The Macau Metro Monitor, April 17, 2013




There will be no tax imposed on casino winnings for the first 20 years following the establishment of casinos in Taiwan, Minister Yang said.  Yang, in charge of drafting a bill stipulating regulations for the operation of casinos, said that the bill was expected to be approved by the Cabinet by the end of this month and referred to the legislature for deliberation.


The government is required to draft the legislation by the tenets contained in the Offshore Islands Development Act.  Independent Legislator Chen Hsueh-sheng has been applying pressure on the issue since the passage of a referendum to allow a casino to be built in Matsu, his constituency, in July last year.


At an inter-governmental agency meeting, the Ministry of Finance (MOF) finally gave its consent to the tax exemption after the Ministry of Transportation and Communications (MOTC) insisted it was necessary.


A Cabinet official, who asked to remain anonymous, said that an idea is being floated among officials to allow casinos to be built within the planned “Free Economic Pilot Zones,” a project to test incremental economic and trade liberalization.  Gambling on Taiwan proper is prohibited by the Criminal Code, but the Offshore Islands Development Act exempt the outlying islands from this ban.



Table and slot count at the end of Q1 2013 was 5,749 and 16,406, respectively.

Macro Evolution

This note was originally published at 8am on April 03, 2013 for Hedgeye subscribers.

“The book of nature is written in the language of mathematics.”



More so than in any other year since we started the firm (2008), we are getting tons of questions from clients about our process – specifically, how we’ve applied breakthroughs in modern chaos theory (fractal math) to our global macro risk management process.


What’s interesting about answering these questions is that there is no silver bullet book you can read. No, they don’t teach this in business school (yet) either. I built the process on mathematical principles that are relatively new. When I want to consider evolving the process, I don’t read Jeremy Siegel – I dive into behavioral science, applied math, big history/data, etc.


Of the top 3 books that have inspired me on the interconnectedness of the Global Macro ecosystem, Eric Chaisson’s Cosmic Evolution (2001) is one of them. If you are looking to learn about my framework, all you have to do is read his Preface and Prologue. Unless you are in the business of not constantly re-learning how to operate in markets, I guarantee you can’t put this book down after 20 pages.


Back to the Global Macro Grind


Change is good. So is being long gamma. Convexity in market pricing works on the upside too. And being long a market that continues to make higher-lows (on no-volume down days), and higher-all-time-highs on up days, works for me.


Much to the Crisis-Mongering and bit-coin advertising business chagrin, the SP500 made another fresh all-time closing high yesterday at 1570. That puts the SP500 up +10.1% for the YTD.


But, but (the most commonly used word when I keep telling people I am bullish on Asian and US Equities), “look at copper, coal, corn and…” Yes, precisely – that’s why we think both US Consumption Growth and Consumption oriented Equities are going higher.


To review how the Macro Evolution gods have scored the YTD, there are massive divergences developing between:


A)     Consumption assets

B)      Commodity assets


And no, an asset doesn’t have to be an asset class – that’s what people call something like Gold, after it’s gone up for 12 straight years. For the YTD, being long Gold (or Gold Miners) is what I call a liability.


#StrongDollar is driving this – there are both positive and negative correlations associated with this breakout in the US Dollar Index. For starters, let’s look at Countries (major macro equity Style Factor):

  1. US Equities (SP500) +10% YTD vs Brazil (Bovespa) -10% YTD
  2. UK (FTSE) +10% YTD vs Russia (RTSI) -6% YTD

So, Russia is not Brazil, but both are in an irrelevant #OldWall acronym (BRIC), and neither of these stock markets like it at all when Metal, Food, and Oil prices deflate.


In fact, this morning there’s a headline on Bloomberg that says “Gazprom Falls Under $100B, Putin Frets.” I know, poor Putin. But seriously, who the hell cares about Russians fretting over US Consumption taxes at the pump and their Cypriot laundry?


Enough about that – let’s look at the US Equity market and dig down beneath the ecosystem’s crust to look at another important quantitative Style Factor – Sector Style Risk:

  1. US Healthcare Stocks (XLV) +17.2% YTD
  2. US Consumer Staples (XLP) +15.1% YTD
  3. US Consumer Discretionary (XLY) +11.8% YTD
  4. US Basic Materials Stocks (XLB) +2.4% YTD

Yes, ‘one of these things is not like the other, one of these things just doesn’t belong’ (when you are modeling fractals you can go right batty at night, so listen to Romper Room tunes and you’ll be fine).


