China macro variables drive an incredibly high R Square with VIP volume in Macau.



It makes sense that as a discretionary consumer source, VIP revenue in Macau would be tied to Chinese macro variables.  However, we didn’t expect this level of correlation.  We regressed VIP Rolling Chip (volume) against a number of China macro variables.  The most powerful and statistically significant variables were GDP and interest rates.  This regression produced an R Square of 0.97 and both variables were statistically significant.  In other words, y-o-y change in GDP and sequential interest rate moves explained 97% of the change in VIP volume.  The correlations can be seen in the chart below.




The strong relationship between these variables is disconcerting considering the China view of our Hedgeye macro team.  They have been calling a sequential slowdown in GDP and liquidity for China.  It is becoming increasingly apparent that they may be right.  So far we haven’t seen a slowdown in Macau’s VIP segment.  Through January 20th, Macau gaming revenues were reportedly up 67% for the month.  That rate of growth will slow in the last two weeks of the month since Chinese New Year fell in January (26th to 28th) of 2009 but will occur in mid-Feb this year.


To be clear, the Mass business is also tied to the China macro variables as can be seen in the chart below.  However, the betas driving VIP are much larger and statistically more significant.  So who is at risk?  In terms of companies whose stocks are traded on US exchanges MPEL and WYNN are most exposed in that order and LVS while still generating a significant portion of its revenues VIP, is more of a Mass operator particularly in terms of profits. 



Risk Management Time: SP500 Levels, Refreshed...

The thick red line in the chart below highlights the most important duration (the intermediate term TREND) in our 3 duration model: TRADE, TREND, and TAIL.


As a reminder, our risk management framework doesn’t try to solve for every investor’s individual duration. However, it does seek to absorb the stresses considered by 3 large constituencies of investors across the following durations: short term, intermediate term, and long term.


Currently, our risk management levels are as follows:


1. TRADE (immediate term, 3 weeks or less) = 1125

2. TREND (intermediate term, 3 months or more) = 1096

3. TAIL (long term, 3 years or less) = 969


The red line at 1096 is exactly that – a stop sign (or a  wait and watch line). A breakout above that line puts the TRADE line back in play up at 1125. A breakdown below it puts the TAIL line of risk in play (-11.6% lower).


Obviously you can drive a truck through this range of , but that’s the point. That’s why the VIX is breaking out from both a TRADE and a TREND perspective right now. The next move, above or below 1096, is going to be big.


If 1096 doesn’t hold (on a closing basis), first short term line of support between 1096 and 969 is the dotted green line down at 1076.



Keith R. McCullough
Chief Executive Officer


Risk Management Time: SP500 Levels, Refreshed...  - spkm


R3: Aerobics Revisited


January 26, 2009


By now, anyone ranging from a casual observer to an industry expert is at least aware of the latest trend in athletic footwear- The Toning Category.  Call it a fad, hype, or just flat out ridiculous.  However, the data supports a picture of a robust and growing trend.  Even with increased competition in the space, both Skechers and Reebok continue to show substantial growth. 





By now, anyone ranging from a casual observer to an industry expert is at least aware of the latest trend in athletic footwear- The Toning Category.  Call it a fad, hype, or just flat out ridiculous.  However, the data supports a picture of a robust and growing trend.  Even with increased competition in the space, both Skechers and Reebok continue to show substantial growth. 


With limited sales data given the infancy of the product category (which was essentially launched in early Summer ’09), the trajectory makes this one of the more successful footwear launches since Crocs became the fastest footwear brand to reach $1 billion.   While much of the focus has been on SKX given its first-mover advantage at retail, the success of the Reebok equivalent “EasyTone” is notable.  There is no question Reebok has suffered major contraction in the U.S since it was acquired by Adidas in 2005.  However, we wonder if this current momentum can be used to spark a reinvention of the brand?  After all, Reebok made its initial mark in the aerobics category and this trend certainly seems similar.  Does a women’s focused athletic brand make some sense?  Yes, for sure.  But we can’t help but remind investors that there hasn’t been a successful women’s athletic brand… ever. 


