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South Korea has rejected preliminary casino licences for two international bidders, a Caesars Entertainment and Lippo Limited consortium, and Kazuo Okada's Universal Entertainment.  The surprise move could stall plans for casino development as a means to attract tourists.



MPEL Philippines is on track to open its $1 billion gaming complex in Manila by mid-2014, targeting not just Chinese gamblers but Southeast Asian high-rollers as well its president, Clarence Chung said.


"We will open everything in one go in mid-2014. The project is already fully funded," said Chung.  Chung added that Melco will take advantage of its Macau "connections and VIP database" in promoting its Manila operations.  "The Chinese would definitely be one of the major targets and, obviously, we're targeting the Southeast Asians," he said.



Macau Legend development is considering cutting its fundraising size by more than half to up to US$358 million and delaying its listing, as deteriorating market conditions hurt demand for the casino operator's HK IPO.


Macau Legend had been due to price an IPO that was seeking to raise up to US$788 million Friday. It is now planning to announce a change in its listing plans next week, people with direct knowledge of the deal said.  It now aims to relaunch the deal next week before an IPO listing in July, a person said, adding that Macau Legend is awaiting regulatory approval.


One of the people familiar with Macau Legend's deal said the company plans to offer just 934.8 million shares, down sharply from the originally planned 2.05 billion shares.  Based on an indicative price range of 2.30 Hong Kong dollars to 2.98 Hong Kong dollars (29 U.S. cents to 38 U.S. cents) per share, Macau Legend could raise up to US$358 million.



Macau CPI for May 2013 increased by 4.84% YoY and 0.28% MoM.

CHART OF THE DAY: Bernanke's Blind Trust


CHART OF THE DAY: Bernanke's Blind Trust - Chart of the Day

Bernanke's Blind Trust

“A government’s first job should be to protect its citizens. But that should be based on informed consent, not blind trust.”

-The Economist


I was flying back from California last night and those few sentences in The Economist article titled “Secrets, lies and America’s spies” got me thinking about the Fed. The article, of course, had nothing to do with Bernanke. But it had everything to do with trust.


How can you trust what you cannot see? I am Canadian, so hard core Americans will have to check my work on this – but didn’t the US Constitution provide a clause for this thing called free elections?


While I hardly doubt Franklin and Jefferson envisioned an America that was hostage to an un-elected and un-accountable central planner’s qualitative views of economic gravity, that doesn’t matter right now – because that’s what you have. The blind trust this country has put in Bernanke’s ability to “smooth” the Waterfall of interconnected risk was a mistake. Now we have to deal with his mess.


Back to the Global Macro Grind


So how did you like yesterday anyway? Feeling good yet? Want to get Bernanke whispering to Hilsenrath around 320PM EST this afternoon that he didn’t really mean it? Wouldn’t that be cool – then we could do the whole over the Waterfall thing together again!


If you are going to tell me that markets trust how Bernanke is going to manage this going forward, I am going to tell you that you are probably already hammered. It’s always 5 o’clock on a Friday somewhere.


When markets don’t trust something, the forward curve of implied volatility starts to rise. When they really don’t trust something, that volatility rises at a faster rate. It’s called convexity.


In terms of implied volatility in everything that was already crashing (Gold, Treasuries, Emerging Markets, etc), that concept has been pretty straightforward for going on 6 months now. For US Equities, it’s relatively new.


Here are front-month US Equity Volatility’s (VIX) TRADEs and TRENDs:

  1. Week-to-date, the VIX = +19.4%
  2. Month-over-month, the VIX = +57.2%
  3. In the last 3 months, the VIX = +61.6%

In other words, as US consumption, employment, and housing #GrowthAccelerated in the last 3 months, US Equity market expectations went right squirrel. How screwed up is that?


It makes sense though. We have a US Federal Reserve that is A) horrendous in terms of forecasting and B) compromised and conflicted in terms of timing its “communications.” Bernanke made his legacy bed – now we all have to sleep in it.


Another way to think about US growth expectations is bond yields – they love growth:

  1. Week-to-date UST 10yr Yield = +29 basis points to 2.42%
  2. Month-over-month UST 10yr Yield = +45 basis points
  3. In the last 6 months, UST 10yr Yield = +62 basis points

In other words, 10yr Yields ripping yesterday wasn’t new – they’ve been making higher-lows and higher-highs since the November 2012 all-time low. In the last 6 months, 10yr US Treasury Yields are up +35%!


Captain Keynesian is going to say, whoa, whoa, on that Mucker – you are using % moves instead of absolutes. Ah yes, professors, and that’s the precisely the point. Right back at ya – you created an expectation of an absolute zero bound that was reckless and un-precedented.


What else has been front-running Bernanke’s Blind Trust of 0% rates to infinity-and-beyond? Gold:

  1. Week-to-date Gold = -7.7%! to $1280/oz
  2. YTD Gold = -23.9% #crashing
  3. In the last 6 months, Gold = -22.5% #crashing

Gold hates growth and gold loved Bernanke’s anti-consumption growth Policies To Inflate. Period.


Now, to be fair to the community who trades on Washington “consultant” whispers, if you do have a Hilsy rumor in your back pocket this morning, the first thing you’d probably do with that is buy Gold, lever yourself up with some Oil futures, and short Treasuries.


Isn’t that just great for America!


The sad reality is that Americans don’t trust Bernanke’s Fed as far as they can throw Cramer or his buddy’s gnome. The American zeitgeist of distrust in politically driven institutions reaches far beyond the IRS. It’s in your mind each and every market day.


