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Optimistic Bias

“The optimistic bias may well be the most significant of the cognitive biases.”

-Daniel Kahneman


After a beautiful long Easter weekend with my family on the East Coast, I really don’t feel like writing negatively this morning. The S&P Futures will do that for you on their own.


Growth Slowing, globally, isn’t the “pessimist’s” view – it’s the realist’s view. As Risk Managers, we do not get paid to have an Optimistic Bias. We get paid to have a repeatable risk management process that is biased to the Global Macro data. On the margin, growth is either slowing or accelerating. We’re ok with being early in signaling either direction.


Since global growth data has been slowing for at least 6 weeks, why was Old Wall Street consensus so optimistic about the March Employment report? Some people call it perma-bull, but Kahneman’s behavioral psych explanation is a little nicer: we “tend to exaggerate our ability to forecast the future, which fosters optimistic overconfidence.” (Thinking, Fast and Slow, pg 255).


Back to the Global Macro Grind


Fortuitously, in the last 3 weeks, as Growth Slowing became more obvious, I raised the Cash position in the Hedgeye Asset Allocation Model to 79% (versus 61% two weeks ago). That should put us in a great position to buy on red this morning.


Or does it?


If I feel like I am too long this morning, I can’t imagine what my overly optimistic competition is feeling.


Today is not a day to freak-out and sell on red. Today is a good day to wait and watch. Since most of Europe is closed, the Top 3 Risk Management Signals to watch will be the US Dollar Index, SP500, and 10-year US Treasury Yield:


1.   US DOLLAR: after rising +1.4% last wk (its 1st up week in the last 4), the USD needs to show A) some follow through and B) no more policy to debauch it. If the US Dollar Index can hold its head above $79.51 intermediate-term support, that’s bullish.


2.   SP500: if the SP500 closes below 1391 support (my immediate-term TRADE line), that’s bearish and it puts 1331 in play over my intermediate-term TREND duration (next 3 months or more). Since 3 of the last 4 YTD SP500 tops occurred in the Feb-May periods, you want to be very careful on time and price here.


3.   TREASURIES: plenty who suggested “growth is back” and “bond yields could breakout (buy equities!)” have just seen the 10-yr yield drop -14% in a straight line (from 2.40% to 2.06%). That’s going to leave a mark on asset allocation moves. The long-term TAIL of Growth Slowing remains with 10-yr yield resistance up at 2.47%. Now we’ll see if 2.03% support holds.


This is the 3rdtime that Bernanke has made a formal decision to Debauch The Dollar with a Policy To Inflate (2010, 2011, and 2012) and the 3rd time that his policy has ignited short-term asset price inflation that, in turn, slowed growth.


Other than those who get paid by commodity price inflation, who wants QE 4, 5, and 6? Remember last year when Q1 GDP slowed to a halt (0.36%)? Back then, expectations were for 3.5-4% growth. Today, the perma-bulls are still talking about US Growth north of 3%. That’s an Optimistic Bias if I ever saw one.


Real (inflation adjusted) US Growth could get cut in half again from here if Bernanke decides to debauch further. If he doesn’t, Strong Dollar has every opportunity to emerge the victor in Bernanke’s War.


Strong Dollar Deflates The Inflation. Strong Dollar = Strong Consumption. Strong Dollar = Strong America.


The risk to all of that, of course, is that now I’m being the optimist.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, 10-year US Treasury Yield, and the SP500 are now $1, $121.61-124.18, $79.51-80.16, 2.03-2.18%, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Optimistic Bias - Chart of the Day


Optimistic Bias - Virtual Portfolio


The Macau Metro Monitor, April 9, 2012




The securities will have an annual coupon rate of 5.125% until October 2022 and 6.125% after that.  In the event of oversubscription, Genting added that it may issue up to an additional S$200 million worth of securities to satisfy the excess demand.  DBS Bank is the sole global coordinator for the offering and DBS Bank and OCBC Bank are the joint lead managers and bookrunners for the offering.  Just last month, Genting had launched S$1.8 billion in perpetual securities to fund its investment plans. 


