The Macau Metro Monitor, January 10, 2013




Secretary Tam said that although new resorts have been approved by the government in recent months, it would take some time before they are constructed, and he expects the growth of new gaming tables to be very limited up to 2015.  The government has set an annual growth ceiling at 3% for the coming 10 years.  Tam said the new tables being granted by the government will mainly be allocated to the newly opened larger casino-resorts that are complying with the authority’s strategy for diversification towards more non-gaming business such as Sands Cotai Central and Galaxy.  In reference to the 3% growth of new tables for this year, Tam said the authority would grant them to the five casino-resorts on Cotai in proportion to their non-gaming business. 


Yesterday, Sands China's COO David Sisk said he expects to get 200 new gaming tables allotted to Sands Cotai Central casino resort within the first quarter of 2013.



Sands COO David Sisk said, “We follow what the government asked us to do, in terms of allocating between 50% of our smoking space and 50% of our non-smoking casino space, so we followed what the government told us to do.  The government came in and evaluated and approved; both the DICJ and the health department were involved in the measures.  We felt we’ve done the appropriate thing. We’re comfortable with how we’ve allocated our tables and slots, and we believe we did it in the best business interests of our company, as well as the interests of our employees… I can’t speak for what the other [casinos] did, but I think they probably did appropriately as well,” Sisk said.  “We took the appropriate actions for our employees and for our business. Whether that meant that there may be more tables in one area or another, I don’t think that is the real issue for us,” he continued. 



MGM CEO Jim Murren says that the profits of MGM China are set to more than double once the gaming operator opens a casino resort in Cotai.  He also said that he forecasts Macau’s casino gross gaming revenue to rise by mid-to-high double digits in 2013.

MGM China CEO Grant Bowie said the company hopes to make an announcement on the construction timetable “within the next six to eight weeks”.  Bowie said the company was currently liaising with the Lands, Public Works and Transport Bureau to organize the necessary permissions to start construction.  “Once we get our building approvals, the next phase will be to make a full announcement on the whole development and the branding of the project,” he said.


Angela Leong On Kei, executive director of SJM said the company would raise its employees’ wages as soon as it is approved by SJM's shareholders.  Last year, SJM increased its staff wages between 5-10% – the percentage of the increase was based on salaries, with employees with lower salaries getting higher raises.



Taiwanese prosecutors said they were investigating a locally-based Hong Kong firm for allegedly carrying out huge money transfers for use in Macau casinos, circumventing strict forex rules.  The company, which opened in Taiwan in 2009, allegedly accepted deposits by Taiwanese gamblers allowing them to withdraw the money once they were in Macau, said the Taipei district prosecutors’ office.  Prosecutors, who declined to identify the firm, said they suspected it was behind a total of US$179 million in illegal transactions.


The head of the company was questioned on Wednesday on suspicion of violating Taiwanese law, which stipulates only banks are allowed to handle domestic and international money transfers, it said in a statement.


Starbucks has two, potentially major, tailwinds in FY13 that could push the stock higher.  Sentiment is a cause for concern but at this price we are positive on the stock.



Key Levels


From a trading perspective, our macro team’s quant model is indicating that SBUX is in a bullish formation, with immediate-term TRADE and intermediate-term TREND support at $53.39 and $51.37, respectively.


SBUX TAILWINDS IN FY13 - sbux levels



Fundamental View


We believe that Starbucks is set to post another strong year in FY13 with its revenue drivers firing on all cylinders, coffee prices down ~40% year-over-year, and a macro outlook that suggests that the company’s high degree of leverage to the US economy could prove to be a benefit. 


Revenues are expected to grow 12.7% in FY13, versus FY12, by the Street.  We believe that this is possibly conservative given continuing momentum in CPG, including single serve, and the core retail business. 


We believe that the flow of positive news regarding Starbucks, to which we have become accustomed, will continue in 2013:

  • CPG could surprise to the upside as the availability of Evolution Fresh is expanded and the company continues to take share in single serve. 
  • International growth, particularly in China, was a key focus of the investor conference at the beginning of December and we expect management to continue to underline this potential throughout FY13
  • Coffee costs constitute a significant tailwind and we expect incremental positive commentary on input costs to continue in FY13.  Coffee needs are locked through 1HFY14 but, given the price decline since the company's most recent guidance, more positive news seems likely


Leverage in the P&L


Starbucks is part of a small group within the restaurant space that it is likely to see significant leverage in its P&L over the next 12 months. We believe, especially in casual dining, that consensus is overly optimistic about companies’ ability to grow earnings significantly faster than sales over the next year.


