The Macau Metro Monitor, July 16, 2012




At the end of Q2 2012, Macau had 5,498 (+256 QoQ) gaming tables and 17,035 (+933 QoQ) slots.



Sands China said it has received an extension of the deadline for the completion of the development of parcel three, in Cotai.  The company said it received a letter from the Macau government dated July 13 informing it that a decision had been made by the Secretary for Transportation and Public Works, authorizing the extension of the construction period relating to parcel three until April 17, 2016 (original deadline: April 2013).  The government will later notify Sands China of the extension penalty.


Sands China also says parcel three “will target the mass-family market, and will feature family-oriented facilities.”  The company says design details for the property are currently being finalized.



According to Urban Redevelopment Authority, the number of new private homes sold in June continued to fall for the second consecutive month.  Developers sold 1,371 private homes (excluding executive condominiums) in June, down 19.4% from May when 1,702 units were sold.



Tourist Price Index (TPI) 2Q 2012 increased by 6.57% YoY to 118.59.  Price index of Accommodation Services decreased by 6.38% YoY.  2Q TPI decreased 4.62% QoQ, of which the price index of Accommodation Services slid by 24.64% due to lower room rate after the Lunar New Year.





TODAY’S S&P 500 SET-UP – July 16, 2012

As we look at today’s set up for the S&P 500, the range is 27 points or -1.38% downside to 1338 and 0.61% upside to 1365. 











  • ADVANCE/DECLINE LINE: on 07/13 NYSE 2044
    • Up versus the prior day’s trading of -792
  • VOLUME: on 07/13 NYSE 683
    • Decrease versus prior day’s trading of -10.58%
  • VIX:  as of 07/13 was at 16.74
    • Decrease versus most recent day’s trading of -8.67%%
    • Year-to-date decrease of -28.46%
  • SPX PUT/CALL RATIO: as of 07/13 closed at 1.62
    • Up from the day prior at 1.31 


  • TED SPREAD: as of this morning 36
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.48%
    • Decrease from prior day’s trading at 1.49%
  • YIELD CURVE: as of this morning 1.25
    • Unchanged from prior day’s trading 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Manufacturing, July, est. 4 (prior 2.29)
  • 8:30am: Advance Retail Sales, June, est. 0.20% (prior -0.2%)
  • 9:30am: IMF releases updates to global economic forecasts
  • 10am: Business Inventories, May, est. 0.2% (prior 0,4%)
  • 11am: Fed to purchase $1.5b-2b notes maturing Aug. 15, 2022- Feb. 15, 2031
  • 11:30am: U.S. to sell $30b 3-mo bills, $27b 6-mo bills
  • 7:30pm: Fed’s George speaks on monetary policy and farmland values in Kansas City 


    • President Obama holds campaign event in Ohio
    • Senate in session, House not in session
    • Dominion Resources CEO Thomas Farrell speaks at House Energy panel field hearing on proposed EPA greenhouse gas new source performance standard for utilities, 9am


  • Citigroup to post 2Q results; watch investment bank, trade rev.
  • Sales at U.S. retailers probably rose 0.2% in June
  • U.K. FSA Chairman, Barclays ex-COO to testify at House of Commons committee on Libor-rigging scandal
  • IMF to revise global growth forecasts; Lagarde has said forecasts will be lowered from April’s 3.5% projection
  • Glaxo raises Human Genome bid to $14-shr: Reuters
  • Visa, MasterCard in settlement w/ total value $7.25b on merchants’ antitrust swipe-fee suit; convenience-store assn. rejects settlement, Natl Retail Fed. says not party to suit
  • Calpers to release preliminary performance results for past yr
  • WTO set to issue ruling on U.S. complaint against China’s restrictions on U.S. electronic-pymt svc suppliers, 10:30am
  • Trial of SEC vs. Brian Stoker, former Citigroup dir., begins
  • Weekly agendas: Finance, Tech, Media/Entertainment, Industrials, Energy, Transports, Health, Real Estate, Consumers, IPOs, Rates, Canada Mining, Canada Oil & Gas
  • Bernanke testifies, China housing, Google: Week Ahead 


    • Citigroup (C) 8am, $0.89 - Preview
    • Gannett (GCI) 8:15am, $0.53 - Preview
    • JB Hunt Transport (JBHT) 4pm, $0.66
    • Cintas (CTAS) 4:07pm, $0.60
    • Brown & Brown (BRO) 4:50pm, $0.31
    • Packaging Corp. of America (PKG) 5pm, $0.46


