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THE M3: FOUR SEASONS FALSE REPORTS

The Macau Metro Monitor, May 9, 2013

 

 

SANDS CHINA STATES REPORTS OF FOUR SEASONS SALES "INTENTIONALLY FALSE" Macau Daily Times, Macau Business Daily

In response to Hong Kong media reports that Sands China is selling its Four Seasons Hotel Macau through a timeshare arrangement, the government has asked the company to clarify the alleged sale.  The government has suggested that this form of sale might become an alternative form of real estate development, and the authority hinted the possibility of blocking any property transfer that violates the land concession contracts that the casino resorts signed with the authority.   

 

In a statement issued yesterday, Sands China said: “The Company wished to emphasize that although it has consistently stated in its annual reports that its business strategy includes the monetization of its non-core assets, there is absolutely no basis to the information in the news reports (on the alleged sales of the Four Seasons Hotel Macau and the alleged spinning off of the shopping mall). The company considers these reports to be intentionally false and is seeking legal advice accordingly.”  

 

Jaime Carion, the director of the Land, Public Works and Transport Bureau, said, “According to the land grant contract, any transfer [of ownership] needs the approval from the MSAR administration.  We have already sent the company [Venetian Macau] a letter asking them to explain to us what the whole thing is about”.

 

The sales of properties within casino-resorts is a public concern, as some critics stressed that the lands are granted to the operators at low prices and such sales may cause controversy relating to the fairness of the granting of the land concessions.  In addition, news reports also said Sands China is proposing the sale of its shopping mall project by way of BT or REITs for listing. The project is estimated to be worth HKD24 billion.



Einhorn's Table

“Don't blindly follow me or anyone else into a stock.”

-David Einhorn

 

Yesterday was a great day for transparency in our profession. Some of the world’s best players stepped up to the podium at the Ira Sohn Foundation’s Conference in NYC and dealt the investing community their best card. Well, sort of.

 

First, there was Bloomberg Messaging, then there was AOL Instant Messenger, and now there’s Twitter. If you didn’t know that Twitter Is The New Tape, now you know. Watching the #Sohn2013 handle yesterday made you feel like you were right there at the poker table.

 

If you’ve played the game, you get it. If you haven’t, watching the game and all its subtleties helps. Were these guys throwing up aces, kings, or bluffs? What was already on the table before the game even started? These guys (yes, they were all guys) had to show something. Don’t underestimate the peer pressure to not look dumb. That’s the ante.

 

Back to the Global Macro Grind

 

I love this game, so watching the game within the game like that while the market’s macro clock is ticking is about as exciting as my day in this business can get. I know, nice life.

 

With the SP500 up for the 5th consecutive day, hitting another all-time (which is a long-time) record closing high of 1632 (+14.4% YTD), I was selling all day as I watched the #Sohn2013 ideas roll onto the new tape.

 

#TimeStamps: 3 days ago I had 18% Cash in the Hedgeye Asset Allocation Model – this morning I have 32%. In other words, from a gross exposure perspective, we are raising some cash now. In terms of a measurable hybrid net exposure, I’ve gone from 12 LONGS, 5 SHORTS (Monday) to 9 LONGS, 7 SHORTS @Hedgeye as of yesterday’s close.

 

But let’s get real here, who cares about my hand? I don’t run a real-fund anymore. I just run my mouth. So here’s my synthesis of what 5 players at the big boy table (Einhorn’s Table) were doing – what my team would act on, and why:

 

1.   Kyle Bass – pitched a small cap ($284M) stock (DXM) that had already moved (annoying). Then he told some great jokes about the Japanese as he re-hashed what we have been saying since September 2012 when we started shorting the Yen (see our #QuadrillYen Global Macro Theme, it’s hash tagged). The Yen is up this morning; JGBs doing nothing; no impact.

 

2.   Bill Ackman – put in the least impressive performance of the day re-pitching a very well known big cap stock (Procter & Gamble, PG) that hurt him in April (PG went straight down on its earnings report from $82 to $76). He reminded us that it’s a great company. Thanks. Stock acted like market beta on the day. No impact.

 

3.   Stan Druckenmiller – finally brought the thunder with the best macro presentation of the day (because his Global Macro call is the exact same as ours, of course). Long US Stocks. Short Commodities. And Short Ben Bernanke. Druckenmiller’s retirement account (his own money) is bigger than most funds, and he is clearly having a great year. Loves GOOG still – stock looks great.

