The New America







Italy is just in full blown destruction mode with the MIB index down -21% from its year-to-date top. Their debt problem is so big that almost no one can bail them out. Come September 12th, Mario Monti and his cronies will have some explaining (read: begging) to do in order for the German Parliament to sign off on whatever package they end up getting.   



Oh goodness. We almost felt sorry for Ben Bernanke yesterday when Senator Chuck Schumer started berating him to “get to work.” Yes, we realize that Congress will never agree on anything ever again and that the US political machine is broken. But demanding Bernanke “get to work” because the last bastion of hope is the Federal Reserve? Please.



Having a 100% cash position isn’t always the right call. Sure, we’re fond of it, but you need to have some wiggle room for when the market gives you an entry point for a specific sector. Keep your exposure to equities and commodities low and you’ll be fine out there. Fade that beta.




Cash: Down                U.S. Equities: Flat


Int'l Equities: Flat Commodities: Flat


Fixed Income: Up        Int'l Currencies: Up





The bulk of the bad news is on the table following disappointing F2012. Rebased F2013 estimates far more reasonable, and revenues should be supported by our expectations for rising physician utilization, and in the near-term, a flu season that is shaping up as a considerable tailwind.







SS volume accelerated in 1Q12 and employment remains a tailwind to both admissions & mix. We expect acuity to stabilize and births and outpatient utilization to accelerate out of 1Q12, while supply cost management continues as a margin driver and acquisition opportunities remain a source for upside.







The company continues to control its own destiny through investments in all the right areas. We think 30%+ top line and EPS growth for 5+ years. One of its failures, however, has been in penetrating markets outside the US. That will happen. But for now, its failure is a competitive advantage in the face of a strengthening dollar. We like it in sympathy with a LULU sell-off.








Tweet of the Day: “$CORN RT @douglas_blake: I'd go see Dark Knight Rises this weekend, but I can't afford the Popcorn.”-@ReformedBroker


Quote of the Day: “Glory is fleeting, but obscurity is forever.” –Napoleon Bonaparte


Stat of the Day: In the last three months, 225,000 net jobs were added in America. During that same time period,  246,000 were added to Social Security’s disability insurance.








Even after normalizing hold, the Q was not good.  Whisper expectations were for a first down punt, however.



Wynn missed Street expectations, even after normalizing hold.  We had low hold already factored into our Wynn Macau and Las Vegas projections (not low enough for Vegas) and Wynn still needed a Hail Mary pass in the form of favorable reserve adjustment to make our number.  So why do we think WYNN could rally?  We’re pretty sure buy side expectations were lower and Wynn may have actually covered the point spread.  Moreover, the stock has been in a tailspin, down 42% and 28% from its 52 week high and recent April high, respectively.  Keep a trade a trade, however.  Wynn is still down by a lot and the opposing side is looking tough:  market share still at risk, Macau VIP may disappoint further, and the modest Las Vegas recovery seems to be moderating further.


Netting the impact of low hold and the benefit of the reversal of provision for bad debt, we believe that Wynn would have reported $1,32BN of revenue and $378MM of EBITDA, still 2% and 3% below the Street.  Wynn recorded a positive adjustment to its receivable reserve which we calculate favorably impacted EBITDA by $25 million.  As a former CPA and Audit Chair of a publicly traded company I find it hard to believe the auditors recommended getting less conservative.  Nevertheless, Wynn has clearly over-reserved historically so the end result on the balance sheet is appropriate.  Only the timing is suspect.




Wynn reported net revenue of $908MM which was just 0.4% below our estimate.  Adjusted EBITDA was 7% higher than we estimated, almost entirely due to a reversal of bad debt provisions.  Lower than historical hold on the VIP business was largely offset by high hold on Mass.  If hold was “normal”, net revenue and EBITDA would have been $15MM and $3MM higher, respectively.  If we adjust for the reserve and normalize for hold then we estimate that Wynn Macau would have reported net revenue of $923MM and Adjusted EBITDA of $289MM, 4% and 3% below consensus going into the print.

