Headline miss but actually not a bad Q. July commentary was positive.




    • Maximum Cotai project cost (all-in including pre-open and cap int of $500m): $4 billion, could be a little less
    • Projected to open CNY 2016
  • Ex credit adjustment in 2Q 2012, Macau would have been up a little bit YoY
  • Little behind in slot (hold, not coin-in)
  • Mass win: July up 22% YoY and up 13% sequentially 
  • EBITDA share: 16% 


Q & A


  • Concession renewals:  comfortable being in Macau 
  • Macau VIP margins:  held less than 2% in direct play, held high on junkets. mix negatively impacted margins
  • Mass:  hold issues in slots and mass tables in June; that has corrected in July
  • Half of cash investments is in Macau
  • International Vegas breakout:  table win - 52% Asian, 24% Latin, 24% domestic;  $25-30MM of the $177Mm slot win is international
  • Vegas:  Upside to margins due to increasing international exposure
  • Macau Premium-mass segment:  hyper competitive; not competing in the high discounting/promotional environment
  • Mild construction impact in Macau; 600 room refurbishment in Wynn Tower - will be finished in late October
  • Capital allocation:  $1 in dividend per quarter; if excess CF, board will decide.  Cotai project:  $200MM accordian structure Libor +175bps
  • Philly/Boston:  5-6 applicants in Philly; MA - ongoing suitability investigations
  • Investments:  Philly $900MM ($300-400MM equity):  Boston $500-550MM ($300MM equity)
  • High-end slot limit rooms:  very-well received; catching up to competition
  • Missing out on rising table minimums in Cotai?  Not much impact.  Average bet at WYNN is pretty high.
  • Non-gaming will drive Vegas business; can withstand the competition; MGM throws plenty of money at customers
  • Vegas recovery?  Vegas doing better YoY but wouldn't say a recovery yet.  Additional capacity that came online during recession was badly timed.
  • Not having a 'real recovery' in the US
  • China macro impact:  very cautious with credit and collections but have not seen the impact
  • Sees visitation pick up in Guangdong areas;  getting more people to stay longer
  • Cotai capex contribution:  $300MM to date; expect another $300MM for rest of 2013; $1 billion in 2014; vast majority of rest in 2015/2016 - will utilize 30% of FCF
  • Cotai Features:  Wynn Palace - name of hotel; lake/fountains similar to Bellagio; capture light-rail traffic through gondola
  • Japan:  no comments; interested in Tokyo and Osaka 


Pulls the market back to trend (that's a good thing)



Macau is back on track for another 20% (give or take) growth month.  We remain bullish on Macau.  The near-term momentum is strong and we believe there is cushion in both the VIP and Mass business to offset the China macro issues.


Average daily table revenues (ADTR) grew 50% YoY this past week and up 13% over June’s ADTR.  With only 3 days left in the month, it’s pretty safe to say that July was a good month for the Macau operators.  We are raising our full month GGR growth projection (includes slots) to +19-21% YoY, up from 14-19%. 


The strength this past week looks volume driven both in the VIP and the Mass segments. While not included in the table games numbers, we are hearing the Electronic Table Games seem to be surging and could provide a boost above our slot forecast of HK$1.15 billion in July revenues. 


In terms of market share, July has been a big month for LVS and Galaxy.  LVS's share of 22.8% is not only above the 3 month trend but grew 170 bps month-to-date in only one week.  The big boxing match held at the Venetian on Saturday night probably drove most of the increase.  We heard the Mass floor at the Venetian was packed and it's safe to assume that a number of top VIPs were present as well.  The match featured the very popular boxer Zou Shiming who was the first Chinese fighter to ever medal at the Olympics.  We can only imagine how successful the Manny Paquio fight will be in November.


MPEL remains well below its recent share trend and Wynn and MGM are trending slightly lower.  LVS likely took share from all 3 operators, especially MPEL on Saturday.  MPEL is likely holding below the market but we also think that Altira had a couple of bad volume weeks.  However, MPEL remains one of our top picks along with MGM and LVS.





Gravity's Wisdom

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

“Wisdom is not wisdom when it is derived from books alone.”



Horace was the prominent Roman poet during Augustus’ reign. He died at the age of 56, in 8 BC. Despite his fear that his “books would eventually become food for vandal moths” (The Swerve, page 84), his wisdoms didn’t die alongside him.


