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The Macau Metro Monitor, February 20, 2013




Macau casinos recorded a 3.9% drop in gross gaming revenue during the Lunar New Year holidays in comparison with the same festive period one year before, Lusa news agency reports.  Quoting unidentified sources in the gaming industry, Lusa reports that during the first seven days of the Year of the Snake (February 10 to February 16), Macau casinos recorded gross gaming revenue of MOP7.2 billion (US$900 million), down from the MOP7.5 billion recorded in the first seven days of the Year of the Dragon.


Gross gaming revenue dropped despite the city having recorded 937,000 visitor arrivals from February 9 to February 15 (including non-resident workers and students), marking a growth of 15.4% compared with last year’s holiday period, according to the Macau Government Tourist Office.  Among those, close to 630,000 visitors came from the mainland, marking an increase of 25.5%.



Manila-listed Manchester International Holdings Unlimited Corp is raising its capital stock to P5.9 billion (US$1.16 billion) from P900 million, with a unit of MPEL subscribing to 2.85 billion shares or 56.9% out of the total increase.  This is part of the move for Melco Crown to take control of the firm, as a vehicle for a backdoor listing in Manila and also as a vehicle for its planned investment in Belle Grande Manila Bay.

Manchester International Holdings has also announced it plans to further sell up to 1.2 billion shares.  The company will also be renamed Melco Crown (Philippines) Resorts Corp.  



Singapore's Changi airport passengers rose 1.9% YoY in January to 4,325,530.  The slower growth reflects the difficult comparisons from last year's Chinese New Year which occurred in January.



“We have shut the entertainment bar. We are investigating it and, so far, it looks like they have violated their operating regulations,” Chen Guangfa, the deputy director of the Sanya Culture and Sports Bureau, told Reuters.  “When we approved it, the regulations and the certificate said its operations would be entertainment in nature, but inside the bar there are some games, and they’ve gone beyond the scope of the regulations, so we closed it down,” the official said, without disclosing further details.  The local police are now conducting an investigation.


The casino bar had 50 gaming tables with minimum bets from RMB20 (MOP26) to RMB100,000.  The punters at the casino bar played with cash but could not win it back; they could only get points that could be used to pay for accommodation and luxury goods on sale at the resort.

Don't Hurry Mistakes

“Let’s not make our mistakes in a hurry.”

-Dwight D. Eisenhower


The 34th President of the United States was a process guy. He was also a world class Risk Manager. Getting the US out of Korea, averting the French invitation to Vietnam (1953), and avoiding the ongoing threat of engaging China or Russia in nuclear war is his legacy now. If you are a Portfolio Manager in this game, your legacy is your track record – and it’ll be the mistakes you don’t make that matter most.


But what kind of team culture should you foster to ensure you aren’t missing something? Do you accept the blame for your team’s mistakes, or do you point fingers? Is there an open forum for people who report to you to disagree with your position? If they do so and have sloppy reasoning, do they expect to be taken to task in front of their peers in kind?


I’m an athlete who believes in transparency, accountability, and trust. I have biases. But they are based on experience. There are a lot of great players – and even more good teams. But only few Championship Teams can repeat. To do that, your players can’t be scared to make a mistake. At the same time, they have to be disciplined so that their mistakes don’t blow up everything the team has worked for.


Back to the Global Macro Grind


Particularly when a market is in a Bullish Formation (Bullish on all 3 of our core risk management durations: TRADE, TREND, and TAIL), not getting squeezed (on the short side) can save the team from having a lot of losses.


If you accept that bullish and bearish formations (Gold is in a Bearish Formation, so is the Japanese Yen) can get immediate-term TRADE overbought and oversold, at a bare minimum you won’t be making the same mistakes over and over again in a hurry. You’ll wait.


It’s taken me at least 13-15 years to learn this the hard way. Getting squeezed is part of a short seller’s life. And guess what, I still have to re-learn the same lesson, weekly. This game isn’t easy. That’s why I try my best to make decisions on the signal now, instead of the noise.


