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No Clear Tracks

“The notion that I was travelling down a clear track would be wrong.”

-Robert Oppenheimer


Today in 1945, the US dropped the bomb on Hiroshima. At least 130,000 were killed and 90% of the city was eviscerated. To say that this weighed heavily on the conscience of the “father” of the atomic bomb would be the understatement of my writing career.


The aforementioned quote comes from Chapter 2 (“His Separate Prison”, page 29) of a book I have long waited to crack open: American Prometheus - The Triumph and Tragedy of Robert Oppenheimer.


When it comes to both markets and my life, the notion that I know where things are going isn’t the truth. The reality is that people and circumstances change inasmuch as markets do. Sometimes it happens fast; sometimes it’s slow. Yes, there are patterns of behavior that provide probabilities of direction. But there is no clear path. I’m learning to embrace that uncertainty.


Back to the Global Macro Grind


Einstein said that “the only reason for time is so that everything doesn’t happen at once.” And I like that. For the past 8 months we’ve seen a very simple US market pattern develop:

  1. US economic #GrowthAccelerates
  2. US interest #RatesRising challenge the Fed to taper
  3. Gold Bonds fall, Growth Stocks rise

Now that 1st bullet is the one that provokes the most bitterness from bears. I still don’t think they can believe that A) it’s August and B) both the employment and economic data (NSA rolling jobless claims hit another YTD low last wk) continue to improve.


On top of last Thursday’s #GrowthAccelerating July ISM print of 55.4 (vs 51.9 in June), here’s what the bitterness of it all looked like in the only economic data point that mattered yesterday:

  1. ISM non-Manufacturing (i.e. the highest % of the US economy) = 56.0 in JUL vs 52.2 in JUN
  2. New Orders (within the ISM report) = 57.7 JUL vs 50.8 JUN
  3. “Business Activity” (within the same report) = 60.4! JUL vs 51.7 JUN

Sorry #GrowthSlowing fans, that wasn’t what you were looking for.


It wasn’t what I was looking for either! I thought there was a developing probability that the higher-frequency (weekly and monthly) US economic data points could slow sequentially here in Q313 vs Q213. Evidently, I thought wrong.


It’s ok to say you are wrong. It’s ok to say you made a mistake. Heck, it’s even ok to say you are sorry once in a while too (this morning’s marriage tips are brought to you by your Broda).


The bottom line is that in literally every “Style Factor” we score, #GrowthAccelerating is winning, big time, YTD:

  1. Top25% EPS Growth Stocks (in the SP500) = +7.3% m/m and +26.8% YTD
  2. Low Dividend Yield (growth) Stocks = +6.7% m/m and +28.8% YTD
  3. High Short Interest Stocks (high multiple, high beta too) = +6.9% m/m and +25.4% YTD

Yes, despite the Russell 2000 (another US growth investor proxy) pinning yet another closing all-time high yesterday at 1063 (+25.2% YTD), all 3 of those Style Factors are still beating the Russell!




But what is awesome? “inspiring an overwhelming feeling of” (Dictionary.com):

  1. Reverence
  2. Admiration
  3. Or Fear?

It’s a great word because, whether we want to admit it or not, we are all human and there are a lot of feelings that start to overwhelm us during phase changes in both markets and our lives.


From a macro market perspective, fear itself is now re-testing its YTD low (Gold and VIX are down -23% and -35%). Growth investors admire that. But they shouldn’t straight-line this as the new normal. Nothing is normal. Everything is always changing.


Our immediate-term Risk Ranges are now as follows:


UST 10yr 2.56-2.72%


Nikkei 138

VIX 11.69-12.97

USD 81.41-82.47

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


No Clear Tracks - Chart of the Day


No Clear Tracks - Virtual Portfolio


In preparation for MPEL's F2Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • "Studio City, our cinematically-themed mass market focused integrated casino resort, remains on track to open in mid 2015. The project remains on time and on budget with expected design and construction costs remaining at $2.04 billion...total spending for 2013 is between $800 million to $1 billion."


