The Macau Metro Monitor, March 28, 2011



IM sees VIP revenues continuing to outpace mass revenues and that Galaxy Macau will open in a saturated mass market.  The catalysts for mass growth have been muted so far this year--visitation has, more or less, stabilized; infrastructure projects (e.g. Guangzhou-Zhuhai railway line) won't be completed until later this year; and the marketing campaigns of Macau's casinos, with the exception of SJM's 3rd party casinos, haven't reached many destinations beyond Guangdong.


The unemployment rate for December 2010 - February 2011 was 2.8%, up by 0.1% point over the previous period (November 2010 - January 2011).  Total labor force was 334,000 in the period and the labor force participation rate stood at 71.6%, up by 0.2% point from the previous period.  Employment of Hotels, Restaurants & Similar Activities and the Gaming Sector saw an increase.



Macau's 2010 real GDP rose 26.2% to MOP 217BN (US$27.2BN). Per-capita GDP is US$ 49,745.  Total visitor arrivals increased by 14.8% in 2010.



According to the NUS Singapore Residential Price Index, private home prices in Singapore fell 0.4% from January.



Pansy Ho will replace Patrick Huen Wing Ming as Stanley Ho Group's representative on the supervisory board of BCP bank starting at the bank's next annual general meeting on April 18.  Her term will end in 2013.

The Stanley Ho Group includes Stanley Ho's 0.64% share in BCP, plus STDM's 1.62% stake.

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CHART OF THE DAY: The Gov't Says There's No Inflation...



CHART OF THE DAY: The Gov't Says There's No Inflation...   -  chart

Instrument of Plunder

This note was originally published at 8am on March 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It would be impossible, therefore, to introduce into society a greater change and a greater evil than this – the conversion of the law into an instrument of plunder.”

-Frederic Bastiat


Bastiat wrote that in his treatise on individual liberties titled “The Law” in 1850. If you are in the business of having an open mind and teaching yourself alternative economic frameworks to the Keynesian Kingdom of thought, I highly recommend taking the time to read it.


I certainly don’t agree with everything Bastiat wrote. Nor do I disagree with everything Keynes wrote. What I’ve tasked myself with in writing to you each morning is exploring my interests in markets out loud while maintaining some sense of a moral compass. My Mom inspired me to do that.


Anytime one uses the words “moral” and “interest” together in writing something to Washington/Wall Street, one must tread carefully. When one considers America’s Declaration of Independence and the principles embedded in the Constitution however, one must not contradict our high society’s self-interested group-think with the underpinnings of our citizenry’s morality.


It’s only fitting to ask this question today, because on this day in 1775 an American patriot by the name of Patrick Henry delivered a famous speech in defense of liberty to the Virginia Convention when he proclaimed, “Give me liberty or give me death.”


I’m too self-centered to ask for death over liberty this morning, but I will remind those who are begging for bailouts in order to get themselves paid that this country’s new Transparency & Accountability Tools (YouTube, Twitter, etc.) will most likely smoke you out of your hole of contradiction.


If only because he was born early enough to say it first, Bastiat nailed this fundamental point down early in “The Law” when he wrote:


“When the law and morality are in contradiction to each other, the citizen finds himself in the cruel alternative of either losing his moral sense, or of losing his respect for the law.” (Bastiat, “The Law”, page 7)


When I think about that quote and the timing of revolutionary event risk in this world, I just can’t stop thinking. I do not profess to have the answers to all of this, but I can definitely tell these Government People what not to do. Stop compromising the “fairness” and “free-ness” of market systems by making new laws that implicitly choose winners and losers.


