The Macau Metro Monitor, December 27, 2011




MGM Macau is suing longtime VIP junket agent and North Korean tour operator Wong Sing-Wa for failing to repay HK$5.6MM (+18% interest) of a three-year-old, HK$10MM debt.  According to a Hong Kong High Court writ filed on December 16, MGM China alleges Wong drew down a HK$10MM credit line and lost it all on the gambling tables on September 8, 2008.  


Wong is "a VIP room operator, a suspected triad member and an individual with ties to North Korea", the attorney-general of the US state of New Jersey wrote in a 2009 regulatory report, citing a 2003 background memo authored by MGM Resorts' then head of corporate security.  Wong has also reportedly been involved in the operations of the Pyongyang casino 100% owned by Sociedade de Turismo e Diversoes de Macau (STDM).  According to the 2009 New Jersey report, in January 2007, Wong accompanied Pansy Ho on a trip to Kazakhstan to explore gaming and non-gaming development possibilities on behalf of STDM and Shun Tak.



The new anti‐smoking rules will be effective beginning January 1, 2012.  According to the law, premises operators must put up authorized no‐smoking signage inside their properties, otherwise they will face a fine of MOP 10,000 to MOP 100,000. Meanwhile, they are obliged to stop smoking in non‐smoking areas and are advised to remove all ashtrays and lighters in non‐smoking premises.




TODAY’S S&P 500 SET-UP – December 27, 2011


As we look at today’s set up for the S&P 500, the range is 39 points or -2.71% downside to 1231 and 0.37% upside to 1270. 











  • ADVANCE/DECLINE LINE:  1151 (-389) 
  • VOLUME: NYSE 477.81 (-38.31%)
  • VIX:  20.73 -2.03% YTD PERFORMANCE: +16.79%
  • SPX PUT/CALL RATIO: 1.84 from 3.06 (39.95%)


  • TED SPREAD: 58.03
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.03 from 1.97   
  • YIELD CURVE: 1.75 from 1.69


GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • U.S. holiday sales will rise 3.8% vs 5.2% advance last year: National Retail Federation
  • U.S. SEC sided with the bankrupt Lehman brokerage in $3b dispute with Barclays over assets
  • German govt is revising forecast for 1% economic growth in 2012 and will present a lower figure in mid-January, Focus magazine reports
  • Republican presidential candidates step up campaigns as Iowa caucuses near (Jan. 3)
  • Online gambling could be poised to flourish – WSJ
  • Strong Christmas weekend performance insufficient to rescue 2011 box-office performance for movies – WSJ
  • Apple iTV sets to be launched in Q2 or Q3 - DigiTimes


  • 9:00am: S&P/Case-Shiller Y/y, Oct., est. -3.22% (prior - 3.59%)
  • 10:00am: Consumer Confidence, Dec., est. 58. (prior 56)
  • 10:00am: Richmond Fed Index, Dec., est. 5 (prior 0)
  • 10:30am, Dallas Fed Manf., Dec., est. 4.5 (prior 3.2)
  • 11am: Export inspections, Dec. 22: corn, soybeans, wheat
  • 11:30am, U.S. to sell $29b 3-mo. bills, $27b 6-mo. bills



  • Hedge-Fund Managers Miss Biggest Rally in 10 Weeks: Commodities
  • Mildewed Feed Caused Tainted Mengniu Milk, Regulator Says
  • Oil Trades Near Highest in Two Weeks on U.S. Recovery Forecasts
  • Gold Declines to One-Week Low as Europe Woes Damp Growth Outlook
  • Mechel Faces Record Yields After Net Debt Surges: Russia Credit
  • Copper Drops First Day in Five in New York on China Slowdown
  • India’s Gold Imports Seen Dropping 50% in December on Rupee
  • Corn May Extend Rally From Two-Month Low: Technical Analysis
  • India May Curb Potash, Phosphate Fertilizer Prices, Jena Says
  • Most Stocks Gain as Dollar Holds Losses on U.S. Economic Outlook
  • Russian Gold Output Rises 4.5% to 193.8 Tons in January-November
  • China 2012 Rare-Earth Export Quota Almost Same as This Year
  • Aluminum Shipments by Japan Drop as Overseas Demand Weakens
  • Rubber Falls to One-Week Low on Concern Chinese Demand May Drop
  • Palm Oil Drops From One-Month High as Investors Lock in Gains
  • Noble Group - Unlocking value in Gloucester Coal (Buy, S$1.195 - TP S$
  • Paulson’s Gold Fund Said to Fall 10.5% in 2011 as Metal Rises
  • China Gold Trading Limited to Shanghai Exchanges, PBOC Says
  • Gold Climbs in London as Dollar Decline Boosts Investor Demand

