Take a look at the charts below:


R3: Aerobics Revisited - Shape Ups and EasyTones


R3: Aerobics Revisited - Shape Ups 2


R3: Aerobics Revisited - Easy Tones 2


R3: Aerobics Revisited - ADI Reebok Tree EasyTones 1 10


Eric Levine

Zach Brown




  • Despite the economy and any lessons that may have been learned from a Manhattan real estate bubble, retailers are flocking to Times Square to open new flagship locations. The latest addition to the former Virgin Megastore in Times Square is Forever 21, with speculation that the fast fashion retailer is opening a 90,000 square foot store. Disney, M.A.C., and Swarovski will all be neighbors at the old record-store location.
  • Given that Shopper Events LLC is likely to pick up the majority of the 10,000 product samplers laid off by Sam’s Club, it’s interesting to note the power of the in-store sample. According to independent research, a Wal-Mart customer is 15% likelier than an average U.S consumer to be influenced by sampling events. In Wal-Mart Stores alone, 2.8 million samples are given each week.
  • For the first time since 1992, annual coupon usage is set to increase with annual distribution hitting all time highs. According to Inmar, a transaction settlement provider for retailers, 3.3 billion packaged goods coupons were redeemed in 2009, up 27% from 2008. The average face value of such coupons was $1.44.




Parham Joins Columbia - Susan Parham has joined Columbia Sportswear Co. as vice president of global apparel, accessories and equipment. She succeeds Mark Koppes, who has left the firm, and reports to Mick McCormick, executive vice president of global sales and marketing. Parham was the founder of Lessons Learned, a consulting firm covering disciplines from design to sales, where her clients included Columbia, Nike Inc., Lucy Activewear Inc., Liz Claiborne Inc. and Jos. A. Bank Clothiers Inc. <>


Target promotes a technology executive - Target Corp. has promoted Beth Jacob from Target technology services senior vice president and chief information officer to executive vice president and CIO. Jacob oversees Target’s technology service team, which supports and other e-commerce initiatives. Jacob’s team includes a group working with the retailer’s team to develop Target’s own e-commerce platform, which is set to launch by the start of the holiday shopping season in 2011. Target announced last year it would move off of Inc.’s e-commerce platform. Amazon, which has provided Target’s e-commerce platform for several years, will continue to support until the new Target site is launched. Jacob, previously, has held a number of positions within Target, including vice president of guest operations and vice president of guest contact centers.  <> expands international sales to 32 more countries - Inc. announced today that it has expanded its international service to 32 new countries, including Bolivia, Costa Rica and Pakistan. The e-retailer now sells to shoppers in 91 countries. International shoppers enter the same URL as domestic customers to shop on the site. Overstock employs geolocation technology to recognize where shoppers are coming from and displays prices in local currency. Prices automatically adjust to the most current exchange rates, Overstock says. The functionality is provided by the FiftyOne Global Ecommerce service from E4X Inc.  <>


Jo-Ann Stores promotes its chief operating officer to president - Fabric and craft specialty retailer Jo-Ann Stores Inc. has named its chief operating officer, Travis Smith, the company’s new president. Smith will remain chief operating officer and continue to oversee marketing, merchandising and inventory operations for the retailer, which sells through stores and through He will also supervise the company’s information technology.“The promotion of Travis acknowledges the outstanding business results our company has achieved under his inspired leadership,” said CEO Darrell Webb. Webb will remain CEO and chairman of the board of directors at Jo-Ann. Smith, who was named chief operating officer last February, was previously Jo-Ann’s executive vice president of merchandising and marketing.  <>


Cabela’s puts web and catalog channels under a new chief marketer - Cabela’s Inc., a multichannel retailer of hunting, fishing and camping gear, has promoted senior vice president of merchandising and marketing Patrick Snyder to executive vice president and chief marketing officer. Snyder will be the first executive to consolidate responsibility for the retailer’s catalog and web operations, the company says. Snyder is among six executives promoted last week in a move designed to grow the retailer’s direct-to-consumer channel as well as improve overall multichannel operations, CEO Tommy Millner says.  <>


Revitalized hires a marketing chief from Brookstone -, which relaunched its e-commerce site in October following the 2008 bankruptcy of Sharper Image Corp., has hired another executive from Brookstone Inc. as it ramps up its marketing plans. Steve August will be senior vice president and chief marketing officer for, overseeing all direct marketing efforts, including through the web, catalogs, affiliates, portals and direct customer promotions. He will also be responsible for customer analytics and database modeling.  <>


1-800 Contacts names a new marketing chief - Online contact lens e-retailer 1-800 Contacts Inc., which sells online through, has named Joan Blackwood as senior vice president and chief marketing officer. Before joining 1800Contacts, Blackwood was chief marketing officer for, an online job listing service. Prior to, Blackwood directed marketing for business software company Computer Associates.  <>


