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TODAY’S S&P 500 SET-UP – November 12, 2012


As we look at today's setup for the S&P 500, the range is 42 points or 1.15% downside to 1364 and 1.90% upside to 1406.

















  • YIELD CURVE: 1.35 from 1.36

 MACRO DATA POINTS (Bloomberg Estimates):

  • Holiday in U.S., no data releases scheduled
  • U.S. Rates Weekly Agenda


    • Veteran’s Day observed; holiday for most federal workers
    • Washington Week Ahead: Congress in lame-duck session


  • U.S. to overtake Saudi Arabia’s oil production by 2020: IEA
  • Natural gas to become largest fuel in U.S. by 2030: IEA
  • EU finance chiefs seek to keep bailout on track after Greek vote
  • Apple settles HTC patent suits in shift away from Jobs’s war plan
  • China’s loans unexpectedly fall as money supply misses forecasts
  • Best Buy said to hire Williams-Sonoma’s Sharon McCollam as CFO
  • Hertz said to divest outlets for FTC approval on Dollar Thrifty
  • “Skyfall” has $87.8m in N. Am sales, record for a Bond film
  • U.S. Weekly Agendas: Finance, Tech, Real Estate, Consumer, Health, Energy, Industrials, Media/Entertainment, Transports
  • Canada Weekly Agendas: Energy, Mining
  • U.S. Fiscal Cliff, China Exports: Week Ahead Nov. 12-17


    • Soufun (SFUN) 5:45am, $0.46
    • Beazer Homes (BZH) 6am, $(1.11)
    • DR Horton (DHI) 7am, $0.28 - Preview
    • Petrobank Energy & Resources (PBG CN) 8:05am, C$0.05
    • Cornerstone OnDemand (CSOD) 4:01pm, $(0.06)
    • Hologic (HOLX) 4:01pm, $0.36
    • Wuxi PharmaTech (WX) 4:30pm, $0.30
    • Tronox (TROX) Post-Mkt, $0.41
    • Jacobs Engineering Group (JEC) Post-Mkt, $0.79



COPPER – the Doctor remains checked out; Copper gets nothing remotely close to the Obama bounce you are seeing in Gold; Copper -1.1% last wk vs Gold +3.5% tells you all you need to know about the demand (slowing) vs fear (gold) flows. Copper remains in a Bearish Formation in our model, which is why you want to keep your net long exposure to beta on a short leash.

  • Brent Oil Snaps Two-Day Gain as Europe Officials Seek Greek Deal
  • Bulls Cut Wagers as Prices Rally Most in Two Months: Commodities
  • Copper Rises on Stronger-Than-Estimated Growth in China Exports
  • Gold Nears Three-Week High on Concern About U.S. Fiscal Cliff
  • Soybeans Slide to Lowest Price Since June on Raised USDA Outlook
  • Coffee Rebounds on Speculation of Investor Buying; Cocoa Slides
  • China Lags U.S. in Gold Holdings, May Raise Total, LBMA Says
  • EU Says Hasn’t Started Antitrust Investigation of Metal Storage
  • Natural Gas to Become Largest Fuel in U.S. by 2030, IEA Says
  • Rebar Climbs After Chinese Exports Expand Most in Five Months
  • Water Scarcity Threatening Energy Projects From U.S. to China
  • Gold Seen Outperforming as U.S. Fiscal Cliff to Hurt Base Metals
  • Goldman Lowers Soybean Price Forecast 12% on Higher U.S. Output
  • Metalor Plans Singapore Gold Refinery on Rising Asian Demand














JAPAN – if Americans and Europeans want to dress-up and play Japan, that won’t end well; Keynes would not be proud of today’s -0.9% y/y GDP print out of the Japanese; Nikkei down another -0.93% overnight (down -15.4% since global #GrowthSlowing began in March); we remain short the Yen – they have their own #KeynesianCliff, don’t forget.


CHINA – after 5 consecutive down days last wk, we get the river card this morning = Chinese Loan Growth down -14% y/y in OCT; any bottom in China will be a process, not a pt – they don’t subscribe to Krugman/Bernanke policy, evidently (yet).










The Hedgeye Macro Team




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.

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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 ProPublica.org, 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 ProPublica.org report says.


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 question...is 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

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