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Burning Down The House

It seems like the housing crisis was only a few months ago and yet it’s been nearly six years since it first started. Since then, the housing market has slowly but surely recovered. We have a long way to go before everything is “right” again but we’re seeing data that’s positive to say the least. Inventory is declining, prices have increased and mortgage rates are low. CoreLogic data indicates that home prices rose 6.3% in October on a year-over-year basis. We believe that this positive momentum is accelerating and will cover this on our 11:00 AM call with Hedgeye Financials Sector Head Josh Steiner titled “Could Housing’s Recovery Go Parabolic in 2013?” We encourage you to listen and if you don’t have access, please email us at for more information.

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Company Ticker Sector Duration

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.


Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.


We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road


“Bill Gross said the investment company may reduce its risk profile in 2013 after posting higher-than-average returns this year.” -@MrTopStep


“There is no stigma attached to recognizing a bad decision in time to install a better one.” -Laurence J. Peter


Non-Farm Payrolls rise by 146,000, exceeding estimates. Unemployment falls to 7.7% in November.


Takeaway: Good month for LVS and MPEL

The details of a solid November in Macau 



As we already knew, Macau GGR increased 8% YoY despite a tough hold comparison.  VIP hold was slightly below normal in November 2012 but well below November 2011.  Overall, results in November were better than the headline suggests.  Once again, Mass revenue led the way, up 33% while VIP revenue declined slightly (less than 1%) for the 2nd consecutive month and the last 4 out of 5 months.  VIP chips (volume) was up a solid 7%, however.  Overall, November was a decent month and we expect December to be even better.  However, we remain concerned about the upcoming smoking restrictions, potential junket crackdown, the weak performance of the SSE, and stabilizing Mass hold %. 


We estimate that total direct play this month accounted for 6.7% of the market, compared with 6.9% in November 2011.  The total VIP market held at 2.90% vs. 3.11% in November 2011.  Adjusting for direct play and theoretical hold of 2.85% in both months, November revenues would have increased 14% YoY.


LVS was the clear winner this month, on many fronts.  Here are some company-specific analysis:


Sands China

  • Market share was a strong 20.8%, up from 15.6% last year and in-line with October’s strong showing.  We continue to believe that Sands will post fairly consistent share improvement over the next 12 months on a hold-adjusted basis.
  • Mass share was equally impressive at 27.7%, 2nd highest in last 3 years.
  • Not surprisingly Sands YoY GGR growth of 44% led the market but more impressively, its Mass business grew a whopping 75%.
  • VIP hold was slightly below normal and well below last year making the VIP growth even more impressive


  • Wynn struggled again this past month with GGR down 2% and Mass only up 6%.
  • Market share was in-line with its 12 month average but only because Wynn held well above normal, albeit slightly below November 2011
  • Mass share fell to 7.5%, an all-time low


  • Overall a solid month for MPEL:  GGR share was slightly above the 12-month average but Mass share grew to 12.9% (driven by CoD), an all-time high
  • GGR grew 15% YoY and Mass increased 40% YoY
  • VIP hold was well below normal and last November’s hold so the month could’ve been even better for MPEL


  • Market share rebounded from October’s abysmal 8.9% but was still lower than the 12 month average
  • Mass share was only 6.9%, near an all-time low
  • MGM GGR fell for the 2nd straight month – not good




Total table revenues grew 8% in November.  Mass revenue growth was strong at 33%, just a little above the 6M trailing average of 31%.  VIP revenues were flat YoY.  Over the last 6 months VIP revenue growth has bounced around between -5% and +7% and averaged less than 1% growth.  Junket RC volume grew 7% YoY, while hold was down YoY.  We expect December’s growth rate to pick up to 12%.



Table revenues grew 45% YoY (Mass +75%; VIP+29%), garnering the best growth in the market for the 5th straight month.   We estimate that Sands China held in the normal range this year at 2.86% vs. 3.00% last year, adjusted for direct play of 18%. 