  • Hedge Funds Bet Right Before Longest Winning Streak: Commodities
  • Speculators Cut Bullish Oil Wagers Before Rally: Energy Markets
  • Wilbur Ross Says U.S. Coal Is Facing Years of Headwinds: Energy
  • Corn at 10-Month High, Soybeans Costliest Since 2008 on Drought
  • Oil Declines From One-Week High on China Slowdown, Hormuz Bypass
  • Sugar Falls as Producer Supplies Seen Advancing; Cocoa Declines
  • Worst-in-Generation Drought Dims U.S. Farm Economy Bright Spot
  • Gold Set to Fall in London as Europe’s Debt Crisis Aids Dollar
  • Soybean Meal Surges to Record as Drought Withers U.S. Harvest
  • Copper Drops for First Day in Four on China Consumption Concern
  • Gold Demand in India to Drop as Buyers Prefer to Hoard Cash
  • Gulf Oil Less Crucial in Storms as Shale Grows: Chart of the Day
  • BP Said to Buy Fuel Oil Cargo From Hindustan Petroleum for July
  • Ghana’s Cocoa Mid-Crop May Be as Much as 80,000 Tons This Year
  • Deficient Monsoon Challenges India’s Record Food Grain Harvests
  • Soybeans May Set Record, Break Resistance: Technical Analysis





EURO – failed to hold Friday’s no-volume gains and is also failing to hold the 2010 closing lows; the Euro could go a lot lower; and the USD a lot higher (see our Q3 Macro Theme slides for the update on why); refreshed risk range for EUR/USD = 1.20-1.23










CHINA – Friday’s no-volume USA rally on the lowest consumer confidence print in 7 months was based partly on a rumor China was going to cut again this weekend – but they didn’t, and Chinese stocks got cut to fresh YTD lows, down another -1.7% after Wen said that it needs to be “clearly understood” that #GrowthSlowing is accelerating on the downside.






ISRAEL – jumping off my risk factoring page this morning for reasons I am not sure of (down -0.6% testing new lows at -3.2% YTD) with plenty of rumoring by the British on possible “attacks” (Iran); something to think about re Oil (+3.1% last wk) keeping a bid during the USD’s recent upswing; middle east tension has been out of the mainline news for a while now.






The Hedgeye Macro Team


Hailing Patriotism

This note was originally published at 8am on July 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.

“I only regret that I have but one life to lose for my country.”

-Nathan Hale


The quote above from Nathan Hale is by many thought to be one of the more patriotic statements made in American history.  These words were spoken by Hale shortly before being hung by the British for spying.  The 21-year old Yale graduate had been captured by the British after volunteering to go behind enemy lines to report on British troop movement during the Battle of Long Island.  Clearly, a willingness to sacrifice your life for your country is the ultimate sacrifice.


Yesterday was Canada Day in Canada and Wednesday will be Independence Day in the United States.  While most of us won’t be swearing to give our lives for our respective countries this week, for many of us our patriotism will nonetheless be on display.  In many ways, patriotism is a great thing.  On the other hand, extreme patriotism is in many instances the root of the more significant military conflicts in modern history.  Ultimately at the root of patriotism is a deep seated perspective that your nation’s interests should come ahead of another nation’s interests.


The global equity markets have rallied aggressively over the last couple of days based on perceived positive developments from the European Union summit last week.  This is the 20th summit since the European sovereign debt crisis began in 2010 and the ensuing storyline has become somewhat predictable. The leaders of the European Union meet, stories are linked about the possible bailout plans that are in the works, numerous MOUs are signed or agreed to at the end of the summit, and then the markets rally in anticipation of the end of the crisis.  Eventually, though, market participants again realize there is no solution and that crisis is far from over.  But who knows, perhaps this summit truly was different. Personally, I remain a skeptic.


The ultimate solution in Europe must come from a broad willingness for nations to give up sovereignty on fiscal and budgetary matters.  As discussed above, national pride and patriotism run deep, particularly in Europe, therefore relinquishing even some sovereignty for collective fiscal and budgetary decisions will not be an easy matter. So, even if the headlines coming out of the most recent summit are positive, we need to keep in mind that any actual implementation of a broad based solution will not be simple, or quick.


On the economic data front, the Purchasing Managers Index for manufacturing in Europe came out this morning at 45.1.  This is the 11th monthly decline and the rate of decline was comparable to that of May, which was the fastest monthly decline in almost three years.  Overall, the average reading of 45.4 was the slowest reading since Q2 2009.  Most disturbing is likely the fact that Germany is clearly no longer immune from growth headwinds as German PMI came in at 45.0 for the fourth consecutive month of declines. All in all, pretty somber news as it relates to growth, or lack thereof.