  • Net VIP table win was $1MM lower than we estimated. 
    • RC volume declined 7% YoY, despite a 9% increase in the number of VIP tables.  Volumes dropped 10% QoQ despite no change in tables.
    • Direct play was 8.3% vs. our estimate of 11.0% and hold was 5bps better than we estimated, resulting in gross table win that was $1MM above our estimate.  
    • The rebate rate was 30.8% or 84bps, a bit higher than we estimated
    • We estimate that all junket commissions & rebates were 41.9%, a little lower than we estimated and impressive in the current “aggressive” promotional environment that Wynn described.  However, we won’t know for sure until Wynn Macau files.
    • The property’s historical hold rate since opening, inclusive of this quarter, has been 2.92%.  Using the historical hold rate, net revenues would have been $27MM better and EBITDA would have been $8MM higher.
  • Mass table win was $2MM lower than we estimated
    • Drop declined 5% QoQ, despite a small increase in the number of tables and was 9% less than we estimated but the win % was 2.3% better.  
    • Wynn’s mass hold in 2011 was 28.4% and Wynn considers 26-28% normal. Assuming 28%, revenues would have been $15MM lower while EBITDA would have been about $5MM lower.
  • Slot win was $1MM below our estimate
    • Slot handle was down 22% YoY on a 11% reduction of average slots on the floor
    • Hold was 5.3%, 20bps better than we estimated
    • As Wynn mentioned on the call, they are adding some slots, so we’ll be watching to see if more supply drives demand here
  • We estimate that fixed expenses totaled $108MM, in-line with our estimate and flat QoQ


Las Vegas

Las Vegas revenues and EBITDA missed our numbers by 6% and 18%, respectively, and missed the Street’s EBITDA estimate by 24%. The entire miss came from lower than normal hold on Wynn’s high end baccarat play which held at only 9% and took down the hold on table games to 15% which is about 9% below normal.  The impact of low hold which the company estimates impacted EBITDA by $34MM was partly offset by the reversal in bad debt provision, which we estimate benefited Wynn Las Vegas by $9MM.  Net/net, we think that on a “normalized” basis, Wynn Las Vegas would have reported $392MM of net revenue and $107MM of EBITDA, which was still a little below consensus.  

A large part of the miss came from lower room revenue and higher promotional spend.  Despite management’s statements on the call, we believe that trying to inflate ADRs probably cost Wynn a lot of occupancy and hurt their gaming and non-gaming revenues in the quarter.

  • Net casino revenues were $31MM below our estimate
    • Table drop actually grew 8% YoY vs. our estimate of 5% growth but hold was way below normal, resulting in table win being $26MM below our estimate (we suspected low hold but not this low)
      • Hold was 15%, significantly below the company’s normal range of 21-24% and the 9 quarter trailing average of 23.5%.  Assuming 23% is normal, table win would have been $46MM better and according to Matt Maddox, EBITDA would have been $34MM higher.
    • Slot win was $2MM lower than we estimated
      • Slot handle 2% better than we estimated but the win % was 40bps lower at 5.7%
    • Total gaming discounts and promotions totaled 22% of gross casino win, higher than the 17.7% discount rate in 2011 and last quarter’s rate of 18%.
    • We estimate that the reversal in bad debt benefited EBITDA by $9MM 


The Macau Metro Monitor, July 18, 2012




According to sources, Sands China was very close to reaching a deal with the government allowing it to transfer its Four Seasons luxury apartment hotel in Cotai to a subsidiary, in which shares to right of use of its units could be sold.  But the email leaks involving messages between former Sands legal adviser Leonel Alves, and fired former CEO Steve Jacobs put the deal on hold.  The deal could be worth up to US$1 billion (MOP8 billion).


The Four Seasons deal was to be in return for Sands dropping a lawsuit against the government for its decision to not award the company lots seven and eight in Cotai.  One source told Business Daily: “Once the fresh allegations were published in The Wall Street Journal it became too difficult for the government to let the Four Seasons apartment deal go through.”


Early Look

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TODAY’S S&P 500 SET-UP – July 18, 2012

As we look at today’s set up for the S&P 500, the range is 14 points or -0.93% downside to 1351 and 0.10% upside to 1365. 











