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Stanley Ho’s SJM Holdings saw 1H09 profit drop 40.8% year-over-year despite growing market share. The decrease came after the company paid out higher VIP junket commissions to win business.  SJM’s profit dropped to HK$338 million during the first six months from HK$571 million a year ago, but increased by 50.2% when compared to 2H08.


SJM has implemented cost cutting measures that included the shedding of 1,038 employees between December and June.  The payroll reduction contributed to a HK$369 million drop in operating expenses in the first half compared to the same period in 2008.  However, payments to junkets were not offset by these cuts; marketing a promotion expenses rose to 38.7% of gaming revenue, up from 35.7% a year ago.   

Confidence and Clunkers Working in German Favor

We have had a bullish bias on Germany for most of the year. Today the ZEW Center for European Economic Research released its sentiment reports for September, and as we’ve seen over the last months (see chart below), this month’s reading shows an improving trend in the outlook  for Europe’s largest economy.  Its index of investor and analyst expectations, which aims to predict 6 months ahead, rose to 57.7 from 56.1 in August and current conditions rose to -74 from -77.2.  While future expectations came in under a forecast of 60, we believe the improvement rhymes with slow and steady growth for the remainder of the year and into 2010. Additionally, two economic institutes raised their forecast on the German economy today. The Halle-based IWH Institute said the economy will expand 0.9% in 2010 after predicting in March that it would shrink 0.2%, while the Essen-based RWI institute raised its forecast to 1.2% from a previous estimate of +0.2%.


Confidence and Clunkers Working in German Favor - a6


Secondly, the European Automobile Manufacturers’ Association said today that European car registrations, a measure of sales, rose 3% in August from the previous year, a gain on the previous month’s +2.8% reading. The data suggests that sales rose for countries that issued auto rebate programs (see table below). Germany led the charge at +28.4% annually in August, followed by gains in Italy (+8.5%), France (+7%), UK (+6%). To better quantify Germany’s August sales figure it’s worth noting that the German government set aside some $7 Billion for its program (Abwrackpraemie) that expired earlier this month, more than double the $3Billion the US allocated. Further the data clearly shows the lack of demand in Eastern Europe, a region that has been severely crippled under a cocktail of Western financial leverage and depressed demand from the Eurozone, its largest trading partner.


Confidence and Clunkers Working in German Favor - a3


Europe’s largest automobile manufacturer Volkswagen reported today a growth of 9.5% in August, citing a rise in demand domestically and in China and Brazil, and noting uncorrelated global demand with “very different market trends in various regions of the world.”  As we’ve stressed, China is an important and growing market for Germany.  Volkswagen said it delivered a third of its passenger cars in August to China alone, a rise of 69%.


We continue to like Germany as a slow and steady growth play, which we’ve traded via the etf EWG. With European and global fundamentals improving, we believe demand for German exports will buoy growth. Yet we remain cautious that much of the improvement, through stimulus measures such as the cash for clunkers, is now rear-view and short-time worker contracts, which have held unemployment steady, will be expiring coming into the end of the year.


Matthew Hedrick



“Why mid-September? That’s when you are going to get the August PPI report, and that should mark the low in deflationary reports. From there, you’ll see what we have coined Reflation’s Rotation into Q4. This simply means y/y Q3 price deflation will morph into y/y Q4 price inflation. –KM 8/18/09



Today’s PPI release for August showed an increase of 1.7% month-over-month the fourth sequential monthly increase (a decline of 4.34% over last Augusts reading). Although this increase was driven primarily by rising fuel costs, so called “Core” prices increased by 0.2% for the month catching many observers off guard.



Keith wrote last month that the number released today would mark the low for the deflationary cycle and that the Reflation Rotation we have been predicting for Q4 would start develop; causing interest rate expectations to creep upwards and, ultimately, to moderate the trajectory of the dollar’s decline. As we wait for Tomorrow’s CPI reading looking for more confirmation we remain positioned for these expected shifts in both reality and sentiment with portfolio positions like our  long TIPs/short the 2 Year pair.




Andrew Barber




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 80.37%
  • SHORT SIGNALS 78.32%

Sunny D(ays) for Obama?

President Obama’s approval rating has seen an uptick in recent weeks and is now near two month highs, which is coincident with Research Edge’s hiring of Darius Dale, our newest Junior Analyst. I was sold on Darius fairly quickly after his first interview.  Not only is he a Yale Athlete, all Ivy Football player, but he also called me Mr. Jones!  Darius, who is more commonly known as Sunny D by his former Yale Football teammates, is a resilient man (after all he works for Brian McGough, who is probably the hardest working Director of Research on Wall Street!). It seems the President may finally be experiencing some “Sunny D” type resilience in his approval.


