The Macau Metro Monitor, August 27, 2012




Sands China president and CEO Edward Tracy is bullish about continued growth for Mass.  Tracy told TDM over the weekend that he expects this segment to continue to grow as transport and immigration infrastructure between the mainland and Macau improves.  Meanwhile, LVS is in fresh trouble.


A Reuters report says LVS's Venetian Las Vegas transferred a US$100,000 (MOP800,000) gambling credit to the Sands Macau in January 2009 on behalf of Charles Heung Wah Keung, chairman of Hong Kong-listed China Star Entertainment Ltd, which owns and operates hotel-casino Lan Kwai Fong Macau.  A 1992 U.S. Senate subcommittee probe into Asian organised crime identified Heung as a triad member.  He has always denied such links and has never been convicted of being a triad member.



DICJ has denied a new accounting method for poker tables which would count up to 25 poker tables as one table.  But several gaming industry sources contacted by Business Daily say otherwise, adding the government decided to do a U-turn on the new counting method once it was reported in the media.



Mainland is examining the feasibility to issue e-pass for travelers so to shorten the border crossing time to Macau.  Some travelers claimed that they spent around 2 hours in line to cross the border and claimed if they are issued with e-pass, this will increase their number of visits.  With the e-pass, visitors can access the automated passenger clearance system (also known as e-channel), which has been available for Macau residents and frequent visitors.


In addition, the expansion project at the Gongbei border is expected to be completed by the end of 2012 and operational in early 2013.



Macau unemployment rate for May-July 2012 receded to 2.0%, down by 0.1% point over the previous period (April-June 2012).  Total labour force increased by 2,500 from the previous period to 348,000; the labour force participation rate stood at 72.2%, up by 0.3% point. 



The Macau Jockey Club is expecting to record a drop of at least 10% in the amount of bets for the horseracing season that ended the past weekend.  The club’s betting controller, Ronnie Chan Yiu Jok, told media that the decrease is attributed to an overall trend of falling bets in the global horseracing market.


The previous horseracing season, which ended in August last year, recorded bets of over MOP1.6 billion while the club posted a loss of MOP17.8 million last year.



The Mainland police busted a network that produced and supplied gambling machines to game centers in 30 provinces for operating illegal casinos in an anti-gambling crackdown.  The police arrested 1,500 people, 20,000 machines found and over $16 million yuan of cash.  The police found that an electronics company and an animation company in Guangzhou jointly operated casinos with other parties in the 30 provinces across the country.

Bear Bangers

“Bear banger is a slang or colloquial term sometimes used to describe exploding projectile wildlife deterrents.”

-Ursus International


Bear spray or bear banger? When you go for a run down by the McCullough Lake House in Northwestern Ontario, what do you use? Inquiring Risk Manager minds want to know.


After running up to a bear during our family vacation last week, my wife Laura asked the original Thunder Bay Bear (my Dad) for some reinforcements. Instead of the go-to bear mace that most locals use, he opted to buy her something that makes noise.


The twist on the noisemaking part is that Bear Bangers sound more like a shotgun than a firecracker. I wouldn’t put a loaded one in your running shorts.


Back to the Global Macro Grind


Running from your US or European Equity shorts at last week’s short covering highs was not a good risk management idea. Neither was selling your Fixed Income exposures at last week’s lows. Bear Banging works, but your timing matters.


Last week’s intra-week high for the SP500 was 1426. The intra-week low for 10-year US Treasury Bonds was close to 1.90%. However, those weren’t closing highs and lows. And it’s closing prices that matter most in our globally interconnected macro model.


From those no-volume intraday levels to the other side of the risk management trade:

  1. SP500 dropped a full -2% to 1398 intraday on Friday morning
  2. 10yr US Treasury Yields dropped just over -10% to close the week at 1.69%

So, I covered all but 4 shorts in the Hedgeye Portfolio at 1398 and sold almost 50% of our Fixed Income Exposure in the Hedgeye Asset Allocation Model week-over-week.


For those of you who are new to what we do, the Hedgeye Portfolio and the Hedgeye Asset Allocation Model are 2 mutually exclusive risk management products.


The Hedgeye Portfolio is simply a real-time idea list of risk managed long/short ideas that focuses on Rule #1 (don’t lose money), whereas the Asset Allocation Model attempts to be more dynamic than the Old Wall’s 60/40 stocks/bonds thing.


As time and prices change, we do.


When confronted with a live bull or bear, sometimes you have to move fast; sometimes you don’t have to move at all. If you’ve survived the last 5 years of this whipsaw, you get that the only perma you need to be is permanently flexible.


To be clear, I wouldn’t dare set foot in the Shuniah dump pit with a baby black bear (and no mama bear in sight) inasmuch as I’d short-and-hold stocks into a central planning event at Jackson Hole…


Being bearish on bonds at last week’s bottom was as bad a decision as buying last week’s 1426 top in US stocks. Being bearish on bonds means you believe growth isn’t slowing. Being bullish on stocks, at any price, just means you don’t sell on green.


Being bullish on commodities up here is something that I am not. While Bernanke claims “price stability and full employment”, what’s really happening here is that people are front-running him, getting all lathered up in what slows real (inflation adjusted) consumption growth (rising commodity prices).