One of these things (Basic Materials) is being impacted by who wins/loses under a pervasively #StrongDollar macro environment.


But, but –


1.       “Copper and Coal and Corn going down is a bearish demand signal …”

2.       “Consumer Staples outperforming is a defensive signal… “

3.       “Italian Elections, Cypriot Chariots of Fire, and North Korean Chubby Wubby, are big risks…”


C’mon man. Let’s get real here.

  1. Commodity Deflation = good for corporate input prices and real (inflation adjusted) consumption growth, globally
  2. Consumer Staples companies (especially Food, Restaurants, etc.) have massive y/y margin expansion opportunities
  3. Crisis-Mongering about Korea? Join the club – CFTC SPY net long position hitting YTD lows as Treasuries net longs ramp

I know I’m whipping around and ranting a bit – but if you truly believe in Embracing Uncertainty like we do, you want to do more of that – especially when our globally interconnected signals do.


Contingency – randomness, chance, and stochasticity – pervades all of dynamic change on every spatial and temporal scale… science today is no longer in the prediction business… evolution predicts little of the future, yet strives to explain much of the past.” –Chaisson


Changing our positioning as the ecosystem does. Macro Evolution, Hedgeye-style.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1569-1602, $109.11-111.54, $82.58-83.49, 93.07-96.04, 1.84-1.94%, 12.15-13.41, 933-955, and 1559-1576, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Macro Evolution - Chart of the Day


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Early Look

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Grenadier Cigars

“Horse manure sprinkled with tobacco.”

-William Silber


That’s what “a cigar aficionado had once told him” (with him being Paul Volcker) about “his favorite A&C Grenadiar cigar.” In 1979, Volcker would take a big pay cut (“earning $57,500 a year rather than the $110,000 salary”) as President of the New York Fed. (Volcker: The Triumph of Persistence, pg 147)


Unlike some of these pretend patriots you see on Political Economy TV today, Volcker took serving his country in the wallet. Like Benjamin Franklin, he was a frugal man. He, like anyone tasked with central planning, had his issues. But one of those wasn’t credibility. The #PoliticalClass didn’t always like him, but history has treated him well, primarily because he earned The People’s trust.


When Bernanke proclaimed that he has “the best inflation track record of anyone since WWII”, it made me sick to my stomach. Today, in 1964, Americans bought their first Ford Mustang for $2,368. That was also a time when JFK explicitly marketed a #StrongDollar. Hopefully, we’re well on our way to deflating Bernanke’s Commodity Bubbles now. Lord knows, we all need a real-world Tax Cut.


Back to the Global Macro Grind


Within the context of the immediate-term risk I ranted about in yesterday’s Early Look, yesterday’s +1.43% rip in the SP500 was critical on all three fronts that matter in one of my most basic 3-factor models:

  1. PRICE – what was 1557 immediate-term TRADE resistance, once again became support (no resistance now to 1601)
  2. VOLUME – up +3.3% versus what I call my TREND average (up days on up volume = good)
  3. VOLATILITY – VIX smoked for a -19.2% down move, closing back below TRADE resistance (14.27); next support 10.53

So, I got a little longer (net), going to 10 LONGS, 7 SHORTS @Hedgeye. Process: as beta (SP500) recovered my TRADE line of support (1557), the first moves I made were A) covering consumption shorts and B) buying consumption longs (we’re bullish on US domestic Hospitals, so Tom Tobin had me buyback HCA on sale).


From both a gross and net perspective, I can obviously get a lot longer than this. I have throughout the last 5 months, and I will continue to buy pullbacks, provided that both the Research and Risk Signals tell me to do so. But I will do it at my own pace. Patience is an asset.


What generalist PMs and individual investors alike have to be getting impatient with is more of the same; especially if they aren’t yet positioned LONG CONSUMPTION vs SHORT COMMMODITIES.