With strong momentum, effective sales initiatives, a fully-loaded CPG division, and impressive unit growth both domestically and internationally, we believe that top- and bottom-line estimates for Starbucks are likely to rise over the next three months.


SBUX TAILWINDS IN FY13 - sbux eps vs sales growth





Howard Penney

Managing Director


Rory Green

Senior Analyst


Getting Religion

This note was originally published at 8am on December 27, 2012 for Hedgeye subscribers.

“Affairs are easier of entrance than exit; and it is but common prudence to see our way out before we venture in.”



Yesterday morning I was in the Canadian ski town of Banff, Alberta and today I found myself in Park City, Utah.  Since this is my first trip to Park City, I must admit it is a very picturesque town.  In fact, the beauty here almost offsets the fact the beers and cocktails are all watered down.  Almost being the key word.  But enough beating around the bush, today I’m going to jump right into it.


Yesterday morning in the Early Look I noted that violating the debt ceiling was imminent.  Coincidentally or not, later in the day yesterday Treasury Secretary Geithner issued a press release stating that the statutory debt limit would be violated by December 31st but that the Treasury department could take extraordinary measures to extend the ceiling by an additional $200 billion.  In the press release, it was also noted that:


1.)    The extraordinary measures can create approximately $200B in headroom under the debt limit; and


2.)    Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures.


To summarize: while there may be two more months of flexibility, the uncertain policy environment makes it difficult to project.  So, just as he is preparing to exit stage door left, Geithner sticks the markets with more uncertainty.  


Managing through the fiscal and monetary crises that is looming over the next couple of months would actually require some discipline and willpower.  Unfortunately, both of those attributes are currently in short supply in the hallowed halls of Congress.  Yesterday, I referenced the book “Willpower” by Roy Baumeister and John Tierney.  The authors actually provide some advice as to how to build willpower.  They write:


“Religious people are less likely than others to develop unhealthy habits, like getting drunk, engaging in risky sex, taking illicit drugs, and smoking cigarettes.  They’re more likely to wear seat belts, visit a dentist, and take vitamins … And they have better self-control, as McCullough and his colleague at the University of Miami, Brian Willoughby, recently concluded after analyzing hundreds of studies of religion and self control over eight decades.”


There you have it, a key way to build will power it to become religious.  Sadly absent a mass baptism, I think it is unlikely that Congress gets fiscal religion in the coming weeks.


Speaking of getting monetary religion, or lack thereof, probably the most noteworthy move in global macro markets over the last month has been the utter collapse of the Japanese Yen.  Shorting the Yen was actually our top Macro idea in our Best Ideas Call back on November 15th. The flip side of this trade has been an inflation of Japanese equities.  The Nikkei 225 is now up 9% for the month of December and 22% for 2012. On one hand, an inflating stock market benefits those that own Japanese equities, but the longer term issue is that this flagrant printing of money actually leads to a loss of confidence in the Japanese currency with the second derivative being a loss of confidence in Japanese government debt.


The more looming concern in Japan may actually be the yet to be implemented fiscal policy of the new administration.  As Darius Dale wrote yesterday in a macro note intraday:


“Abe and Aso will craft a “large-scale” supplementary budget for the FY12 year (likely > ¥10 trillion), as well as a FY13 federal budget. Regarding the latter, the previously-imposed ¥71 trillion spending cap for FY13 was recently disregarded by the LDP, suggesting Abe is poised to take public expenditures to new heights. In short, we think Japan’s pending fiscal and monetary POLICY mix risks igniting a backup in JGB yields that could threaten Japan’s fiscal sustainability, potentially triggering a European-style sovereign debt crisis.”


Now, clearly shorting Japanese government bonds has been called the “Widow Maker” trade for a reason.  The reason being it has been an utter failure of a trade, but Japanese yields and CDS are starting to back up as the Japanese appear to be on the verge of entering a new era of indulgent Keynesian policy. 


The truly scary fact about Japan is that almost 50% of the public budget is financed by debt issuance.  Further, almost a quarter of the annual budget is actually used for debt service.  Astoundingly this is occurring at a time when Japan’s weighted average cost of debt is as low as it has ever been.  Clearly, any sustained back up in rates would be catastrophic for a country that already has a debt-to-GDP of 229%.


In positive news, yesterday we had more confirmation of the emerging housing market recovery in the United States.  On a year-over-year basis, the Case-Shiller national home price index was up 4.3% in October, up from a 3.0% increase in September.  On one hand, this is no surprise since Case-Shiller reflects Corelogic data on a lag.  Regardless, as our Financials Sector Head Josh Steiner has been noting, the market, media and Main Street focus on Case-Shiller and the nature of the housing market recovery is that good news will feed on itself.