  • ADVANCE/DECLINE LINE: on 07/17 NYSE 1036
    • Up versus the prior day’s trading of -306
  • VOLUME: on 07/17 NYSE 697.74
    • Increase versus prior day’s trading of 15.89%
  • VIX:  as of 07/17 was at 16.48
    • Decrease versus most recent day’s trading of -3.68%
    • Year-to-date decrease of -29.57%
  • SPX PUT/CALL RATIO: as of 07/17 closed at 1.04
    • Down from the day prior at 1.47 


  • TED SPREAD: as of this morning 36
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.49%
    • Decrease from prior day’s trading at 1.51%
  • YIELD CURVE: as of this morning 1.26
    • Down from prior day’s trading at 1.27 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, July 13 (prior -2.1%)
  • 8:30am: Housing Starts, June, est. 745k (prior 708k)
  • 8:30am: Housing Starts M/m, June, est. 5.2%  (prior -4.8%)
  • 8:30am: Building Permits, June, 765k (prior 784k)
  • 10am: Bernanke delivers monetary policy report to House
  • 10.30am: DOE Inventories
  • 11am: Fed to purchase $4.5b to $5.5b notes maturing Aug. 15, 2020-May 15, 2022
  • 2pm: Fed releases Beige Book 


    • House, Senate in session
    • House Armed Services holds hearing on budget sequestration effects, 10am
    • Defense Secretary Leon Panetta, U.K. Secretary of State for Defense Philip Hammond hold joint press conference, 9:30am
    • Equal Employment Opportunity Commission holds public meeting on Strategic Enforcement Plan, 9:30am
    • Office of Personnel Management holds meeting of National Council on Federal Labor-Management Relations to make recommendations on improving services, cutting costs, 10am
    • World Bank President Jim Yong Kim discusses global development at Brookings Institution, 1:30pm 


  • FDA approves Vivus’s weight-management drug Qsymia
  • Housing starts may have climbed 5.2% in June
  • Bernanke resumes semi-annual testimony at House today
  • Facebook down 8.6% this week amid slowing-growth concerns
  • DirecTV says it’s closer to deal with Viacom on channels
  • Samsonite to buy High Sierra Sport for $110m NSN
  • BOE Voted 7-2 as MPC Signals Rate-Cut Case May Be Reviewed 


    • Knight Capital Group (KCG) 6am, $0.10
    • PNC Financial Services (PNC) 6:15am, $1.22
    • BlackRock (BLK) 6:30am, $3.01
    • Bank of New York Mellon (BK) 6:30am, $0.51
    • US Bancorp (USB) 6:45am, $0.70
    • Dover (DOV) 7am, $1.13
    • Stanley Black & Decker (SWK) 7am, $1.52
    • AO Smith (AOS) 7am, $0.67
    • Bank of America (BAC) 7am, $0.15
    • Northern Trust (NTRS) 7:14am, $0.75
    • Honeywell International (HON) 7:30am, $1.11
    • St Jude Medical (STJ) 7:30am, $0.87; Preview
    • Abbott Laboratories (ABT) 7:36am, $1.22; Preview
    • WW Grainger (GWW) 8am, $2.62
    • Amphenol (APH) 8am, $0.84
    • First Republic Bank/CA (FRC) 8am, $0.64
    • SEI Investments (SEIC) 8:30am, $0.30
    • Qualcomm (QCOM) 4pm, $0.86
    • Stryker (SYK) 4pm, $0.99
    • CYS Investments (CYS) 4pm, $0.48
    • Greenhill & Co (GHL) 4pm, $0.25
    • Platinum Underwriters Holdings (PTP) 4pm, $1.19
    • RLI Corp (RLI) 4pm, $1.13
    • Select Comfort (SCSS) 4:01pm, $0.27
    • Covanta Holding (CVA) 4:01pm, $0.12
    • International Business Machines (IBM) 4:03pm, $3.43
    • Wintrust Financial (WTFC) 4:03pm, $0.47
    • Yum! Brands (YUM) 4:05pm, $0.70
    • Kinder Morgan Energy Partners (KMP) 4:05pm, $0.47
    • Kinder Morgan (KMI) Aft-mkt, $0.26
    • F5 Networks (FFIV) 4:05pm, $1.14
    • LaSalle Hotel Properties (LHO) 4:05pm, $0.75
    • Umpqua Holdings (UMPQ) 4:05pm, $0.21
    • American Express (AXP) 4:06pm, $1.10
    • EBay (EBAY) 4:15pm, $0.55
    • Xilinx (XLNX) 4:20pm, $0.45
    • SLM Corp (SLM) 4:30pm, $0.54
    • Skyworks Solutions (SWKS) 4:30pm, $0.44
    • Cohen & Steers (CNS) 4:30pm, $0.41
    • East West Bancorp (EWBC) 4:45pm, $0.46
    • NI (HNI) 5pm, $0.17
    • Noble (NE) 5pm, $0.57
    • Crown Holdings (CCK) 5:03pm, $0.84
    • CVB Financial (CVBF) Late, $0.21
    • El Paso Pipeline Partners (EPB) Aft-mkt, $0.50 



