The Macau Metro Monitor, September 28, 2011




Sands China Ltd has entered into an term loan and revolving facilities agreement of US$3.7BN.  The credit agreement consists of (i) a US$3.2BN term loan that may be drawn until Nov 29, 2011 (Term Loan Facility) and (ii) a US$500MM revolving credit facility available until one month prior to the fifth anniversary of the date of the initial funding of loans under the Term Loan Facility.


Sands expects to draw the full amount of the Term Loan Facility prior to Nov 29, after satisfying certain initial funding conditions and government approval.  The proceeds of the Facilities will be used to refinance outstanding debt and working capitals needs, including those for its Sands Cotai Central project.  


The Price of Winning

This note was originally published at 8am on September 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Nothing good in life comes but at a price.”



In the darkest hours before his death at The Battle of Thermopylae, King Leonidas of Sparta provided a light that would last forever. It wasn’t about him or his valor – it was about leadership  - and the ultimate price leaders have to pay to prove they are selfless.


Whether you are American, Canadian, or Polish, the ultimate price your parents and grand-parents have paid for you is that which we all cherish, but sometimes forget to take the time to respect. Liberty.


“Sweetest of all is liberty. This we have chosen and this we pay for.”

-Leonidas, Gates of Fire (page 212)


If what you have seen unfold in the last 3-5 years in our said “free markets” makes you proud, confident, or trustworthy of our said liberties and freedoms, I will call you the contrarian this morning.


It’s one thing to have the courage to stand up to ideological tyrants. It’s entirely another thing to seize the moment when they’ve been revealed for who they really are. Losers. And there has never been a more pressing time in modern American history where this country needs winners to start leading them into daily battle again.


Being called a loser is hard. In our profession it’s actually harder to read than it is to accept. Most people aren’t forced to accept responsibility in recommendation. That’s because we have created a culture in Washington and on Wall Street where losers don’t lose.


They win.


All the while, we sweat equity capitalists who are winning have to keep putting up with their losing ideas. This devastates confidence. That’s the bad and old news.


The good and new news is that the US Dollar strengthening. I think the market is sending us a tremendous opportunity to be the change we all want to see in our markets.


We don’t need policy. We need to pay the price to get rid of its broken promise.


Back to the Global Macro Grind


I’m just going to give you what you need this morning. My positioning and the risk management levels that matter across this Globally Interconnect battlefield of risk.


Hedgeye Asset Allocation Model: 

  1. CASH = I raised our Cash position from 64% to 70% yesterday by selling my long-term US Treasuries. I have zero appetite for Ben Bernanke’s last asset bubble.
  2. INTERNATIONAL FX = 9% and next to Cash, being long the US Dollar Index outright is my highest conviction Global Macro position. Get the US Dollar right (we’ve made 24 calls on the USD since 2008 and been right 23 times), you’ll get a lot of other things right.
  3. INTERNATIONAL EQUITIES = 9% (long China and the Philippines) and this has been dead wrong not only this week, but for all of September. I am not a buyer of more of this mistake on weakness. I am a seller on strength.
  4. FIXED INCOME = 6% (US Treasury Flattener) and I sold 3% of that FLAT long position yesterday on strength alongside selling the rest of our exposure to long-term Treasuries (TLT). Everything has a price, and I’ve been making the Growth Slowing call since February (when we bought FLAT) – so, to a degree, we need to be booking the Growth Slowing trade gains up here.
  5. US EQUITIES = 6% (long Utilities) and this continues to be the only place I would commit capital from a S&P Sector perspective. Utilities (XLU) is the only Sector ETF in our model that is bullish on both the TRADE and TREND durations. The other 8 of 9 Sector ETF’s in our model are in what we call a Bearish Formation (bearish on all 3 durations – TRADE, TREND, and TAIL).
  6. COMMODITIES = 0%. 

That’s not a typo. ZERO percent means 0%. I’ve made my fair share of mistakes this year, but one of them has not been telling you to get out of asset classes (we went to 0% US and European Equities in June; we went to 0% International FX in July). One of the critical things about winning in this business is that it’s a lot easier to do when you remove your potential losers, entirely, from the field. Cash is king.


Dollar UP is pulverizing International FX and Commodity markets again this morning. Here are some critical Global Macro factors to consider that remind me that “valuation” is not a catalyst: 

  1. South Korea’s KOSPI Index and the Hang Sang in Hong Kong continued to crash overnight (down -5.7% and -1.4%, respectively).
  2. Germany, France, and Greece all reversed, hard, from their “bounce” and are continuing to crash on the downside.
  3. Russia, Oil, Copper didn’t have a bounce at all – this is called the Deflating The Inflation (our call since April) with USD strength. 

Here’s what the US stock market has done across our 3 core risk management durations: down 4 consecutive days; down 7 of the last 9 weeks; and down -27.8% since 2007’s free money leverage-cycle peak. Do we need more Big Government Intervention in our markets?


