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The Macau Metro Monitor, May 16, 2012




According to Business Daily, MPEL will receive government permission for a casino at MSC “very soon.”  The report quotes a source as saying that “the casino permission is just a formality and will happen very soon.”



Macau and Guangdong Province announced the construction of a new border crossing checkpoint connecting Zhuhai and Macau, to ease the burden of Gongbei border gate.  The new border checkpoint, pending the approval of the central government, will be located on a land plot currently hosting the South Guangdong Wholesale Market on the Macau side.


Daily traffic of the checkpoint is expected to be around 200,000 arrivals, and together with the expansion of the current border crossing checkpoint, the checkpoints will be able to cater up to 700,000 visitors.



A source familiar with the matter tells the Shanghai Securities News that two of the four largest banks posted ~CNY10BN and "several billions" in new yuan loans respectively, but the remaining two banks posted negative growth in new yuan loans, leading to almost zero new yuan loans for the four banks through May 13th. The source also adds that the four banks' deposits have declined by ~CNY200BN as of May 13.

Stinky Cheese

This note was originally published at 8am on May 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.

“For every complex problem there is an answer that is clear, simple, and wrong.”

- H.L. Mencken


While they’re not the only ones in the business, the French are rightfully proud of their “stinky” cheeses.  Yet stinky is for the consumer to judge and when it comes to pungent cheese, aroma and taste can run the spectrum from intense pleasure to pain, or alternatively as a pleasure from the pain.


A similar broad spectrum on the handling of the Eurozone’s sovereign debt and banking “crisis” is enjoyed by investors, strategists, journalists, and European citizens alike: abolish it, rescue it, or structure some hybrid of the two.  So what’s the update on the region as we find ourselves in May with the stink currently in Spain?


We continue to throw the abolishment camp out the window on four main factors:

  1. Eurocrats will tote the line to save their job
  2. Fear of the contagion effect from the default of countries and banks on the rest of the continent
  3. Belief in the Union’s economic benefit (namely through open trade and travel)
  4. Belief in the formation of a European identity (including the continental strength to balance the closest geographic spheres of influence in the U.S. and Russia)

While we could argue until we’re blue in the face that Europe needs its own Lehman-like event, to let weaker countries default and/or exit the Union, and that one monetary policy for a collection of joined states growing at uneven rates will continue to compromise the Union because it handcuffs nations from manipulating currencies and interest rates to encourage competitiveness, we think the above factors will justify the maintenance of the existing Eurozone fabric over at least the next 12 months.


So the task is to play an incredibly-challenged environment ahead as Eurocrats try to find a balance between fiscal consolidation, while not obliterating future growth in the process. One key factor to monitor, which we’ll hit on later in the note, is the deterioration of Merkozy, or relations between Germany and France on Eurozone policy.


So what’s so wrong with Europe?

The existing rub in directing European policy to improve the fiscal health of countries is that European leadership is inherently compromised: on one hand they have to answer to their citizenry that is largely voting against fiscal consolidation (and rioting on the street to bout), yet on the other they must answer to the markets, and a larger Brussels “authority”. Given that the markets are pricing in slow growth across Europe in 2012 and such threats as the inability of governments to meets consolidation targets, sovereign yields should remain elevated, which in turn increases the cost to raise capital and sets the “non-virtuous” cycle of raising debt and deficits levels. 


With 10YR yields trading at 20.4% in Greece; 10.5% in Portugal; 5.8% in Spain; and 5.6% in Italy; vs 1.6% in Germany, it comes with no great surprise that Germany is not interested in issuing Eurobonds.


But now the stakes in reducing risk have elevated, as Spain has taken the sovereign spotlight after a lengthy focus on Greece!  (Note: Spain’s economy = 5x Greece’s.)


And while Eurocrats have set up a number of firewalls to ease investor concern that the Eurozone is going away—including funding programs such as the EFSF, ESM, and enhanced commitments to the IMF earmarked for Europe, to liquidity programs such as the two 36M- LTROs and the SMP—these programs do little to bind Europe under a growth strategy.  As of recent weeks, it’s growth that has been given more attention by Eurocrats.


More Conflicts Ahead

But how do you manufacture growth? Simply by setting up more funding through the European Investment Bank or earmarking more lending from the IMF?  But who’s paying for it? Importantly, Germany hasn’t put up her hand, and who’s left?


