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TODAY’S S&P 500 SET-UP – April 9, 2013

As we look at today's setup for the S&P 500, the range is 22 points or 0.77% downside to 1551 and 0.64% upside to 1573.     










  • YIELD CURVE: 1.49 from 1.49
  • VIX closed at 13.19 1 day percent change of -5.24%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Bus Optimism, March, est. 90.3 (prior 90.8)
  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 9:30am: Fed’s Lacker speaks in Richmond, Va.
  • 10am: Wholesale Inventories, Feb., est. 0.5% (prior 1.2%)
  • 10am: Wholesale Sales M/m, Feb., est. 1.5% (prior -0.8%)
  • 10am: JOLTs Job Openings, Feb., est. 3.730m (prior 3.693m)
  • 11am: Fed to purchase $1.25b-$1.75b notes in 2036-2043 sector
  • 11:30am: U.S. to sell 4W bills
  • 1pm: U.S. to sell $32b 3Y notes
  • 1pm: Fed’s Lockhart gives remarks at Atlanta Fed conference
  • 4:30pm: API energy inventories


    • House, Senate in session
    • Officials from OMB, European Commission meet to discuss regulatory compliance, U.S.-EU trade deal, 9am
    • Senate Armed Svcs panel holds hearing on counterterrorism, defense authorization, 2:15pm
    • Alberta Premier Alison Redford speaks at Brookings Inst on Keystone XL Pipeline, 2pm


  • Bernanke says Fed to press U.S. banks to cut liquidity risk
  • J.C. Penney’s post-Johnson options seen to include sale
  • Billabong to assess $299m buyout by Sycamore Group
  • KPMG fires senior partner over alleged inside trading: NYT
  • Warsaw exchange said to hold merger talks w/Vienna bourse
  • Microsoft, Nokia complain to EU on Google’s Android dominance
  • Chevron resuming Brazil output signals end to spill dispute
  • First Solar holds analyst mtg, to face questions as Brown leaves
  • China tightening pressure eases with March inflation
  • New Hampshire asks MTBE jury for $236m from Exxon
  • Microsoft Surface tablet warranty criticized in China
  • Airbus juggles order book on record demand for A320neo jet
  • German exports declined in Feb. amid euro-area recession
  • Qantas targets Hong Kong approval for airline by year end


    • Pricesmart (PSMT) 4:05pm, $0.77



  • Codelco Workers Begin Strike at Copper Mines for 24 Hours
  • Corn Boom Goes Bust With U.S. Sales in Record Drop: Commodities
  • Copper and Zinc Rise as China Inflation Eases Tightening Concern
  • Corn Gains as Wet Weather May Delay U.S. Plantings; Wheat Falls
  • Gold Swings as Investors Weigh Stimulus Against Recovery Signs
  • Robusta Coffee Falls as Investors May Keep Selling; Cocoa Gains
  • European Cocoa Processing Probably Dropped 2.4% in First Quarter
  • Wheat Harvest in India Set for Record on High-Yield Seeds, Rains
  • Crude Supplies Climb From 22-Year High in Survey: Energy Markets
  • SGX Prepared for ‘Modest Pickup’ in AsiaClear Iron Ore Futures
  • Killing Keystone Seen as Risking More Oil Spills by Rail: Energy
  • Antofagasta Sees Copper Tight as Stock Climb Belies Price Bets
  • Dinosaur Egg Carriers Losing Ground vs. Membrane LNG Tankers
  • WTI Crude Advances a Second Day; Goldman Shifts Spread Forecast






















The Hedgeye Macro Team












Here is our more detailed review of March Macau gaming revenues



As we wrote about this morning, Macau had an outstanding month although not quite as good as the +25% headline.  If hold is normalized across both YoY periods, growth would have been 16%. Here is the detail.




Total table revenues grew 26%, the highest growth since Jan 2012.  Mass revenue growth remain strong at 30%, in-line with its 6-month trailing average.  VIP revenues grew 25% while Junket RC volume grew 10% in March, its best monthly performance since April 2012.




Table revenues grew 61% YoY.  Sands China led the market in terms of mass revenue, VIP revenue, and VIP RC growth.  We estimate that Sands China held at 3.15% vs 2.85% last year, adjusted for direct play of 16%.