  • "We continue to improve the two major signature club area on improving their service. So you'll note that in the next two quarters some improvement in this premium mass area with nice improvement as well as well as the service level that we are bringing to the property."


  • "I think the primary driver, and I think there is room, is what's happening on the gaming floor and what's happening with the mix of business. Given our success in the mass market business and that, the strength in that segment overall, we do see a potential for favorable mix shift over time, which will drive blended margin higher."
    • "First, I think, gaming floor, we continue to see a positive trend in terms of hold percentage on the floor as well as absolute revenue."
    • "I think our retail area, although it's relatively small compared to the neighbor, it's already up to a level which is quite comparable with the neighbors. So I think with this kind of improvement in our positioning in the last few quarters, it has started to pay off in terms of this non-gaming higher margin EBITDA contribution. So we hope that that trend continue and you'll see some more improvement in the next few quarters."


  • "While not a major contributor to the overall results, that's sustainable going forward."


  • “We are optimistic that we'll break ground before the end of the year.


  • "As your modeling should anticipate, as of April, it increased fairly market wide of a 5% wage rate increase in your model and that's not inconsistent with what we experienced last year as well despite incremental supply in the market, incremental staffing needs across the market. So this year, we think 5% is very manageable and one that we expect to be consistent throughout the year. But I would encourage you to flag that in your models going into the next quarter."


  • "Will open in mid-2014."
  • "In this quarter, our pre-opening expense of about $1.9 million. About two-thirds of that was Philippines. As that project ramps up over the course of the year into the mid single digits and then subsequent from that into 2014, but that will increase over the course of this year."
  • "Our view is that the tax situation will be resolved favorably. So no change in our expectation of ROIC."


  • "But if we exclude Phase 3, we'll have CapEx in the next quarter of something in the $225 million range and wrapping up by about $25 million in the subsequent quarter and then closer to $400 million in the fourth quarter. So that includes Studio City as well obviously."


  • "Total depreciation and amortization expense is expected to be approximately $90 million to $95 million, corporate expense is expected to come in at $20 million to $22 million, and consolidated net interest expense attributable to MCE is expected to be approximately $40 million to $42 million, which includes finance leased interest of $10.8 million relating to the Philippines development and approximately $11.8 million of interest associated with Studio City. This reflects approximately $6 million of capitalized interest related primarily to Studio City."
    • [Interest expense] "The gross amount should be a good number going forward as a run rate, approximate run rate. I anticipate that our – the amount of capitalized interest that we have would go up over the course of the year, but the number we provided for Q2, I think, is a solid number and then perhaps declining a bit over the remainder of the year."

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TODAY’S S&P 500 SET-UP – August 6, 2013

As we look at today's setup for the S&P 500, the range is 40 points or 1.94% downside to 1674 and 0.40% upside to 1714.             










  • YIELD CURVE: 2.34 from 2.33
  • VIX closed at 11.84 1 day percent change of -1.17%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC retail sales
  • 8:30am: Trade Deficit, June, est. -$43.2b (prior -$45b)
  • 8:55am: Redbook weekly retail sale
  • 10am: IBD/TIPP Eco Optimism, Aug., est. 47.5 (prior 47.1)
  • 10am: JOLTs Job Openings, June, est. 3.895m (prior 3.828m)
  • 11am: Fed to buy $4.75b-$5.75b debt in 2018-2019 sector
  • 11:30am: U.S. to sell 4W bills
  • 1pm: U.S. to sell $32b 3Y notes
  • 4:30pm: API crude, oil product inventories


    • President Obama travels to Phoenix to give remarks on middle class homeownership, then to Burbank, Calif., where he’ll appear on “The Tonight Show with Jay Leno”
    • FDA Dep. Commissioner Michael Taylor delivers remarks at Institute of Medicine discussion of caffeine in dietary supplements, other foods, 9am


