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ALL management excited about the product at the Show and what's in the pipeline. 


  • 4 years ago, they had virtually no recurring revenue.  Not a big focus on NA.  Systems customers unsatisfied.
  • During the last year, they grew their participation base by 10-11% vs the market growing 6%
  • Depth of their for sale offering increased their productivity.  Australia:  ship share from mid-20s to mid-30s.  Have some work to do in NA for the for sale product where they hold a constant 12% ship share. 
  • ALL is good at penny, high volume games (aka gambling games) and repeat customers.  Their brands have 6-7 years of staying power.
  • They are starting to think about participating more in markets where they don't participate today e.g. the casual/entertainment gamer.  Repacking their old brands works well for them too - "legends strategy".  Feedback from operators is good.  Evolving strategy in the US.
  • Historically never used 3rd party developers.  By next year, they will have at least three major 3rd parties.  Will announce some deals soon.
  • Rich Schneider just joined them from IGT
  • IL isn't a core market for them - low margin jurisdiction.  Plan on being a low cost provider.  They will be selling games in that market with financing.
  • Seeing good growth in their replacement business in Macau
  • NA:  not seeing any change in the market
  • BYI and WMS have not made much traction in Australia - it's a gambling market.  Market grew 15% in the first half.  Ainsworth is #2 in Australia, IGT/SHFL #3, Konami/Aruze #4.
  • Just delivered 250 games to Alberta
  • I-gaming:  ALL has been more cautious on getting to the market.  Their systems customers are interested in getting into the online space.  Want to provide content for that space.  Their strategy will be around an operating partnership.  Launched two of their clients online already to help them market.  An opportunity to gather more data, market their product and their customer.  Pricing like a system now.  IGT giving away their I-gaming stuff to get floor share.  Have their content on European sites.
  • They have 285 casinos on their system.  They are the largest provider by number of casinos.
  • They had a record year in gaming operations this year.  Record install base and record revenue.
  • They have a very balanced portfolio.  They have an arsenal of proprietary database of games. Don't need to do all licensed titles.
  • WAP strategy:  their jackpots hit frequently.  Tarzan on Verve base.  Tarzan had 1300 games originally.  They brought Tarzan and Jane out three weeks ago and it's doing great.  Wheels round- their players always win. 
  • Superman:  positioned as a VIP game/high limit.  Getting approved in December.
  • Cash Express - flat fee or 80/20.  Jackpot driven off coin-in.  Still have 1,200 original Cashman on the floor.
  • Jaws and Mummy are both performing great 
  • For sale games:
    • Wonder4 is the #1 performing game in NA right now.  Sold over 1000 games.  Doing 2-5x house average.  4 Multi-games.  Have a bunch of follow up games as well.
    • Legends:  redeploying the oldie goodies.  Original game and the new game in the same cabinet.  90% of the play came from the new versions.  Launched in Australia and launching in the US - just approved first 2 games this past week.  Still have MAV 500 games out on the floor creating a good replacement cycle for them.
    • Moved Cashman onto the Stepper.  It's their best brand.  Biggest mistake is that when they failed, they had video game designers make steppers. They then hired stepper guys.  Superman is also a participation game on Stepper.  Original Cashman has sold 8,000 units since 2002.  Hired their stepper guys from WMS 2-3 years ago.
    • MAV 500 was released 12 years ago.  
  • Customers telling them this is the best show in 5 years
  • IGT gives away their systems to get recurring revenue and floor share and get master agreements


Obamanomics: The US Dollar

It should come as no surprise that while the S&P 500, Crude Oil and Gold all have stellar performance records under Obama's first term as President of the United States of America, the US dollar doesn't quite make the cut. The US Dollar Index has dropped -7.3% since January of 2009, due in part to the Fed's insistance on devaluing the currency in support of quantitative easing. We think that Romney should focus more on removing Bernanke as Chairman of the Fed and strengthening the dollar, but to do that, he has to win the election in November. Tonight's the night for him to prove he can do it.


