The Macau Metro Monitor.  December 21st, 2009




Las Vegas Sands Chairman Sheldon Adelson said that he expects construction to be restarted on the company’s Cotai Strip project in about five months.  The first phase of the project will be finished by June 2011 and phase two will be completed by the end of 2011, according to Adelson.  Sands China, recently listed on Hong Kong’s stock exchange, raised US$1.75 billion in project financing last month to restart construction on Lots 5&6.  It will also use US$500 million raised from the US$2.5 billion initial public offering for construction purposes.  Construction was halted in November 2008 due to a lack of funding.


LVS’ plans include more than 20,000 hotel rooms in Macau, about 1.6 million square feet of exhibition space, more than 2 million square feet of retail malls and six theaters.  Separately, Adelson said that the first stage of the Marina Bay Sands integrated resort in Singapore will open in early April.



The celebration marking the 10th anniversary of Macau’s return to the motherland and the inauguration of the third-term government of the Macau Special Administrative Region was held on Sunday.  Chinese president Hu Jintao attended the ceremony, where Macau SAR Chief Executive Fernando Chui Sai On and principal officials of the SAR governments were sworn in. 



Macau plans to diversify its economy over the next five years into sectors such as logistics, according to new Chief Executive Fernando Chui.  Chinese leaders also pledged to better regulate gaming in the territory.  Chui said, “While enhancing regulations on the gaming industry, we will also put emphasis on the convention, exhibition, logistics, and cultural industries.  We will also focus on the upgrade and transformation of traditional industries.”



Stanley Ho made his first appearance in more than four months at the inauguration of the third-term Macau SAR government at the Macau dome yesterday.  The 88 year-old had been hospitalized in Hong Kong and has reportedly undergone two surgeries.




Macau’s Statistics and Census Service announced that the consumer price index decreased 0.11% year-over-year in November, compared to the 1.1% fall in the previous month.  On a monthly basis, the CPI increased 0.49% in November, faster than the 0.28% growth in the preceding month.  For the January-November period, consumer prices have risen by 1.21% when compared to the same period in 2008.



President Hu Jintao ended his two-day tour of Macau on Sunday with a groundbreaking ceremony for the SAR’s only comprehensive university.  The move follows up on a promise by the Central Government to give more land to Macau.  The university now begins construction of its new campus on Hengqin Island.  


The S&P 500 finished by 0.6% in uneventful trading on Friday. That said only two sectors were up on the day – Financials and Technology.  Healthcare and Consumer Discretionary were flat on the day and every other sector declined.


The MACRO calendar was quiet, while some sovereign and geopolitical concerns were the focus on Friday. 


The dollar index rose 0.2% on Friday and is now up for three straight weeks.  Last week the dollar index rose 1.6%.  The strong dollar led the S&P to decline 0.4% last week, as Energy and Technology were the only sectors that outperformed and were up last week. 


The Technology (XLK) was the best performing sector on Friday.  The earnings calendar was the driver of the outperformance, with ORCL and RIMM leading the way.  Another notable gainer was TTWO, up 9.2% after Carl Icahn increased his stake in the company. 


The only other sector up on Friday was the Financials (XLF).  The XLF was up on the back of the banking group, with the BKX gaining 2.3%.  Although, last week the BKX declined 2.1% and is now down two weeks in a row.  There was some positive sell-side commentary on the sector, but a short covering rally seemed to be in place.


The Consumer Discretionary (XLY) underperformed on Friday, but was flat on an absolute basis.  There were some concerns about the holiday shopping season in the eastern US this weekend.  A bright spot were Restaurants stocks, with DRI up 7.3% on the day.  On Friday, Malcolm Knapp reported that November casual dining same-store sales came in -4.6% with traffic -4.4%.  On a 2-year average basis, this points to a nearly 190 bp sequential improvement in comparable sales trends.  Also on Friday, SBUX improved 6.4%.   


Consumer staples were the worst performing sector on Friday, declining 1.1%.  On a MACRO level the dollar was the likely culprit for the decline.  The big drag on the sector were Tobacco names and the Food Retailers.  The two worst performing name were WAG and WFMI. 


From a risk management standpoint, the ranges for the S&P 500, the Dollar Index and the VIX are seen in the charts below.  The range for the S&P 500 is 27 points or 1.0% upside and 1.0% downside.  At the time of writing the major market futures are slightly higher.


