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The Macau Metro Monitor, November 16, 2011




IAG says currently most junkets are operating under a profit-sharing model with the most aggressive offer at 47% of win. IAG understands from insiders that the big junkets are all operating under a profit-sharing model while the smaller junkets and sub-junkets are all operating on the traditional RC model, capped at 1.25%.  IAG says there was a persistent rumor regarding a major Macau junket which had halved its credit issuance in recent weeks. 


IAG added that there has been a industry rumor that a Macau operator has a packet of bad VIP debt dating back several years that has so far been kept off the operator's books.  There's a suggestion in the past few weeks that some form of mutual write downs between the operator and the junkets concerned may serve in effect to cancel out the debt. 



The 58th Macau Grand Prix will kick off on November 17th.  Hotel rooms are expected to be short in supply.  The room rates for some hotels near the race circuit go up three times higher than normal weekends, rocketing from around MOP1,000 to more than MOP3,000.  



Based on the latest visitor arrival data which indicate that Mainland visitors on package tours (compared with those on IVS visas) are on the rise, IM says someone is getting more aggressive in the mass market and paying more for tour packages from travel agencies.  Every property in Macau has paid middlemen described as "executives in the people-moving business" during their opening, although how much they pay and for how long has varied.


NEW CASH HANDOUT FOR 2012 Macau Business

Macau CEO Chui said the government will keep the cash handout of MOP7,000 (US$875) for each permanent resident in 2012.  Non-permanent residents will get MOP4,200.  That is the same amount residents received in 2011, but divided into two cash handouts.



From a quick trip to Macau 




  • No softness yet but some concessionaires are definitely more conservative on the near term VIP outlook
  • Part of that is the hold comparisons which are difficult through January
  • Consensus is that there are no real structural problems with credit and junkets but the collapse of a smaller junket is possible which would spook the market but not really impact the overall business
  • LVS may spark a junket war in Macau


  • Mass business still strong - we think they may be up 30% YoY November MTD
  • VIP business is slow for them
  • Venetian/Four Seasons already very aggressive on junket volume discounts and commission advancement – this will impact Wynn
  • For now Wynn is staying put on the junket credit side and commission levels
  • Wynn is in a little bit of a pickle because if they still don’t want to sacrifice margin they are likely to continue losing VIP share


  • More defensive should VIP go under pressure
  • Upside in Mass is also limited due to lack of hotel rooms
  • SJM could pay HK$1 annual dividend (8% yield) and still fund Cotai 


  • Holding could be as low as 2.5% November MTD
  • We think they are still well over US$100 million in EBITDA midway through Q3 despite the bad hold
  • Worried about Venetian/Four Seasons junket aggression.  Deciding whether to match or hold steady.  This is their number one concern.
  • US$200 million quarterly EBITDA run rate even with the low hold and potential margin compression from increasingly competitive environment
  • It is my sense that management is more optimistic than US$200 million per quarter next year
  • Aside from the junket pressure, there are numerous headcount reduction opportunities next year so margins are still likely to be higher
  • Still evaluating an expansion of CoD – retail, new premium Mass space, and new high end suites
  • Premium Mass segmentation may insulate them from the opening of 5/6


  • Some concern that the interior of 5/6 will not be “real Chinese” enough
  • Connecting walkways will be constructed by the government and not LVS – so all connections will be done at the same time but not in time for the opening
  • Neptune opened 2 weeks ago and is doing well
  • Neptune could impact November – sounds like Neptune has a pretty sweet deal with incentive triggers at volumes well below market averages
  • Already expanded junket commission advancement to 2 months for some junkets

Faulty Interventions

This note was originally published at 8am on November 11, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Intervention based on faulty theories of causes could easily make the problem worse.”

-Sylvia Nasar


I just started reading Sylvia Nasar’s “Grand Pursuit.” Her aforementioned quote comes from Chapter II titled “Must There Be a Proletariat? Marshall’s Patron Saint”, where Nasar focuses on Alfred Marshall’s contributions to the study of economics in the late 1800’s.


Ultimately, Marshall had a relatively easy go at it – certainly easier than I feel we have it in going after the Keynesians (Krugman, Bernanke, Dudley, etc.) here in 2011. All Marshall had to disprove were the dogmas of Malthus, Mill, and Marx (both “The Communist Manifesto” (Marx and Engels) and Mill’s “Principles of Political Economy’ were published in 1848).


By the time Marshall was finally able to put together his most influential British textbook (“Principles of Economics”) in 1890, the socialist ideas of “fair share” and left leaning Big Government Interventions had been broadly debased in the public forum.


