Sandy Bayes

This note was originally published at 8am on October 29, 2012 for Hedgeye subscribers.

“The only safe ship in a storm is leadership.”

-Faye Wattleton


US markets are closed today, but rest of world is still open for risk to be managed. US Equity futures are down 8 as the US Dollar (+0.16%) continues on its strengthening path toward popping Bernanke’s Bubble (Commodities).


Like Sandy’s progression, the global growth and earnings slowdown is measurable. The closer it gets to you, the more obvious its risk management realities become. Try it at home. Buy a stock in front of a guide down.


Nate Silver does a great job simplifying this Bayesian process of managing risk through probability theory on page 243 of The Signal And The Noise: “we learn about it through approximation, getting closer and closer to the truth as we gather more evidence.”


Back to the Global Macro Grind


Bayes’ Theorum is by no means a silver bullet. It won’t tell you how many trees Sandy will knock down in your yard inasmuch as it won’t tell you the precise day when China will “bottom.” It’s simply a framework that allows us to think flexibly.


This is the primary reason why our risk management style is so different than most that you read. Any buy-side fund worth their fees gets this. The sell-side and media at large does not. Like monitoring a hurricane, we probability-weight every decision based on what real-time price, volume, and volatility information we receive (every 90 minutes).


Ninety minutes? No, that doesn’t make me “short-term” – that just makes me less likely to make mistakes within the context of the intermediate to long-term cycles that we have already studied. Watch the storm. Risk Happens Fast.


Across our core risk management durations (TRADE, TREND, and TAIL), here’s what I saw last week:

  1. US Dollar Index = up +0.6% and up for the 4th week in the last 6 (bullish TRADE and TAIL)
  2. EUR/USD = down -0.76%, and down for the 4th week in the last 6 (bearish TRADE and TAIL)
  3. US Treasury Yield (10yr) = down 1 basis pt to 1.75% (bearish TAIL, which is long-term bullish for Bonds)
  4. CRB Commodities Index = down another -2.7% (down -7.8% since Bernanke’s Top, SEP 14, 2012)
  5. Oil (WTIC) = down another -4.4% to $86.28/barrel in a Bearish Formation (bearish TRADE, TREND, and TAIL)
  6. Gold = down another -0.7% (bearish TRADE and TAIL)
  7. Copper = down another -2.1% (Bearish Formation, down -10% from its #GrowthSlowing high Q112)
  8. SP500 = down -1.5% last wk closing below both TRADE (1441) and TREND (1419) resistance
  9. Russell2000 = down -1.0% last wk closing below both TRADE (831) and TREND (846) resistance
  10. US Equity Volatility (VIX) = +4.3% last wk closing above both TRADE (16.29) and TREND (15.54) support
  11. Russian Stocks (RTSI Index) = down -3.7% leading European Equity decliners last wk (-18.5% since March)
  12. Chinese Stocks (Shanghai Composite) = down -2.9% remain in a Bearish Formation (TRADE, TREND, and TAIL) 

That last point (China) is a good one to qualify. Two weeks ago I heard plenty a pundit say “China has bottomed” without any process or conditional probability backing up their perma-bull proclamation of faith. Bottoms aren’t bottoms, until they bottom.


As a general rule, that’s why I like to teach the very basic risk management concept that tops and bottoms are processes, not points. To probability-weight them, you need to have a disciplined process to grind out evidence that risk is actually occurring.


Old Wall generally thinks about this bass ackwards. They call it “risk on” or  “risk off”, after the risk occurs. As a practitioner, you can safely assume that risk is never “on” or “off” – instead, it’s always moving. So embrace its uncertainty.


Speaking of which, I need to cut this Early Look short to get gas all over my hands and prime my generator. I’d hate to have a risk “on” moment in front of my kids where I didn’t proactively prepare for what’s staring me in the face.


Our immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, Shanghai Composite, and the SP500 are now $1692-1725, $106.08-110.66, $79.67-80.35, $1.28-1.30, 1.71-1.81%, 2048-2098, and 1391-1419, respectively.