"This round is really for the retail investors, the man on the street," said GENT's CFO Lee Shi Ruh. "The purpose of this is really to tap on a different pool of investors."



MGM China CEO Grant Bowie says the gaming operator has already handed all the necessary paperwork to the government for the approval process of its land request in Cotai.  “It is totally and absolutely in the hands of the Macau government,” said Bowie.  “From our current drawings, gaming represents less than 12% of the floor space of the property,” Bowie said.  The Cotai property will have 1,800 rooms but capacity to include additional towers and 500 gaming tables, pending government approval, he added.



Citing sources close to a state-owned bank,  the newspaper said March new yuan loans data is likely to exceed CNY800B. The four state-owned banks have issued CNY294.6 billion of new yuan loans in March, up from People's Bank of China's expectation of CNY269 billion at the beginning of March.


Kangwon Land, the only casino in the country open to Korean nationals, will temporarily shut down for the first time since it opened in October 2000.  The casino explained that the temporary closure from 6 a.m. next Tuesday to 10 a.m. Wednesday aims to prevent game fixing and fraudulent practices by staff.  According to donga.com, a person suspected of getting a hidden camera installed at Kangwon Land Casino to cheat at games is known to have fled to China.  Known to have been the middle man between scheming gamblers and casino workers, he is suspected of ordering the two staff members to move a card box with tiny video cameras installed to a baccarat table, promising them 10% of profits.


TODAY’S S&P 500 SET-UP – April 9, 2012

As we look at today’s set up for the S&P 500, the range is 19 points or -0.79% downside to 1387 and 0.57% upside to 1406. 











SP500 – our math says the SP500 closes higher than where the futures are trading, but it also says that a close below 1391 would be bearish if sustained – so wait/watch that line throughout the week as the inflation data domestically gets reported Wed-Fri (it will rise again sequentially) and earnings season, which will be one of the slowest growth ones in years, is upon us. 

  • ADVANCE/DECLINE LINE: -410 (1428) 
  • VOLUME: NYSE 719.28 (-13.60%)
  • VIX:  16.70 1.58% YTD PERFORMANCE: -28.63%
  • SPX PUT/CALL RATIO: 2.51 from 1.89 (32.80%) 


BOND YIELDS – as far as 1-day moves go, Friday’s reaction in the 10yr was violent; now you have 10yr Treasuries yielding 2.06% (down 35bps in a month!) and the Yield Spread just compressed -14bps in 1-day, wow – just like that growth slowing gets marked to market before everyone thought they could get out. 

  • TED SPREAD: 39.79
  • 3-MONTH T-BILL YIELD: 0.07%
  • 10-Year: 2.06 from 2.05
  • YIELD CURVE: 1.74 from 1.74

MACRO DATA POINTS (Bloomberg Estimates):

  • 11:30am: U.S. to sell $31b 3-mo., $29b 6-mo. bills
  • 7:15pm: Fed Chairman Ben Bernanke speaks on economic stability at Atlanta Fed conference 


    • President Obama hosts Brazilian President Dilma Rousseff at White House
    • Newt Gingrich says Mitt Romney “far and away” most likely candidate to win the Republican nomination, said on “Fox News Sunday” will endorse Romney if gets majority of delegates 


  • AT&T says talks with CWA continue after labor contracts expire
  • China’s March consumer prices rose 3.6% Y/y, more than median 3.4% est. in Bloomberg News survey
  • March’s setback in hiring will prove temporary as U.S. economy, in 3rd yr of expansion, is better equipped to overcome a slowdown in Europe, rising fuel costs, economists said
  • Monthly casino results from Las Vegas, Atlantic City expected early this week
  • Great Wolf Resorts got $7/shr cash, or $234m, takeover offer from KSL Capital that tops Apollo a 2nd time
  • Sony to cut ~10k jobs, or 6% of its workforce: Nikkei
  • Global ad spending rose 6.2% Y/y in 4Q: Nielsen
  • European securities markets are closed, along with Hong Kong, Thailand, South Africa, Australia, New Zealand and Philippines
  • Abstracts released for American Urological Association annual mtg in Atlanta; watch for AGN’s Phase 3 Botox data
  • FDA briefing docs released for 4/11 advisory panel on closely held U-Systems’ Automated Breast Ultrasound 


