The Macau Metro Monitor, February 13, 2013




According to the Macau Government Tourist Office, since the Lunar New Year holidays started, on Sunday, the number of total visitor arrivals to Macau has been growing at a double-digit rate.

Yesterday, Macau welcomed close to 167,000 visitors, a significant growth of 28.4% YoY.  Of those, over 114,000 came from the mainland, up by a staggering 35.8%.  From Sunday (February 9) until Tuesday (February 12), Macau had already welcomed almost 478,000 visitors, an increase of 21.8% YoY.


TODAY’S S&P 500 SET-UP – February 13, 2013

As we look at today's setup for the S&P 500, the range is 16 points or 0.62% downside to 1510 and 0.43% upside to 1526.  














  • YIELD CURVE: 1.74 from 1.72
  • VIX  closed at 12.64 1 day percent change of -2.32%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Feb. 8 (prior 3.4%)
  • 8:30am: Import Price Index M/m, Jan., est. 0.8% (prior -0.1%)
  • 8:30am: Advance Retail Sales, Jan., est. 0.1% (prior 0.5%)
  • 10am: Business Inventories, Dec., est. 0.2%  (prior 0.3%)
  • 10:30am: DoE Inventory Reports
  • 11am: Fed’s Bullard speaks in Arkansas on economy
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2042 sector
  • 1pm: U.S. to sell $24b 10Y notes
  • 5pm: Fed’s Dudley gives welcoming remarks at “Video Festival Finals” in N.Y.


    • Confirmation hearing for Treasury Sec nominee Jacob Lew
    • Sens. Elizabeth Warren, D-Mass.; Sherrod Brown, D-Ohio; Jack Reed, D-R.I., hold news conference on importance of CFPB, urge confirmation of Richard Cordray as director. 2:30pm
    • U.S. Chamber of Commerce hosts transport infrastructure summit
    • Energy Dept., FERC hold meeting on coordination between natural gas, electricity markets. 9am
    • House Financial Svcs Cmte hears from FHA Commissioner Carol Galante on agency’s Nov. report to Congress that revealed FHA may need taxpayer bailout. 10am
    • U.S. Chamber of Commerce holds transportation infrastructure summit with Rep, Bill Shuster, R-Pa., Ingram Barge Co. CEO Craig Philip, Nick Atkins, CEO of American Electric Power, representatives from UPS, IBM, Lowes Hotels, JetBlue, 8:30am
    • Senate Judiciary Cmte hears from Homeland Security Sec. Janet Napolitano on immigration law. 9:30am


  • Obama paints wider role for govt. in middle class revival
    • Says U.S. will begin trade talks with 27 nations of EU
    • Seeks minimum wage boost to bolster economy
    • Proposing oil-funded trust to curb gas prices
  • Apple said to have team of 100 developing wristwatch computer
  • Copper cos. file court challenge to JPMorgan ETF approval
  • G-7 roils currency markets with split on concern over yen
  • CME’s Gill says would consider joining overseas consolidation
  • Legg Mason said to name Joseph Sullivan CEO
  • Moody’s authorizes $1b of stock buybacks after price drop
  • Goldman Sachs CEO Blankfein says he’ll stay for a while
  • Morgan Stanley triples Mexico staff
  • BlackRock picks Morgan Stanley’s Shedlin as CFO
  • Batteries for 787 can’t be shipped on passenger planes: UN
  • Brill Building said to sell Allied Partners for $200m
  • Novartis’s $67k marrow drug fails to win U.K. agency backing
  • Swiss impose capital buffer to calm overheating housing mkt
  • MSCI announces quarterly index changes after mkt close
  • Citigroup’s bank rating upgraded to stable by Moody’s


