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In preparation for ISLE's FQ1 2012 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from ISLE’s FQ4 2011 earnings call and subsequent conferences/releases.




  • “We expect to open Lady Luck Nemacolin in approximately nine months after being given the green light by state regulators.”
  • “We expect depreciation and amortization to be right around $90 million. Cash taxes paid for the year should be less than $5 million. We expect interest to be somewhere between $83 million and $86 million for the year. Corporate, around $43 million, and with approximately $6 million in stock comp, so $36 million or $37 million cash.”
  • “Maintenance capital, we expect to be right around $50 million this year– while we will continue to spend on systems conversions at some of our properties. And depending on timing related to Cape Girardeau and Nemacolin, project capital to be probably in the $90 million to $100 million range for the year.”
  • “We have been in contact with the insurance companies daily and begun working on calculations of the claims for the reopened properties and expect to have the first one filed for Davenport, probably in the next several weeks. We have a good rapport with our insurance carriers for the process.”
  • “As we went through year end and really looked at some of our self insurance accruals and things like that, it’s really not so much to do with healthcare as it has been other claims, workers’ comp, general liability and other types of insurance. We’ve had some favorable results through some things like that.”
  • “We are still dealing with some economic issues, particularly high unemployment rates in some of our markets.”
  • [Cape Girardeau GMP contract] “I would say it would probably be – $50 million to $65 million would be my guess, just going off of what the land cost, what the infrastructure costs, and then what the all the FF&E and everything else goes under there.”
  • “The best indicator for us that the discretionary money is starting to come back into gaming and people are starting to be a little bit more confident is the increase in retail play. Again, about half of our portfolio showed an increase in retail play, which was consistent with our competitors.”
  • [Project Capex timeline] “I would say roughly, probably less than 10% of it the first quarter, 15% or so the second quarter, and then the balance of it in the back half of our fiscal year, relatively equal or maybe even ramping up continued through the year.”

Give It Up

This note was originally published at 8am on August 19, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“There’s nobody taking center from me until I give it up.”

-Joe DiMaggio


That’s what Joltin’ Joe had to say about Mickey Mantle taking his position in center field for the New York Yankees in 1951. Mantle was the superstar rookie. DiMaggio was the tiring veteran. 1951 would be the last year Joe DiMaggio played center field.


That’s another quote from “The Last Boy – Mickey Mantle and The End of America’s Childhood” (Jane Leavy, page 15) and, like I do with every book I read, I dog eared the page, and wrote a personal note to myself beside the quote.


I write a lot because I like to think a lot. Writing helps me think. Whether it’s to all of you every morning or to myself in bed with my books every night – it’s just what I love to do.


Rather than rip into some tired Old Wall Street brain-trust that doesn’t want us to be successful this morning, I think my humble submission to you today should be a simple one. Be yourself. Play the game that you love. And enjoy what you do.


Thirteen years ago when I started in this business, it was my job. Ten years ago, it became a compensation mechanism to make enough money to not have to worry like many hard working and honest people do in this world.


Today, it’s not about the money. It’s about building something that I love; building something that’s successful; and building something that lasts.


I don’t doubt that Merrill Lynch founder Charles Merrill and Joe DiMaggio were some of the best players of their days. I respect their successes. I love celebrating winners wherever I can find them. But today, Merrill and DiMaggio are dead.


Today, Bank of America Merrill Lynch is setting up to fire another 10,000 people (WSJ). Today is a new day. Today is as good a time as any for Old Wall Street to Give It Up.


We need to rethink and rework this business. We need new leadership. We need to evolve. Fast. Or it will, once again, be too late.


Back to the Global Macro Grind…


Global stock markets around the world are crashing. Crash, as we defined it, is a peak-to-trough decline of 20% or more in the price of something that ticks in a short period of time. From Seoul, Korea to Frankfurt, Germany, here’s what’s really going on out there:

  1. KOSPI (Korea) = down -6.2% overnight and down -22% since May
  2. DAX (Germany) = down -3.5% this morning and down -28% since May
  3. CAC (France) = down -2% this morning and down -33% since February
  4. MIB (Italy) = down -2% this morning and down -37% since February
  5. XLF (US Financials) = down another -2% pre-open and down 28% since February
  6. XLI (US Industrials) = down another -1.5% pre-open and down 23% since April

Old Wall Street can blame Europe, blame China, or blame Canada at this point. Reality is that finger pointing is for losers and I, like most of you, am tired of watching it. It’s time for the Captains of American Accountability to step up and take charge. US Growth Slowing is as big a problem as any right now to this globally interconnected marketplace.