 

4.   David Stemerman – did two things that we like: 1. Played a short idea (Short South African Retailers) and 2. Played a short idea that is not a consensus amongst hedge funds. If we’re right on #StrongDollar and Down Gold, short South African Equities scores very well. So did Stemerman in taking his first seat at the big boy table. #impact

 

5.   Jim Chanos – Doc brought the thunder for the hedge fund brothers and played the hand we all want to see – a full house idea that you can get big and liquid in (short legacy Personal Computers, Components, etc.). When Seagate (STX) opens this morning, you’ll see why Chanos remains The Man on well researched, high conviction, short selling.

 

Jacobson (Highfields) said he likes an idea we have been very vocal on (Kevin Kaiser’s Short/Sell call on Linn Energy – LINE, LINCO, BRY). Gundlach said short a stock that we’ll probably buy today if it hits our signal level (Chipotle, CMG – we made that short call last year, it’s stale) and Einhorn played a hand that everyone loves (a value stock that is starting to trade like a bull market momentum stock, in OIS).

 

All-in it was a great event for a great cause (pediatric cancer). Twitter didn’t sponsor the event, but the transparency/accountability pipe for #WallSt2.0 certainly helped bring the event’s profile to new heights (next to #Bengahzi, #Sohn2013 was the Top Trending Handle in the USA yesterday). That’s cool, and so is any opportunity the world has to eavesdrop on the table of some of the world’s best players.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $99.39-106.19, $81.51-82.92, 97.89-99.94, 1.73-1.86%, 12.06-14.01, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Einhorn's Table - Chart of the Day

 

Einhorn's Table - 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.

TRADE OF THE DAY: UNH

Today we shorted UnitedHealth Group (UNH) at $61.11 a share at 10:02 AM EDT in our Real-Time Alerts. Re-shorting UNH. Hedgeye Healthcare Sector Head Tom Tobin's utilization theme hasn't change. We are long Hospitals (HCA) and Baby Making (MD) against insurers (UNH) short. 

 

TRADE OF THE DAY: UNH - UNH


CHINA: Time To Play

Better late than never, right? China is now joining the likes of the United States and Japan in an all out free-for-all stock market bonanza. The Shanghai Composite Index has been up four days in a row and is putting up impressive gains post-export data shock (+14.7% exports last month? Gnarly.) TREND support for the Shanghai Composite is at 2206 and resistance is hanging out at 2246. 

 

CHINA: Time To Play - shanghai


WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE?

Takeaway: Chinese firms are goosing exports to drive incremental liquidity into the banking system – a phenomenon that appears set to slow from here.

SUMMARY BULLETS:

 

  • It is our view  that Chinese enterprises are goosing their export statistics to mask capital inflows under the guise of merchandise trade shipments and Hong Kong is an obvious choice, given the cultural and operational proximity to the mainland. This tactic allows the guilty corporations to repatriate additional “earnings” back into the economy – which increases the amount of liquidity flowing into the Chinese banking system. To the extent the additional liquidity is not sterilized by the PBOC, the Chinese banking system is then able to accelerate credit growth beyond what would ordinarily be stipulated by domestic deposit growth dynamics.
  • In simple terms, this will continue until inflation becomes an issue – either actual or perceived – again. From an “actual” perspective, we don’t view a demonstrable acceleration in Chinese CPI readings as a probable event over the intermediate term, as best explained via our #StrongDollar = #StrongYuan thesis. From a “perceived” perspective, however, it’s very clear that Chinese officials remain worried about excessive liquidity fueling monetary inflation and asset price bubbles – with the former phenomenon having historically perpetuated social unrest across the mainland. Regarding the latter, the property market remains a key area of concern here. China Real Estate System data shows that average home prices across 100 cities rose +1% on MoM basis in APR (down just slightly from +1.1% in MAR and the 11th straight MoM increase) and +5.3% on a YoY basis (up from +3.9% in MAR).
  • To mitigate inflationary risks, on MAY 6, the State Administration of Foreign Exchange (SAFE) issued new regulations on foreign exchange inflows, in an accelerated effort to mitigate financial risks derived from foreign exchange receipts and payments. Specifically, the new rules will tighten limits on long yuan positions that banks can hold for their own accounts. Moreover, they are also designed to discourage firms from using dollar loans as a means to speculate on yuan appreciation. Whether or not SAFE implements and enforces its new foreign exchange regulations in an effective manner remains to be seen. It should be noted, however, that effective enforcement is a headwind for Chinese growth (particularly Fixed Assets Investment), at the margins, to the extent incremental liquidity flow to the Chinese banking system is slowed.
  • The Shanghai Composite Index (see chart below) has recently recaptured its intermediate-term TREND line ahead of the upcoming week of monthly economic data releases. In light of the recent string of macroprudential tightening measures, whether or not this is a head-fake to be ultimately faded is a key question indeed. We’ll likely know by the end of next week.