We are entering the darkest hours of American leadership. Let winners win. Let losers lose. And give me my liberty to lead from the front in these markets, or give my firm’s vision death.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1733-1799, $81.09-86.90, and 1119-1166, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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Snares and Delusions

“If we mean to prosper long term, I am sure we need to act to make debt less attractive to everybody: it really is a snare and a delusion.”

-Jeremy Grantham


I sold my Gold again yesterday, taking the Hedgeye Asset Allocation to Commodities back to 0%. I took my long US Dollar position up to 12%. I have a 70% asset allocation to Cash and couldn’t care less about missing the last few days of another Month-End Markup.


Long-term investors: if you’re betting against the Fiat Fool system of conflicted, compromised, and constrained monetary and fiscal policy, ultimately you are betting on King Dollar’s return. That’s the only way out. We need to let losers lose. We need to deflate.


Deflation is only bad if you are one of the people whose business is to earn a fee on perma-inflating asset prices. For we commoners who have our own capital at risk and are running our own companies for cash flow, deflation is good. We like to buy low, sell high, and earn a spread.


My sense is that the people who didn’t sell high (either in October 2007 or April 2011 – the SP500 is down -25% and -14% from those Policy To Inflate tops, respectively) are the ones whining the most right now, just like they were then.


“Then” was Q3 of 2008. That’s when Old Wall Street’s finest were begging for the “bazooka.” Remember that? “We need some shock-and-awe rate cuts” from the Fed … we “need” Paulson to deliver us the biggest one-sided bailout in the history of the world…


Today, with certain French and Belgian banks not looking any different to us than Lehman did then (marking their Pig Paper at par; Dick Fuld called this “level-3 asset pricing”), what are the Keynesians begging for? Another Bazooka.


This is no ordinary Keynesian Bazooka. This one needs to be 2-3x the size of the biggest man-made financially engineered Delusion, ever.


Back to Grantham…


The aforementioned quote came from Mr. Grantham’s August 2011 Quarterly Letter titled “Danger: Children At Play”, where he opened his always thought-leading missive with the following fear:


“My worst fear about the potential loss of confidence in our leaders, institutions, and capitalism itself are being realized. We have been digging this hole for a long time. We really must be serious in our attempts to resuscitate the fortunes of the average worker.”


Effectively, what he’s calling for is the end of the plundering of American wages and savings accounts; the end of policies to inflate the debt of bad debtors; and the end of abusing our currency for the sake of a conflicted few.


Back to this morning’s Global Macro Grind


Strong Dollar = Strong America. Period. It did under Reagan inasmuch as it did under Clinton. Both of these Presidents not only saw much lower levels of commodity inflation imposed on their citizenry, they saw the highest levels of employment in modern American history.

  1. Q: Who needs Commodity inflation? A: The people who are long of commodities.
  2. Q: What happens when you strengthen the US Dollar? A: You Deflate The Inflation.

With the US Dollar being one of the best Global Macro investments you could have made in the last 3 months, let’s look at what the correlation math says about everything that trades globally in US Dollars (these are inverse correlations – USD up = everything down):

  1. WTI Crude Oil = -0.87
  2. Heating Oil = -0.94
  3. Silver = -0.81
  4. Copper = -0.88
  5. Coffee = -0.87
  6. Oats = -0.87

Now if you take a Washington/Old Wall Street car service to work and don’t need to pay for gas, or if you’re not planning on heating your home this winter… or drinking coffee, or eating oatmeal… or anything like that at all… You should be supporting policies to inflate via US Dollar debauchery.


Otherwise, don’t call yourself a patriot trying to solve this country’s long-term problems via a currency devaluation. Patriots attack the tyranny of self-dealing government policy; they don’t perpetuate it.


Destroying our currency through failed policies didn’t work for us in the 1970s and it’s not working now. It didn’t work for Charles de Gaulle in France in the 1960s, and it won’t work for Sarkozy’s Eurocrats this time around either.


Intraday rallies on rate cuts and bazookas are the Snares and Delusions that I have personally had enough of. This is not leadership. Neither is it going to put America back on the long-term path to prosperity.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $78.21-84.49, and 1118-1182, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Snares and Delusions - Chart of the Day


Snares and Delusions - Virtual Portfolio




TODAY’S S&P 500 SET-UP - September 28, 2011




Yesterday was a really close confirmation of another immediate-term TRADE breakout (within a bearish TREND and TAIL) of the SP500.  As we look at today’s set up for the S&P 500, the range is 64 points or -4.88% downside to 1118 and 0.56% upside to 1182.




TRADE, TREND, and TAIL lines for the SP500 remain broken as long as 1182 SPX does. Only 1 Sector of 9 is bullish TRADE and TREND - (Utilities XLU). Of the 8 of 9 Sectors that remain bearish TREND, Financials (XLF) still look the worst followed by Basic Materials (XLB) and Consumer Staples (XLP).


