The Economic Data calendar for the week of the 23rd of January through the 27th 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.




Weekly European Monitor: Is This A Head Fake?

Positions in Europe: Short EUR/USD (FXE)


Asset Class Performance:

  • Equities: European indices were up across the board around +100-400bps week-over-week. Top performers: Greece 9.8%; Hungary 8.6%; Finland 5.7%; Czech Republic and Austria 5.0%; Germany 4.3%.  Bottom performers: Slovakia -10bps; Norway +20bps
  • FX: The EUR/USD  $1.2924 or +2.0% week-over-week. Divergences: PLN/EUR +2.3%, HUF/EUR  +2.2%; Iceland Krona/EUR -88bps
  • Fixed Income: 10YR sovereign yields broadly increased w/w, led by Portugal +216bps to 14.62%; Spain +27bps to 5.49%. Italian yields declined -41bps to 6.23% and remained under the 7% level for the entire week. Greek yields came down -20bps but only to the lofty 34.16%.

Weekly European Monitor: Is This A Head Fake? - 11 yields



Call Outs:

  • EFSF cut to AA+ from AAA by S&P on Monday. Eurocrats attempt to downplay the event.
  • IIF was in Athens this week to resume PSI talks however no deal was reached. 
  • Germany’s ZEW Confidence figures bounce (see chart of the week below).
  • Strong Bond Auctions From Key Countries:
    • Spain sold €4.88 billion of 12-18 month bills (on 1/17) with average yield of 2.049% vs 4.05% prior.
    • France sold €7.97 billion of 2-3-4YR notes on 1/19, just short of its maximum target, with the average yield on the benchmark two-year notes sliding to 1.05% from 1.58%.
  • Fitch Ratings Managing Director Edward Parker said "Greece is insolvent and will default on its debts. The euro area’s most indebted country is unlikely to be able to honor a March 20 bond payment of 14.5 Billion EUR ($18 Billion).
  • IMF sees Eurozone GDP down 0.5% in 2012.
  • Germany cuts its 2012 growth forecast to 0.7% from 1.0%.


In Review:

For a second consecutive week it has been a relatively quiet “news” week in Europe, however mania returned on Tuesday morning in the form of a “rumored” announcement that the IMF was asking for nations across the globe to contribute $1trillion to the IMF to aid Europe (the figure was then downgraded to $500 billion within an hour).  In any case, the numbers don’t shake out and here’s why:

  • Few countries across the globe have the extra cash (think bloated debts) to meet this sum.
  • Most countries, like the U.S., which is the largest contributor to the IMF at 17%, don’t have the political support to lend as they turn to domestic fiscal consolidation.
  • There’s still no confirmation that the €200 billion proposed to be raised by European Central Banks and a select few non-European CBs in early December last year has been committed.
  • It is highly unlikely that an institution such as the IMF, which currently has $385 billion in assets to lend, would place its entire war chest on one region, Europe.

The IMF is looking for an agreement to be struck at the G20 FinMin meeting in Mexico City on February 25-26. We’d position that it’s highly unlikely this deal is met at its current value, and caution on the opinion that such a proposal could be included as evidence of a “Bazooka” to spur upshot in intermediate term European capital market performance.   


This week the EU said it has toughened the language of its new fiscal treaty in response to ECB objections, however we remain of the opinion that a fiscal union in and of itself will do little to appease investors looking for a quick fix to European issues and the EFSF is far undercapitalize to deal with sovereign and banking defaults. The very back and forth and uncertainty around Greek PSI is evidence of perilous state of current Eurozone fabric – all week we saw a lack of decision on the issue. Truth be told, we may never see the exact agreement, but be sure, there will be numerous exceptions and loopholes in it, so that ultimately Greece may remain in default without defaulting. Perhaps we’ll learn more specifics on PSI at the Eurogroup and FinMin meetings beginning this coming Monday and Tuesday, respectively.


We’ll reiterate that the markets may turn based on headline risks, with Portugal perhaps the country waiting next in the wings (see yield and CDS breakouts below). We agree that markets may well find comfort in the LTRO to provide the needed liquidity to banks, which has been reflected in decreases in the Euribor-OIS spread over the last 15 days. And while the LTRO may prevent insolvency issues in the near term by boosting liquidity, it may only mask deeper risks. Between now and the mid-year, which is the deadline for banks to meet the 9% Tier 1 capital ratio, we may see dark clouds for banks in particular that need to raise capital. From a policy perspective, it appears Draghi may well hold interest rates unchanged until at least until March to gauge the progress of the LTRO program, and the second instalment on February 29.



