The Macau Metro Monitor, April 19, 2012




Success Universe is spending HKD 700 million to extend its shopping mall in Ponte 16, adding around 20 to 30 gaming tables to its casino, and planning an extra gaming room.  Success Universe’s Deputy Chairman Hoffman Ma Ho-Man said the company would apply for a 20% increase in gaming tables which would, if approved by the authority, add around 20 to 30 new tables to the casino-hotel which currently has more than 100 tables, of which 18 are VIP.


Chairman Ho-Man believed the economic situation in the mainland, including the Government’s tightening over monetary policies, would not have much influence on their gaming business.  However he expressed worry that debts would increase as credit conditions become tighter on the mainland; however, the casino would enforce stricter screening of mainland gamblers’ credit records and require mortgage from some VIP clients.  In addition, they planned on opening one more

gaming room and recruiting one extra junket operator. 

He expected gaming revenue growth in 2012 to be lower than last year but would maintain the double-digit level.  
As to the extension of the shopping mall in Ponte 16, Ho-Man said, “The works would start later this year and finish in 2014.”



According to Business Daily, around 200 workers have been hired for the Macau Studio City project.  Despite what is thought to be worker accommodation being built on site, the project construction has not been restarted, said a spokesperson for Melco International Development Ltd.


Yum reported 1Q12 EPS of $0.76 versus $0.73 consensus.  The negative reaction to the print was, we believe, largely due to the miss in China’s same-store sales.  YUM is priced for perfection and needed to deliver a commensurately perfect quarter.  While the company came close, it didn’t quite deliver.  The quarter was strong; EPS exceeded expectations helped, for the first time in a long time, by the U.S. Division.  Given the weather and calendar-shift benefits that helped the first quarter, the question from here is “how sustainable is the domestic business?”  Here are our initial takeaways ahead of the earnings call this morning:

  • Yum China comps grew 14% year-over-year.  The stock is up 23% YTD.  Can it work from here with China seemingly losing momentum, at least in the first quarter?  As weather helped in the U.S., did cold weather during Chinese New Year negatively impact top-line trends?
  • Yum Restaurants India same-store sales grew 8% in the first quarter.  As China growth moderates – it has to at some point – this division is set to assume a greater role in driving Yum’s global growth.
  • In the U.S., Taco Bell came in at 6% same-store sales growth.  We are concerned that the trend may not be sustainable.  How much of the boost from the new product introduction and breakfast testing will be sustained?  Is Taco Bell one quarter behind Pizza Hut – will it roll over next quarter – or is this concept truly on the mend?
  • Pizza Hut trends rolled over in the U.S.  The 5% print implied two-year trends down 700 basis points sequentially.  What is next to keep trends moving forward?
  • KFC’s U.S. results were clearly a net positive.  Same-store sales grew 2%, with the two-year average trend up 200 basis points.  Was this a weather-and-leap-year head fake?
  • YRI saw same-store sales up 5%, which brought the two year up 150 basis points to 3.5%.  The numbers are impressive for 1Q12, the first quarter that India has been broken out from this division.  Previously, it had been included within YRI.  Margin contraction on 5% comps is one data point we will be trying to understand better from this morning’s call.

 YUM PRE-CALL QUESTIONS - yum china pod1


YUM PRE-CALL QUESTIONS - us taco bell pod1


YUM PRE-CALL QUESTIONS - us pizza hut pod1




Howard Penney

Managing Director


Rory Green


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Being a Loser

“Show me a good loser, and I’ll show you a loser.”

-Vince Lombardi


Losing sucks and there is basically not much to debate beyond that.  In the investment world, losing means you lose both your family and client’s hard earned capital.  It’s almost a double whammy in terms of managing the emotions related to losing in that sense.  If it were just you losing an individual tennis match at the country club, that’s probably cool on some level.  But when you make a bad investment, you actually have to put the accountability pants on and answer to both your clients and your family. 


Losing is also part of the big boy’s game of being a professional stock market operator.   We lose, we analyze the loss, and then we adjust and improve.  Or, at least, that is how it is supposed to work.  In reality, though, most investors, and people generally, tend to overweight and over-emotionalize their losses.  While winning is great, losing is painful.   This occurs in part to our culture where losing, to Lombardi’s point above, is broadly characterized as a bad thing.  I’m here to tell you it’s not.  In fact, losing is a chance to improve.