Consumer Web Site Firm Eyes IPO - Everyday Health Inc., which operates more than two dozen consumer-oriented health content Web sites, has filed a Form S-1 with the Securities and Exchange Commission to conduct an initial public offering of stock. The Brooklyn-based company, which recently changed its name from Waterfront Media Inc., has experienced strong revenue growth and heavy losses since inception in 2002. It hopes to raise up to $100 million before expenses from the IPO, with unspecified net proceeds going to the vendor and selling private shareholders. The number of shares being offered and the expected price range has not been determined. Managers of the IPO include Goldman Sachs & Co., J.P. Morgan Securities Inc., Jefferies & Company Inc. and Needham & Company LLC. The company's portfolio of Web sites includes,,,, and, among others. The sites combined have 38 million registered consumers and attract an average of 25 million unique visitors a month. Revenues primarily come from advertising, sponsorships, and the sale and licensing of content. <>


CVC Venture Pays $773 Million to Buy Matahari Department Store  - CVC Capital Partners Ltd.’s Indonesia venture paid 7.2 trillion rupiah ($773 million) to buy the department store unit of PT Matahari Putra Prima, the country’s biggest retailer. Jakarta-based Matahari Putra sold its 90.76 percent stake in PT Matahari Department Store to Meadow Asia Company Ltd., a venture it established with U.K. buyout firm CVC Capital, Benjamin Mailool, president director of Matahari Putra, told reporters in Jakarta yesterday. The retailer plans to buy a 20 percent stake in Meadow, with an option to purchase an additional 10 percent, Mailool said. The CVC venture gains a department-store operator with at least 27 locations in Asia’s third most populous nation, according to Matahari Putra’s Web site. Retail sales growth in Indonesia, Southeast Asia’s biggest economy, accelerated to 33.9 percent in November, the fastest pace in two years.  <>


Lotte to Acquire Buy the Way for $236 Million - Lotte Group, the operator of 7- Eleven outlets in South Korea, agreed to acquire convenience- store chain Buy the Way from private-equity fund Unitas Capital for 274 billion won ($236 million). Korea Seven Co., more than 50 percent owned by Lotte Shopping Co., said in a regulatory filing today that the acquisition will “strengthen business competence.” Korea Seven will increase its stores by 68 percent as it gains a chain that generated revenue of about 610 billion won last year in Asia’s fourth-largest economy. Retail sales growth in South Korea, where store operators are buying rivals to expand, accelerated to 12.2 percent in November, the fastest in more than a year. <>


Forever 21 Launches Larger Format - Forever 21 has opened its first department store-style location in an effort to strengthen its customer base and provide more choices. The 85,000-square-foot unit, a former Mervyns space, is in the Macerich-owned Los Cerritos Center in Cerritos, Calif., about 20 miles from downtown Los Angeles. Forever 21 executives said the “emporium” format that launched on Friday permits a larger selection in categories such as lingerie, swimwear, shoes and plus-size apparel, than the fast-fashion chain is able to accommodate in its average stores of about 40,000 square feet. “The new department store concept offers our customers a greater assortment of value merchandise,” Forever 21 founder Don Chang said. “In this difficult economy, we’re happy to be able to offer much more affordable fashion-forward apparel.” Chief operating officer Larry Meyer said the new concept would help the chain appeal to customers over age 24, a demographic that represents more than one-third of Forever 21’s customers, with 45 percent falling between 18 to 24 and 20 percent under 18. Most, but not all, of the larger locations will get the new design, depending on store location and market.  <>


The Walking Co. Looks to Close 40 More Stores - The Walking Company is seeking court approval to close 40 additional stores. The retailer filed for bankruptcy in early December with a plan to close 90 of its original 210 stores immediately. A U.S. bankruptcy judge in California last week set a court hearing for Feb. 16 for the company to discuss "post holiday" store closings, according to Reuters. According to a court order filed last week, the company was given approval to begin "holiday" or "soft closing" procedures at those "underperforming" stores during the holiday shopping period beginning Dec. 18.The company said the 40 additional stores it is now seeking to close were "either unprofitable or only marginally profitable." The closing of those 40 stores will bring its store count to 130. <>