  • Iran Regime Profiting From Currency Decline, U.S. Treasury Says
  • Oil Traders Flee as Crude Price Swings From $100: Energy Markets
  • Iraq War Lives on as Second-Costliest U.S. Conflict Fuels Debt
  • Dubai’s Sukuk Trails 2010 Gains on Debt, Europe: Islamic Finance
  • Qatar Plan to List Debt May Boost Local Bond Sales: Arab Credit
  • Saudi Arabia Forecasts $3.2 Billion Surplus in 2012 Budget
  • Saudis Need $74 Oil Price to Balance 2012 Budget, Jadwa Says
  • Abu Dhabi’s Aldar Board to Discuss Selling Assets, Projects
  • Renaissance Plans to Raise $130 Million Via Private Placement
  • Aldar’s May 2014 Bond Yield Drops to Almost Five-Month Low
  • Libyan Output Exceeds 1 Million Barrels a Day: Persian Gulf Oil
  • U.S. Considering Yemen’s Saleh Request to Visit for Medical Aid
  • Aldar Declines as Board Plans to Meet to Discuss Asset Sale
  • Saudi Oil Break-Even Price Rise to $71.5 Next Year, NCB Says
  • Savola to Sell Stake in Land Plots for $168 Million
  • Syria Producing 260,000 Barrels a Day as Oil Sanctions Bite
  • Savola Surges Most Since March After Land Sale, Egypt Stake Buys
  • Qatar Fertiliser to Supply Mitsubishi Ammonia, Al Raya Says
  • Iran Government Saves $15 Billion on Subsidy Cuts, State TV Says



The Hedgeye Macro Team

Howard Penney

Managing Director





Tequila Sunrise

This note was originally published at 8am on December 21, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

"Alcohol is the anesthesia by which we endure the operation of life."

-George Bernard Shaw


Keith is New York today for meetings and to co-host Squawk on the Street at 10am eastern, so I’ve been handed the keyboard on the Early Look.  I actually have the pleasure of writing this missive from my vacation in Mexico (Cancun to be exact), so unlike many of you stock market operators who have had to endure the manic volatility over the last couple of days, I´ve been enjoying the sun, beach, and, dare I say, a few nips of that old magic agave elixir . . . tequila!


To be sure, this has been a year in which the consumption of alcohol has gone up in proximity to many of the world´s financial districts. Although I certainly would not condone overconsumption, to Shaw´s point above, a few drinks does, at times, provide an appropriate release and if there was ever a year in which a suspension of reality was needed, it may be 2011.


Yesterday, the SP500 closed up almost 3% at 1,241.   Interestingly, that is about 5 S&P points below the price at which November closed, 1,246.  So, despite the massive squeeze the SP500 is still down roughly 40 basis points on the month.  So far, at least, Santa Claus has not delivered.


Although the stock market will likely not end the end the year with a meaningful decline, at least not in the U.S., underperformance has been rampant at many mutual funds and hedge funds. To those that have generated positive performance and alpha this year, Hedgeye salutes you as it has not been easy.


Roughly a year ago, Fortune asked us for our perspective on 2011, so I wrote an article on December 31stwhich outlined our key thoughts with the following summary:


“When contemplating the outlook for the upcoming year, the best place to start is consensus expectations. Currently, according to a Bloomberg survey of the strategists from 11 of the largest brokerage firms in the United States, the mean consensus target for the S&P 500 by year end 2011 is roughly 10% above current levels. Further, every single strategist is expecting a positive performance out of the index in 2011.


Suffice it to say, Hedgeye is decidedly non-consensus heading into 2011.


As it stands, we see a trinity of negative fundamental macro clouds on the horizon that have yet to be properly discounted by the market, and which are poised to cast a potentially long shadow over domestic equities heading into next year. The three key risks we see to these lofty consensus expectations heading into 2011 are: global growth slowing, inflation accelerating, and interconnected risk heightening.”