  • Sands table revenue was flat YoY, aided by high hold and a very easy comparison  
    • Mass grew 4%
    • VIP was down 3%.  We estimate that Sands held at 3.27% in November compared to 2.49% in the same period last year.  We assume 9% direct play in November vs. 12% in November 2011.
    • Junket RC plunged 23% YoY; aside from September, 11 of the 12 trailing months have seen YoY declines in RC volume.
  • Venetian table grew 5% YoY, negatively impacted by a difficult hold comparison.
    • Mass increased 43%, the property's best growth rate in 7 months
    • VIP was down 18%
    • Junket VIP RC fell 6%, marking the 10th consecutive month of declines at Venetian.  In the 12 month period spanning from September 2008-2009, Venetian saw 10 months where junket RC volumes fell.
    • Assuming 30% direct play, hold was 2.91% compared to 3.43% in November 2011, assuming 28% direct play (in-line with 4Q11)
  • Four Seasons continued to perform well, growing 36% YoY despite low hold
    • Mass revenues grew 51%
    • VIP grew 34% and Junket VIP RC rose 64% YoY (on top of 250% growth in November 2011)
    • If we assume direct play of 16%, in-line with the first 3Q of 2012, hold in November was 2.65% vs. 2.81% in November 2011 when direct play was ~27%
  • Sands Cotai Central produced $147MM in November, down from a record setting $200MM in October
    • Mass revenue of $63MM, $9MM lower MoM, but $20MM higher than September.   
    • VIP revenue of $84MM
    • Junket RC volume of $2,772MM, down 19% MoM, and below the $2.9BN in September
    • If we assume that direct play was 9%, hold would have been 2.77%


Wynn table revenues fell 1% YoY in November.  Hold was high but last year’s comparison was even more difficult.

  • Mass was up 6% flat – the worst performance of the 6 concessionaires for the 3rd consecutive month
  • VIP revenues fell 2%.  With the exception of September, Wynn has had YoY declines in VIP revenues for the last 7 of 8 months.
  • Junket RC grew 1%, breaking 6 consecutive month of declines.
  • Assuming 10% of total VIP play was direct (in-line with 3Q12), we estimate that hold was 3.44% compared to 3.53% last year (assuming 11% direct play – in-line with 4Q11)


MPEL table revenue grew 15%, exhibiting the second best market growth.  Despite an easy comparison, hold across MPEL’s 2 properties was even lower at just 2.45% vs. 2.63% last year.

  • Altira revenues grew 3%, with a 5% increase in VIP offset by a 12% drop in Mass. 
    • VIP RC decreased 6%, marking the 12th consecutive month of declines which have averaged -18%
    • We estimate that hold was 2.89%, compared to 2.62% in the prior year
  • CoD table revenues grew 21% YoY, despite low hold
    • Mass revenue grew an impressive 50% and VIP revenue grew 9%
    • RC grew 31%
    • Assuming a 15% direct play level, hold was 2.25% in November compared to 2.64% last year (assuming 15% direct play levels in-line with 4Q11)


Table revenue grew 9%

  • Mass revenue was up 10% and VIP revenue grew 9%
  • Junket RC grew 4%
  • Hold was 3.11%, compared with 2.96% last November


Galaxy was the worst performer with table revenue declines of 14%.  This marked the company’s 2nd consecutive month of declines in table revenues since June 2009.  Mass growth still outpaced the market at 43%, but was bested by LVS for the top spot. VIP revenues dropped 25%, driven by a difficult hold comparison and slightly below normal hold.  Galaxy's hold at its 2 owned properties was 2.81% vs. 3.36% in November 2011.

  • StarWorld table revenues fell 20%, marking the 5thconsecutive month of declines
    • Mass grew 12%, offset by a 45% drop in VIP
    • Junket RC fell 23%, marking the 6th month of consecutive declines
    • Hold was normal at 2.96% but the comp was difficult at 3.31% last November
  • Galaxy Macau's table revenues fell 11%, the first decline at the property since opening
    • Mass grew 45%
    • VIP grew 12%, while RC declined 25%, marking the 4th consecutive month of declines
    • Hold was low in November at 2.68% vs. a high of 3.42% last year


MGM table revenue grew 28% in November.  Results were negatively impacted by low hold.