Wall Street Bonus Babies Could Boost Retail - President Obama might become “visibly angry” when outsized Wall Street bonuses come up, but retailers catering to the well-heeled in New York and other financial centers have a somewhat different reaction — something more like “ka-ching.” Setting aside the propriety of billions of dollars in bonuses to bank executives after the near collapse of the global financial system, the payouts could help luxury retailers. Bonuses can account for 90 percent of a Wall Street titan’s annual take-home pay and should start hitting personal bank accounts in time to boost March sales. Andrew Mitchell-Namdar, co-owner and vice president of marketing at Mitchells/Richards/Marshs, based in Westport, Conn., said, “The bonuses help in two ways — the actual bonus, but then psychologically it also impacts up or down depending on what the bonus is. We are very linked to Wall Street; we can see the trends in our business.” Mitchell-Namdar is optimistic that a strong bonus season bodes well for spring and that customers, particularly men who have curtailed spending, will begin to replenish their wardrobes.  <>


China to Lift Luxury Growth - China should help the luxury goods sector bounce back to growth in 2010 after its annus horribilis, but a return to the glory days of the last decade is unlikely, according to a new HSBC report on the sector. “Our analysis is that despite China’s boom and the non-recurrence of the 2009 de-stocking impacts, 2010 will show only decent mid to high single-digit organic growth for the sector – in line with the long term average of 7 percent – and not the mid-teens hyper-growth experienced from 2004 to mid 2008,” HSBC analysts Erwan Rambourg and Antoine Belge wrote. Women, and lower-priced brands and product categories, are likely to become key drivers of the luxury goods market in China, which until now has been sustained mainly by business gift purchasing by men, they said.  <>


Gallup Economic Weekly: Self-Reported Spending Declines - Consumer spending down last week more than 20% from the prior week and from a year ago - As the Dow Jones average plunged more than 400 points last week, consumers pulled back, with self-reported spending falling 24% from the prior week and 27% from the same week a year ago. This breaks the positive early January trend that saw spending running slightly higher than last year's comparables. At the same time, economic confidence was about the same as the prior week and Gallup's Job Creation Index showed that hiring remained essentially unchanged.

R3: Aerobics Revisited - G1

What Happened (Week Ending Jan. 24)

  • Consumer Spending plummeted last week to the lowest weekly average Gallup has found since it began measuring consumer spending in January 2008. Self-reported daily spending in stores, restaurants, gas stations, and online averaged $52 -- down 24% from the prior week and down 27% from the same week a year ago. This marks the first time in 2010 that a full week's spending has failed to match its year-ago comparable. It now seems likely that January 2010 spending may simply match the January 2009 average of $64 per day -- reflecting a continuation of what turned out to be something of a "new normal" in spending for most of last year.
  • Economic Confidence was essentially unchanged last week, as Gallup's Economic Confidence Index was at -28 -- virtually the same as the -29 of the prior week. Thirty-six percent of Americans said the economy is "getting better" while 58% said it is "getting worse." At the same time, 45% rated the economy "poor" and 11% rated it "excellent" or "good." Economic confidence is currently slightly worse than it was on average during December 2009 and much more positive than it was a year ago.
  • Job Creation as reflected by U.S. workers' reports of their own employers' hiring/firing activities improved slightly last week, as Gallup's Job Creation Index was at 0, compared to -2 the prior week. Still, hiring remains weak, with 24% of employees reporting their companies are hiring -- essentially the same as the prior week (23%) and a year ago (24%). As has been the case during recent months, the slight improvement from last week as well as the more pronounced improvement from a year ago is the result of fewer workers (24%) saying their companies are letting people go. Right now, job-market conditions are no different than they were on average during December 2009 (24% hiring and 24% letting go).

R3: Aerobics Revisited - G2

Gallup's economic data provide little positive news as the president prepares for his State of the Union address and the FOMC meets this week. Last week's self-reported consumer spending results are somewhat troubling. A modest decline was to be expected because last week was a non-paycheck week, but the extent of the drop fully offset the slight spending gains recorded earlier this month, relative to last year's comparables. While this could be a one-week event related to the plunge in the stock market or something else, it merits careful monitoring in the days ahead. Regardless, right now consumers don't seem to be in the mood to spend more than last year's reduced -- new normal -- levels. <>

Trading Is Risk Mangement

“At the same time I realize that the best of all tipsters, the most persuasive of all salesmen, is the tape.”

-Jesse Livermore


Before someone indoctrinates your children into a “buy and hold” strategy for this stage of their life, make sure you have them read Edwin Lefevre’s ‘Reminiscences Of A Stock Operator.’ While the business of being bullish or bearish is cyclical, some of Jesse Livermore’s risk management teachings are timeless.


