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The Macau Metro Monitor, August 14, 2012



Nevada regulators are investigating whether LVS's dealing in mainland China violated bribery laws. The Nevada investigation of LVS adds to the existing investigations by the SEC and DOJ. 


The Nevada authorities recently obtained a detailed but preliminary report by an outside law firm for the Sands board's audit committee, which concluded that under previous management, the company's controls on executive actions were too weak. While the document, did not find conclusive evidence of corrupt payments it did question a series of deals on the mainland dating from before Jacobs' stint at the company.  



Visitor arrivals in package tours increased by 8.4% YoY to 662,109 in June 2012. Visitors from Mainland China (465,860) up 3.8%, with 167,266 coming from Guangdong Province; those from Taiwan, China (58,971); Hong Kong (28,649); the Republic of Korea (23,808); and Japan (22,225) increased by 66.2%, 23.4%, 22.1% and 25.8% respectively. In the first half year of 2012, visitors in package tours totalled 4,082,895, up by 25.9% year-on-year to account for 30.1% of the total visitor arrivals.


At the end of June, Macau had 66 hotels and 33 guest-houses with a total of 24,268 guest rooms, an increase of 2,592 rooms (+12.0%) YoY. 5-star hotels accounted for 61.1% of the total supply.  In June 2012, the average length of stay decreased by 0.16 night to 1.3 nights. Total Occupancy stood at 80.2%, down by 2.3%; hotel occupancy was 80.8%, with 4-star hotels leading at 86.7%. Number of guests increased by 12.2% year-on-year to 4,476,310 in the first half year of 2012 while occupancy stood at 81.6%, down by 0.4% YoY.

The Search for Value

This note was originally published at 8am on July 31, 2012 for Hedgeye subscribers.

“Freedom, however is not the last word.  Freedom is only part of the story and half of the truth. Freedom is but the negative aspect of the whole phenomenon whose positive aspect is responsibleness.  In fact, freedom is in danger of degenerating into mere arbitrariness unless it is lived in terms of responsibleness.”

                -Viktor E. Frankl


“Man’s Search for Meaning” by Victor Frankl is one of my favorite books.  It is the chronicle of Frankl’s experiences in Nazi Germany’s concentration camps and was written in 1946 shortly after the end of World War II. The book has sold over 10 million copies and is often noted on the lists of the most influential books in the United States.


Frankl was uniquely qualified to analyze the experiences in a concentration camp as he was a psychologist by training.  Undoubtedly, his academic training allowed him to separate his actual experiences from the analytical lens under which he observed his, and other prisoners, broad experiences in the camp. 


Ultimately, Frankl concluded, from analyzing the broad collection of experiences in the concentration camps of Nazi Germany (he himself lost the vast majority of his family), that life never ceases to have meaning.  In fact, according to Frankl, there is meaning in every moment.  Further, we all have the freedom of choice, even if our circumstances are incredibly dire.  In fact, the only scenario that truly dooms a person is when they lose all hope.


Now, admittedly, this is deep stuff for a Tuesday morning.  Further, it is obviously not even close to analogous to compare our lives as stock operators to Frankl’s analysis of life in a concentration camp, except for the fact that both are about a search.  For Frankl, it was the search for the meaning of life.  While for stock market operators, it is the search for value.


At the end of the day (to use an overused expression), investing is solely about value.  For those that follow more quantitative strategies, value can simply come in the form of the price and volatility of the asset.  For those steeped in more fundamental company analysis, value comes from deriving a value for company on both a standalone basis and versus comparable companies.


As many of you know, the vast majority of our firm is comprised of fundamental analysis.  In fact, we currently have seven sector heads doing fundamental company and industry research.  In aggregate, we cover energy, industrials, retail, gaming lodging & leisure, healthcare, financials, and restaurants & food processing.  Similar to a multi-strategy fund, we also integrate both macro analysis and quantitative analysis into our research process. 


In earnings season, we get bottom up data points that combine to inform our macro view.  On face value, based on data from Zack’s, earnings season has been reasonably positive.  In fact, as of yesterday 300 companies in the SP500 had reported earnings and aggregates earnings were up 5.5% versus the same period last year and almost 2/3rds of them beat earnings estimates by an average median surprise of 2.8%.  As always though, the devil is in the details, especially in the search for value.