Best of luck out there today – stay safe,



Keith R. McCullough
Chief Executive Officer


Sandy Bayes - Chart of the Day


Sandy Bayes - Virtual Portfolio


3Q results as expected


"The global economic outlook continues to be uncertain but the Group remains optimistic in achieving a steady income from this region. Together with a healthy cash position, we are well placed to capitalise on investment opportunities that create shareholder value in the short and medium term."




  • Gained gaming market share for the 2nd Q in a row
  • Mass market remained flat
  • Non-gaming business remained robust
  • In the coming weeks, they will be opening the Marine Life Park 
  • They will target a larger customer base and expand their international marketing efforts with the completion of the Marine Life Park
  • They expect continued pressure on their EBITDA margin as the Marine Life Park ramps but better margins in 2013
  • Economic recovery seems elusive
  • They are actively looking at ways to increase their room inventory, which remains constrained



  • GGR market share is 51%
  • RC volume share is 49%
  • Mass share is 47%
  • Potential of Japan gaming:  thinks that the current government headed by the DPG will have a shortened life span and will call elections sometime next month. That means that there will be a new government over the next 3-4 months. They are hearing that the new government will be interested in liberalizing gaming. Very positive that legislation will be enacted next year.
  • VIP rolling chip % was about 2.8%
  • Receivables on VIP side:  Receivable is lower QoQ. Bad debt provision is almost the same as last Q.
  • They will continue to be cautious but it's on a case by case basis. So they are more cautious with new client credit extensions vs. existing clients. 
  • They are still offering some discounts to customers to pay debts in the first 14 days
  • $9MM of pre-opening expenses related to the Marine Life Park.  Pre-opening costs are those specific to the Park only before it opens. However, once the Park opens, they cannot write-off the expenses as pre-opening. Only from 2Q next year will EBITDA margins creep up. 
  • Mass market volume was down 3% QoQ.  But the win was up 1%. 
  • Slot volume was down 4% QoQ
  • The local numbers (Singaporean) have gone down and those just across the border have gone up slightly. They hope to increase their Singaporean #s next year. 
  • Will begin marketing to the Russian and Middle Eastern market next year which they haven't done before
  • Will continue to suffer a little bit more on the local side of the market
  • Net gaming revenue mix: Rolling win is 28%
  • Took a bit of cost out of the property.  They understand how to be more efficient. Used to operate 4-5 shifts but now they operating 7-9 shifts and so they can better match labor needs. Had 14,000 employees and today have 13,200. Target is to reduce their total employee base to under 13,000. Singapore is going through a labor crunch right now. They are trying to bring more labor efficiencies
  • Their undisclosed investments are within their core industries and expertise. 
  • Paid 5 1/8% interest on the perpetual securities so that is their minimum hurdle on their portfolio investments.  Usually north of 10%.
  • Looking at the Echo share price today, it looks like they made the right decision to sell the stock. The loss on their statement is the entire loss in relation to the sale.
  • Most of the cash sits at the Genting Singapore level. All of the debt sits in the Resorts World level. Genting Singapore has lots of cash but no direct borrowings since all the borrowings are at the IR level. 
  • Write-offs during the quarter? Exchange loss is just a pure FX loss. Other write-off just standard practice.
  • In terms of local marketing, they are just marketing local attractions, MICE marketing and "wedding marketing"
  • Thailand is still really weak and Vietnam has fallen off a cliff. Greater China still has great potential. There are more low cost flights between Singapore and China that have come online and are continuing to come online. 
  • The F&B numbers have actually gone up slightly QoQ
  • Commission rates on VIP have actually gone down slightly.



