VIP volume at Suncity Group Ltd reached a record 135 billion patacas (US$16.9 billion) last month according to an executive of the company.  Suncity is the “number one junket operation in Macau in terms of scale”, said Maggie Lei Siu Wai, the group’s vice president of human resources.  She added the company had interests in the profits of 250 gaming tables in 17 VIP rooms.


Lei added that the consolidation of different junket rooms under the management of a few big junket investors is “a general trend based on the limited human resources” of the city.  It’s likely it is also driven by business factors including the spread of credit risk and smoothing of trading volatility.  The more junket rooms, the more sub-agents recruiting players from China, the more players, the more cross-subsidy of the business and the greater the smoothing effect in the credit trading cycle, say industry sources.

DICJ said in March the city had 235 licensed junket operators – an increase of 7.3% YoY.  But a deceleration in growth rates for the VIP segment – against a background of a more challenging macroeconomic picture in mainland China and a new national political leadership apparently committed to reducing corruption and the volume and speed at which money passes through the city’s junket system – has in turn created tougher trading conditions for junkets.  That’s especially the case for smaller operations with only a few rooms and a small roster of players. 


Client Talking Points


It was a big week for the #Weimar Nikkei (up +2.1% overnight, capping a +4.6% week overall) and a bad week for the Yen. Another better than bad US employment report will only fuel this FX/Equity correlation trade. So keep that in mind with no support for USD/YEN to $100.85.


A dovish European Central Bank was the reason for EUR/USD down and a wicked bounce off the tree line to keep European Equities from going out of bounds yesterday. The Euro is broken again (vs USD). Anything that puts upward pressure on anything USD is bearish for Gold and Silver. Both are down -1.2 and 3.2% again this morning after failing @Hedgeye TRADE resistance.


I still think higher-lows and higher-highs for rates are in order as both the Fed and Fixed Income consensus are still too bearish on both US Employment #GrowthAccelerating and #RatesRising. If you ask the 10-year at 2.54% this morning, what’s in the envelope for this jobs report, it’s the same that’s been in the non-seasonally adjusted rolling Jobless Claims data for the last 4 weeks (better). Keep an eye on 2.64% which is next resistance.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road


Higher rates and crashing Gold were pro-growth signals in 1982 inasmuch as they were again in 1993



Successful people are always looking for opportunities to help others.  Unsuccessful people are always asking, “What’s in it for me?” – Brian Tracy


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July 5, 2013

July 5, 2013 - DTR



July 5, 2013 - 10yr

July 5, 2013 - spx

July 5, 2013 - nik

July 5, 2013 - dxy

July 5, 2013 - oil



July 5, 2013 - dax

July 5, 2013 - VIX

July 5, 2013 - euro

July 5, 2013 - yen

July 5, 2013 - natgas
July 5, 2013 - gold

July 5, 2013 - copper

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America's Throne

“The caliphs fell, and the Caesars trembled on their throne.”

-Edward Gibbon


#Fireworks, love’m! But Americans need to remember what fighting for their independence means. For as long as conflicted, compromised, and centralized power remains in the hands of political plunderers, there remains a credible threat to freedom.


As I watched American Independence light up the sky last night in Connecticut, I couldn’t stop thinking why this can’t all turn out the way it always has in this country. Lincoln called it “government of the people, by the people, for the people”; not for MSNBC’s politicians.


Do we have to fight for our hard earned currency, free-markets, and economic liberty? Genghis Kahn bled for this 800 years ago inasmuch as Americans did before and after 1776. “The Mongols did not find honor in fighting: they found honor in winning.” (Genghis Kahn, pg 91)


Back to the Global Macro Grind


Despite the US stock market’s run of the mill -3-5% correction from her all-time highs, what’s really #winning in 2013?

  1. Short Fear
  2. Short #GrowthSlowing
  3. Short Gold, Treasuries, etc.

Shorting America’s currency and growth expectations works until it doesn’t. It worked for the last decade actually. That’s why plenty a hedge fund growth investor had the style-drift of buying Gold as politicians built the mother of all Bernanke Bubbles in bonds.


Gold and Treasuries hate growth.


If you ask Mr. and Mrs. Gold Bond for inside info on what this morning’s US Employment Report is going to look like, their answer won’t be any different than the answer their boss (Mr. Market) has been giving you since April:

  1. Gold and Silver -1.2 and -3.2%, respectively, this morning – and both continue to #crash (Gold -26% YTD)
  2. 10yr US Treasury Yields are testing 3-month highs again this morning, backing up to 2.54%

So why should you pay the caliphs and consultants in Washington such a premium for that super-secret whisper on when and how Bernanke is going to taper, when you can just build a real-time market model to front-run them?


And why, by the way, is it so bad for America (not slices of the asset management business or Federal Reserve talking head speech fees) to see Gold crashing and #RatesRising?


Higher rates and crashing Gold were pro-growth signals in 1982 inasmuch as they were again in 1993. This isn’t a new concept. It’s called a cycle. Anyone who spent their days whining for a half-decade past those two dates doesn’t run real money anyway.


Kahn once said, “there is no good in anything until it is finished” … and the reality is that if you believe in economic gravity, there will be no sustained path to US growth until central planners get out of the way and let the Dollar strengthen alongside #RatesRising.


We know why there is a constituency of Bernanke believers out there who want the opposite of what most Americans should want – they get paid to believe! Follow the money:

  1. They run levered-long Gold funds
  2. They have (levered) net long Treasury Bond positions
  3. They earn fees and/or advertising revenues to promote slow-growth and/or fear

Don’t blame me for that. It’s called a conflict of interest in what was consensus.


I was not the author of this trouble; grant me strength to exact vengeance.” –Kahn (Genghis Kahn, pg 107)


And while vengeance may be a bad word for those who are being avenged, it’s also called #winning – USA style – for the rest of us who are promoting the only free-market path to prosperity and growth that US central planners from Bush to Obama haven’t yet tried.


Whether today’s jobs report “beats” or not, the timing remains ripe to avenge America’s Throne of Independence via #StrongDollar.


Our immediate-term Risk Ranges are:


UST 10yr 2.45-2.64%


VIX 14.93-17.59

USD 82.72-84.04

Euro 1.28-1.30

Gold 1183-1264


Best of luck out there today and enjoy your liberties this weekend,



Keith R. McCullough
Chief Executive Officer


America's Throne - chartoftheday

America's Throne - VP

Bernanke's Blind Trust

This note was originally published at 8am on June 21, 2013 for Hedgeye subscribers.

“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 $1253-1332, $100.80-103.96, $81.11-82.19, 96.18-97.92, 2.24-2.46%, 17.25-21.56, and 1583-1629, 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

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