The Macau Metro Monitor, August 15, 2012



Chinese Estates Holdings said in a statement last night that Macau government has decided to “invalidate” the land-concession contracts and related March 2006 amendments concerning its subsidiary Moon Ocean. According to the statement “the chief executive of Macau has declared the previous act of the chief executive of Macau in confirming the approval of the land transfers and the related amendments of the land concession contracts in March 2006 invalid.” 


The land concession in dispute concerns 5 plots of land near the airport in Taipa that were slate for the company’s luxury La Scala residential project.  The head of Chinese Estates Holding, Hong Kong developer Joseph Lau Luen Hung, is slated to stand trial for alleged bribery in a Macau court next month. 



Pawnshops, whose fortune is linked to gaming in Macau is a good barometer of the industry's health. According to one pawn shop owner, “In the (2008) international financial crisis, we were very much affected, and some smaller pawnshops were on the brink of closure. Individual ones even suspended their business temporarily. Now the visitor numbers and casino revenues are slowing down again, we hope it doesn’t last long this time.” 


According to government data, sales of of new private homes in Singapore surged 41.7% MoM in July, reversing the sharp declines seen in May and June. 1,943 units, excluding executive condominiums, were sold in July compared to 1,371 units in June.  


Analysts believe the the rebound in July sales was caused by seasonal factors such as the desire to close transactions ahead of August, known as the quiet "Hungry Ghost" month and lower prices in some segments of the market. Development units priced below S$1,000/SQFT were among the strongest sellers. 


It appears that homebuyers are showing interest in more modestly priced condominium launches.  Despite the recently transaction volume volatility, analysts believe that will remain at a steady pace for the balance of the year. 

Geithner's Growth

This note was originally published at 8am on August 01, 2012 for Hedgeye subscribers.

“There’s a lot of things Congress can do, in the near term, not just in the long run, to make growth stronger.”

-Tim Geithner   


Having spent 54% of his born life in government, growing both deficits and debts as far as the eye can see, US Treasury Secretary Timmy Geithner’s Growth has been, if anything, consistent.


As President Obama goes into full campaign mode, his Top 2 central planners take center stage this week. Our almighty overlord of short-term asset price inflation will speak to commoners and journalists alike after his 215PM FOMC decision. Meanwhile, Geithner has been making his American/European media rounds for the last 24 hours.


The Germans in particular don’t care for the bailout policies to inflate inasmuch as they don’t care for Geithner’s economic partisanship. Now that Timmy is interviewing with Global banking outfits, he needs to be careful to not tell the Europeans what to do. Been there, done that – and he’s been mocked. That can be a bummer when negotiating a post Washington, DC employment agreement.


Back to the Global Macro Grind


To paraphrase Geithner’s latest ideas for both Americans and Europeans alike: ‘We need to do more – more of what has not worked. There’s more of that to do – I believe that “deeply.” Do more.’  


By “more”, he means more #BailoutBull policies for delinquent and/or underwater borrowers (US home buyers and Spanish banking conquistadors alike). By more, he means more government spending. By more, he means Big Government Intervention.


To review what doing “more” of that has done to both our economies and said “free” markets”:

  1. Shortened Economic Cycles (#GrowthSlowing)
  2. Amplified Market Volatility

In the very short-term, while No Volume; No Trust stock markets may or may not get this (depending on the latest rumor induced Viagra Rally in the S&P futures), the bond market understands this across intermediate and long-term durations, big time.


Geithner’s Growth (debt and deficits) slows growth. That’s not a rumor. That’s a fact. That’s why:

  1. 10-year US Treasury Yields continue to make lower-lows since #GrowthSlowing picked up on the downside in March
  2. Russell2000 (broad measure of US liquidity risk and equity exposure) stopped going up on March 26th
  3. That’s why US Equity market volatility (VIX) bottomed YTD on the same day that the Russell2000 topped (March 26th)

Bernanke’s Growth (asset price inflations) slows growth too. For July, this is best illustrated by the SP500’s Sector returns:

  1. Energy (inflation expectations) = UP +4.94%
  2. Consumer Discretionary (growth expectations) = DOWN -0.55%

Again, to review – INFLATION IS NOT GROWTH.