GOLD – its telling you all you need to know about no iQe4 upgrade drugs from Bernanke. With tensions in the Middle East rising, we like the long USD, short Gold (and Gold Miners) position more than long USD vs short Oil. Next support for Gold = $1559, but it’s loose. 

  • Shell-Led Arctic Push Finds U.S. Shy in Icebreakers: Energy
  • Looming Copper Surplus Contracting as Mining Fails: Commodities
  • Gold Set to Drop as Fed Refrains From Specific Easing Measures
  • Corn Seen Rallying to Record $8.50 as Drought Kills Crops
  • India to Curb Hoarding as Food Prices Rally on Weak Monsoon
  • Japan Commission to Review Easing of U.S. Beef Import Curbs
  • Corn Drops for Second Day on Concern Rally Is Curbing Demand
  • Copper Rises on Speculation About Additional U.S. Policy Easing
  • Oil Declines From Seven-Week High on Outlook for China, Europe
  • BHP Sees Escondida’s Copper Output Rising by Nearly Half in FY15
  • Cocoa Falls on Demand Speculation Before Processing Figures
  • Silver Seen Declining to Lowest Since 2010: Technical Analysis
  • China Money-Supply Pickup Signals GDP Recovery: Chart of the Day
  • BHP Iron Ore Output Rises 15% to Beat Analyst Estimate
  • U.S. Feedlots Buy Fewer Cattle as Feed Costs Rise, Survey Says
  • Cocoa Arrivals From Brazil’s Bahia Advance 24%, Hartmann Reports 









ITALY – back into crash mode the MIB Index goes (-21% from YTD top) as the Italians really have nothing but hope and prayers left until the Germans ratify whatever Italian banks will need on September 12th; without German Parliament signing off on it, Spain can try to jockey the headlines, but Italy is on a political island that the Germans own.






KOSPI – in one of the nastier reversals from US green close to Asian red close last night, the KOSPI got pounded -1.5% to re-test its YTD lows; #GrowthSlowing is accelerating on the downside, globally, where it matters (Tech and Industrials demand); many ignored that in mid-April too. We didn’t, and won’t.











The Hedgeye Macro Team

Stealing Horses

“In West Texas in 1871, stealing someone’s horse was often equivalent to a death sentence.”

-S.C. Gwynne


The only thing I don’t like about working on America’s West Coast is that room service doesn’t start until 8AM EST. I’m in San Francisco, California this morning. And, away from no oatmeal in my belly, I am loving it.


What I don’t love is when Chuck Schumer speaks. I get especially irritated when he speaks at people like he did with my good pal Ben Bernanke yesterday, telling him to “get to work” on some more money printing.


As S.C. Gwynne explains in an excellent new book I started reading on the flight down here, “Empire of The Summer Moon: Quanah Parker and the rise and fall of the Comanches, the most powerful tribe in American History”, stealing someone’s most valuable asset (in my case US Dollars) is not cool.


Back to the Global Macro Grind


Admittedly, when it comes to explaining the basic concept of the Purchasing Power of your hard earned currency and how conflicted and compromised politicians are attempting to debauch it for the sake of their short-term career risk, I can’t walk a horse to water.


I can, however, steal away into the night and watch the only thing that matters in scoring the efficacy of what Chucky Schumer wants more of (Qe drugs) – Mr. Global Macro Market.