Again, the uneven and compromised nature of Europe (and the Eurozone specifically) cannot be overlooked.  Simply throwing money at “problems” won’t cure structural drags like high unemployment rates, low labor productivity, vulnerable banks, and further risks from declines in housing and property prices ahead.


To highlight a few imbalances: Spain’s unemployment rate is 24.4% vs Germany’s at 6.8%, or Spain has a monster deficit reduction target of 5.3% (of GDP) for 2012 versus 8.5% last year vs the German deficit forecast to fall to 0.6%.  Or consider Portugal’s average annual growth rate over the last 10 years of 0.03% vs 1.07% for Germany, or recall that we forecast house and property prices could fall another 30% from here in Spain! 


It’s such structural mismatches (to name a few) that suggest that even if Europe finds a united path, it won’t come next week, next month, or next year. Uncompetitive countries like a Portugal or a Greece are going to stay uncompetitive. Europe’s stronger nations will simply have to decide how long they want to subsidize them.  Is this a realistic long-term strategy? We think not, but we still must play the likelihood that Eurocrats fight to support the whole.


Of note is that in some cases expectation are just grossly misaligned. For example, the European Commission targeted all member nations to have deficits at or below 3% by 2013. That’s surely not realistic for Portugal, Ireland, Spain, or Greece! Further, the Fiscal Compact, which is really an amended version of the Stability and Growth Pact (aimed at deficit reduction to 3% and debt reduction to 60%), stands to fall short as Brussels wrongly assumes members will give up their fiscal sovereignty.


French Inflections

Returning to stinky cheese, the likely victory of the Socialist candidate Francois Hollande in this Sunday’s presidential elections spells the likely end of a strong working relationship between France’s Sarkozy and Germany’s Merkel. Hollande’s very socialist agenda (increase spending by €20 MM over five years, reduce the retirement age from 62 to 60, raise income tax on earners over €1 MM to 75%, capping gasoline prices for a number of months and a pledge to block corporate job cuts) along with such positions as pro Eurobonds (which Germany vehemently opposes) and opposition to the Fiscal Compact, portend great disunity at a time when the Eurozone needs its two largest economies to pull jointly on the loose strings and direct solutions to its sovereign and banking ills.


Returning to H.L. Mencken’s quote that started the note, it’s clear Europe has a very complex suite of problems. And if expectations are the root of all heartache, it’s the market’s expectation that Europe will be “fixed” tomorrow that needs amendment.   While there is no simple solution, without better coordination through both appropriate targets for fiscal consolidation alongside strategies for growth, we do not see any hope for material improvement across the region over the next 12 months.


The immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1630-1656, $119.07-121.06, $78.55-79.32, and 1391-1415, respectively.


Matthew Hedrick

Senior Analyst


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Proactively Prepared

“Most people have the will to win, few have the will to prepare to win.”

-Bobby Knight


We don’t have to apologize, fear-monger, or point fingers while everyone is reacting to the news again this morning. This has been going on for 5 years. Get both the Slope of Global Growth (slowing) and the direction of the US Dollar right, and you’ll get a lot of other things right.


Winning in this country (or being right in this business) should be celebrated instead of shunned. It’s not easy out there – and it’s not going to get any easier any time soon. Life is hard.


Repeatable risk management processes trump pundits. Either our profession’s broken sources go away, or whatever is left of the trust, inflows, and volumes in our markets will.


Back to the Global Macro Grind


From a Global Macro perspective (currencies, countries, commodities, etc.) I am finally seeing the early signs of capitulation (immediate-term TRADE oversold) on the downside as the US Dollar approaches immediate-term TRADE overbought.


That’s what happens when The Correlation Risk goes “on.” Policy (or in this case the lack thereof in expectations of an iQe4 upgrade) drives the US Dollar; and the US Dollar drives mostly everything else (USD up for the 11th consecutive day today).


Correlation Risk has a reflexive impact on demand (markets that go straight down scare people), but it is not traditional demand in terms of how we measure it – it’s behavioral. Our Leading Indicators on Global Demand (Growth) have been slowing since February-March.


Commodities and Asian Equities stopped going up in February; most other major Global Equity markets stopped going up throughout March; and US Treasury bond yields stopped going up in March as well.


In other words, if you have a Globally Interconnected Risk Management Process (or just a Twitter feed with credible sources), why people are freaking out right now (instead of when they should have), should at least give you a chuckle.


People freak-out (buy high, sell low) because we have institutionalized asset management into a very short-term game of performance chasing. Sadly, gaming the game of the next policy move is paramount on people’s minds – and the intermediate-term draw-downs (from peak-to-trough) for the last 5 years have been epic.