The larger emerging issue from Europe’s structural growth problem is that of unemployment.  In May, the Eurozone unemployment rate came in at a new record of 11.1% with more than 17 million people unemployed in the 17-nation Eurozone.  Consistent with its victory in the European Cup over the weekend, Spain continues to also lead on the unemployment front with unemployment at 24.6%, though is followed closely by Greece at 21.9% and Portugal at 15.2%.  There is no question given the current state of the European Union, as most recently indicated by the PMI numbers outlined above, that we have not yet seen highs in unemployment.


Later this week both the European Central Bank and the Bank of England will meet and then give their most recent rate decisions.  Similar to the Federal Reserve, both of these central banks are largely out of bullets.  It is expected that both banks will cut rates by 25 basis points and approve a 50 billion pound bump in the asset purchase program, respectively.  Based on the move we’ve seen in European equities and bonds in the last few days, it seems likely that even coming in line with expectations may actually be a disappointment.


We continue to be very conservatively positioned in both the Hedgeye Asset Allocation Model with 91% cash and in the Hedgeye Virtual Portfolio that now has 5 longs and nine shorts.  So, yes, we are now running net short in the Virtual Portfolio as Keith added the following shorts in Friday’s melt up: Discover Financial Services (DFS), Italian equities (via the etf EWI), the Russell 2000 (via the etf IWM), and Brent Oil (via the etf BNO).


As you head into July 4th and celebrate American independence with your friends and family, and despite some of the somber economic news coming out of Europe, it is important to remain optimistic and upbeat.  As such, I’d like to leave you with quotes from two American Presidents, a Republican and a Democratic.  They are as follows:


“There is nothing wrong with America that cannot be cured with what is right about America.”

-President Bill Clinton


“America has never been an empire.  We may be the only great power in history that had the chance, and refused – preferring greatness to power and justice to glory.”

-President George W. Bush


Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Germany’s DAX, and the SP500 are now $1583-1623, $92.82-97.66, $81.21-82.16, $1.25-1.27, 6269-6563, and 1336-1365, respectively.


Enjoy your holiday time this week.




Daryl G. Jones

Director of Research


Hailing Patriotism - Chart of the Day


Hailing Patriotism - Virtual Portfolio

CHART OF THE DAY: Unintended Consequences


CHART OF THE DAY: Unintended Consequences - Chart of the Day

Unintended Consequences

“Increasing taxes on successful risk takers will slow the accumulation of equity and discourage risk taking.”

-Edward Conard


This weekend I finished reading Edward Conard’s “Unintended Consequences: Why Everything You’ve Been Told About the Economy is Wrong.” On an ABC scoring scale, I’ll be nice and give the book a B (minus). The book’s title is a borrowed one – and the “truth” is written from a partisan perspective (Conard was a Managing Director at Bain who made a million dollar contribution to a Romney Super Pac).


If you are well versed in Global Macro markets, economic history, and frameworks of economic thought, you don’t have to start reading this book until page 195 where Conard asks 3 important questions: “How does America protect its economy from another crisis? How does it reduce unemployment and revive growth? And how does it balance the federal budget – by raising taxes or cutting costs?”


Good questions; average at best answers. Not once did he use modern day math (Chaos or Complexity Theory) or any aspect of current Behavioral Economics (Kahnmen/Tversky/Taleb). He focused mostly on how bad the likes of Keynesian “multiplier-effect” economists like Christina Romer have been in advising Obama. But everyone who doesn’t do drugs knows that just as well as an MBA from Harvard does.


The only question Conard answered really well (that I haven’t read anywhere else) was the unemployment question. That’s why I gave him the Hedgeye Quote of The Day. Central planners like Ben Bernanke and Tim Geithner (who have never had to take on risk with their own after tax capital and meet a payroll in their life), do not get this very simple relationship between risk capital and hiring.


Take it from me (a small business owner in America). It’s one of the main reasons why US Unemployment is high and US Consumer Confidence is low. People don’t trust this will end well.


Back to the Global Macro Grind


In the last 3 weeks, the USA has had some terrible economic data related to hiring and confidence:

  1. NFIB Small Business Survey in June plummeted to a fresh YTD low of 91.4 versus 94.4 in May
  2. US unemployment rate of 8.2% for June didn’t budge as non-farm payrolls missed badly (again) at 80,000
  3. University of Michigan Consumer Confidence for early July got smoked to another YTD low of 72 (versus 73.5 2 weeks ago)

That last data point actually came at 10AM EST on Friday morning after the US stock market was already up +1% on the day. Bad news for America is obviously bullish for the only part of the bull case that’s left (Qe rumors and bailouts). Throw a little China “rate cut” rumor on top of that fire into Friday’s close, and you had yourself one mother of a no-volume rally. It was the market’s 1st up day in the last 7.