  • Sands grew 4% YoY, snapping 4 month losing streak  
    • Mass grew 9%
    • VIP was flat, reversing 4 months of declines.  We estimate that Sands held at 3.6% compared to 3.0% in the same period last year.  We assume 10% direct play in March vs 11% in March 2012
    • Junket RC fell 17%
  • Venetian grew 23% YoY 
    • Mass increased 21%
    • VIP grew 25%
    • Junket VIP RC fell 5%, its 13th decline in the past 14 months
    • Assuming 28% direct play, hold was 3.45% compared to 2.61% in March 2012, assuming 27% direct play 
  • Four Seasons dropped 19% YoY, marking the 3rd consecutive month of declines
    • Mass revenues soared 100%, a month after falling 19%
    • VIP tumbled 32% but Junket VIP RC grew 3% as hold in March (assuming 14% direct play) was 2.16% vs 3.03% in March 2012 when direct play was 16%
  • Sands Cotai Central produced $260MM in revs March, a new record
    • Mass and VIP hit new monthly records, $77MM and $184MM, respectively 
    • Junket RC volume of $4.8BN, up 17% MoM and a new high
    • If we assume that direct play was 11%, hold would have been 3.42% 



Wynn table revenues grew 16% in March

  • Mass was up 20%, the best growth since Jan 2012 
  • VIP grew 14% while junket RC fell 22%.  
    • Aside from a 1% gain in November, 10 of the last 11 consecutive months have been in the red
  • Assuming 11% of total VIP play was direct, we estimate that hold was 3.37% compared to 2.34% last year (assuming 10% direct play).



MPEL table revenue grew 21%.  Hold was low at 2.73% vs 3.09% last year.

  • Altira revenues grew 1%, with a 6% decrease in Mass and a 2% increase in VIP revenue
    • VIP RC grew 16%
    •  We estimate that hold was 2.90%, compared to 3.37% in the prior year
  • CoD table revenues grew 30% YoY
    • Mass popped 43%, continuing its impressive streak of strong double-digit gains since inception
    • RC grew 36%, the biggest growth since Nov 2011
    • Assuming a 18% direct play level, hold was 2.64% in March compared to 2.93% last year (assuming 16% direct play)



Table revenue grew 28%, SJM's strongest performance since Sept 2011

  • Mass revenue eked out a 1% gain, the lowest of the 6 concessionaires for the 2nd consecutive month
  • VIP grew 41% and junket RC gained 6%
  • Hold was 3.54%, compared with 2.66% last March



Galaxy table revenues grew 13%.  Mass rose 39%, its slowest growth since Jan 2011, while VIP gained 7%. Across its two owned properties, Galaxy held at 3.37% vs. 3.00% in March 2012.

  • StarWorld table revenues gained 2%
    • Mass rocketed 69% higher
    • VIP fell 4%.  VIP revenues fell in 8 of the last 9 months
    • Junket RC fell 7%, marking the 10th month of consecutive declines
    • Hold was normal at 3.11% vs 2.97% last March
  • Galaxy Macau's table revenues grew 24%
    • Mass grew 31%
    • VIP grew 21%, while RC gained 1%. RC volume growth has been hovering around zero for the last 8 months
    • Hold was high in March at 3.61% vs. 3.02% last year



MGM table revenue grew 14% in March

  • Mass revenue grew 34%
  • VIP revenue grew 8%, on 38% RC growth
  • If direct play was 9%, then March hold was 2.31% compared to 3.00% last year






LVS’s MoM share fell 0.5% to 20.9% in March, in-line with its 6-month average and better than the 2012 average share of 19.0%.