    • Penford (PENX) 6am, $0.01
    • Greenbrier (GBX) 6am, $0.46
    • Zep (ZEP) 7:15am, $0.09
    • Healthcare Services Group (HCSG) 4:11pm, $0.14



  • Hedge Funds Cut Wagers as Fed Signals Less Stimulus: Commodities
  • Gold Gains on U.S. Jobs Data, Outlook for Stronger Asian Demand
  • Copper Drops on Speculation China Won’t Add Stimulus After Data
  • Soybeans Climb to Seven-Month High as Drought Pares Stockpiles
  • Lower U.S. Crop Reserves Raising Food Costs in Election Year
  • Palm Oil Declines From 13-Month High on Production Speculation
  • Rubber Declines for Fifth Day as China’s Inflation Accelerates
  • Royal Bank Chooses Court Battle With CFTC Over Wash Trades
  • Oil Drops Third Time in Four Days on Economy Concern, Iran Talks
  • Oil Bulls Retreat as U.S. Production Accelerates: Energy Markets
  • McDonald’s Pursuit of Perfect Fries Risks Exposing Flaws: Retail
  • Myanmar Seeks ‘More Carrots’ as U.S. Begins Sanctions Rollback
  • China May Be Cautious on Easing After Inflation Pickup: Economy
  • Funds Reduce Bullish Bets for Second Week
  • Phillips 66 Looks to Pipes to Blunt Refining Volatility: Energy
  • Worker Shortage Dogs Trail King as South Dakota Jobs Go Begging
  • Obama and Rousseff to Talk Energy and Trade at the White House














CHINA – Dollar Debauchery (Bernanke on Jan 25th, pushing easy money to 2014) fired up commodity inflation sequentially in FEB/MAR, and accelerating inflation then slowed real growth, globally. Same model we have been using for 5yrs – China’s inflation data for MAR rises to 3.6% vs 3.4% FEB.










The Hedgeye Macro Team


Athletic Apparel: NKE Outperforming


Athletic Apparel sales continue to show strength following a 3-week streak of negative growth in early March. Underlying trends accelerated across all channels driven by pricing.   


The industry is facing increasingly difficult top-line compares through May as we indicated last week ("Athletic Apparel: Underlying Trends Improving"). While last week’s +7% sales growth in the athletic specialty channel reflected a 20bps sequential deceleration vs. the week prior, the 2-year blended rate improved. Pricing continues to be the primary driver within the athletic specialty channel up +4.3% and +4.6% respectively outpacing unit growth with both posting positive results each of the last two weeks. While yy unit compares have been down over the past 5-weeks, next week marks an inflection point where comps become more favorable at the same time pricing compares get tougher.  


NKE led the industry in market share gains last week +453bps with sales up +18.1% on higher ASPs up +10.3%. Over the last 12 months, industry data suggests Nike holds 34% share of the overall athletic apparel market. As a result, Nike’s growth contributed about 6pts to the 4.3% overall growth we saw last week while most brands and the balance of the industry contracted (ADI -0.4%, Columbia -1.3%, UA -0.9%).


Matt Darula



Athletic Apparel: NKE Outperforming - apparel main table


Athletic Apparel: NKE Outperforming - 2 yr apparel


Athletic Apparel: NKE Outperforming - ASP chart


Athletic Apparel: NKE Outperforming - NKE apparel



An easy hold comparison aided March but Mass strength is the key takeaway



On an hold adjusted basis for both periods, March GGR would’ve grown 21% YoY versus the 25% actual.  VIP hold was close to normal this year but last year's was below.  For the 5th straight month, Mass growth outpaced VIP, a good signal for profits.  March was the easiest hold comparison of the year so the next few months should be more indicative of the real pace of growth. 