To simplify what I mean by making high-probability decisions:


  1. Don’t be in a hurry to sell something until you get an immediate-term TRADE overbought signal
  2. Don’t be in a hurry to buy something until you get an immediate-term TRADE oversold signal
  3. Don’t eat yellow snow


Or, as President Eisenhower used to tell his brother Milton, “Never get in a pissing match with the skunk.” (Ike’s Bluff, pg 57)


Yes, I am sure there are some really smart people out there who have found a way to not have to deal with process, real-time decision making , etc. But I can almost guarantee you that what they do ends up having a higher realized level of volatility than what we do.


To put some meat on this bone, here are some immediate-term TRADE overbought signals in our models this morning:


  1. SP500 is immediate-term TRADE overbought at 1533
  2. Russell2000 is immediate-term TRADE overbought at 934
  3. Consumer Staples Sector ETF is immediate-term TRADE overbought at $38.06
  4. Kimberly Clark (KMB) is immediate-term TRADE overbought at $92.31
  5. Fedex (FDX) is immediate-term TRADE overbought at $107.39


First, note that I have no immediate-term TRADE overbought signals to act on in any of our long Asian Equities positions. Singapore (EWS) has immediate-term upside, and so does China (which we bought via CAF on an immediate-term TRADE oversold signal yesterday).


Second, I am agnostic on the direction of the signal. It works the same way for both my longs and shorts. Yes, we like and are long of Fedex (FDX), but A) that’s not new (we bought it when we went bullish on US Equities in late November) and B) what is new is that it gave me its first immediate-term TRADE overbought signal in at least the last few weeks.


Third, using immediate-term TRADE overbought signals is another way to hedge market (beta) risk. So, I can be bullish on US Equities on my intermediate-term TREND duration and A) realize I might get an overbought signal in SPY this morning but B) not force myself to short something consensus like SPY, and stock and sector pick on a better signal instead (shorting XLP and KMB into yesterday’s close).


I am certain that there are better ways to do this – and I assure you that before I retire, I will find better ways. But for now, this is how my team rolls because this process is both repeatable and helping us not hurry mistakes.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, and the SP500 are now $1 (Gold remains in a Bearish Formation but is immediate-term TRADE oversold), $116.51-118.71, $80.25-80.83, 92.63-94.49, 1.97-2.05% and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Don't Hurry Mistakes - Chart of the Day


Don't Hurry Mistakes - Virtual Portfolio

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.

Happy Veggies

This note was originally published at 8am on February 06, 2013 for Hedgeye subscribers.

“Should I be turned into a vegetable or a happy imbecile?”

-Nassim Taleb


That’s a quote from Chapter 3 of Taleb’s book, Antifragility, where he discusses everything from “Crimes Against Children” to the misguided interpretation of “equilibrium” by social scientists.


Clearly, Taleb doesn’t like social scientists. There’s a little bit more than a little anger in some of what he writes, but there’s also plenty of truth. Sometimes the truth makes some people angry.


Personally, I like socially oriented scientists. I just don’t want them running my money. For that, I don’t need a philosopher either. I need a real-time Risk Manager.


Back to the Global Macro Grind


The thing that non-market people generally don’t get about risk is that it works both ways. There is no such thing as risk “on” and “off” inasmuch as there is no Mr. Miyagi running the Bank of Japan (yet) either.


Risk is always on. It can squeeze you to the upside as fast as it can crash on you to the downside. There is no better example than that in the Land of The Rising Sun itself. Since Bernanke’s Top (September 2012) where he completed his US Dollar Debauchery, the Japanese Yen is down approximately -17%. Since US stocks stopped going down on #GrowthSlowing (mid November), the Nikkei is up +32.4%!


The Nikkei (for all the social scientists out there still trying to prove out their Ph.D in Keynesian Economics) isn’t something you can export. During today’s Currency War, it’s what squeezes (and pleases) politicians in the short-term (the stock market), while it impales their people’s purchasing power for the long-term.


Enough about that.


Why do I keep buying the damn dip?

  1. Fundamental Research: Macro Economic Data in Asia and in the USA continue to improve
  2. Quantitative Signals: my model continues to signal higher-lows of support and higher-highs of resistance

Why make it any more complicated than that?


I used to.


Then I started reading a lot of books and realized how much I do not know.


That’s why the best fundamental framework I can find right now is grounded in Chaos Theory. No, that doesn’t mean I am a philosopher. Neither does it mean I’m turning into a happy bullish imbecile. It simply means I fully Embrace Uncertainty.