    • Proto Labs (PRLB) 6am, $0.26
    • Acorda Therapeutics (ACOR) 6am, $0.16
    • Calpine (CPN) 6am, $(0.05)
    • MEMC Electronic Materials (WFR) 6am, $0.02
    • Blackbaud (BLKB) 6:30am, $0.24
    • Calumet Specialty Products Partners LP (CLMT) 6:30am, $0.69
    • WellCare Health Plans (WCG) 6:30am, $1.31
    • Manitoba Telecom Services (MBT CN) 6:30am, C$0.61
    • Thomson Reuters (TRI CN) 7am, $0.55
    • Dean Foods Co (DF) 7am, $0.30
    • Henry Schein (HSIC) 7am, $1.21
    • Deere & Co (DE) 7am, $1.40 - Preview
    • Duke Energy (DUK) 7am, $0.64
    • Lorillard (LO) 7am, $0.76
    • WhiteWave Foods (WWAV) 7:30am, $0.17
    • Hyatt Hotels (H) 7:30am, $0.12
    • Hospira (HSP) 7:30am, $0.54 - Preview
    • Sonoco Products Co (SON) 7:30am, $0.54
    • Atlas Air Worldwide Holdings (AAWW) 7:39am, $1.74
    • Dr Pepper Snapple Group (DPS) 8am, $0.85
    • Mine Safety Appliances Co (MSA) 8:30am, $0.55
    • CAE (CAE CN) 8:30am, $0.16
    • Finning International (FTT CN) 9am, C$0.56
    • Saputo (SAP CN) 11:58am, C$0.66
    • Itron (ITRI) 4pm, $0.64
    • ArthroCare (ARTC) 4pm, $0.37
    • Mondelez International (MDLZ) 4pm, $0.37
    • NVIDIA (NVDA) 4pm, $0.29
    • KapStone Paper and Packaging (KS) 4:01pm, $0.27
    • Morningstar (MORN) 4:01pm, $0.56
    • NetApp (NTAP) 4:01pm, $0.56
    • Equinix (EQIX) 4:01pm, $0.59
    • TripAdvisor (TRIP) 4:02pm, $0.27
    • Portfolio Recovery Associates (PRAA) 4:03pm, $2.00
    • Whole Foods Market (WFM) 4:03pm, $0.77
    • MetLife (MET) 4:03pm, $1.18
    • CenturyLink (CTL) 4:04pm, $0.68
    • Sovran Self Storage (SSS) 4:05pm, $0.82
    • Rovi (ROVI) 4:05pm, $0.44
    • ValueClick (VCLK) 4:05pm, $0.51
    • Cisco Systems (CSCO) 4:05pm, $0.48
    • Applied Materials (AMAT) 4:05pm, $0.03
    • Ingram Micro (IM) 4:05pm, $0.58
    • Weight Watchers International (WTW) 4:05pm, $0.87
    • Zillow (Z) 4:05pm, $0.00
    • Cloud Peak Energy (CLD) 4:10pm, $0.50
    • Corrections ofamerica (CXW) 4:10pm, $0.41
    • j2 Global (JCOM) 4:15pm, $0.61
    • Intrepid Potash (IPI) 4:15pm, $0.25
    • Pioneer Natural Resources Co (PXD) 4:15pm, $0.88
    • Oceaneering International (OII) 4:20pm, $0.72
    • ION Geophysical (IO) 4:30pm, $0.13
    • C&J Energy Services (CJES) 4:30pm, $0.67
    • Charles River Laboratories International (CRL) 4:30pm, $0.60
    • Washington Real Estate Investment Trust (WRE) 4:42pm, $0.46
    • Home Capital Group (HCG CN) 5pm, C$1.68
    • Taubman Centers (TCO) 5pm, $0.97
    • Agnico-Eagle Mines Ltd (AEM CN) 5pm, $0.46
    • Kinross Gold (K CN) 5pm, $0.21
    • TAL International Group (TAL) 5:01pm, $0.95
    • EOG Resources (EOG) 5:01pm, $1.35
    • Sun Life Financial (SLF CN) 5:10pm, C$0.45
    • Calloway REIT (CWTu CN) 5:34pm, C$0.45
    • Euronet Worldwide (EEFT) Post-Mkt, $0.47
    • Avis Budget Group (CAR) Post-Mkt, $(0.07)
    • Boardwalk REIT (BEIu CN) Post-Mkt, C$0.74
    • Liberty Global (LBTYA) Post-Mkt, $(0.07)


GOLD – being long Gold as US employment and housing continue to stabilize (ITB Housing ETF +3.8% yesterday in the US) doesn’t work. Finally getting an immediate-term TRADE oversold signal at $1641/oz, but Gold remains in a Bearish Formation.

