The Macau Metro Monitor, June 22, 2012




Macau visitor arrivals decreased by 6.5% YoY to 2,146,542 in May 2012.  The average length of stay of visitors decreased by 0.1 day YoY to 1.0 day.
Analyzed by place of residence, visitors from Mainland China decreased by 4.2% YoY to 1,271,540, coming mostly from Guangdong Province (616,540), Fujian Province (58,585), Hunan Province (48,807) and Zhejiang Province (48,607).  Mainland visitors traveling under the Individual Visit Scheme (IVS) fell by 0.9% to 526,279.  At the same time, visitors from Hong Kong (540,435); Taiwan (78,834); and the Republic of Korea (31,292) decreased by 11.8%, 23.2% and 2.1% respectively, while Japanese visitors (33,655) increased by 17.6%. 





WYNN won a small ruling, sending back to Nevada state court its breach of fiduciary duty lawsuit against Kazuo Okada. Okada had in March moved the case to federal court, arguing that the underlying issue was whether he had violated U.S. law by allegedly paying bribes to foreign officials.

The Plan

This note was originally published at 8am on June 08, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We are comfortable missing out on potentially major rallies if they are based purely on money flows or government action; the risks of engaging in this sort of speculative activity are simply too high.”

-Seth Klarman


I’ve always enjoyed reading the quarterly letters and writings of great investors.  From my perspective, Baupost’s Seth Klarman fits into the category of a great investor.  The quote above is from his Q1 2012 letter to investors.  On some level, Klarman has earned the right to underperform in the short run as his long run track record, almost 30 years, is superior to almost any investor in that time frame.


That being said, I think what likely differentiates Klarman and many investors with superior long run track records is their process.  My guess is that Klarman may have written the above quote even just a couple of years into his career before his track record was established. 


The fact is great investors have a process.  Sometimes the process tells them to invest aggressively, sometimes it tells them to stay on the sidelines with large cash balances, but the outcome of the process is a plan to allocate capital.  Overtime, if the process is superior, the outcome will be positively differentiated returns.


If I were allocating capital to funds, the first question I would ask any potential manager would be - what is your process?  That would be followed by - why will this process produce superior results over time?  Undoubtedly after reviewing their historic results, I could determine whether they actually had a process and executed on their investment plan accordingly.  


The famed Spanish painter Pablo Picasso said this about having a plan:


“Our goals can only be reached through the vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.”


Quoting a famed European artist about planning is somewhat appropriate given the current debacle in Europe.   Now this isn’t a shot at Europeans but rather a shot at the lack of an actual long term plan emerging to solve Europe’s long run debt crisis. Not to mention, the lack of a long term plan when the common currency was established.


I’ve had a number of friends who are traders, either personally or for large institutions, email me over the last couple of days and the general consensus in the trading community seems to be that the market will remain choppy until after the Greek elections, the G20, the FOMC, and the EU Summit.  Not to put words in their mouths, but the plan in the trading community seems to be to not do much until the central planners are done planning.  I like that plan.


As we wait for the central planners to stop their planning, the economic data out of Europe continues to deteriorate.  The key European economic data from the last 24 hours includes:

  • German exports declining in April -1.2%, for the first decline this year (worse than expected);
  • Bank of France cuts its forecast in Q2 for France to -0.1% (worse than expected);
  • Italian industrial output for April comes in weaker at -1.9% month-over-month (worse than expected);
  • Netherlands April industrial production comes in at -2.7% month-over-month (weaker than expected); and
  • Greek GDP contracted -6.5% in Q1 from a year ago, versus the -6.2% projected decline on May 15th.

The most startling data point is likely the last one.  Not because the Greek economy matters all that much anymore, but rather because the Greek government continues to have a difficult time getting a handle on the actual data.  Personally, I’ve basically accepted that most governments make up the numbers, so revisions, either up or down, are really of no great surprise. 


Speaking of government data, the Chinese government will be releasing a broad swath of data over the next 24 hours, including consumer price index, industrial production, retail sales, and producer price index.  For many, the plan is to buy commodities and risk assets if a Chinese rate cutting cycle begins in earnest.  In the Chart of the Day, you can see why this may not be such a good plan, at least according to the last cycle.


Specifically, on September 16th, 2008, China cut rates for the first time in the cycle.  As might be expected the 19-commodity CRB index ripped +9.5% in six days.  By March 2nd, 2009, the CRB index bottomed -46.4% lower.  Chinese rate cutting may have been a panacea for some, though not for those investors levered long of commodities.  (Thanks to my colleague Darius Dale for putting this analysis together.)


