The Macau Metro Monitor, March 13, 2012




According to sources, MPEL is targeting syndication in April for a loan of about US$1.25 billion (MOP10 billion) to be likely used for construction of the Macau Studio City project.  MPEL is considering a five-year tenure for the syndicate loan.


Kazuo Okada is seeking a court order voiding the redemption of his shares decided by WYNN's board last month, and unspecified compensatory and punitive damages.


Okada, Chairman of the Board of Directors of Universal Entertainment, said, "We are taking this action to protect our investment from what we believe to be an unconscionable course of conduct perpetrated by Steve Wynn and the Wynn Resorts Board of Directors to facilitate Mr. Wynn's agenda of maintaining his absolute control over Wynn Resorts and in order to enrich himself."  Universal Entertainment's Counterclaim contains allegations, among others, that 1) No redemption has occurred and that there is no legal basis for the redemption. 2) The stock held by Aruze USA is subject to transfer restrictions in a stockholders agreement, which preclude any redemption of Aruze USA's stock. 3) Unlike most Wynn Resorts shares, Aruze USA's shares were never subject to the redemption provision of the Wynn Resorts Articles of Incorporation, as Aruze USA acquired its interest before the redemption provisions became effective.



Minister Vu Duc Dam, chief of the Vietnam Government Office, has confirmed that the Government was considering licensing a huge resort complex (US$4-5 BN) including a casino in northern coastal Quang Ninh Province's Van Don District.  Located on an 1,800 hectare area in Van Yen Commune, the complex is expected to help develop the Northern Economic Zone and attract more visitors, especially foreign tourists, to the province.


Vietnam has yet to license casinos, but the Government has granted licences to a number of entertainment-gaming complexes in southern Phu Quoc Island, the New City in central Phu Yen Province, Silver Shores and Furama in central Da Nang and Sai Gon Atlantic in southern Vung Tau.  None of them admit local visitors.


Sheldon Adelson, CEO of LVS, has expressed interest in building resort complexes worth as much as $6 billion in HCM City and Ha Noi.

President Obama with 58.5% Likelihood to Win Presidential Election If Held Today



President Obama with 58.5% Likelihood to Win Presidential Election If Held Today - HEI

Making the Call: VXX Trade Update

Conclusion: Looking to recent history, VIX ~15 has been an explicit signal to get hedged; thus, we are doing so in our Virtual Portfolio.


Position: Long the iPath S&P 500 VIX Short-term Futures ETN (VXX)


In this morning’s Early Look, Keith used a very appropriate quote from Daniel Kahneman that we feel describes the appropriate state of our industry:


“The illusion of skill is not only an aberration, it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions – and thereby threaten people’s livelihood and self-esteem – are simply not absorbed.” (Kahneman, page 217)


Regarding the first part of the quote, perhaps the reason the VIX has a coincident relationship with the S&P 500 instead of a leading one is that it’s simply human nature to not want to buy downside protection when the market feels like it wants to trend higher. Everyone’s best ideas are working on the long side and both sell-side consensus and legacy financial media sources cheer on gains instead of focusing on the catalysts which could bring about mean reversion. While it’s not always an appropriate time to position for mean reversion, we’ve been consistently making calls to hedge for meaningful downside risk in U.S. equities when the VIX is trading with a 15-handle on it – just as it is today.


Making the Call: VXX Trade Update - 6


That brings us the second point Kahneman makes, which is that “facts that challenge such basic assumptions” (like combining top-down fundamentals with a quant overlay to make an explicit call not to chase “Dow 15,000”) and are threatening to the “livelihood and self-esteem” of market operators “are simply not absorbed”. Often times, they are, in fact, refuted with great vigor as we have seen in our inboxes from making similar calls in years past.


That said, however, our number #1 goal as an outsourced Macro Team remains to help our clients preserve and grow capital across economic cycles and all types of market environments; thus, making contrarian calls is not something we shy away from.


Today, that call is to get hedged, no matter how counterintuitive it feels at current prices. Our quantitative levels on the VIX are included in the chart below.


Darius Dale

Senior Analyst


Making the Call: VXX Trade Update - 7

Early Look

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The Policy Implications of China’s Souring Property Market Trends

Conclusion: Just as Chinese officials intended, both supply and demand trends are going the wrong direction as it relates to the price of real estate in China. While we don’t think the PBOC will cut its benchmark interest rates in the immediate-term, we do think these data points are supportive of continued consensus speculation around monetary easing in China and could lead to additional RRR cuts over the next quarter or so. Even still, domestic monetary easing will have a highly disappointing effect on stimulating Chinese growth absent a removal of the curbs on real estate activity.


In JAN, Chinese residential real estate prices posted their worst performance in at least a year, with 48 of 70 cities declining MoM and 22 cities holding flat. For commercial buildings, the number of cities posting MoM price gains came in at 5; 11 held flat and 54 cities declined MoM.


JAN ‘12 marked the start of the second year of China’s discombobulated official national price reporting due to the National Development and Reform Commission’s nation-wide index terminating in DEC ’10. Since then, investors have had to rely largely upon the sale price data from the transactions of large developers – entities who may or may not be incentivized to “put their best foot forward”, so to speak (akin to data from our own National Association of Realtors).


So in the absence of what we’d deem as totally reliable data, we’ve taken advantage of the latest supply & demand data points to form an educated view of China’s property market, which, as we have shown in previous notes, is the largest driver of Chinese, and, by extension, global growth.