Here’s how the draw-downs (losses of your capital from the YTD tops) look in some of the majors:

  1. Japanese stocks (Nikkei) = down -14.2%
  2. Hong Kong stocks (Hang Seng) = down -11.2%
  3. Indian stocks (Sensex) = down -13.0%
  4. German stocks (DAX) = down -11.3%
  5. Spanish stocks (IBEX) = down -25.1% (crashing)
  6. Russian stocks (RTSI) = down -22.3% (crashing)
  7. CRB Commodities Index = down -11.3%
  8. Gold = down -14.2%
  9. Oil = down -11.8%
  10. Treasury Yields (US 10yr) = down -24.8%

Bullish, right?


Right, right. And all of this, including JPM’s news is all about Greece, right?


C’mon. Let’s get real here before whatever is left of the world’s investors yank all their capital from our fee based businesses. Ben Bernanke may very well have dared you to chase yield on January 25th, but that doesn’t mean you should have taken on the dare. You have seen this Qe expectations game before. You should have sold into it.


US Equities, which I didn’t list in the top 10 draw-downs, have done a complete round trip from where we were banging the risk management drums here in New Haven. While the Russell2000’s draw-down is about the same as the Hang Sang’s (-8.2%), the SP500’s is just -6.3%. So, if you bought the April 2ndtop, you only have to be up about 7% (from here) to get back to break-even.


Break-even? Yes. That matters. And so does timing – that’s why we are so focused on both.


Check out the timing of this trifecta:

  1. Russell 2000 peaks on March 26that 846
  2. US Equity Volatility (VIX) bottoms on March 26that 14.26
  3. Obama’s probability of winning the US Election peaks on – yep, March 26th

Political pundits probably don’t read this Newsletter. But if they did, they’d think that last point can’t be true. After all,  it doesn’t come from Washington or the accepted wisdoms of partisan paralysis.


We call it objective analysis. That’s all the Hedgeye Election Indicator is, math.


So, as US Equity markets draw-down from their March/April peaks (as they have from Q1 to Q3 in every year of the last 5 other than in 2009 when we were the most bullish firm on Wall Street 2.0), that’s obviously going to be a headwind for Obama.


It’s also going to be a headwind for Ben Bernanke.


Don’t forget that any headwind for Obama is, on the margin, a tailwind for Romney. Anything compression in the spread between Obama versus Romney (Obama had a huge lead in March), puts Bernanke’s career risk in play.


That, dear friends of the risk management gridiron, is US Dollar bullish.


And, with the US Dollar Index breaking out across all 3 of our core risk management durations (TRADE, TREND, and TAIL), you want to continue to be Proactively Prepared for what may very well be the most epic economic debate of our generation.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, and the SP500 are now $1, $110.27-112.99, $80.04-81.22, $1.27-1.29, 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Proactively Prepared - Chart of the Day


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DKS: 1Q12 Report Card


Conclusion: As we expected, DKS is firing on all cylinders (FW, Apparel, Team Sports & Golf) for the first time in a long while. Improvement in hardlines were driven by baseball bats and golf equipment as expected with the later coming in even more robust than even we expected. While some of the outperformance can be attributed to a pull forward in sales, the product cycle continues to improve while DKS’ compares are relatively easy. In addition, there were several developments during the quarter (Top-Flight acquisition, JJB stake, Bubba’s Pink Ping Driver in June, etc.) that represent a series of positive intermediate-term drivers. Expectations for the balance of the year continue to look flat out conservative to us.

What Drove the Beat?

Solid quarter from DKS coming in $0.07 above the top end of its range and consensus expectations driven by higher sales and gross margins. Revenues came in strong up +15% a little better than our expectation for +14%E and the consensus of +10.5%E, but the real callout in the quarter is inventory management reflected in better than expected gross margins, which were up +112bps on stronger sales despite clearance activity and higher equipment sales mix.


DKS: 1Q12 Report Card - DKS S

Deltas in Forward Looking Commentary?


