With BKC reporting some disappointing numbers today, we have updated our BIG 3 chart. 


The 3Q09 number for WEN reflects our estimate of flat same-store sales growth for the quarter.  WEN reported that comparable sales growth was up 2% in July.


The trends for MCD continue to slow; MCD finally admitted that high unemployment has had "some impact" on its breakfast business.  According to senior management, “the impact has been inconsistent, reflecting the uneven path of unemployment across the nation.” 


Yesterday was an ugly day, but yet, not an unexpected day for the restaurant industry.  The small cap stocks were down on a big increase in volume, but this was consistent with the Russell 2000’s 3.5% decline, underperforming both the Dow and the S&P 500.


We are definitely looking for an entry point in some of the better positioned names, but I am not optimistic about how Q4 is going to shake out.  I would like to feel confident that expectations for Q4 are already discounted in the stock prices.


CHUX reported in line numbers, but there is nothing there to get that stock moving to the upside with any meaning.






Walk The Line

“The key to change is to let go of fear.”
-Rosanne Cash
If you ask the Kudlow “King Dollar” crowd, US Cash is king. I agree. But that notion definitely doesn’t apply across durations to the stock market. In the immediate term, what we have learned in the last 4 days speaks for itself. Dollar up = everything priced in dollars down.
Do the perma-bulls want to believe that if rates on our cash go up, that everything priced in cash will keep going up? Are we ready to let go of the short term fear in exchange for the longer term fix? Are we ready to Walk The Line?

Admittedly, after a -57% stock market crash from the October 2007 peak to the 676 low, then a +62.3% rip to the October 2009 high, no one is really too sure what kind of cash they are looking for. Maybe the answer is the Johnny or Rosanne kind!
By virtue of the 48% position I have in US Cash in our Asset Allocation Model, I could pretend that I felt fine about yesterday. I didn’t. Yesterday we saw the US Dollar walk what we call the TRADE line.
The lines that matter from an immediate term TRADE perspective in the US Dollar versus SP500 inverse correlation are:
1.      SP

2.      US Dollar Index $76.20

If you don’t think those lines matter, look at the data again. Look at the expediency of the breakdown you saw in the US stock market the minute that the US Dollar Walked over that Line.
Yesterday, the Bombed Out Buck closed up another +0.5% on the day at $76.51. As a result, the SP500 waited for no one and chased the bulls right out of the building for the 4th straight down day, closing down a full -2% at 1042. The cumulative correction in the SP500 from the YTD high is now -5%. The key to this change in market momentum is not to fear it, but to understand it.
We are Walking the only line that really matters. Can the US Dollar hold these gains? Will Bernanke fade like a fall flower on signaling a rate hike next week? Are we brave enough to slap handcuffs on more insider traders? Can we re-build the credibility side of America’s currency and hold the longer term lines of support for the SP500? For now, I think we can – provided that the US Dollar doesn’t breakout above its TREND line.
The intermediate term TREND line for the SP500 and US Dollar, respectively are 1017 (-2.5% lower) and $77.89 (+2% higher). Understanding the difference between a TRADE and a TREND here is critical.
Best of luck out there today,

EWZ – iShares Brazil President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt –leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. Brazil is a major producer of commodities. We believe the country’s profile matches up well with our reflation call.

EWT – iShares Taiwan
With the introduction of “Panda Diplomacy” Taiwan has found itself growing closer to mainland China. Although the politics remain awkward, the business opportunities are massive and the private sector, now almost fully emerged from state dominance, has rushed to both service “the client” and to make capital investments there.  With an export industry base heavily weighted towards technology and communications equipment, Taiwanese companies are in the right place at the right time to catch the wave of increased consumer spending spurred by Beijing’s massive stimulus package.

XLU – SPDR Utilities We bought low beta Utilities on discount (down 1%) on 10/20. Bullish formation for XLU across durations.

FXC – CurrencyShares Canadian Dollar We bought the Canadian Dollar on a big pullback on 10/20 and again on 10/28. The TREND and TAIL lines for the Canadian Dollar remain bullish.

EWG – iShares Germany Chancellor Angela Merkel won reelection with her pro-business coalition partners the Free Democrats. We expect to see continued leadership from her team with a focus on economic growth, including tax cuts. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; with fundamentals improving in a low CPI/interest rate environment, we expect slow but steady economic improvement from Europe’s largest economy.

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

XLV – SPDR Healthcare
We’re finally getting the correction we’ve been calling for in Healthcare. We like defensible growth with an M&A tailwind. Our Healthcare sector head Tom Tobin remains bullish on fading the “public plan” at a price.

CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP – iShares TIPS
The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

UUP – PowerShares US Dollar
We re-shorted the US Dollar on strength on 10/20. It remains broken across all 3 investment durations and there is no government plan to support it.

FXB – CurrencyShares British Pound Sterling The Pound is the only major currency that looks remotely as precarious as the US Dollar. We shorted the Pound into strength on 10/16.

SHY – iShares 1-3 Year Treasury Bonds
 If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.


The Macau Metro Monitor. October 29th, 2009.





The State Council in Beijing has approved a feasibility report on the construction of a bridge linking Hong Kong, Macau and Zhuhai, Guangdong Province.  An official statement released after an executive meeting of the State Council, chaired by Premier Wen Jiabao, said that the construction of the bridge will forge stronger economic and social ties in the Pearl River Delta.


