The Macau Metro Monitor, April 5, 2012




The major daily newspaper, Asahi Shimbun, reported that Sega had purchased the Sea Gaia resort in the Miyazaki prefecture.  The 700-hectare property, which houses a major hotel, tennis courts, spa and golf course, was owned by a foreign consortium but has operated at a loss.  Sega has bought the property for 40 billion yen and there were questions on the casino prospects to which representatives of Sega responded that the deal had not been conditional on casinos becoming legal in Japan or that the resort would obtain a licence.  However, they said that when casinos are legalized, they would consider it carefully.


Meanwhile, according to the newspaper, Sega continues to build on its casino investments in other countries where they are permitted.  The publication also noted that Konami had approval for the manufacture of casino slots as far back as 1996 and will therefore be ready to supply machines once casinos are permitted in Japan.


On March 31, the chief secretary to the Ministry of Tourism in Japan said casinos would help to stabilise the Japanese economy after the natural disaster of last year and help create a fund for special relief measure.  An all-party bill is expected to be presented to the Japanese National Assembly before April 2013, which will demand the approval of a resort casino "as an exception."


Many of the less wealthy Japanese cities and prefectures have cited an interest in such a project, although the National Assembly is likely to choose initially between Tokyo and Osaka as a location.  Other cities and prefectures that have indicated interest in the project include Kanagawa, Wakayama and Okinawa.

Covering Gold, Selling USD on Oversold/Bought Conditions

Keith covered our GLD short position in the Hedgeye Virtual Portfolio this morning at $157.86 on the etf for a 3.28% gain, as gold finally became immediate-term TRADE oversold.

Covering Gold, Selling USD on Oversold/Bought Conditions - gold

The inverse correlation between gold and the USD remains strong at -0.62 over the past 15 days and -0.75 over the past 90 days. Along with covering our short in gold, we sold our long position in the USD etf UUP at $22.12 this morning.

Covering Gold, Selling USD on Oversold/Bought Conditions - usd.go


Fundamentally, we think that gold remains under pressure as QE3 is unlikely.  The FOMC Minutes from the March 13th meeting released yesterday showed no immediate indication of further quantitative easing.  The release stated that,


“Members viewed the information on U.S. economic activity received over the intermeeting period as suggesting that the economy had been expanding moderately and generally agreed that the economic outlook, while a bit stronger overall, was broadly similar to that at the time of their January meeting…In their discussion of monetary policy for the period ahead, members agreed that it would be appropriate to maintain the existing highly accommodative stance of monetary policy. In particular, they agreed to keep the target range for the federal funds rate at 0 to ¼ percent, to continue the program of extending the average maturity of the Federal Reserve’s holdings of securities as announced in September, and to retain the existing policies regarding the reinvestment of principal payments from Federal Reserve holdings of securities.”


The lack of incremental easing is a headwind for treasuries, which in turn is a headwind for gold, as gold competes with real yields.


The chart below highlights this relationship.


Covering Gold, Selling USD on Oversold/Bought Conditions - gold.10


Kevin Kaiser


ECB Presser YouTubed

-- At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 1.00%, 1.75% and 0.25%, respectively, which is in-line with consensus expectations. Draghi did not drift far from his statements last month on growth (expects the Eurozone economy to recover gradually in the course of the year); inflation (close to 2% over the medium term); and money supply (broad stabilization off subdued pace).


You can find Mario Draghi’s Introductory Statement to the press conference here:


Draghi again stressed the work of the two 36 month LTROs as decisive measures to put Europe back on track, yet (again) wasn’t able to show material evidence that real lending has happened in response to these huge liquidity dumps, and called on governments and banks to continue reforms and repair balance sheets to support recovery. He noted that today’s projections do not take into account the impact of the second LTRO.


Draghi did not indicate any intention for a third LTRO, said today’s decision to keep rates unchanged was unanimous, and stressed that the Bank pays particular attention to any signs of pass through from energy prices to wages.  Broadly, Draghi’s answers in the Q&A were vague, including on such questions as Greek bank recapitalization steps, unemployment rate risks in countries like Greece and Spain, and the real impact of the LTRO.


Below we present the Q&A highlights:

-When will the LTROs reveal their full force?    MD: I cannot answer when. I can answer what we do and what we watch. We look at consolidated bank balance sheets country by country to see if liquidity creation translates into deposits (banks buy securities, buildings, bonds, for example) and increases in required reserves.


-Greek banks were hit hard by the PSI deal. Will the ECB have to drop certain banks as counterparties?   MD: Greek banks capital has been wiped out. A €50 Billion recapitalization fund for Greece has been set up, €25 Billion of which is available immediately. The ECB will decide which banks are viable for counterparties for monetary policy operations, which is still in the works.