My move to sell my exposure to the SP500 (SPY) into yesterday’s market strength raised the predictable response from some of our subscribers that ‘hey, you trade too much.’ I understand that perspective. After all, I had only held the position for a day. That said, I don’t agree with the conclusion. It’s the equivalent of telling me I manage risk too much.


The last time I held a long position for less than 2 days was at least 3 months ago. So I’m not submitting that one needs to be in and out of markets maniacally all of the time. I am simply suggesting that one needs to respect the price momentum of the tape. Mr. Macro Market’s prices don’t lie; people do.


The last 6 days of US stock market trading have unearthed some obvious warning signals. No, I am not suggesting that the stock market is going to crash. However, I am saying that the benefit of the doubt no longer goes to the bulls. This is new.


Here are some risk management factors to consider:


1.       The immediate term TRADE lines for the SP500 (1025), Nasdaq (2271), and Russell 2000 (630) have been broken

2.       The intermediate term TREND line for the SP500 (1096) is being tested

3.       The Range in my immediate term probability model for the SP500 has blown out to 83 points wide (it averaged 24 points 3 weeks ago)

4.       The Volatility Index (VIX) has broken out above both my immediate and intermediate term lines of 20.12 and 22.51

5.       The S&P Sector risk management model that we run only has 1 out of 9 sectors in a bullish immediate term TRADE position (Healthcare)

6.       The US Dollar continues to breakout to the upside on both immediate and intermediate term durations


Directionally, all of these moves have been confirmed by bearish volume signals. Yesterday’s volume signal was one of the driving factors behind my decision to sell my long position in the SP500. The market was rallying, unconvincingly, on a down -19% day-over-day move in volume.


Down markets on accelerating volume are explicitly bearish. The during the -5.1% three-day down move from last Wednesday to Friday, that’s exactly what Mr. Macro Market registered. Additionally, Volatility (VIX) had a massive melt-up of +53% on a week-over-week basis. All in, I don’t get paid to ignore these 3 risk management factors (price, volume, and volatility); particularly when they occur simultaneously. I don’t think you do either.


So now what? I sit on my hands, and I watch, and I wait. I don’t have to justify being long the SP500 because I don’t have to justify a buy and hold strategy. Will the SP500’s intermediate term TREND line of 1096 hold? I think the probabilities are mounting that the answer to that question is no, but Mr. Macro Market works in mysterious ways. I’ll let him persuade me in the coming days as to which side of this line I need to be positioned on.


Globally, the risk complex doesn’t look any prettier. We have been calling for a correction in Chinese stocks, so this isn’t a surprise, but it certainly appears to be to the masses. One of the top read headlines on Bloomberg this morning is “Bank of China, Construction Bank Start Curbing Credit.”


This isn’t new. The Chinese government has been explicitly signaling a reduction in speculative loan growth for the last 6 weeks. What’s new is Mr. Macro Market making people pay attention to it.


China’s Shanghai Composite Exchange got tagged for another -2.4% down session overnight, taking it’s YTD losses to -7.9%. For the more institutionally traded “H-Shares” listed in Hong Kong, the news is no different. The Hang Seng lost another -2.4% last night as well, taking it’s YTD loss to -8.1%. Both the immediate term TRADE and intermediate term TREND lines in these very important Asian bellwether tapes remain broken.


If our Macro Themes continue to be right and the Buck Breakout continues alongside the Chinese Ox being in a Box, commodity prices will continue to weaken. We re-shorted Gold (GLD) in the Hedgeye Virtual Portfolio yesterday and we maintained a zero percent allocation to Commodities as an asset class.


In addition to respecting the tape, Jess Livermore taught me that “the game” teaches you this game. Trading is risk management. Risk management is trading.


My immediate term TRADE lines of support and resistance for the SP500 are 1080 and 1126, respectively.


Best of luck out there today.





XLV – SPDR Healthcare — We bought back our bullish intermediate term view on Healthcare on 1/22/10.


EWC – iShares Canada — We remain bullish on the intermediate term TREND for Canada. With a pullback in the ETF, we bought Canada on 1/15/10 and 1/21/10.


XLK – SPDR Technology — We bought back Tech after a healthy 2-day pullback on 1/7/10.


UUP – PowerShares US Dollar Index Fund — We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).


EWG - iShares Germany —Buying back the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.

EWZ - iShares Brazil — As Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8/09 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil's commodity complex and believe the country's management of its interest rate policy has promoted stimulus.

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 mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.