Top Down, the YTD score is very straightforward:

  1. SP500, US Healthcare, and US Consumer Discretionary = +10.4%, +19.7%, and +13.3%, respectively
  2. CRB Commodities Index, Gold, Russia = -4.1%, -17.3%, and -11.5%, respectively

In terms of US Equity Sector performance, so are the month-to-date returns for April at mid-month:

  1.  Healthcare (XLV) +3.76%, Consumer Staples (XLP) +2.62%, Consumer Discretionary (XLY) +1.40%
  2. Energy (XLE) -4.50%, Basic Materials (XLB) -3.04%, Industrials (XLI) -1.72%

In other words, the performance divergence between CONSUMPTION and COMMODITY related investments is accelerating at an accelerating rate. We like that. It’s called convexity.


To be clear, like the conflicted and compromised bureaucrats that Volcker and Thatcher had to take head on in the early 1980s, people who don’t get paid by #CommodityDeflation do not like this. Neither do the dudes who get paid to market Gold commercials.


But, like I said on yesterday’s Global Macro Themes call for Q2 2013 (ping if you want the slides/replay), it’s not my job to pander to fear-based advertising for bitcoins. Neither is it to live a regressive life. What’s happening to Gold and Oil in particular is potentially one of the most progressive economic developments in the last 20 years.


Risk Management Questions I addressed on our Q2 Macro Themes call:

  1. Can the US Dollar Index go to $88, then $98?
  2. Can the Japanese Yen (vs USD) go to 110, then 150?
  3. Can the price of crude Oil drop to $19-56/barrel?

It’s all interconnected. And if the answer to all three of those questions were to become yes, all I can say is that A) being long Consumption will be really right, B) being short Commodities will be epic, and C) Putin will be pissed.


Putin? Yes, as in Vlady. Russian geopolitical and said economic-power runs on Oil inflation. He’s been whining in the press for the last few weeks, so expect his next move to be Japanese (devalue the Ruble). Then this flow show party can really get started.


Flow show? No, I’m not talking about my hair. I mean #EmergingOutflows (introduced as our latest Global Macro Theme in yesterday’s conference call). #StrongDollar = bad (for some Emerging Markets). So we’ll have a deeper dive Hedgeye Black Book pending on that. Knock on wood (my hockey head), but horse manure sprinkled with some Hedgeye Macro tobacco has never smelled so good.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, Euro/USD, UST10yr Yield, VIX and the SP500 are now $1, $99.43-103.99, 95.77-101.70, $1.29-1.31, 1.70-1.77%, 10.53-16.65, and 1, respectively.


Happy Birthday Laura, and best of luck to you out there today,



Keith R. McCullough
Chief Executive Officer


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TODAY’S S&P 500 SET-UP – April 17, 2013

As we look at today's setup for the S&P 500, the range is 44 points or 1.12% downside to 1557 and 1.68% upside to 1601.                










  • YIELD CURVE: 1.50 from 1.50
  • VIX closed at 13.96 1 day percent change of -19.17%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, April 12 (prior 4.5%)
  • 9am: Fed’s Stein speaks on banking regulation at IMF
  • 9:30am: Fed’s Bullard speaks in New York
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2043 sector
  • 12pm: Fed’s Rosengren speaks in New York
  • 2pm: Fed releases Beige Book



    • 9:30am: House Oversight Cmte hearing Postal Service’s financial situation
    • 9:30am: Defense Sec. Chuck Hagel testifies on Pentagon’s proposed budget before Senate Armed Svcs Cmte
    • 10am: Housing Sec. Shaun Donovan testifies before House Appropriations panel on agency budget
    • 10am: House Armed Svcs Cmte hears from Gen. Joseph Dunford, commander of U.S. forces in Afghanistan, on developments there
    • 2:30pm: Senate Armed Svcs Cmte briefing on Syria
    • 2:30pm: Senate Commerce and Transportation panel hears from Amtrak Chairman Joseph Boardman on future of passenger rail service in Northeast Corridor
    • 2:30pm: Senate Judiciary Cmte hears from Homeland Security Sec. Janet Napolitano on immigration overhaul