-Are you stepping up your inflation rhetoric given your new sentence to the introductory statement “have to address inflation pressures in a firm and timely manner”?   MD: Not stepping up rhetoric on inflation. To the extent energy prices rise, pass through pressures must be monitored.


-Are banks getting addicted to cheap money?   MD: there’s no sign of addiction to ECB loans. LTROs are a window opportunity for governments to take fiscal consolidation and structural reforms, and benefit from relative peace on financial markets.


-On the inflation calculation…   MD: We can have everyone at 2% inflation, without having to have higher inflation rates for the stronger countries.


-We see youth unemployment rates in Spain and Greece at extremely high levels; are there damaging effects from fiscal consolidation?   MD: Growth can come from foreign demand and short term interest rates (which are negative at present time). Supply reforms must be taken. High youth unemployment rates develop mostly in countries that have had dual labor markets. Under one wing there are firm laws and benefits; other the other wing there are younger worker that are typically temporary, or hired on a short term basis. So during crisis, the latter group was the first without a job. So we must see reforms to better distribute the weight of labor market movements.




Matthew Hedrick

Senior Analyst

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Short Covering Opportunity: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)


Our fundamental research call for Global Growth Slowing has not changed. Neither has our risk management process. Prices have.


For now, this correction in the SP500 from its YTD high is just that – a correction. A 25 point drop in the SP500 from its YTD closing high of 1419 = -1.8%. That’s only 50% of the YTD drop from the next closest major equity market in the world, so there is plenty of mean reversion risk that remains.


Across my core risk management durations (TRADE, TREND, and TAIL), here are the lines that matter to me most: 

  1. Immediate-term TRADE resistance (was support) = 1407
  2. Immediate-term TRADE support = 1392
  3. Intermediate-term TREND support = 1324 

In other words (and I said the same thing yesterday), if 1407 snaps, 1324 is in play over the intermediate-term TREND duration. That’s a big problem for the bulls because the smallest drawdown we saw from the Q1 YTD high in 2008, 2010, and 2011 was just north of 15%.


Every draw-down is different, but with this level of dependence on the Fed and easy money inflation policies, they have all certainly rhymed.




Keith R. McCullough
Chief Executive Officer


Short Covering Opportunity: SP500 Levels, Refreshed - SPX




Hedgeye Restaurants Alpha – our best fundamental ideas














Commentary from CEO Keith McCullough


Oh how quickly the game changes when economic gravity is introduced:

  1. JAPAN – top question from clients is when does the sov debt crisis in Japan find its way into equities. Answer: after currencies. The Nikkei finally snapped its immediate-term TRADE line of 10,105 support last night, trading down a stiff -2.3%, taking its correction to -4% from its March high (to put the asymmetry of the SP500 in context, the US has only had 1 down day of more than -0.7% YTD).
  2. GERMANY – first immediate-term TRADE line break in the DAX too (line was 6998), and the correction in German Equities is now -3.8% from the YTD peak (so keep that in mind w/ the SP500 only -0.4% from its YTD no-volume high). German economic data, like the rest of the world’s, has slowed sequentially in the last 6 weeks.
  3. US DOLLARBernanke’s Bubbles are vast. All we need to see is the confluence of UST yields rising alongside the USD and Gold will come down in a hurry. Intense selling in the last 48hrs in Gold and Silver. Bernanke’s War is on. Remember, we’re explicitly fighting the Fed having a 0% asset allocation to Commodities and Treasuries right now.


Watch 1407 on the SPX. That line breaks and 1388 is next support.










MCD: McDonald’s was removed from the Conviction Buy list at Goldman Sachs.  It remains rated Buy.


BUX: Starbucks was added to the Conviction Buy list at Goldman Sachs.


BKC: Burger King is coming public again.  Burger King will sell a 29% or $1.4 billion stake to Ackman via Justice Holdings, a UK investment vehicle.  The company says its international growth plans will benefit from better visibility as a public company.  It expects its shares to be relisted on the NYSE within 3 months.


THI: Tim Hortons was downgraded to Neutral from Buy at Goldman Sachs.


WEN: Wendy’s is meeting with lenders in New York tomorrow to discuss $1.325 billion in loans the company is seeking to refinance debt.  The financing will include a $1.125 billion term loan B maturing in seven years and a $200 million revolving line of credit due in five years.




GMCR: Green Mountain declined 2.2% on accelerating volume.





PFCB: P.F. Chang’s on Monday revealed its faster service, lower-priced Pei Wei Asian Market, a fast-casual spin-off of its 173-unit Pei Wei Asian Diner concept.




KONA: Kona Grill gained 7.1% on accelerating volume.


PFCB: P.F. Chang’s gained 2% on accelerating volume.






Howard Penney

Managing Director


Rory Green



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