In order to properly measure performance relative to original expectations, we look at management’s first quarter results relative to management guidance as well as any updates to previously provided full year 2013 outlook:


DKS: 1Q12 Report Card - DKS Delta


Highlights from the Call:


  • Aggregate comps up +8.4%
  • Comps at Dicks up +7.3%
    • FW, App, and hardlines all positive
    • +4% sales per transaction
    • +3.3% in traffic
  • GolfGalaxy +12.6%
  • E-Commerce +33.4% (~3% of total sales)
  • Expect to open 38-40 stores in 2012; 50/50 new vs. existing markets
  • Continue to shift product mix to higher margin private label (acq. Top-Flight) and key brands via shop-in-shops (NKE, UA, The North Face)
  • Price, size, and packaging optimization starting to bear fruit
  • New store productivity up +105.8%
  • Opening 4th DC in Jan ’13, 600k sq. ft. facility in AZ; w/DC in DC can support 750 stores
  • Targeting ship-from-store capability in 2012

Q2 Outlook:

  • Comps up +2-3%
  • GM: modest increase
  • SG&A: modest leverage
  • EPS $0.62-$0.63

GM: +112bps due to:

  • Occupancy leverage (+120bps)
  • Merch margin down modestly (-8bps)
  • Cold weather apparel inventory clearance now complete
  • Some due to clearance of fitness equipment

SG&A: up +12%; -58bps due to:

  • Payroll leverage
  • Lower advertising


  • Cash = $521mm
  • Share repo = 2.1mm shares at $49.39/sh = $104mm
  • Completed SRA yesterday purchased total 4.1mm shares
  • Purchased store-support center for $133mm


Bat replacement cycle contribution:

  • Less than 1pt to comp
  • Isolated benefit to Q1

Occupancy Leverage:

  • Need +3% to lever

Lease Duration:

  • 10yr term lease structure preferred going forward

Private label

  • Top-Flight margins 2bps higher than other brands

Competitive Pricing Environment

  • Seeing rational pricing in the space
  • 'think we did better than most'

Cold Weather Overhang Impact:

  • Primary impact on merch margin in Q1
  • NFL jerseys for Q4 should be very helpful to margin rate

Store Opportunities:

  • Cont to look at big box opportunities - ex BBY, KMart, SHLD, Linens space
  • Planning on ~40 stores/yr, maybe 45


  • One of better performing categories in the qtr
  • New product expectations positive
  • Expect positive momentum to continue

JJB Investment:

  • 'this is a high risk, very high reward investment'
  • JJB has only 6%-7% of ~$9.5Bn UK market - 'see a big opportunity' for share gain


  • NKE ~50 this year
  • UA ~80 add'n stores
  • Adding North Face shops as well


TODAY’S S&P 500 SET-UP – May 16, 2012

As we look at today’s set up for the S&P 500, the range is 34 points or -0.50% downside to 1324 and 2.05% upside to 1358. 












    • Up from the prior day’s trading of -2114
  • VOLUME: on 5/15 NYSE 868.62
    • Increase versus prior day’s trading of 8.20%
  • VIX:  as of 5/15 was at 21.97
    • Increase versus most recent day’s trading of 0.46%
    • Year-to-date decrease of -6.11%
  • SPX PUT/CALL RATIO: as of 05/15 closed at 2.35
    • Down from the day prior at 2.50 


  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.77
    • Unchanged from prior day’s trading
  • YIELD CURVE: as of this morning 1.50
    • Unchanged from prior day’s trading 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Apps., week of May 11 (prior 1.7%)
  • 8:30am: Housing Starts, Apr., est. 685k (prior 654k)
  • 8:30am: Housing Starts (M/m) Apr., est. 4.7% (prior -5.8%)
  • 8:30am: Building Permits, Apr., est. 730k (prior 764k, revised)
  • 8:30am: Building Permits (M/m) Apr., est. -4.5% (prior 4.5%)
  • 8:30am: ECB monetary policy conference; participants include President Mario Draghi
  • 9:15am: Industrial Prod., Apr., est. 0.6% (prior 0.0%)
  • 9:15am: Capacity Util., Apr., est. 79.0% (prior 78.6%)
  • 9:15am: Manufacturing (SIC) Production, Apr
  • 10:30am: DOE Inventories
  • 12:30pm: Fed’s Bullard speaks on economy in Kentucky
  • 2pm: Minutes of April FOMC Meeting 


    • House, Senate in session:
    • Senate Health holds hearing on health care delivery systems, with Coastal Medical, Humana officials, 10am
    • Senate Commerce holds oversight hearing on FCC, with Chairman Julius Genachowski, 2:30pm
    • House Financial Services subcommittee holds hearing on effects of Dodd-Frank Act, 10am
    • House Ways and Means panel holds hearing on tax-exempt organizations, 10am
    • House Financial Services subcommittee holds hearing on market access for U.S. financial firms in China, 2pm
    • House Financial Services panel holds hearing on FDIC oversight with Lennar Corp. CEO Stuart Miller, 2pm
    • House Small Business holds hearing on U.S. trade agenda, 1pm
    • World Bank President Robert Zoellick speaks at Economic Club of Washington, 12pm 