What does the mean?

  1. I obey the signal, not the noise (Quantitative Signals)
  2. I then attempt to confirm or disprove the signal alongside my team (Fundamental Research)

I know, I keep saying the same thing, over and over and over again. I guess that might make me somewhat antifragile, for now. Then I’ll get clocked, and I will feel shame – then it will be time to evolve my process all over again.


As US and Asian Equity markets (our 2 largest allocations in the Hedgeye Asset Allocation Model) move back to immediate-term TRADE overbought, here are some mixed signals to consider amidst your daily noise from the #OldWall:

  1. SP500 immediate-term Risk Range remains tight and trade-able (for now) = 1502-1516
  2. US Equity Volatility remains bearish and breaking down relative to 5yr lows; TRADE support = 12.15
  3. US Equity Market Volumes are now trending bullish on up days and bullish (down volume) on down days
  4. US Dollar Index continues to make higher long-term lows, holding its TAIL of $78.11 support
  5. Chinese Equities (Shanghai Composite) are crashing to the upside into a Bullish Formation (2274 TAIL support)
  6. Both our Hong Kong (EWH) and Singapore (EWS) long ETF positions aren’t as overbought as the SPY at 1516
  7. Japan’s Nikkei flashed an immediate-term TRADE overbought signal overnight at the Yen signaled oversold
  8. KOSPI continued to diverge, like Brazil’s Bovespa has, breaking its TRADE and TREND lines of support
  9. EuroStoxx600 was down -0.5% last wk and is confirming an immediate-term TRADE breakdown again today
  10. France, Italy, and Spain have all seen their respective stock markets snap TRADE lines of support
  11. CRB Commodities Index failed, again, at its long-term TAIL risk line of 306 so far this week
  12. Gold continues to look like Treasury Bonds, awful relative to US and Asian stocks
  13. Oil remains the biggest NEW headwind to our Fundamental Research call on global #GrowthStabilizing
  14. US Treasury Yields (10yr) are now confirming a Bullish Formation (bullish TRADE, TREND, and TAIL)
  15. Yield Spread (10s minus 2s) is plenty wide at +174bps this morning; bullish for the Financials (XLF)

There is no “equilibrium” in a multi-factor, multi-duration, Global Macro risk management model. There is no happy place either. Like in any dynamic, non-linear ecosystem, what you want to embrace is the uncertainty of time and space.


So eat your veggies, buy red, sell green, and keep moving out there as risk factors do.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1651-1681, $114.96-117.41, $79.11-79.94, $1.34-1.36, 91.63-94.33, 1.91-2.10%, and 1502-1516, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Happy Veggies - Chart of the Day


Happy Veggies - Virtual Portfolio

CAGNY Day 1 - KRFT Wins

You wouldn't think that a VP of Breakthrough Innovation could steal the show, but KRFT takes day one with a management team that hit that right notes.  SYY was at the other end of the spectrum highlighting commercials targeted at consumers that don't even buy the company's products.



General Mills (GIS)

Operating environment across key US categories is improving – much improved versus a year ago.  Trends are improving, inflation is moderating, and new product news is accelerating.  Advertising dollars are down in 2013?  Don’t like to see that.


So, in summary – losing share across categories, lower advertising spend and 2014 growth to be driven by acquisitions.


ConAgra (CAG)


Ralcorp will improve the long-term earnings algorithm.  Private label has been going through an evolution to private brands that offer a compelling value proposition to both retailers and consumers.  Private label and branded can synergize procurement.  Acquisition is beneficial to scale, makes CAG the clear leader in private brands.  Cost synergies will come from supply chain as well as SG&A - $225 million by year 4 post transaction.  Transaction will add $0.05 to FY 2013 EPS and $0.25 to FY 2014 EPS.


Kraft Foods (KRFT)


Company has iconic brands with near-perfect household penetration, focused on execution across the portfolio.  Company has made significant progress against a “bloated” overhead structure – targeting being the leanest company in packaged food.  New KRFT is about consistent, sustained, profitable growth with innovation at its core.  KRFT was worst – on just about any metric, aspires to be first.  Our favorite on the day, may be damning with faint praise, but the company hit all the right notes.