  • Genting reported net revenue of S$670MM and Adjusted EBITDA of $303MM
    • RWS net revenue of $662MM and Adjusted EBITDA of S$304MM
  • Comparing to the second quarter of 2012, overall revenue and adjusted EBITDA was affected by a lower win percentage in the premium player business. 
  • Other business segments remain healthy with Universal Studios Singapore (“USS”) recording a daily average visitation of 9,100 visitors and average spend of S$86. The hotel business saw an increase in occupancy rate to 93% with an average room rate of S$432. 
  • As the Marine Life Park (“MLP”) moves into its final pre-operations phase, we continue to incur pre-opening operating costs without corresponding revenue.
  • During the financial period ended 30 September 2012, the Group invested in a portfolio of quoted securities, unquoted equity investment and compounded financial instruments amounting to a net total of S$1,262.2 million. The Group also spent a total of S$376.9 million for construction work-in-progress and other property, plant and equipment during the financial period.
  • We continue to add new products and events to enhance Resorts World Sentosa (“RWS”)’s appeal as an exciting destination resort. In October, the second edition of Halloween Horror Nights in Universal Studios Singapore was a sold-out event, a sign that the park is earning brand equity with consistent delivery of products and signature events. In the first week of November, we opened to encouraging audience response our latest production - the magic spectacular Incanto
  • RWS will soon open one of its major signature attractions - the Marine Life Park (“MLP”). The MLP is positioned as a premium leisure product. Over the next few months, we will gradually build up capacity in the MLP and as such, EBITDA margins will continue to be constrained for the rest of the year and early part of next year
  • On 7 December 2012, we will celebrate the Grand Opening of our RWS Integrated Resort with a host of festivities that will signify the dawn of one of the world’s most exciting and enjoyable destination resorts.
  • Looking ahead to 2013, the full opening of RWS will allow us to capitalise on sales and marketing initiatives that appeal to a wider base of affluent travellers and new markets.
  • The Company’s operating activities continue to generate steady cash flow. In 2013, we expect cash flow to improve as our capital expenditure reaches steady state and the new attractions in our West Zone bring in additional revenue.


The Macau Metro Monitor, November 12, 2012




Chinese banks extended 505.2 billion yuan (US$81.1 billion) of local currency loans, down 14% YoY.  The median estimate was 590 billion yuan in a Bloomberg News survey.  M2 increased 14.1%, compared with a median forecast of 14.5%.



According to the Macau Personal Data Protection, the probe on whether Venetian Macau breached Macau’s law on personal data protection will be completed by early next year.  Venetian Macau could be fined between MOP8,000 (US$1,000) and MOP80,000 if it is found to have breached provisions on data protection regulations.  The probe is related to Steve Jacobs.

According to a news report from U.S.-based, Sands China and it parent company LVS moved documents from Macau to the United States in 2010 without the prior authorization of the Macau government. The information allegedly transferred to the U.S. was stored on Jacobs' office computers in Macau, and was moved to Las Vegas a few days after he was fired, in July 2010, the report says.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


Takeaway: GMCR is "cheap" but it may get cheaper.

Discounting is a difficult strategy to evaluate.  It can be a sign of strength in one instance and a sign of weakness in another.  We view the heavy discounting of K-Cups as a clear sign of weakness in the Green Mountain Coffee Roasters business model. 


A walk around a Lucky Supermarket in Santa Rosa, California, revealed that K-Cups are being sold for $4.99 per box.  In light of this discovery, we would make the following observations:

  1. Discounting of this magnitude calls into question the accuracy of the company’s internal “demand model”
  2. It is almost certain that the company has ongoing inventory issues
  3. The margin structure of the company is under duress
  4. Given the cash flow and balance sheet of the company, as well as the competitive landscape, a turnaround is going to be a tall order from here

As we have written before, it is almost impossible to analyze this company in a conventional manner given the lack of coherence and disclosure in the company’s guidance, particularly with regard to its capex budget.  Whispers continue to occasionally spur bouts of short covering but our view is that the risk in this stock remains disproportionately to the downside. 





