The Macau Metro Monitor, January 2, 2013




Macau gross gaming revenue grew 19.6% YoY in December to MOP 28.25 billion (HKD 27.42, USD 3.54), a new monthly record (previous record: MOP 27.7 billion in October 2012).  For 2012, GGR was MOP 304.14 billion (HKD 295.28, USD 38.10), up 13.5% YoY.



According to the Health Bureau, a total of 42 casino visitors were fined MOP400 (US$50) each, for smoking in non-designated areas in the first 19 hours after the new partial ban on smoking inside casinos was enacted.  


All of Macau’s 44 gaming venues, including casinos and slot machine parlours, have obtained permission to set up smoking areas from January 1.  However, parts of the smoking areas in seven casinos – Lisboa, Kam Pek, Casa Real, The Legend Club, Grand Lisboa, Sands Cotai Central and MGM Macau – were not ready when the ban on smoking was enacted.


The Health Bureau says that some of the larger casinos have more than one smoking area.



Macau Legend Development Ltd is planning an IPO in Hong Kong in the 2Q of 2013.  The news was broken by Hong Kong newspaper Apple Daily, which cited an unidentified person as saying the company is planning to soon submit its listing documents.

Macau Legend reportedly hired brokerage firm CLSA to arrange the offering of HK$800 million (US$103 million).  The company is controlled by businessman David Chow Kam Fai and is a result of a merger between Landmark Macau, Pharaoh’s Palace Casino and Macau Fisherman’s Wharf.



S'pore 4Q GDP grew a seasonally adjusted annualized 1.8% (+1.1% YoY), surprising economists who were expecting a decline following PM Lee's comments on Monday. 2012 GDP came in 1.2% higher QoQ and YoY. Weakness in the manufacturing sector was a major drag for the economy, but a resilient services sector took up some of the slack.



Prices of private homes in Singapore rose to new record highs in the fourth quarter, mainly because of strong demand in the suburban areas.


Preliminary data released by the Urban Redevelopment Authority showed the private residential property price index rose 1.8% to a record 211.9 points in the October-to-December period from the previous three months.

Our Struggle

“Our support goes to those who struggle to gain those rights or keep them.”

-Franklin D. Roosevelt


Our struggle in 2013 will be no different than the struggle we’ve endured for the last 5 years. Our struggle for economic freedom is intensely personal. Both parties have violated us. That’s why it feels as real as gaining or keeping our natural rights has ever felt.


In his State of the Union Address of 1941, Franklin D. Roosevelt united America and those fighting socialism/fascism in his “Four Freedoms” speech. On page 258 of The Last Lion, Paul Reid reminded me of this epic moment in American leadership:


“We Americans are vitally concerned in your defense of freedom… This is our purpose and our pledge… We look forward to a world founded upon essential human freedoms:


  1. “The first is our freedom of speech and expression…”
  2. “The second is freedom of every person to worship God in his own way…”
  3. “The third is the freedom from want…”
  4. “The fourth is freedom from fear…”


Obviously this is not WWII. But it isn’t the time to abandon our struggle for our freedoms and liberties either. Living in fear of a cliff that politicians create and perpetuate is no way to live. With America’s balance sheet under ideological attack, I submit these principles to you for your deliberation and debate. On this #KeynesianCliff of deficits and debt, you are the last line of defense.


Back to the Global Macro Grind


To kick-off 2013, I need to do a better job communicating our process. For those of you new to it, there are two big parts: fundamental RESEARCH and quantitative RISK MANAGEMENT. Over the years, I’ve made enough mistakes to learn that I need to respect both. They aren’t always signaling the same thing. When they are, I have more conviction.


Quantitatively speaking, our read-through on the US stock market is bullish provided that the SP500 is trading above our intermediate-term TREND line of 1419. Our call on bonds (provided that 1.70% TREND support on the 10yr holds), is now bearish. That’s why I am starting 2013 with a 0% asset allocation to Fixed Income.