GLD – SPDR Gold Shares We re-shorted Gold on a bounce on 1/25/10. We remain bullish on the US Dollar and bearish on the intermediate term TREND for the gold price as a result.


IEF – iShares 7-10 Year Treasury One of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.
RSX – Market Vectors Russia
We shorted Russia on 12/18/09 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish.


EWJ - iShares JapanWhile 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.

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. January 26th, 2010



Amax accused Melco of breaching its contract by entering into individual agreements with junket promoters since Dec 2009 without their consent.  Due to the release of what AMA deemed sensitive information in Citigroup's Jan 13th report (see relevant text below) the company requested to suspend its trading in the shares on the HKSE from January 18 - 22.


“During the 4th quarter of 2009, Melco Crown Entertainment [“Gaming Operator”] has restructured its Gaming Promotion Agreement with AMA at Altira Macau given the current commission cap regime. Although the aggregator model now appears dead and buried, VIP rollings are already back to normal levels, with all junket commissions now set at 1.25%. Gaming Operator’s earnings will be hurt as it transitions from its super junket arrangement to dealing directly with junket operators”


On Jan 24th AMA announced that due to Macau's changes to fix the commission cap to 1.25%, AMA and Crown have signed a revocation agreement of their existing Gaming Promotion Agreement and entered into fresh agreement on December 23, 2009. 


However, despite an agreement to operate Atlira still being in place, AMA claims that Melco entered into separate agreements with junket promoters that are subject to a contract with AMA, since December 2009.  In response to an inquiry from Macau Daily Times, Melco's response was that it “will strive to maintain existing and build new relationships across our operations in Macau, so as to remain competitive and have full respect for the prevailing contractual and regulatory frameworks within which we operate,” but failed to confirm whether it entered separate agreements.


The S&P 500 finished slightly higher yesterday, +0.46% - on very light volume.  The government sponsored volatility that weighed heavily on the market last week remained largely on the front-burner.  The risk aversion trade showed some signs of relief with the VIX trading down 6.96% on the day.  The Hedgeye Risk Management models have the following levels for VIX – buy Trade (22.51) and Sell Trade (29.54). 


Some optimism did return as the prospects for Fed Chairman Bernanke's confirmation looked a little more like he would remain as the Chairman of the Federal Reserve. 


On the MACRO front, December existing home sales disappointed, dropping 17%.  I agree that the December existing home number is a statistical aberration, but that is not the point.  The issue remains that the current trend in joblessness is still a big drag on the economy and the government can’t prop up the housing market forever. 


The Materials (XLB) was the best performing sector yesterday after being the worst performing sector last week with some unwinding of the RECOVERY trade on concerns about an accelerated tightening schedule in China to combat bubble fears. Within the XLB, steel stocks recovered a bit of last week's 10% decline following the better-than-expected Q4 results out of AKS.


The second best performing sector was Technology (XLK), rising 0.8%.  The outperformance was driven by the semi space with the SOX rising 1.4%; TXN was one of the notable gainers ahead of its Q4 results after the close. Memory names were another bright spot with SNDK and MU outperforming on the day.  Lastly, AAPL was up 2.7% and a standout in the hardware space ahead of its December quarter results, which blew away expectations.


The Financials (XLF) was up in line with market yesterday.  The banking group was also higher on the day, though underperformed the S&P 500 by 30bps. The XLF is bearing the brunt of the government sponsored volatility following last week's proposal by the Obama administration to disallow proprietary trading and hedge fund and private-equity investing on the part of any financial institution that owns a bank.  The more defensive leaning trust names were mostly higher on the day, while the large-cap and regional banks were mixed.


As we look at today’s set up the range for the S&P 500 is 45 points or 1.5% (1,080) downside and 2.6% (1,125) upside.  At the time of writing the major market futures are trading lower on the day.  


Copper is trading lower in London trading on speculation that China will curb lending.  The Hedgeye Risk Management Quant models have the following levels for COPPER – buy Trade (3.32) and Sell Trade (3.45).


In early trading today Gold is trading lower, as the whole commodity complex is trading lower on the day.  The Hedgeye Risk Management models have the following levels for GOLD – buy Trade (1,081) and Sell Trade (1,104).


Crude oil is trading down on speculation that oil stockpiles are very high worldwide, while concerns persisted that China will tighten credit and slow growth.  The Hedgeye Risk Management models have the following levels for OIL – buy Trade (73.68) and Sell Trade (76.87).


Howard Penney

Managing Director














Early Look

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