  • Sands' share gained 70bps to 3.6%.  For comparison purposes, 2012 share was 3.9% and 6M trailing average share was 3.6%.
    • Mass share ticked up 40bps to 5.5%
    • VIP rev share rose 90bps to 2.9%
    • RC share was 2.3%, down 50 bps and a hit an all time low for the property
  • Venetian’s share fell 180bps to 7.4%.  2012 share was 7.9% and 6 month trailing share was 8.2%.
    • Mass share declined 140bps to 13.8%
    • VIP share fell 170bps to 5.0%
    • Junket RC share dropped 50bps to 3.5%, only 30bps above the properties' all time low
  • FS gained 50bps to 2.6%.  This compares to 2012 share of 3.7% and 6M trailing average share of 3.0%.
    • VIP gained 50bps to 2.8%
    • Mass share rose 70bps to 2.2%
    • Junket RC lost 40bps to 3.8%
  • Sands Cotai Central's table market share gained 10bps to 6.9%, a new high, and compares to the 6M trailing average share of 5.8%.
    • Mass share declined 0.5% to 7.4%.
    • VIP share gained 0.3% to 6.7%
    • Junket RC share gained 0.1% to 5.9%


Wynn lost 60bps to 11.2% share in March.  Wynn’s 2012 share averaged 11.9% and their 6-month trailing share averaged 11.1%.  

  • Mass share was unchanged at 8.4%
  • VIP share of 12.1%, 1.1% lower
  • Junket RC share decreased 150bps to 10.8%, only 20bps above the Wynn's all time low



MPEL’s gained 80bps of share to 13.6%, in-line with their 6 month trailing share of 13.7% and their 2012 share of 13.5%.  

  • Altira’s share rose 40bps to 3.7%, below its 6M trailing share of 3.9% and below its 12-month share of 3.9%
    • Mass share slipped 0.3% to 1.1%
    • VIP gained 60bps to 4.7%
    • VIP RC share rose 50bps to 5.3%
  • CoD’s share gained 40bps to 9.7%.  March’s share was a little above the property’s 2012 and 6M trailing share of 9.4% and 9.6%, respectively.
    • Mass market share was unchanged at 12.1%
    • VIP share rose 0.6% to 8.7%
    • Junket share declined 30bps to 9.3%



SJM was the biggest share gainer, rising 1.5% to 26.9% due to hold.  March's share compares to their 2012 average of 26.7% and its 6M trailing average of 26.5%.

  • Mass market share fell 2.1% to 25%, an all-time company low
  • VIP share rose 280bps to 28.6%
  • Junket RC share lost 0.4% to 27.3%


Galaxy's share of 18.4% was unchanged MoM, below its 2012 average share of 19.0% but above its 6-month average of 18.2%

  • Galaxy Macau share declined 0.5% to 10.3%
    • Mass share gained 20bps to 9.7%
    • VIP share decreased 0.8% to 10.5%
    • RC share gained 10bps to 9.9%
  • Starworld share gained 40bps to 7.2%
    • Mass share gained 80bps to 3.8%
    • VIP share rose 30bps to 8.6%
    • RC share rocketed 120bps higher to 9.3%



MGM was the biggest share loser, giving up 120bps of share due all to hold. Its March share of 8.9% is below their 6M average of 9.6% and above their 2012 share of 9.9%

  • Mass share exploded 210bps higher to 8.2%
  • VIP share fell 220bps to 9.0%
  • Junket RC rose 170bps to 11.9%


Slot Revenue


Slot revenue grew only 7% YoY to $147MM in March.

  • Galaxy had the best growth at 31% to $20MM
  • LVS grew of 30% to $44MM
  • MPEL grew 6% YoY to $27MM
  • WYNN fell 2% to $21MM
  • MGM dropped 11% to $21MM
  • SJM had the worst YoY slot performance, losing 20% to $15MM







JCP: The Board Should Resign

Takeaway: We think that firing RJ at this juncture opens JCP up to risks that were previously not part of the equation. Ullman? Seriously???

After being short JCP from the Ackman/Johnson $40 ‘$9-$12 in earnings power’ hype, we pulled a 180 at $19 earlier this year based on our view that liquidity concerns were overblown, and that the stock would start to turn when the better productivity from the new shops rollout improved the sales delta. Without a doubt, the call was too soon and the subsequent $4/$5 drop in the stock was painful. But the reality is that the research did not change anywhere near as much as the sentiment did, so we kept this name on our Best Ideas list.  But we were vocal several times in saying that the one thing that could make us cut bait on our call is if the Board bowed to Wall Street’s bantering and fired Johnson at this juncture (see our 3/6 Note below “Why Firing Johnson Is The Fastest Way To Ch 11) . Well…Johnson is out, and we're cutting bait. There could be more downside to come.  



