The Macau Metro Monitor, March 16, 2012




The Statistics and Census Service (DSEC) reported that GDP in 4Q11 increased by 17.5% YoY. Growth was driven by the rise in exports of services, investment and private consumption expenditure.

  • Exports of gaming services: +25.2%
  • Visitors’ spending: 10.4%
  • Investment: 16.7%
  • Private consumption: 12.1%
  • Government final consumption: 16.3% 
  • Exports of merchandise registered: 7.7% 

4Q growth represented a deceleration from the 21.8% growth achieved in the first 3 quarters of 2011.   



Faruqi & Faruqi, LLP, a law firm concentrating on investor rights, consumer rights and enforcement of federal antitrust laws, is investigating whether certain officers and directors of Wynn violated the Foreign Corrupt Practices Act ("FCPA") by providing improper monetary benefits to government officials in Macau.  The investigation comes on the back of the SEC's inquiry into Wynn's $135MM gift to the University of Macau Development Foundation. 



Speaker's at the Hotel Investment Conference Asia Pacific (HICAP) predicted that Singapore ADR's would rise between 4-8% in 2012. OCBC Investment Research expects "solid hotel room demand growth at 6.4 per cent per annum, which would exceed overall room supply growth of 3.8 per cent per annum".  The addition of the International Cruise Terminal in 2Q12 and the government's plan to invest S$905MM into the Tourism Development Fund should drive room demand and help the Singapore Tourism board hit their visitor arrival target of 6.6% annual growth and 17MM in 2015.


WATERTIGHT CASE? Inside Asia Gaming

Inside Asia Gaming speculates that the timing of the campaign is tied to the upcoming US presidential elections.  It's no secret that Sheldon hasn't been a fan of labor unions and this may be their way of embarrassing him and any Republican candidates who Sheldon supports - like Newt Gingrich.   


MUDDY WATERS Inside Asia Gaming

Inside Asia Gaming examines how the transition of China's national leadership is complicating and stalling the approval of new Cotai projects. Given that the casino industry and gambling are political hot topics in China, Macau officials are weary of making grand plans for Cotai's future expansion without getting "approval" from the political powers that be in China.  The fact that the political players are currently in flux is likely a large driver for the delays in granting permission for the gazetting of the 4 pending projects on Cotai. The recent drama and embarrassing accusation brought out by the Wynn/ Okada lawsuits are only likely to further delay approval of Wynn's land grant. 






Commentary from CEO Keith McCullough


Top 3 Most Read (Bloomberg) this morning (Buffett, Billionaires, Morgan Stanley) all about Wall St comp; not about the “rally”; fascinating:

  1. INDIA – the Indians told the world they got off the Greenspan-put drugs (no rate cut), so the world sold their equity market down another -1% overnight (down -2.6% in 2 days). India is a net importer of inflation (oil) and has seen their yield curve go flat.
  2. OIL – after attempting to SPR global Consumers yesterday while they were watching some hoops, the Administration of Central Planning denied they’d ever politicize what the DOE defines (govt website next to the slide deck on Obama’s opinion on oil supply/demand) as “the last line of defense against a supply disruption." I bought oil on that as all 3 of my durations of support held like the rock of Gibraltar.
  3. USD – this is easily the most bullish development we’ve seen since Bernanke’s attempts to debauch the dollar (Jan 25th) – gravity. US Dollar Index should close up for the 3rd consecutive week – while it may not have been for Apple and BAC, this has been a huge headwind for anything Bonds, Gold, Foreign Currency, etc. this week. Yes, anyone who is diversified across Global Macro got tagged by this Correlation Risk.


Quadruple witching options expiration and a sequentially inflating US Consumer Price report up next.





THE HBM: MCD, SBUX, PNRA, BWLD - subsector





MCD: McDonald’s China executives were questioned by food safety regulators.  According to media reports emerging this morning, McDonald’s sold chicken wings past their sell-by period.  The McDonald’s restaurant in Beijing is reported to have sold chicken wings 90 minutes after they were cooked versus the company’s guidelines of a 30 minute limit. The company said that this is an isolated case.


