That’s who I work for when preserving our assets.


I also work for them to grow our assets. But another funny thing about Wall Street is that some people think you should be in “growth” mode every day.


In some asset classes, some of the time, sure – great idea. Most of the time, in most asset classes, that’s a really bad idea. Markets that are being manipulated by central planners do not owe us anything.


Globally interconnected markets care about a lot of things at the same time. Right now, they are anchoring on the #1 risk that no one was talking about in mainstream media yesterday: Fiat Fools trying to convince the Institutional Investing Community to chase yield.


Chasing yield is all good and fine until the music stops. Remember what the buy-side bus tour operator, Citigroup’s, retired storyteller (the artist formerly known as Chuck Prince) told the Financial Times on July 10, 2007:


“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing…”


Today is August 5, 2011. It’s our 5thWedding Anniversary and I, for one, feel like the luckiest man in the world today. I married a beautiful, loving, and thoughtful woman. I have healthy children. I have a happy firm.


And I still have my cash.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $86.52-91.95, and 1165-1256, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Anniversary Day - Chart of the Day


Anniversary Day - Virtual Portfolio


TODAY’S S&P 500 SET-UP - August 5, 2011


From a research/risk management perspective yesterday was one of the best day’s we’ve had versus our sell-side competition since 08. It was also the biggest down day for stocks since 08, so that makes sense. Having 0% asset allocation to US/European Equities helps!


Every bear market gets immediate-term TRADE oversold, and that’s what I see this morning. That said, I want to be crystal clear on this, sell all rallies in Equities/Commodities because the Street is still too long and needs to take down gross and net exposures.


As we look at today’s set up for the S&P 500, the range is 91 points or -2.92% downside to 1165 and 4.66% upside to 1256.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -2818 (-3263)  
  • VOLUME: NYSE 1821.32 (+34.71%)
  • VIX:  31.66 +35.41% YTD PERFORMANCE: +78.37%
  • SPX PUT/CALL RATIO: 2.24 from 1.51 (+47.70%)


  • TED SPREAD: 26.94
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.47 from 2.64    
  • YIELD CURVE: 2.31 from 2.33


  • 8:30 a.m.: Change in Nonfarm Payrolls, Jul, est. 85k, prior 18k
  • Change in Private Payrolls, Jul, est. 113k, prior 57k
  • Change in Manu Payrolls, Jul, est. 10k, prior 6k
  • Unemployment Rate, Jul, est. 9.2%, prior 9.2%
  • 1 p.m.: Baker Hughes Rig Count
  • 3 p.m.: Consumer Credit, Jun, est. $5.00b, prior $5.08b


  • WSJ is lukewarm on Kraft Foods
  • Payrolls probably climbed by 85k workers in July, failing to create enough jobs to reduce 9.2% unemployment rate, economists’ forecast ahead of today’s report
  • Google+ may grow to claim 22% of online U.S. adults in a year, surpassing Twitter, LinkedIn to be 2nd-most-used social site after Facebook, survey from Bloomberg/YouGov found
  • 2-yr note yield hits record low of 0.3039%



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Commodities Post Worst Run Since 2008, Erasing Gains for Year
  • Copper Slumps to Five-Week Low on Concern Growth Will Falter
  • Gold Gains in London as Financial Turmoil Boosts Investor Demand
  • Oil Drops to Lowest in Eight Months Amid Global Rout on Economy
  • China Said to Be Planning Soybean Sale to Rotate State Inventory
  • Indonesia May Surpass Japan as Biggest Wheat Buyer in Asia
  • Palm Oil Drops as Commodities Plunge on U.S. Recovery Concern
  • Rubber Slumps Most in Almost Six Weeks as Economic Concern Grows
  • AngloGold Plans Trial to Tap $118 Billion of 3-Mile Deep Ore
  • Palm Oil Inventory in Malaysia Climbs to 19-Month High on Output
  • Goldman Raises Corn, Wheat Targets on ‘Remarkably Hot’ Spell
  • Escondida Workers Vote on Proposal to End Chile Mine Strike
  • Wheat, Corn Decline as Economic Recovery Concern Dampens Demand
  • Crude Oil May Fall on Slowing Economy Concern, Survey Shows
  • Japan Considers Additional Steps to Contain Tainted Beef Crisis
  • Copper Seen Above $4 a Pound on China Recovery, Codelco Says
  • Zimbabwe Diamond Production Surges After Marange Sales Allowed



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: same scary divergences; all "rallies" trying to come out of the lowest quality markets while the pseudo safe get smoked (Germany)

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: China down the least of the majors in the world this week (down -2.1% last night), and that’s about the only constructive thing I can say


 THE HEDGEYE DAILY OUTLOOK - asia performance









Howard Penney

Managing Director


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