The Macau Metro Monitor, April 10, 2012




Once complete, Cotai Central will house two themed casinos called Himalaya and Pacifica.  Himalaya opens in phase one and has about 600 slots, 216 gaming tables and four live electronic gaming tables connected to 200 terminals for players.  Another 150 VIP tables can be found at the Paiza, Cotai Central’s dedicated area for VIP premium and junket players. The Paiza will host 11 fixed junkets.

Sands will get 200 new tables from the government for the first phase.  That will use up all the available tables under the cap of 5,500 imposed until next year. The property’s other tables will be sourced from Sands’ established casinos.


It could be far more difficult finding tables for Pacifica when it opens in 3Q 2012. “Our understanding is that we have another 200 new tables that we were essentially promised [by the government],” says David Sisk, Sands China's executive vice president.  Cotai Central’s first phase features more than 600 five-star rooms and suites under the Conrad hotel brand and another 1,200 four-star rooms from Holiday Inn.  The opening will add another 28 shops, meeting space and food and beverage options to Cotai.


The Easter and Ching Ming festivals brought extra numbers of tourists to Macau and additional business for retail shops, restaurants and hotels.  According to the authority’s statistics, the daily number of visitors coming in and out of the city ranged between 330,000 and 370,000 during the holiday, making a total of more than 1.4 million holidaymakers, most of them through Hong Kong, or the Barrier Gate in the northern end that connects to Zhuhai. 


President Obama's Chance of Winning Reelection Declines to 61% -- Hedgeye Election Indicator

President Obama's Chance of Winning Reelection Declines to 61% -- Hedgeye Election Indicator  - Screen Shot 2012 04 10 at 7.28.13 AM 



If the US Presidential election were held today, President Obama would have a 61% chance to win reelection, according to the Hedgeye Election Indicator (HEI). That's down a full percentage point from last week, when the HEI calculated the President's chances of winning reelection at 62%. It's also the second consecutive week that the HEI has shown that the President's odds of reelection have declined. The decline in the last two weeks stands in contrast to the first quarter of the year when the HEI climbed in January from a 50% likelihood that Obama would win reelection to a record high of 62.3% in late March.



President Obama's Chance of Winning Reelection Declines to 61% -- Hedgeye Election Indicator  - HEI



Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment. One of those indicators, the timing of the overall performance of the US stock market, played a key role in moving the HEI lower this week. Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.   


Hedgeye releases the HEI every Tuesday at 7 a.m. ET, all the way until election day Tuesday November 6.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Prepare The Pile

“The key is not to predict the future, but to be prepared for it.”



I was on a plane to Denver last night and was reviewing some of the required reading in my pile. For those of you un-familiar with my research process, my pile is part of it. I never leave home without it. I typically read my pile on a 1-3 week lag.


The Pile revealed 2 different perspectives on preparing for the future trajectory of long-term Global Economic Growth:

  1. Goldman Sachs: Global Strategy Paper No. 4 – “The Long Good Buy” (March 21, 2012)
  2. Reinhart & Rogoff: “Five Years After Crisis, No Normal Recovery” (April 2, 2012)

Goldman’s view acknowledges that “future growth may be lower than experienced over the past decade in many parts of the world”, but that equities are already pricing in “unrealistically large declines in growth.” They’re making both a growth and valuation call.


Reinhart & Rogoff suggest that “the concepts of recession and recovery need to take on new meaning” and that “financial crises leave behind deep recessions of long duration and considerable volatility.” They’re calling for debt and volatility to slow growth.


The Pile did not change my 5 year-old view on the Global Growth Cycle. Neither did it change my risk management process. From these debt and deficit levels, Big Government Interventions in our markets and economies will continue to:


A)     Shorten economic cycles

B)      Amplify market volatility


As growth slows, “cheap” markets get cheaper. Valuation isn’t a catalyst until growth re-accelerates.


Back to the Global Macro Grind


While it’s interesting to observe the emotion and Storytelling associated with why the US stocks are going down, this morning’s Global Macro research process reveals pretty much the same thing we have been flagging since February. While Growth Slowing, globally, may be new to a US stock market centric media consensus, it’s not new to the rest of the world.


Here’s a quick Global Equity market update:


1.   ASIA – context is always critical, so it’s important to acknowledge that 2 of the major leading indicators in Asia, the Hang Seng and the Nikkei, stopped going up on February 29th and March 27th, respectively. Inclusive of this week’s declines, the Hang Seng and Nikkei are down -6.1% and -7.0% from their YTD tops. India, Australia, and Singapore are all bearish TRADE.


2.   EUROPE – if Germany’s DAX is susceptible to a 6.2% correction from its YTD high (March 15th), any equity market in the world is. Germany’s employment situation is much more stable than that of the US, despite neighboring some of the most dysfunctional debt/deficit laden countries in the world. Spain is the Global Macro train wreck of the YTD, down -11%.