This morning Spain sold €2.54 billion of 2 and 10-year bonds.  On one hand, Spain won.  They sold more than the maximum target of €2.5 billion.  As well, the bid-to-cover was 2.42 versus 2.17 in the last auction in January.  Yields, on the other hand, have ticked up since January from 5.4% on the 10-year to 5.74% in this auction.  (Incidentally, the actual market yield is higher.)  But, still, mostly a win, right?


Well, not so much.  The European sovereign debt market is hardly a market anymore.  Government intervention is enabling these auctions to be “successful”, but the stark reality remains that the monetary union has failed.  The key evidence of this is in interest rate differentials.  In the Chart of the Day, we show the spread between Germany and Spain interest rates going back three years.  In a successful monetary union, the rates at which the key players sell sovereign debt would be comparable.  Unfortunately, at least for monetary union enthusiasts, this is not the case in Europe.


The more unfortunate fact in Europe is that while the market is attempting to do its job and price sovereign debt according to appropriate sovereign risk, there is no currency mechanism to adjust and aid these beleaguered sovereigns.  In theory, what should be happening is that the Spanish currency should naturally adjust to reflect its weak fiscal and economic situation, which then, over time, would boost Spanish exports and subsequently boost the Spanish economy as Spain’s goods become cheaper. 


Unfortunately, Spain, and really all nations in the Eurozone, has a currency that reflects the strongest members, but doesn’t have the commensurate ability to borrow at low rates.  In effect, the weaker economic nations in the Eurozone are all structural losers.  So, then, it should be no surprise that the Socialists are about to take over the government of France.

As an aside, my favorite quote about socialism comes from Winston Churchill, who said:


"The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries." 


It is sad that the structural issues of the Eurozone are forcing the people of the France to choose the equal sharing of misery via socialism versus rolling the proverbial bones on the upside of capitalism.


Although Keith is on a much deserved vacation this week, he was kind enough to flag to me the fact that both copper and long term yields in the U.S. continue to signal an ominous outlook for global growth.  Copper has basically been going down in a straight line over the past thirty days.  Meanwhile, the 10-year yield on U.S. Treasuries remains below our key line of resistance at 2.04%.  Call it reflexivity if you will, but typically these two market prices are good leading indicators for the direction of economic activity.  


You may not believe Chinese officials when they say they will temper growth, and you may not believe the tempered growth numbers from China when they get reported, but the price of copper does not lie.  I can tell you the shareholders of Freeport McMoran (FCX) are starting to believe it.  FCX, one of the world’s largest copper miners, is down 20% in a straight line since February 1st, despite trading at less than 5x trailing earnings.


Speaking of earnings, our retail Sector Head Brian McGough did an excellent job summarizing his views of earnings for retail this quarter.  While the full note can be found at ( ), the key takeaway was as follows:


“a)      The current consensus earnings growth forecast for the next 12-months is 23%. We have not seen this kind of growth since we came off of recessionary earnings numbers in 2010.


b)      The market is giving this earnings growth a 17x p/e. We’ve only seen that kind of multiple five times in 3-years, but always at times when the group was still clearly under-earning. Who are we to say that it is NOT under-earning today? But to make this case, we need to see a considerable upshift in consumer spending alongside another decline in raw materials costs. We don’t like that call.”


To paraphrase Brian, I think he is saying that the asymmetric risk / reward in retail is not tilted towards the upside in retail land this earnings season.


But enough about losing, go out there and get wins on the board today!


The immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), Euro/USD, and the SP500 are now $1, $116.91-120.45, $79.23-79.64, $81.11-82.31, $1.30-1.32, and 1, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Being a Loser - Chart of the Day


Being a Loser - Virtual Portfolio

Leaders Ask Questions

This note was originally published at 8am on April 05, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“They answered questions nobody had yet asked.”

-Nassir Ghaemi


In August of 2011, The New York Times reviewed a fascinating psychology book I am reading right now – A First-Rate Madness, by Nassir Ghaemi. The title of the NYT article was well timed, “What Befits a Leader In Hard Times?” Good question.


