Media reports of MPEL involvement in Philippines deal are probably accurate.



We think MPEL may have reached a deal to invest US$200-300 million in an integrated casino resort project already under construction.  The project is a joint venture between local property developer Belle Corp and Leisure & Resorts World, a Philippine bingo operator.  Total project cost may be as high as $1 billion.


MPEL would manage the casino and together with its investment, could have rights to over 50% of the cash flow.  This looks like an incredibly high ROI opportunity for MPEL.  We believe that Resorts World Manila, the only integrated casino resort in the Philippines, is generating $250-300 million in EBITDA on its current $650 million investment.  Even if one assumes only $200 million in EBITDA for the Belle Casino, that would generate an ROI of at least 50% to MPEL.


Obviously, there are regulatory issues in closing this transaction; not so much with MPEL, however.  The Australian authorities may have issues with James Packer and Crown doing business in the Philippines.  Some foreign regulators have voiced concerns about PAGCOR serving as both an operator and regulator of casinos.  Of course, the Philippines also maintains some notoriety with regards to corruption.


TODAY’S S&P 500 SET-UP – June 27, 2012

As we look at today’s set up for the S&P 500, the range is 30 points or -1.06% downside to 1306 and 1.21% upside to 1336. 











    • Up from the prior day’s trading of -1657
  • VOLUME: on 6/26 NYSE 712.29
    • Decrease versus prior day’s trading of -5.50%
  • VIX:  as of 6/26 was at 19.72
    • Decrease versus most recent day’s trading of -3.24%
    • Year-to-date decrease of -15.73%
  • SPX PUT/CALL RATIO: as of 6/26 closed at 1.55
    • Down from the day prior at 1.86 


CLIFF – as in the USA fiscal kind, draws closer as the denominator (GDP) goes lower. Keith wrote in the Early Look note yesterday about the UST 2yr being one of my proxies for sov debt risk. It’s certainly not the only indicator, but how it moves (on the margin) matters. Long-term TAIL support for the 2yr has been 0.28%; well above that at 0.31% this morning – that compresses the Yield Spread too. 

  • TED SPREAD: as of this morning 37
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.63
    • Unchanged from prior day’s trading
  • YIELD CURVE: as of this morning 1.33
    • Up from prior day’s trading at 1.32 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, June 22 (prior -0.8%)
  • 8:30am: Durable Goods Orders, May, est. 0.4% (prior 0.0%)
  • 8:30am: Cap Goods Orders Nondef Ex Air, May, est. 1.7% (prior -1.9%)
  • 8:30am: Cap Goods Ship Nondef Ex Air, May (prior -1.4%)
  • 10am: Pending Home Sales M/m, May, est. 1.5% (prior -5.5%)
  • 11am: Fed to buy $1.5-2.2b notes in 2/15/2036-5/15/2042 range
  • 1pm: U.S. to sell $35b 5-yr notes 


    • House, Senate in session
    • Lawmakers in House, Senate will try to clear transportation funding bill and measure on student loans; may tie them together to win passage
    • House Transportation Committee panel hearing on Jones Act waivers issued last year after strategic oil reserve was tapped in response to supply disruptions caused by the conflict in Libya; DOT Deputy Secretary John Porcar is to testify, 10am
    • House Natural Resources Cmte hearing on hydropower, 10am
    • House Financial Services Committee meets to consider its third semiannual report on the panel’s activities and to mark up a bill that would amend the Electronic Fund Transfer Act to limit fee disclosure requirements
    • House Judiciary holds hearing on international intellectual property rule enforcement, 10am
    • House Subcommittee on Communications and Technology will examine how viewing has changed as broadcasting, cable, satellite, Internet and other platforms have evolved, 10am
    • President Obama meets with Abu Dhabi Crown Prince Mohammed Bin Zayed
    • Obama hosts picnic for members of Congress at White House
    • EIA Administrator Adam Sieminski speaks at energy outlook conference held by Bipartisan Policy Center, 9am
    • U.S. Energy Information Administration to discuss agency’s 2012 energy outlook, 1pm
    • Food and Drug Administration will convene advisers for two days to weigh the safety of metal-on-metal hip implants


