The Macau Metro Monitor, February 19th, 2010


TIGER ROARS IN MACAU Destination Macau 

 According to a report in today's Macao Daily News, gaming revenues for the first three days of Chinese New Year were disappointing – day one only rang in MOP 90 million, day two wasn't much better with gaming revenue of only MOP 100 million, and day 3 was just more normal at MOP 300 million – i.e. back to the daily average for the first week running up to Chinese New Year. However, days four through six where bustling with packed ferries and swarming crowds. DM reporters commented on the record turnout at the Venetian where the gaming floor was heaving and the malls were seeking brisk business. Neighboring City of Dreams should have racked up its best daily numbers since opening, too, judging by the foot traffic they saw. The peninsula, meanwhile, was buzzing. Sources at Grand Lisboa say they have not seen the place so full since it opened in 2007. Wynn, MGM and StarWorld all looked packed, too.


According to statistics from Rádio Macau, February gross gaming revenues in Macau should be lower than the previous month. Until February 17, the gross gaming revenues surpassed a total of MOP5.3 billion. For the whole month, predictions are that the gross gaming revenues will stay below MOP9 billion, still better than the MOP7.9 billion recorded a year ago. Gross revenues at Macau casinos hit a record MOP14 billion in January 2010, the highest monthly revenue ever recorded, according to Portuguese news agency, Lusa. 


The DM believes there is a delay on resumption of sales of the "co-op" units, which may or may not be tied to a delay in the government issuing the necessary work permits to get construction restarted on Lot 5&6. But a delay does not mean an impossibility. When those sales do resume, the DM believes they will be able to fetch as high as 30-40% above the current top of the market rates in Macau.



The first casino in Singapore made S$40MM in the first two days of its opening and Malaysians contributed one-third of the revenue. Within hours of Genting Group chairman Lim Kok Thay opening Singapore's first casino on Feb 14, it had to shut its doors due to overcrowding. More than 35,000 punters showed up to try their luck at the casino on Feb 14 and 15.


RECORD REVENUE Macaubusiness

Macau’s public finances suffered no recession in 2009, as revenues collected marked a new annual record at MOP57.64BN, an increase of 0.014% or MOP8.1MM over the previous year.  Direct taxes from gaming revenue in 2009 grew 5.8%  to MOP41.87BN. Public expenditure rose 18.5% to MOP33.82BN. A surplus of MOP23.82BN was recorded in 2009, down from the MOP29.09BN recorded in 2008.

Discounting The Obvious

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”

-George Soros


Soros’ track record calling macro market moves speaks for itself. He was born in Budapest, Hungary. He went to school in London. He has worked against New York City’s traffic jams of consensus for most of his career. When it comes to betting on the unexpected, he’s no stranger to Discounting The Obvious.


For real-time risk managers, our daily task is to reveal consensus for what it is, then to capitalize on it when the timing is right. Sometimes consensus is right. Sometimes it isn’t. For the last 3 months, consensus has had the pace of global monetary tightening dead wrong.


Rather than get into an academic debate about whether the Fed’s move to raise the Discount Rate last night is an explicit tightening signal or not, we market practitioners will simply refer investors who are marked-to-market to the charts of the US Dollar and US Treasury Bond Yields. Markets don’t lie; people do.


You can pull up a 3-day or 3-month chart of either and the take-away is the same. Both the US Currency and Bond markets have been Discounting The Obvious now for 3-months.


The last holdout in the US Bond market has been the short end of the yield curve. That’s because it was being politicized and held artificially low. This morning, that’s changed. Short term yields (2-month US Treasuries) are shooting straight up, breaking-out above my intermediate term TREND line of 0.88% to 0.94%.