The bridge is expected to cost 72.6 billion yuan (US$10.63 billion).


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The reaction to BYD, WMS, and especially WYNN's Q3 taught us that expectations were pretty darn high for this sector. With LVS off 20% this week, they've probably come down.



One has to have brass bones to own a gaming company into Q3.  We think LVS is going to post a solid quarter but what does that mean?  We felt the same about WYNN.  Understanding that expectations were high, we weren't expecting a positive reaction in the stock, but an 11% plunge?  Now that would've been a great call.  Unfortunately, we didn't see it.


So back to LVS.  We are projecting total company EBITDA of $266 million versus the Street at $245 million.  Once again, we are above the Street, but will it matter if we are right? 


In Macau, we think Sands EBITDAR will come in around $65 million, up significantly over last year's $43 million due to significantly higher hold percentage on RC, which was only 2.35% in 3Q08, and deep cost cuts.  As a partial offset, table drop will be down in both RC and mass y-o-y. For Venetian we have EBITDAR increasing to 8.4% to $147 million, with the increase driven almost entirely by cost cutting at the property level. Four Seasons, on the other hand, experienced a huge ramp in table drop this quarter, especially on the RC side. High hold didn't hurt either. We estimate $16 million of EBITDA at FS versus just $3 million in 3Q08.


Las Vegas is Las Vegas and we don't feel like we have much edge on the number for Q3.  We are at $76 million, pretty close to the Street consensus, and slightly above last year.  Remember that in last year's Q3 LVS held at a very low percentage, which cost the company about  $30 million in EBITDAR.  It's not like we are saying business is better in Las Vegas.









“At Marina Bay Sands in Singapore, construction, development and pre-opening activities continue on pace, and we are targeting an opening of the property in the first quarter of 2010.”





“We have now increased our cost saving initiatives to more than $500 million of annualized savings. This is $30 million more than we had previously targeted. And we will continue our efforts to identify additional opportunities to increase that $500 million number. As of June 30, we have successfully implemented approximately 69% of these identified costs, eliminating $345 million of costs from our running rate.”


“We expect to have fully implemented approximately $200 million in annualized cost savings across our Las Vegas operations by end of this year.”


“The three prong strategy for the Venetian Macao continued throughout 2009 with the first initiative, the rightsizing of our business and the full implementation of our cost savings program, as well as other efficiency initiatives front and center. We have now expanded that program to target at least $300 million in annualized cost savings across our Macao operations…As of June 30, 2009, we have implemented approximately 70% of our targeted savings. That is up to $210 million from our annual run rate.”





“Looking ahead, we hope to benefit from both the launch of new marketing programs at the property [Four Seasons] and a natural increase in visitation to Cotai as our neighbor the City of Dreams continues to mature. We should also benefit from the recent addition of our 19 luxurious Paiza mansions, which have been full since they have opened.”

“We expect to increase visitation and play at the property [Sands Bethlehem] as our player development, promotion and bussing programs mature in the months ahead, particularly in the mid-week businesses situation.”

“So we expect overall that our original business plan will be amply executed in Singapore by selling the cash flow of the retail mall in Singapore and either substantially reduce or eliminate the total debt to build Singapore. In the case of Macao, the cash flow and the sale, of course, we have to wait until the current real estate property market improves, but it is going better in Asia than it is in the United States, and when it gets back to normal, we will sell our retail – we will consider selling our retail, if we can get the exaggerated price we are looking for.”

“And we do intend to start selling the Four Seasons apartments, serviced apartments as condominiums, hopefully by the end of this year. And I was in China, this past week… people are opening up – they are picking up their mattresses, taking their money out, and they are starting to buy apartments, and they made reference to the old style of Hong Kong apartment sales that several projects get sold out within two or three days of they being exposed to the market. So we do expect a very good response on the Four Seasons apartments.”

“And in Las Vegas, as the market returns to normal, and you're guess is good as ours, but things appear to be appearing more normal in today's – currently than has been over the last six to twelve months, then we would be able to hopefully restart our condominium project, the St. Regis project for condos and then substantially reduce our debt in the Las Vegas market plus upstreaming money from Macao and Singapore.”




"The good news is demand is certainly there, it is returning, it is getting better for both the balance of this year and in 2010 and 2011. The issue is going to be rate because, obviously, we love to go back to running 45% of our mix being group driven, and it enables us maybe to fill and fill it fast, ADRs, and the banker revenues with it."

Sheldon: “But listen, we have got to – we can’t be as strong as we were in the past. We will have to take a little bit of time to ramp up to get back to normal.”



Sheldon: “So I want to emphasize that there is no question whatsoever that in the near future we are going to have a decision on which is the best opportunity for us to create the liquidity that we would like to have. So this is not a question of if, it is only a question of when, and what are the most favorable terms for us. So when we come out with the answer, it will be an answer that will be the best answer available in the market today.”




Sheldon: "they said it is likely to pass by the end of the summer, and if doesn’t, it will pass for sure in the fall."





Sheldon: we think we can get away with something $50 or $75 more than what just a plain hotel room can get. So not all hotels, not all Vegas properties are created equal. We think we are created a little more equal than others and our ability to get back to normalized ADR is probably better and faster than our competitors. Of course, The Palazzo and Wynn are – still have a very, very high level of appreciation.



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