Smell Those Burning Bucks

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.”
-John Maynard Keynes
The inspiration that the world’s economic leaders derived from Timmy Geithner at this weekend’s G-20 meetings in Scotland must have been profound. The US Dollar continues to crash this morning.

Trading down a full percent in a day, for any currency (never mind the world’s said reserve currency), is a really bad day. This morning marks the largest one-day drop in the US Dollar since July 31st. The Buck is Burning

Why? Take your pick:

1.      Bernanke - pandering to the political wind last week, keeping rates at an “emergency rate” of ZERO percent

2.      G20 – no one trusts Geithner or his suggestion that countries “take a chance again on the American economy”

3.      US Employment – that was a nasty report on Friday

I’ve belabored the Credibility Crisis that our perceived economic savants are suffering from, both domestically and internationally, for the better part of 2009. I wake-up trying my best to not go off on this, but the severity of the US government’s negligence just keeps heightening.

I re-shorted the US Dollar a few weeks back because I didn’t think consensus was Bearish Enough. Let’s go through that and focus on the aforementioned point #3 - US Employment. Suffice to say, Friday’s report of 10.2% unemployment for the month of October was awful.

So is the US stock market up (the SP500 is up for 5 days in a row, and futures are indicated up again this morning)? That’s easy an easy answer: The US Dollar. The US Dollar was down for the fourth week out of the last five. It has lost -16% of its value since March.

What’s negative for the US economy is negative for the US Dollar. What’s negative for the US Dollar is positive for most things priced in dollars. If you didn’t know about this perverse relationship between the price of the US Dollars and everything else, now you know.

Put another way, since the US Federal Reserve’s Pander Program hinges on lagging “data”:

  1. Bad economic data = Fed stays at ZERO
  2. Good economic data = Fed signals their 1st hike

That’s why I am so focused on this dynamic relationship between the Fed, the Dollar, and the US Financial System’s Credibility. The politicization  of the Fed perpetuates US Dollar weakness. So does the mother of all Global Diversification trades away from Burning Bucks into everything else (Gold, Euros, etc…). This is not new, but it has yet to be faced by the willfully blind in Washington.

I think your average American with common sense understands that Geithner’s smug approach is not to be trusted. Now, if we pile on some massive payouts to Wall Street, this could actually get quite ugly. The citizenry against the bankers? Not good President Obama, not good…

This morning Michael Moore (the Bloomberg reporter) walks through the scheduled bonus payouts for the top 3 government sponsored US investment banks: Goldman Sachs, JP Morgan, and Morgan Stanley. His math has those 3 banks (comprising of 119,000 Americans) paying out $29.7B in bonuses in 2009. Never mind that being up 60% year-over-year, according to Moore that’s UP versus the prior peak (2007) of $26.8B!

Creating an “US vs. THEM” society in this country is not cool. “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.” China gets this. They have seen this movie all over the world before. Being Too Big Not To Pay isn’t going to end well for 99% of America.

With Bernanke and Geithner politicizing the short end of America’s yield curve last week, the Piggy Banker spread (or Yield Spread, which is 10-yr UST yields minus 2-yr UST yields) has shot up to +266 basis points wide this morning. That’s only 10 basis points shy of the widest spread EVER. Ah, if we commoners could only have a sip of that government sponsored elixir. Free moneys from the heavens, for a select few…

Whether it be via the Yield Spread, M&A, or the latest dog from the land of Private Equity coming to an IPO near you, this is what we have labeled as one of our top 3 Macro Themes here in Q4 – The Banker Bonanza. Americans get this, and they definitely don’t like the smell of it.

Never mind that smell of Burning Bucks. Don’t fight it, or get upset about it. “Take a chance” and take Timmy’s word for it.
The immediate term risk/reward scenario I see starting to build in the US equity market has turned decidedly negative in the last 2 days of this low volume rally. I see -3.5% downside in the SP500 to 1030, versus less than +1% upside to 1077. I’ll be selling strength again today.

Best of luck out there this week,



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 on 10/20. TRADE bearish and TREND 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.   


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.

EWY – iShares South Korea South Korea has joined Japan in the ominous position of broken TREND and TRADE. This is not China or Taiwan. This is an early cycle economy that we want to be short against China/Taiwan.

XLI – SPDR Industrials Industrials shot up +1.1% on 11/3 because of a monster Berkshire bid. That’s now in the price of XLI. We’ll short expectations for V-shaped recovery. TRADE bullish, TREND bullish.

EWU – iShares UK Despite areas of improvement, broader fundamentals remain shaky in the UK: government debt continues to expand, leadership in critical positions lacks, and the country’s leverage to the banking sector remains glaringly negative.  Q3 saw its GDP contract by -0.4%. Further bank stimulus and the BOE’s increase in its bond purchasing program suggest that this will not end well.


XLY – SPDR Consumer Discretionary We shorted Howard Penney’s view on Consumer Discretionary stocks on 10/30. TRADE and TREND bullish.  