History teaches those of us who care to study it more than we’ll ever be able to know. The more I read, the more I realize that I know very little. History also gives me a tremendous appreciation for both empathy and context.


If you can’t empathize with another person’s perspective, how can you criticize it? If you can’t contextualize today within yesterday, how can you handicap where we may be going next?


Back to the Global Macro Grind


Given that I have a degree in Keynesian economics, I feel relatively comfortable disagreeing with many of its assumptions. Admittedly, doing it with my own money instead of theorizing from a textbook helped expedite my learning process.


“Don’t think, just do” is something else that Horace wrote. But just doing isn’t enough. You have to be held accountable to what you are doing. Learning from your mistakes is an invaluable lesson. Doing it with other people’s money is called responsibility.


I suggest both the Fed and the President of the Unites States consider that when affecting either the value of our currency and/or the risk-free rate of return on our hard earned savings. On both major factors, there is responsibility in their policy recommendation.


How does this tie back to the US economy?

  1. Monetary and Fiscal Policy is causal to A) the value of a currency and B) the risk-free rate of return on that money
  2. Since WWII, there has never been a sustained US economic growth period without #StrongDollar and #Rising Rates

So why fight history? That’s what Bernanke is currently trying to do. If you are a Bernanke fan, at a bare minimum, you have to acknowledge that he is trying to “smooth” the pace of US Dollar gains and #RatesRising at this point. Why should we let him?


In the very immediate-term, we know what an acceleration in #StrongDollar and #RisingRates does:

  1. It smokes Gold and related #CommodityBubbles
  2. It beats down on Treasuries and related Bonds
  3. It eats into slow growth #YieldChasing investments (MLPs, Utilities, Junk Bonds, etc.)

And that’s all bad for who? Bingo – those who are long 1, 2, and 3. Meanwhile, who gets paid?

  1. Consumers - #CommodityDeflation = Tax Cut
  2. Savers – risk free rates of return on Savings accounts go up, finally
  3. Growth Investors – oh yes folks, this one is stealth

The first two compensation pools of people are obvious. Those populations, by the way, are much larger than the partnership group at PIMCO that gets paid in size if Bonds outperform growth stocks in perpetuity.


The third constituency is for crazy people like me. You know, people who don’t wake up every morning trying to scare the hell out of you, burn your currency, and hand your tax-dollars over to bankers who pay themselves. We are Growth Investors.


Whether I’m investing in a low-dividend yielding big cap growth stock like Starbucks (SBUX) or private growth company like Hedgeye, it’s all the same bet. We aren’t betting on the end of the world. We are betting on brands and people. We are betting they grow.


Put another way, here’s how the market has been scoring this for the last month:

  1. Consumer Discretionary (XLY) stocks +5.1% versus Basic Materials (XLB) stocks -0.8%
  2. Low Yield stocks (i.e. growth stocks) are +5.1% in the last month and +26.3% YTD
  3. Top 25% EPS growth stocks (SP500) are +4.9% in the last month and +23.7% YTD

Bernanke, you got a problem with that?


I didn’t read this in your Keynesian Econ 101 book, bro. It’s on the tape. This is not only consistent with the 1983-1989 (Reagan) and 1993-1999 (Clinton) bi-partisan periods of US growth investing (where US GDP averaged over +4% during each period), it’s been a consistent market message for the last 180 days. Read and respect its message.


For the last 6 months, here are the #StrongDollar correlations to major market moves:

  1. SP500 = +0.75
  2. Commodities (CRB Index) = -0.78
  3. Gold = -0.74

No, no, no. The Mucker is not considered a wise man in Washington. Nor does he want to be. But please, my friends, please - don’t let an un-elected body of perceived wisdom at the US Federal Reserve mess this one up again. The gravity of Mr. Market’s wisdoms have spoken. They are the most pro-growth signals we have seen in years. Only your government can mess this one up this time.


I’ll be hosting our Q312 Global Macro Themes call at 11AM EST this morning. Ping if you’d like access.


Our immediate-term Risk Ranges are now:


UST 10yr 2.44-2.77%

SPX 1642-1690

VIX 13.01-15.04

USD 82.45-83.88

Oil 106.48-110.29

Gold 1210-1298


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Gravity's Wisdom - Chartoftheday

Gravity's Wisdom - vp 7 15

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July 29, 2013

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Island Economics

“An island cannot rule a continent.”