Got causality? Last week’s CFTC (Commodities Futures Trading Commission) data revealed an all-time high in outstanding futures and options contracts:

  1. Week-over-week gain in total contracts of +10% to 1.32 million (eclipsing the Feb/Mar 2012 highs)
  2. Gold contracts were up a stunning +35% wk-over-wk to 110,623
  3. Oil contracts were up another +18% wk-over-wk to 179,526

Fed inspired (US Dollar Debauchery) commodity inflation is not growth. It slows growth. And when this entire centrally planned game of Bailout Begging ends, the 3rd of the Greenspan/Bernanke asset bubbles (commodities) will be in for one heck of a Bear Banger.


Our immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yields, and the SP500 are now $1, $112.31-115.87, $81.16-82.11, $1.23-1.25, 1.65-1.76%, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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"We are confident that GEG will continue to deliver results. The accelerated construction of Galaxy Macau Phase 2 was announced in April 2012. Based on our 'World Class, Asian Heart' philosophy, we believe it will serve as a major catalyst for growth for GEG and Macau, attracting customers from across the region and the world."
- Dr. Lui Che-woo, Chairman of GEG 



  • Galaxy Macau 2Q 2012 results includes full quarter, compared to 47 days in 2Q 2011
  • $100MM positive EBITDA impact from high VIP hold of 3.4% at Galaxy Macau
  • $100MM positive EBITDA impact from high VIP hold of 3.1% at StarWorld
  • Will not issue equity for Phase II GM--expected to be the next major project in Macau


  • Recent uptick in Galaxy's customer activity in August: increased foot traffic and higher demand for hotel rooms
  • Believes VIP market will pick up
  • Mass segment will continue to grow at 'high 20s, low 30s'
  • No dividend plans right now
  • Other operating expenses up significantly--no comment
  • Residual capex at Phase I of Galaxy Macau is $2BN to be spent over the next 18-months to 2 years
  • Capex for Phase II of GM will be mainly spent in 2014 and 2016
  • Will look at other opportunities worldwide but right now concerned on completing Phase I of GM and efficient operation of StarWorld
  • % of casino customers at hotel: Galaxy Macau has one of the higher casino mixes in Macau
  • They are looking at new amenities at Galaxy Macau for 2H 2012 but did not disclose any details



  • Phase 2 Galaxy Macau (mid-2015)
  • Q2 Group adjusted EBITDA: HK$2.6BN
    • StarWorld Q2 adjusted EBITDA: HK$906MM
    • Galaxy World Q2 adjusted EBITDA: HK$1.6BN
  • Cash at end of 2Q: HK$11BN (HK$1.9 BN restricted cash), up from HK$7BN at end of 2011
  • 2Q Debt: HK$11.090BN
  • Gearing ratio: 7%
  • 2Q Galaxy Macau
    • VIP turnover: HK$186.4BN; VIP win: HK$6.3BN; VIP hold: 3.4%
    • Mass drop: HK$6.0BN; Mass win: HK$1.7BN; Mass hold: 28.4%
    • Slot handle: HK$4.4BN; Slot win: HK$271MM; Slot hold: 6.2%
  • 2Q StarWorld
    • VIP turnover: HK$163BN; VIP win: HK$5.1BN; VIP hold: 3.1%
    • Mass drop: HK$2.37BN; Mass win: HK$0.55BN; Mass hold: 22.5%
    • Slot handle: HK$0.84BN; Slot win: HK$60MM; Slot hold: 7.2%
  • City Clubs 1H EBITDA:  $82MM
  • Construction Materials 1H EBITDA: $228MM

The Deere Hunter: Remaining Cautious

Takeaway: Deere $DE is solid, but needs to drop in price as equipment manufacturers remain cautious moving into the rest of 2012.

We like Deere & Company (DE) as a franchise but it’s exposed to export markets, which has made other equipment manufacturers cautious in recent weeks as they move into the back half of 2012. While equipment sales have remained elevated in recent years, there could soon be a shift in the market that leads to a decline in purchases. Trading around $77, we think the stock is too expensive at the moment to own. $20-30 lower is what we would consider our “sweet spot.”



The Deere Hunter: Remaining Cautious - DE exportscrops



A note about the relationship between crop exports and the relationship they share with Deere follows, courtesy of Industrials Sector Head Jay Van Sciver:


Exports & Dollar: Over the long-term, crop exports have a significant relationship to DE’s relative performance.  The shares are also generally negatively correlated with the dollar, which has generally been strengthening in recent months.  DE is increasingly less dependent on the US market, which may reduce these relationships over time.


Takeaway: We like $WEN for a the TRADE (range = $4.17-$4.66) duration, TREND & TAIL still broken

Idea Alert:  Keith bought WEN in the virtual portfolio this morning.


I believe that Wendy’s is a company heading in the right direction but it’s going to take years to fix.  In the short run the stock will make a better “trading stock” than a long term investment.  For longer-term investors we would look elsewhere for exposure to the QSR category at this point in time. 


Currently, we are seeing an uptick in same-store sales since the end of the second quarter.  Currently consensus estimate have WEN posting system-wide same-store sales of 2.5% (company SSS at 2.5% and franchised at 2.6%).  We believe that the current trends are several hundred basis points above those numbers. 


For a trade the stock could head back to $5. 


Longer-term., reimaging remains a dark cloud hanging over the Wendy’s story and we expect the stock to remain range-bound until investors gain more visibility as to the timeline and the cost associated with this core component of the brand revitalization effort.  There will be a time to get behind this stock but, for the foreseeable future, we will stay on the sidelines until we gain clarity on the company’s timeline and future cash flow generation.



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