Y-o-Y Table Revenue Observations


Total table revenue grew 25% YoY this month, on top of 48% growth last March.  Hold comparisons were again very easy. Mass revenue grew 41% while VIP revenue grew 21%.  Junket RC increased 15%.




Table revenues grew 34% YoY, outpacing the market due to a strong performance from Four Seasons.  For the 5th consecutive month, LVS had the silver prize for VIP growth, after Galaxy. 

  • Sands was up 16% YoY with a very low hold comparison of 2.2%
    • Mass and VIP both grew around 15%
    • Assuming $300MM/month of direct play or 12% (in-line with the monthly absolute average in 4Q11), hold was 2.95% vs. 2.20% last March, assuming 10% direct play or $282MM/month
    • Junket RC was down 15%, the 3rd consecutive double-digit decline
  • Venetian table revenues increased 21% YoY, driven by easy hold comps and good growth in Mass
    • Mass increased 49%, VIP increased 21%, while junket VIP RC increased 1%
    • Assuming 27% direct play in the quarter (below the 28% we saw in 4Q11 but higher than 2011), hold was 2.52% compared to 2.19% in March 2011, assuming 19% direct play (in-line with 1Q11)
  • Four Seasons skyrocketed 129% YoY, driven by huge Junket RC growth and high hold
    • Junket VIP RC and VIP revenues were both up triple digits. Mass grew 14%.
    • Four Seasons is clearly seeing a benefit from LVS’s recent initiatives.  If we assume that monthly direct play volume of $690MM/month in-line with 4Q11, that implies a direct play percentage of 18% for March and a hold rate of 3.04%.  In comparison, if March 2011 direct play was around 50% (54% in 4Q10 and 40% in 1Q11) then hold was 2.55%.



Wynn table revenues increased 11%, continuing its sub-market growth for 8 consecutive months.  While Wynn’s hold was low, last year’s comparison was also easy. 

  • Mass was up 7%, slowest growth since March 2010, and VIP increased 11%
  • Junket RC grew 20%
  • Assuming 11% of total VIP play was direct (in-line with 4Q11), we estimate that hold was 2.31% compared to 2.48% last year (assuming 10% direct play – in-line with 1Q11)



MPEL grew 27%, propelled by a big rise in Mass table growth of 84%, only behind Galaxy's. VIP revenues gained 11%.

  • Altira revenues gained 11% due to a 36% gain in Mass
    • VIP revenues rose 9%
    • VIP RC fell 15% - marking the 4th consecutive month of declines
    • We estimate that hold was 3.3%, compared to 2.6% in the prior year
  • CoD table revenue was up 36%, driven by 93% growth in Mass and 19% growth in VIP
    • Junket VIP RC fell 18%
    • Assuming a 16% direct play level, hold was 3.0% in March compared to 2.1% last year (assuming 13.7% direct play levels in-line with 1Q11)


Table revenues fell 2%, the 1st decline since July 2009, due to a 7% drop in VIP revs

  • Mass rose 11%
  • Junket RC was down 5%, the 2nd consecutive month of declines. Hold was 2.66%, compared with 2.73% last March.



For the 10th month in a row, Galaxy posted table revenues growth north of 100% - at 121%. Mass soared 291%, while VIP grew 100%.

  • StarWorld table revenues grew 16%
    • Mass grew 54% and VIP revenue grew 14%
    • Junket RC grew 17%
    • Hold was high at 3.0% but in-line with last March's hold
  • Galaxy Macau's total table revenues hit $314MM and higher than the 6-month run rate of $279MM
    • Mass table revs hit a new monthly high of $77MM
    • VIP table revenue increased 18% MoM to $237MM
    • Hold was 3.0% 
    • RC volume of $7.9BN was 8% higher than February's and compares to a peak of $8.3BN in October



Table revenues grew 14% 

  • Mass revenue growth of 36% rebounded from February's low of 4% 
  • VIP revenue grew 8%
  • Junket RC grew 9%
  • Assuming a direct play level of 9% (comparable to 4Q), we estimate that hold was 2.93% this month vs. 2.97% in March 2011


Sequential Market Share




LVS lost 2% market share MoM to 16.5% in March from 18.5% in February.  This compares to a 6 month trailing market share of 16.2% and 2011 average share of 15.7%.