  • Australia cuts rate to record 2.5% as currency strengthens
  • Amazon.com’s Jeff Bezos to buy Washington Post for $250m
  • IBM furloughs U.S. workers of hardware group to cut costs
  • Sony rejects Loeb push to sell part of entertainment unit
  • Time Warner Cable makes a-la-carte proposal in CBS dispute
  • Icahn bought 4m Dell shrs on Aug. 1; holds 156.5m shares
  • Revlon to purchase Colomer Group from CVC for $660m
  • Paulson & Co. said to gain in July as recovery fund recoups loss
  • FBI finds vulnerabilities in mkt-moving govt. reports: WSJ
  • Italian contraction slows as recession lasts record 2 yrs



    • Aircastle (AYR) 7:30am, $0.33
    • American Realty Capital Properties (ARCP) 6:25am, $0.19
    • Archer-Daniels-Midland (ADM) 7am, $0.44
    • Arcos Dorados (ARCO) 8am, $0.56
    • Ares Capital (ARCC) 8am, $0.39
    • BreitBurn Energy Partners LP (BBEP) 8am, $0.13
    • Charter Communications (CHTR) 8am, $0.31
    • Cinemark Holdings (CNK) 6am, $0.52
    • Cognizant Technology Solutions (CTSH) 6am, $0.97
    • CVS Caremark (CVS) 7am, $0.96
    • Denbury Resources (DNR) 7:30am, $0.36
    • Diebold (DBD) 8am, $0.27
    • Dish Network (DISH) 6am, $0.53
    • Dominion Resources (D) 7:30am, $0.65
    • Emerson Electric (EMR) 6:30am, $0.98 - Preview
    • FirstEnergy (FE) 8:25am, $0.54
    • Fossil Group (FOSL) 6:55am, $0.93
    • Harman International Industries (HAR) 8am, $0.86
    • Health Care REIT (HCN) 7:30am, $0.92
    • Henry Schein (HSIC) 6:51am, $1.23
    • Hospitality Properties Trust (HPT) 7am, $0.75
    • Inergy (NRGY) 7:45am, $0.05
    • Inergy Midstream (NRGM) 7:45am, $0.10
    • IntercontinentalExchange (ICE) 7:30am, $2.14
    • International Flavors & Fragrances (IFF) 7am, $1.18
    • Isis Pharmaceuticals (ISIS) 8:30am, $(0.23)
    • Liberty Interactive (LINTA) 6:45am, $0.27
    • Louisiana-Pacific Corp (LPX) 8am, $0.34
    • MGM Resorts International (MGM) 8:30am, $0.01
    • Michael Kors (KORS) 7am, $0.49
    • Molson Coors Brewing (TAP) 7:30am, $1.39
    • Nationstar Mortgage Holdings (NSM) 6:30am, $0.89
    • Oaktree Capital Group (OAK) 8:30am, $1.62
    • OfficeMax (OMX) 7am, $0.03
    • Parker Hannifin Corp (PH) 7:30am, $1.96
    • Regeneron Pharmaceuticals (REGN) 6:30am, $1.75 - Preview
    • Rowan Cos Plc (RDC) 8am, $0.55
    • Ryman Hospitality Properties (RHP) 8:30am, $0.78
    • Saputo Inc (SAP CN) 11:59am, $0.73
    • Scotts Miracle-Gro (SMG) 7am, $2.43
    • Sempra Energy (SRE) 9am, $1.28
    • Spectra Energy (SE) 6:30am, $0.32
    • Spectra Energy Partners (SEP) 8am, $0.37
    • Spirit Aerosystems Holdings (SPR) 7:30am, $0.50
    • Starwood Property Trust (STWD) 7:30am, $0.47
    • Tenet Healthcare (THC) 7:30am, $0.71
    • Textainer Group Holdings (TGH) 9am, $0.95
    • Tidewater Inc (TDW) 7:51am, $0.76
    • TransDigm Group (TDG) 7am, $1.84
    • Zoetis (ZTS) 7am, $0.36 – Preview