A lot has happened since then, but the way academics cling to their dogma has not. Since becoming the Chairman of the US Federal Reserve in 2006, Ben Bernanke has operated on a faulty theory that his central plannings would:


A) maximize full employment and B) provide price stability.


Rather than some version of the opposite occurring, the exact opposite has occurred since Bernanke became responsible for his policy recommendations. Or has he been held responsible? As far as these eyes can see his policies have helped perpetuate:


A) shortened economic cycles and B) amplified price volatility.


Economics is not a “hard” science. It’s a social science that needs more math. The long-term history of economics is one where the dogmas of the older academic generation ultimately get rejected by the new generation.


In his 30s, Alfred Marshall was refuting Karl Marx… and by the time the 1920s rolled around, a 34 year-old currency trader (John Maynard Keynes) was refuting all of the British academic elite’s economic conclusions…


What’s different this time is that it’s taking a little longer to accept that Keynesian Economic theories of “causes” is what is making our global economic problems worse.


It’s Policy, Stupid. And we plan on standing on the front lines of this generational economic debate.


Back to the Global Macro Grind


I shorted the SP500 on the market’s opening strength yesterday (935AM EST, Time Stamped at 1244 SPX), and I plan on doing more selling throughout this morning’s Global Macro rally to yet another lower set of highs.


Here’s your real-time Global Macro economic data check:

  1. Chinese Exports for OCT dropped again sequentially to +15.9% vs +17.1% in SEP (Asian Growth Slowing)
  2. India’s Industrial Production growth dropped to its lowest level in 2 years (+1.9% SEP)
  3. Thailand Consumer Confidence plummeted to 62.8 OCT vs 72.2 SEP (food/energy inflation and floods)
  4. Indonesia surprised with another 50bps rate cut to 6% citing “external factors”; stocks closed down on that
  5. France’s inflation rate rose again in OCT to +2.5% as Industrial Production growth in France has moved to negative -1.7% y/y
  6. British PPI input prices up +14.1% y/y in OCT! ouchy

Most of this economic data has nothing to do with what’s going on with Princess Nancy or Super Mario.  It has everything to do with the two things that drive economic demand most in our models – Growth and Inflation.


Does the trifecta of Keynesian experimentation (Cutting rates to ZERO, then doubling down with Quantitative Easing) in Japan, USA, and now Europe (in that order) perpetuate rising inflation and slowing growth? You’re darn right it does.


This has already been empirically proven by some of the more mathematically oriented Keyensians themselves in “This Time Is Different” (Reinhart & Roggoff).


What are the real-time leading indicators saying about this (ie market prices):

  1. US Stocks are making lower-highs across all 3 durations in our risk management model (TRADE, TREND, and TAIL)
  2. US market Volatility is making higher-lows across all 3 durations
  3. European bond and stock markets continue to test a series of all-time lower-lows

Both the economic data and the markets that reflect upon that Growth and Inflation data are refuting Keynesian economic resolve. As the facts change, what do we do, Sirs?


I can tell you what I am going to do – I am going to keep doing what I have been doing since late 2007 when I decided not to be suckered in by these Faulty Interventions and broken assumptions about how it is that globally interconnected markets and economies work.


My immediate-term support and resistance ranges for Gold (we’re long GLD), Oil (bullish breakout – perpetuating European Stagflation), German DAX (broken), and the SP500 (we’re short SPY) are now $1756-1818, $94.21-98.46, 5699-6108, and 1226-1247, respectively. Our DOR, Daryl Jones, will be hosting our “Best Ideas. Period” call at 11AM EST.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Faulty Interventions - Chart of the Day


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TODAY’S S&P 500 SET-UP - November 16, 2011


Santa Claus is coming and we are sure all of this is going to end according to the central plan…


As we look at today’s set up for the S&P 500, the range is 32 points or -1.65% downside to 1237 and 0.89% upside to 1269. 






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance



  • ADVANCE/DECLINE LINE: +795 (+2380) 
  • VOLUME: NYSE 781.03 (+10.0%)
  • VIX:  +31.22 flat YTD PERFORMANCE: +75.89%
  • SPX PUT/CALL RATIO: 1.59 from 1.20 (+32.56%)



  • TED SPREAD: 45.54
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.06 from 2.04    
  • YIELD CURVE: 1.80 from 1.80


MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage, (prior 10.3%)
  • 8:30am: CPI, est. M/m 0% (prior 0.3%)
  • 9am: Net long-term TIC flows, est. $50b (prior $57.9b)
  • 9:15am: Industrial production, est. 0.4% (prior 0.2%)
  • 9:15am: Capacity, est. 77.6%, prior 77.4%
  • 10am: NAHB housing, est. 18 (prior 18)
  • 10:30am: DOE inventories
  • 11:15am: Fed’s Lacker speaks on credit allocation in Washington
  • 12:45am: Fed’s Rosengren speaks on economy in Boston


