The Macau Metro Monitor.  December 17th 2009.



Trade between Macau and the Chinese interior has risen more than three-fold in the last ten years, totaling US$2.91 billion, according to the Chinese trade ministry.  A Xinhua-published report also noted that since 2006, all products manufactured in Macau have been exempt from taxes, which “made industrial restructuring easier” for the territory.


Most of Macau’s banks now operate with yuan and, last October, deposits in the currency of the People’s Republic of China totaled US$258 million, according to the trade ministry.




The parent company of Macau casino operator Melco Crown Entertainment is seeking to extend the maturity date of a HK$1.175 billion convertible loan due next September.  The extension is being sought in order to ease its funding needs, according to the company.


We are waking up today to the U.S. Dollar Index trading at a 3-month high on the strength of the U.S. recovery.  On the MACRO calendar today we have initial jobless claims and the Index of leading indicators; both data points will signal continued economic improvement.     


Despite all the signs of an economic recovery and inflation returning in the US, yesterday’s statement from the FOMC meeting proved to be a carbon copy of the last.  While the Fed clearly referenced signs of a pickup in economic activity, it failed to acknowledge that the cost of living in the US is accelerating.  The FED is way behind the curve.  


Yesterday the DOW finished down 0.1% and the S&P 500 finished higher by 0.1%.  Although a late-afternoon pullback left the indexes closer to the lows by the end of the day.  The year is winding down and the Research Edge quantative models have the sector study breaking down. 


Yesterday the MACRO calendar was supportive of the global RECOVERY trade.  The MACRO data included better-than-expected economic data out of the US and Europe – US housing starts, UK unemployment, German and French flash PMIs.  This led to the outperformance of the sectors most leveraged to the RECOVERY theme, such as Materials (XLB) and Energy (XLE). 


The move into riskier assets was evidenced by the Russell 2000 rising by 0.8% and the VIX declining 4.4%.  Over the past week the VIX is down by 9.4%.


The second best performing sector was Energy (XLE).  The XLE benefited as Oil rose the most in a month yesterday after the Energy Department said U.S. crude inventories declined to the lowest since the week ended Jan 9th.


In November housing starts increased 8.9% month-to-month to a 574,000 annual rate.   The overall number benefited from multi-family starts surging 67.3; the biggest gain since 1992. Single-family starts rose 2.1% to 482K following a 7.1% decline in October.   Permits (a key leading indicator) were also looking positive - multi-family permits rose 8.8% and single-family permits were up 5.3%.   On the back of this news housing-related stocks were among the best performers in the Consumer Discretionary (XLY) and the XHB was up 1.4%.


The Financials (XLF) slightly outperformed the S&P 500 despite the headwinds facing the banks.  Within the XLF the Life insurance names were a bright spot with LNC and PRU leading the way.


The worst performing sector yesterday was Healthcare (XLV).  The XLV underperformed by 0.4%, despite the continued upbeat sentiment surrounding managed care stocks on watered-down reform expectations.  The PBMs were among the biggest headwinds for the XLV yesterday. 


The range for the S&P 500 is 1.0% upside and 1.0% downside.  At the time of writing the major market futures are trading lower.


In early trading today, crude snapped two days of positive performance as the dollar index is up 1%. 


In London Gold is trading lower as the dollar is higher.  Gold is now 8.1% below the record $1,226.56 reached on Dec 3rd.


Copper fell the most in a week, declining 1% to 3.17.


Howard Penney

Managing Director


Bernanke's Burden Of Proof - Vol. II

As expected the FED ignored the recent CPI and PPI data…..  I will not change from what I said earlier today - today’s CPI data solidifies Bernanke changing the language at the next meeting.  He needs to remove his unsustainable and unreasonable policy that remains “exceptional and extended.”


We have used the term “pandering” to reflect the fact that the Federal Reserve is subjected to short-term political pressures to keep rates low.  FYI--the time to raise rates is now! 


The consensus expectations are convinced that there is no inflation worries building in the economy  and that rates will stay "exceptionally low" to keep the economic recovery on track.  However, it’s my belief that the CPI continues to run counter to what REAL people and business are experiencing.


Tomorrow Ben will be in front of congress.  A cynic would suggest that today’s FED statement did not contain anything inflammatory ahead of the confirmation process, and that he is just trying to get to the January meeting. 


Howard W. Penney

Managing Director

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 80.47%
  • SHORT SIGNALS 78.68%


CityCenter may or may not generate the buzz MGM hopes for, but if it does it probably won't come from Vdara.