The Policy Implications of China’s Souring Property Market Trends - 1


In the JAN-FEB period, the growth rate of completed supply accelerated to an all-time high of +45.2% YoY as seen in the Floor Space of Buildings Completed series. From a pending supply perspective, growth in Floor Space of Buildings Under Construction accelerated to +35.5% YoY in the JAN-FEB period – good for the second-highest rate on record. The State Council’s goal of building 36 million units of affordable housing from 2011-2015 is a key policy initiative affecting the underlying trends in supply.


The Policy Implications of China’s Souring Property Market Trends - 2


From a demand perspective, growth in Total Sales of Buildings slowed in JAN-FEB to an all-time low rate of -20.9% YoY. Moreover, growth in Floor Space of Buildings Sold and Purchases of Land have each slowed to multi-year lows of -16% YoY and -0.5% YoY, respectively.


The Policy Implications of China’s Souring Property Market Trends - 3


Looking at the investment climate, the one positive data point we’d highlight is that growth in domestic financing for real estate investment accelerated to +16.3% YoY in JAN-FEB, which is the fastest rate of growth since NOV ’10. That said, however, China Economic Network’s Real Estate Climate Index ticked down to a 32-month low of 97.89 in the JAN-FEB period; the index’s YoY growth rate of -4.9% is the slowest rate since JUN ’09.


The Policy Implications of China’s Souring Property Market Trends - 4


The Policy Implications of China’s Souring Property Market Trends - 5


With supply increasing at much higher rate than any measure of demand, continued price declines seem likely and, in fact, may be poised to accelerate. Our financials team, led by Josh Steiner, has shown that demand leads U.S. housing prices by one full year. While certainly not an apples-to-apples case study, one would expect Chinese property prices to continue trending lower throughout 2012 given the current supply and demand setup.


From a policy perspective, we believe the current trends will prove supportive for continued speculation around monetary easing in China. While we certainly don’t see any reason for the PBOC to suddenly abandon ship and cut rates aggressively in response to this data (the State Council and PBOC have been explicitly trying to deflate housing prices and slow real estate speculation for two full years), it does lend credence to the view that conditions on the ground in China are, in fact, threatening enough to support near-consensus expectations of a full-scale rate cutting cycle.


Again, given the stated and oft-reiterated policy objectives, it remains our view that China isn’t as close to lowering its benchmark policy rates as a great many investors would like; that said, however, we would expect continued action on the RRR front ahead of any material easing. Most importantly, we continue to hold the belief that, until Chinese policymakers actually lift the property market curbs, domestic monetary easing will have a highly disappointing effect on stimulating Chinese growth.      


Darius Dale

Senior Analyst



Short interest data released on Friday, in conjunction with sell-side sentiment, show that for the two weeks ended 2/29 most restaurant stocks saw gains or no change in their sentiment scores versus the prior period’s reading.  Only CMG, RRGB, PZZA, KKD, and BAGL saw their sentiment scores decline.  We expect much more movement in the sentiment scores when the next release comes out on the 26thof March.


Sentiment Scorecard Callouts


MCD: Continues to lead the pack but, following disappointing February sales and the emerging reality that austerity is impacting the company’s sales in Europe, there is room for sentiment to come down.  That said, we would expect that the sell-side will be reluctant to lead the charge given the 21 Buys, 9 Holds, and 0 sell ratings currently held on MCD by the street and historically bullish consensus on this name.


DNKN: This stock is trading well today and, the latest data point aside, short interest has been coming down over the last couple of months.  The stock was recently initiated “Buy” at Citigroup also, which boosted sentiment.  Coffee prices coming down are a benefit to DNKN franchisees but, in terms of the company’s EPS, this factor is less relevant for DNKN than it is for PEET and SBUX, for example.


CMG: Chipotle’s sentiment score came down for the second reading in succession despite the stock price continuing to grind higher.  While the valuation implied by the stock price is egregious, we are waiting to see the company’s return on investment metrics flash negative in the Hedgeye Sustainability Model before looking at this stock on the short side.  With the returns that the company has generated from new stores over the past couple of years, CMG is unlikely to fall off a cliff. 


CBRL: Cracker Barrel’s sentiment score ticked up as shorts covered their positions during the two weeks ended 2/29.  The stock had spiked on earnings guidance for 2012 being raised on 2/21 but gave back much of its gains over the next couple of weeks.  Gas prices are the obvious threat to Cracker Barrel but, with many casual dining executives recently stressing that they were not noticing any impacting from gas prices.  The consumer's pain threshold can be breached quickly with prices moving higher as quickly as they are, however, and we think that political polls released over the weekend highlighting gas prices as a particular problem for Obama’s approval rating could be an indication that we are approaching that threshold. 


PFCB: P.F. Chang’s remains an untouchable for investors in the restaurant space.  As longer-term bulls on the name, we like this as we believe that the turnaround is in motion.  The road ahead is certainly not without difficulty but we believe the company has a distinct advantage over other casual dining chains that are also faced with serious issues; namely, a management team that has acknowledged the reality of the situation and has the acumen to remedy it.  One risk for all of casual dining, P.F. Chang's included, is that the seasonal adjustment distortion in jobless claims turning into a headwind from May through July leads to employment headline numbers disappointing versus investor expectations.  Initial jobless claims data heavily impact the casual dining space.




RESTAURANT SENTIMENT SCORECARD - short interest historical



Howard Penney

Managing Director


Rory Green