 

Overnight, China reported its APR Trade Data, which accelerated sequentially and surprised consensuses estimates to the upside in all three major categories (Exports, Imports and Trade Balance):

 

  • Exports: +14.7% YoY from +10% in MAR vs. a Bloomberg consensus estimate of +9.2%
    • To US: -0.1% YoY from -6.5% in MAR
    • To EU: -6.4% YoY from -14% in MAR
    • To Hong Kong: +57.2% YoY from +92.9% in MAR
  • Imports: +16.8% YoY from +14.1% in MAR vs. a Bloomberg consensus estimate of +13%
  • Trade Balance: $18.2B from -$0.9B in MAR vs. a Bloomberg consensus estimate of $16.2B

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 1

 

ONE OF THESE THINGS IS NOT LIKE THE OTHER

The “strength” in China’s Export figures for the month of APR is obviously being driven by shipments to Hong Kong, China’s second-largest export market at 15.8% of total shipments per CIA Factbook; the US is first at 17.2% and Japan is third at 7.4%.

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 2

 

Additionally, China’s marked acceleration in Export growth contrasts with a +0.4% YoY gain in South Korea’s APR Exports (essentially unchanged from +0.2% in MAR) and a -1.9% YoY decline in Taiwan’s APR Exports (which slowed from +3.3% in MAR). Taiwan actually alluded to cutting its 2013 GDP growth forecasts due to sluggish external demand – the same sluggish external demand that continues to weigh on Chinese PMI readings (particularly in the New Export Orders Index):

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 3

 

WHY IS CHINA CHEATING?

It is our view  that Chinese enterprises are goosing their export statistics to mask capital inflows under the guise of merchandise trade shipments and Hong Kong is an obvious choice, given the cultural and operational proximity to the mainland. This tactic allows the guilty corporations to repatriate additional “earnings” back into the economy – which increases the amount of liquidity flowing into the Chinese banking system. To the extent the additional liquidity is not sterilized by the PBOC, the Chinese banking system is then able to accelerate credit growth beyond what would ordinarily be stipulated by domestic deposit growth dynamics.

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 4

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 5

 

It’s worth noting that the PBOC hasn’t issued notes since late 2011 and, prior to the start of the year, had been a net provider of liquidity to the market on a trailing-3M average basis. The fact that China’s central bank has largely been a net drainer of liquidity in the YTD is likely a key driver of the recent acceleration in export goosing.

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 6

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 7

 

HOW MUCH LONGER WILL THIS TREND CONTINUE?

In simple terms, until inflation becomes an issue – either actual or perceived – again. From an “actual” perspective, we don’t view a demonstrable acceleration in Chinese CPI readings as a probable event over the intermediate term, as best explained via our #StrongDollar = #StrongYuan thesis. NOTE: the CNY made yet another post-revaluation record high today, trading at 6.1413 per USD.

 

From a “perceived” perspective, however, it’s very clear that Chinese officials remain worried about excessive liquidity fueling monetary inflation and asset price bubbles – with the former phenomenon having historically perpetuated social unrest across the mainland.

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 8

 

Regarding the latter, the property market remains a key area of concern here. China Real Estate System data shows that average home prices across 100 cities rose +1% on MoM basis in APR (down just slightly from +1.1% in MAR and the 11th straight MoM increase) and +5.3% on a YoY basis (up from +3.9% in MAR).

 

To mitigate inflationary risks, on MAY 6, the State Administration of Foreign Exchange (SAFE) issued new regulations on foreign exchange inflows, in an accelerated effort to mitigate financial risks derived from foreign exchange receipts and payments. Specifically, the new rules will tighten limits on long yuan positions that banks can hold for their own accounts. Moreover, they are also designed to discourage firms from using dollar loans as a means to speculate on yuan appreciation.

 

Additionally, SAFE also said it will also increase scrutiny on exporters who channel money into the country disguised as trade payments, threatening to hand down a risk warning notice 10 days after it finds that a firm's capital flows do not match physical goods shipments or if the firm is channeling unusually large amounts of money into China.

 

Whether or not SAFE implements and enforces its new foreign exchange regulations in an effective manner remains to be seen. It should be noted, however, that effective enforcement is a headwind for Chinese growth (particularly Fixed Assets Investment), at the margins, to the extent incremental liquidity flow to the Chinese banking system is slowed.

 

The Shanghai Composite Index (see chart below) has recently recaptured its intermediate-term TREND line ahead of the upcoming week of monthly economic data releases. In light of the recent string of macroprudential tightening measures, whether or not this is a head-fake to be ultimately faded is a key question indeed. We’ll likely know by the end of next week.

 

Darius Dale

Senior Analyst

 

WHY IS CHINA GOOSING ITS EXPORT FIGURES AND HOW MUCH LONGER WILL IT CONTINUE? - 9


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