 (The article in its entirety can be found here: )


Interestingly, interconnected risk has become the most noteworthy of the three risks we flagged at the end of last year.  The most relevant evidence of this is probably a recent statistic emphasized by Jim Grant.  According to his analysis, in the entire history of the SP500, going back to 1957, there has never been a day when all 500 stocks rose or fell.  There have, though, been 11 days when over 490 stocks moved in the same direction and 6 of those have occurred since July 2011.  Still think government intervention has no impact on your portfolios?


At times, our outlook for 2011 looked really wrong.  In fact, by April 29th2011 the SP500 was up 8.4% for the year and on track for a 25%+ gain on an annualized basis, which, of course, would have made our outlook not just wrong, but dead wrong.  As for those of you who have followed us closely for the past few years, we are anything if not convicted in our research.  In 2011, it paid to have conviction on that macro process.


Related to the game in front of us, the short term question is what to do with yesterday's massive squeeze.  The key drivers of the squeeze were both a better than expected new housing data point in the U.S. and the newest panacea from Europe (or is it the newest acronym?), the ECB’s LTRO facility.  On the first point, housing starts were up 9.3% sequentially to 685K on an annualized basis, but this was driven by a 25% growth in multifamily starts (single family starts have been flat since the expiration of the second tax credit in April 2010 and remain well off prior cycle peaks of 2.27MM on an annualized basis).  As it relates to Europe, Italian 10-year yields are up at 6.85% this morning, which suggests we may be shortly awaiting the next European panacea to keep the equity rally going.  (Incidentally, Greek 10-year yields are north of 35%.)


Unlike Taiwan equities which posted a 4.56% gain overnight, that market’s biggest gain in 2.5 years, on the back of the government saying it will let its National Stabilization Fund buy equities to support domestic markets, China closed down 1.2% and is now down 22% on the year.  The Chinese, it seems, are less excited by the continued path of structurally impaired growth as insinuated by the 498 billion Euros to be lent from the ECB to the European banking system.


As for our moves yesterday, Keith bought back long term Treasuries (TLT) and shorted oil (BNO) as the SP500 remains Bearish from a TAIL perspective with a range of 1,207 and 1,270.  As for me, I’m headed back to the beach to enjoy a few more margaritas before my vacation ends, but rest assured I will be risk managing my consumption.  For as Seneca once said:


“Drunkness is nothing but voluntary madness.”




Happy holidays to you and your loved ones,


Daryl G. Jones

Director of Research


Tequila Sunrise  - Chart of the Day


Tequila Sunrise  - Virtual Portfolio

The Week Ahead

The Economic Data calendar for the week of the 26th of December through the 30th 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 cal a

The Week Ahead - 1 cal b

The Week Ahead - 1 cal c

NKE: Olympic Moves

Over the past 20 years, NKE has outperformed the S&P500 in 9 out of the 10 Olympic event years by an average spread of ~18%. More importantly, Nike has shown stronger gains relative to the S&P in Summer Olympic years, a la London, vs. Winter years.  


Our call on Nike goes far beyond a single sporting event. In addition, my view is that once someone holds up a chart like the one below, the ‘trade’ is known and should therefore cease to exist.


But as much as we hold on to such logic, we cannot argue with math. The math here is very clear.


Key Takeaways:

  • NKE has outperformed the S&P 500 by ~25% during Summer event years & ~12% during Winter event years over the last 2 decades (note: 1992 performance is included in both the Summer & Winter calculations).
  • From a timing perspective, over the last 3 Summer Olympic event years (Beijing, Athens, Sydney), NKE has significantly outperformed the S&P benchmark in the 3-6 month period following the event.