The best thing President Obama can do is say goodbye to Ben S. Bernanke’s concepts of “innovation and communication.” Unless you are all interested in scaling back up the bond-buying Waterfall, ripping a VIX 30 handle, and doing yesterday over and over and over again, that is.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $100.80-103.96, $81.11-82.19, 96.18-97.92, 2.24-2.46%, 17.25-21.56, and 1, respectively.


Best of luck out there today and enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Bernanke's Blind Trust - Chart of the Day


Bernanke's Blind Trust - Virtual Portfolio

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.48%
  • SHORT SIGNALS 78.35%

NKE: In A Rare State of Transition

Takeaway: Don't read this mgmt chg as a precursor to an EPS miss. But as great as NKE is with backfilling talent, it has many roles in transition.

Conclusion: Some things surprised us about Nike's announced management changes, other things did not.  Regardless, we don't think that it was timed such that there'd be a fall guy(s) for disappointing earnings to come next Thursday.   We think that the company will do its best to keep guidance for FYMay14 earnings grounded -- but that has absolutely nothing to do with what we saw after the close today. The bottom line is that most of the job changes make sense and have long-term organizational benefits -- but for the next quarter or two half a dozen key roles will be in transition.



Plain and simple, Charlie Denson (COO) is retiring. We all knew back in 2006 that this day would come. Back then Bill Perez was fired from the corner office and Mark Parker got the nod to take the CEO role over Denson -- who was then his equal. Denson is 57 and Parker is 56 -- they're both still young, and Parker isn't going anywhere soon.  Denson can't move any higher up the org chart.  He's sticking around until January 2014 -- hardly a time frame for an executive who's running for the door (or being pushed out of it). The press release says Parker is sad to see him go, and we think it's genuine.


We're pleased to see that there are no changes to the Finance organization -- notably Don Blair or his team. With Denson transitioning out, we think that Don Blair's stock inside the company will rise given Don's ability to lend expertise to a new incoming COO.  That said, it bugs us to see that Gary DeStefano is retiring. DeStefano is 54 years old, and has been at Nike for 31 years in too many roles to list. He's currently President of Global Operations, and will only be at the company for another five weeks.  Last we checked, that's a pretty important role.  The good news is that Denson will still be there to oversee the team while replacements are groomed. But out of the whole management change, if there was one part that we'd point to as being  potentially disruptive, this would be it.


One thing that was put in place at Nike over the past few years is that all employees that have managerial responsibilities have several people identified in their HR file who could easily step into their role in the event that they move on.  What this means is that if there is one higher-profile departure, then it sets off a domino-effect of other movement inside the organization.   Look at past press releases. Try to find an example where only one person leaves or moves to a different role.  You can't find it.


Another thing that works for Nike is that the company is not afraid to move its employees around the organization into and around different disciplines. Take for example Eric Sprunk (note: Wall Street universally loves the guy) who started his career at Price Waterhouse, and then after joining Nike in 1994 as Finance Director for the Americas, then Finance Director of Europe, Regional GM of Europe Footwear, GM Global Footwear, VP Global Product, EVP Merchandising and Product, and now COO. We could follow a similar track for almost all of the more successful Nike executives. 


In the end, this is all consistent with how we expect Nike to run it's business long-term, and it's what makes it so successful at what it does. We'll keep a closer eye on a few of these areas that are in transition, but over our 15-years covering the company have never been given reason to doubt the company's ability to manage through similar leadership changes without coming out on top.

How Many Macro Tourists Own #WeimarNikkei?

Takeaway: Let's not mince any words. China and Japan look nasty.

Two quick macro bullet points on the bloody mess that is Asia right now. We've been raising the red flag here for some time now. #EmergingOutflows.


How Many Macro Tourists Own #WeimarNikkei? - jacho



Did you know that foreign investors held a combined 28% of the market cap listed on Japan’s five exchanges (up +170bps YoY) at the end of 1Q13? Clearly international investors are betting on Abenomics delivering Japan from its 20-year hole. We'll see how that one works out. For the record, we're not holding our breath.


The Liberal Democratic Party (LDP) is ready to cut the corporate tax rate to in line with international levels and also plans to implement appropriate debt management policy to maintain fiscal discipline. Specifically, the Cabinet will seek to cap spending ex-debt service at the current level of around ¥70T through FY15.


Additionally, Prime Minister Shinzo Abe said that raising the country's 5% consumption tax to 8% next April (and 10% in 2015) would “depend on the strength of the economy”, as they are concerned about the negative impact that could have to growth – which could delay consumer price hikes out of Japanese corporations and complicate the BOJ’s monetary policy agenda.




By jove, China’s banking situation is actually getting worse!


Per StreetAccount: Bloomberg reported that China's benchmark money-market rates climbed to records as the PBoC refrained from using reverse-repos to address the cash crunch. The central bank didn't conduct open-market operations to add or drain funds today and sold 2B yuan ($326M) of three-month bills. The seven-day repo rate rose 270bp to 10.77%, the highest in data going back to March 2003. The one-day rate rose by an unprecedented 527bp to an all-time high of 12.85%. An intra-day gauge of the one-day rate touched a record 30%.”


How Many Macro Tourists Own #WeimarNikkei? - Monetary Tightness in China


Right in line with what we’ve been flagging for the past two months (i.e. tightening financial conditions perpetuating a slowdown in economic growth), the flash HSBC Manufacturing PMI ticked down to a 9-month low in June (48.3 from 49.2 prior). The sub-index for New Orders fell to a 10-month low of 47.1.


Stay on your toes out there.

Trade of the Day: BGG

Takeaway: We sold Briggs & Stratton (BGG) at 3:40 PM at $19.27.

Call me a scalper on this today. Yes - we took the 2.66% gain. That's fine. It’s better than being scalped. Especially on a day like today.


Trade of the Day: BGG - bgg

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