The Macau Metro Monitor, August 18, 2011




Prices of newly built homes in 39 of 70 large and medium-sized Chinese cities covered in a government survey rose MoM in July, down from 44 cities in June.  Prices in Shanghai, Beijing, Shenzhen, Guangzhou and other large cities were flat MoM in July.



Total labor force was 338,000 in 2Q 2011, comprising of 329,000 employed and 9,000 unemployed.  24.6% of the employed were engaging in Recreational, Cultural, Gaming & Other Services.  Median monthly employment earnings of both the employed (MOP9,600) and the local residents (MOP10,000) held stable relative to 1Q 2011.




FL: Trends Into The Print

Channel data supports our above-consensus view on FL. We like NKE better at this point, and Nike’s numbers continue to crush the competition. Adidas and Reebok are holding their own. The smaller guys are flat-out losing.


Let’s take a glimpse into channel footwear data in advance of FL’s print.  When all is said and done, we are at $0.17 for FL on a comp assumption of +9.5% for the quarter headed into Thursday’s print, which is ahead of the Street at $0.12 and 8.1%, respectively. Is FL one of our favorite names? Not anymore. But we still believe that those who think that the recent strength is over will miss much of this turnaround story. A name like this that has been (justifiably) out of favor for the better part of 20 years, will show more than just a few quarters of upside as the management team makes up for the sins of old.



Here are some additional highlights:


  • The 1.8% increase in Athletic Specialty sales round out the Fiscal quarter for FL with consolidated Athletic specialty sales up 7.2% for the 3 month period.
  • Although all three channels saw sequential deceleration, Athletic specialty/SG outperformed the Department & National Chain store channel and Shoe Chain channel with sales growing 1.8% vs. (14.8%) and (3.4%) respectively. The gap between athletic specialty and the department stores sales growth actually grew from 15.5 points to 16.6 points in July while the gap between athletic specialty and shoe chain shrunk from an ~11 point difference down to a ~5% spread.
  • While industry ASP growth was essentially flat, ASPs were down 6.4% in the Department store channel and down slightly in the shoe chain channel suggesting increased promotional activity while athletic specialty is closer to full price sell through. While still positive, we’re not particularly thrilled with the trendline ASP for the industry. Let’s keep an eye on that one.
  • Nike continues to post outstanding market share growth. But in fairness, this represents Retail sales – and Nike NEEDS outstanding share gains to fuel its recent futures growth.
  • Puma, New Balance & Skechers saw another month of sales declining year over year; down 28.4%, 11.4% & 49.8% respectively conceding more share to Nike, Brand Jordan, Adidas & Reebok.
  • Reebok continued its growth in sales, ASP & marketshare for the third month in a row with Sales up 49.8% on 8.4% ASP growth to the tune of 170 bps in market share.
  • UnderArmour is still not showing up for practice.


FL: Trends Into The Print - chart1


FL: Trends Into The Print - chart2


FL: Trends Into The Print - chart3


FL: Trends Into The Print - chart4


FL: Trends Into The Print - chart5


FL: Trends Into The Print - chart6


FL: Trends Into The Print - chart7


FL: Trends Into The Print - chart8


FL: Trends Into The Print - chart9


FL: Trends Into The Print - chart10


FL: Trends Into The Print - chart11


FL: Trends Into The Print - chart12



TODAY’S S&P 500 SET-UP - August 17, 2011


As we look at today’s set up for the S&P 500, the range is 35 points or -1.83% downside to 1172 and 1.10% upside to 1207.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: +591 (-1525)  
  • VOLUME: NYSE 972.85 (-14.1%)
  • VIX:  31.58 -3.9% YTD PERFORMANCE: +77.92%
  • SPX PUT/CALL RATIO: 2.23 from 1.41 +58.16%




FIXED INCOME: Yield Spread (UST) continues to compress this morn (10s-2s = 191bps) = explicit signal that US Growth is still slowing.