  • Bank of America CEO Bryan Moynihan to tell board company is on right course – WSJ
  • Four NBA players sue league, its teams in federal court in Minneapolis - Minneapolis St. Paul Business Journal
  • Citigroup said to consider cutting as many as 3k jobs
  • John Paulson said to cut risk in his hedge funds further amid European debt crisi




COPPER – apparently Santa didn’t find his way to Asian Copper demand overnight either. Copper down -1% at 3.48/lb is just one more reminder of what it and US Treasury yields continue to remind us. Growth Slowing remains the issue, globally, that just won’t go away (especially with $100 oil).


  • Sino-Forest Faces ‘Herculean’ Task After Ponzi Scheme Denial
  • Sino-Forest Bonds Signal Timber Inflated by 100%: Canada Credit
  • Nationalism Tops Crisis as Key Risk to Mine Supply: Commodities
  • Maersk Poised to Benefit as Overcapacity Hits Rivals: Freight
  • Oil Drops From Three-Month High on U.S. Stockpiles, Europe Debt
  • Shale Oil Saps African Crude as Libya Returns: Energy Markets
  • Japan Buys 800,000 Tons Corn From Ukraine as U.S. Substitute
  • Copper Drops on Concern Europe May Fail to Contain Debt Crisis
  • Cotton Harvest in Australia May Jump 25% to Record on Area
  • Spring-Wheat Premium Widening Over Winter Crop: Chart of the Day
  • China Said to Buy 600,000 Tons of U.S. Soy to Boost Reserves
  • Galena Plans to Boost Staff 35% Next Year as Commodities Expand
  • Thailand to Buy 100,000 Tons of Rubber Stocks to Lift Price
  • Palm Oil Jumps to Five-Month High as Weather Threatens Supplies
  • Wheat Drops as Rain in Argentina, U.S. May Aid Crop Development
  • Sino-Forest Says Probe Refutes Muddy Waters Allegations
  • Gold Climbs for Second Session in Three as Investor Demand Gains
  • China Rare Earth Export Quota May Not Be Fully Used, News Says

THE HEDGEYE DAILY OUTLOOK - daily commodity view





THE HEDGEYE DAILY OUTLOOK - daily currency view





FRANCE – we covered our short position in French Equities yesterday because they were immediate-term TRADE oversold – managing risk around a refreshed 3037-3176 range in the CAC (which remains in a Bearish Formation) as does the Euro which is looking worse by the hour as our 1.37 TRADE line resist confirms.


THE HEDGEYE DAILY OUTLOOK - euro performance




CHINA – only problem w/ that fear (and it is a fear institutional investors are scared to miss) is that Asia isn’t getting the memo. China (down -2.5% overnight) and Hong Kong (we re-shorted EWH yesterday) down a stiff -2% taking the Hang Seng back into crash mode (-22% from YTD peak) as India continues lower as well.


THE HEDGEYE DAILY OUTLOOK - asia performance








  • Qatar Air Says ‘Belt Up’ as Middle East Carriers Pull In Orders
  • Airbus Draws With Boeing at Dubai Show Dominated by 777, Tirades
  • Bank of America Said to Cut Dubai Sales, Trading Team by 40%
  • Arab Project Finance Goes Local on Europe Debt Woes: Arab Credit
  • Indonesia Sale Supports Investment-Grade Rating: Islamic Finance
  • Obama Microphone Slip Shows Scary Israel Rift: Jeffrey Goldberg
  • ADCB Said to Sell Sukuk at 275-287.5 Basis Points Over Midswap
  • Oman Central Bank Plans to Sell $390 Million of Five-Year Bonds
  • Gas Exporters Seek ‘High’ Prices as They Cooperate on Supply
  • BBK Makes Exchange Offer to Holders of $152.4 Million of Notes
  • Australia, Iran, Iraq Advance in Asia 2014 World Cup Qualifying
  • Qatar May Buy Stake in Greece’s Ellaktor, Euro2day.gr Reports
  • Genel Energy Targets DNO to Boost Kurdish Oil Foothold
  • Schoeller Says Libya Oil Recovery May Match 5-Year Iraq Wait
  • Oil Tankers Loading in Persian Gulf at Lowest Since June
  • Qatargas Providing Extra 9 Million Tons of LNG to Japan
  • Qatar Seeks Stakes in Russia’s Novatek, Yamal LNG Project
  • Rio Seeks to Boost Aluminum Production in Oman: Company Link
  • Qatar Air CEO Makes Up With Airbus After Lashing Planemaker                

The Hedgeye Macro Team

Howard Penney

Managing Director


CHART OF THE DAY: Instructing The Masses


CHART OF THE DAY: Instructing The Masses - Chart of the Day

Instructing The Masses

“If the masses were going to run the world, they would need a lot of instruction.”