Chart of the Week—Germany:

We’ve been getting more constructive on Germany in recent weeks on improving data. This week Germany’s ZEW investor confidence survey showed a major inflection on the 6M outlook, jumping to -21.6 in January vs -53.8 in December. We are very aware that despite Germany’s strong fiscal position (budget deficit = 1% in 2011 vs -4.3% in 2010) and employment base (unemployment rate = 6.8%), the country’s capital markets are not immune to the region’s sovereign and banking contagion risk.  However, the broader equity market (DAX) has shown a great start to 2012, up +8.6% YTD, after falling -20% last year with a similar strong fiscal and employment profile.


Weekly European Monitor: Is This A Head Fake? - 11.  zew



Key Regional Data This Week:

Positives (+)

Germany Wholesale Price Index 3.0% DEC Y/Y vs 4.9% NOV

Turkey Consumer Confidence 92 DEC vs 91 NOV

UK CPI 4.2% DEC Y/Y vs 4.8% NOV

UK RPI 4.8% DEC Y/Y vs 5.2% NOV

Switzerland Credit Suisse ZEW Survey of Economic Expectations -50.1 JAN vs -72 DEC

UK Nationwide Consumer Confidence 38 DEC vs 40 NOV

Germany PPI 4.0% DEC Y/Y vs 5.2% NOV

UK Retail Sales w Auto Fuel 2.6% DEC Y/Y vs 0.4% NOV       [+0.6% DEC M/M vs -0.5% NOV]


Negatives (-)

UK ILO Unemployment Rate 8.4% NOV (highest in almost 16 years) vs 8.3% OCT

UK Jobless Claim Change 1.2K DEC vs 0.2K NOV



CDS Risk Monitor:

-On a w/w basis, CDS was largely down across European sovereigns, with Portugal the exception. Italy and France saw the biggest declines at -33bps to 471bps and 186bps, respectively, followed by Spain -27bps to 381bps. Portugal popped, jumping +169bps w/w to 1,257bps.   


Weekly European Monitor: Is This A Head Fake? - 11. sov a


Weekly European Monitor: Is This A Head Fake? - 11. sov b




Keith shorted the EUR/USD via the eft FXE on Thursday (1/19) in the Hedgeye Virtual Portfolio with the price bumping up against our immediate term TRADE resistance level of $1.29. Our bearish view on the EUR and bullish view on the USD haven’t changed, but the price did. Keith took the opportunity to short FXE at $128.28. Our intermediate term TREND resistance level remains broken at $1.33 (see chart below). We think the lack of resolve from the newest proposals for a fiscal union will encourage greater downside. 


Weekly European Monitor: Is This A Head Fake? - 11. eur



The European Week Ahead:


Sunday:  Finland Presidential Election


Monday:  Eurogroup meeting in Brussels; Jan. Eurozone Consumer Confidence Indicator – Advance; Jan. France Production Outlook and Business Confidence Indicators


Tuesday:  ECOfin Meeting; Jan. Eurozone PMI Manufacturing, Services, and Composite – Advances; Nov. Eurozone Industrial Orders; Jan. Germany PMI Manufacturing and Services – Advances; Jan. France PMI Manufacturing and Services – Preliminary


Wednesday:  Jan. Germany IFO Business Climate, Current Assessment, and Expectations; UK Bank of England Minutes; Q4 UK GDP – Advance; Jan. UK Business Optimism


Thursday:  ECB Policy Meeting; Feb. Germany GfK Consumer Confidence Survey; Jan. UK CNI Reported Sales and (Jan 26-31) House Prices; Jan. France Consumer Confidence Indicator and Business Survey Overall Demand; Dec. Russia and Sweden Unemployment Rates


Friday:  Dec. Eurozone Money Supply; Q4 Unemployment Rate



Matthew Hedrick

Senior Analyst


Word definitely getting out but analysts still need to raise estimates.



As we wrote about on December 16th, “A PREVIEW OF THE EARNINGS PREVIEW,” MPEL should post another huge, estimate-beating quarter.  Since our note, the stock is up 28% but given the low valuation and likely positive estimate revisions into the Q, there is likely more upside in the stock.  Despite the big move in the stock, MPEL still trades at under 7x 2013 EV/EBITDA.  While potential dilution is always a risk with this company, we are still below a stock price that would warrant concern of an equity deal.


We project $226MM of EBITDA for Q4, which is 11% above consensus.  Some of the ‘upside’ is due to better hold in the quarter but that’s no surprise.  While most investors have been focused on the potential slowdown in Macau’s business, we would point out that MPEL’s mass business has continued its momentum with over 60% YoY growth in Q4.