US Consumption represents the 71% that I don’t hear the Democrats talking about inasmuch as I didn’t hear the Republicans talking about it under Bush. That’s the 71% of the US Economy (GDP). And it’s been getting jammed by the likes of Bernanke and Geithner since at least 2006. Policies to debauch the Dollar and inflate oil prices at the pump are a colossal failure of Keynesian sense.


And it’s not just US Consumption Growth that slows when food/energy prices grow. Global Growth does too. Today’s reminder from the Big 3 Macro countries that will report gravity (economic data) for July continue support that:

  1. China’s PMI (manufacturing) hits its lowest level in 8 months
  2. Germany’s PMI hits a fresh YTD low of 43 for July (versus 45 in June)
  3. USA’s PMI is due out later this morning and could easily come in the low 50s (versus 52.9 in June) 

In other words, the other side of “growth” that the Keynesians of the 112th Congress are being chastised to “stimulate” (export manufacturing) isn’t growing either. On a net basis (Exports minus Imports), exports were a negative drag on Q2 2012 US GDP.


After all this cochamamy stimuli “growth” talk and defict/debt spending, both US Consumption and Manufacturing Growth are slowing, at the same time. That’s not progress. That’s regressive. That’s why I still think the only real (inflation adjusted) “growth” solution is not doing more – it’s changing the lineup, and getting these failed central planners out of our way.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1606-1637, $102.46-105.49, $82.21-82.92, $1.20-1.23, and 1364-1385, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Geithner's Growth - Chart of the Day


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Fair or Foul?

“Fair is foul, and foul is fair.”

-Witches, Act 1, scene i


Today in 1057, Macbeth died. This global stock market, meanwhile, is quietly channeling its inner Shakespeare. Tragedy.


How else can you explain markets that are being cheered on to whoever will listen to the complete opposite of what the bull case was for stocks in March? What does it mean when markets go up for 6 straight weeks on no volume, and no one cares?


Fair economic news is now seen as a headwind for stocks and commodities, because the real bull case from here is foul.


Back to the Global Macro Grind


Foul? Indeed. If the bull case for America is more debt, inflated food/energy prices, and bailouts from policies that perpetuate #GrowthSlowing, that’s got a nasty short-term smell to it. It reeks of one of the darkest tragedies in US economic history - the inability of American leaders to learn, change, and evolve our policy making process.


Headline: “Romney/Ryan See Fed QE As Inflation Risk”


Really? C’mon now white boys – stop scaring the gold bugs. You may as well throw granny off her wheel chair while you are at it. There hasn’t been a Republican or Democrat ticket that has explained the relationship between a country’s currency and its People’s Purchasing Power since Margaret Thatcher taught us how to wear the conservative economic leadership pants.


Upward and onward with your centrally planned day…


The SP500 hasn’t gone up for 2 days, primarily because the US Dollar stopped going down for the last 2 days. China didn’t provide begged-for stimuli, Eurocrats are on vaca, and USA is about to have a real economic debate.


Is that Fair or Foul? And, for who?

  1. It’s foul for anything that’s highly correlated to what the US Dollar does in the immediate-term
  2. It’s fair for those of us who still believe in a free market’s ability to price all of our emotional baggage

Can the US stock market handle another 1% down day? How about another 10% draw-down like we saw from the March top to the June lows? All I can tell you is that yesterday’s -0.25% move “off the highs” felt like 1 ton of dog doo in a 10lb bag.


That’s what happens to a market that’s pinned up on short covering, has zero inflows, and is plainly hoping for another plan out of central casting. Once the shorts have all covered, short-term political tragedy is back in play.


If you don’t think Draghi, Rajoy, and Obama have some serious skin in the “but the market is up game” you are, at a bare minimum, unaware of what’s really going on backstage in this world’s political market theater. If you do, you’re probably like me – expecting the foulest of foul political moves to keep markets propped up.


“Fortune, on his damned quarrel smiling,

Showed like a rebel’s whore.”