  • Microsoft lost an EU challenge to a EU899m ($1.2b) antitrust fine, was cut to EU860m, court said “essentially” upheld penalty
  • Facebook initiated at neutral at Citigroup, buy at Goldman
  • SEC said to authorize lawsuit against Harbinger’s Falcone
  • Best Buy founder Richard Schulze said to consider taking co. private
  • Apple wins preliminary injunction against Samsung Galaxy Tab
  • Stockton, California to file for bankruptcy after talks with bondholders, labor unions failed, biggest U.S. city to seek court protection
  • May durable goods orders forecast +0.5%, probably failed to make up for worst 4 mos. since recession
  • Spanish Prime Minister Mariano Rajoy said he will urge other EU leaders at a summit this wk to take measures to “stabilize markets using the available instruments”
  • Italy sells 185-day bills at 2.957% vs 2.104% on May 29
  • Glencore GBP16.9b ($26.4b) offer for the rest of Xstrata is in doubt after No. 2 shareholder Qatar Holding demanded the bid be increased by 16%
  • Announcement on News Corp. breakup may come by tomorrow
  • Philip Falcone said to face lawsuit from regulators over personal loan
  • SEC money-fund rule said to include capital or floating shrs
  • Monte Paschi to seek EU3.4b in govt. aid
  • Morgan Stanley faces test on ServiceNow IPO after Facebook flop
  • Netflix asked U.S. lawmakers to prevent cable providers from squelching its growth by imposing online-data consumption limits for customers
  • Google said to unveil $199 tablet at I/O conference starting today
  • Lockheed joins EADS lobbying Panetta to help stop budget cuts


    • Lennar (LEN) 6am, $0.16; Preview
    • McCormick (MKC) 7am, $0.61
    • Commercial Metals (CMC) 7am, $0.37
    • General Mills (GIS) 7am, $0.59; Preview
    • Monsanto (MON) 8am, $1.58; Preview
    • UniFirst (UNF) 8am, $0.99
    • AGF Management (AGF/B CN) 8am, $0.27
    • Paychex (PAYX) 4:01pm, $0.34
    • Progress Software (PRGS) 4:30pm, $0.22 



GOLD – get the Dollar right, and you’re still getting Gold right. Gold looking more like the Euro day to day; don’t underestimate how long Paulson is of the ETF (17% of it); liquidity matters and so does the downward pressure on price when an asset is in a Bearish Formation like Gold is. Next support = 1549, but that’s loose. This remains a Bernanke Bubble. 

  • Heat Wave Wilts Corn as Supply Drops Most Since ’96: Commodities
  • Corn Reaches Nine-Month High as U.S. Crop Damage May Worsen
  • Oil Falls as Rising U.S. Stockpiles Outweigh Supply Disruptions
  • Glencore Xstrata Deal Threatened as Qatar Seeks Higher Price
  • Copper Drops as Expanding Stockpiles May Signal Weaker Demand
  • Cocoa Extends Gains on Manufacturing Buying as Sugar Declines
  • Gold Set to Decline on Concern Europe’s Crisis Will Boost Dollar
  • Rosneft Said to Offer 200,000 Tons ESPO Crude for August Loading
  • Billionaire Deripaska Targets China to Expand Russian Food Sales
  • Gold’s $1,520 Support ‘Key’ to Stopping Drop: Technical Analysis
  • South Korea Power Shortages Costing $10 Billion a Year: Energy
  • Iron-Ore Price Forecast Lowered by Australia as China Cools
  • Corn Futures Jump as U.S. Harvest Faces Damage: Chart of the Day
  • Heat Wave Wilts Corn as Supplies Diminish
  • Sinopec to Process 1.6% Less Oil in Third Quarter, Oilchem Says
  • JPMorgan Reduces Second-Half 2012 Oil Outlook on Slowing Economy
  • Iraqi Crude Exports Via Turkey Halted for About 10 Hours 










GERMANY – both German stocks and German Bunds have broken their immediate-term TRADE lines of support (for the DAX, that’s 6249, putting it back into a Bearish Formation – bearish on all 3 of our risk mgt durations). As Growth Slows, GDP falls and risk ratios rise. Germany and Italy actually look like better shorts than Spain now. That’s new.














The Hedgeye Macro Team

HedgeyeRetail Visual: NKE: The KING

Lebron James branded Footwear sales growth accelerated through the NBA playoffs and is reaccelerating NKE's share gain in the basketball category (chart 1). Although Lebron branded sales have grown as a percent of the overall Nike basketball portfolio (Nike, Brand Jordan, Converse), NKE appears to be recapturing some of the 400bps of share lost in the category over the past year (chart 2). Share gain in basketball suggests that Lebron branded footwear is adding incremental sales to Nike’s dominant portfolio as opposed to cannibalizing other brands.


Interestingly, after scoring 26 of Miami’s 121 points in game 5,  James became only the 5th player in NBA history to register a triple-double (double-digit total in 3 of the 5 basketball stats, i.e. points, rebounds, assists) in a title-clinching game… Good for business.


Ultimately, NKE is a $20bn+ Global enterprise and although a single athlete in a single category won’t make or break the company, Lebron James appears to be moving the needle in a category that we estimate accounts for ~36% of footwear sales (note: FW accounts for ~55% of NKE sales globally). 


HedgeyeRetail Visual: NKE: The KING - NKE Lebron chart


HedgeyeRetail Visual: NKE: The KING - NKE basketball share

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%

Japan is off the hook…for now

Over the past thirty years, Japan has gone through tremendous economic headwinds beginning with the asset price bubble of the early 1990s to the financial crisis of 2008 and into the 2011 tsunami and earthquakes. The lack of growth in the country has been a bitter pill to swallow for investors and the Japanese government as the country struggles to get itself back on its feet and out of stagflation.