Hooray. Now what?


1.   ASIA: After the Chinese didn’t deliver on the USA manufactured lie of the day (Premier Wen actually told the media he wants it “clearly understood” that China’s #GrowthSlowing continues at an accelerating rate), stocks in Shanghai closed down another -1.7%, hitting fresh YTD lows. Like US Small Business and Consumer Confidence, fresh lows are great, right?


2.   EUROPE: Despite the no-volume rally in US Stocks (down 29% volume day versus my top 10 down days in Q2) on Friday, Europe opened like a wet Kleenex. Spanish, Italian, and Russian stocks all remains in crash mode this morning at -25%, -22%, and -20%, respectively, from their YTD tops. More bailout debt is only going to structurally slow real (inflation adjusted) growth further.


3.   COMMODITIES: while US stocks were flat to down last week (depending on the index), Commodity Inflation had some rip-roaring fun in the sun, with the CRB Index up a full +2.4% on some good ole fashioned food (corn!) and oil (+3.1% wk-over-wk) inflation. Better yet, the CFTC weekly options data showed a +8.9% wk-over-wk pop to 1.05 million contracts!


To put that commodity price speculation into perspective, that 1.05 million number is the highest level of commodity inflation betting since, you guessed it, April 3rd, 2012. The Chinese, just fyi, aren’t going to cut rates if food/energy starts to rip again. That perpetuates civil unrest.


Q: What else peaked on April 2nd, 2012? A: The SP500 (at 1419).


And so it begins…


Another week of storytelling and fun at the gong show that has become our centrally planned market. Will Ben Bernanke deliver the elixir of #BailoutBull drugs at this week’s Senate and House meetings? Will US Housing not slow from its epic Q1 weather highs? Will earnings, un-adjusted for guys marking up their books into month-end, matter as they slow?


Only time and price will tell. All the while, the Unintended Consequences of a No Trust; No Volume marketplace will continue to play a much larger role in whatever centrally planned life someone writes a book about next.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $96.95-102.91, 83.01-84.33, $1.20-1.23, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Unintended Consequences - Chart of the Day


Unintended Consequences - Virtual Portfolio


CONCLUSION: We maintain conviction in our view that Chinese economic growth is not poised to meaningfully inflect over the intermediate term. Furthermore, we can’t stress how much the late-year transition in leadership or the growing official realization that the 2008-09 stimulus package and central plan (i.e. state-directed lending) contributed heavily to a rapid and potentially unhealthy expansion in credit (+96.6% since the end of 2008) may slow Chinese policymakers’ fiscal/regulatory response [if any] to an incremental deterioration in economic growth. Remember, Chinese banks have yet to see a material deterioration in credit quality (the industry-wide NPL ratio is at a measly 0.9%), so it’s not unreasonable to believe that Chinese policymakers could be saving their “bullets” for a potentially more worthy cause than a purposefully-engineered slowdown in Real GDP growth to +10bps above their official 2012 “target” of +7.5% (announced in MAR).


The Data: Setting aside the JUN Industrial Production, Retail Sales and Fixed Asset Investment YoY growth rates – which, on balance, slowed very marginally from MAY – Chinese Real GDP growth slowed in 2Q12 to the weakest pace since 1Q09 – a disturbing thought, given that in 1Q09 the global economy was mired in the deepest global recession since the 1930s.




The Reaction: The benchmark Shanghai Composite Index closed flat on the day and remains in a Bearish Formation. The Chinese yuan traded down only marginally on the day (-0.1%) and the non-deliverable forwards markets continue to price in 60-140bps of incremental weakness vs. the USD over the NTM. A critical divergence to note is the more bearish expectations in the offshore market (i.e. USD/CNH cross), which is likely a sign of international investors holding a more bearish long-term view of the Chinese economy than mainlanders (more easing and/or more capital outflows expected). Moreover, this has been the case since the start of the year. Please refer to our APR 16 note titled: “FLAGGING ASYMMETRIC RISK IN THE CHINESE YUAN AND DIM SUM BOND MARKET” for our bearish TAIL-duration thesis on the Chinese currency.