Need more US-centric leading indicators other than Financials and Industrials crashing?

  1. US CURRENCY – while the US Dollar isn’t crashing to all-time lows (yet), it’s getting pretty darn close. At $74.20 on the US Dollar Index, it’s only 3% away from its all-time lows that were established by 2 conflicted and compromised Federal Reserve Chiefs (Arthur Burns in the 1970s and Ben Bernanke, twice, since 2006).
  2. US TREASURIES – both 2 and 10-year US Treasury Yields are now collapsing/crashing to all-time lows. When compared to 2008 (the levels they just eclipsed on the downside), that’s saying something. And that something is not good.
  3. US JOBS and HOUSING – both sets of numbers yesterday (weekly jobless claims and Existing home sales for July) were bad enough in their own right. The bigger problem is expectations of how bad both jobs and housing numbers are setting up to look in August-September. Yes, these are Hedgeye forecasts – and yes, we have been right on both YTD.

I’m young, and I have plenty of character faults. I get that I have a lot to learn. But I can assure you that I am on it. I love this game. I love this country. And I think my team and I can help be the change we all want to see in our profession.


My immediate-term support and resistance ranges for Gold (immediate-term TRADE overbought this morning), Oil (we remain the bear on oil, Goldman the bull), and the SP500 (bearish) are now $1773-1866, $79.23-84.42, and 1106-1166, respectively. Our allocation to both US and European Equities in the Hedgeye Asset Allocation Model remains 0%.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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The Quitting Time

“If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time.”

-Chinese Proverb


While it’s both sad and pathetic to watch our said “free market” system come to this, the entire asset management world is being dared to bet on either black or red going into Ben Bernanke’s “event” in Jackson Hole, Wyoming on Friday.


If you must play (going to 70% Cash this week, we have decided not to), you should have already decided on 3 things:


1.   RULES: seeing that Japan, Europe, and the US effectively change the rules as we go, this is a tough one! If you have inside information on what Bernanke is going to say, enjoy that and some orange jump suit risk out on your life’s tail.


2.   STAKES:

A)   bet BLACK on Bernanke and the elixir of another short-term stock market inflation is yours

B)   bet RED on no QG3 (Quantitative Guessing III) and there’s a high probability that your P&L doesn’t blow up in 2011


3.   QUITTING TIME: don’t bet at all – go to cash and/or tighten up your net exposure like we have (10 LONGS, 10 SHORTS)


I’m not a big fan of blowing up. When I started in the hedge fund business, my first 3 years (2000, 2001, and 2002) were down markets. Not losing money was the name of the game. Since 2008, I haven’t had other people’s money on the pass-line (betting rules are different when the money isn’t yours). I’ve been “all-in” with my own money. Not interested in rolling the bones, Benny – sorry, “bro.”


This is what the ZERO Percent Interest Rate Policy has done to this gargantuan game of Globally Interconnected Risk. Big Government Intervention is designed to debauch your currency and dare you to bet on the stock market. That’s a dumb long-term strategy. Period.


In the past, we’ve also called this 3D-Risk – ZERO percent cost of “risk free” capital does 3 things:

  1. DARES investors to chase “yield” (stocks over zero percent “risk free” bonds)
  2. DISGUISES financial risk (think Bank of America’s net interest margins and liquidity gap – both in big trouble)
  3. DELAYS balance sheet restructuring (uh, got some Greek or Italian banking sausage?)

So… for me at least, the next 3 days will remain The Quitting Time – and I’m totally cool with that. Call me whatever you want to call me in the meantime. It took me a long time and a lot of mistakes to come to grips with this, but doing nothing with my hard earned capital is sometimes the best decision to make.


Back to the Global Macro Grind


On this day in 2006, the planet Pluto was downgraded by the powers that be in Astronomy to “dwarf planet.” While I’m not an astrology expert, I think that math and physics had something to do with the downgrade. Fancy that.


Shockingly, 5 years later, Japan is getting downgraded this morning from land of Keynesian Nod to something less than getting the nod. On the “news” that Japan is an economic disaster, the Nikkei crashed again (down -20.4% since February 2011) for the umpteenth time since Paul Krugman and the Princeton boys told the Japanese to “PRINT LOTS OF MONEY.”