From a fundamental research perspective, for over a month now our Globally Interconnected Macro Model has been signaling an important shift from global growth slowing to #GrowthStabilizing. On the margin, that matters.


So does rising volatility associated with the US government being the market’s daily catalyst. The VIX went from up +22.4% last week to down -20.7% in a day (Monday)! If you nailed both sides of those moves, congrats. No one said our daily struggle was easy.


As a reminder, our long-term thesis on Big Government Intervention is that:


  1. It amplifies market volatility
  2. It shortens economic cycles


Point #1 is trivial. Point #2 less so. On that score, I think I confuse some people when I say growth, globally, has gone from slowing to stabilizing. The point in and of itself isn’t confusing as much as how I risk manage the market on that is.


Remember, the economy is not the stock market. So you can easily see a market rip as growth slows inasmuch as you can see it collapse as growth stabilizes. There’s no rule in markets that states they have to make sense. So keep moving out there.


#GrowthStabilizing RESEARCH and RISK MANAGEMENT signals of the day:


  1. British Manufacturing PMI for DEC shot back above the expansion line (50) to 51.4 vs 49.1 in NOV
  2. India’s Manufacturing PMI hit a 6-month high of 54.7 in DEC vs 53.7 NOV
  3. Italy’s PMI finally stopped collapsing, sequentially, registering an uptick to 46.7 DEC vs 45.1 NOV
  4. Indonesian inflation (CPI) joined that of South Korea’s, slowing in DEC to 4.3%
  5. South Korea’s KOSPI shot to higher-highs overnight (vs SEP highs), +1.7% to 2031 (bullish TREND)
  6. Hong Kong’s Hang Seng Index ripped another higher-high (vs SEP), up +2.9%
  7. Germany’s DAX is taking out its recent highs, +1.7% this morning (bullish TREND)
  8. Both Brazilian and Canadian stocks markets closed at bullish TRADE and TREND levels at yr end
  9. CRB Commodities Index remains bearish TAIL (306 resistance) – good for consumption growth
  10. UST 10yr Treasury Yields are flying higher this morn to 1.82% after holding 1.70% TREND support


Of course, there’s always bearish growth data somewhere (German Manufacturing PMI slowed sequentially to 46.0 DEC vs 46.8 in NOV and Brent Oil is inflating back above its TAIL resistance of $111.58/barrel). But that’s not enough to knock me off this #GrowthStabilizing puck.


From these implied multiple expectations, the most bearish fundamental research factor affecting US Equity and Bond markets (on both a relative and absolute basis) compared to China and Germany is crystal clear: Congress.


And unless Our Struggle ends in victory versus these Keynesian quacks who get paid to lever your country up with debt and deficit spending, this short-term economic growth pop will be as short-lived as every one that’s come before it since 2008.


Our immediate-term Risk Ranges (support and resistance) for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $109.99-111.89, $79.21-79.98, $1.31-1.33, 1.73-1.85%, and 1, respectively.


Best of luck out there in 2013,



Keith R. McCullough
Chief Executive Officer


Our Struggle - Chart of the Day


Our Struggle - Virtual Portfolio

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Wave Riding

This note was originally published at 8am on December 19, 2012 for Hedgeye subscribers.

“Waves are not measured in feet or inches, they're measured in increments of fear.”

-Buzzy Trent


Great stock calls come and go, but rarely are there times when one can ride a Macro wave that tees up broad-based outsized returns in Retail.


History points to three distinct time periods over the past decade where this worked on the long side:


a)      January-November 2003 = MVR Retail Index +60%

b)      March 2009-April 2010 = +165%

c)      September 2011-September 2012 = +49%


Our process is leading us to one bet from here, and it’s that 2013 will not contain one of these periods. That is, unless, we see the retail group flat-out crash first. After all, in the three periods noted above, only one happened without a preceding selloff in the group before a subsequent rally.


There are two waves leading to our summation. One is Macro, and the other is Micro.


1)      Macro: One thing that is critical to measure is the spread between the price consumers are willing to pay for apparel and footwear versus the price for which the wholesalers and retailers are buying the product. Simply put, one minus the other is a major component of the margin that all members of the retail supply chain fight over at the end of the day.