A key driver of this “not too bad” earnings season is the easy comparisons of the financial sector.  In fact, if we back out the financial sector earnings reports, the positive 5.5% growth noted above actually becomes a year-over-year decline of -1.5%.  Moreover, revenue performance has been particularly anemic with revenue coming in basically flat versus the same quarter last year (including financials) and only 1/3 of companies beating revenue expectations.


If you are a fundamental equity investor, you are likely either looking for stability of cash flow or cash flow growth to justify your valuation.  Unfortunately, not many discounted cash flow models spit out compelling valuations if cash flow is declining on a year-over-year basis.  Thus, from a top down perspective, the old adage that the market is cheap based on its multiple doesn’t hold much credence when earnings are declining, and not growing, versus the prior year.


Just as important as this quarter are future earnings and revenue expectations.  Typically, fundamental investors focus on earnings seasons as a key catalyst to for the market to reward them for the hidden value in their investments.  Currently though, future earnings growth expectations are very high with Q1 2013 consensus earnings growth at 12.9%, Q2 2013 at 13.0%, and Q3 2013 earnings growth at 16.4%.  Given the GDP growth outlook, these numbers will be coming down meaningfully.


The search for global macro value will begin in earnest tonight and tomorrow.  Tonight, we have Chinese Purchasing Manager’s Index at 9pm.  While tomorrow we get the PMIs for both Europe and the United States.  Based on the collective macro data points we’ve been analyzing, there is no reason to believe this slew of data points will do anything but reinforce our thesis that growth is slowing.


Ironically, the Chinese stock market seems to be the one market that is credibly signaling this continued slowing of global economic growth.   Chinese stocks were down another -0.3% over night and are now down -14.5% since May.  This despite rumors that Premier Wen will boost stimulus measures in China in the second half of 2012.


In the Chart of the Day, we once again highlight the VIX.  Currently at 18, the VIX is not completely bombed out, but we would stress that it is at a level where you don’t want to begin your search for value in earnest.  This is a point that has already been fundamentally validated by earnings season and will be reinforced as future earnings expectations are lowered.


Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1606-1633, $102.52-108.36, $82.33-83.23, $1.20-1.23, 6656-6943, and 1363-1398, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research.


 The Search for Value - chart2


 The Search for Value - VP


TODAY’S S&P 500 SET-UP – August 14, 2012

As we look at today’s set up for the S&P 500, the range is 13 points or -0.79% downside to 1393 and 0.13% upside to 1406. 











  • ADVANCE/DECLINE LINE: on 08/13 NYSE -799
    • Down versus the prior day’s trading of 195
  • VOLUME: on 08/13 NYSE 484.08
    • Decrease versus prior day’s trading of -14.49%
  • VIX:  as of 08/13 was at 13.70
    • Decrease versus most recent day’s trading of -7.06%
    • Year-to-date decrease of -41.45%
  • SPX PUT/CALL RATIO: as of 08/13 closed at 1.54
    • Down from the day prior at 1.64 


  • TED SPREAD: as of this morning 33
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.67%
    • Increased from prior day’s trading of 1.66%
  • YIELD CURVE: as of this morning 1.40
    • Unchanged from prior day’s trading 

MACRO DATA POINTS (Bloomberg Estimates)

  • 7:30am: NFIB Small Business, July, est. 91.6 (prior 91.4)
  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 8:30am: Producer Price Index M/m, July, est. 0.2% (prior 0.1%)
  • 8:30am: Advance Retail Sales, July, est. 0.3% (prior -0.5%)
  • 10am: IBD/TIPP Economic Optimism, Aug., est. 46.9 (prior 47)
  • 10am: Business Inventories, June, est. 0.2% (prior 0.3%)
  • 11am: Fed to purchase $4.5b-$5.5b notes due 8/15/20-5/15/22
  • 11am: U.S. Treasury announces plans for auctions of 3-mo., 6-mo., 1-yr. bills; 5-yr. TIPS
  • 11:30am: U.S. to sell $25b 15-day cash management bills in addition to weekly auction of 4-wk bills
  • 4:30pm: API inventories 


    • House/Senate not in session
    • President Obama speaks in Oskaloosa, Iowa. 12:25pm, Marshalltown, Iowa. 4:45pm
    • Mitt Romney wraps up 4-day bus tour in Beallsville, Ohio. Noon
    • NJ Gov. Chris Christie to be keynote speaker at Republican convention, AP says
    • Judge may rule this week on Pa. voter identification law
    • State primary elections in Minn., Conn., Fla., Wis.