Could the housing recovering reach escape velocity in 2013? It is likely too early to tell, but our models continue to suggest home price recovery will come sooner than the consensus expects.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1634-1671, $108.95-111.58, $3.51-3.61, $79.06-79.92, $1.31-1.33, 1.70-1.85%, and 1412-1450, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Getting Religion - Chart of the Day


Getting Religion - Virtual Portfolio

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.


Today we bought Och-Ziff Capital Management (OZM) at $9.29 a share at 3:42 PM EDT in our Real-Time Alerts. The stock remains one of our top long ideas in financials. We're buying it back ahead of the financials earnings season.



WASDE May Be Bullish for Corn Prices

Downside to Yields and Acreage in the US


Friday’s WASDE (World Agricultural Supply and Demand Estimates) maybe a positive catalyst for corn prices, albeit a short lived one.  The first report of the year tends to have some volatility associated with it.  It is a look in the rearview mirror, however, and the game is on when the new corn crop gets into the ground.

Current consensus looks for a slight increase in ending corn stocks (652 million metric tons, or MMT versus the December WASDE report of 647 MMT).  We think there may be some risk to that number as both harvested acres (87.7 million, December WASDE) and yield (122.3 bushels per acre, December WASDE) may have to come down, lowering the production number beyond the decline contemplated by consensus (consensus of 10,675 million bushels versus a December number of 10,725 million).  We don’t have a feel for any potential changes in the “use” estimates, so stocks to use (ending corn stocks as a percent of total corn use) should finish right around the 5.7% estimate we saw in December, but there is downside risk to that number, in our view.

Downside risk to South American Corn Production


Last month’s WASDE estimated corn production in Argentina and Brazil at 27.5 MMT and 70.0 MMT, respectively.  Our consultant is well below consensus for Argentina at 22.5 million MMT, with consensus looking for a reduction of closer to 2.0 MMT.  Our consultant’s primary concerns are the lateness of the crop and the amount of acreage that remains to be planted.

There may be some modest upside to the estimated production in Brazil, but almost certainly not enough to offset the weakness in Argentina. More likely is a stable estimate for Brazil.  The net impact is obviously bullish for corn.


WASDE May Be Bullish for Corn Prices - Corn TTT


We remain bearish on corn

Despite what might be a noisy report this Friday, we retain our fundamental and quantitative bearish views on corn.  With planting intentions likely to reflect still elevated corn prices and likely bounce back in yields (weather dependent, of course) we anticipate a continued decline in the price of corn (as already partially reflected in the futures curve).


WASDE May Be Bullish for Corn Prices - Cost Curve



Robert  Campagnino

Managing Director






Q1 Macro Themes Conference Call January 15th

Q1 Macro Themes Conference Call January 15th  - Themes.dialin


Each quarter, Hedgeye's Macro Team, led by CEO Keith McCullough and DOR Daryl Jones, hosts a Quarterly Macro Themes conference call with a presentation and a live Q&A session for participants. The call will highlight three themes representing significant developing sectors or macro trends for the quarter, analyzing potential impacts across various scenarios and identifying investment opportunities. The Q1 2013 Macro Themes Call will be held Tuesday, January 15th at 1:00pm EST.              





1) #GrowthStabilizing: 

Both our research and risk management indicators are signaling a shift away from #GrowthSlowing and have a bullish read-through for equities as fund flows move out of bonds. The risk of the U.S. Debt Ceiling remains a factor; however, we expect a rebound from the consumer as Bernanke's Commodity Bubble continues to deflate. 


2) #HousingsHammer: 

Housing market fundamentals continue to strengthen and are expected to maintain and possibly accelerate their momentum through 2013. We see changes in key housing metrics driving further upside that includes inventory levels, pricing and household formation.       


3) #QuadrillYen:

With the recent election of prime minster Shinzo Abe and his appointment of Taro Aso as finance minster, Japan looks to dominate the macroeconomic news flow out of Asia in Q1 as it pursues a variety of unconventional monetary and fiscal policies. Still our favorite short in all of Global Macro, we believe the yen will continue its descent vis-a-vis the U.S. dollar and the euro, imposing a variety of spillover risks for Japanese and international financial markets. 


Please dial in 5-10 minutes prior to the 1:00pm EST start time using the number provided below. A link to the presentation will be distributed before the call, if you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 292394#


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