  • TED SPREAD: 29.27
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.23 from 2.29    
  • YIELD CURVE: 2.09 from 2.17


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Consumer Price Index (MoM), Jul, est. 0.2%; prior -0.2%
  • 8:30 a.m.: Initial Jobless Claims, Aug 13, est. 400k; prior 295k
  • 9:45 a.m.: Bloomberg Consumer Comfort, Aug 14, prior -49.1
  • 10:00 a.m.: Philadelphia Fed Business Outlook Survey, Aug, est. 2.0, prior 3.2
  • 10:00 a.m.: Existing Home Sales, Jul, est. 4.9m; prior 4.77m
  • 1:00 p.m.: U.S. to auction $12b 5-yr TIPS (reopening)
  • 2:30 p.m.: Fed’s Dudley to tour Jersey City, NJ



  • Morgan Stanley cut est. for global growth to 3.9% this year, down from 4.2%, while Deutsche Bank said China’s economy may expand less than 9% in 2011, 2012
  • Rep. Barney Frank, D-Mass., asked Fed to extend examination of Capital One’s acquisition of ING Direct USA, in letter yesterday
  • DOJ investigating whether S&P executives overruled when analysts wanted to give lower ratings on mortgage bonds: NYT
  • Sen. Charles Grassley, R-Iowa, asked SEC to answer allegations agency destroyed files from initial investigations of firms including Goldman Sachs, SAC Capital, Bernard Madoff Investment
  • Coca-Cola plans $4b in new spending in China over next 3 years: WSJ, citing CEO Muhtar Kent
  • Pemex announces results of auctions for contracts to operate three Tabasco oil fields. Watch Schlumberger, Halliburton
  • GE CEO Jeff Immelt speaks at Dartmouth in PM
  • Dept. of Interior, Exxon said to be fighting over significant oil find in Gulf of Mexico which co. says may yield 1b bbl: WSJ
  • Forest Labs hosts annual meeting, with Carl Icahn nominating 4 to the board
  • Target hosts investor meeting, to lay some financial goals beyond this year
  • MGM Resorts founder Kirk Kerkorian said to complete sale of 20m shares yesterday, cutting Tracinda stake to 22% from 27%: WSJ
  • ArcelorMittal, Peabody send bidder’s statement to MacArthur Coal holders today; cos. call takeover offer “compelling”
  • No IPOs expected to price today




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Gold Futures Climb 1.5% to Record $1,819.90 an Ounce in New York
  • Oil Falls in New York on Signs Slowing Economy May Curb Demand
  • Copper Falls as Banks Reduce Global, Chinese Growth Estimates
  • Corn Falls Most in More Than a Week as U.S. Rain May Aid Crops
  • Sugar May Advance as Asia Boosts Purchases, Coffee Declines
  • Gold Demand Falls 17% on Slower ETP Investment, Council Says
  • China Gold Investment Demand Jumps 44% on Rising Inflation
  • Chavez Orders $11 Billion of Gold Home as Metal Hits Record
  • Debt Funds Dumped as Gold Flows Jump 74% in Crisis: India Credit
  •  Oil Refiners Delay Maintenance as Profits Surge: Energy Markets
  • India Monsoon Rain Revival Lifts Rice, Cotton Crop Prospects
  • JPMorgan Said to Move Global Agriculture Head to Singapore
  • Sugar Sales in China Unlikely to Plug Shortfall as Imports Gain
  • U.S. Commodities Day Ahead: Gold Rises Above $1,800 on Slowdown
  • Venezuela Gold Move Shows Foreign-Storage Discomfort, UBS Says
  • British Farmland Values Rise to a Record on Commodity Prices