Howard Penney

Managing Director


Rory Green


Lolo Jones Doing The Bobsled

Takeaway: Track star Lolo Jones shows us why its so much more important to endorse the athlete over the event. Congrats to UA.

Track star Lolo Jones looks like her best prospect to medal in an Olympic event might actually be in a cold weather sport. In this photo, check out the wall, and the uniforms. Then answer yourself the it more important to endorse the athlete or the event? Congrats to UA. Sorry Adidas.

Lolo Jones Doing The Bobsled - 11 9 2012 5 30 46 PM

Weekly European Monitor: The Eurocrat Shuffle

Takeaway: Greece was on the center of the dance floor this week with Eurocrats lining the walls afraid to make a move.

-- For specific questions on anything Europe, please contact me at to set up a call.


No Current Real-Time Positions in Europe


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed down -1.7% week-over-week vs +1.6% last week. Bottom performers: Spain -4.2%; Italy -3.7%; Russia (RTSI) -3.0%; Germany -2.7%; Finland -2.7%; France -2.0%; Austria -2.0%; UK -1.7%.  Top performers: Turkey +0.6%; Slovakia +0.5%; Switzerland +0.2%. [Other: Greece +0.0%].
  • FX:  The EUR/USD is down -0.94% week-over-week.  W/W Divergences: TRY/EUR +1.01%; NOK/EUR +0.83%; SEK/EUR +0.43%; GBP/EUR +0.18%; CHF/EUR +0.10%; DKK/EUR +0.02%; HUF/EUR -0.44%; CZK/EUR -0.46%; PLN/EUR -1.17%.
  • Fixed Income:  The 10YR yield for sovereigns were mixed week-on-week. Portugal rose the most at +51bps to 8.86%, followed by Spain +23bps to 5.83%. Greece saw the largest decline at -34bps to 17.87%.  Germany, Belgium, and France were notable decliners, falling -12bps, -11bps, and -9bps to 1.33%, 2.31%, and 2.13%, respectively.    

Weekly European Monitor: The Eurocrat Shuffle - 11. yields


  • The EUR/USD hit its lowest level in 2 months this week. We maintain an immediate term TRADE range of $1.27 to $1.29 and a heavy intermediate term TREND resistance level of $1.31.

Weekly European Monitor: The Eurocrat Shuffle - 222. NEU EUR


Weekly European Monitor: The Eurocrat Shuffle - 11. cftc data



The Eurocrat Shuffle:


The Eurozone continues to take two steps forward and one step back, or is it, one step forward and two steps back?  Headline risk continues to be a governing factor. This week it largely revolved around Greece – waiting on the narrow passage of a €13.5B package of spending cuts, tax increases and structural reforms late Wednesday night and ahead of Sunday’s vote on its 2013 budget.


Markets remained constipated over Greece’s next lifeline aid tranche of €31.5B, as the European Commission, Eurogroup, and IMF are in disagreement about how to both reduce Greece’s debt load and set appropriate debt reduction targets for such far-out dates as 2020. On some level an agreement to both will be needed before the money is dropped from the skies. [See our note titled “November ECB Presser: No Surprises” for our commentary on the ECB’s decision to keep rates on hold this week.]


 Away from the politically compromised Eurocrats and structural flaws of the Eurosystem, Keith noted that his multi-factor quantitative model was flashing a major buy signal for the German DAX. [Note: we sold our Real-Time Position in German Bonds (BUNL) on Thursday (11/8) so we have no exposure to Europe].  He also said that the broader equity market of Denmark looks good; whereas the UK is flashing a negative set-up.


Weekly European Monitor: The Eurocrat Shuffle - 22. dax



Beyond the headline news, and broader negative data out this week (see below in the section “Data Dump”), there were a couple positive charts that caught our attention this week:

  • Target 2 exposure is actually slowly improving across the periphery.

Weekly European Monitor: The Eurocrat Shuffle - 11. target 2


  • Current Account Balances are showing improvement across countries that have historically had heavy deficits.