  • Corn Slides as Wheat Reaches Seven-Month Low on Rain Speculation
  • Cameco Sees Japan Uranium Recovery After Fukushima: Commodities
  • Platinum’s Premium to Gold Widens to 17-Month High on Zimbabwe
  • Lead Rises a Second Day on Speculation China Will Resume Buying
  • Oil Trades Near One-Week High; IEA Trims Global Demand Forecast
  • Palm Oil Inventories in Malaysia Miss Estimates, Futures Slump
  • Cocoa Seen Gaining in London as Manufacturers May Build Reserves
  • Oil May Head to $100 With Two-Year Support: Technical Analysis
  • Blackstone to OSG Win Record Tanker Rates on Export Ban: Freight
  • Copper Companies File Court Challenge to JPMorgan ETF Approval
  • Record Gulf Coast Exports Fuel Terminal Logjam: Energy Markets
  • Astra Agro Sells 7,000 Tons of Crude Palm Oil in Auction (Table)
  • Preview: Rio Tinto Earnings to Focus on $5b Cost-Savings Plan
  • Palm Oil Drops as Stockpiles in Malaysia Hold Near Record Level








FRANCE – broke our TRADE line 3 weeks ago and continues to flash another negative divergence versus squeeze tapes (Greece and Spain) this morn; if you are hunting for shorts, hunt in France – the economic data sucks relative to USA/Germany.





KOSPI – re-captures our intermediate-term TREND line of 1961 (post the NKorea headline noise); so that fixes 1 major equity market risk (for now); Bovespa and Sensex continue to signal bearish however.








The Hedgeye Macro Team





Wind and Rain

This note was originally published at 8am on January 30, 2013 for Hedgeye subscribers.

“Wind extinguishes a candle and energizes fire.”

-Nassim Taleb


On my way to Kansas City, Missouri last night I started reading Taleb’s new book, Antifragile. The aforementioned quote is the opening sentence to his prologue. It’s an interesting introduction. He uses a basic contrast of a few elements, and makes up a new word (what he calls the opposite of fragility).


While Taleb doesn’t market himself this way, there is a lot of Chaos Theory at the core of his framework. From an economic policy perspective, he is anti-academic dogma, anti-government, etc. “This is the tragedy of modernity: as with neurotically overprotective parents, those trying to help are often hurting us most.” (pg 5) And I’ll obviously second that.


Having not read it yet, the questions I have with this highly-promoted book are threefold: 1. Is there anything new here that I can apply to my risk management process? 2. Is it a book for market practitioners or an attempt to become academic in its own right? and 3. Will it help me save and make people money? I’ll review it and let you know.


Back to the Global Macro Grind


After seeing both the SP500 and Russell2000 close at fresh YTD highs yesterday (all-time high for the Russell) and then seeing China and Japan close at new highs again overnight, the question is: was being long stocks and out of Gold, Bonds, etc. just dumb luck?


Well, Nassim says, “I’d rather be dumb and antifragile than extremely smart and fragile, any time.” But I don’t think any man, woman, or child aspires to be dumb, do you? Thinking you are smarter than the Mr. Market – well, that’s an entirely different problem.


The most brainless/emotionless risk management exercise I can do to assure myself I am no smarter than anyone else, is shut up and listen to the price/volume/volatility signals in my Global Macro model. Here’s what they are signaling today in the USA:

  1. US Stocks (SP500) immediate-term TRADE overbought in the 1510-1513 range
  2. US Equity Volatility (VIX) immediate-term TRADE oversold in the 11.98-12.04 range
  3. US Dollar Index immediate-term TRADE oversold at $79.41
  4. US Treasury Yields (10yr) immediate-term TRADE overbought at 2.04%

These immediate-term signals are A) contextualized by my intermediate-term TREND and long-term TAIL durations and B) augmented by my research team’s fundamental updates (we have a morning meeting every day at 830AM EST).