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • Europe Stocks Drop as Officials Say Fed Shouldn’t Shield Market
  • ECB Daren’t Blink as It Stares Down Bond Yields: Euro Credit
  • Barclays Sees ‘Very Real Competition’ From Chinese Firms
  • Europe Construction Output Falls on Declines in Germany, France
  • Foster’s Says SABMiller $10 Billion Takeover Offer Too Low
  • Denmark’s Regional Banks Dump Assets to Avoid Funding Wall
  • Czech Koruna May Be Next Franc Before Euro QE, Record Plc Says
  • Gilt Yields Drop to Record Low, Pound Slips on Retail Sales Data
  • RTS Futures Fall as Growth Woes Trump Oil Gain: Russia Overnight
  • Swiss Swap Rates Turn Negative on Franc Fight: Chart of the Day
  • Financial Turmoil Adds to Allure of Europe’s Best Properties
  • Maserati Made in Michigan Lets Chrysler Drive Luxury SUV: Cars

THE HEDGEYE DAILY OUTLOOK - euro performance




  • Biden Meets China’s Xi to Build ‘Personal Relationship’

THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director




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Peak market growth or seasonality?



The numbers are in for the Singapore casino gaming market in Q2 and it ain’t pretty.  For a quarter-on-quarter comparison in Q2, Gross Gaming Revenues fell 5.6% to S$1.8BN, (5.4% on a net basis), EBITDA dropped 5.2% to S$855MM, mass revenues slipped 0.3% to S$584MM and VIP Rolling Chip Volume was 0.6% lower to S$31.6BN.  The decelerating growth in Singapore could be a sign of a maturing market or is it seasonality?


By contrast, Macau GGR grew 12% sequentially in Q2.  Moreover, Q3 is on pace to grow another 7% on top of Q2.  While Macau and Singapore are two different markets and the opening of Galaxy Macau in mid May did boost growth, we would guess the seasonality profiles of each wouldn’t vary too much.  Given the newness of Singapore, one would expect sequential growth to be even higher than Macau.  Obviously, that is not happening.  We need more quarters to fully assess the seasonality vs peaking growth situation but signs certainly seem to point to a market that has already seen its best growth.


Poor hold of 2.8% in the quarter negatively impacted results, especially compared to 1Q11 which held high at 3.3%.  Average hold for the 2 IR’s since 1Q10 has been close to 3%.  If we adjust Q2 hold using the average hold rate of 3%, Q2 GGR would have actually increased QoQ but at a slower rate.  The chart below shows how the Singapore market would have trended on a hold-adjusted basis.  Sequential revenue growth have been falling since 3Q 2010.




In terms of Q2 market share, MBS, helped by higher hold and higher mix of non-gaming revenues, became the market leader for the 1st time in terms of net gaming revenue.  MBS also wrestled the lead back from RWS in EBITDA and Mass revenue share, and closed the gap with RWS in RC share.


No matter how you slice it though, Singapore slowed in Q2 and the outlook for significant further growth, particularly from the Mass market, remains cloudy.  According to Genting, the Mass market is constrained due to an insufficient supply of hotel rooms in Singapore, limited ‘local’ population, and inability to promote gaming to locals.  High hotel occupancy rates in Singapore imply that the market is in fact short of room supply.  From Jan-May 2011, Singapore hotel occupancy averaged 85%, 1% lower than 2010’s occupancy rate.  Therefore, MBS has a clear advantage in that it has twice as many hotel rooms as RWS.


It is still uncertain how 3Q will play out as a seasonally slow August - “Ghost” month - will be offset by a strong September, propelled by Formula One Racing and a strong convention calendar.  Nevertheless, we believe growth has peaked in the near-term and wouldn’t be surprised to see unimpressive growth for the rest of the year.  Obviously, the wild card is the licensing of the junkets before year-end, which would boost VIP RC volumes.


SINGAPORE Q2 REVIEW - singapore3


SINGAPORE Q2 REVIEW - net revenue







Big Water

This note was originally published at 8am on August 15, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Pain + Reflection = Progress.”

-Ray Dalio


That’s a quote from what I thought was one of the best asset management articles of the year – “Mastering The Machine – How Ray Dalio built the world’s richest and strangest hedge fund”, by John Cassidy at The New Yorker.


What was fascinating to me about Dalio’s Global Macro Risk Mangement Process is that there was nothing that was strange to me about it at all. It made perfect sense. Maybe that’s why he’s been one of the few major Hedge Fund managers who has been able to navigate the Big Water of both 2008 and 2011, generating positive absolute returns. Evidently, his process is repeatable.