Back to the grind…


As always, this morning’s Global Macro news-flow is multi-factor and multi-duration. In summary, I think the points I am about to rattle off speak pointedly to the Instruments of Plunder being used by Big Government Interventionists who fundamentally believe issuing Fiat Fool paper is the best path to prosperity:

  1. USA: The US Dollar Index continues to hit fresh YTD lows – down again for the week-to-date, and down for 10 of the last 13 weeks
  2. JAPAN: Japan announced that the damage is going to cost at least 25 TRILLION Yen – 25,000,000,000,000 – that’s a lot of Yens
  3. EUROPE: Portugal’s government is on the brink as Eurostat questions the credibility of their numbers and Portugal’s PM may resign

Of course, there is both causality and correlation being imputed into market prices on these factors across durations:

  1. USA: The bond market smells The Bernank considering QG3 (Treasuries up) and the stock market sees GDP Growth Slowing
  2. JAPAN: The stock market failed to overcome our immediate-term TRADE line of resistance (9,719), closing down -1.7% overnight
  3. EUROPE: British bonds continue to be the recipient of sobriety (implementing austerity with credibility) while Portugal earns a P for PIG

Then you have countries with pseudo-conservative fiscal and monetary policy getting less confident in US, Japanese, and European stock markets as Price Volatility ramps (so they invest more at home):

  1. CHINA: Continues to see capital pour into the Chinese Yuan (making new highs at 6.55) and flow-through to Chinese stocks (we’re long CAF)
  2. CANADA: Continues to benefit from low-geopolitical risks and high resource exposures to oil and precious metals (we’re long FXC and GLD)
  3. NORWAY: Continues to see its stock market trade in the green for the YTD as raising interest rates and long-exposure to Petro-Dollars helps

Finally, you have SP500 and WTI Crude Oil futures whipping around like Pac-Man attempting to absorb all of this and stay ahead of what some Central Planner With Tan Socks at the Fed is going to do next.


What I’m going to do this morning is at least consistent. That usually starts with what I am not going to do – and one of those things is not cheering on Big Government Intervention and using the US Dollar as an Instrument of Plunder. All that does is drive The Inflation and The Price Volatility higher. After seeing the globally interconnected “Black Swans” that were born out of the early 2008 US Dollar destruction, I’ve seen enough of that.


From an asset allocation perspective, this week I’ve sold all of my US Equity exposure (Energy and Healthcare – XLE and XLV), ramped up my allocation to Fixed Income to 9% (bought long term US Treasuries yesterday), and have taken my CASH position back up to 55%.


If you are a Central Planner looking to protect the liberties and properties of The People, Bastiat said “it is absolutely necessary that this question of legal plunder should be determined, and there are only three solutions of it:”

  1. When the few plunder the many.
  2. When everybody plunders everybody else.
  3. When nobody plunders anybody.

My solution remains. For starters, just stop. Stop what you are doing with The Inflation policy to enrich the few. The money isn’t worth it to me.


My immediate-term support and resistance levels for WTI crude oil are now $101.32 and $105.98, respectively. My immediate-term support and resistance levels for the SP500 are 1293 and 1310, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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A Thousand Illusions

“It is the nature of inflation to give birth to a thousand illusions.”

-Henry Hazlitt


Last week, despite the US Dollar posting a rare gain, The Inflation didn’t come down. It’s sticky – and  that’s unfortunate because Deflating The Inflation is what America needs to get her confidence back. Not another low-volume stock market rally to lower-highs.


Here’s how the week-over-week Macro scorecard looked for Americans:

  1. US Dollar Index = UP +0.65% to $76.21
  2. CRB Commodities Index = UP +2.3% to 359
  3. WTI Crude Oil = UP +4.3% to $105.40
  4. Gold = UP +0.81% to $1427
  5. Copper = UP +1.8% to $4.41
  6. SP500 = UP +2.6% to 1313
  7. Volatility (VIX) = DOWN -26.7% to 17.91
  8. 2-year US Treasury Yield = UP +15bps to +0.73%
  9. 10-year US Treasury Yield = UP +17bps to +3.44%
  10. 30-year US Treasury Yield = UP +8bps to 4.50%

Not to put a wet Kleenex on your morning, but the reality is that well over half of America wakes up to not really caring so much about the US stock market. We, as a profession, have ourselves to blame for that. Many Americans think this game is rigged.