As most of you who follow Global Macro country, currency, and commodity markets will recall, by September of last year, most things that were down hard yesterday were crashing. If it was your money that someone else put at risk in Q1 of 2011, they were hard times.


Leaders ask hard questions. You don’t have to be in the business of Risk Managing other people’s money to get that. Neither do you have to go to business school. All you need to do is be held accountable to every penny in your company’s account or point on the scoreboard.


Back to the Global Macro Grind


“For leaders in any realm, creativity is not just about solving old problems with new solutions, it’s about finding new problems to solve.” (A First-Rate Madness, page 38).

  1. Old Problems: housing, unemployment, fraud.
  2. New Problems: growth, inflation, policy.

That’s right, it’s The Policy, Stupid. I don’t have to be in bed with Bill Clinton to understand a simple marketing message like that. Away from his shady extra-curricular activities, there’s a lot the man was able to accomplish from both a leadership and growth perspective. Raging Republican fans will agree that Ronald Reagan was a leader who asked the right basic economic questions too.


Being a Canadian-American who will vote for neither of these conflicted and compromised US political parties (both Bush and Obama were Keynesians in their economics; that’s why the net jobs added in America in the last decade = ZERO and GDP has averaged 1.7%), I think there is a tremendous opportunity in this country to simplify a solution to our New Problems:


Strong Dollar = Strong America. Period.


Now before Keynesian Export geeks go haywire (fyi, devaluing your currency to “boost” exports is a broken solution to an Old Problem – no country in world history has devalued its way to long-term economic prosperity), check out my Chart of The Day again. Then look at it again  - and again, and “Again!” (channeling my Herb Brooks to Bernanke and Geithner):

  1. 1983-1989 (Reagan): US Dollar Index average = $115.18; Oil price average = $22.16/barrel; US GDP average = 4.31%
  2. 1993-1999 (Clinton): US Dollar Index average = $92.93; Oil price average = $18.63/barrel; US GDP average = 3.84%

The US Economy (and, increasingly, the Global Economy) runs on Consumption Growth. In terms of US GDP, that’s 71% of the number. If you Deflate The Inflation (via Strong Dollar), you’ll ramp real (inflation adjusted) Consumption Growth.


Don’t be afraid of this idea because it’s new – the US Dollar Index is currently at $79.81, so you have no idea (neither do I) how well this idea could actually work.


Embrace it. And Try it. Because I can guarantee you that if Oil goes to $22, $42, or even $62 tomorrow, Americans, Canadians, and Europeans alike are going to have one hell of a summer party.


Who will this upset? Let’s ask some simple questions:

  1. If the American, Canadian, and European Saver and Consumer get paid via Strong Dollar, who doesn’t?
  2. If the Chinese, German, and Brazilian cost of goods sold (raw commodities) go down via Strong Dollar, what goes up?
  3. If the stock, bond, currency, and commodity markets of the world stop trading on what the Fed does, who loses?

I could take a full year off from waking up at 4AM to write you these morning missives and write a pretty snazzy Ph.D thesis on this. But, if I do that, this opportunity to lead and change the world will have passed me by. I’m a critic of Dollar Debauchery, but I also have a solution.


Yesterday was the 2ndlargest down day (-1.02%) for the US stock market in 2012. US Equity Volatility (VIX) is up almost +20% in a straight line from where the VIX has bottomed, multiple times, since the US debt, leverage, and fraud peak of 2007.


If you look at the US stock market Sector Studies for April to-date, all that glitters is no longer Gold:

  1. Energy (XLE) = down -7.8%!
  2. Basic Materials (XLB) = down -3.2%
  3. Industrials (XLI) = down -2.7%

In other words, as Growth Slows Globally, the Old Solution (Easy Money) to Old Problems (Housing, Unemployment, Fraud) isn’t a long-term solution at all. The New Solution (Strong Dollar) to New Problems (Growth, Inflation, Policy) may be tough for many of the conflicted, compromised, and constrained (answers to questions 1-3) to accept. But that is precisely the point.


Asking 90% of those people (Presidents, Prime Ministers, CEOs, etc.) why getting them paid by short-term Policies To Inflate is good for long-term growth and economic prosperity remains The Question that no leader in this country has yet had the courage to ask.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1626-1663, $121.67-124.76, $79.21-80.06, and 1393-1408, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Leaders Ask Questions - daily


Leaders Ask Questions - VP 4 5


TODAY’S S&P 500 SET-UP – April 19, 2012

As we look at today’s set up for the S&P 500, the range is 16 points or -0.52% downside to 1378 and 0.64% upside to 1394. 