  • U.S. retail sales probably rose 0.3%, 1st time in 4 mos.
  • Euro-area GDP contracts 0.2% in 2Q from prior quarter
  • German 2Q GDP slowed less than forecast, France avoids GDP drop
  • Standard Chartered CEO visits New York, may attend hearing
  • Groupon tumbles after 2Q rev. misses ests.
  • Pfizer buys over-the-counter Nexium rights from AstraZeneca
  • New York Fed finds 63% of small firms able to get some credit
  • Doug Whitman denies trading on Polycom tips from Roomy Khan
  • Peregrine CEO Wasendorf indicted on 31 false-statement counts
  • Kodak, creditors extend deadline for digital patents auction
  • Mercedes, Lexus, Audi luxury sedans earn poor crash-test ratings
  • 13F quarterly filing deadline today


    • Home Depot (HD) 6am, $0.97
    • Towers Watson (TW) 6am, $1.24
    • Flowers Foods (FLO) 6:26am, $0.22
    • First Majestic Silver (FR CN) 7am, $0.20
    • Michael Kors (KORS) 7am, $0.20
    • Estee Lauder (EL) 7:30am, $0.16
    • Dick’s Sporting Goods (DKS) 7:30am, $0.64
    • Nationstar Mortgage Holdings (NSM) 7:30am, $0.34
    • Baytex Energy (BTE CN) 8am, C$0.28
    • Saks (SKS) 8am, $(0.09)
    • TJX Cos (TJX) 8:34am, $0.55
    • Valspar (VAL) 8:42am, $0.96
    • Alacer Gold (ASR CN) 9:28am, $0.10
    • Bob Evans Farms (BOBE) 4:01pm, $0.60
    • JDS Uniphase (JDSU) 4:04pm, $0.12
    • Jack Henry & Associates (JKHY) 4:05pm, $0.46
    • Myriad Genetics (MYGN) 4:05pm, $0.34
    • Boardwalk Real Estate Investment Trust (BEIu CN) 5:46pm, $0.74
    • China Gold International Resources (CGG CN) Post-Mkt, NA
    • HudBay Minerals (HBM CN) Post-Mkt, $0.08
    • Pan American Silver (PAA CN) Post-Mkt, $0.33



COPPER – tough to fool the Doctor (or bond yields) here on no-volume inflation rallies – Copper continues to break-down, across durations, failing at 3.43/lb TRADE line support, again. 

  • Silver Hoard Near Record as Hedge-Fund Bulls Recoil: Commodities
  • Oil Supplies Drop to Four-Month Low in Survey: Energy Markets
  • Oil Rises for First Time in Three Days on Supply Drop Forecast
  • Soybeans, Corn Advance as Drought May Persist in U.S. Midwest
  • Copper Advances as Germany’s Economic Growth Exceeds Estimates
  • Gold Gains in London as Weaker Dollar Spurs Investment Demand
  • Robusta Coffee Falls as Indonesian Supply May Climb; Sugar Rises
  • Fracking Hazards Obscured in Failure to Disclose Wells: Energy
  • Lonmin Mine Violence Kills Nine, Including Two Policemen
  • Philippines Agency Plans to Sell Mining Assets: Southeast Asia
  • Cotton Harvest in Australia Seen Climbing to Record on Water
  • Natural Gas Trades Near Six-Week Low as Cooler Weather Forecast
  • Peregrine Chief Wasendorf Indicted on 31 False-Statement Counts
  • Chalco Will Buy 35.3% Stake in Ningxia Power for $318 Million
  • Japan Seeks to Buy 70,865 Tons of Milling Wheat in Tender
  • Japan’s Executives Swelter in Solidarity to Spare Electricity










GERMANY – some media fanfare on a “better than expected” German GDP print; in other news, Germany’s GDP falls precipitously q/q from +1.7% y/y in Q1 to +0.5% in Q2 – Growth Slowing as inflation accelerates again here in August (probably why German ZEW for AUG was a -25.5 vs -19.7 JULY).