“So inflation turns out to be merely one more example of our central lesson. It may indeed bring benefits for a short time to favored groups, but only at the expense of others. And in the long run brings ruinous consequences to the whole community.” (Henry Hazlitt, “Economics In One Lesson”, page 170, 1946).


Sure, stocks going down again last week (like they had in 3 of the 4 weeks prior) would have been bad. But the US Dollar going down for the 10th out of the last 13 weeks would have been worse. Despite the massive week-over-week drawdown in market volatility (VIX) and a relative easing of headline news coming out of both Japan and the Middle East, the price at the pump hit a new weekly closing high for 2011 and this part of the economic cycle.


What part of the economic cycle is this anyway? The Big Government Interventionists would have you believe that this is the “growth” phase of the American dream. Last week’s revisions had US GDP growth running at +3.1% for the 4th quarter of 2010. But that’s using a joke of a deflator of 0.4% for inflation (you need to subtract inflation from nominal growth to get the reported number)  – so what part of this joke are Americans missing?


Americans get the joke.


Whether you want to look at the weekly or monthly readings on American Consumer Confidence, they tell you the same story:

  1. Bloomberg Weekly Consumer Comfort Index = -48.9 last week versus -48.5 for the week prior (yes, those are minuses)
  2. University of Michigan Consumer Confidence = 67.5 for March versus 77.5 in February (one of the largest monthly drops on record)

At least stocks were rising alongside The Inflation in February. For the month of March, US stocks look like they’ll close flat to down. So my question is, As Growth Slows And Inflation Accelerates, what’s next?


Answering that question from a Macro Catalyst Calendar perspective, here what’s on tap in the immediate-term (this week):

  1. Monday – US Personal Income and Consumption (FEB)
  2. Tuesday – Conference Board Consumer Confidence (MAR) and Case-Shiller Home Prices (JAN)
  3. Wednesday – MBA Mortgage Applications (weekly) and II Bullish/Bearish Sentiment (weekly)
  4. Thursday – Month and Quarter End (MAR) and Producer Manufacturing Index (FEB)
  5. Friday – ISM Survey (FEB) and the Monthly US Employment Report (MAR)

Consumption will continue to be borrowed; Housing will continue to deteriorate; and High-Frequency Data (PMI, ISM, Confidence, etc.) will continue to remind us that markets are looking forward, not behind.


While I’ll be the first to acknowledge that a 7-day record drawdown in US stock market volatility was bullish for stocks last week, I was also the first US stock market bear to write “Short Covering Opportunity” at the SP500’s YTD low. I don’t Short-And-Hold.


Today, with the VIX -41.6% lower and the SP500 +4.5% higher, I’m a seller again. After moving the Hedgeye Portfolio to 16 LONGS and 4 SHORTS on Wednesday, March 16th, I closed last week with 15 LONGS and 13 SHORTS.


I also sold all of our exposure to US Equities in the Hedgeye Asset Allocation Model last week (sold Energy and Healthcare – XLE and XLV). Zero percent is now something The Bernank and I share in common. There’s always common ground to find somewhere.


On last week’s overall inflation of stock and commodity prices, I took our Cash position back up to 52%.


Here’s the Hedgeye Asset Allocation Model:

  1. Cash = 52%
  2. International Currencies = 27% (Chinese Yuan, Canadian Dollar, British Pound – CYB, FXC, and FXB)
  3. Commodities = 9% (Gold and Corn – GLD and CORN)
  4. Fixed Income = 9% (US Treasury Flattener and Long Term Bonds – FLAT and TLT)
  5. International Equities = 3% (China – CAF)
  6. US Equities = 0%

If you want to modernize a “Thousand Illusions” about The Inflation, check out MIT’s “Billion Prices Project” and hit the USA tab. It should provide you with some hope that reality will eventually be measured in real-time. In the meantime, as Hazlitt predicted, “The political pressure groups that have benefited from the inflation will insist upon its continuance.”


My immediate term support and resistance levels for the SP500 are now 1307 and 1323, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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