Weekly European Monitor: The Eurocrat Shuffle - 11. current acct bal




The European Week Ahead:

Monday: Eurogroup Meeting in Brussels; Oct. Germany Wholesale Price Index (Nov. 12-13); Oct. UK RICS House Price Balance; Sep. Spain House Transactions


Tuesday: Nov. Eurozone ZEW Survey Economic Sentiment; Nov. Germany ZEW Survey Current Situation and Economic Sentiment; Oct. UK PPI Input and Output, CPI, Retail Price Index; Sep. UK ONS House Price; Oct. France CPI - Final; Sep. France Current Account; 3Q France Wages and Non-Farm Payrolls – Preliminary; Oct. Italy CPI - Final; Sep. Italy General Government Debt


Wednesday: Sep. Eurozone Industrial Production; BoE Inflation Report; Oct. UK Claimant Count Rate, Jobless Claims Change; Sep. UK Weekly Earnings, ILO Unemployment Rate, Employment Change; Oct. France Consumer Price Index; 3Q Greece GDP - Advance


Thursday: ECB Publishes Nov. Monthly Report; Oct. Eurozone CPI; 3Q Eurozone GDP – Advance; 3Q Germany GDP – Preliminary; Oct. UK Retail Sales; 3Q France GDP – Preliminary; Spain Catalonia Regional Election; 3Q GDP - Final 3Q Spain GDP – Final; Sep. Italy Current Account; 3Q Italy GDP - Preliminary


Friday: Sep. Eurozone Current Account, Trade Balance; Sep. Italy Trade Balance



Extended Calendar:

NOV 19  –            Eurozone Finance Ministers Meeting

NOV 22 –             EU Summit and ECB Governing Council Meeting

NOV 26  –            Finance Ministers may sign off on Greece’s next bailout tranche, 31.5B EUR

NOV 27 –             AFME 4th Annual Spanish Funding Conference in Madrid

DEC 1 –                Beginning of the Russian Presidency of G20

DEC 3 –                Eurogroup Meeting in Brussels

DEC 6 –                ECB Governing Council Meeting

DEC 12-13 –          First public consultation between the Russian government, B20 Coalition and international civil society representatives on G20 agenda for 2013 (in Moscow)

DEC 20 –               ECB Governing and General Council Meeting

APR 2013 –           Parliamentary elections in Italy

MAY 2013 –           Presidential elections in Italy



Call Outs:


Turkey - received its first investment- grade ranking since 1994 after Fitch Ratings raised the country by one level (BB+ to BBB-), citing an easing in economic risk and lower debt.


Italy - Italian Treasury officials rejected proposals to create a so-called bad bank for the non-performing loans of the nation’s lenders amid concern the plan would strengthen the link between sovereign and bank debt, said people with knowledge of the matter.


France - the IMF warned that France risks falling behind the likes of Spain and Italy if it does not reform its economy. It called for a comprehensive program of structural reforms, citing the country's significant loss of competitiveness.



Data Dump:


Weekly European Monitor: The Eurocrat Shuffle - 22. PMIs


Eurozone PPI 2.7% SEPT Y/Y vs 2.7% AUG

Eurozone Retail Sales -0.8% SEPT Y/Y vs -0.9% AUG

Eurozone Sentix Investor Confidence -18.8 NOV (exp. -21) vs -22.2 OCT


UK Halifax House Price -1.7% OCT Y/Y vs -1.2% September

UK New Car Registrations 12.1% OCT Y/Y vs 8.2% September

UK Industrial Production -2.6% SEPT Y/Y vs -1.0% AUG

UK Manufacturing Production -1.0% SEPT Y/Y vs -1.2% AUG


Germany CPI 2.1% OCT Final Y/Y UNCH  [0.1% M/M UNCH]