The Consumer Staples risk continues to evolve as the US Dollar’s strength does; FX risk is a trivial headwind for EPS.  If 1182 (SPX) is overcome and the Greeks and Italians jump over the moon, everything should be fine into month-end.









  • ADVANCE/DECLINE LINE: 1938 (+537) 
  • VOLUME: NYSE 1190.10 (+2.83%)
  • VIX:  37.71 -3.36% YTD PERFORMANCE: +112.45%
  • SPX PUT/CALL RATIO: 1.82 from 1.86 (-2.02%)


  • TED SPREAD: 35.51
  • 3-MONTH T-BILL YIELD: 0.01% -0.01%
  • 10-Year: 2.00 from 1.91     
  • YIELD CURVE: 1.75 from 1.66 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7 a.m.: MBA Mortgage, est. -0.2%
  • 8:30 a.m.: Durable goods, est. -0.2%
  • 10:30 a.m.: DoE inventories
  • 1 p.m.: U.S. to sell $35b 5-yr notes
  • 5 p.m.: Fed’s Bernanke speaks in Cleveland. Prepared text, Q&A


  • hosts press event, said to announce new tablet device. Watch for details on who may sell it, parts suppliers, pricing
  • President Obama’s $447b jobs plans would help avoid return to recession: Bloomberg economist survey
  • Boston Fed President Rosengren called for more govt efforts to help homeowners refinance mortgages
  • President Obama participates in an “Open for Questions” roundtable at White House, 11:25 a.m.; delivers annual back- to-school speech at Benjamin Banneker High School in Washington, 1:30 pm
  • N.J. Gov. Chris Christie said he plans to sit out the 2012 presidential race
  • U.S. nuclear regulators meet for a second day to consider Southern’s request to build two reactors at its Vogtle plant near Augusta, Georgia



COPPER – Dr Copper can teach us a lot, if we are willing to re-learn; you’d think that a 1-day short squeeze in everything commodities would see more than a day of follow through – not so much; Copper down another 2% this morning and crashing.


GOLD: we sold it yesterday, keeping Friday's trade a trade; immediate-term downside to $1603 $GLD





  • LME Takeover Bids Mean Most at Stake for Goldman Sachs, UBS
  • Coffee Falls in Rout as Starbucks Cup Costs $1.50: Commodities
  • Chaoda Faces Second Hong Kong Market Misconduct Hearing Today
  • Gold May Gain in London on Physical Purchases, Europe Concern
  • Oil Falls, Heading for Quarterly Decline on Europe Debt Crisis
  • Russian Oil to Fall as Tax Spurs Urals Exports: Energy Markets
  • BP May Quadruple Indonesian Gas Plant as Part of Asian Drive
  • Commodities Drop, Deepening Quarterly Decline, on European Risk
  • Wrong Reasons Hurt Corn, Says UN, as Morgan Stanley Bullish
  • Russia Expands Ports to Regain Wheat Export Advantage: Freight
  • Commodities Rise Most in Four Months as European Concerns Ebb
  • Spot Gold, Gold Futures Resume Decline on Europe Crisis Efforts
  • Oil Surges Most in Four Months on European Debt-Crisis Efforts
  • Dairy Has Greater Resilience in Slowdown, New Fonterra CEO Says
  • Ship Owner Losses Persist on Glut as Mine Profits Boom: Freight
  • Gold Climbs Most in Seven Weeks as Commodities, Equities Rally
  • Aluminum Product Shipments by Japan Drop for Third Month
  • Billionaire Ross Says Ship Deals to Accelerate After Slump
  • Typhoon Nesat Kills 20 in Philippines, to Hurt Rice Harvest



FX: Euro/USD has a wall of resistance between here (1.36) and its broken TAIL line of 1.39






Thanks for the timing on this  - “BOE's Financial Policy Committee says Britain's banks face "materially" increased risks from the euro zone debt crisis; recommended that banks should take any opportunity they had to strengthen their levels of capital and liquidity”


EUROPE: sketchy situation developing with DAX recovering my TRADE line of support and CAC and MIB failing at it.


GREECE: lots of rumors; no market support for them - Greek stock market hitting fresh YTD lows here this morning (down -55% since FEB)


FINLAND: important market to watch today in Global Macro as they vote on Euro-TARP bazooka; early read through not good - Finland down -1.5%


FRANCE: no GDP growth in Q2 (reported at 0.0% q/q). No way for these politicians got their forecasts right if they are this wrong on growth.






ASIA: Hang Seng (which we're short) down -26% since the April highs; Korea crashing obviously as well (down -23% since May)


ASIA: very bearish follow through from European and American hope rally yesterday with China, KOSPI, and HK all down in response.








Howard Penney

Managing Director

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