  • Mass revenue grew 29%
  • VIP revenue fell 28% while VIP RC were flat.
  • If direct play was 8%, then October hold was 2.60% compared to 3.07% last year





LVS’s MoM share fell 10bps to 20.8%.  November’s share was better than its 6 month trailing market share of 19.8% and better than Sands’ 2011 average share of 15.7%.

  • Sands' share picked up 20bps to 3.7%.  For comparison purposes, 2011 share was 4.6% and 6M trailing average share was 3.9%.
    • Mass share ticked up to 5.4%
    • VIP rev share increased 20bps to 3.0%
    • RC share was 2.5%, up 10bps MoM
  • Venetian’s share was flat at 7.9%.  2011 share was 8.4% and 6 month trailing share was 8.0%.
    • Mass share improved 1.2% to 13.4%
    • VIP share fell 1.4% to 5.6%
    • Junket RC share ticked up 20bps to 4.1%
  • FS increased 80bps to 3.7%.  This compares to 2011 share of 2.2% and 6M trailing average share of 3.1%.
    • VIP share 1.5% to 4.5%. 
    • Mass share fell 70bps to 1.9%
    • Junket RC increased 20bps to 4.5%, taking the top spot among Sands’ porfolio
  • Sands Cotai Central's table market share fell 1.1% to 4.9% and compares to the 6M trailing average share of 4.4%.
    • Mass share of 7.0%
    • VIP share of 4.0%
    • Junket RC share ticked down 40bps to 4.1%


Wynn was the biggest share gainer, increasing 2.0% to 12.1% in November, mostly due to high hold.  As a point of reference, Wynn’s 2011 average is 14.1% and their 6-month trailing average is 11.8%. 

  • Mass market share fell 50bps to 7.5%, an all-time property low
  • VIP rev share recovered 3.5% to 13.8% off of an all-time low in October
  • Junket RC share decreased 70bps to 11.5%, the lowest level since October 2007


MPEL’s lost 30bps of share in November to 13.8%, above their 6 month trailing share of 13.6% and but below their 2011 share of 14.8%. 

  • Altira’s share fell 30bps to 4.1%, above its 6M trailing share of 3.9% but below its 2011 share of 5.3%. 
    • Mass share ticked down 10bps to 1.3%
    • VIP fell 20bps to 5.3%
    • VIP RC share was flat at 5.4%
  • CoD’s share fell 10bps to 9.5%.  November’s share was above the property’s 2011 and in-line with 6M trailing share of 9.3% and 9.5%, respectively.
    • Mass market share increased 1.7%to 11.7%, an all-time high for the property
    • VIP share fell 90bps to 8.5%
    • Junket share increased 2.0% to 10.1%


SJM’s share increased 70bps to 27.5%.  November’s share compares to their 2011 average of 29.2% and its 6M trailing average of 26.3%.

  • Mass market share ticked up 10bps to 30.3%, off of an all-time company low
  • VIP share increased 70bps to 27.4%
  • Junket RC share fell to 1.3% to 27.4%


Galaxy lost the most share in November, plunging 3% to 16.2%, well below its 6M trailing share average of 19.1%

  • Galaxy Macau share dropped 3.7% to 8.5%, negatively impacted by low hold and a difficult comparison
    • Mass share fell 60bps to 9.1%
    • VIP share fell 5.0% to 8.2%
    • RC share fell 80bps to 9.6%, marking the 6th consecutive month of share declines and the properties’ lowest share since July 2011
  • Starworld share increased 30bps to 6.5%
    • Mass share fell 90bps to 2.6%, the lowest level in 18 months
    • VIP share improved 90bps to 8.2%
    • RC share fell 50bps to 8.6%, the property's lowest level since July 2008


MGM gained 70bps of share to 9.6% in November, above their 6M average of 9.5% but below its 2011 share of 10.5%.