This Action Raises More Questions Than It Does Answers

  1. We think that this move is either six months too late, or six months too soon, but definitely ill-timed today.  The Board should fire the guy when either a) his pricing strategies are failing miserably due to botched execution (mid 2012), or b) when the shop-in-shop strategy – the real reason why you hired him – proves to be unsuccessful (end of 2013). Unless there was a dramatic negative turn of events over the past two weeks (which is possible), it is perplexing to think of why they would get rid of him today as opposed to seeing if the shop strategy works. The Board should show a little transparency into its process and personal accountability for its actions.
  2. Mike Ullman is the new CEO, again. Seriously? The stock initially traded up nearly 15% on the announcement that RJ, America’s most hated CEO, was out. That’s about what we’d expect. But once the company disclosed that that Mike Ullman was stepping in, the stock gave up nearly 20%. What does that say about the market’s confidence in Ullman?
  3. Did anyone else even want the job? Mickey Drexler? No way. Alan Questrom? Possibly. But we think he’s smart enough to pass on the job because JCP is so stuck between a rock and a hard place – not having the financial capital to change directions, and potentially lacking the human capital to stay on the existing course set by RJ. The job bank here was really thin.
  4. Lipstick on the Pig? One potential bullish signal would be whether the Board put Ullman in place for an interim period so he can calm the troops, stabilize the business, and put enough perfume and lipstick on the pig so that it can be taken private. We wouldn’t bank on this one, nor would we invest based on it. But we can’t count it out, either.
  5. Capital Considerations: Unless JCP is prepping for a sale, the likelihood of a capital raise just went up – and it went up materially. It’s pretty easy for a new CEO to step up and say “I need money to clean-up the problems caused by my predecessor.”  The reality is that if Ullman wants to go down a new path with the strategy, he will definitely need capital.


We think that the risks we initially highlighted (below) are still very much alive.

We’ve going to let this stock breathe for a bit. After it settles, if the quantitative factors support the call, we’ll have no problem shorting it – even if it’s at a price lower than $14. Real estate value is only $7-$8. And if Ullman can’t pull a rabbit out of his hat on this sucker, there’s no reason it can’t go lower.




04/08/13 05:12 PM EDT



Conclusion: Contrary to what others are recommending today, we think that firing Ron Johnson is just about the stupidest thing that the JCP Board could do right now. If they did fire him, we think that it would be the quickest path to bankruptcy for JCP. Sentiment seems to us that the stock would go up on that news. But if we saw him ousted we’d likely short this name with impunity -- even with the sell-side capitulating at a price of $14/15. We think losing Johnson would pose significant vendor/brand risk, and would back JCP into a corner to liquidate its real estate at a discount.


A new CEO would be faced with a binary decision tree. Either A) Return to being the lowest-quality department store in America, or B) carry out Johnson’s shop-in-shop plan better than RJ could on his own. Johnson clearly blew himself up in 2012, but we don’t put blind faith in the ability for anyone to come in and implement this plan any better. Keep in mind that 75% of the problems JCP has had have little to do with changing up the shop format and upgrading the merchandise assortment – it was largely due to RJ getting the pricing/marketing/value proposition wrong on the existing merchandise. Letting RJ run with the current plan might carry more risk as 2013 unfolds – but doing it without him is riskier, with potentially more significant financial pain.