  • FOMC releases minutes of April 24-25 meeting
  • Facebook said to increase size of IPO to 421m shrs
  • Housing starts in U.S. probably rebounded from five-month low
  • Euro-region inflation slowed in April, March exports dropped
  • U.K. unemployment unexpectedly falls in sign of stabilization
  • Greek leaders meet on new election after European stocks fall
  • Carlyle said to seek $3.5 billion for fourth Asia buyout fund
  • Berkshire Hathaway took new stakes in Viacom, General Motors
  • Verizon in $63 billion faceoff with AT&T over family plans
  • Investor Whitworth holds $610m PepsiCo stake, meets w/ co.
  • GE to buy U.S., Australian mining-equipment cos.
  • Australian consumer confidence stagnates near year’s lows
  • Soros, Eton Park raised gold ETP holdings before price drops
  • House Financial Services subcommittee holds hearing on effects of Dodd-Frank Act
  • NYSE Euronext removed from bidding for London Metals Exchange
  • EADS 1Q profit misses est.; raises 2012 EPS outlook 


    • Staples (SPLS) 6am, $0.30
    • ValueVision (VVTV) 6:30am, ($0.19)
    • Chico’s FAS (CHS) 6:55am, $0.30
    • Deere & Co (DE) 7am, $2.53
    • Abercrombie & Fitch Co (ANF) 7am, $0.01
    • Sears Canada (SCC CN) 7am, C$0.03
    • Target (TGT) 7:30, $1.01
    • Brady (BRC) 8am, $0.57
    • Eagle Materials (EXP) 8:30am, $0.24
    • Hot Topic (HOTT) 4pm, $0.08
    • Ltd Brands (LTD) 4:30pm, $0.40
    • Ctrip.com (CTRP) 5pm, $0.17
    • Netease.com (NTES) 6pm, $1.01 



COMMODITIES – definitely seeing some capitulation in Bernanke’s Bubbles (our Top Macro Theme issued in April) – Gold finally oversold at -14% from its YTD high; Copper getting spanked -1.7% to immediate-term oversold (-12% from its Feb Growth Slowing high). 

  • Commodities Drop Near Five-Month Low on Greek Euro Exit Concern
  • Gold Eclipsed by Dollar Haven as Goldman Sees Rally: Commodities
  • Palm Oil Slumps Most in 14 Months in Record Volume on Euro Debt
  • BHP Won’t Meet $80 Billion Spending Target as Minerals Fall
  • Gold Tumbles Into Bear Market on Concern Greece May Leave Euro
  • Copper Drops for Fourth Day as Greece Remains Without Government
  • Corn Declines as U.S. Planting Nears Completion, Lowering Risks
  • Sugar Falls as Brazil’s Weaker Currency May Accelerate Exports
  • NYSE Euronexit Is Removed From Bidding for London Metal Exchange
  • Crude Palm-Oil Futures Volume Reaches Record 63,019 Contracts
  • Soros, Eton Park Raised Gold ETP Holdings Before Price Drop
  • Seaway No Guarantee for Goldman’s WTI-Brent Bet: Energy Markets
  • Eni Follows BG, Anadarko With More Gas Finds off Eastern Africa
  • Inmet Capitalizes on Junk Demand for Copper Mine: Canada Credit
  • GSCI Index Decline to Near Five-Month Low
  • Oil Drops to Six-Month Low on Rising Stockpiles, Greek Crisis
  • Rubber Falls to Four-Month Low as Greek Woes May Cut Demand









EUROPE – we don’t see Greece “leaving the Euro” anytime soon (pundits might, but the market doesn’t either or the Euro would catch a bid – weakest stores (countries) stay in the currency base and Euro goes to $1.22); what we do see is capitulation (immediate-term) to oversold lows in Spain and Russia this morning (crashing markets, down -26% and -22% from their YTD tops).






JAPAN – probably the most misunderstood and under-reported situation in the world right now is Japan (Nikkei down 21 of the last 28 days = -14.2% draw-down) and the BOJ just saw the lowest demand (1st shortfall vs the 600B they wanted to issue) for JGBs since Oct 2010. Greece is nothing compared to this.









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