    • Acadia Pharmaceuticals (ACAD) 4:01pm, $(0.09)
    • Avis Budget Group (CAR) 4:15pm, $0.51
    • BioMed Realty Trust (BMR) 4:47pm, $0.39
    • CF Industries Holdings (CF) 4:05pm, $7.61 - Preview
    • CH Robinson Worldwide (CHRW) 4:15pm, $0.74
    • Computer Sciences (CSC) 4:15pm, $0.67
    • DaVita HealthCare Partners (DVA) 4:01pm, $1.84
    • DigitalGlobe Inc (DGI) 4pm, $(0.26)
    • EOG Resources (EOG) 5:05pm, $1.73
    • Exelixis (EXEL) 4:15pm, $(0.30)
    • First Solar (FSLR) 4:02pm, $0.53
    • Genpact (G) 4pm, $0.25
    • Gulfport Energy Corp (GPOR) 4pm, $0.13
    • Jazz Pharmaceuticals (JAZZ) 4:01pm, $1.51
    • Live Nation Entertainment (LYV) 4:04pm, $0.07
    • Marathon Oil Corp (MRO) 5:26pm, $0.71
    • Nuance Communications (NUAN) 4:01pm, $0.32
    • Oasis Petroleum (OAS) 4:30pm, $0.60
    • RLJ Lodging Trust (RLJ) 4:30pm, $0.58
    • Rosetta Resources (ROSE) 4pm, $0.97
    • SandRidge Energy (SD) 4:05pm, $(0.04)
    • Sotheby’s (BID) 4pm, $1.37
    • Twenty-First Century Fox (FOXA) 4pm, $0.35 - Preview
    • Two Harbors Investment (TWO) 4:05pm, $0.31
    • Vivus (VVUS) 4pm, $(0.41) - Preview
    • Walt Disney (DIS) 4:15pm, $1.01 - Preview
    • Zillow (Z) 4:02pm, $(0.11)


  • China’s Gold Imports From Hong Kong Decline as Demand Slows
  • p Commodities Market, Industry News »             
  • Palladium Shortages Spur Bullish Hedge-Fund Wagers: Commodities
  • Gold Slides Below $1,300 as Investors Weigh Stimulus Outlook
  • Palm Inventories in Malaysia Seen Staying at Lowest in Two Years
  • Copper Rises as German Factory Orders Stoke Rebound Speculation
  • Tanker-Rate Slump Signals Retreat in U.S. Oil Imports: Freight
  • Corn Declines to Lowest Since 2010 on U.S. Crop Progress Report
  • Tin Backwardation Widens as Top Supplier Indonesia Curbs Exports
  • China to Sell 500,000 Tons of Soybeans in Auctions This Week
  • BullionVault Survey Says 37% of Buyers Kept Assets Over Year
  • Italian Oil May Flow as Offshore Drilling Ban Ends: Bull Case
  • S. African Corn Trade Risks Staple-Food Supply: Chart of the Day
  • Coal at Risk as Global Lenders Drop Financing on Climate: Energy
  • Gold to Gain as Output Languishes on Spending Cuts, WGC Says



























The Hedgeye Macro Team













Low hold impacted Q2 results but hold-adjusted EBITDA was in-line with Street





  • Encouraged by VIP volumes but hold was low
  • 2Q VIP rolling volume +29%
  • Gained share in mass market
  • 2Q Mass gaming revenue +19%
  • S'pore tourist arrivals projected to slow in coming years
  • Monitoring situation in Japan

