No doubt the news from NJ is positive but the value will likely accrue to the bondholders.  Interactive Spin-off?  The answer is the same as last time.



It feels like a broken record, a movie sequel, a television rerun, Las Vegas companies claiming the Strip is in recovery…well you get the idea.  Investors are hoping for a spin-off of CZR’s Interactive assets that would unlock equity value for shareholders.  As we began discussing almost a year ago, any unlocked value would have to accrue to the bondholders, not the equity holders.    Caesar’s stock is up 64% since February 6th on the high likelihood of NJ passing I-gaming legislation and speculation by investors that they will be able to spin off Caesar’s Interactive division to the benefit of stockholders.  The New Jersey news is, indeed a positive, not worth a 64% move, but positive.  However, the idea of an Interactive spin-off boosting equity shares is an unlikely one.  A misleading article titled “Caesars Rises on Plan to Sell Stake in Online, New Casinos” printed on February 4thand redistributed by AGA Smartbrief the following afternoon added to the hype.  


As we wrote about on February 28, 2012, “SPIN-OFF OF CAESARS INTERACTIVE? NOT SO FAST…” and again on March 16, 2012, “CZR INTERACTIVE SPIN MAY BE JUST “SPIN”, we do not believe that CZR can spin/split off the Interactive assets to benefit equity holders.  Issues include tax consequences and upstream guarantees to Caesar’s Entertainment Corporation (CEC) from the Interactive subsidiary.  That’s not to say that CZR’s cannot monetize their asset, just that the benefit will not go to shareholders. 


In fact, that’s exactly what CZR is doing in their most recently proposed $1.5BN note issuance.  In order to raise new debt, CZR’s is contributing some unencumbered and “under” encumbered assets as collateral.  HIE Holding’s stock (a CEC subsidiary) in Caesar’s Interactive, the Baltimore option, Planet Hollywood (which is only 4.5x leveraged), and the bonds they bought back at a huge discount and currently clip a healthy coupon are being contributed as collateral to back the $1.5BN note offering.  This is probably not exactly what stockholders had in mind when reading the title: Caesars Rises on Plan to Sell Stake in Online, New Casinos”.  In fact, this diminishes the probability of any spin-off as Caesar’s Interactive will no longer be an unencumbered asset.  What shareholders viewed as a big option is getting “liened” up.


On a separate note, we think that the market is over-valuing the size and profitability of a legal NJ online gaming market.  Nevada legalized online gaming back in June 2011 and we have yet to see any impact.  Same goes with Delaware.  New Jersey has a larger population but it would still need to pool with other States to accumulate enough liquidity.  Legal hurdles will prevent that from happening any time soon.  More states will have to legalize gaming before any pooling becomes meaningful.


This huge rally looks like it needs to be faded.


The Macau Metro Monitor, February 11, 2013




Singapore's Changi Airport said it will boost passenger handling capacity by around 25% with a fourth terminal that will cost an estimated S$1.28 billion ($1.03 billion).  Completion date is expected in 2017.


As you already know, Macau GGR grew 7% YoY to HK$26.1 billion or US$3.364 billion.  We’ve now got the property detail and the Mass/VIP mix.  Mass once again drove most of the YoY gain and although slower than the last 4 months, still grew 29%.  December’s 16% VIP revenue growth may have been an anomaly as January VIP was almost exactly flat YoY.  VIP hold was slightly lower than last year but still slightly higher than normal.  VIP volume eked out a 2% gain.  Surprisingly, slot revenue grew only 1%, the slowest pace in 3 ½ years.  Remember that the Chinese New Year celebration occurred in January of last year but in February of this year.



Here are some individual company commentary:


Sands China (LVS)

  • For the first time in 6 months, LVS didn’t lead the market in growth as MPEL was the top dog.  LVS did manage YoY GGR growth of 18%, good for 2nd place.
  • Mass revenue grew 55%, which was the highest in the market
  • VIP hold was modestly below normal and last year was modestly above normal
  • Market share dipped to its lowest level since September 2012 due in part to lower hold


  • Wynn GGR fell for the 4th consecutive month, down 4% YoY
  • VIP hold Wynn was slightly above normal but well below last year
  • Wynn’s Mass business did grow slightly YoY but at a rate (+5%) that was the slowest in the market
  • VIP volume fell a whopping 15%
  • Market share grew sequentially but was in-line with recent trend


  • Another strong month for MPEL, leading the market with 20% YoY GGR growth
  • However, Mass grew “only” 20%, trailing the market
  • VIP hold was a little above normal but in-line with the prior year
  • VIP volume was very strong with market leading 24% YoY growth
  • Market share was good driven by VIP – Mass share was disappointing 


  • Galaxy grew in-line with the market but better in Mass and worse in VIP
  • Hold was modestly above normal and above last year
  • Market share of 18.6% was solid and sequentially better than the last few months


  • Tough month for MGM due somewhat to low hold as Mass revenue growth was in-line with the market
  • VIP hold % was well below normal (last year was also well above normal)
  • VIP volume was up a solid 9% although some of that may have been induced by players winning at a better rate
  • Market share dipped 170bps sequentially (high hold to low hold) and Mass share was the lowest in almost a year

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

See and Show

This note was originally published at 8am on January 28, 2013 for Hedgeye subscribers.