The company provided a solid overview of operating units, with generally positive business momentum across multiple regions.  Interesting comments regarding China, as the company is seeing a slowing industry and heightened competition.  Beer industry has structurally changed over the past ten years due to consolidation – beers are made to a much higher quality standard, bottles and labeling have improved as well.  Image has changed, as beer is now a beverage to which emerging market consumers aspire.   Graham Mackay remains one of the more impressive CEOs across all sectors.


Altria (MO)


The presentation began by highlighting the overall attractiveness of the U.S. tobacco manufacturers profit pool – note that management didn’t frame the discussion as cigarettes alone.  Cigarettes are plagued by the weakest recent and long-term volumes trades as adult smokers switch to alternative products.  Despite some promotional challenges in the cigarettes business, Altria’s business is in a position to grow profitably and in the process return cash to shareholders via dividends (primarily) and share repurchases.


Mondelez (MDLZ)


CEO Irene Rosenfeld was her usual bullish self, despite some recent EPS prints that would argue against a significant degree of optimism.  To Irene’s credit, she continued to speak candidly about some of the issues that have caused MDLZ’s top line to drag (lower coffee pricing, capacity constraints and some execution issues).  Some of those issues will mitigate over time, hence her confidence that the company can see a return to a more robust top line growth profile.


Sysco (SYY)


A less than inspiring presentation from SYY. The company outlines a number of cost savings initiatives through FY2015, however case volume is down and doesn’t look to inflect without further bolt-on acquisitions in a very competitive space.  The company sees a choppy (read negative) microenvironment ahead in which it expects restaurant traffic to be down (restaurants = 57% of its overall business). We expect its big share of food sales across the U.S., Canada, and Ireland to be challenged through this business transition.


Smucker’s (SJM)


The company is seeing improving trends across its focus areas of Coffee, Peanut Butter, and Fruit Spreads and will increase cap ex to over 3% of sales over the next couple years to support these areas. FY 2013 earnings outlook of $5.17 – 5.22, with top line of 6%, aided by lower commodity costs and integration of the SaraLee coffee business.  SJM is making a strong push in China with innovation and know-how with its minority interest in Seamild. Expects peanut butter sales to be resilient and follow on strength from K-cups with new users still coming into the category and existing increasing buying in 2013.



Call with questions.




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst



After speaking with some contacts in Macau, we’ve got some more color on the softness.  It appears that Mass hold percentage may have been low in February.  We would attribute this in part to the smoking ban.  During busy periods such as Chinese New Year (CNY), it makes sense that table productivity would go down as players take breaks to smoke or smokers can’t get a seat at the table.  Velocity of play goes down which would reduce the hold percentage.  On the VIP side, we’re hearing that volumes were weak and hold was fairly normal.  This would suggest that the China corruption crackdown is having an impact although some disagree.  On a positive note, we’ve heard that non-gaming spend was quite high given the Mass crowds.


Going forward, there seems to be some opposing factors.  On the positive side, there is some speculation that some big VIP players stayed away during CNY because of the crowds.  If this is true, we may not see as much of the typical post CNY slowdown.  However, on the negative side, there is news of an important China central government figure visiting Macau this week which usually means some junkets and players will stay away.  Either way, we’ve had about 4 weeks of disappointing numbers.  We think the softness could continue, mainly due to the corruption crackdown, for a few months but we remain bullish on Macau over the intermediate (trend) and long-term (tail).


Here are some other tidbits we picked up from our contacts:

  • Hainan Island casino – at least one sell side analyst highlighted this in a note as a potentially big competitor for Macau.  Well, we heard this morning that the government already closed it down.  The bear thesis of China allowing casinos outside of Macau will have to be shelved for now.
  • Taiwan – there is speculation that the Taiwanese investigation into an MPEL junket is the cause of MPEL’s market share dip in February.  While we will concede that it may have had an impact, we think it was slight and that low hold explains the majority of the market share decline.  We estimate that Taiwan generates 7-8% of Macau’s GGR. 

As the chart below shows, CNY 2013 ADTR has been disappointing.  Compared with CNY 2012 (Jan 16-29) ADTR and also YoY (Feb 1-19), CNY 2013 (Feb 1-17) ADTR only grew in the mid single digits.  We are currently projecting YoY growth of -2% to +4% for the full month of February.



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