In honor of tonight's presidential debate, we've examined the performance of several different asset classes and their performance from January 20, 2009 to today to see just how well President Obama has done during his first term.



Obamanomics: The US Dollar - USDChart


Takeaway: Weak Missouri Sept gaming revenues doesn’t bode well for regional gaming operators needing a strong final month of the quarter

  • When released next week, Missouri gaming revenues should show roughly a 5% decline YoY despite a favorable calendar.  Other states probably performed better on an absolute basis but we fear results were below expectations in most states in September.
  • New competition from the Kansas Speedway is certainly hurting results but we would’ve expected better.  Indeed, as shown in the chart, the seasonally adjusted trend should’ve been about 3 percentage points higher.
  • We don’t want to be overly focused on the one market of Missouri but we did hear anecdotally that September may not have been the strong finish to the quarter that the calendar would’ve predicted.  The regional gaming operators probably needed a decent September to make the quarterly revenue estimates.


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Spending Is A Tax

This note was originally published October 03, 2012 at 07:46 in Early Look

“Milton Friedman reminded us that to spend is a tax.”

-Edward Prescott


On my flight to Denver last night I finally got through half of The 4% Solution. The aforementioned quote from Prescott (Professor of Economics at Arizona State) is representative of what you’ll find in the book - historical reminders that will get you to think.


Thinking, instead of reacting to the daily-double on Spanish bank bailout rumors, matters. History is littered with short-term policy decisions that resulted in long-term structural risks. History is also a guide for those of us who want a solution for a better future.


Not all “economist” ideas are dumb. Some of the simplest ones are just too hard for politicians to swallow. As Vernon Smith (Professor of Economics at Chapman University) suggests, “cutting government spending, as opposed to cutting interest rates… could be a critical step to recovering from a financial crisis” (The 4% Solution, page 50). Try getting Bernanke or Geithner to say that.


Back to the Global Macro Grind


Enough of the thinking already – if the Europeans print another $100-300B to bailout Spain, and Timmy backstops it with his friends from France via the IMF, the Eurocrats can blow that dough right down a rat-hole faster than you can, baby. Bull market.


After being down for 8 of the last 12 days (SPX closed up a marginal +0.09% as someone spiked AAPL into yesterday’s close) US Equity futures aren’t down yet this morning because the Europeans turned to Rumor On.


Risk off, Rumor On. That’s the political ticket. Or is it?


Tonight we’ll see if Romney can land a punch. If he can’t, I think he’s out cold. If I were him, I’d bring some music to Obama’s wide open economic chin.


Here’s where the US economy finds itself after a -69% GDP slowdown in 6 months to 1.26%. It’s a Bush/Obama Keynesian Trifecta:

  1. Rising Corporate Taxes (at 39.2% USA has the 2nd highest corporate tax rate (next to Japan) in the world (The 4% Solution, pg 48)
  2. Less than 50 days to the Fiscal Cliff (Pelosi and Geithner are going to save you from what they perpetuated, allegedly)
  3. Less than 1-3 months (depending on how they change the rules) on bonking the Debt Ceiling (again)

So, you can save yourself $50,000 a year sending your kid to Keynesian Economics School to come up with a solution like this:

  1. Cut Corporate Taxes to Canada’s levels (28%)
  2. Whack what it costs to employ everyone getting paid by Big Government in Washington, DC
  3. Fire Bernanke, replace him temporarily with Volcker, and bring back Strong Dollar

I’m not in Denver to run for office. But I think I could give Obama a good go on stage tonight if they let me. Americans are sick and tired of losing and being lied to. If you need a Canadian to be your Gladiator in this public economic Forum, I’m game.