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

UUP – PowerShares US Dollar We re-shorted the US Dollar on strength on 10/20. There continues to be 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. November 9th, 2009.



LVS seeks to raise up to US$3.4 billion through an initial public offering of shares in its Macau business, in what could be the world’s fourth largest offering of the year.  The top end of the range is higher than the roughly US$2.5 billion the market had been expecting.  The offering consists of 1.87 billion shares, a 23.4% stake in the company, priced between HK$10.38 and HK13.88 per share.  The sale values Sands China at as much as HK$111 billion, or 16.6x next year’s EBITDA.

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Bill Critical for Ailing Retailers

The President signed a bill Friday that includes an important provision for struggling retailers that likely flew under the radar since it’s more broadly recognized for extending the home buyer tax credit. The primary difference for retailers compared to the original stimulus package in February is that 1) larger businesses (above $15mm in revenues) are eligible and 2) it extends the loss carryback from 2 to 5 years for losses suffered in either 2008 or 2009. A quick screen reveals nearly two-dozen retailers that could benefit from this legislation; however, the cash realized will be material only to a select few. Given the lack of clarity of the exact accounting of the bill, we are not attempting to quantify the exact cash infusion anticipated, but merely flag those who are likely to benefit the most.


The companies that have been lobbying Congress for the loss carryback provision since February such as Liz Claiborne, Pier 1 Imports, and Office Depot are some of the retailers poised to benefit. Based on our screen of companies with either substantial losses in 2008, or over the LTM, and substantial earnings and therefore tax expenses paid from 2003 to 2008 we have identified several others including DDS, CHRS, TLB, ZLC and CROX.


Again, these aren’t the only companies that will benefit from this new legislation, but given recent liquidity concerns are likely to benefit the most from this added stimulus.



Casey Flavin






Read on for property details of a very strong October in Macau. LVS and SJM were the big market share winners, MPEL and WYNN the losers. 



As expected October continued the three month pattern of double-digit growth in  Macau.  October table revenues grew 44% y-o-y and 14% sequentially.  Of course October '09 had the benefit of two new properties, City Of Dreams (CoD) and L'Arc; and the benefit of an easy comp (October '08 table revenues were down -6%).  October VIP revenues grew 47% y-o-y and Mass was also strong at 37% y-o-y growth.


The big winners in terms of market share were Venetian/Four Seasons, SJM, Galaxy and MGM.  Losing the benefit of high hold in August, MPEL's share dropped back to earthly levels, and WYNN's share continues to be impacted by new supply.  Read on for property level details.



Y-o-Y Property Observations:


LVS table revenues up 34%

  • Sands was up 2.6% driven by a 6% increase in Mass and VIP growing 1%
    • Junket VIP roll decreased 5% at Sands, more than offset by direct VIP play (which doesn't get captured in reported VIP RC) or hold %
  • Venetian was up 52% with VIP increasing 82% and Mass increasing 15%
    • Junket VIP roll was up 57%
  • Four Seasons was up 130% y-o-y and up 30% from a seasonally slower August
    • Mass revenue increased 74% while VIP climbed 150%.  VIP roll was up 200%



Wynn table revenues were up 4.8%

  • Mass was up 26.5%, offset by a 1% decrease in VIP



Crown table revenues grew 50%, with both properties down from a strong and lucky August

  • Altira was down 30%
    • VIP roll was only down 5% but hold was weak once again at roughly 2.2% (note that Altira has a very small direct play business so the Junket RC is close to total RC at the property)
  • CoD table revenue was down 34% sequentially.  September benefited from very strong hold at the property which inflated win
    • Mass continued to ramp growing 20% m-o-m to $22MM
    • Junket VIP roll fell 3% sequentially.  Hold looks like it was weaker from August's high, but there could also have been growth in direct VIP play



SJM continued its hot streak, with table revenues up 74%

  • Mass was up 57% and VIP was up 86% 
    • As we mentioned last month, SJM had the benefit of L'Arc opening September 21st and we believe that SJM revenues should continue to stay strong with the addition of Oceanus in either December or early January



Galaxy table revenue was up 44%, mostly driven by a 50% increase in VIP win.  Mass was up 6%

  • Starworld continued to perform well with table revenue up 59%, driven by 66% growth in VIP revenues and 8% growth in Mass win



MGM table revenue was up 52%

  • Mass revenues grew 16%, while VIP grew 68%
  • Junket roll was up 45% 



Market Share:


- LVS share increased to 23.7% from 19.6% in September

  • Sands' share increased slightly to 8.4% from 8.3% in September
  • Venetian & FS share increased to 15.3% from a low of 11.3% in September

- WYNN's share decreased to 11.9%, the lowest share month since Wynn's opening


- Crown's market share plummeted to 11.9%, from a 17.5% high in September


- SJM's share ticked up to 31.6% from 31.5% in September


- Galaxy's share increased to 12.8% up from 10.6% last month


- MGM's share increased to 8% from 7% in September


The Economic Data calendar for the week of the 9th of November through the 13th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.  




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