McCarran Airport traffic declined 2.1% in Dec. However, an easy hold % and table drop comparison with last year coupled with recent strength in the high end from Asia may have resulted in Strip revenue growth.



McCarran Airport in Las Vegas released the number of enplaned/deplaned passengers at 3.1 million for the month of December, down 2.1% y-o-y.  On the surface, that would seem to be enough to push gaming revenue growth into negative territory following November’s surprise increase.  However, in December of 2008, table game hold percentage was only 10.1% versus a more normalized hold of 12%.  Moreover, baccarat drop, which can be extremely volatile month to month, was also abnormally low last year.


In addition to the easy comparisons in hold percentage and table drop there are two additional factors leading to a conclusion that Strip gaming revenue growth could be positive again in December.  As we’ve written about, there has been an acceleration in high end Asian play recently due the strong economic conditions, particularly in China.  Macau is experiencing the same trend.  Also, CityCenter opened in mid-December which probably spurred above normal high end visitation.  


Assuming normal hold percentage, we project Strip gaming revenues to once again climb 8% - November also posted +8% - over the same month last year.  Hold percentage is always the wild card, of course, and the assumption of normal hold is the largest y-o-y contributor to our positive revenue projection.  If we assume consistent low hold with last year, our model projects slightly negative Strip revenue growth.


Here our are projections:






The Macau Metro Monitor. January 25th, 2010



MGM Grand Macau is looking to strengthen its brand by appealing more to Chinese tastes. President Grant Bowie said: “We need to make it a China brand…that’s my role.” The company plans to re-launch the Macau brand shortly with a new marketing campaign geared towards upper middle class Chinese. Some of the changes will include a more traditional buffet and improving taxi access to the property.


With a potentially lucrative HK IPO in the works, sources said MGM is taking steps to exit Atlantic City, where it owns 50% of Borgata and a 72-acre parcel near the resort in Renaissance Pointe. It's unclear whether BYD will be interested in acquiring MGM's stake, but they do have the right of first refusal


US equities were weaker for a third straight day on Friday.  Last week’s three-day, 5.1% losing streak was the first for the S&P since November 20th, while the index posted its biggest weekly decline since the week-ended October 30th.


Stocks were rocked by the heightened regulatory scrutiny on the financial sector out of Washington and concerns about tightening moves in China.  The latter was putting significant pressure on the RECOVERY trade.   Lastly, the uncertainty surrounding Bernanke's confirmation added to the negative sentiment. 


The VIX was up 52.48% last week, the biggest weekly spike since October 2008 and finished at its highest level since November 4th. The Hedgeye Risk Management models have the following levels for VIX – buy Trade (22.51) and Sell Trade (29.59).


The Technology (XLK) was the worst performing sector on Friday.  The semiconductors sold off sharply with the SOX down 5.3% on the day.  AMD traded down 12.4% and was the worst performer in the group despite its better-than-expected Q4 results and relatively upbeat commentary about demand.  On Friday, GOOG declined 5.7% despite earnings and revenues that came in ahead of expectations. 


The Financials (XLF) was the second worst performing sector on Friday declining 3.3%.  The weakness was attributed to concerns surrounding the Obama administration's increased regulatory reforms.  On Friday, regulators shut down banks in Florida, Missouri, New Mexico, Oregon and Washington.  So far in 2010 nine banks have failed, following 140 closures in 2009.


While the Materials (XLB) outperformed on a relative basis on Friday it was the worst performing sector last week declining 6.4%.  The sector is underperforming as China is embarking on a tightening process.


As we look at today’s set up, the range for the S&P 500 is 46 points or 1.0% (1,080) downside and 3.2% (1,126) upside.  At the time of writing the major market futures are trading higher on the day.  


Last week copper prices fell for the second straight week, as concerns about demand from China as the tightening process continues to be played out.  The Hedgeye Risk Management Quant models have the following levels for COPPER – buy Trade (3.31) and Sell Trade (3.46).


In early trading today Gold is trading higher after declining 3.3% last week.  Like copper, gold has traded down for the past two weeks.  The Hedgeye Risk Management models have the following levels for GOLD – buy Trade (1,085) and Sell Trade (1,116).


In early trading, crude oil is trading flat after declining 2.0% on Friday.  Crude has also declined for the past two weeks, on the back of a slowing China and increased supplies.  The Hedgeye Risk Management models have the following levels for OIL – buy Trade (74.11) and Sell Trade (76.77).


Howard Penney

Managing Director


US STRATEGY – DC Fallout - sp1


US STRATEGY – DC Fallout - usd2


US STRATEGY – DC Fallout - vix3


US STRATEGY – DC Fallout - oil4


US STRATEGY – DC Fallout - gold5


US STRATEGY – DC Fallout - copper6


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McCullough on Outlook for Treasury's Geithner

The Week Ahead

The Economic Data calendar for the week of the 25th of January through the 29th 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 - cal1

The Week Ahead - cal2

Risk Management Time: SP500 Levels, Refreshed

On accelerating volume studies, the SP500 has finally broken my immediate term TRADE line of 1126.


At the same time, the VIX is breaking out to the upside above both my immediate term TRADE (19.69) and intermediate term TREND (22.48) lines. It’s not time to get emotional here. It’s risk management time.


Part of managing risk is not blowing out your long exposure with the monkeys on today’s intraday lows. Part of it is not stepping up buying everything on every down tick of the way either. Most of it is watching and waiting.


I’m watching the intermediate term TREND line of support for the SP500 very closely. In the chart below, that’s the solid green line down at 1095. We need to close below that line (and hold below that line) for my intermediate term bullish view on US Equities to change. That does not mean I am bullish at every price and every duration.


We have a 52% Cash position in our Asset Allocation Model and only a 6% allocation to US Equities. If 1095 holds, I’ll be stepping up that US Equity exposure. In the meantime, I am going to watch, and wait.



Keith R. McCullough
Chief Executive Officer


Risk Management Time: SP500 Levels, Refreshed - km22

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