Certainly, risk assets may act differently this time around if China starts to cut interest rates aggressively.  My point is simply that front running central planners, to Seth Klarman’s point above, is a dangerous plan, if it is a true investment plan at all. 


Yesterday, Chairman Bernanke presented his plan to Congress and as part of that testimony he said:


“The Committee reviews the size and composition of its securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.”


This came at the end of the paragraph in which Bernanke outlined the Fed’s current actions, namely federal funds rate at zero for an extended period and a number of rounds of quantitative easing.  In effect, via error of omission perhaps, Bernanke insinuated yesterday that the Fed is basically out of bullets.   This might just be the best plan I’ve heard from the Federal Reserve in years.


Our key levels are: SPX fails at 1332 resistance (no support to 1283 TAIL); VIX holds 21.41 TRADE support, resistance = 24.73; USD holds all lines of support (range = 81.98-82.62); Euro fails, again, at 1.25 resist, support = 1.22; Oil (brent) fails at 101.73 TRADE resistance, no support to 95.26 (bearish formation there); and Gold has a big breakdown through our 1596 TRADE support, now nothing to 1538.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


The Plan - Chart of the Day


The Plan - Virtual Portfolio


TODAY’S S&P 500 SET-UP – June 22, 2012

As we look at today’s set up for the S&P 500, the range is 15 points or -0.57% downside to 1318 and 0.57% upside to 1333. 












  • ADVANCE/DECLINE LINE: on 6/21 NYSE -1901
    • Down from the prior day’s trading of 10
  • VOLUME: on 6/21 NYSE 865.87
    • Increase versus prior day’s trading of 15.27%
  • VIX:  as of 6/21 was at 20.08
    • Increase versus most recent day’s trading of 16.47%
    • Year-to-date decrease of -14.19%
  • SPX PUT/CALL RATIO: as of 6/21 closed at 1.81
    • Down from the day prior at 1.90 


YIELD SPREAD – watch this 10s/2s Spread in the US like a hawk; it’s at 133bps wide this morning and still holding the low end of its recent range – historically, the Yield Spread always mean reverts to dead flat. That’s your bear case for bank earnings from here which, incidentally, we think is a much more relevant next catalyst for the money centers than whatever Moodys figured out after the fact. 

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.64
    • Increase from prior day’s trading at 1.62
  • YIELD CURVE: as of this morning 1.34
    • Up from prior day’s trading at 1.32 

MACRO DATA POINTS (Bloomberg Estimates):

  • 11am: Fed to purchase $1.5b-$2.25b notes in 2/15/2036-5/15/2042 range
  • 12:30pm: Federal Reserve Bank of Cleveland President Sandra Pianalto speaks in Cleveland
  • 1pm: Baker Hughes rig count


    • House, Senate not in session
    • CFTC holds closed meeting on enforcement matters, 10am
    • U.S. Transportation Secretary Ray LaHood makes funding announcement on conference call, 10:15am


  • Moody’s downgrades 15 global banks; Morgan Stanley only cut 2 levels, Credit Suisse reduced by 3
  • Citigroup, other banks call Moody’s cuts unwarranted
  • German business confidence fell more than estimated in June
  • KKR said to consider sale of BIS unit ahead of refinance date
  • Italian consumer sentiment fell to a record low
  • AIG names Koellner as executive chairman of ILFC after CEO’s relationship is probed
  • International Game, Bally secure Nevada online casino licenses
  • Sony in final stages of talks to invest in Olympus: Nikkei
  • U.S. Health Care, EU Summit, Google, RIM: Week Ahead


    • Darden Restaurants (DRI) 7am, $1.15
    • Carnival (CCL) 9:15am, $0.08    



OILBernanke’s Bubbles (Commodities) are in some cases popping; others (oil) crashing. This morning we are finally getting an immediate-term TRADE oversold signal for Brent at $89.92, so cover Energy shorts here and re-short the bounce. Both the Commodity and the stocks that have earnings expectations based on the wrong top-line assumptions.

