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Despite flat McCarran airport traffic, don’t expect January gaming revenues to be positive. 



McCarran Airport released its January traffic yesterday.  The number of enplaned/deplaned passengers declined only 0.2%, the second best month in over two years.  However, the comp was ridiculously easy as January 2009 was the worst month since late 2001 which was obviously impacted by the events of 9/11.


We think it is unlikely that January gaming revenues will be positive even with the easy comparison and the CityCenter draw.  For one, Chinese New Year occurred in January of last year versus February of this year.  Indeed, table drop was up over 9% last year.  Second, we expect slot handle per visitor to continue to fall.


Overall, our model is projecting a 6% decline in Strip revenues in January assuming normal table hold percentage of 12% and a seasonally normal hold percentage on the slots.  We say seasonally because January usually carries a higher slot hold percentage as a catch up from December.  The state doesn’t count coins on Saturdays and holidays so slot revenues get shifted into the next month.


REVERSION BACK TO RED - strip metrics jan


REVERSION BACK TO RED - mccarran traffic jan 10

Sleeping Giants

“The great danger for most of us lies in not setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.”



Last night the Canadian Olympic Hockey Team woke up.  The result was a dismantling of Russia in the quarterfinals in Vancouver.  The final score was 7 – 3 and the Canadians outshot the Russians 44 – 28.  If the hockey world didn’t know what the Canadians were capable of . . . well . . . now they know.  The giant is no longer sleeping.


As I was watching the game in the confines of Richter’s Bar and Grill in New Haven, CT, I couldn’t help but smile as the game ensued.  Yes, I’m Canadian, so it was cool to watch my team win.  Yes, it was funny when Keith texted me to tell me that his son two year old son was singing the Canadian National anthem.  And yes, I was drinking Molsons like they were water. 


Most importantly, I was smiling because this is what it is all about. Competing at the highest level and leaving everything on the ice.  Ask Canadian player Eric Staal about that, he left his teeth on the ice last night.  He then skated to the bench, took a tug on his water bottle, and went out for his next shift.   Not dissimilar to stock market operators like ourselves who keep at it every morning, even if we have a bad trade the day before.


At one point in last night’s game, the Canadians were up 6 -1.  Like most Canadians, I was giddy.  But I couldn’t help but notice that Canadian Coach Mike Babcock still wasn’t smiling.  In lieu of the ETFs this morning, we’ve pasted a picture of Coach Babcock’s scowling mug below.  Suffice it to say, this is not the face of man who will let his players “aim too low”.


Similar to expectations for sports teams, global macro data points can be ignored, but that doesn’t mean they cease to exist.  We have a number of call outs on that front this morning that are critical to highlight before the puck drops at 9:30 a.m.


While we have debated whether inflation is occurring domestically with some of our subscribers, the international data points continue to support an inflationary picture.  This morning, India, the world’s 12th largest economy, reported wholesale inflation.  This index, which measures basic food prices, rose 17.6% year-over-year.  That is inflationary.


To their credit, the Indians are concerned about inflation and attempting to address it.  In late January, the Indians raised their lenders’ cash reserve ratio to 5.75% from 5%.  Additionally, last week Chakravarthy Rangarajam, the top economic adviser to Prime Minister Manmohan Singh, acknowledged publicly that there is a danger of high food costs spreading to other commodities.   The Indians may not be setting their “aim too high” in combating inflation, but they are aware of the problem.  And that is a start.


From a longer term perspective, Analyst Darius Dale wrote a great note yesterday titled, Domestic Pigs, regarding burgeoning state deficits, that includes a series of data points that should not be ignored.  If you would like a copy of this fine note and to trial our subscriber service, email us at . To paraphrase the note:


“A recent release by the PEW Center on the States shows a $1 trillion gap between the $3.35 trillion in pension, health care, and other retirement benefit-related liabilities currently on States balance sheets and the $2.35 trillion in assets they have to cover them. 


Currently, 41 States' pension programs are less than 10% funded.  In addition, only 5% of the $587 billion liability for current and future retiree health care and other non-pension benefits is currently funded.


Unfortunately for State governments, purging the balance sheet is only a temporary fix. Across the country, State governments are facing lawsuits from municipalities school districts outraged by budget cuts.


So with their backs against the funding wall, States must find a cumulative $18.8 billion to balance their budgets in remaining months of the current fiscal year and an additional $53.6 in fiscal 2011.”


To be fair, some astute Governors realize the crisis they are facing and are both acknowledging and addressing it.   Most specifically, newly elected Governor Christie told mayors and local officials yesterday in New Jersey to prepare for state aid cuts on a massive scale to address New Jersey’s estimated $11BN deficit.  According to Governor Christie:


“At some point, there has to be parity between what’s happening in the real world and what’s happening in the public sector world.”


We like what we see and hear from Governor Christie.  State deficits are front and center for us as a macro risk and Governor Christie, at least, is trying to be the one Governor who won’t be “falling short” in addressing this macro risk.