3.   USA – the SP500 finally broke our immediate-term TRADE line of 1391 support yesterday, but has only corrected -2.6% from its April 2nd top. The Russell 2000 stopped going up 3 weeks ago and is down -5.1% from its March 26th top (immediate-term TRADE resistance there is now 822). As for the 50-day moving averages – we only use them for behavioral observations.


The rest of the world, of course, doesn’t hinge on Dow 13,000 or the price of Apple. It’s globally interconnected, across asset classes, from countries, to currencies, bonds, and commodities.


Here are my Top 10 cross asset class callouts to make a note of this morning:

  1. US Equity Volatility (VIX) has held its long-term TAIL of 14.41 support and is now breaking out above our 16.24 TRADE line
  2. Oil Volatility (OVX) remains above its immediate-term TRADE line of 28.43 support as Oil prices break TRADE support
  3. Brent Oil (BNO) has finally broken its immediate-term TRADE support line of $124.23/barrel
  4. Copper continues to be broken from a long-term TAIL perspective and immediate-term TRADE resistance = $3.85/lb
  5. Gold is in a freshly formed Bearish Formation (bearish TRADE, TREND, and TAIL) with next support = $1616/oz
  6. Spanish and Italian 10yr bond yields remain in a Bullish Formation (bullish TRADE, TREND, and TAIL)
  7. US Treasury 10yr bond yields continue to signal Growth Slowing, under both TRADE resistance of 2.18% and TAIL 2.47%
  8. US Treasury Curve Yield Spread (10s minus 2s), which is a proxy for growth’s slope, has compressed 14bps wk/wk
  9. US Dollar Index is moving into a stealth Bullish Formation with intermediate-term TREND support = $79.55
  10. Japanese Yen is bumping up against another lower long-term high at $81.23 (vs USD) and remains in a Bearish Formation

I have a passion for my team’s process because it’s had repeatable success in revealing the deep simplicity of Growth and Inflation Accelerating or Decelerating, globally, on a real-time basis. I Prepare The Pile every day so that I am always reading the counter punches to our overall risk management conclusions, but I do not defer to The Pile’s views based on short-term market moves.


What we’ve all had the opportunity to learn in the last 5 years is that if you get the intermediate-term TRENDS in both Growth and Inflation right, and you’ll get a lot of other things right. Valuation calls with no catalysts are called opinions. If you’re using the wrong Global Economic Growth assumptions, you’re basing your “valuation” work on the wrong numbers anyway.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $121.31-123.84, $79.55-80.16, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Prepare The Pile - Chart of the Day


Prepare The Pile - Virtual Portfolio

European Banking Monitor: Risk Trickles Back

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

Key Takeaways:


* The Euribor-OIS fell 1 bps to 41bps while the TED spread remained roughly flat. These measures of interbank risk are flattening out. We expect to see very little improvement from here.     


*The ECB’s Liquidity Recourse to the Deposit Facility remains sticky near all-time highs.



Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 1 bps to 41 bps over last week.


European Banking Monitor: Risk Trickles Back - 11. euribor


ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  


European Banking Monitor: Risk Trickles Back - 11. ECB liq


European Financials CDS Monitor –  Due to technical difficulties this week we were unable to pull swap rates for the European banks.


Security Market Program – Due to the Easter Monday holiday today, the ECB has not released its SMP sovereign purchases for the week ended 4/6.  We wouldn’t be surprised to see a fourth straight week of zero buying. We’ll update you as the data comes through.


Matthew Hedrick

Senior Analyst


Employment data released on Friday by the Bureau of Labor Statistics support the notion that restaurants saw strong top line trends in 1Q.  Of course, this is not new news and whether or not those trends can meet expectations remains to be seen.


We continue to like EAT, PFCB, JACK and SBUX.  DNKN and MCD are our favorite names on the short side.


As the chart below shows, all of the age cohorts we track on a monthly basis saw employment gains in March.  Besides the 45-54 YOA cohort, all of the age groups we track saw sequential declines from February’s year-over-year growth levels.  This could be due to a fading of the impact of favorable weather versus last year, which is expected to have boosted 1Q employment figures and in some sectors pulled demand forward to the detriment of 2Q. 





Hiring trends within the restaurant industry remains strong as of February (this data set lags by one month).  As the chart below illustrates, hiring growth in the full service and limited service dining industries are growing at prerecession levels.  The sequential slowdown in full service’s employment growth versus January is worth noting, however, with employment growth in that industry near peak levels.





This data is more impactful for casual than for quick service.  As with the initial claims data, the correlation is far tighter between the casual dining datasets.  The chart below shows an index of casual dining stocks versus full service employment annual growth.  The correlation between the two datasets is almost 0.9 and tightens further when the casual dining index is lagged by one month.  This makes sense, given that hiring and firing is generally reactionary.  Nevertheless, in the event of a slowdown in casual dining stocks – which we expect – we will be looking to the employment data to confirm. 


EMPLOYMENT DATA REMAINS BULLISH FOR RESTAURANTS - casual dining index vs full service hiring



Howard Penney

Managing Director


Rory Green


Early Look

daily macro intelligence

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