“To see, and to show, is the mission now undertaken.”

-Henry Luce


Born in China to missionary parents, Henry Luce went on to graduate from Yale in 1920 and become one of the most influential multi-media content generators in world history.


In June of 1944 in Life magazine, Luce declared the following about America: “With the establishment of a firm lodgment on the continent, we are now the most powerful nation on earth.” (The Last Lion, page 847)


That’s one way to get Americans to like you. Another is calling it like it is. Now that central planners of the world have saved us from themselves (again), I wonder how Luce would characterize the new world order today.


Back to the Global Macro Grind


If there was another Luce born in China in the 21st century, she probably wouldn’t be able to publish what she really thinks about China’s role as a burgeoning super-power anyway. Power and influence have some ugly disclosures.


This morning China’s power-center is ticked-off (expressing it in their state controlled media) because the Japanese are adding 287 people to their military. That’s not a typo, 287. Since Japan’s armed forces number north of 225,000, what’s the point?


The point is that we are in a Currency War, and the Japanese continue to tick just about everyone from South Korea to China off. This isn’t going to end any time soon. Neither will the longstanding cultural differences between Japan and China. If we are right on how it ends for the currency debaucherers in Japan, the Chinese won’t be there to bail them out like they did Europe.


Last week, in what was nothing short of another fantastic one for US Equities (SP500 and Russell2000 up another +1.1% and +1.5% to fresh YTD highs, respectively), there were 3 major divergences in Global Equities:

  1. South Korea = KOSPI -2.1% (breaking TRADE and TREND support)
  2. Brazil = Bovespa -1.3% (holding TRADE and TREND support)
  3. China = Shanghai Composite -1.1% (holding TRADE and TREND support)

Now, when a market price snaps TRADE and TREND support in our model, we don’t buy-the-the-damn-dip. We wait and watch. When a market price holds TRADE/TREND support, we like buying those instead.


If you bought China on Friday (we’re long Taiwan via EWT), nice job. This morning, Chinese stocks ripped a fresh new YTD high, closing up another +2.4% at 2364 in Shanghai. That’s what bull markets do – they correct and climb.


South Korea’s stock market didn’t do that however. The KOSPI saw follow through selling overnight, down another -0.36% to immediate-term TRADE oversold within its freshly established bearish intermediate-term TREND (1961 = resistance).


Since the KOSPI is an important leading indicator in our multi-factor Global Macro model, what is this signal telling us?


In any risk management model with Chaos Theory at its core, the 1st answer to an early signal is ‘I don’t know.’ That might not sound as smart as someone who allegedly knows something about everything, but over the years the limits of my thick hockey skull remain readily apparent – so I’ll stick with Embracing Uncertainty.


The other big question you should be asking yourself is could we see a 6% handle on the US unemployment rate in 2013?


Remember, expectations of the Fed getting out of the way matter more than them actually doing so. Looking at this week’s Macro Catalyst Calendar, there will be plenty of data to consider on that front:

  1. Monday – Pending Home Sales and Durable Goods are both released for the USA
  2. Tuesday – Case Shiller Home Prices and US Consumer Confidence
  3. Wednesday – PMI (JAN), Q412 GDP, and the Fed’s decision/commentary on rates
  4. Thursday – US weekly Jobless Claims (and month end)
  5. Friday – US Employment Report (JAN) and the ISM report for January

And, as usual, the market has already front-run some of these considerations via its own expectations:

  1. US Treasury Bonds (10yr Yield) continued lower again last week, with the 10yr rising to 1.95% from 1.84%
  2. Gold continued lower last week, closing down another -1.7% in a broadly bullish Global Equity tape
  3. CRB Commodities Index continued to make a series of lower-highs, closing down -0.6% last week

Now I know some people are calling for both epic levels of inflation and the end of the world – but the good news is that we have neither of those two things, yet. Nor do we expect them before you have to report results to your investors at month-end.


What we have so far (and for the last 2 months really) is a Growth Scare, and it’s to the upside. How else can you explain another all-time high in the Russell2000 of 905 (all-time is a long time) and confirmed 5-yr lows in US Equity Volatility (VIX)?


To see and show our Top 3 Global Macro Themes (#GrowthStabilizing, #HousingsHammer, and #QuadrillYen) as they are happening helps illustrate that Global Macro A) works both ways and B) is interconnected. This is our mission, undertaken.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1654-1678, $111.75-114.28, $79.62-80.14, $1.32-1.34, 89.55-91.11, 1.88-1.98%, and 1485-1508, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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