SBUX: Starbucks was named one of the “World’s Most Ethical Companies” in 2012 by the Ethisphere Institute.


PNRA: Panera Bread founder Ron Shaich will share the title of CEO of the company with Bill Moreton, according to a press release published yesterday.  The statement said, “The transition to co-CEOs formalizes a relationship that has evolved over the last year and is a reflection of the way in which Shaich and Moreton have been operating as partners. This change in titles is simply a statement of their partnership and shared commitment to Panera.”




COSI: Cosi declined -1.8% on accelerating volume.


CBOU: Caribou gained 4.8% on accelerating volume.  Coffee’s price declining is helping the coffee retailers many of whom took price last year to mitigate shrinking margins.





BWLD: Buffalo Wild Wings was cut to Neutral versus Outperform at Wedbush. 




PFCB: P.F. Chang’s gained 3.6% on flat volume.  This is the best performing stock in casual dining over the 90-day duration.





Howard Penney

Managing Director


Rory Green




“The downside to thinking statements are more complicated than plainly stated, is that what is plainly stated is more often than not the truth when arrived at the long way around.”

-Rob Shewchuk


Rob Shewchuk is a long time friend of Hedgeye and also many moons ago played junior hockey with our CEO Keith McCullough for the Pembroke Lumber Kings.  If the moniker Big Alberta fits me, I think it is fair to say that Big Ontario fits the 6’3”, cowboy boot wearing Rob Shewchuk.  Rob grew up in the mining town of Red Lake, Ontario and has parlayed his natural business instincts into becoming one of the top brokers in Canada, with a special focus on undervalued mining assets and emerging growth companies.


Rob and I were texting each other about a common business situation and he put on his Red Lake philosopher’s hat and sent me the above quote.  As a bachelor who is still in full dating mode, I’ll be the first to tell you that text messages can lead to confusion, but I think the message Rob was sending was pretty clear: keep it simple.


In investing, complexity negatively infiltrates the investment process in a number of ways.  One way is analysis paralysis.  Undoubtedly, we’ve all worked with analysts that are guilty of this crime of complexity.  The guilty analyst will have a 75 page spreadsheet analyzing a company down to the return on capital of the administrative assistant to the head janitor, but won’t be able to make a call on whether the stock is going up or down.  The analyst knows so much, he or she is in fact paralyzed and unable to make a decision.


The other crime of investing complexity, which is more to Rob’s point, is when an analyst complicates simple things, like say valuation.   A friend of mine from home says that when it is – 40 degrees Celsius out, you don’t need to ask how cold it is, you just know it is *expletive* cold.  The same could be said for valuation.  If a stock or asset is cheap, you shouldn’t have to argue it’s cheap, or justify that it is cheap.  The valuation will be plainly obvious.


Yesterday, to the last point, I wrote a research note on the valuation of the SP500.   Many stock market pundits are making the case that the SP500 is cheap based on future consensus earnings. Unfortunately, that analysis is not really all that simple, for the basic reason that consensus estimates are usually wrong.  In fact, according to a McKinsey study from 1985 to 2009, SP500 earnings estimates were higher than the actual reported number 92% of the time.


So, obviously when making the simple valuation call, it depends on the complexity of the underlying estimates. When looking at the valuation of the SP500, we prefer to use CAPE, or cyclically adjusted price to earnings.  CAPE is a metric popularized by Yale Professor Robert Shiller that looks at a market P/E that is adjusted for inflation and normalized for cycles.  Currently, CAPE is showing that the SP500 is trading 21.9x, which is the highest level since July 2011 and in the top quintile of market valuations going back to 1880 (before even I was born).


CAPE hit a 35-year low in March of 2009 at 13.4x. This also coincided with a low in other stock market valuation metrics and the bottoming of the market.  Stocks were, simply, and obviously, cheap.  As for now, it is neither simple, nor obvious.


