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Takeaway: MPEL the stalwart in the high growth Macau market

Macau posted a solid performance last week with average daily table revenues of HK$886 million, up 15% YoY and 15% from last week’s HK$775 million.  Our full month projection is now HK$26.5-27.0 billion, up 9-11% YoY.  We expect May YoY growth to accelerate to mid-teens which could keep up the momentum in the Macau stocks.  


With 23 deaths thus far, the H7N9 virus may be impacting the tour group business but doesn't appear to be affecting gaming revenues.  In fact, less congestion during the May holidays could actually boost VIP activity.  May holidays start today and end on May 3rd.


In terms of market share, MPEL continues to shine with 16.3% share well above recent trend.  MPEL remains our favorite stock in the group.  LVS is also performing well in April and we expect that trend to continue for the rest of the year.  Wynn and Galaxy are the laggards here in April.





Morning Reads From Our Sector Heads

Keith McCullough (CEO):


Philippines Mulls Adjusting Deposit Facility as Peso Climbs (via Bloomberg)


Ebbing Inflation Means More Easy Money (via Bloomberg)


Howard Penney (Restaurants):


Mind your franchisees, Mayor McCheese (via Crain's Chicago Business)


Jay Van Sciver (Industrials):


Eaton First Quarter Operating Earnings Per Share of $0.84 Exceed Midpoint of Guidance by 12 Percent (via Eaton)


Rob Campagnino (Consumer Staples):


Analysts await details of financing for ADM's GrainCorp bid (via The Australian)


Brian McGough (Retail):


Under Armour Drops Low Cost Fleece Sources In Favor of Costlier But Prompt, Reliable Delivery (via Sourcing Journal Online)


Kevin Kaiser (Energy):


What If We Never Run Out of Oil? (via The Atlantic)


Josh Steiner (Financials):


Influential economist says Wall Street is full of 'crooks' (via NY Post)


The CFPB issues Civil Penalty Fund rule (via CFPB)


JPMorgan promotes Zames in shake-up (via FT)


Todd Jordan (GLL):

Sands Casino Says Auditor Quits Account (via WSJ)


Tom Tobin (Healthcare):



Heightened Expectations

Client Talking Points

You Down With ECB?

Rate cuts have become the norm in the "new economy" we live in. The next big one should come out of Europe, specifically from Mario Draghi at the European Central Bank (ECB). The EuroStoxx 600 index was up +3.7% last week, which shows that stocks do expect and care about rate changes. Spain and Italy rallied the most out of the great big melting pot so if Draghi doesn't cut rates soon, it's going to be a mess over there.

Crude Mood

Brent crude oil is in bearish formation across all three of our durations: TRADE, TREND and TAIL. Last week's bounce is unlikely to hold and that's a positive for consumption (Americans are quite fond of lower gas prices). Our immediate-term risk range for Brent crude oil is $97.18-104.09 and there are plenty of speculators who need to unwind their long positions.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock.  Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS.  We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT.  Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company. 


WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. 


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view. 

Three for the Road


"Consumer spending report at 8:30 kicks off a week chock full of data" -@BenEisen


"Facts are stubborn things, but statistics are more pliable." -Mark Twain


U.S. consumer spending rises 0.2% in March.

Early Look

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Golden Crisis

This note was originally published at 8am on April 15, 2013 for Hedgeye subscribers.

“The difficulty is that no one is ever prepared to move except in a crisis.”

-Paul Volcker


That’s what Paul Volcker had to say about where central planners found themselves post Nixon’s re-election. It was 1973 and the US had just devalued the Dollar for the 2nd time in two years. One of Gold’s great policy driven inflations was on the move.


George Shultz (Treasury Secretary at the time in 1973) “said that the increase in the official gold price from $38.00 and ounce to $42.22 an ounce was a technical change.” (Volcker: The Triumph of Persistence, pg 117)


“Technical”, yep. Technically, both the Nixon/Carter and Bush/Obama central planning teams (back to back Republican/Democrat Administrations) spent their time looking for ways to devalue the currency of the American people. These were the two worst post WWII decades in US Consumer Confidence. When someone takes away your purchasing power, that’s how it feels.


Back to the Global Macro Grind


We’ve affectionately referred to the most recent decade-long inflation in the Gold price as Bernanke’s Bubble. Since both Greenspan and Congress deserve some credit, it’s not entirely fair to blame it all on Ben. But I like to pick on him. So call me a bully.


The fact remains that a 40yr low in the US Dollar (2011) coincided with a 40yr top in Gold and Commodity prices (2011). This all happened on Bernanke’s watch. Historical prices can be annoying; especially if they don’t fit the narrative a professor is trying to paint.


This morning’s move in Gold futures is gnarly. On my scorecard, on our immediate-term TRADE duration, this is almost a 5 standard deviation move to the downside. Gold prices are now officially crashing from their all-time high (-26%).


This shouldn’t surprise any readers of my rants – since cutting our Hedgeye Asset Allocation to Commodities to 0% in September of 2012, then labeling 1 of our Top 3 Global Macro Themes in Q412 “Bubble #3 (Commodities)”, we’ve been crystal clear on this.