In Asian Equities, the most important immediate-term TRADE signals this morning are as follows:

  1. CHINA – Shanghai Composite +1% overnight to immediate-term TRADE overbought at 2391
  2. JAPAN – Nikkei225 +2.3% overnight to immediate-term TRADE overbought at 11,124
  3. S.KOREA – KOSPI +0.43% overnight, recaptures TREND support (1959) but remains below 1976 TRADE resistance

In Europe:

  1. EURO – versus the USD, the Euro is immediate-term TRADE overbought at $1.35
  2. GERMANY – the DAX is immediate-term TRADE overbought at 7887
  3. ITALY – the MIB Index (equities) snapped immediate-term TRADE support of 17,714 this morning

All the while, Oil prices are testing an important breakout level of $114.79 (Brent). Wind and fire, meet another element: rain. Oil prices rising from these levels will be a brand new headwind to Global #GrowthStabilizing.


So, there’s a lot going on out there – but there always is.


Markets don’t care about your positions or processes. That’s why they tend to impose the most amount of pain on most of the people, all at the same time. That’s also why studying the Behavioral side of markets is as important as considering their fractal dimensions.


Got pain? Perma stock market bears are going to need a heck of a lot of rain to tone down this bullish bonfire. For 2 months The Pain Trade has been to the upside in stocks (and to the downside in Treasury Bonds).


That’s not new. Waking up to snow this morning in Kansas City is new. So I had to A) adapt or B) freeze when I walked over to Sonic to get breakfast.


Every day we are offered an opportunity to Embrace Uncertainty and risk adjust our decisions accordingly. If we’re scared of Black Swans and/or uncertain about our process’ ability to absorb uncertainty, I guess Taleb would say we aren’t antifragile.


One way to not be emotionally fragile is to keep moving.


Now that this morning’s Consensus Signal of The Day pinned a new high (II’s Bull/Bear Spread moves to +3,200 basis points wide to the Bullish Side – it was only 960bps wide in mid-November), you can sell some stocks at our immediate-term TRADE overbought signals. It may not be Taleb’s answer to the game – but for me, it’s just another solid risk adjusted decision to make.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, USD/YEN, 10yr UST Yield, and the SP500 are now $1649-1676, $112.71-114.79, $3.65-3.72, $79.41-79.98, $1.33-1.35, 89.88-91.66, 1.92-2.04%, and 1492-1513, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Wind and Rain - Chart of the Day


Wind and Rain - Virtual Portfolio

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KORS: All About The Benjamins

Michael Kors (KORS) has been called “the unshortable stock,” something that still holds true today. In fact, with the company destroying Coach (COH), firing on all cylinders and continually growing revenue, we believe KORS will be a $100 stock within the next two years. Considering that the stock is above $60 a share and up +7.8% today as of writing, there’s plenty to like. But like any company, no matter how amazing they may seem, concerns still exist.



KORS: All About The Benjamins - KORS SIGMA



Starting in FY14 (i.e. in April) the company starts to use excess cash to buy back stock. In small amounts at first – about $100mm in year 1 – but ultimately building to $400mm by year 3 to prevent its return on investment from rolling over due to too much cash. The company has been spending a lot of cash lately and is also swooping in and buying primo real estate for store locations that don’t come cheap. Ready-to-wear margins could also come down as accessories make up more of the business and inventory buildup could pose a threat. Regardless, we like the stock and think KORS is one of the best names in retail.

KORS: $100 Roadmap

Takeaway: If this story plays out, $KORS is a $100 stock in 2-years. But let's look at what it takes to get there -- and what could go wrong.

On KORS’ last print we called it ‘the unshortable stock’ – something which still holds true. But the problem is that there are so many ‘knowns’ in support of owning KORS. We know that a) KORS is eating Coach’s lunch, b) every single part of the business is on fire – and that’s whether you look at product, channel, or geography, c) management completely sandbagged 4Q guidance. We’re got to think that much of this is embedded in the multiple.  When so many things are going so well, we think that the better question to be asking is “what do you need to believe to be buying KORS now, and what could go wrong if you do?”.


What you need to believe today to buy KORS here.

1)      That KORS can continue to grow its’ wholesale business at 30% or better for the next 2-3 years without margin degradation. With 15-20% growth in the US, we think the addition of Europe and Asia can make this happen.