4Q Model Detail

We estimate that City of Dreams will report $713MM of net revenues and $179MM in EBITDA

  • Our net casino win projection is $683MM
    • VIP net win of $437MM
      • Assuming 15.5% direct play, we estimate $20.4BN of RC volume (a 33% YoY increase) and a hold rate of 3.04%
      • Assuming theoretical hold of 2.85%, EBITDA would be $14MM lower and net revenues would be $40MM lower
    • $209MM of mass win, up 66% YoY
    • $36MM of slot win
  • $30MM of net non-gaming revenue
    • $22MM of room revenue
    • $19MM of F&B revenue
    • $25MM of retail, entertainment and other revenue
    • $37MM of promotional allowances or 55% of gross non-gaming revenue
  • $434MM of variable operating expenses
    • $338MM of taxes
    • $84MM of gaming promoter commissions in addition to the rebate rate of 90bps (we assume an all-in commission rate of 1.31% or 43% on a rev share basis)
  • $32MM of non-gaming expenses
  • $67MM of fixed operating expenses compared to $66MM in 3Q

We project $271MM of net revenues and $56MM in EBITDA for Altira

  • We estimate net casino win $262MM
    • VIP net win of $236MM
      • $11.9BN of RC volume (a 4% YoY increase) and a hold rate of 2.94%
      • Assuming theoretical hold of 2.85%, we estimate that EBITDA would be $5MM lower and that net revenues would be $11MM lower
    • $26MM of mass win, up 33% YoY
  • $9MM of net non-gaming revenue
  • $188MM of variable operating expenses
    • $147MM of taxes
    • $37MM of gaming promoter commissions in addition to the rebate rate of 96bps (we assume an all-in commission rate of 1.27% or 43% on a rev share basis)
  • $3MM of non-gaming expenses
  • $24MM of fixed operating expenses in-line with 3Q

Other stuff:

  • Mocha slots revenue and EBITDA of $32MM and $9MM, respectively
  • D&A: $96MM
  • Interest expense: $29MM
  • Corporate expense: $19MM

the macro show

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Comments from CEO Keith McCullough


Immediate-term TRADE overbought is as overbought does – that doesn’t change my bullish intermediate-term view on Global Equities:


OVERBOUGHT – from the Hang Seng (+9.1% YTD) to the DAX (+8.2% YTD) and back again to the SP500 (+4.5% YTD), this season is not even 3 weeks old and we’ve already realized what I think is an outstanding YTD return on equity given the Bernank calls risk free 0%. Immediate-term overbought lines for HK, DAX, and SPX are 20,113, 6424, and 1315, respectively.


DEFLATING THE INFLATION – this is Global Macro Theme #2 for us here in Q1 and it really matters – across the board we’re seeing the impact of a Strong Dollar on DEC CPI and PPI prints across the world (US CPI dropped to 3.0% DEC vs 3.4% NOV, German PPI drops this morn to 4.0% DEC vs 5.2% NOV, New Zealand CPI falls hard to 1.8% in Q4 vs 4.6% Q3)


TREASURIES – it took all week for the bond market to give The Fed something to think about (as Growth expectations rise, interest rates should), but this breakout above my immediate-term TRADE line of 1.95% support for 10s matters. Seeing the 10yr consistently close > 2.03% would be very bearish for the long-bond, bullish for stocks (especially Financials).


Get Growth and Inflation slopes right, you’ll get a lot of other things right.










SBUX: Starbucks and Tata Coffee likely to announce partnership this month - Economic Times - Speaking on the sidelines of an event, Tata Coffee MD Hameed Huq tells reporters that India's first Starbucks will be opened this year.


DNKN: Dunkin’ Donuts announces 12 new units in Omaha


GMCR: Green Mountain’s new Keurig brewer may use radio frequency technology in its new coffee machine to make more complicated beverages, according to documents filed with the FCC.




CBOU: Caribou is up +13.7% over the last week.







RUTH: Now up 14% over the past week. We know the quarter was good, but that good?


BWLD: The worst performing casual dining name over the past week.  We had a record number of clients on our bearish BWLD call yesterday.






Howard Penney

Managing Director


Rory Green




The Macau Metro Monitor, January 20, 2012




Macau December CPI rose 6.81% YoY and 0.74% MoM.



Visitor arrivals totaled 2,545,718 in December 2011, up by 12.1% YoY.  For 2011, total visitor arrivals recorded a historical high of  28,002,279, up by 12.2% YoY.  Visitors from Mainland China surged by 23.5% YoY to 1,482,380 in December 2011, with the majority coming from Guangdong Province, Fujian Province and Hunan Province.  Mainland visitors traveling to Macau under the Individual Visit Scheme totaled 572,841, up by 15.8% YoY.