  • Sands' share gained 20bps to 4.4%.  For comparison purposes, March's share was below 2011's share of 4.6% but above 6M trailing average share of 4.1%.
    • VIP rev share decreased 10bps while Mass share gained 80 bps
    • RC share increased 70bps to 3.0% 
  • Venetian’s share dropped 0.3% to 7.7%, the lowest market share in 7 months.  2011 share was 8.4% and 6 month trailing share was 8.4%.
    • VIP share decreased 0.9% to 5.0%, lowest share since Aug 2011
    • Mass share improved 1.0% bps to 14.9%
    • Junket RC fell 60bps to 4.1%
  • Four Seasons dropped 2.1% in share to 4.1%, breaking a 6-month winning streak.  This compares to 2011 share of 2.2% and 6M trailing average share of 3.2%.  In March, FS's VIP rev and RC share were similar to Venetian's.
    • VIP share dropped 2.3% to 5.1%.
    • Mass share fell 90bps to 1.5%
    • Junket RC lost 170bps to 4.1%  



Wynn’s share fell 30bps to 12.3%, below its 6 month trailing average share of 12.8% and well below its 2011 average share of 14.1%.  We expect Wynn’s share to continue to struggle with the opening of Sands Cotai Central in April.

  • Mass market share fell 30bps to 9.1%
  • VIP market share fell 10bps to 13.2%
  • Junket RC share jumped 1.9% to 15.3%



MPEL's share was basically unchanged MoM in March to 14.2%.  This is in-line with its 6 month trailing share and below its 2011 share of 14.8%.

  • Altira share improved 50bps to 4.6%.  The property’s 2011 share was 5.3% and 6M trailing share was 4.4%.
    • Mass share ticked up 20bps to 1.6% while VIP share increased 80bps
    • VIP RC dropped 50 bps to 5.0%
  • CoD’s share dropped 0.4% to 9.4%.  Its 2011 share was 9.3% and 6M trailing share was 9.5%.
    • Mass market share was unchanged at 11%
    • VIP share decreased 60bps to 8.8%
    • Junket RC was down 20bps to 7.5%



SJM lost 130bps of share to 26.6%, below its 6-month trailing average of 27.3% and 2011 average of 29.2%

  • Mass market share tumbled 4.3% to 32.3%, a new all-time low
  • VIP share fell 60bps to 25.3%
  • Junket RC share gained 0.6% to 28.4%



Galaxy was the biggest share gainer in March, gaining 380bps to 20.3% and above its 6-month trailing average of 19.2%

  • Galaxy Macau share 180% to 10.5%, matching its previous high in Oct 2011
    • Mass share gained 2.4% to 9.6%, a new monthly high
    • VIP increased 1.6% to 10.8%
    • RC share ticked increased 40bps to 10.4% 
  • Starworld share grew 2.2% to 8.9%, a little below its TTM average share of 9.1% before Galaxy Macau opened.
    • Mass share was flat MoM
    • VIP share grew 320bps to 11.1%
    • VIP RC grew 0.2% to 11.0%



MGM share fell 30bps to 10.0%.  March share sits below MGM’s 2011 and 6-month trailing average share of 10.5%.