  • Gold wipes $560b from central banks as equities rally
  • Europe car sales fall with industry heading for 20-year low
  • ING to raise as much as $1.54b in U.S. insurance unit IPO
  • Paulson says Dish proposal for Sprint better than Softbank offer
  • Tesco to exit U.S. after first profit drop in about 20 years
  • Yahoo’s Mayer faces setbacks as sales forecast misses estimates
  • Intel sales may top estimates on demand for server chips
  • Boeing boosts Duberstein duties ahead of investor oversight vote
  • News Corp. plans to call entertainment spinoff 21st Century Fox
  • Macy’s wins temporary bar on some Stewart sales at J.C. Penney
  • FAA near decision on Boeing Dreamliners after tests completed
  • AMC delays sale of ‘Iron Man 3’ tickets in dispute with Disney
  • Former MF global rogue trader gets 5 yrs, must repay $141m
  • Johnson & Johnson wins Chicago jury verdict over hip implant
  • Former Leerink Swann banker pleads guilty to insider trading


    • Huntington Bancshares (HBAN) 5:55am, $0.16
    • Mattel (MAT) 6am, $0.08
    • PNC Financial Services Group (PNC) 6:30am, $1.56
    • Bank of New York Mellon (BK) 6:30am, $0.52
    • Textron (TXT) 6:30am, $0.45
    • Bank of America (BAC) 7am, $0.23
    • Dover (DOV) 7am, $1.08
    • Quest Diagnostics (DGX) 7am, $1.03
    • St Jude Medical (STJ) 7:30am, $0.91
    • Abbott Laboratories (ABT) 7:44am, $0.41
    • Crown Holdings (CCK) 4:01pm, $0.48
    • CYS Investments (CYS) 4:01pm, $0.32
    • Albemarle (ALB) 4:03pm, $1.00
    • American Express Co (AXP) 4:04pm, $1.12
    • Kinder Morgan (KMI) 4:05pm, $0.32
    • Kinder Morgan Energy Partners (KMP) 4:05pm, $0.66
    • SanDisk (SNDK) 4:05pm, $0.79
    • Covanta Holding (CVA) 4:05pm, ($0.12)
    • LaSalle Hotel Properties (LHO) 4:05pm, $0.25
    • El Paso Pipeline Partners (EPB) 4:07pm, $0.55
    • Core Laboratories (CLB) 4:08pm, $1.16
    • EBay (EBAY) 4:15pm, $0.62
    • SLM (SLM) 4:15pm, $0.60
    • East West Bancorp (EWBC) 4:45pm, $0.49
    • Noble (NE) 5pm, $0.51
    • Steel Dynamics (STLD) 6pm, $0.21


  • Gold Climbs for Second Day as Plunge Lures Buyers; Futures Drop
  • Hog Glut Gains as U.S. Exports Drop Most in Decade: Commodities
  • Cyprus Finance Minister Sees Gold Sale Within Next Few Months
  • WTI Crude Trades Near Four-Month Low Before U.S. Inventory Data
  • Copper Declines on Indications Demand Will Take Time to Revive
  • Wheat Seen Gaining as Cold Weather Threatens Crops; Corn Drops
  • Cocoa Swings in New York as Europe Processing Dips; Sugar Drops
  • Gold Wipes $560 Billion From Central Banks as Equities Rally
  • Rebar Retreats to Lowest in Four Months as Iron Ore Declines
  • Gold’s Slump to Two-Year Low Roils Forecasters: Chart of the Day
  • Energy as Dirty as 20 Years Ago on Slow Climate Effort, IEA Says
  • Shell Shut Out as Africa’s Gas Trove Lures Asian States: Energy
  • Bird Flu Panic in China Leads CP to Warn Over Chicken Sales
  • Gold Slump Spurs Surge in Business at Australia’s Perth Mint






















The Hedgeye Macro Team











VIDEO: Trading The Commodity Bubble


After falling as much as 14% yesterday, gold was on every investor’s mind today as the metal staged a comeback of sorts, bouncing from $1300/oz to $1372/oz. Hedgeye CEO Keith McCullough co-hosted CNBC’s Fast Money this evening and argued that gold has yet to fully bottom and is capable of declining in price even further. Keith reiterates how he wants to be long consumption stocks when commodities are having a fire sale like they did yesterday. The commodity bubble brought on by the Federal Reserve’s monetary policy has provided an opportunity to take the other side of the short commodities trade; getting long Starbucks (SBUX) is just one example of doing just that.


Skip ahead to 5:10 in the video embedded above for Keith’s full take on the markets.


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