-Sylvia Nasar


That’s a quote from Nasar’s recently published book “Grand Pursuit” where she explains how one of Yale’s “great men”, J. Willard Gibbs (chemist, mathematician, physicist), thought about a globally interconnected world at the turn of the 20th century (page 147).


The late 1800s and early 1900s were a very formative time for the study of economics. That’s when mathematicians got involved. Quantifying the qualitative is important. The fear-mongering styles of Malthus, Carlyle, and Marx were replaced by new lines of thinking from the likes of Marshall, Schumpeter, and Fisher. Re-thinking was good.


Since then, we’ve had a long, hard, muddle through nerdy economic debates about Hayek vs Keynes, Rand vs Bureaucrats, and Capitalism vs Socialism. But we really haven’t evolved the process by which we apply modern day math (Chaos and Complexity Theory) to how we’re thinking about economies and markets.


Since Chaos Theory is the most relevant mathematical conclusion since relativity, I think there is plenty of re-working and re-thinking to be done. Instructing The Masses on how markets work will take time. It’s time that I am personally willing to make.


Back to the Global Macro Grind


One of the gaping voids that’s obvious to anyone who has studied a Yale or Princeton economics textbook is the behavioral side of markets that plays such a critical role in the decision making of market participants. Kahneman, Tversky, and Taleb have all contributed significantly to qualifying the impact psychology has on markets, but we are still in the very early days of applying these learnings.


Quantifying sentiment is very difficult. I’ve been on the road seeing clients from Denver to Kansas City to San Diego, Boston, and New York in the last 6 weeks – and the #1 question I get is “what are you hearing.”


What I am “hearing” and what my risk management models are seeing are quite often very different things. But since our industry has effectively become one gargantuan front-running exercise of trying to beat the market’s beta, it’s a question that modern practitioners of asset management have to constantly evaluate.


What’s sentiment right now?


Well, from a Global Macro perspective, there’s not one answer that fits nicely in a baby blue box with a Tiffany bow on it. Sorry. Asian stock markets continued to fall, hard, last night. China was down another -2.5%, and India remains under inflation’s pressure (Sensex down another -0.6%). The Euro, European Bonds, and European Equities remain a mess.


From a US stock market “sentiment” perspective, one of the best contrarian readings I can give you is measured by looking at the spread between Bulls and Bears in the II Survey (comes out every Wednesday):

  1. In late September, the spread was bearish (meaning more Bears than Bulls) on the order of -1900 basis points (19%)
  2. After October’s rally (the biggest ever in US stock market history), the Bullish to Bearish spread flattened to even
  3. This morning, the spread has widened to +1500 basis points (Bulls 47.4% minus Bears 32.6% = +15%)

And while that’s only 1 factor I’m observing in my multi-factor, multi-duration, risk management model – my spidey senses say that sounds just about right. Hedge Funds fear being short. Mutual Funds fear missing Santa Claus. Central planners fear-monger.


Back to where I started this morning’s note, I think we’re a lot smarter than staring at the futures on TV this morning looking for an emotional direction. Mediocre minds are not going to lead us anywhere but lower. We need to be the change we all want to see in our analytics.


While Big Government Interventionists and the ad dollars that support them think that all of this is going to end according to their central plan, globally interconnected markets have a not so funny way of getting in the way of that…


My Top 3 globally interconnected points confirming Asian, European, and North American stock market weakness this morning are:

  1. Chinese Demand: Hong Kong trading down -2% well below TREND line support of 20,297 on the Hang Seng
  2. Dr Copper: down another -1% to $3.48/lb, remaining in what we call a Bearish Formation (bearish TRADE, TREND, and TAIL)
  3. US Treasury Yields: continue to signal that both US and Global Growth are slowing (TRADE resistance for 10-yr yields = 2.15%)

Of course the Euro collapsing versus the US Dollar remains the #1 Correlation Risk factor affecting Global Macro markets. But you already know that – because our Instructing The Masses since founding the firm in 2008 has been consistently backed by the math.


My immediate-term support and resistance ranges for Gold, Oil, France CAC, German DAX, and the SP500 are now $1, $96.92-100.33, 3037-3176, 5, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Instructing The Masses - Chart of the Day


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