The beauty is, over the past year, they have not done much fighting. Following a historic surge in raw materials costs in 2011 we saw Consumer Price increases hold in the +4-5% range despite a reduction of 2-3% in actual costs in 2012.

That resulted in a quarterly run rate of about $3bn in ‘free money’ injected into the supply chain. We’re talking about $12bn in total for an industry that only generates about $30bn in annual operating profit. Some of this is yet to be reported in 4Q with a residual in 1Q13, but the fact of the matter is that we’re on the downside of this realization. It gets harder from here. This is a wave if we ever saw one…but it’s already crested.


Wave Riding - wave


2)      Micro: This one is all about JC Penney. So many people get so caught up in their opinions of CEO Ron Johnson and his latest and greatest ideas like giving free haircuts to every school kid in America. But they don’t keep tabs on the big picture.

First off, size-wise JCP is about 8-9% of US apparel retail. To put this into perspective, it is about 4x as big to US apparel as Greece is to the Euro zone. There’s no way that JCP can have such a major change to its operating metrics without meaningfully shaking the rest of the ecosystem.

And shake it did in 2012. We don’t think it’s appreciated exactly how much share JCP has hemorrhaged in year 1. For the first three quarters of this year we’re talking over $2.7bn. When 4Q – the seasonally strongest quarter – is released, we’ll be looking at something closer to $4bn in annual share. This is coming off a base of only $17bn in revenue.  Our sense is that the M’s, GPS’, KSS’ and TJX’s of the world are underestimating how much share JCP is handing them.  Is it any coincidence that these companies posted some of their best growth rates in recent history as JCP imploded? This is not a permanent share shift by any stretch. 


Wave Riding - jcpchart


There's nothing wrong with this if the industry both acknowledges and plans around it. But ask the average CEO of an apparel company what they think about this. They'll deny that the JCP-factor is meaningfully helping them. Check M, GPS, TJX, and KSS conference call transcripts for the words “JC Penney”. You won’t find much. The industry is in denial. That means that their process around keeping the share is nonexistent.


The key distinction is that these companies need JCP to keep comping down 25% in order to continue to feel the same competitive benefits that they have today.


We have one simple question. What if JCP comps +1 for the year? That’s a +26% positive swing.


We’ll make the call right now that the company is more likely to comp positive than negative. We think they’ll have to pay for it, but we think they’ll get it. Also remember that 33% of JCP stores will be rebranded by the end of 2013. This will not make comping easy for anyone that competes with JCP, or sells into retailers that compete with JC Penney. JCP might ultimately be a zero, but it won’t get remotely close in 2013. Check out our 12/13 report “Reasons to Reconsider Your JCP Short”.


So...where’s the next wave? We think we’re in it and the barrel is collapsing. Get out of the way otherwise it could snap your board like a toothpick. On the short side, we like names that don't have much differentiation and are at the mercy of changes in the macro climate. Financial leverage is a plus. We’re talking GPS, M, KSS, and VFC. There are others that make the cut as well, but have some company specific reasons like CRI, FDO and GES.


On the long side, be careful, but there are companies with asymmetric setups that should work. That's NKE, FNP, RH and RL.


In the end, Jon Kabat-Zinn said it best…'you can't stop the waves, but you can learn to surf.'


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now, $1685-1709, $105.95-108.94, $3.64-3.71, $79.36-79.99, $1.29-1.31, 1.69-1.80%, and 1419-1436, respectively.


Brian P. McGough
Managing Director


Wave Riding - vp


Animal Kingdom

This note was originally published at 8am on December 18, 2012 for Hedgeye subscribers.

“In the animal kingdom, the rule is eat or be eaten; in the human kingdom, define or be defined.”

-Thomas Szasz


If 2012 has driven you right batty, I highly recommend reading the Classical Liberal work of the late psychologist, Thomas Szasz. Particularly in our profession, you have to be proactive in defining your process.