-Captain, Act I, scene ii


In other news: 

  1. Chinese stocks dropped another -1.1% overnight and are down -2% for the wk as growth continues to slow
  2. Spanish stocks are down this morning after making lower-highs versus their August 7-8 short squeeze top
  3. Russian stocks are down -1.3% this morning as Oil struggles to make new highs (US Dollar up)
  4. CRB Commodities Index failed to overcome long-term TAIL risk resistance (307)
  5. Dr. Copper continues to be a card carrying Chinese growth slowing party member (Bearish Formation)
  6. US Treasury Bond Yields are debating the growth bulls as to whether or not this time is really different

For central planners attempting to “smooth” economic gravity, to grow, or not to grow – remains the question.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and SP500 are now $1, $110.98-115.33, $81.88-82.98, $1.22-1.24, 791-803, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fair or Foul? - Chart of the Day


Fair or Foul? - Virtual Portfolio


TODAY’S S&P 500 SET-UP – August 15, 2012

As we look at today’s set up for the S&P 500, the range is 10 points or -0.56% downside to 1396 and 0.15% upside to 1406. 











    • Increase versus the prior day’s trading of -799
  • VOLUME: on 08/14 NYSE 566.69
    • Increase versus prior day’s trading of 17.07%
  • VIX:  as of 08/14 was at 14.85
    • Increase versus most recent day’s trading of 8.39%
    • Year-to-date decrease of -36.54%
  • SPX PUT/CALL RATIO: as of 08/14 closed at 1.87
    • Up from the day prior at 1.54 


QE – Gold doesn’t like this Romney/Ryan ticket calling the “Feds Qe as inflation risk”; USD stabilizing at TREND line 81.68 support as Gold fails again at 1624 TREND resistance; 10yr bond yields put on one heck of a move too; imagine life without Bernanke leaning on the curve… 

  • TED SPREAD: as of this morning 33
  • 3-MONTH T-BILL YIELD: as of this morning 0.11%
  • 10-Year: as of this morning 1.76%
    • Increased from prior day’s trading of 1.74%
  • YIELD CURVE: as of this morning 1.48
    • Up from prior day’s trading of 1.46 

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications, Aug. 10 (prior -1.8%)
  • 8:30am: Consumer Price Index M/m, July, est. 0.2% (prior 0.0%)
  • 8:30am: Empire Manufacturing, Aug., est. 7 (prior 7.39)
  • 9am: Total Net TIC Flows, June (prior $101.7b)
  • 9:15am: Industrial Production, July, est. 0.5% (prior 0.4%)
  • 9:15am: Capacity Utilization, July, est. 79.2% (prior 78.9%)
  • 9:15am: Manufacturing (SIC) Production, July, est. 0.5%, (prior 0.7%)
  • 10am: NAHB Housing Market Index, Aug., est. 35 (prior 35)
  • 10:30am: DOE inventories
  • 11am: Fed to sell $7b-$8b notes due 9/15/14-4/30/15
  • 8pm: Fed’s Kocherlakota speaks on the Fed in Minot, North Dakota


    • House, Senate not in session
    • First Lady Michelle Obama joins President Obama for campaign events in Dubuque, Davenport, Iowa
    • Paul Ryan attends campaign event in Oxford, Ohio. 6pm
    • HHS Secretary Kathleen Sebelius makes Affordable Care Act announcement in Jacksonville, Fla. 11:30am
    • NLRB holds closed meeting on unfair labor practices. 2:30pm
    • Thompson edges out Hovde in Wisconsin Republican Senate primary 