  • ADVANCE/DECLINE LINE: on 4/18 NYSE -1015
    • Down from the prior day’s trading of 1632
  • VOLUME: on 4/18 NYSE 720.97
    • Increase versus prior day’s trading of 1.58%
  • VIX:  as of 4/18 was at 18.64
    • Increase versus most recent day’s trading of 0.98%
    • Year-to-date decrease of -20.34%
  • SPX PUT/CALL RATIO: as of 04/18 closed at 2.74
    • Increase from the day prior at 1.41 


  • TED SPREAD: as of this morning 40
  • 3-MONTH T-BILL YIELD: as of this morning 0.07%
  • 10-Year: as of this morning 1.99
    • Up from prior day’s trading of 1.98
  • YIELD CURVE: as of this morning 1.72
    • Increase from prior day’s trading at 1.71 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Jobless Claims, est. 370k (prior 380k)
  • 9:45am: Bloomberg Consumer Comfort
  • 10am: Philadelphia Fed, April, est. 12.0 (prior 12.5)
  • 10am: Existing Home Sales, March, est. 4.62m (prior 4.59m)
  • 10am: Leading Indicators, March, est. 0.2 (prior 0.7%)
  • 10am: Freddie Mac 30-yr mortgage
  • 10:30am: EIA natural gas
  • 1pm: U.S. to sell $16b 5-yr TIPS 


  • IMF, World Bank spring meetings continue
  • Treasury Secretary Timothy Geithner attends G-20 meeting of finance ministers, central bank governors at IMF to discuss global recovery, policies to ensure stability in Europe
  • G-20 economic, trade ministers meet in Mexico
  • House, Senate in session:
    • House Armed Services Committee hears from Defense Secretary Leon Panetta and Joint Chiefs Chairman Martin Dempsey on security in Syria. 10am
    • House Oversight subcommittee holds hearing on IRS. 11am 


  • Sales of previously owned U.S. homes probably increased in March, economists est.
  • Spain and France sell debt as yields increase
  • GSK makes unsolicited offer for Human Genome for $13-shr cash
  • Johnson & Johnson win European approval to buy Synthes for ~$21b
  • Ford Motor to build $760m assembly plant in China to double Chinese output to 1.2m vehicles
  • Research in Motion said near a choice to pick strategy adviser; JPMorgan the leading candidate
  • Southern Co.’s plans to build 2 nuclear plants in Georgia may be blocked by opponents
  • Sony-led group will win EU approval for its $2.2b purchase of EMI’s publishing unit today, FT reports
  • Cable & Wireless plunges after Tata pulls offer; Vodafone has deadline today to make firm bid
  • Ackman’s Pershing Square plans IPO of new fund for Jan. 2013, FT says
  • MF Global trustee seeks $700m through lawsuit in U.K. 