As of late, we’ve been flagging and harping on another simple indicator of the equity markets peaking, which is the VIX.  The Chart of the Day today goes back exactly three years to the bottom in March 2009 and compares the SP500 to the VIX over that period.  As the chart shows, a VIX level of 15-ish has coincided consistently with a short term top.   To the simpletons at Hedgeye, that is a red flag worth emphasizing.  More simply, the VIX at this level signals that complacency is setting in.


Over the last 24 hours, we’ve made a couple of simple moves in the Virtual Portfolio that should inform you on our current positioning:


1.   Shorted Greece via the etf GREK – With “positive” catalyst of the Greek debt restructuring in the rear view mirror, Greek equities now have to deal with austerity headwinds and a population that is leaving Greece en masse.


2.   Shorted SP500 via the etf SPY – Selling the SP500 at our overbought line has a high historical batting average and at 1,401, the SP500 is overbought.  Yes, it can be that simple.


3.   Shorted consumer discretionary via the etf XLY – With oil prices and inflation accelerating, this isn’t good for growth or discretionary spending.   Historically, growth slows when oil reaches 5.5% of GDP. Simplistically, a Brent oil price of $116 equates to 5.5% GDP and Brent is currently at $123.


Henry Wadsworth Longfellow also had a great quote about simplicity (although he didn’t text it to me), which was: "In character, in manner, in style, in all things, the supreme excellence is simplicity."




Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Simpletons - 11. CHart of the Day


Simpletons - 11. VP 3 16


TODAY’S S&P 500 SET-UP – March 16, 2012

As we look at today’s set up for the S&P 500, the range is 30 points or -2.11% downside to 1373 and 0.03% upside to 1403. 











  • ADVANCE/DECLINE LINE: 579 (2015) 
  • VOLUME: NYSE 844.45 (-1.03%)
  • VIX:  15.42 0.72% YTD PERFORMANCE: -34.10%
  • SPX PUT/CALL RATIO: 1.06 from 1.01 (4.95%)


  • TED SPREAD: 39.74
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 2.34 from 2.28
  • YIELD CURVE: 2.00 from 1.92 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: CPI (M/m), Feb., est. 0.4% (prior 0.2%)
  • 9:15am: Industrial Production, Feb., est. 0.4% (prior 0.0%)
  • 9:15am: Capacity Utilization, Feb., est. 78.8% (prior 78.5%)
  • 9:55am: U. Michigan Consumer, Mar P, est. 76.0 (prior 75.3)
  • 10am: API Monthly report
  • 1pm: Baker Hughes rig count
  • 3pm: Fed’s Evans speaks in Frankfurt, Germany 


    • President Obama attends fundraisers in Chicago, Atlanta
    • House meets in pro forma session. 10am
    • Mitt Romney, Rick Santorum campaign in Illinois ahead of state’s Republican primary March 20
    • Supreme Court not in session 


  • Apple iPad goes on sale in 10 countries, betting on sharper screen, faster chip to extend lead over Google, in market for tablet computers
  • Consumer-price index probably increased 0.4%, most in 10 months, as gasoline prices climbed, economists’ est.
  • Google said to be investigated by regulators in U.S., Europe for bypassing privacy settings of users of Apple’s Safari Web browser: WSJ
  • UPS says takeover talks extended with TNT Express after TNT rebuffed initial EU4.89b offer received on Feb. 11
  • U.S., U.K. haven’t reached any agreement on releasing strategic petroleum reserves or set timetable for action, White House press secretary Jay Carney said yesterday
  • Italy said to pay Morgan Stanley $3.4b to unwind derivative contracts from 1990s that had backfired
  • Johnson & Johnson’s Incivo won backing of U.K.’s health-cost regulator in draft recommendation for treatment of hepatitis C
  • SAP seeks to become “major provider” of database software, will disclose plans at April 10 news conference in CA: Reuters
  • U.S. ITC may decide on review of judge’s finding that cleared Motorola Mobility of infringing three Apple patents, 5pm
  • Cheniere Energy confident of winning U.S. approval to build two natgas export terminals on Gulf Coast, even as opponents seek to block shipments
  • National Public Finance Guarantee said to participate in mediated talks with Stockton, Calif., under new state law intended to forestall bankruptcy filing
  • Sears plans to close 53 specialty stores in 1H 2012: LA Times
  • Port of Dampier, used by Rio Tinto, shutting down in anticipation of large swells, co. spokesman says, as Tropical Cyclone Lua strengthened into severe storm off Australia
  • No U.S. IPOs expected to price
  • SATURDAY: Missouri Republican presidential caucuses  