But have no fear, the aliens are here…


On Fareed Zakaria’s GPS a few weeks ago, CNN teased that they were going to “explore the most important topic (the economy) with the most important voices” (Zakaria was interviewing Krugman). And I couldn’t make this up if it tried, but the venerable Keynesian of Nobel’s Social Study Experiment said:


“If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months…”


You know, space aliens, Ben… We need to be thinking cowboys and space aliens down there in Jackson Hole!


God help us. The Quitting Time with failed Keynesian policies is here.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $81.28-89.28, and 1108-1165, respectively. Yesterday was just another Japanese-like rally to lower long-term highs in US Equities. If people are seriously betting on Bernanke BLACK on Friday, I’ll tell you that this Canadian is in Cash and won’t be surprised whatsoever to see those expectations crash.


Best of luck out there today and a special prayer goes out to my brother Ryan and his beautiful family,



Keith R. McCullough
Chief Executive Officer


The Quitting Time - Chart of the Day


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


There’s nothing quite like an entire profession is being forced to “bet” on black or red into a man-made event at Jackson Hole. It’s pathetic and sad that a said “free market” has come to this.  As we look at today’s set up for the S&P 500, the range is 57 points or -4.68% downside to 1108 and 0.23% upside to 1165.




Yesterday’s 3.43% rally in the S&P 500 to another long-term (and immediate-term) lower-high didn’t change anything in our multi-duration S&P Sector Risk Management Model.  All 9 Sectors closed below both their TRADE and TREND lines for the 15th consecutive day.  Managing risk around ranges in US Equities with a bearish bias remains our strategy from today’s closing price.  On any follow through strength ahead of Jackson Hole, we want to be shorting Financials (XLF) and Industrials (XLI).









  • ADVANCE/DECLINE LINE: +2119 (+2475)  
  • VOLUME: NYSE 1240.16 (+4.13%)
  • VIX:  36.27 -14.54% YTD PERFORMANCE: +104.34%
  • SPX PUT/CALL RATIO: 1.78 from 2.01 -11.38%



  • TED SPREAD: 31.18
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.15 from 2.10    
  • YIELD CURVE: 1.88 from 1.87

MACRO DATA POINTS (Bloomberg Estimates):

  • 7 a.m.: MBA mortgage applications, prior 4.1%
  • • 8:30 a.m.: July durable goods orders, est. 2.0%; July durable goods ex-transports, est. (0.5%)
  • • 10 a.m.: June house-price index M/m, est. 0.2%; 2Q house price purchase index Q/q, est. (0.4%)
  • • 10:30 a.m.: DoE weekly inventories, crude est. build 1.5m bbl
  • • 1 p.m.: U.S. to auction $35b 5-year notes


  • Bullish sentiment decreases to 40.9% from 46.2% in the latest US Investor's Intelligence poll
  • Japan’s sovereign credit rating cut one step to Aa3, banks’ ratings lowered by Moody’s; Japanese govt to release $100b to fund loans by Japan Bank for International Cooperation, in an effort to cope with yen’s appreciation, Finance Minister says
  • German business confidence index drops to lowest level in more than a year
  • Biden says he “didn’t come to explain a damn thing” to China
  • German Chancellor Angela Merkel rejects demands that Greece provide collateral for emergency loans as splits emerged in her Cabinet, reflecting euro-area divisions on issue


  • COMMODITIES: we sold our Silver on 8/19 so now we can wait/watch for support = $40.18
  • COPPER – still sees no QG3 and neither does oil.  If Bernanke was going to save everyone’s P&L on Friday, OIL?COPPER would be recapturing at least their long term TAIL lines of support; neither are in the area code of that. Both remain BEARISH/BROKEN.





  • Merkel Rejects Seeking Collateral in Bailouts as Splits Emerge
  • BHP Second-Half Profit Climbs to Record on Prices, Output
  • Central Banks Seen Retaining Gold as Debt Crisis Escalates
  • Gold Rallies After Dropping From Record as Investors Seek Haven
  • Oil Slides From Four-Day High in New York After Japan Downgrade
  • Hurricane Irene Bearing Down on Bahamas on Way to North Carolina
  • Codelco Bets China Growth Will Justify $20 Billion Investment
  • Irene Likely to Be a ‘Major’ Hurricane Later Today, NHC Says
  • Copper May Drop on Concern Global Growth to Slow, Damping Deman
  • Drought-Baked Fields Curb 2012 U.S. Wheat Outlook as Prices Gain
  • Usiminas Port Bid Seen Quadrupling Its Iron Ore: Freight Markets
  • Bunge Says Syngenta Suit May Jeopardize Chinese Corn Exports
  • Glencore Cash Offer Values Minara Resources at A$1.02 Billion
  • Sino-Forest Downgraded by S&P on Delay to Probe, Profit Decline