Germany Exports -2.5% SEPT M/M vs 2.3% AUG

Germany Imports -1.6% SEPT M/M vs 0.4% AUG

Germany Industrial Sales -1.2% SEPT Y/Y vs -1.3% AUG

Germany Factory Orders -4.7% SEPT Y/Y vs -4.6% AUG   [-3.3% SEPT M/M vs -0.8% AUG]


Weekly European Monitor: The Eurocrat Shuffle - 11. German fact orders


France Bank of France Business Sentiment 92 OCT vs 92 SEPT

France Industrial Production -2.5% SEPT Y/Y vs -0.9% AUG

France Manufacturing Production -2.5% SEPT Y/Y vs -0.3% AUG


Italy Industrial Production SA -1.5% SEPT Y/Y vs 1.7% AUG

Italy Industrial Production WDA -4.8% SEPT Y/Y vs -5.2% AUG

Italy Industrial Production NSA -10.5% SEPT Y/Y vs -5.1% AUG


Spain Industrial Output NSA -11.7% SEPT Y/Y vs -2.5% AUG

Spain Unemployment Change 128.2k OCT M/M (exp. 110k) vs 79.6k SEPT


Norway Industrial Production -5.0% SEPT Y/Y vs 1.9% AUG

Norway CPI 1.1% OCT Y/Y vs 0.5% SEPT

Norway CPI incl. oil 1.7% OCT Y/Y vs 1.4% SEPT

Finland Industrial Production -1.7% SEPT Y/Y vs -1.4% AUG

Sweden Industrial Production -5.0% SEPT Y/Y vs 2.7% AUG


Switzerland Unemployment Rate 3.0% OCT vs 2.9%

Switzerland CPI -0.1% OCT Y/Y vs -0.3% SEPT

Austria Wholesale Price Index 4.2% OCT Y/Y vs 4.2% SEPT


Netherlands CPI 2.9% OCT Y/Y vs 2.3% SEPT

Netherlands Industrial Production -0.2% SEPT Y/Y vs -0.6% AUG


Greece Unemployment Rate 25.4% AUG vs 24.8% JUL

Greece Industrial Production -7.3% SEPT Y/Y vs 2.5% AUG

Greece CPI 1.6% OCT Y/Y vs 0.9% September


Ireland CPI 2.1% OCT Y/Y vs 2.4% SEPT

Ireland Industrial Production -12.7% SEPT Y/Y vs -0.5% AUG

Portugal Industrial Sales -8.1% SEPT Y/Y vs -1.3% AUG


Russia Consumer Prices 6.5% OCT Y/Y vs 6.6% SEPT


Czech Republic Unemployment Rate 8.5% OCT vs 8.4% SEPT

Czech Republic Retail Sales -3.3% SEPT Y/Y vs -0.8% AUG

Czech Republic CPI 3.4% OCT Y/Y vs 3.4% September


Romania Retail Sales 5.1% SEPT Y/Y vs 4.7% AUG

Hungary Industrial Production 0.6% SEPT Y/Y vs 1.8% AUG

Slovenia Industrial Production -0.2% SEPT Y/Y vs 4.2% AUG

Latvia Preliminary Q3 GDP 5.3% Y/Y vs 5.0% in Q2   [1.7% Q/Q vs 1.3% in Q2]


Turkey Consumer Prices 7.80% OCT Y/Y vs 9.19% SEPT

Turkey Producer Prices 2.57% OCT Y/Y vs 4.03% September

Turkey Industrial Production 6.2% SEPT Y/Y vs 0.9% AUG



Interest Rate Decisions:


(11/8) BOE Main Interest Rate UNCH at 0.50% (and asset purchase program UNCH)

(11/8) ECB Main Interest Rate UNCH at 0.75%

(11/8) Serbia Repo Rate HIKED to 10.95% from 10.75% (exp. 11%)

(11/9) Russia Refinancing Rate UNCH at 8.25%

(11/9) Russia Overnight Deposit Rate UNCH at 4.25%

(11/9) Russia Overnight Auction-Based Repo UNCH at 5.50%


Matthew Hedrick

Senior Analyst

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.