Taking a step back to consider where global market moves are versus our out-of-consensus expectations, we kicked off 2010 with 3 Macro Investment Themes:

  1. Buck Breakout (bullish on the USD, bearish on gold)
  2. Chinese Ox In a Box (bearish on Chinese equities, bullish on Chinese currency)
  3. Rate Run-up (bearish on Treasuries, bullish on Global Bond Yields)

Altogether, given the economic data coming out of both the US and China, these calls weren’t that difficult to make. Both countries continue to reveal higher than expected growth and inflation data. In the face of these facts, an assumption of an “extended and exceptional” US monetary policy of ZERO percent interest rates is both unsustainable and unreasonable.


In terms of the Buck Breakout call, a lot of consensus strategists in America started to justify US Dollar strength by virtue of Europe’s sovereign debt problems. While that may be a convenient explanation, it’s not the entire explanation. Since we called it the “Bombed Out Buck” in Q4, the US Dollar Index has had a +9.3% melt-up from its Burning Buck lows. There is a lot more to a monster currency move like that than just Greek and Spanish CDS.


I don’t think I have been too critical of Ben Bernanke. I simply had an inflation forecast that didn’t line up with his. This morning I am going to pat the man on the back for seeing the inflation data for what it is – inflationary. He Who Sees No Inflation is seeing the light. This is progress.


Inflation? Yes, it’s out there. The US Producer Price report (PPI) for January was reported well ahead of consensus expectations yesterday at +4.6% year-over-year growth. Now a man making CDO’s on Park Avenue in New York might not feel that in his cost of goods sold, but I can assure you that a Hungarian carpenter who uses anything with metal does, particularly versus this time last year.


In terms of consumer prices (CPI), it’s both hypocritical and political to call last year’s deflationary low of -2.1% CPI (July 2009) the Great Depression Part Deux, and at the same time not recognize that the year-over-year inflation report you are going to see at 830AM this morning as inflationary. Fortuitously, we had this reported inflation catalyst in our assumptions when we made both our Buck Breakout and Rate Run-up calls.


So what do this morning? Well, I’d actually sell some of your hard earned US Dollars to the consensus beaters as they clamor for them. The US Dollar Index is trading up almost a full percent. That’s a lot in a day, and as they say on a cold winter day on Simpson Street in Thunder Bay, ‘if you gottem', sellem’!


At $81.19 this morning and $1.34, respectively, the US Dollar Index is finally going to be immediate term overbought and the Euro oversold. I am not making a call that we are no long bullish on a Buck Breakout. I am simply telling you to ring the register as consensus is finally starting to Discount The Obvious.


My immediate term support and resistance lines for the SP500 are now 1079 and 1111, respectively.


Best of luck out there today and have a solid weekend,





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).

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.



EWU – iShares United KingdomThe TREND of higher y/y inflation and stagnant growth = stagflation. For a country with the UK's balance sheet and leadership problems, that’s not good.


SPY – SPDR S&P 500We re-shorted the SP500 at an attractive re-entry point on 2/16/10. We are bearish on US Equities for the immediate term from this price. Shorting green.


XLE – SPDR EnergyWe remain bearish on Oil for the intermediate term TREND and bullish on the US Dollar on the same duration. Everything has a time and a price.


GLD – SPDR Gold We re-shorted Gold on this dead cat bounce on 2/11/10. We remain bullish on a Buck Breakout and bearish on Gold for Q1 of 2010, as a result.


RSX – Market Vectors RussiaWe shorted Russia on 2/9/10 and maintain our intermediate term TREND bearish view on the price of oil.


XLP – SPDR Consumer StaplesThe Consumer Staples sector finally broke both our TRADE and TREND lines on 2/8/10. Given how many investors own these stocks because it was a "way to play the weak US Dollar" last year, we have ourselves another way to profit from a Buck Breakout with this short position.


EWJ – iShares JapanWe re-shorted Japan on 2/2/10 after the Nikkei’s up move of +1.6%. Japan's sovereign debt problems make Greece's look benign.


IEF – iShares 7-10 Year TreasuryOne of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.












US STRATEGY - copper6


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