In early trading crude oil is relatively quiet as OPEC has a consensus on “no change” in oil production quotas for the bloc’s meeting tomorrow.  The Research Edge Quant models have the following levels for OIL – buy Trade (69.52) and Sell Trade (74.30).


Gold erased earlier gains to trade little changed in Asia at $1,112.57 an ounce by 2:15 p.m. in Singapore. It had earlier gained as much as 0.6% to $1,119.69.  The Research Edge Quant models have the following levels for GOLD – buy Trade ($1,101) and Sell Trade ($1,151). 


Copper climbed for the first time in three days in Asia on optimism the global economic recovery is gaining momentum.  The Research Edge Quant models have the following levels for COPPER – buy Trade (3.14) and Sell Trade (3.26).


Howard Penney

Managing Director















CityCenter sucks, other senior managers caused LVS's huge stock price decline, and moving back up to 3rd richest is most important. I'm paraphrasing and embellishing but you get the gist.



LVS Chairman and CEO Sheldon Adelson recently shed some light on a lot of issues.  I don't know if it is the light of truth but it is entertaining.  Here we go.




"Even though there is a lot of publicity about it, I haven't heard anyone who's seen it tell me it is going to be a winner. They have no strategy. They have no obvious plan. If they try to compete in the travel and tour business, they will cannibalize all their other properties, like the Bellagio. They don't have a convention space big enough to make an impact. So they built it without a strategy. How ill-advisable is that?"


- Negative comments by competitors is commonplace in the casino industry.  This statement is particularly harsh but may not be far off base.  The "without a strategy" comment is a little much.  The strategy was to capitalize on runaway consumer spending and housing prices.  We know how that is turning out.




"We did have a few bad managers, and they were the primary reason why our stock fell 99%. Those guys financed our expansion by borrowing against future assets (casinos) that generate income, rather than taking out normal project finance loans. It put us in a horrible position. Now those executives are gone, and I love coming to work again."


- Bill Weidner and Brad Stone, it's all your fault!  Why didn't you guys advise Sheldon to sell the company at $140 per share?  Normal project finance loans?  Most casino companies have financed their developments on their own balance sheet.  But hey, why let the facts get in the way of a good game of blame game? 




"My priority now is to get back to where I was, to be worth $40 billion again and rank third in America."


- World peace, eliminate hunger, top notch healthcare for all?  I'm a capitalist too but even if I was the greediest guy on the planet, I like to think that I would at least announce my greed in a more palatable way.  I'm in no position to judge though.  Even though he is no longer #3, he's still one of the tallest guys in the country, when he sits on his wallet (another Sheldon quote, this one from the good ole days).

The Week Ahead

The Economic Data calendar for the shortened holiday week of the 21st of December through the 24th 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.


The Week Ahead - ahead21

The Week Ahead - ahead22

Why the Euro is NOT a Buy

We’ve critically hit on (ad nauseam at times) the politicization of the Fed to keep rates low for an “exceptional and extended” period.  However, with Thursday’s decision by the Senate Finance Committee to vote in Bernanke for a second term now in the rear view and with the release of highly inflationary November US CPI and PPI numbers this week that even Bernanke won’t be allowed to ignore (+1.8% Y/Y and +2.7% Y/Y, respectively), we believe markets are increasingly pricing in expectations of a US rate hike.


As expectations for a hike move toward the near months we’ve already seen sharp impacts in the currency markets. In particular, the USD gained impressive upward momentum with the US Dollar Index trading positive for 5 of the last 6 day this week; and certainly yesterday’s monster move of +1% in the USDX contributes evidence that the Reflation TRADE is unwinding. US Financial (XLF) and Energy (XLE) stocks (proxies for inflation) are obvious examples of this.


As it relates to the Euro, increased bets that the Fed will hike and thereby reduce the spread between the US interest rate and the ECB’s 1% benchmark rate have begun to shift buyers away from the Euro. This week alone the EUR lost 2.3% versus the greenback. It’s lost -4.5% in the last month.


As we get more confirmation from the unwinding of the Reflation TRADE, we’ll look to take a more aggressive stance on global currencies. At times this year we’ve been short the US dollar via the etf UUP in our model portfolio. As it relates to the EUR-USD, the levels below suggest at the right price that we could get paired off, short the Euro, long the USD.  Stay tuned.


Matthew Hedrick


Why the Euro is NOT a Buy - Euro1


DRI – Glass Half Full or Half Empty?