NKE: Olympic Moves - olympics table


NKE: Olympic Moves - olympics bar chart

Weekly European Monitor: The Difference a Day Makes

Positions in Europe: Short France (EWQ)

Asset Class Performance:

  • Equities: country indices were largely up w/w. Top performers: Ireland 5.1%; Austria 5.0%; Czech Republic 4.9%; Finland 4.8%; Sweden 4.7%. Bottom performers: Ukraine -2.3%; Russia (MICEX) -20bps
  • FX: The EUR/USD flat w/w. Divergences: RUB/EUR +2.6%, PLN/EUR +1.3%; CZK/EUR -1.7%
  • Fixed Income: 10YR sovereign yields broadly increased w/w, led by Italy +64bps; Greece +48bpsbps; and Spain +26bps. Italy’s 10YR is now up to 6.98%! Last week saw the ECB’s SMP buy 3.36 Billion EUR of secondary sovereign bond issuance, vs two weeks prior of a mere 635MM EUR. We think the continued elevated level of peripheral yields demonstrates that the SMP facility alone cannot arrest yields.

Weekly European Monitor: The Difference a Day Makes - 1. yields



Call Outs:


The European week was dominated by one major theme: the ECB’s LTRO


While on Tuesday European equity markets ripped ahead of Wednesday’s opening of the ECB’s first 3YR Long Term Refinancing Operation (LTRO) facility, with 523 banks taking up €489 billion in loans at 1% (vs initial estimates of €293B from Bloomberg and €310B from Reuters), European equities turned down on Wednesday and sovereign yields actually increased day-over-day, an indication to us that the LTRO will not be the panacea that the market had hope for. What a difference a day makes! (For more see our note on 12/21 titled “Optimism Is Over Ski Tips On LTRO”). Key points include:

  • We’d caution against an absolutist view that banks will be buying all European sovereign paper issuance going forward as they’ll stand to benefit from the carry trade, or spread.
  • These same banks have taken significant measures to sell their Europig debt holdings in the last 6-12 months. Why would they jump back in now? 
  • A more likely scenario is one in which banks look to take care of their own houses first before looking to participate in sovereign bond buying.
  • In the face of the inability to lever up the EFSF and no change on the ECB’s position to print money, we do think the opening of ECB’s LTRO facility is bullish, yet we don’t think we’re going to cross some magic bridge that will firewall the major issues.


Interest Rate Decisions:


(12/20) Riksbank Interest Rate CUT 25bps to 1.75%

(12/20) Hungary Base Rate HIKE 50bps to 7.00%

(12/21) Czech Republic Repo Rate UNCH at 0.75%

(12/22) Turkey Benchmark Interest Rate UNCH at 5.75%

(12/23) Russia Refinancing Rate CUT 25bps to 8.00%



Chart of the Week:


-Below we show Consumer Confidence from the countries reporting data this week. Of note is that while we are getting some slowing in the declines month-over-month (Germany here shows positive divergence), we’d expect confidence to continue to wane alongside the uncertainty on Eurocrat actions to reduce sovereign and banking risk.


Weekly European Monitor: The Difference a Day Makes - 1. consumer confid



CDS Risk Monitor:


-On a w/w basis, CDS was largely down across the periphery.  Italy saw the largest pullback at -32bps, followed by Spain (-18bps) and Ireland (-11bps).  On a m/m basis, Spanish CDS is down -95bps and Italian CDS is down -57bps.


Weekly European Monitor: The Difference a Day Makes - 1. cds a


Weekly European Monitor: The Difference a Day Makes - 1. cds b




-Our position remains unchanged week-over-week: we’d short the cross at $1.33 for an immediate term TRADE.  The EUR/USD remains broken long term TAIL ($1.40) and intermediate term TREND ($1.42) in our models and we think the lack of resolve from the newest proposals for a fiscal union will encourage greater downside. 



The European Week Ahead:


Sunday: European Bank capital raising “plans” due for meeting 106 Billion EUR target


Monday: Nov. France Total Jobseekers and Net Change


Tuesday: Dec. Finland and Czech Republic Consumer/Business Confidence


Wednesday: Dec. UK Nationwide House Prices (Dec 28-30th); Q3 Russian Current Account (Dec 28-31st)


Thursday: Nov. Eurozone Money Supply; Dec. German Consumer Price Index – Preliminary; Dec. Italian Consumer Confidence; Q3 Hungarian Current Account; Q3 Ukraine’s GDP – Final


Friday: Nov. German Retail Sales; Q3 BoE Housing Equity Withdrawal; Nov. Italian PPI; Dec. Spain’s Consumer Price Index – Preliminary 



Matthew Hedrick

Senior Analyst

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