2)      Retail can get halfway to management’s goal of 75% of the total mix. In order for that to happen on top of 25% wholesale growth, our model suggests that we need to see about 175 stores added over 3-years – which we think is doable – on top of comps averaging in the 20% range (we’re at 25%, 15%, and 10%, respectively for FY2014, 2015 and 2016). That gets us to sales/square foot of $2,400 by the end of year 3 versus $1,730 today. That’s the higher end of what we think is reasonable.


3)      With appropriate leverage on the top line growth numbers needed to hit these goals, we’re modeling margins between 31-32% (vs 27-28% today) over 3-years. Interesting in that this is precisely where Coach is today, and we think that in 3-years, Coach will be lucky to be where KORS is today.


4)      An increasing proportion of profit will come from lower-tax jurisdictions, which will take the aggregate tax rate down by 100-150bp per year.


5)      Starting in FY14 (i.e. in April) the company starts to use excess cash to buy back stock. In small amounts at first – about $100mm in year 1 – but ultimately building to $400mm by year 3 to prevent ROI from rolling over due to too much cash.


6)      When all is said and done, you’re looking at a global luxury goods brand with EBIT margins on their way to 31% that turns its operating assets once a month (as opposed to industry norm of 3-4x per year) that should have earnings power approaching $5.00 in three years. Yes, the stock is on fire. But even on today’s pop a $63 stock on $5 in EPS power in 3-years is hardly excessive. Over a 2-year time period, giving even a 20x p/e we’re looking at a stock close to $100.


What could go wrong?

The obvious problem would be loss of brand momentum. Let’s look past that one for the sake of this exercise. If there is one thing KORS is doing it is spending money – and lots of it. The company will have added around $140mm in SG&A dollars and another $130mm in capex this year on top of a $1.3bn revenue base. We’re ok with that. Other factors that we need to watch…


1)      ‘Ready-To-Wear’ Margins: The company highlighted on its call how well its women’s ready-to-wear apparel is performing and how the line will get greater real-estate in some of the company’s retail locations. With accessories now at 80% of the total business for KORS (vs 62% 2-years ago) it’s pretty safe to say that this shift is nearing its end. Initially RTW might be high margin, but the reality is that it is a business where there is a greater penalty for missing fashion trends, as excess inventory will need to be marked down greater than sunglasses, shoes, watches or eyewear.


2)      Rent Expense: When the company is comping 41%, its ability to leverage occupancy expenses is seemingly irrelevant. But keep in mind that KORS has been employing one of the most aggressive real estate strategies to secure prime locations than any company we have seen in a very long time. It’s no secret that not only are these locations expensive, but the rent escalators work as a compliment to stated rent/square foot such that they allow a company to get into an expensive storefront today but pay for it tomorrow. It is not transparent yet how KORS is handling this. On a 41% comp – it does not matter. On a 20% comp it probably does not matter (at least, it has not in the past). On a 10% comp, we think it probably matters.


3)      Licensing Looking Toppy: Licensing EBIT is about 14% of the company’s total. We’d be surprised if it grew much form there – kind of like we saw from Ralph Lauren over the past 8-years as it took control of its own distribution. Licenses like Watches will forever be outsourced, but on the margin the company will look to grow incrementally from within. This is not a risk, really, in that it will allow KORS to consolidate a greater portion of revenue, albeit at a margin less than the 64% is has today in Licensing. As long as it churns more EBIT through its P&L, we’re ok with it. But keep an eye on this.


KORS SIGMA: Margins Looking Solid. Keep An Eye On Inventories

KORS: $100 Roadmap - KORS sigma

CZR: Spin It Off?

Caesar’s Entertainment (CZR) has enjoyed a massive 64% run up since February 6th on the likelihood that New Jersey will pass legislation allowing for interactive gaming on the internet. Should the law go into effect, bondholders would prefer to see CZR spin off its interactive division into a new unit. While that’s fine and dandy for those holding company debt, CZR’s stock would probably not see a boost in price if the legislation passed as we believe that the 64% run up is not entirely justified by this news. Tax issues would come into play and though Caesar's would be able to monetize the new interactive unit, it would not be a boon for stockholders.


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.

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