We’ve outlined this in the chart below, but as of the most recent reading in the Rasmussen Daily Tracking Poll, President Obama is rated -4.  This poll is calculated by subtracting Strongly Approves from Strongly Disapproves.  While clearly no President should be content with a negative rating, and -4 is dramatically off the highs of the Obama Presidency, it is indicative of dramatic improvement from his lows, which troughed at -14 in the throes of the healthcare debate in mid-August.


So other than Sunny D joining Research Edge, what is helping the President? For starters, President Obama’s speech to Congress and broadcast nationally seems to have been at least moderately well received.   President Obama has been oft criticized for articulating his healthcare plan ineffectively, and it seems this appearance at least helped him make some headway in the regard.  According to statistics from Newsweek, President Obama has made public remarks (speeches, town halls, interviews, etc) 263 times since being elected.  Based on the same analysis, 123 of those appearances have had some healthcare content.  It seems that the 123rd appearance (his speech to Congress last Thursday) may have been the lucky one, at least for the short term.


Rasmussen summed up the volatility in President Obama’s approval and its relationship to healthcare last week, when he wrote:


“When the public debate over health care reform began in earnest in June, 50% of voters nationwide supported the legislative effort and 45% were opposed. By August, support had fallen to 43% and opposition had risen to 53%.”


As of this Monday, approval for the healthcare plan was back above 50%, at 51%.  Clearly, President Obama’s approval rating is very directly related the fortunes and/or perception of his healthcare plan.  His approval rating started to deteriorate as he introduced the plan and has ebbed and flowed based on the tenor of the national healthcare debate over the last two months.


Synching the information from Rasmussen with a Gallup poll provides an even more important leading indicator.  According to a recent survey by Gallup:


“Americans remain split on the issue of healthcare reform, and almost two-thirds (64%) say their representative’s position on healthcare reform will be a major factor in their vote in the next congressional elections.”


Thus, it is clear that the nature of the healthcare reform debate, and how representatives vote on it, will be critical as we start looking towards midterm elections in 2010.   It seems, at least based on the Gallup poll above, that representatives will be held directly accountable for their votes on this legislation.  This will also be a critical test for President Obama; while he is certainly seeing a bounce in approval, and this is positive, he has expended an incredible amount of political capital on the healthcare battle, which will shape the remainder of the first year of his Presidency. The first test will be whether the bill passes, in what form, and then how representatives are judged by their constituents.


Daryl G. Jones
Managing Director


Sunny D(ays) for Obama?             - RASMUSSEN


Our healthcare analyst, Tom Tobin, flagged the following two CDC charts this morning.  The first chart shows that the flu season is starting early this year as it was virtually non-existent at the same time in the prior two years.  This chart points to an already bad flu season that is likely to get significantly worse come the winter months when the flu is more prevalent.  The second chart illustrates which regions of the U.S. are currently most affected.


Swine flu has infected more than 254,000 people since April and killed more than 2,800, according to the World Health Organization. The number of fatalities has more than doubled in the last month, with infections rising 10-fold since June.  Thus far, the swine flu has not been as deadly as past pandemics, but based on current outbreaks so early in the season, it is likely to be far more widespread.


Such widespread illness, even with only moderate symptoms, will affect people’s behaviors, and I would not be surprised to see an impact on restaurant demand.  Most obvious, people will not go out to eat if they are sick.  The bigger impact, however, comes from all of the people who choose to stay home out of fear of becoming infected.  From a geographic standpoint, it will be interesting to see how restaurant trends in Florida and the South Atlantic states have fared most recently as the flu is most widespread in those regions of the country.  Based on Malcolm Knapp’s data, both Florida and the South Atlantic have been outperforming the national average in recent months (through June) after consistently underperforming in 2008 and early 2009.  We expect to receive Malcolm Knapp’s July regional data and overall August comparable sales numbers in the coming week.






Industry replacement demand still bouncing along the bottom but BYI is making deals.


This morning BYI announced that it sold additional hardware and software to Morongo Casino Resort Spa, an existing BYI systems client.  BYI will be installing 2,000 iVIEWs along with a suite of software that includes Business Intelligence, Bally Power Promotions and Power Winners, which together will allow the casino to offer floor-wide random progressive jackpots and chain-reaction rewards, and free play credits to slot machines on their floor.


Morongo also signed a contract with Cisco Systems to implement high-speed Ethernet on their floor. Ethernet will help optimize the use of iVIEW, allowing for faster streaming of bonusing games, promotions and other video content that the casino chooses to stream through the window.  We estimate that this contract will generate approximately $3.5MM of revenue and $0.02-$0.03 cents of EPS.  If the Ethernet enhances the Morongo’s ability to leverage iVIEW, we can expect further software upsales which will continue to enhance the recurring revenue stream that BYI receives from this system.

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