  • Mass share was flat at 6.9%
  • VIP share recovered 1.1% to 10.3%
  • Junket RC grew 1.2% to 11.4%, the property's best share in 12 months




Slot revenue grew 22% YoY to $139MM in November, hitting an all-time market high.

  • LVS still leads the slot market with $44MM, +34% YoY
  • MGM had the highest growth at 42% to $22MM
  • MPEL grew 18% YoY to $25MM
  • Galaxy’s slot revenue grew 16% to $15MM
  • SJM grew 27% to $18MM
  • WYNN had the worst YoY performance in slots with a 14% YoY decline to $15MM  








TODAY’S S&P 500 SET-UP – December 7, 2012

The S&P 500 closed yesterday at 1,413.94 an increase from the prior day's trading of 33bps.                                                                                                                                                          















  • YIELD CURVE: 1.34 from 1.35
  • VIX closed at 16.58 1 day percent change of 0.73%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Change in Nonfarm Payrolls, Nov. est. 86k (prior 171k)
  • 8:30am: Unemployment Rate, Nov. est. 7.9% (prior 7.9%)
  • 9:55am: UMichigan Confidence, Dec. P est. 82.0 (prior 82.7)
  • 1pm: Baker Hughes rig count
  • 3pm: Consumer Credit, Oct. est. $10.0b (prior $11.365b)


    • Romney, Obama, allies spent more than $2b in campaign
    • House meets in pro forma session. Senate not in session


  • Sandy probably dealt blow to U.S. labor market in November
  • Japan reports little damage after 7.3-magnitude quake hits
  • Samsung asks judge to reject Apple’s request for smartphone ban
  • AT&T, Verizon to allow text-message 911 services
  • Dodd-Frank rules governing derivatives may be delayed from implementation for 6 months
  • Netflix, CEO receive Wells notices from SEC
  • JPMorgan investment banking bonus pool said to contract by as much as 2% from year ago
  • Pfizer’s Inlyta fails to win approval by U.K.’s health cost regulator
  • Ford Hybrids don’t meet gas mileage target of 47mpg as set by automaker, Consumer Reports says


    • Bank of Nova Scotia (BNS CN) 7:30am, C$1.19



  • Copper Steady in London, New York Before U.S. Employment Data
  • Gold Bulls Retreat as Goldman Sees Peak Next Year: Commodities
  • Rebar Has Biggest Weekly Gain in Two Years on Improving Demand
  • Oil Heads for First Weekly Drop in Five on German Growth Cut
  • Bins Bulge With Grain as Low Water Threatens Mississippi Traffic
  • Soybeans Approach Biggest Weekly Gain Since August on Exports
  • Gold Extends Weekly Decline as a Stronger Dollar Curbs Demand
  • Palm Oil Shipments From Indonesia Seen Falling to Five-Month Low
  • Fracking-Study Conflicts Prompt Head of Texas Institute to Quit
  • Chicken-Feet Exports Help Savannah Top U.S. Port Growth: Freight
  • Swollen Lakes Mean Five-Year Low Nordic Power: Energy Markets
  • Europe Copper Premium Said to Drop Over Month on Weaker Demand
  • Storm Heads Toward China, Vietnam as Philippine Death Toll Rises
  • Copper Gains in London Before China’s Production: LME Preview

















The Hedgeye Macro Team




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The Macau Metro Monitor, December 7, 2012




Resorts World Sentosa (RWS) expects to have 17 million visitors for 2013.  RWS, which started welcoming guests in January 2010, has 16 million visitors to date for 2012.  The recently-opened Marine Life Park is expected to draw the extra one million visitors to the integrated resort next year.  RWS will offer new attractions progressively including a new ride at Universal Studios Singapore based on the children's show, Sesame Street, and new education and conservation programmes at Marine Life Park.