Japan is off the hook…for now  - JAP3


Despite cautious overtones related to the Japanese economy, we think there are four reasons as to why Japan is on the rebound and will not encounter a government bond-related crisis over the next few years.


1)      We see a diminished threat of future rating agency downgrades beyond critical levels. On May 22, Fitch was the first of the “Big 3” rating companies to downgrade Japan’s long-term local currency issuer rating to single-A status…


2)      On June 17, the Democratic Party of Japan agreed to double the nation’s 5% VAT tax in a two-step process ending on October 2015. While we demonstrated in our April 3 research note titled “DIGGING DEEPER INTO JAPANESE SOVEREIGN DEBT RISK” that hiking the VAT tax will do little for long term fiscal consolidation and debt reduction, positive headline risk associated with the passing of the VAT hike bill will likely buy the government a meaningful amount of time.


3)      On June 16, Prime Minister Noda agreed to restart the first two of Japan’s 50 idled nuclear reactors, implying that all political hurdles had been cleared. As a result, Japan should see a reduced need to import fossil fuels. A lack of support from Japanese voters in poll suggests that the decision was politically motivated. Noda’s decision illustrates a new confidence and willingness on the part of the Japanese government to go against popular sentiment – just last month, Japan issued projections for mandated rolling blackouts, which amount to cuts in consumer and corporate energy consumption.


4)      The slope of Japan’s 5yr breakeven inflation rate has now inflected after a long period of increasing inflation. This inflection coincides with the Bank of Japan’s unwillingness to give in to political and market pressure to ease monetary policy in pursuit of its +1% inflation target. In conjunction with a predictable compression in global interest rates differentials, this leads us to anticipate a bout of strength for the Japanese Yen in the near future.


Japan is off the hook…for now  - JAP2


Whether Japan will be able to shed its long-term low rates policy remains to be seen. But it’s making progress on many economic fronts that are important to keep in mind over the next one to three years. Japan also has committed a large amount of money to the International Monetary Fund ($60 billion currently) , making it one of the largest contributors to the fund. Should the European debt crisis rapidly accelerate at an unexpected rate, those commitments and associated collateral calls could prove to be costly. Japan’s economy is a lot like a game of chess. Dealing with it requires a great amount of patience and fortitude.



  • While the Macau stocks have been on a steady downward decline since late April over fears of a hard landing of Macau GGR, Junket VIP volume growth has been decelerating since September 2011
  • Using just historical seasonality trends to project future growth, the chart below illustrates projected Junket VIP volume growth for FY2012 based on the prior two months of actual data.  Using the actual results of July and August 2011, without adjusting for economic slowdown, our seasonality model would have projected a 47% increase in Junket RC volumes in 2012.  However, in each subsequent month as data came in weaker than pure seasonality factors would have implied, the forecast for 2012 continued to calibrate lower to 15% based on May results.
  • Layering in a continuation of decelerating macro factors onto our seasonality model, we are currently projecting that Junket RC volumes will come in at +10% YoY for 2012 and total GGR growth of 14% in 2012.


Leading The Pack On JACK


Howard Penney, Managing Director of Restaurants (@HedgeyeHWP)



In early May, we put out a note indicating that the time was right to get bullish on Jack in the Box (JACK). We went contrarian to the Street consensus that current sales trends would not strengthen quarter-over-quarter. Jack’s core business along with its fast growing Qdoba brand is something we found attractive at the time and still do. The company will soon wrap up its remodeling and rebranding phase which will relieve pressure on capital expenditures. This, combined with better comps going forward bodes well for top line growth. Over our long-term TAIL duration, we see as much as 50% upside in the stock.


Leading The Pack On JACK - JACK packonbull


Here is our original thesis from May 5th highlighting our durations for JACK:


TRADE (Duration = 3 weeks or less)

2QFY12 earnings are expected to be released on the 15th of May. Our view is that the Street is overly bearish on the company’s top-line trends, currently expecting a slowdown in two-year average trends.  We believe that the current sales trends at Jack in the Box strengthened quarter-over-quarter.


TREND (Duration = 3 months or more)

With the benefits of the remodel program only impacting the company’s financials now and the costs (capex) fading, we are positive on the company’s cash generation prospects.  Easier comps going forward should also help bring the top line higher.


TAIL (Duration = 3 years or less)

JACK trades at a discount to SONC (7.3x EV/EBITDA) and WEN (8.2x). We believe that JACK should trade at a premium to SONC and in line with WEN.  Over the next three years, we see as much as $8 in upside to JACK. 


So when we got bullish on May 5, 2012, the stock was trading at $23 a share. As of yesterday, the stock was at $27. That’s something to get excited about. The Street (Old Wall) is now following our lead and getting bullish as well. This company’s got legs and plenty of room (and time) to grow. 

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.