-Thomas Paine


I don’t know about you, but I find myself putting most consensus channels of market and “economic” information on mute these days. Life is simpler that way. Markets can be simpler too – if you take big government politics out of them.


Thomas Paine wrote “Common Sense” anonymously in 1776. It was only 48 pages long but one of the most influential writings in US history. As US historian, Joseph Ellis, recently wrote: “both the style and the substance of Common Sense were true to its title… replicating the vocabulary of conversations by ordinary Americans in taverns and coffeehouses…” (Revolutionary Summer, pg 11)


Sometime after filling up my tank with $4.24/gallon gas this weekend, I was reading that book at home. Then I got out of my chair and glazed over Obama’s comments about the next Fed Chairman in the NY Times. He said he wants a “Fed Chairman that can step back and look at that objectively and say, let’s make sure that we are growing the economy.” Then I started laughing.


Back to the Global Macro Grind


The final blow to anyone who is full of it is usually the truth. We see this in every aspect of our lives, so there’s no reason why any of these people who operate under the assumptions of big government Island Economics will be remembered by history any differently.


Although at varying paces, time tends to solve disconnects between fact and fiction. But in between now and then we have to deal with real-time market prices and expectations.


The expectations that the outgoing (and incoming) Fed Chairman is going to try to “grow the economy” with a weak currency are pervasive. Last week’s rumoring of either Larry Summers or Janet Yellen running the Fed had something to do with:

  1. America’s Purchasing Power (US Dollar) dropping -1.1% wk-over-wke
  2. Consensus buying the living daylights out of Gold futures and options contracts
  3. The net long position in Oil futures and options contracts hitting an all-time high

As history buffs like to remind short-term political types, all-time is a long time.


If the President of the United States thinks that having the all-time low (of any US President) in America’s Purchasing Power alongside the all-time high in gas prices is success, that’s just plain funny and sad all at the same time. #Half-BakedClassWarfareIsland


Mr. President, if you are more than just lip servicing people who are on fixed budgets, have Bernanke or Yellen get on 60 Minutes and announce to the world that the USA is raising interest rates next weekend. Both the Gold and Oil price will crash. And The People will like it.


Instead, here’s what futures and options contracts (i.e. our entire profession trying to front-run the Fed) are betting on:

  1. Total CFTC Commodities futures and options contracts were +7.4% wk-over-wk to +615,140 contracts
  2. Crude oil contracts were up another +10% wk-over-wk to +334,094 = all-time high
  3. Gold contracts ripped +26% wk-over-wk to +70,067 (up for 4 weeks in a row)

Yep. So much for the only bull case for Gold that made any short-term sense (that “everyone is short Gold”). Everyone is getting right levered long the Bernanke Bubble again! It’s still crashing YTD (-21.4%), but who cares? Isn’t this just great for the country?


To be clear, the opportunity to replace Bernanke with someone who doesn’t devalue the Dollar, monetize a record amount of US debt, and socialize crony banker losses, is one of the biggest President Obama has had in his career.


But does he get that?


I doubt it – that said, I did take my kids to see Monsters University yesterday, and that movie reminded me that there always is a chance! Meanwhile, Mr. Market is actually begging for a Fed head who gets having a #StrongDollar #RatesRising policy (i.e. a pro-growth policy):

  1. The Russell2000 is = +7.3% for the month-to-date, and +23.4% YTD
  2. Top 25% EPS Growth Stocks = +6.1% for the month-to-date, and +23.7% YTD
  3. Low Yield (growth) Stocks = +5.1% for the month-to-date, and +26.4% YTD

But, if Obama wants to get Summers or Yellen in there, we can always go back to the Island Economics that both he and Bush II had. How does a 0% rate of return on your hard earned savings accounts forever, $2000 Gold, and $160 Oil, sound?


Our immediate-term Risk Ranges are now as follows (*reminder: 12 Global Macro Risk Ranges are in our new Daily Trading Range product as well):


UST 10yr Yield 2.50-2.64%


Nikkei 131

USD 81.57-82.38
Brent 106.42-108.01

Gold 1


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Island Economics - vv. gas


Island Economics - vv. vp 29

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