The integrated resort has generated over 13,000 jobs. 70% jobs are taken up by Singaporeans.



Genting is monitoring Japan’s legislative process and said the market offers “good potential.”  It said it explores every acquisition opportunity and Japan will probably be the company’s next investment.  “I’m more optimistic on something happening in Japan,” Chairman Lim Kok Thay said at a press conference in Singapore. “It’s all about the legislation. The group wouldn’t do anything until there’s clarity on gaming regulation.”

CHART OF THE DAY: Are Houses Like Potatoes?


CHART OF THE DAY: Are Houses Like Potatoes? - potatoes core logic

Are Houses Like Potatoes?

Reflexivity. Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influenced set of fundamentals then proceed to change expectations, thus influencing prices; the process continues in a self-reinforcing pattern.
- Wikipedia


Last night we celebrated another great year, our fifth, at our firm’s annual holiday party. Not thinking ahead, I agreed two days ago to write this morning’s Early Look. Keith was proactively managing risk, as usual.


Housing has been in the news a lot recently. A few days ago, Corelogic reported that home prices had risen 6.3% in October vs. the prior year, the fastest rate of growth in a long time. What’s more, Corelogic provides an early look into the following month – something they’ve been doing for the last few months – that showed November’s growth is even stronger at +7.1%. Those are some serious numbers. It’s no longer just Wall Street taking notice. Main Street is starting to pay attention too.


Housing is reflexive. I would argue it’s also a Giffen good. Giffen goods are things people buy more of when the price rises. To economists, Giffen goods are a paradox, something that should not/cannot exist. In fact, at one point in time, the only Giffen good thought to have ever existed was potatoes in Ireland during the Great Irish Potato Famine. Economists later published papers on why this wasn’t a Giffen good after all.


Why would anyone buy more of something as the price rises? The short answer is because he or she expects the price to keep rising. Consider some empirical evidence from the housing market. In 1999, the median priced home in the U.S. cost $137,000. That same year, the Mortgage Bankers Association, or MBA, showed that demand for houses, as measured by their mortgage purchase applications index, stood at 276. Fast forward six years, and by 2005 the median priced U.S. home cost $218,000, an increase of 59%. Meanwhile, demand for homes had risen to 471 on the MBA index, an increase of 70%. Apparently, when houses cost 59% more, we choose to buy 70% more of them.


Fast forward another six years, to 2011, and median price had fallen to $165,000, a decline of 24%. Demand? Demand fell to 180, a drop of 62%. So, again, when houses cost 24% less, we bought 62% less of them. It’s pretty clear that housing is, at a most basic level, a Giffen good. Rising prices stoke greater demand, which fuels rising prices. That cycle, of course, works in reverse too.


So, whether it’s reflexive or a Giffen or a potato, it’s with this dynamic in mind that we’re hosting our 11am call this morning entitled “Could Housing’s Recovery Go Parabolic in 2013?” If you’d like to listen, email .


Our contention is that housing’s positive momentum is accelerating. On the call we’ll explain the underappreciated role being played by falling rates, growing modifications, and the upside potential from credit easing. We’ll also be laying out our new home price models in the context of supply and demand across the three major markets: existing, new and distressed homes. Of course, we’ll also be flagging the stocks we see as major winners from this dynamic.


Taking a step back, it’s worth reminding investors why housing matters. My sector, Financials, is up 21.9% year-to-date. Bank of America is up 88% year-to-date and is trading at a new high for the year. While there are several reasons why, none is more important than the improvement we’ve seen in housing. Housing is still in the early stages of a secular recovery that will last for years. Similarly, Financials are in the early stages of their own recovery. 2012 has been a good year for both so far (after having endured five straight years of misery), and we expect more progress in 2013 fueled largely by housing.


Josh Steiner, CFA
Managing Director


Are Houses Like Potatoes? - potatoes core logic


Are Houses Like Potatoes? - Virtual Portfolio

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