OIL – after attempting to SPR global Consumers yesterday while they were watching some hoops, the Administration of Central Planning denied they’d ever politicize what the DOE defines (govt website next to the slide deck on Obama’s opinion on oil supply/demand) as “the last line of defense against a supply disruption." We bought oil on that as all 3 of our durations of support held like the rock of Gibraltar. 

  • India Raises Gold-Import Tax for Second Time; Prices Drop
  • Gold Bulls Weakest in Two Months as Economy Gains: Commodities
  • Oil Halts Weekly Decline Before U.S. Consumer Confidence Data
  • Wheat Drops as Canadian Production May Increase; Soybeans Fall
  • Copper Heads for Weekly Advance as U.S. Rebound May Spur Demand
  • Sugar Climbs to 4-Month High as EU May Import; Cocoa Retreats
  • Gold May Decline in London on Improving U.S. Economic Outlook
  • Stalemate Hits $10 Billion Czech Nuclear Plan on Funding: Energy
  • Deripaska’s Vision For Rusal Leads to Losses for Li Ka-Shing
  • McDonald’s, Carrefour Targets of China Consumer Rights Campaign
  • Vale, Newmont Retain Appetite for Indonesia Mines Amid Stake Cut
  • YPF Bonds Fall as Provinces Pull Field Permits: Argentina Credit
  • Bullish Oil Bet Drop Seen as Peak in Iran Rally: Energy Markets
  • Soybeans Gain to Six-Month High on Exports
  • Corn in Dalian Rises to Record on Speculation of Smaller Supply
  • Viterra Sales Process Underway After Getting Buyer Interest
  • Japan May Ship More Copper to Make Up for Dwindling Local Demand 





USD – this is easily the most bullish development we’ve seen since Bernanke’s attempts to debauch the dollar (Jan 25th) – gravity. US Dollar Index should close up for the 3rd consecutive week – while it may not have been for Apple and BAC, this has been a huge headwind for anything Bonds, Gold, Foreign Currency, etc. this week. Yes, anyone who is diversified across Global Macro got tagged by this Correlation Risk.











INDIA – the Indians told the world they got off the Greenspan-put drugs (no rate cut), so the world sold their equity market down another -1% overnight (down -2.6% in 2 days). India is a net importer of inflation (oil) and has seen their yield curve go flat.










The Hedgeye Macro Team


Growth Crisis

This note was originally published at 8am on March 02, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Europe does not just face a debt crisis, Europe also faces a growth crisis.”

-David Cameron


Growth Slows As Inflation Accelerates. I wrote that in every other Early Look note between February-April of 2008 and 2011 and, unless the US Dollar doesn’t catch a credibility bid soon, I’ll write it again from February-April of 2012.


Why is it that people in our profession didn’t believe me then? Why is it that they don’t believe me now? Do less people believe me less? I really have no idea on what the answers to these questions are. The only thing I am certain of is that my process for intermediate-term economic forecasting using the US Dollar as my lead indicator for Growth and Inflation has not changed.


Sadly, neither has the broken processes of those who had both the 2008 and 2011 Growth Slowdowns wrong.


Back to the Global Macro Grind


Britain’s Prime Minister David Cameron gets this. The Chinese, Indians, and Brazilians get this. So why is it that the Crack Keynesian economists, who got the USA, Japan, and Italy into this mess to begin with, don’t?