  • Mass share ticked up 120 bps to 8.0%
  • VIP share fell 80bps at 10.3%
  • Junket RC fell 50bps to 9.6%


Slot Revenue

Slot revenue reached $138MM in March, with 16% YoY growth

  • As expected, GALAXY slot revenues grew the most with 315% YoY to $15MM
  • MGM slot revenues had the second best growth at 21% YoY to $23MM, a new monthly record
  • MPEL slot revenues grew 13% YoY to $25MM
  • SJM slot revenues grew 1% YoY to $19MM
  • LVS slot revenues grew 14% YoY to $34MM
  • Wynn continued to be the laggard, falling 11% YoY to $21MM







Obvious Conclusions

This note was originally published at 8am on March 23, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Once you understand the main conclusion, it seems it was always obvious.”

-Daniel Kahneman


Obviously, after the SP500 is down for 3 consecutive days, Asian stocks have their worst week of the year, and the Japanese Yen drops 9% in a straight line, Global Growth Slowing matters – right? Right. Right. Everyone nailed it, again.


The aforementioned quote comes from the end of Chapter 22 in “Thinking, Fast and Slow” titled Expert Intuition: When Can We Trust It? Obviously, after seeing Sell-Side and Washington consensus miss the Growth Slowdowns in Q1 of 2008, 2010, 2011, and now 2012, the conclusion is that you cannot trust our profession’s broken “economic” sources.


When evaluating expert intuitions you should always consider whether there was an adequate opportunity to learn the cues, even in a regular environment” (Kahneman, page 243). The globally interconnected cues associated with inflation slowing global growth have been as obvious as obvious gets.


Back to the Global Macro Grind


Let’s check in with the “experts” this morning:


1.  Credit Suisse – last week they said that “bond yields could rise further – this might help Equities” … so we’re still waiting to hear from them as to whether US bond yields falling this week might not help equities.


2.   Goldman Sachs – their currency strategist, Tom Stolper (who has been on the opposite side of just about every big currency call we’ve made for the last few years) says buy the Japanese Yen and sell the US Dollar. We’re still on the other side.


3.   Ben Bernanke – says “consumer spending has not recovered, it’s still quite weak relative to where it was before the crisis” and he is effectively daring consumers to draw down their savings even more to “fuel spending growth.”


You’ve just got to love how central planners think. Hey, why don’t we jam the entire world with Policies To Inflate, then chastise people for not having enough real (inflation adjusted) money left to buy things.  




The good news is that some experts still have some credibility. Some of them actually still believe in gravity. German Finance Minister official, Ludger Schuknecht, said yesterday that Italy and Spain are “too big to be saved.”


Spain looks awful, fyi.


Away from the Obvious Conclusion that stocks can in fact go down after they go straight up, it’s a fairly quiet morning here in New Haven, CT. That’s interesting, given that yesterday was actually the 2nd biggest down day for the SP500 of 2012. It was only down -0.7%!


That’s not normal. Neither are the US stock market’s volumes – they are dead as the trust embedded in America’s craw.


Looking at the 3 biggest SP500 down days of 2012:

  1. March 6th= down -1.5%
  2. March 22nd= down -0.7%
  3. Feb 10th= down -0.6%

Since they seem to have a completely arbitrary “year-end target” for just about everything else, ask your local expert at an Old Wall Street shop how many days we’ll have this year where the market closes down by more than 1%. Here’s my expert forecast – more than one.


Remember, as Growth Slows, intermediate-term tops are processes, not points. Here are the last 3 times we’ve shorted what we call immediate-term TRADE overbought tops in the SP500:

  1. February 15th= covered Short SPY for a +0.94% gain
  2. February 22nd= covered Short SPY for a +0.21% gain
  3. Current short position = +0.52% in our favor (unrealized)

Obvious Conclusion: slim pickings for those of us who like to pick off price momentum chasing. That said, this was equally obvious in Feb-April of 2011. Then, tick-ah-tee-boom! The expert perma-bulls got run-over, again.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (USD/JPY), and the SP500 are now $1626-1666, $122.37-124.57, $79.33-80.45, $82.22-84.14, and 1375-1397, respectively.


Best of luck out there today and enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Obvious Conclusions - Chart of the Day


Obvious Conclusions - 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%