    • BB&T (BBT) 6 a.m., $0.58
    • Dupont (DD) 6 a.m., $1.53
    • Danaher (DHR) 6 a.m., $0.71
    • Diamond Offshore Drilling (DO) 6 a.m., $0.99
    • UnitedHealth Group (UNH) 6 a.m., $1.18
    • Nokia (NOK) 6 a.m.
    • Fifth Third Bancorp (FITB) 6:30 a.m., $0.36
    • Keycorp (KEY) 6:30 a.m., $0.19
    • EMC (EMC) 6:45 a.m., $0.36
    • Laboratory of America Holdings (LH) 6:45 a.m., $1.67
    • Philip Morris International (PM) 6:59 a.m., $1.19
    • Southwest Airlines Co (LUV) 7 a.m., $(0.05)
    • Bank of America (BAC) 7 a.m., $0.12
    • Baxter International (BAX) 7 a.m., $1.00
    • Boston Scientific (BSX) 7 a.m., $0.08
    • First Horizon National (FHN) 7 a.m., $0.13
    • Travelers Cos /The (TRV) 7 a.m., $1.52
    • People’s United Financial (PBCT) 7 a.m., $0.18
    • Morgan Stanley (MS) 7:15 a.m., $0.44
    • Alliance Data Systems (ADS) 7:30 a.m., $2.19
    • Rockwell Collins (COL) 7:30 a.m., $1.09
    • Verizon Communications (VZ) 7:30 a.m., $0.58
    • Fairchild Semiconductor International (FCS) 7:30 a.m., $0.04
    • First Niagara Financial Group (FNFG) 7:30 a.m., $0.19
    • Peabody Energy (BTU) 8 a.m., $0.56
    • Freeport-McMoRan Copper & Gold (FCX) 8 a.m., $0.87
    • Sherwin-Williams (SHW) 8 a.m., $0.94
    • Union Pacific (UNP) 8 a.m., $1.63
    • Cypress Semiconductor (CY) 8 a.m., $0.09
    • PPG Industries (PPG) 8:11 a.m., $1.78
    • Blackstone Group (BX) 8:30 a.m., $0.40
    • New York Times (NYT) 8:30 a.m., $0.02
    • Genuine Parts Co (GPC) 8:44 a.m., $0.87
    • Nucor (NUE) 9 a.m., $0.39
    • Chipotle Mexican Grill (CMG) 4 p.m., $1.93
    • NCR (NCR) 4 p.m., $0.38
    • Freescale Semiconductor (FSL) 4 p.m., $(0.06)
    • Chubb (CB) 4:01 p.m., $1.52
    • Hanesbrands (HBI) 4:01 p.m., $(0.33)
    • Capital One Financial (COF) 4:05 p.m., $1.39
    • E*TRADE Financial (ETFC) 4:05 p.m., $0.09
    • SanDisk (SNDK) 4:05 p.m., $0.67
    • Riverbed Technology (RVBD) 4:05 p.m., $0.20
    • Tempur-Pedic International (TPX) 4:05 p.m., $0.84
    • Microsoft (MSFT) 4:06 p.m., $0.58
    • Altera (ALTR) 4:15 p.m., $0.36
    • Advanced Micro Devices (AMD) 4:15 p.m., $0.09 


COPPER – no bid this morning – 10yr yields remain below our key TREND line of 2.04% resistance too. Therefore, if you see the pop on the open, and we don’t see a close > 1394 (our immediate-term TRADE line of SP500 resistance), sell. 

  • Record Gold Seen by Top Analysts as Funds Retreat: Commodities
  • Gold May Fall as Slowdown in Europe Curbs Demand From Investors
  • Brent Oil Rises as Europe Recovery Hopes Beat U.S. Supply Growth
  • Copper May Advance on Indications U.S. Economy Is Recovering
  • Lynas Counts Costs as World’s Largest Rare-Earths Plant Held Up
  • Corn Climbs Most in More Than Two Weeks as U.S. May Switch Acres
  • U.K. Joins Spain in Worst Drought for Decades as Crops Emerge
  • Sugar Seen Plunging 22% on Increasing Brazil, India Supplies
  • Israel-Cyprus Deal on Gas as Lebanon Refuses Negotiation: Energy
  • India to Export Sugar for Third Year as Farmers Plant More
  • Anglo Platinum Output Falls on Maintenance; Stoppages Drop
  • Saudis Retake Lead in U.S. Gulf Oil Imports: Chart of the Day
  • Rubber Declines as Spanish Bad Loans Raise Economic Concerns
  • Gold Seen at Record as Hedge Funds Retreat
  • Cocoa Declines on Speculation Producers Will Sell; Sugar Rises
  • Reliance Halt Boosting Diesel as Demand Climbs: Energy Markets
  • Friedland Loses in Rio Mongolian ‘Chess Game’: Corporate Canada 









SPAIN – evidently everyone’s a bearish expert again with Spain down -13% YTD; bear markets bounce obviously after -19% drawdowns (that’s where the IBEX was pre this bond auction, which came in at higher yields vs last – but being spun by whoever as “better” than “expected” – thank goodness broken sources routinely expect the wrong thing at the wrong time).






JAPAN – both Currency and Equities going down now at the same time (this is when it gets more real on the sovereign debt concern front – at least it has in every other major sovereign debt crisis – currency leads). Nikkei down -1.1% last night (down for 10 of last 12 days).










The Hedgeye Macro Team


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