That’s pretty simple. It would mean they’d have to hold themselves accountable for structurally impairing the long-term economic growth prospects of Global GDP via Keynesian/Fiat Policies to Inflate.


Got data to support these attacks on the aristocracy of our academic elite?


Let’s look at yesterday’s American Institute of Supply Management Report (ISM) for February (see Chart of The Day):

  1. GROWTH: Slowed -3.1% sequentially (month-over-month) to 52.4 from 54.1
  2. INFLATION: Accelerated +10.9% (month-over-month) to 61.5 from 55.5 (Prices Paid)
  3. POLICY: Dollar Debauchery began January 25th after Ben Bernanke push his Policy to Inflate to 2014

So why didn’t markets go straight down on that yesterday?


I have no idea – they didn’t until May of last year either. Markets will do what they do, until they don’t. The German hyper-inflation of the 1920s saw its stock and commodity markets rise as real (inflation adjusted) German Growth Slowed to all-time lows too.


No worries. According to the Chairman of The US Federal Reserve’s CYA Career Risk Management campaign:

  1. GROWTH: Qe2 (ended Q2 of 2011) was supposed to get us a US Growth acceleration to 3.5-4% (it was 0.36% in Q1 2011)
  2. INFLATION: never – at all-time highs in food and energy prices, you’ll never see it, ever (it ramped to 4-6% in 2011)
  3. POLICY RESULTS? Bernanke said this yesterday and I almost fell out of my chair:

“We’ve had about 2.5 million jobs added … and we’ve seen big gains in stock prices…”


Oh. Ok. Now that the stock market is up, we need to do more of what we did from an inflation policy perspective last year – because, uh, it actually worked? This is the kind of groupthink, dogma, and confirmation bias that almost every behavioral psychologist of the modern Millennium shuns. Enough of the Great Depression fear-mongering thing already.


It’s ok to admit it.


We have a pending Growth Crisis in Japan, Western Europe, and the United States of America. Like an AA meeting, we might have to all say it together: “we are addicted to easy money, inflation, and debt – they structurally impair growth.”


Got math to support these plainly visible claims? Let’s look at how US Growth (GDP) did as the US Dollar Strengthened in Q4 of 2011:

  1. US Dollar Index and American Purchasing Power rose +6.7% from mid October to the end of December 2011
  2. US GDP Growth Accelerated from +1.34% in Q2 2011 (highest inflation quarter of 2011) to +2.98% Q4 2011
  3. US Consumption Growth Accelerated from +0.38% in Q2 2011 (lowest since Q1 of 2009) to +1.17% Q4 2011

The math is so trivial that only an un-elected Central Planner can obfuscate it to the Muppets in Congress at this point.


Facts about US Economic Growth:

  1. US Consumption represents 71% of US GDP – get that right, you’ll get mostly everything else right
  2. Export Manufacturing won’t move anything but the political dial – debauching the Dollar for “export” growth has not worked
  3. Strong Dollar Deflates The Inflation = Higher Real-Inflation Adjusted Consumption = Higher US Growth

Setting aside the accounting irregularities of the US Government on silly things like birth/death adjustments to the US Employment report and using a GDP “Deflator” that’s usually understating US inflation anywhere between 50-1000% (GDP Deflator for Q4 was 0.86%, when CPI and PPI blended averages for Q4 were approximately 500% higher), you should feel better now.


You shouldn’t feel better about America’s long-term Growth Crisis. You should just feel better because I am telling you the truth.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1697-1735, $123.29-126.41, $78.11-79.22, and 1363-1375, respectively.


We’ll be hosting our Sovereign Debt and Demographic Reckoning Conference Call on Japan at 11AM EST. Please email if you are interested in participating.


Best of luck out there today and Happy Birthday to my beautiful little girl, Callie.




Keith R. McCullough
Chief Executive Officer


Growth Crisis - Chart of the Day


Growth Crisis - Virtual Portfolio

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%