We've been in Vegas, staying at the Vdara, since Sunday night, and below are some of our impressions of City Center and small tidbits that we've learned during the last few days


City Center mechanics

  • City Center may not have 5,900 rooms after all, or at least not for a long time
    • Vdara currently has 400 rooms open and will likely remain at this level until at least end of 1Q2010.  Until MGM can figure out which buyers are going to close on the reserved condos, and which will back out, they can't really touch most of the rooms at this property
    • Harmon, which (until recently) management recently assured investors would open in 2010, is now indefinitely postponed until at least 2011 or until demand comes back, whenever that may be
  • Whatever condos don't close in early 2010 will not likely get sold off for another 12-24 months (ie whenever the market recovers)
    • The Mandarin residential product, which is 93% reserved, should have the best closing rate.  We would guess in the neighborhood of 70-75%
    • For Vdara and Veer, a 60% closing rate would be optimistic.  The issue for Veer is that they need to sell at least 50% of the inventory in order for their JV lender to offload the mortgages to Fannie/Freddie.  Otherwise Veer is basically impossible to finance and will likely sit dark.  We think that MGM will do whatever they can to push buyers from Vdara to Veer in order to reach that hurdle rate and just run Vdara like a regular hotel
  • It's unlikely that MGM gets any distributions from condo sales
    • Below is a quick outline of how condo proceeds will be distributed...if you do the math you will arrive at the same conclusion as us
    • First in line: up to $250MM of the condo proceeds to go towards construction costs
    • Second in line: the next $250MM of condo proceeds goes towards permanently reducing the City Center credit facility from $1.8BN to $1.55BN
    • Third in line: Dubai World gets priority on the next $491MM of condo proceeds
    • Last in line: After the $991MM of condo proceeds get distributed MGM can now get its distribution of what's left... our guess is that distribution doesn't come until the cows come home or the market recovers in 2011/2012
  • At some point MGM will need to re-start Harmon, which should cost around $300MM, any proceeds from condo sales will like be largely offset by construction spend on Harmon which MGM will need to fund


Our CityCenter experience (actually Vdara):


Vdara is a newer but unfortunately, less cool, version of The Hotel.  Given the ease of access, it appears to be more of a Bellagio adjunct than part of the CityCenter metropolis.


City Center feels like a cluster of separate properties rather than a cohesive resort.  If you are staying at Vdara and want to see the rest of the resort its not very easy.  To get to Aria you have to cross the "City Center highway" which is basically a 2 block walk across a maze of "highway" with no sidewalk or walking path.  There is however, a convenient covered walkway connected to Bellagio (no accident, we surmise).  To get to Mandarin you can take the covered walkway through Bellagio to the "City Center Tram" to Crystals, walk through Crystals and across the sky bridge to Mandarin.  Alternatively, you can walk across City Center highway to Aria and risk getting run over, walk through Aria, and then walk two blocks to Mandarin. You get the point. 


Vdara also only has one restaurant, Silk Road, which is quite tasty (all three meals) and a lobby bar & coffee station.  The gym is nice and there is a convenient $15 resort fee added to your room rate which covers the cost of the gym.  However, unless you are getting a treatment at the spa, you still have to pay $25 to access the tiny spa facilities containing only a locker room with showers, hot tub, steam room, and sauna.  This is no Encore Spa so the likelihood of a $25 splurge is probably low.


The room is fairly nice - a la "The Hotel" at Mandalay Bay - but smaller with a useless kitchenette and no separate living room. The observant traveler will be able to tell MGM didn't spend big bucks on the fixtures here.  Toilet paper holders seem to be having trouble staying on the wall and who needs a nightstand drawer that closes?  It's the little things, folks.

Glass-Steagall Reinstatement Heating Up

Here's a key call-out from our new Financials analyst, Joshua Steiner:



This morning Senators John McCain (R-AZ) and Maria Cantwell (D-WA) are floating a bipartisan bill aimed at reinstating Glass-Steagall. Under their proposal, firms operating with both commercial and investment banking businesses would be given one year from the date of passage to separate the commercial and investment banking sides of the business into separate companies. The bill would also preclude commercial banks from operating in any sort of insurance capacity, requiring affiliated insurance businesses be separated as well.


The proposal comes on the heels of similar efforts to amend the House Financial Services Stability Improvement Act a few weeks back. Passage in the Senate will be an uphill battle, and while a similar amendment failed to escape committee in the House, we think it amounts to another log on the fire of calls for financial reform.


Once Healthcare has moved off the front burner early next year, we expect financial reform to take center stage, with the threat of Glass-Steagall likely being the bargaining chip to get tougher rules/regs through.


Later today, the FED will ignore the recent CPI and PPI data; the text of today’s release from the FED was already written before the CPI data was released.  I’m kidding; I actually have no idea.  What I do know is that today’s CPI data solidifies Bernanke changing the language at the next meeting.


Ben has proven that he has zero ability to forecast inflation accurately, so when you see him PANDER today, it will be based on what he thought the CPI and PPI were going to be prior to this week.  There is a one month lag in the data – and he is a month behind that data. 


The cost of living (CPI) in the US accelerated in November from October - my 1.9% estimate turned out to be 1.8%.  Regardless, it still marks the end of DEFLATION in the US.  The core was not up as much as expected due to a drop in ”shelter” costs.  It’s my belief that the CPI continues to run counter to what REAL people and business are experiencing.


The Research Edge Inflation index is still signaling that the FED will need to raise rates sooner rather than later.


Howard W. Penney

Managing Director



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