Now that that’s off my chest, back to the market…


Last Wednesday, I said “Buyem!”, yesterday I wrote a Risk Manager note in the morning titled “Sellem!” What else do you expect me to do when watching this clown show? This is no longer about anything other than every man and woman fighting for what they have left.


Like I said on the Morning Client Call yesterday (every day at 830AM EST), “I’m just a man in a room” barking about this stuff. Whatever my ideas may be, they don’t superimpose systemic risk on the world’s consumption growth like Bernanke’s ideologies do.


Here are some multi-factor, multi-duration, risk management thoughts supporting why I sold stocks on green yesterday:

  1. US Dollar Index has held its long-term TAIL line of $78.11 support
  2. EUR/USD has failed, again, at its $1.31 TAIL risk line of resistance
  3. SPX vs VIX is breaking down (again) to the bear side, as VIX holds its long-term TAIL of 14-15 support
  4. SP500 snapped its immediate-term TRADE line of 1451; no support to 1430 on the same duration
  5. Russell2000 is back below its March 26th closing high of 846 (making lower long-term highs now)
  6. Bonds (UST 10yr 1.61%) continue to confirm that Growth and #EarningsSlowing matter more than Spanish rumors

If we don’t have the political spine to cut corporate taxes and government spending, at the same time, we’ll look more and more like Japan (or Spain). Don’t believe me? Give it 4 more years.


Sure, it will take some short-term commodity and stock market pain (like it did in the early 1980s and early 1990s) but, in return, we’ll get our hard earned currency back. That will drive oil prices lower, and US consumption higher.


Strong Dollar, Strong America – my name is Keith McCullough and I support this message.


My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, Russell2000, and the SP500 are now $1770-1786, $109.07-112.86, $79.54-80.29, $1.27-1.29, 1.57%-1.64%, 829-846, and 1430-1448, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Spending Is A Tax - Chart of the Day


Spending Is A Tax - Virtual Portfolio

ECB on Hold Tomorrow

Takeaway: No change in interest rates as the ECB monitors sovereign yields and Eurocrats debate ongoing policy moves.

Positions in Europe: Long German Bonds (BUNL)


The ECB meets tomorrow. Our call is that there will be no change to its main interest rates and we will get no material update on when the Outright Monetary Transactions (OMTs) could be activated to buy sovereign bonds.


Our rate position is in agreement with consensus -- 48 of 54 economists polled by Bloomberg expect no change in the main interest rate.  On OMTs buying, we expect Draghi to continue to be tight lipped, mostly given the political climate and that while Spanish and Italian yields are elevated (the 10YR is currently at 5.88% for Spain and 5.08% for Italy) there below the critical threshold levels around 7.30%.


On the political climate we think there’s no reason for the ECB to act as the market is still sifting through such issues as:

  • If and when Spain will seek a sovereign bailout
  • The extent to which the ESM can directly recapitalize troubled banks, and
  • The terms around setting up a banking union

These will be some of the topics discussed when the Eurogroup holds its next meeting in Luxembourg on October 8-9.


ECB on Hold Tomorrow - aaa. rates


Keith covered our Real-time position in FXE (EUR/USD) on 10/1 at $128.53 with the cross at our immediate term TRADE oversold level. The EUR/USD continues to fail at its $1.31 TAIL line of resistance.


ECB on Hold Tomorrow - aaa. eur


Matthew Hedrick

Senior Analyst

Obamanomics: Crude Oil

WTI Crude Oil is up a whopping +133.4% since Obama took office in January of 2009. Anyone who drives an automobile has certainly noticed the increase in gasoline prices over the last three to four years. That pain at the pump will continue until oil comes down, which could happen soon. Our bearish thesis on oil sees the price of Brent and WTI Crude heading lower and the move could be kicked into high gear by a stronger dollar.


In honor of tonight's presidential debate, we've examined the performance of several different asset classes and their performance from January 20, 2009 to today to see just how well President Obama has done during his first term.


Obamanomics: Crude Oil - WTIchart


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