  • U.S. consumer prices probably rose for 1st time since March, forecast 0.2% gain in CPI
  • Retailers to start payments network to take on Google: WSJ
  • Standard Chartered rises, pays $340m to settle a N.Y. money laundering probe
  • Australia to become 1st nation to require cigarettes to be sold in uniform packages; watch Philip Morris International
  • Soros, Cohen’s SAC, Moore among Facebook holders at June end
  • Berkshire adds National Oilwell, cuts P&G stake
  • Ackman’s Pershing sells Kraft to buy stake in P&G
  • Moore leads funds avoiding “dead money” in JPMorgan sales
  • Carlyle Group said to be leading bidder to buy Getty Images
  • Facebook testing service to include more ads in user news feeds
  • Forest Labs holders vote on Icahn nominees at annual meeting
  • Credit-card delinquencies, charge-offs to be released
  • BMW’s U.S. sales queried after July 31 “discount day": WSJ
  • Samsung witness says Apple knew of his ‘‘tablet’’ long before iPad
  • MSCI index quarterly rebalancing


    • Staples (SPLS) 6am, $0.22
    • Abercrombie & Fitch (ANF) 7am, $0.17
    • Deere (DE) 7am, $2.32
    • Target (TGT) 7:30am, $1.01
    • NetApp (NTAP) 4pm, $0.38
    • PetSmart (PETM) 4:02pm, $0.66
    • Agilent Technologies (A) 4:05pm, $0.83
    • Applied Materials (AMAT) 4:05pm, $0.22
    • CACI International (CACI) 4:05pm, $1.50
    • Cisco Systems (CSCO) 4:05pm, $0.46
    • Ltd Brands (LTD) 4:30pm, $0.48



COPPER – the Doctor has been prescribing the same economic message throughout this 6 wk no volume squeeze in everything equities; no support to $3.30/lb; if/when that snaps, copper could go a lot lower on fundamentals (Chinese, German, US demand). 

  • Paulson Steps Up Gold Bet to 44% of Hedge Fund’s Equity Assets
  • Rusal Beating Metal as Near-Record Reserves Elusive: Commodities
  • Oil Declines in New York Amid Signs of Increasing U.S. Supplies
  • China’s Corn Harvest Set for Smaller Increase on Pest Attack
  • Soybeans Rise on Signs Demand Remains Robust After Record Rally
  • Gold Seen Declining in London on Reduced Fed Stimulus Outlook
  • Copper Seen Falling as China May Struggle to Sustain Growth Pace
  • Wilmar Falls After Posting 70% Profit Drop: Singapore Mover
  • Cocoa Climbs on Speculation El Nino Is Developing; Sugar Rises
  • Palm Oil Drops as Output Gains Set to Boost Malaysian Reserves
  • Hermes Sees Crops Extending Gains From Record on Lower Supply
  • Cotton Set to Climb 9% as China May Absorb Global Surplus
  • Aluminum Premiums Set to Extend Gains as Buyers Wait for Metal
  • Natural Gas Futures Decline After Rebounding From Six-Week Low
  • China Said to Ask Cooking-Oil Suppliers to Report Prices
  • Paulson, Soros Add to Gold Hoard as Prices Drop Most Since 2008
  • China Nickel Pig Iron Makers Cut Output by Half as Prices Slump















CHINA – headline media “news” last wk was don’t worry about the economic data (#GrowthSlowing) because China is going to cut rates and provide stimuli – reality: PBOC says no on both ($114 Brent Oil crushes consumption), and Chinese stocks are down -2% this wk.










The Hedgeye Macro Team

KORS: The Story Has Fundamentally Changed

Takeaway: We’ve been KORS agnostic. But today we don’t think we can call KORS expensive – even after the pop - for now this name is unshortable.


Conclusion: We’ve been KORS agnostic since we issued our Black Book on March 12th. But today we don’t think we can call KORS expensive – even after the pop.  Every line of the P&L is on fire, and share gain from COH is unmistakable. We don’t love the inventories, and think that people will need to appropriately model occupancy for when comps slow, but for now it does not matter.  This name is unshortable at this price.



Straight 'A's for KORS this quarter. Every line of the P&L flies in the face of every global macro headwind the rest of the world is seeing. We don’t love the inventories, and think that people will need to appropriately model occupancy for when comps slow, but for now it does not matter. The only super bearish factor relates to COH, not KORS. The share shift is unmistakable.