The Context: It’s worth remembering that this was a policy-induced slowdown. As we initially suggested way back in our 1Q10 Macro Theme “Chinese Ox in a Box”, the Chinese government has engineered a fairly dramatic slowdown in domestic economic growth (the rate of Real GDP growth has fallen -36% since its 1Q10 cycle peak) – largely on the strength of subsequent introductions of property curbs and post QE2 rate-hikes. Net-net, we don’t see any reason for Chinese policymakers to overreact and respond with any major fiscal stimulus or loosening of the aforementioned macroprudential measures currently weighing on demand in its property market. Our view is supported by recent commentary from key Chinese policymakers and central planning agencies:

  • Premier Wen Jiabao (JUL 7):
    • “Restricting speculative demand and investment in property must be made a long-term policy.”
    • “We must unswervingly continue to implement all manner of controls in the property market to allow prices to return to reasonable levels. We cannot allow prices to rebound, or all our efforts will come to naught.”
    • “Market expectations about property prices are changing and citizens are worried prices will rise again. Signals in the market are chaotic and misleading and speculative information must be stopped.”
    • “Local governments that introduced or covered up a loosening of curbs on residential real-estate must be stopped.”
    • “Property controls are still in a critical period and the task remains arduous.”
    • “The government must promote the study and implementation of changes to the property-tax mechanism, and to speed up the establishment of a comprehensive long-term mechanism and policy framework for controlling the property market.”
  • Ministry of Housing and Urban-Rural Development (JUN 19):
    • Identified media reports about changing policies as “distorted” and pledged to “steadfastly continue existing policies”.
  • China Banking Regulatory Commission (JUN 14):
    • Issued a three-sentence statement on its website labeling media reports about relaxed restrictions on home lending as “complete misunderstandings”, “sheer fabrications” and/or  “deliberate misinterpretations possibly intended to manipulate the market”.
  • Peoples Bank of China (JUN 14 – roughly one week after the first rate cut):
    • Issued a brief statement calling allegations in the media that the central bank had loosened restrictions on the property sector “deliberate misinterpretations” that “sensationalized” the bank's policy.
  • The National Development and Reform Commission (JUN 12):
    • Publicly deemed an article about a real estate development “sheer fabrication”.

All told, we feel comfortable maintaining our guidance to not expect much from the Chinese economy over the intermediate term – especially given that Fixed Capital Formation accounts for roughly half of Chinese GDP at 46.2%, having taken a fair amount of share from both Private Consumption and Net Exports over the last five years. As an aside, when the central plan calls for growth at all costs (as it did in the years leading up to 2010) an overreliance on incremental CapEx tends to be the most natural route, usually resulting in a speculative boom in property prices as the supply of credit expands faster than the discretion of those institutions responsible for extending it (a la China circa 2009-10). More on this later…




While our predictive tracking algorithms do suggest that the slope of Chinese Real GDP growth may base and potentially inflect here in 3Q, we are not of the view that any infection would be meaningful or the start of a sustained uptrend in Chinese economic growth. Refer to our OCT 18 thought piece titled: “PUTTING CHINA INTO PERSPECTIVE” for more details behind our thoughts that the Chinese economy has more than likely undergone a structural downshift in rates of economic growth.


The aforementioned conclusions on China’s property market and overall economy carry negative implications for industries and sectors that cater to the supply and demand dynamics of China’s domestic real estate market. The following micro data point lends credence to this view:


Sany Heavy Industry Co., China’s biggest maker of excavators, lowered its sales forecast for the equipment as slowing economic growth and government curbs on property market sap demand. Excavator sales may increase 10 percent this year, slower than a previous target of 40 percent, Vice Chairman Xiang Wenbo said in a July 11 interview in Changsha, Hunan province, where the company is based. Sany will still outperform the industry, which may see a fall in demand, he said. (Bloomberg; JUL 13)


Prices in China’s domestic rebar market also lend credence to this view:






Net-net, we maintain conviction in our view that Chinese economic growth is not poised to meaningfully inflect over the intermediate term. Furthermore, we can’t stress how much the late-year transition in leadership or the growing official realization that the 2008-09 stimulus package and central plan (i.e. state-directed lending) contributed heavily to a rapid and potentially unhealthy expansion in credit (+96.6% since the end of 2008) may slow Chinese policymakers’ fiscal/regulatory response [if any] to an incremental deterioration in economic growth.


Remember, Chinese banks have yet to see a material deterioration in credit quality (the industry-wide NPL ratio is at a measly 0.9%), so it’s not unreasonable to believe that Chinese policymakers could be saving their “bullets” for a potentially more worthy cause than a purposefully-engineered slowdown in Real GDP growth to +10bps above their official 2012 “target” of +7.5% (announced in MAR).


Keep these thoughts front and center as you ponder the TREND and TAIL slopes of Chinese economic growth. Have a great weekend,


Darius Dale

Senior Analyst

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