Make no mistake, on #OldWall there was a big business in being perma. There were Perma-Bulls and Perma-Bears. Now, on #WallSt2.0, there are Perma-Risk Managers who understand risk isn’t “on or off.”


Risk is always on. And it moves both up and down, fast.


Back to the Global Macro Grind


In the animal kingdom (Canadian Junior Hockey), I learned the rule of taking a punch square in the face, fast. In the human kingdom (Wall Street), I’m re-learning the rules every day. Define your process, and evolve it as the game does. The rules are always changing.


In the last week, I hope I’ve been crystal clear in both communicating and acting on what our Global Macro Process has been signaling on global growth. To review 2012:

  1. #GrowthAccelerating = our call until January 24th when Bernanke imposed his Policy To Inflate (JAN25)
  2. #GrowthSlowing = our call starting in late-Feb, early March as food and oil prices ripped consumers, globally
  3. #GrowthStabilizing = mid-Nov to early-Dec, as commodity deflation takes hold, consumption stabilizes

I use hash-tags on #Twitter to hold myself accountable to the #TimeStamps implied by both our Research and Risk Management views. If you follow the Perma-Bull and Perma-Bear guys closely, you’ll notice that they are constantly changing their thesis.


Top down, our Global Macro Process has 3 big factors (our GIP model):


The aforementioned shifts in GROWTH are happening faster right now because that’s what Big Government Intervention does:


A)     It shortens economic cycles

B)      It amplifies market volatilities


All the while, Keynesian government policy makers are trying their very best to ramp #2 (asset INFLATION) via #3 (POLICY to inflate via currency devaluation).


Japanese bureaucrats are so impressed by what Bernanke appeared to have achieved at the September 2012 highs (3% higher in the SP500 at 1474, where inflation slowed growth), that they just convinced their people to burn their currency at the stake. For that, the Nikkei is +14.6% in the last month, but real (inflation adjusted) Japanese growth is slowing.


If POLICY makers of the Keynesian Kingdom want to really get this party started, they should go full Krugman/Chavez on these markets. Then Perma-Bulls will really be right for all the wrong reasons (after torching their currency, Venezuela’s stock market is up +305% YTD).


Back to the process, the asset allocation, net exposure, and sector moves we have made in the last month are as follows:

  1. We’re net short commodities and commodity related equities
  2. We’re net long consumption and consumer related companies profiting from commodity deflation
  3. We cut out asset allocation to Fixed Income to 0% on Friday

To be clear, before I rile up pension funds, this is how I think about asset allocation with my own money. Since I can (and often do) go to cash, I have no problem selling something down to 0% if I think the asset class and/or security has a rising probability of a draw-down.


Always remember Rule #1 – don’t lose money (Buffett, pre being politicized).


From a Risk Management Process perspective, this is where my multi-duration signals play a huge role. When something signals bearish TRADE and TREND (like US Treasury Bond Yields did last week), and the Global Macro Research Process confirms it, I sell.


I also buy things when they are immediate-term TRADE oversold (bought AAPL $502.50 yesterday), but that’s a different risk management strategy, on a shorter-term duration. Our longer-term risk management decision was to sell APPL on September 28th.


In a profession where I see less and less people who actually know what it is that they do, I think there is a tremendous opportunity for all of us to evolve and attempt to explain what it is that we do. People want to trust us – and we don’t need animals eating us.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, AAPL, and the SP500 are now, $1685-1709, $105.95-108.94, $3.64-3.71, $79.36-79.99, $1.29-1.31, 1.69-1.80%, $501-532, and 1419-1436, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Animal Kingdom - Chart of the Day


Animal Kingdom - Virtual Portfolio


Today we covered our short position in Phillip Morris (PM) at $82.61 a share at 10:01 AM EDT in our Real-Time Alerts. We originally put on the short at 9:38 AM on December 28, 2012 at $83.69 a share. PM remains one of our best short ideas in Consumer Staples; the importance of the #timestamp continues.


TRADE OF THE DAY: PM - image001


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