Check out the math:


KORS: The Story Has Fundamentally Changed - KORS Share Chart


The clear takeaway from KOR’s Q1 results is simply the share it’s taking from COH. The contrast between the KORS results and what we saw out of COH is startling. Given the magnitude of the beat, margin trajectory, and more constructive outlook for F13, the intermediate-term tailwind behind this story remains firmly intact. As such, this story will remain expensive as great brands with robust earnings momentum and conservative expectations often do. We’d still rather buy FNP than KORS.

What We Liked:

  • Every line on the P&L came in better than expected with the top-line accelerating on both a 1 and 2-year basis by over 1000bps (to 71% yy). KORS levered that to +149% EBIT and +156% EPS growth.
  • Growth was driven by solid performance across all channels driven by Retail with +31pts from comp stores and +7pts from new stores along with Wholesale contributing +30pts and another +3pts from Licensing. With 23 stores opened in the quarter, KORS is tracking ahead of its plan for ~70 stores in F13. In fact, management suggested that it could be tracking closer to 75 stores for the year. In addition, store productivity continues to improve and is now approaching a run-rate of $1,600/sq. ft. With the retail channel accounting for nearly 2/3 of F13 growth in our model the incremental rate of door growth and productivity continues to be positive.
  • Unlike its major competitor, KORS is experiencing solid growth at wholesale with comps up double-digits driven by category expansion (small leather goods, footwear, etc.) in addition to shop-in-shop conversions, which are running ahead of plan and the company’s target of 100 for the year. At this rate we think they are likely running ahead of our expectation of 150 conversions, which would account for at least 5pts of total revenue growth in F13 alone.     
  • Gross margins: While the mix shift towards retail remains a key gross margin driver over a multiyear period, less discounting/markdown activity also contributed to the +415bps increase. This is in stark contrast to COH which was impacted by an increasingly promotional environment and re-instated couponing just a quarter after eliminating the practice.
  • European strength: It's been a while since we've heard a U.S. company note that its European business is ahead of expectations. Well, that’s exactly what KORS did. Yes, Europe still accounts for just under 10% of business so the bar is low, but KORS stores are comping up +23%. We don’t care how small of a footprint they have, demand is there for more – which is exactly what they got.

What We Didn’t Like:

  • Inventory growth was the biggest item we flagged last quarter and that continues to be the case. The  sales/inventory spread eroded 30pts to -31% with inventories up +102% outpacing sales growth of +71%. Given the rate of store growth, we’re willing to give the company a pass to a point, but it will be important to see this spread shift direction over the next quarter or two.
  • For those of you who are modeling out beyond a couple of quarters, keep in mind KORS’ occupancy costs. We think that the comp needed to leverage occupancy is 2x that of other high-end retailers. In other words, KORS could print an 8% comp and still barely leverage occupancy. This is often the case with retailers that are in a hyper-comp stage, as this is partly because of a mix shift towards very expensive real estate, which carries much higher sales per square foot. With comps up so strong, an increase in the hurdle rate of a few points is un-noticeable. But if and when comps revert back to something below 10%, remember that leverage works both ways.

All in, the intermediate-term tailwind behind KORS remainsfirmly intact. We’re shaking out at $1.50 and $1.95 in FY13 and FY14, respectively. That’s about 96% EPS growth this year, and 31% next year. We can complain til we’re blue in the face that KORS is too expensive, but for a high end brand with this kind of share gain and growth trajectory, we could argue that 25x next year’s earnings are cheap. We wouldn’t buy it here on the pop, but we think that it is absolutely unshortable right now.



Share Shift - Youtube:


(KORS Q1cc) “Retail segment, we have experienced strong double-digit comp increases and we believe that we can
continue at double-digit sales pace in our North American Wholesale channel

(COH Q4cc) “Sales were driven by international wholesale shipments, while shipments into U.S. department stores declined…While in U.S. department stores, sales decreased moderately on a y-over-y basis in the quarter”


Casey Flavin



KORS: The Story Has Fundamentally Changed - KORS Margins


Accountability and Outlook: Here’s a look at KORS’s variance between guidance and actual, as well as outlook
for F13 vs expectations:


KORS: The Story Has Fundamentally Changed - KORS GTable





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