UK – can you stay stagflation? Say it slowly as the FTSE slowly makes lower no-volume highs post the Closing Ceremonies. UK CPI rises to +2.6% y/y in July vs +2.3% in JUN, consistent with what most countries should print JULY/AUGUST. Brent Oil $114 matters.














The Hedgeye Macro Team


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

2007 Redo

“This book isn’t based on academic theories. It’s based on our experience.”

-David Heinemeir Hansson


What a difference the last 5 years makes. Or did it? The aforementioned quote comes from the introduction of one of my favorite leadership and innovation books. Some of you already have it on your bookshelf. I’ve cited it often since founding the firm – REWORK, by Jason Fried and Victor Heinemeier Hansson.


If you are jammed for time into summer’s end, I read this book in 12 minutes to our team at a workshop meeting – lots of pictures. We like pictures. We’ll show you one of our risk management favorites in today’s Chart of The Day.


Re-work, Re-think, Re-do. Sadly, when it comes to Old Wall Street’s forecasting and risk management processes, there hasn’t been much of that going on in the last 5 years. Instead, broken sources keep re-cycling the same old stuff that sucked people in during Q3 of 2007.


Back to the Global Macro Grind


2007? Pardon? Weren’t we talking about Q308 similarities? Or was it the 1930s? 1987?


Here are 3 Big Macro things that are precisely like 2007:

  1. SALES: GDP Growth led Corporate Revenue Growth Slowing; by Q307, companies were right confused
  2. MARGINS/EARNINGS: stocks were “cheap” if you used peak margins and peak earnings assumptions for 2008
  3. VOLATILITY: US Equity market Volatility got slammed by “rumors” of Bernanke bailouts, rate cuts, etc.

Fast forward to Q3 of 2012:

  1. SALES: Same pattern – but Global GDP growth slowing faster now than it did then (China especially)
  2. MARGINS/EARNINGS: perma-bulls are still using peak margins and prior 2007 all-time high in EPS to justify “cheap”
  3. VOLATILITY: yesterday marked the 1st time since 2007 since the VIX dropped below 14

Since the VIX dropped below 14 eighty nine (89) times throughout 2007, the good news is that you probably have plenty of time to get out of stocks before everyone else has to. There are only 30,000 funds chasing beta at this point.


One question on that: after the shorts have all covered how, precisely, is that going to happen without volume? Probably just a silly risk management question; NYSE volume was only down -42% versus my intermediate-term TREND duration average yesterday. That’s gotta be bullish for someone. Just not Tommy Joyce.


Enough about price, volume, and volatility already – who cares about 3-factor risk when simple 1-factor Fisher Price point and click 50-day moving averages tell us all we need to know in the rear-view mirror?


Let’s deal with my personal baggage instead…


Not that I took it personally, but since I got fired for being “too bearish” in October 2007, I do remember the proceeding birth of my 1st son and the vision for Hedgeye quite vividly. So do the perma-bulls. The SP500 dropped -4.4% in November 2007.


And, that was it.


That was it for the storytelling. That was it for the “world is awash with liquidity” thing. That was it for the academic theory that “shock and awe” rate cuts to zero were going to free we centrally planned beasts from the shackles of our own thoughts.


Where to next?


The only thing I can predict, with 100% certainty, from here is that this is not 2007. This is 2012. And next year will be 2013.


What will get #GrowthSlowing to stop slowing? Will it be a bird or a plane? Or will Keynesian Economics finally provide the long lasting elixir of life that its group-thinkers have so often promised (growth) but never delivered?


I don’t know.


What I do know is that if you are buying US stocks at lower long-term highs (-10.3% versus October 2007 and -1.1% versus April 2012) at anything < 14 VIX, you either think 1990s growth is coming back and/or that this all ends well.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1, $110.36-115.42, $81.76-82.59, $1.23-1.24, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


2007 Redo - Chart of the Day


2007 Redo - Virtual Portfolio

President Obama's Reelection Chances

President Obama is undeterred by the likes of Paul Ryan. His chances of being reelected increased by 80 basis points (0.8%) to 59%, the highest reading since May according to the Hedgeye Election Indicator. That could soon change as Paul Ryan and Mitt Romney begin to pounce on undecided voters in battleground states.


Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.


Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.


President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.



President Obama's Reelection Chances - HEI