Tonight is the women’s hockey gold medal game and on Sunday is the men’s hockey gold medal game.  As one of my friends back home likes to say, “it’s full giddy up time.”  Enjoy the Olympics and may the best teams win.


Keep your head up and stick on the ice,


Daryl G. Jones

Managing Director


Sleeping Giants - mike



The Macau Metro Monitor, February 25th, 2010



According to Michael Leven, LVS's COO, LVS would like to renegotiate its $5 billion US debt by the end of this year. At the Reuters Travel and Leisure Summit in New York on Wednesday, Levin commented on LVS's bet on the success of its Singapore casino resort to help it pay down debt. Although LVS has over $5 billion in cash, above the $3 billion threshold required of its debt covenants, Leven warned that underperformance in Singapore, specifically a less than $400 million in EBITDA by the end of the year, would create problems for its covenants.


He said the company's 130 US lenders will likely seek a paydown of $1 billion or so as well as a higher interest rate and fees. The company carries about $11 billion in total debt – $5 billion by the US group, around $3.6 billion in Singapore and $2.7 billion or so in Macau, he said.


Levin agrees with the Chinese government's 10-12% target annual growth rate in Macau casino revenues as a way to sustain growth and prevent a bubble-like environment. In addition, Levin does not expect tighter monetary policy in China to significantly impact Macau operations, noting their Macau customers' preference for using cash rather than credit to gamble.


Sands expects to begin selling condominiums at its Macau Four Seasons property through a co-op structure – which will bring in north of $1 billion, Leven said. Once the Singapore resort is fully up and running, Macau will drop from 70% to 50% of Sands' earnings.


MORE VISITORS macaubusiness.com


The number of visitors to Macau in January 2010 totaled 2.05 million – up 6.8% YOY. Chinese mainland visitors rose 18.9%

to 1.13 million - with 447,681 traveling to Macau under the Individual Visit Scheme, down by 21.7% YOY.

Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

US STRATEGY – Sagging Sales

Thanks to the FED the S&P 500 finished higher by 0.97% on Wednesday.  Fed Chairman Bernanke intimated that the “Piggy Bankers” will be feeding at the trough of free money for an extended period of time.  This put the Financials (XLF) back on top of sector performance, rising 1.7%.  Taken together, the need for extended period of low interest rates, China’s current tightening monetary policy and declining global consumer confidence present evidence to challenge an extended rally.


The pullback in the dollar following yesterday's spike also offered some support for the stocks, but not the RECOVERY trade.  Two of the three worst performing sectors yesterday were Materials (XLB) and Energy (XLE).  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at – buy Trade (79.60) and sell Trade (81.16). 


On the macro calendar, new home sales plunged 11.2% month-to-month to a 309,000 unit annualized pace in January, marking a record low.  Sales were weak across much of the country last month, with a 35.1% decline in Northeast leading the way.  The decline in sales pushed the month’s supply of new homes to 9.1 from 8.0 in December, while the inventory of new homes for sale rose 0.4%, the first increase since April of 2007.  Not surprisingly, homebuilders were weaker on the news, with notable decliners including RYL, DHI and PHM.  We remain short TOL and are concerned about housing going into 2Q10. 


The banks led the market higher yesterday, with the Bank Index (BKX) up 2.28% after declining 2.36% the day before.  With little hard news, the FED is behind the rally.  Money-center and Large-cap regional’s were among the standouts in the group with C, BAC, KEY, STI and MI leading the way.  We are currently long the XLF.


The Technology (XLK) continues to be the worst performing sector year-to-date, but slightly outperformed yesterday.  Semis were a key driver of the outperformance yesterday, with the SOX up 1.9% after falling 2.8% on Tuesday.  Yesterday, ADSK was up 8.7% following its earnings release.    We are currently long the XLK.


Consumer Discretionary (XLY) is the best performing sector over the past month and continued its strong relative performance yesterday.  The strength is centered in Retail, with the S&P Retail Index up 2% yesterday and is up seven of the last eight days.  The sector continues to benefit from a strong earnings season.  


On the MACRO calendar today we will see initial Jobless Claims and January Durable Goods, while Fed Chair Bernanke gives a second day of pandering before the Senate.  As of the time of writing equity futures are trading below fair value.  As we look at today’s set up the range for the S&P 500 is 26 points or downside (1,094) and upside (1,120). 


Copper closed up 0.5% yesterday, but is looking lower in early trading today.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.17) and Sell Trade (3.41).


In early trading gold is trading down to the lowest price in the past two weeks.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,087) and Sell Trade (1,117).


Oil is trading down on a higher dollar and a lack of momentum behind the RECOVERY trade.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (77.09) and Sell Trade (82.10).


Howard Penney

Managing Director


US STRATEGY – Sagging Sales - sp1


US STRATEGY – Sagging Sales - usd2


US STRATEGY – Sagging Sales - vix3


US STRATEGY – Sagging Sales - oil4


US STRATEGY – Sagging Sales - gold5


US STRATEGY – Sagging Sales - copper6


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