DRI’s 2Q10 blended same-store sales did improve about 70 bps sequentially from Q1 on a 2-year average basis, but with comparable sales -8.4% at Red Lobster  on a 1-year basis, -1.4% at Olive Garden and -6.2% at LongHorn, these numbers do not point to a recovery.  Add to that, the 14.2% same-store sales decline at Capital Grill and the 6.1% decline at Bahama Breeze and it becomes glaringly obvious that this company is not yet out of the woods from a demand perspective. 


Management seemed intent on painting a favorable picture of trends on its Q2 earnings call.  Although management did say that “sales were a little more sluggish than expected,” it also said that trends look to be improving in December, which it recognizes as an early sign of a sustainable improvement in trends.  I do not have access to the same level of detail as that of DRI management and I have been called the Resident Bear at Research Edge, but some of the numbers management referred to in order to highlight these improvements do not tell the whole story. 


First, management said that the industry as measured by Malcolm Knapp improved during DRI’s fiscal Q2 on a sequential basis for the first time since Darden’s fiscal 4Q08.  Yes, on a 1-year basis, Q2 came in -5.9%, excluding Darden, versus -7.8% in Q1, which represents a 190 bp improvement.   Looking at 2-year average trends, however, Q2 trends were roughly even with Q1, coming in -5.6% relative to -5.8% in Q1.  Management also highlighted the fact that both average check and traffic trends for the industry got sequentially better in Q2.  This again, is not as impressive when you consider that these two metrics had already started to fall off on a sequential basis in the year ago periods.


Second, DRI went on to say that this pick-up in sales trends continued into December both for the industry and for DRI.  Although management said that the sequentially better numbers were partly attributable to weak year ago results, the company also recognizes the improvement as a sign of better trends to come.  Management was asked two times on the earnings call to address this improvement in December in light of last year’s numbers and whether underlying trends were really getting better on a 2-year basis.  The company did not directly answer the question either time.  Without this clarification, the comment that December got better on a sequential basis does not provide me with much optimism that we are experiencing a recovery in demand because the industry was down 9.5% in December last year.  We would have to see sequentially better numbers in December on a 1-year basis or we would have a significant fall off in 2-year average numbers.


Third, DRI provided the monthly comp numbers for Capital Grill, which it does not typically do, to show that trends got sequentially better throughout the quarter.  Again, for the quarter, Capital Grill comparable sales came in - 14.2% (or -11.2% adjusting for the holiday shift), down 17% in September, -9% in October and -6% in November (adjusting for the holiday shift).  At first, this sounded like a pretty impressive tick up in trends.  It is important to remember, however, that demand trends really started to fall off in October of last year.  Management would not quantify last year’s results on a monthly basis but said that results were not down as much in September 2008 and that there was a significant reduction in trends in October and November 2008.  I don’t understand why management would not just provide the numbers for last year, given that they gave them for this year (maybe, the numbers would point to two-year average trends that are not meaningfully better).  Without context around last year’s numbers, this so called improvement throughout the quarter is less meaningful.


Malcolm Knapp just reported that November casual dining same-store sales came in -4.6% with traffic -4.4%.  On a 2-year average basis, this points to a nearly 190 bp sequential improvement in comparable sales trends. 


This better number might be why Darden is more optimistic about future trends as this improvement in underlying trends is impressive (and very surprising to me).  This better industry number, however, makes DRI’s reported numbers look even worse because as the industry improved in November from October, DRI’s results at the Olive Garden got significantly worse in November on both a 1-year and 2-year average basis.  Red Lobster’s performance on a 2-year average basis improved from October but still ended the quarter in November worse off than where it ended Q1 in August.  LongHorn, on the other hand, did see some meaningful improvement throughout the quarter. 


Investors seem convinced by DRI’s glass half full view as the stock is up over 5% right now.  Judging by Malcolm Knapp’s November numbers, there could be some stabilization of industry demand, which would be a definite positive, particularly if it continued into December, but I think this just highlights that DRI is losing share.  During Q2, DRI outperformed the industry benchmark by only 200 bps relative to its 250 bp outperformance in Q1 and CEO Clarence Otis’ expectation (as stated on the Q1 earnings call) to outperform by 300 bps for the full year.  DRI’s gap to Knapp is narrowing.


DRI – Glass Half Full or Half Empty? - DRI Red Lobster Gap to knapp 2Q


DRI – Glass Half Full or Half Empty? - DRI olive garden gap to knapp 2Q

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