1) First off, once a cucumber becomes a pickle, you can’t reverse the process. It already has architected its square footage to new shops, chosen new partner brands, and gotten rid of hundreds of vendors to make room for what is coming down the pike. That cannot be undone, which leads us to the conclusion that a new leader would need to move forward with the current plan – or something pretty darn close to it. Unfortunately, JCP does not have the liquidity for a new CEO to shake the Etch-a-Sketch clean, start over, and create a new plan. The lack of capital deprives JCP of the oxygen needed to go down a new path.
2) Ron Johnson has spent easily a third of his time ensuring that the right brands/vendors are chosen, and then collectively working with the brands and his merchants to make sure that the right product is in the right place inside the store. Whether you like RJ or not, the reality is that the vendors still like him – a lot. They buy into the long term vision (even if no one on Wall Street does). We’re relatively certain that at least a few large vendors would balk at rolling out product inside JCP if leadership and strategy changed dramatically.  
3) If that were the case, JCP would be left half-pregnant.  It wouldn’t be able to fill the shelves quickly with legacy product (i.e. become the old, poor quality JC Penney), and the product that should ultimately drive traffic under the new plan is at risk of never becoming a reality. Then we can build to an algorithm where comps are down another 20-30%, and not only is JCP forced to use its full revolver, but to liquidate its real estate, which we estimate to be worth about $1.8bn-$2.1bn (see our note from last night “JCP: Duration Matters More Than Ever’) to fund operating losses.
4) Allen Questrom, the Godfather of retail (we mean that in a complimentary way), was on CNBC [on 3/8] talking about why RJ should be fired immediately. He said that the Board needs to admit its mistake and move on. At face value this carries a lot of weight given that Questrom is the only person to successfully turn around JC Penney. But let’s be real. When Johnson went down the path of ‘reinventing’ JCP, Questrom did not make the cut of people he leaned on to consult about a solution. Questrom likely viewed that as a snub, and also probably has little patience for anyone that is seemingly destroying something that he worked so hard to fix. Not really a shocker that Questrom is on the short list of people recommending that he’s ousted due to 2012’s failures. Also keep in mind that he’s on the short list of people that would be considered for the top job (though we have no reason to think that he’d want it).


Today we shorted Freeport-McMoRan Copper & Gold (FCX) at $31.94 a share at 10:07 AM EDT in our Real-Time Alerts. Back to the ole well, FCX is one of our favorite ways to be short the Mining Capex (Bernanke) Bubble. We'll be keeping an eye on the US dollar as well - if it continues to strengthen, that won't bode well for Freeport-McMoRan.


TRADE OF THE DAY: FCX - image001

Missed Our Mining & Construction Equipment Black Book? Here Are 5 Key Charts

Takeaway: Mining capital spending is likely in for a multi-year decline even if commodities flatten. All construction is not US private construction.

Missed Our Mining & Construction Equipment Black Book?  Here Are 5 Key Charts




Below, we show five of the key charts from our mining and construction equipment black book.  You can access the full deck and replay here:






Since mining is a mature industry, capital spending does not need to add much capacity on average.  When capital spending shoots well above trend in a rising commodity price environment, a subsequent flattening (not decline) of commodity prices can lead to dramatic declines in resource-related capital investment.


Missed Our Mining & Construction Equipment Black Book?  Here Are 5 Key Charts - 1r



Currently, mining and other resource-related capital spending is well above depreciation and amortization, a rough measure of long-run steady-state capital spending.


Missed Our Mining & Construction Equipment Black Book?  Here Are 5 Key Charts - 2r



We highlight a number of reasons for the commodity bull market, but investor belief in the commodity bull market is likely a key factor.  Depending on the opinions of strangers may be a risky strategy.


Missed Our Mining & Construction Equipment Black Book?  Here Are 5 Key Charts - 3r



CAT placed emphasis on dealer inventory reductions for recent operating challenges.  The data from CAT dealer Finning and other dealers (as well as CAT itself) suggests that the draw-down may take longer than many expect.  At Finning, it has yet to start.


Missed Our Mining & Construction Equipment Black Book?  Here Are 5 Key Charts - 4r



For those who think of CAT as a construction equipment company (CAT's Construction Industries segment is a much smaller portion of CAT's operating income than either Resource Industries or Power Systems), the US private sector, where construction is actually rebounding from cyclical lows, is only a small portion of the global construction equipment end-market.


Missed Our Mining & Construction Equipment Black Book?  Here Are 5 Key Charts - 6r





Some volatility in the quarterly numbers but receivables have been consistent since Q4 2011


  • Genting Singapore has said that it was comfortable with the levels of credit it had extended, while MBS has been much more cautious, describing Singapore as the ‘most challenging credit market'.
  • Since jumping from 3% to 6% in 2011, Genting Singapore’s credit policy has been stable at 4.5% of direct RC volume in 2012
  • At the end of 2012, MBS  receivables as a % of direct play was 5%, close to where it started the year, although there was some QoQ variability



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