  • Crop Traders Bullish for Ninth Week on Dry Weather: Commodities
  • Copper Heads for Seventh Weekly Drop in Eight on Slowdown Signs
  • Gold Seen Cutting Weekly Decline as Europe Concern Spurs Demand
  • Brent Oil Futures Rise on Speculation Plunge Below $90 Excessive
  • Corn Climbs as Dry Midwest Weather Threatens to Hurt U.S. Yields
  • Batista Said to Sell 49% AUX Stake to Qatar Fund for $2 Billion
  • Sugar Falls as Supplies Seen Ample as Demand Slows; Coffee Drops
  • Fortescue Challenges Gillard’s Mining Tax in Australian Court
  • Jet Fuel Gets Olympic Spur as Europe Plants Shut: Energy Markets
  • Soy Harvest Squandered as Reserves Decline: Argentina Credit
  • Normal Monsoon for a Third Year Set to Boost India Harvests
  • Food Stamps Vie With Aid to Growers in U.S. Agriculture Overhaul
  • Aluminum Set to Extend Decline to 2010 Lows: Technical Analysis
  • Nippon Steel Stainless Unit Eyes Mergers as Japan Demand Wanes
  • Gazprom Biggest Loser as Shale Gas Upends World Markets: Energy
  • Deripaska Comfortable on Rusal Debt as Yields Up: Russia Credit










RUSSIA – while the Johnny come lately shorts in Spain cover all at the same time, Russian stocks continue to crash – get the petro and the Dollar right, and you’ll get the PetroDollar markets like Russia right. RTSI down another -2% here and crashing like oil has, down -27% since March. Context: Russia is the world’s 9th largest economy (Spain is 12th). There is no such thing as “de-coupling.”















The Hedgeye Macro Team

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

TGT: Locked and Loaded


Brian McGough, Managing Director of Retail (@HedgeyeRetail)





Target (TGT) is a stock that has a lot going for it at the moment. While we’re not of the opinion that the stock is going to pull a massive move and double in price within a one year timespan, several near-term factors will help drive margins at the mid-tier retailer.


First, crude oil is crashing. That has been obvious since the hysteria of the $108 a barrel price from earlier this year. With WTI crude now trading $80 a barrel, the fuel cost savings will be reflected in Target’s share price very soon if it follows in the footsteps of Walmart (WMT), which is up nearly 11% since the April breakdown of crude.


Another catalyst here is the mess going on at JC Penney (JCP) and the subsequent hemorrhaging of mid-tier market share along with Kohl’s (KSS). The shift we’re seeing is a consumer flight to stores like Ross (ROST) and TJ Maxx (TJX). Target will benefit from the change in sentiment and shopping.


Target’s last quarterly earnings report was a blow out. It’s weathering the retail storm quite nicely while companies like Bed, Bath & Beyond (BBBY) struggle to stay relevant and hold market share in the Home category. TGT remains a top five competitor in the space.


Lastly, TRADE (Duration = 3 weeks or less) and TREND (Duration = 3 weeks or less) support of $57.30 and $56.22, respectively, it is sitting at a point where the fundamentals and price mesh well within our framework.


You can really run the gamut with Target’s breadth of customers in terms of income level. People generally take a liking to the store, especially since it began touting itself as a clothing retailer that “gets fashion” over the last decade - hence why we are currently long TGT in our virtual portfolio.



TGT: Locked and Loaded - TGT trend



Correlation Risk In The Markets


We have been pounding the desk over correlation risk for some time now. The US dollar goes up and commodities and everything else go straight down. If you get growth and the dollar right, you’re going to get a lot of things right. This has proven particularly true after Wednesday’s Federal Reserve meeting and subsequent (lack of) announcements on monetary easing.


After our bold call to go 100% cash yesterday, we took it down to 94% and entered into some equities in the Hedgeye virtual portfolio. We will not overly short the market and nor will the retail crowd after three consecutive weeks of rallying – even after today’s selloff.


Goldman Sachs came out on Thursday and said that they are issuing a downside target of 1285 in the S&P 500. That’s their call. As Keith (McCullough, CEO of Hedgeye) said on CNBC’s Fast Money: “I don’t look to Goldman Sachs to tell me what to do.” What lies ahead for the market is not certain and until our levels, qualitative and quantitative analysis sync up, we are perfectly fine with our current asset allocation.

HedgeyeRetail Visual: Valuation in a Different Light

Let’s throw traditional valuation metrics out the door for a minute and look at EV/Total Addressable Market Value. It suggests that some of the seemingly most expensive stocks are actually the cheapest – and vice/versa.


Tired of nit-picking over a point here or there in p/e, price/sales or EV/EBITDA?  Basing investment decisions on these metrics often obfuscate the real value proposition. We looked at EV/Total Addressable Market for a host of companies. It shows that some of the ‘most expensive’ stocks based on traditional metrics are actually among the cheapest on this methodology.


In our analysis, we not only look at the market size each company is targeting, but also apply two discount factors; 1) the extent to which the company has the operating infrastructure in place to garner increased share, and 2) whether management is capable of achieving this growth.


HedgeyeRetail Visual: Valuation in a Different Light - EV TAM

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