Ray Dalio’s Bridgewater and Big Water are two very different things. Big Water is what some of my closest friends and I just spent the last 3 days conquering in Hells Canyon – America’s deepest river gorge.


No roads cross Hells Canyon. There are no government people on the shores to bail you out. You are either listening very carefully to your guide or you aren’t coming out.


“Who Is John Gault?” Maybe a better question for me over the course of the weekend was, “Who Is Jeff Smith?” The man who called it “River Time”, was constantly reminding us that “safety is no accident.” Evidently, he was right.


I’ll be flying home, safely, from Boise, Idaho this morning.


Back to the Global Macro Grind


Learning from mistakes (PAIN) and rethinking those mistakes (REFLECTION) = PROGRESS.


With all of the lessons learned about Growth Slowing in 2008 and how politicians and central planners are infused into your said “free” markets to arrest gravity (“shock and awe” interest rate cuts demanded then; Quantitative Easing begged for now), we are reminded of the 2 things that Big Government Interventions do to our markets and economies:

  1. They shorten economic cycles
  2. They amplify market volatility

Whoever didn’t pick up on that second point last week obviously wasn’t in the water. There was amplified volatility in The Price Volatility itself. From leftist French ideas about banning short selling to the whatever we have coming down river this week, all of this is reminding investors that markets that can’t see their rules change in the middle of the game are not markets they should trust.


Like staring down the belly of a Class IV white water rapid, when people see this kind of volatility in their retirement accounts they typically opt to get out. While that may be an inconvenient truth for those of us who are brave (or dumb) enough to try our luck trading Big Water volatility, history has proven that markets that lose people’s trust lose fund flows.


When the flows stop, bigger rocks appear…


With our own money at least, we don’t like volunteering to be “fully invested” when GDP Growth is heading towards big rocks (PAIN). History (REFLECTION) may not be precise in helping you navigate the price volatility associated with economic slowdowns – and sometimes the biggest rocks are the last ones you’ll ever see – but the rhythm of this globally interconnected marketplace is a constant reminder.


Going under water can be avoided. Accepting uncertainty = PROGRESS.


I’ve expressed my acceptance of uncertainty in 2011 by getting out of the water. Last Monday I had a 67% Cash position in the Hedgeye Asset Allocation Model. This morning that Cash position is sitting at 64% and here’s where the rest of my Cash has been allocated:

  1. Cash = 64%
  2. Fixed Income = 21% (Long-term Treasuries, Treasury Flattener, Corporate Bonds – TLT, FLAT, LQD)
  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%

The only move I made last week was allocating 3% of assets in the model to Corporate Bonds (LQD). They were down hard on the week when I bought them - and I like to buy things when they are red.


The biggest mistake I’ve made in the last few weeks is not being long Gold (GLD). That’s why I have Commodities listed ahead of US Equities this morning. I’d like to buy Gold and/or Silver back on a pullback. Immediate-term TRADE support lines for Gold and Silver are now $1713 and $38.15, respectively. I have intermediate-term TREND upside for Gold and Silver at $1817 and $41.69, respectively.


US stocks were immediate-term TRADE oversold into the close last Monday (see my intraday note from last Monday titled “Short Covering Opportunity”, April 8, 2011), but they are far from oversold this morning. I have immediate-term downside support at a lower-low of 1093 and less than 1% of immediate-term upside from Friday’s closing price, making the risk-reward highly skewed to the downside.


According to Cassidy’s article, Ray Dalio likes to ask his analysts for opinions – but those opinions better be well thought out. “Are you going to answer me knowledgeably or are you going to give me a guess?” he said to his analyst in a meeting.


When at Hedgeye or in The Big Water, we like to be specific on levels – we don’t guess.


My immediate-term support and resistance ranges for the Gold, Oil, and the SP500 are now $1713-1817, $78.09-86.06, and 1093-1186, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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