The Macau Metro Monitor, October 3, 2011




According to data compiled by Macau Daily Times, Macau Sept GGR was likely MOP 21.5-21.7 BN, which would imply 40-42% YoY growth.  The data is up to Sept 29, when typhoon Nesat affected the territory.



Michael Leven, president of LVS, said LVS has not observed any negative signals in its business in Macau.  "When you're on the ground and see what is happening, it's very, very hard to be pessimistic," Leven said.  "We are continuing to go forward with our investment in Asia and we are continuing to look for additional opportunities in Asia. We haven't seen any problems there and we continue to be very very very bullish on the Chinese situation," Leven added.



Flash estimate of the private residential property index for the third quarter 2011 shows that the rate of increase in private residential property prices continues to moderate for the eighth consecutive quarter since the fourth quarter 2009.  The index shows a 1.3% QoQ growth. 

Snares and Delusions

This note was originally published at 8am on September 28, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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 $1603-1667, $78.21-84.49, and 1118-1182, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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Limiting That Risk

“I spend more time discussing risk and how to limit it than how to achieve investment returns.”

-Howard Marks


At the end of 2010, Howard Marks’ Oaktree Capital Management was running $82.4B in assets under management (Wikipedia). In May of 2011, he published an excellent risk management book titled “The Most Important ThingUncommon Sense for the Thoughtful Investor.” The aforementioned quote comes from the Introduction of his book.


I haven’t finished reviewing his book, but what I can tell you about it so far is that many of Marks’ thoughts will resonate with hardcore Risk Managers. Hope is not a risk management process. Neither is targeting returns. Mr. Macro Market doesn’t owe us anything.


Those who try to simplify investing do their audience a great disservice… successful investing involved thoughtful attention to many areas simultaneously… unfortunately the limitations of language force me to take one topic at a time.” (Marks, Introduction).


At Hedgeye, we call this being:


A)     Multi-factor (Countries, Currencies, Commodities, Companies, etc.)

B)      Multi-duration (TRADE, TREND, and TAIL)


This process, as Marks would undoubtedly support, is “my own approach.” And the only way to prove it out is by executing it out loud, every day, in front of you. “Experience is what you got when you didn’t get what you wanted.” (Marks, Introduction)


Back to the Global Macro Grind


When I can, I like to start the week off with where prices and my positioning ended in the week prior. In the Hedgeye Portfolio (LONGS minus SHORTS) we are still positioned net short (8 LONGS, 9 SHORTS). In the Hedgeye Asset Allocation Model (different risk management product than the LONG/SHORT Portfolio), we maintain very low gross exposure to most things inversely correlated to US Dollars:

  1. Cash = 73% (up from 70% at the start of last week)
  2. Fixed Income = 15% (US Treasury Flattener and Corporate Bonds – FLAT and LQD)
  3. International Currencies = 12% (US Dollar – UUP)
  4. US Equities = 0%
  5. International Equities = 0%
  6. Commodities = 0%

In other words, with markets around the world making new lows, we raised Cash last week – we didn’t “invest” it. That’s what we call limiting proactively predictable risk. From a Risk Factoring perspective, if our model across Countries, Currencies, Commodities, Companies, etc. told us to do otherwise, we would have.


From a Duration Risk perspective, Global Equity and Commodity markets are virtually all broken across all 3 of our core risk management durations (TRADE, TREND, and TAIL). That’s just not good. And we don’t buy things on “valuation” until price, volume, and volatility signals confirm that the valuation we are considering implies numbers that are within the stratosphere of reasonable expectations.


Do the 3 positions we’ve allocated assets to (UUP, FLAT, and LQD) uphold reasonable expectations?

  1. US Dollar (UUP) – Yes. The US Dollar was up a monster +6% for the month of September, outperforming pretty much everything Global Macro by pretty much a country mile (US Treasuries were up +1.5-2% for the month). The USD is now in a Bullish Formation (bullish TRADE, TREND, and TAIL) and what’s bad for Greek storytelling this morning is good for US Dollars.
  2. US Treasury Flattener (FLAT) – Is the Growth Slowing trade still one of the best calls of 2011? Yep. We’ve been long a Flattener since February 2011 as a means of expressing this view and that the Yield Curve would continue to compress as the long-end of the curve chased growth expectations lower. Bernanke’s Twist only perpetuates this compression.
  3. Corporate Bonds (LQD) – American corporate cash balances are cyclically high. Agreed. But, if growth continues to slow, and FX benefits (weak USD) become headwinds (strong USD), they’ll need that cash to buy back stock (Berkshire Hathaway). So… we ladies and gentlemen of Hedgeye would prefer to own corporate bonds than stocks at these prices (unless it’s our own stock).

At a price, will Global Equities be attractive? Obviously yes. But bottoms are processes, not points. And if the most recent month, quarter, and year-to-date in 2011 have anything to say about where to next, the leading of leading indicators (US Stocks) have not started to bottom out yet:

  1. September: SP500 and Russell2000 down -7.2% and -11.4%, respectively.
  2. Q3 2011 (A): SP500 and Russell2000 down -14.3% and -22.1%, respectively.
  3. Year-to-date (2011): SP500 and Russell2000 down -10.0% and -17.8%, respectively.

If anything, the accelerating feature of these prices (on the downside) in the face of accelerating volatility (on the upside) on both the TRADE (3 weeks or less) and TREND (3 months or more) durations only heightens the risk of the US stock market maintaining its already broken long-term TAIL (1266 resistance).


Remember, “the most important thing” about Big Government Intervention in your lives is that it A) shortens economic cycles and B) amplifies market volatility. You definitely want to be focused on Limiting That Risk.


My immediate-term support and resistance ranges for Gold, Oil, Germany’s DAX, and the SP500 are now $1, $77.47-82.19, 5098-5439, and 1113-1157, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Limiting That Risk - Chart of the Day


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The Week Ahead

The Economic Data calendar for the week of the 3rd of October through the 7th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - 1. lec

The Week Ahead - 2. lec

The Week Ahead - 3. lec

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