Mr. Macro has been giving plenty a buy-and-hold Keynesian a performance death sentence since the SP500 was +14.9% higher in October of 2007. While the same ‘growth is good, earnings are great, and stocks are cheap’ crowd still needs the SP500 to rise another +5% to get back to their 2012 break-even, here’s what the rest of the world’s country signals are telling me this morning: 

  1. CHINA – the Shanghai Composite Index remains a rock solid leading indicator for the slope of Chinese economic growth, and it remains in what we call a Bearish Formation (bearish on all 3 of our core risk management durations – TRADE/TREND/TAIL)
  2. JAPAN – the Nikkei225 opened up (after the US closed up) then finished on its lows last night. Its -0.32% loss on the session doesn’t matter as much as the context of its failure to recapture its only remaining line of support (8794)
  3. SOUTH KOREA – the KOSPI got blasted for another -1.5% loss last night after Intel said that they are hoping for +3-5% sales growth in 2012 (vs high single digit growth expected prior); KOSPI is a great leading indicator for Tech/Industrial demand
  4. EUROPE – the EuroStoxx50 looks like the SP500 (better than China, Japan, or KOSPI); that doesn’t mean that it looks good for anything more than what’s in the rear-view mirror off the lows (TRADE support = 2213; TREND resistance = 2282)
  5. SPAIN – the Spanish IBEX looks like the Comanches stole their horses again; leading losers this week and falling right back into crash mode (> 20% peak/tough decline) at -26.5% from March; Bearish Formation
  6. ITALY – the MIB Index looks like it’ll be walking barefoot until the German Parliament votes to ratify more #BailoutBull on September 12th; down again this morning and moving back into crash mode, down -21% from March
  7. BRAZIL – the BOVESPA has had zero bid since the Brazilians cut interest rates last week, so the perma 3-4% Global GDP crowd can talk about the 199 global “easings” all they want, but the BOVESPA is still crashing (down -21% since March 14th)
  8. CANADA – the TSX Composite Index looks a lot like the Eurostoxx50 and the SP500; bullish TRADE (barely) and bearish TREND (with TSX TREND resistance overhead at 11,991); Canada is a great place to live if you have a big hat (and cattle).

Then, of course, we have the good ole United States of America. The home of the 112th Congress, Ben Bernanke, and the brave. Across its big 3 leading market indicators, here’s how she looks:

  1. STOCKS (SP500) – bullish immediate-term TRADE (1351 support); bearish intermediate-term TREND (1365 resistance)
  2. BONDS (10yr) – Bullish Formation for bonds; Bearish Formation for yields; immediate-term risk range = 1.46-1.54%
  3. CURRENCY (USD) – Bullish formation (bullish across all 3 durations) with immediate-term TRADE support = $82.31

So, what does it all mean?

  1. GROWTH – slowing, at an accelerating rate, globally in Q2/Q3 versus where all of Washington/Sell-Side consensus was in Q1
  2. INFLATION – slowing through June, but setting up to re-accelerate where it matters to Global Consumption Growth in July (food and energy prices have v-bottomed since late June)
  3. POLICY – who cares? The manic media continues to scramble for whatever remains of their ratings, but The People are putting this entire thing (including fund flows) on mute. This is a No Trust; No Volume Global Equity market; TREND intact.

So what do you do?

  1. Maintain a large Cash position and keep your gross exposure to equity and commodity markets low
  2. Manage your net exposure to all markets, including the bubbliest of them all (bonds) tight
  3. And Fade Beta (buy red, sell green) –just beat the 93% of hedge funds who have become beta and you’re fine

If all of this is frustrating you, join the club. Global Macro’s interconnected risk (countries, currencies, commodities, etc.) has never been more obvious. Stock pickers are meeting their maker inasmuch as Macro gurus are meeting theirs. As Gwynne reminds us, this was no different in 1836 when different worlds were in collision (Whites and Indians):


“The meaning of their meeting, and the moment itself, became completely clear only in hindsight.” (page 23)


My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $100.82-103.68, $82.76-83.98, $1.20-1.23, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Stealing Horses - Chart of the Day


Stealing Horses - Virtual Portfolio

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