  • EUROPE: what a mess; no bounce after the US tries its best to hold a 1 day move; Denmark and Poland down 1% this morn as the bear broadens
  • EuroZone Jun Industrial New Orders +11.1% y/y vs consensus +12.1%, prior revised +13.8% from +15.5%; EuroZone Jun Industrial New Orders (0.7%) m/m vs consensus +0.5%, prior +3.6%





  • JAPAN – finally moves into crash territory overnight on the “news” that Paul Krugman/Bernank advice in 1997 to “print lots of money” has another side to the “bet”; Japanese stocks down -20.4% since FEB 2011.
  • KOSPI – after a 1-day relief rally like the US had, Korea continues to crash (down -1.2% overnight and down -21.3% since May 2nd which is the same day German DAX peaked and started crashing from – Korea and Germany are huge lead indicators on global industrial growth slowing).








Howard Penney

Managing Director



Aside from the luck factor, the Q2 upside looks sustainable. The Street has some major revisions to do.



We'll get to the quarter in a minute but the incremental story is the sustainability of revenues and higher margins.  We are now estimating $211 million in Q3 EBITDA, up from $188 million, and much higher than the Street at $160 million.  Ok so back to Q2.


MPEL reported a blockbuster quarter, exceeding our expectations which were well ahead of consensus.  Sure, there was some hold benefit, but most people already knew that Altira held lucky in the quarter.  Factoring out the $7MM mix benefit at CoD, MPEL still delivered an impressive quarter where costs efficiencies leveraged volume growth to deliver impressive results.



Q2 Detail

  • Net revenue of $960MM exceeded our estimate by 1% due to lower promotional allowances
  • Adjusted EBITDA of $216MM exceeded our estimate by $36MM due to flow through of lower promotional allowances, lower fixed expenses and beneficial RC mix at CoD
  • CoD net revenues of $608MM were $7MM higher than we estimated while EBITDA was $24MM better.
    • Flow through was 61% vs our estimate of 41%
    • Net casino revenue was $4MM better, while net non-gaming revenue was $3MM better than we estimated
    • Net VIP win was $4MM higher than we estimated          
      • Direct VIP play was 13.2% of RC volume
      • RC volumes were 1% lower than we estimated; however, we think hold was 2.84% - 4bps better than we estimated
      • Due to beneficial mix of RC and RevShare, we estimate that the commission rate was 1.22% vs our estimate of 1.26%
        • High hold on the RC piece but low hold on the RevShare makes for a lower than theoretical commission payout on 2.84% hold
  • Mass table win and slot win were in-line with our estimates
  • Total variable expenses were $370MM (taxes, gaming premium, junket commissions and estimated doubtful accounts)
  • We estimate that the cost of non-gaming revenue was $25MM
  • Implied fixed costs decreased to $62MM - $8MM below our estimate
  • Altira net revenue of $311.5MM was $5MM below our estimate while EBITDA was $8.5MM better than we estimated
    • Net casino revenue was $7MM lower, while net non-gaming revenue was $2MM better than we estimated
    • Net VIP win was $8MM higher than we estimated          
      • RC volumes were 2% higher than we estimated due to some direct play volume which we estimate was 3% of total RC. This could be a reflection of the premium mass business mentioned on the call.
      • Hold was in-line with our estimate
    • Mass table win was $6MM lower than we estimated due to slightly lower drop and much lower hold.  We estimated 19% hold – 3% higher than actual. Typically, higher drop properties have better hold rates.
    • Total variable expenses were $212MM (taxes, gaming premium, junket commissions and estimated doubtful accounts)
    • We estimate that the cost of non-gaming revenue was $3MM
    • Implied fixed costs decreased to $23MM - $7MM below our estimate



  • 3Q11: net revenue of $992MM and adjusted EBITDA of $211MM; this is 9% and 32% above the Street, respectively.
  • 2011: net revenue of $3,768MM and adjusted EBITDA of $757MM, 7% and 22% above the Street, respectively.

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