Q & A

  • Japan:  optimistic but the clarity is not there yet.  1st piece of legislation may be passed by end of 2013 - will know where the IR will be set up.  2nd piece of legislation that may be passed in 2014 will have more details on the structure/regulation on IR.
  • 2Q Hold-adjusted EBITDA:  S$364MM
  • Have earned more than enough to pay the interest on perpetual securities
  • Trade receivables didn't increase despite surge in VIP volume - expanded database and continued to gain loyalty from customers
  • July credit outlook:  no changes yet but still cautious
  • Severe haze impact on EBITDA:  not significant
  • 2Q GGR share:  47%
  • 2Q RC volume share:  49%
  • 2Q Mass/slot share:  47-48%
  • 2Q VIP win rate:  2.5%
  • Net gaming revenue breakout:  30% VIP; 70% mass
  • No increase in commissions
  • Long-term solution to labor issue:  increase productivity; govt helping them with new grants to help with the productivity
  • 3rd IMA:  has not impacted VIP business
  • Combined S'pore mass market:  no revenue growth;  with new regulations put in place, do not believe they will see growth in this segment
    • Local visitors will trend down
    • Overseas visitor growth slowing down
  • Cannot compare with Macau
  • Is S$17BN RC volume pace sustainable?  No guarantees.
  • Mass market revenue growth (QoQ) : low single digit (marginal)
  • Pachislot machine market: US$13 billion
  • Premium mass vs VIP:  VIP (+$100k players), premium mass ($20-100k players)
    • Increased promotional spending on premium mass (free hotel room, etc)
  • Cost cuts:  have reduced employee count by 800 since beginning of year; payroll is biggest expense item
  • Gross VIP/mass gaming revenue mix:  50/50
  • VIP volume in 2Q 2012:  leadership transition did not have an impact since it was in Q4 2012
  • USS ship:  10k average visitation ($83 average spend);  MLP 9k average visitation 
  • Korea:  need to open to locals in order to consider investment there
  • More cautious than Q1 outlook?  track record has always been extremely cautious.  Same level of caution in Q2. 
  • Long-term 15-16MM visitor goal:  thinks that number will come down
  • Mobile bookings increased 20% QoQ
  • Overall visitation has slowed but it hasn't been significant

Beware of Beijing

If you weren’t worried about China, now would be a good time to start. 


China has been the main driver of growth in the region, accounting for nearly 38% of all Asian GDP last year.  Now the Chinese government is acknowledging that growth is in a downturn, publicly forecasting growth in the 7% range – well below the double digits of only three years ago. 


Beware of Beijing - China Slowdown

China’s fixed capital formation grew like Topsy during the expansion years.  But many of these were empty make-work projects designed only to inflate GDP, leaving the country awash in unused airports, unfinished roads and office buildings – and in bank loans for these projects with no revenues.


China’s banks are a loudly ticking time bomb.  Their assets are bloated to an estimated 270% of GDP.  A huge percentage of those “assets” are already in creditor limbo, having secured roads and bridges and tunnels and airports to Nowhere.  China’s banks face a potential crisis as investment in major fixed asset projects declines amid eroding liquidity throughout the financial system.


Rising Rates should hit China’s markets too, pushing Asian rates higher.  This will clobber the region’s capital-intensive economies, many of which expanded capacity specifically to serve Chinese demand.  Rising rates – globally, but especially in the “safe haven” US Treasury market – coupled with a strong Dollar, should punish overvalued Asian currencies, sparking inflation, but in the context of economic decline.  This spells economic trouble, and the potential for social unrest.


Beware of Beijing - china1


Senior analyst and keen-eyed Asia watcher Darius Dale says Chinese policy makers are starting to appear less concerned about a possible domestic asset price bubble.  This could give them more flexibility in some kind of easy-money policy aimed at domestic stimulus.  Any such policy move is likely to be slow to be implemented, and much slower to take effect.  Dale cautions that massive debt rollovers generally sloweconomic growth by sucking liquidity out of the financial system, “diverting incremental credit from productive enterprises.”  Perhaps more crucial is the impact on a fragile economy, which can hamper the creation of a stable economic base by diverting liquidity away from marginally productive business, or from temporarily unproductive ones that are merely trying to weather the economic storm. 


Finally, any debt rollover China’s leaders may contemplate will almost surely not be offset by a significant increase in private savings.  Without China to fuel the engine, Asia’s economic racecar looks to be in for a long pit stop.


(Editor's note: This brief excerpt is from this weekend's Investing Ideas. This particular Hedgeye product is designed for savvy, longer-term investors looking for fresh, long-only stock ideas. Subscribers know immediately when one of our award-winning analysts uncovers a new idea or changes a current one. Please click here for more information.)