Singapore Changi Airport reported a 11.4% YoY increase in passenger movement for December - a new monthly record.


Expert Cues

This note was originally published at 8am on January 17, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Expert intuition strikes us as magical, but it is not.”

-Daniel Kahneman


This weekend I finally started reading Daniel Kahneman’s “Thinking, Fast and Slow” and was pleasantly surprised to see him cite one of my favorite American thinkers, Herbert Simon (read “Models of My Life”), in the Introduction:


“The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.” (Thinking, Fast and Slow, page 11)


Pattern recognition is the fulcrum principle of Chaos Theory. While neither Kahneman nor Simon have drawn that parallel to Global Macro Risk Management, if they did what we do every day I think they probably would have.


Back to the Global Macro Grind


While consensus has spent 2012 caught in the vacuum of 2011’s news (European Crisis and Growth Slowing), we’ve been letting this globally interconnected marketplace of colliding factors give us cues on Growth Slowing’s Bottom (Q1 Hedgeye Macro Theme):

  1. Strong US Dollar = Stronger US Consumption, Confidence, and Employment
  2. Deflating The Inflation = Growth Slowing at a slower rate in Asia (China in particular)
  3. German Fiscal Conservatism = Bullish German Stocks on both our TRADE and TREND durations

There should be no surprises about what’s happening in US, Chinese, or German stocks this morning. Our leading indicators have been giving us Crystal Clear Cues for the last 3 weeks. That’s why we have our largest asset allocation to US Equities in over a year. That’s why we’re long Chinese and Hong Kong Equity exposures. That’s why we’ll open this morning with no European shorts.


In the order that these Expert Cues appear in my notebook this morning:


1.   CHINA – closing up +4.2% overnight, the Shanghai Composite had its best move since October of 2009. Growth Slowing in China is a 2-year stale story that we have signaled in real-time. Looking at the higher-frequency economic data that was reported closest to now (the December data, not the quarterly), China appears to be seeing Growth Slow at a Slower Rate. Chinese Industrial Production for DEC accelerated to +12.8% y/y (vs +12.4% in NOV). Meanwhile, Singapore’s Export Growth for DEC jumped to +9% y/y (vs +1.4% in NOV). You’ll recall we use Singapore as a leading indicator for Eastern demand.


2.   GERMANY – trading up another +1.7% to an impressive +7.2% for 2012 YTD, the German DAX is proving that this morning’s concurrent indicator of confidence (the German ZEW reading) was better than bad for good reason. It was actually the biggest 1-month pop in the ZEW reading ever – and ever is a long time. Germany is proving that fiscal conservatism can support strong domestic employment (6.8% vs USA’s 8.6%). Not pandering to the political winds of the Keynesian bailout beggars should also be commended.


3.   USA – holding above both my long-term TAIL line (1267 support) and the closing high of October 29th, 2011 (1285), the SP500 is proving that Strong Dollar = Strong Consumption works where it matters in the American economy – on 71% of US GDP Growth. Neither we (nor the US Treasury Bond Market) are suggesting US Growth is great, but the US Currency and Equity markets aren’t signaling a US recession either. Provided that the US Dollar remains strong (Romney winning in South Carolina this week will continue to help), we think US Growth’s Bottom could very well be happening in Q411 through Q112.


With Expert Cues in hand, we derive our summary positioning in the Hedgeye Asset Allocation Model

  1. Cash 58% = down from 70% at the end of 2011
  2. US Equities = 18% (Consumer Discretionary, Consumer Staples, Utilities – XLY, XLP, and XLU)
  3. Int’l Currency = 15% (US Dollar – UUP)
  4. Int’l Equities = 9% (China and Hong Kong – CAF and EWH)
  5. Fixed Income = 0%
  6. Commodities = 0%

That’s a very different mix in my asset allocation than what I was carrying from April-November of 2011. I’ve moved from a big allocation to Growth Slowing at an accelerating rate (Long Fixed Income) to long Growth Slowing’s Bottom (Long Equities).


What hasn’t changed is my position in the US Dollar and Commodities. I still think that Strong Dollar = Deflates The Inflation, so look for me to potentially short some Commodities today.


Having a repeatable risk management process isn’t magical. Neither is it perfect. It’s just what we do.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Comp, German DAX, and the SP500 are now $1626-1678, $110.20-114.33, $1.25-1.28, $80.72-81.97, 2220-2301, 6151-6329, and 1284-1302, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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