It hasn’t been clear to the Gold and Commodity Bulls. One way I like to show their disbelief (that commodity prices can indeed go a lot lower) is the weekly net long positions in futures and options contracts (CFTC data) – on that score, here’s what happened last week:

  1. Gold’s net long position was up +19% wk-over-wk to +56,084
  2. Oil’s net long position finally started to break-down, -4.4% on the week to +196,330
  3. Farm Goods net long position continues to crash, down another -45% last wk to +56,404

In other words:

  1. Gold bulls who thought last week’s -5% decline in price was the bottom will see a new bottom this morning
  2. Oil (which has been in a Bearish Formation in our model for 2 months) will finally start to deflate, faster
  3. Food Prices will remain under pressure providing for a Consumption Tax Cut, globally

Consensus didn’t think this could happen (commodities down, US stocks up) 1, 2, and 3 months ago – but it’s happening. Last week we obviously registered an all-time closing high in the SP500 again (1593) with Commodity prices (CRB Index) down again on the week.


If you look at the complexion of the SP500’s Sector returns for April to-date, it’s the same story (Consumption vs Commodities):

  1. US Healthcare Stocks (XLV) = +4.18% for APR to date
  2. US Consumer Discretionary (XLY) = +2.66% for APR to date
  3. Basic Materials (XLB) and Energy (XLE) = -1.65% and -1.12% for APR to date, respectively

Like I said last week – it’s not that complicated.


What is complicated is explaining to people who are in the business of marketing gold and/or fear that this Golden Crisis is a tremendous opportunity for US politicians to force their conflicted and compromised central planners into getting out of the way on the most ultra dovish US Dollar policy since Nixon/Carter.


This isn’t a conspiracy theory. This is the way monetary policy in this country really works. In late 1971 (Nixon’s re-election campaign), “the president wanted more. The day before Christmas, he told his budget director, George Shultz, “If I have to talk to him (Burns) again, I’ll do it. Next time I’ll just bring him in.” (Volcker, pg 105)


Burns, as in Arthur Burns, was the closest thing to Ben Bernanke that the United States of America ever had (he monetized the US Debt, and De-valued US Dollar). Shortly after Burns left (1978), the speculative bid to the price of Gold left. I still think Bernanke will be gone by the end of his term this year. And the $1700-1900 all-time highs for the price of Gold will be long gone too.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, EUR/USD, VIX, Russell2000 and the SP500 are now $1410-1523, $100.28-105.61, $82.03-82.76, 97.35-102.18, $1.27-1.31, 11.56-13.15, 935-955, and 1571-1601, respectively.


Congratulations to Yale Hockey on winning the NCAA National Championship! Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Golden Crisis - Chart of the Day


Golden Crisis - Virtual Portfolio


The Macau Metro Monitor, April 29, 2013




PricewaterhouseCoopers LLP, resigned this week after a 25-year relationship with Adelson.   A person familiar with the situation said the legal and regulatory scrutiny of LVS was "the overriding issue" behind PwC's resignation.  Personal tension between Adelson and the accounting firm also played a role.  In an SEC filing, Sands didn't cite the reason for the resignation but said the company's longtime auditor hasn't had major substantive disagreements in recent years over accounting and disclosure issues that would have required disclosure in the company's financial statements.


LVS spokesman Ron Reese said there was nothing in Sands' discussions with PwC that would indicate that its decision not to continue as auditor relates to any nonpublic information about litigation or investigations. Adelson's challenging demeanor and demands on the auditors led to a deterioration in the relationship, according to people familiar with the matter.


Auditors resign from clients from time to time over simple matters such as personality disagreements, but it can be a red flag when coupled with an investigation and is something investors should pay attention to, said Lynn Turner, a former chief accountant of the SEC, speaking generally.



SJM CEO So said SJM committed to improving the air quality inside the smoking areas of its casinos.  So said the company was not able to comply straight away with the government standards in all of its properties because the majority were old and were not designed to include smoking and non-smoking zones.  Smoking areas inside 16 of SJM Holdings’ 19 casinos and slot machine parlours did not comply with the government’s minimum air quality requirements, according to a March review by the Health Bureau.  Most of these venues were run by third-party companies.



Hong Kong-listed Louis XIII Holdings Ltd hosted an official groundbreaking ceremony last weekend for its boutique casino-hotel in Cotai, also named Louis XIII.  The company’s executive director Stephen Hung says the hotel’s top suite will cost US$130,000 (MOP1 million) per night, the Financial Times reported.  The former Hong Kong banker says he wants people to patronise the hotel because “it’s the best and the most expensive”.  Hung is planning to include an invitation-only atelier of luxury brands offering bespoke couture at the property.

The company, formerly called Paul Y Engineering, is planning to locate the casino-hotel next door to the residential complex One Oasis, and to include 236 rooms and up to 66 live gaming tables.  The casino is still awaiting formal government approval.



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