The Macau Metro Monitor, March 23rd, 2010



According to an anonymous source, gambling  revenue in Macau soared close to HK$13 billion ($1.68 billion) for the first three weeks of March, similar to the levels achieved in February. SJM Holdings retained the biggest share of the market, at around 30%, while Sands China was second with around 20%.


Macau GDP grew 1.3% in 2009. Secretary for Economy and Finance, Francis Tam Pak Yuen, attributed the better than expected GDP performance to a substantial increase in gaming receipts in the last quarter of 2009. Tam believes a gaming revenue recovery and a growth in both private investment and consumption will boost GDP further this year. However, he added that it is not expected that the casino industry growth will be as sharp in the future as it has been in the last years, with the exception of 2009.



"The government is preparing to outlaw slot-machine parlors in residential areas--existing venues will have to move," said Secretary Tam, on the first day of the debate of the 2010 Policy Address for Economy and Finance areas. Other gaming controls under consideration include raising minimum age to 21, money laundering and terrorism financing at the local casinos, and an audit of gaming operators at year end.



Total visitor arrivals to Macau surged 24.4% YoY to 2.06 million in February, attributable to the long Lunar New Year holidays, the Statistics and Census Service said on Tuesday. Surging 38.1% annually to 1.15 million, mainland China visitors accounted for 55% of all visitor arrivals.



''About'' 50,000 people obtained their right to temporary residency in Macau through the property investment scheme, according to the Macau Trade and Investment Promotion Institute (IPIM).  CEO Chui said last week that the property investment scheme had already achieved its goals. He added the government will study an overall makeover on the population and immigration policies.

Seeing The Forrest Through The Trees

Seeing The Forrest Through The Trees

“It’s there if no one else has told you.”

-          Forrest Chang, Hedgeye Risk Management


No, I didn’t spell Forrest wrong in the title.  Granted some days we have the odd typo in our research, today Forrest - with two RRs - is actually the name of my colleague, Forrest Chang.  Not only does Mr. Chang, an MIT graduate, run our Oceanside, California office, but he also has a Budha-esque quality to him.


Yesterday I emailed our Operations Team to inquire as to whether the MP3 for our sovereign debt call was on the portal for our subscribers.  His response was the quote above: “It’s there if no one else has told you.”  As I read his email response, I thought that’s logical.


Like most deep simplicity, his statement has a much deeper meaning.  One would expect nothing less from a computer scientist of Mr. Chang’s genius.  As you know by now, Keith and I like to apply many analogies, and more often than not sports analogies, to our business and to global macro investing.   In this instance, do your own work, DJ go to the site and look yourself, was what Forrest was telling me.


So, as we survey the global macro landscape today, what “is there because no one had told us”?  Well, I would say a few things:

  1. Bank of China earnings – The Bank of China reported earnings over night.  Not surprisingly, the Bank of China posted a fourfold jump in profit based on loan growth and lower write downs.  Now the first part was to be expected given massive loan growth in China, but fewer write downs?  What of the mystical empty Chinese cities that these loans are supposedly underwriting?  Despite conspiracy theories, Chinese loans still appear to be money good for the most part.
  2. Iron Ore Prices –Vale is the second largest mining company in the world, so when Vale speaks, our commodities team listens.  Last night Vale sent a document to its customers saying it was raising iron ore prices to $122.20 per tonne, versus $57 per tonne year last year.  That is a 114% increase.  I don’t need a degree from MIT to know that is inflationary. 

Incidentally, if you are looking for a market with duopoly pricing power, Vale and its competitor Rio Tinto Group control roughly2/3rds of the global iron ore market.  So, yes, they have pricing power.  And yes, when they raise price by 114% year-over-year that is inflationary for all things steel.

  1. U.K. Inflation – A common debate in economic circles these days is whether we are in an inflationary or a deflationary environment.  I’m not sure if anyone has told me, but it appears that inflation is here based on data out of the U.K. this morning. 

The Brits printed a Consumer Price Index this morning that was up +3% year-over-year for February.   Yes, that is a February number and it is now March. Yes, that is a deceleration from January’s +3.5%.  And, yes, it is still inflationary.  We expect global inflation numbers to go up in March versus February.


Just as a MIT computer scientist and a Yale hockey player are juxtaposed, so too is the leadership in the global macro markets this morning.


We have been criticized for being too pro-China at times, but when a country and its leadership both do and says the right things, it is hard not to get a little bulled up.  In a speech to major CEOs last night Premier Wen Jiabao said:


“They must not fight a trade war or a currency war because this will not help us in meeting the current difficulties.”


This is an admittedly savvy appeal to the capitalists who run some of the largest companies in the world ahead of Congress’ manipulator meetings tomorrow.


In Europe the continuing debate regarding the PIIGS, namely Greece, rages on with nary a real leader in sight.  Will the IMF provide bail out monies? Will the EU provide bail out monies? Does Germany like Greece, or not?


In our picture of the day today, posted below, we see a perplexed and confused looking European Central Bank President Jean-Claude Trichet, with the caption, “Smells Like a PIIG in Here . . .”   As we stated on our Sovereign Debt Call last week (email us at if you want the replay), sovereign debt issues rarely end with one country. 


Not surprisingly, we continue to favor the Chinese leadership to the European confusion.


On an ending note, we couldn’t help but highlight a quote that we read from CNBC pundit Dennis Gartman yesterday.  Garty wrote:


“We remain long of restaurant chains and other companies that keep making higher highs.”


Setting aside the fact that Dennis has probably never analyzed a restaurant (our own Howard Penney is one of the world best restaurant analysts), what kind of a thesis is being long companies that make higher highs?  Come on Dennis, there is responsibility in recommendation.  This isn’t a game, people depend on us.


Keep your head up and stick on the ice,


Daryl G. Jones

Managing Director


Seeing The Forrest Through The Trees - Trichet



While the S&P 500 finished higher on significantly lower volume from Friday, the XLU is now broken on TREND.  While the day got off to a shaky start, the Healthcare (XLV) sector provided some early upside leadership following the passage of the Senate's healthcare reform bill in the House; the XLV has increased 5 of the last 6 days


While the Dollar index traded flat on the day, the safe-haven status of the dollar continues to gain momentum amid the uncertainty European leaders will fail to agree on an aid package for Greece.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy Trade (80.36) and sell Trade (80.93); the dollar is in a bullish formation. 


The strong dollar continues to put pressure on the REFLATION trade.  Materials (XLB) ended up putting in one of the best performances of the day, but two key names (PTV and MLM) were higher on takeover speculation.   The Energy underperformed and was one of two sectors down on the day.  While oil and the bulk of the energy commodities were higher on the day, natural gas remains a laggard.  CHK, CNX and EP all significantly underperformed.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (80.11) and Sell Trade (83.64). We are currently long the USO. 


Consumer Discretionary (XLY) and in particular retail was a bright spot on the day, with support coming from earnings and improving consumer spending trends.  The retail S&P Retail Index was up 1.2% on the day; the Department stores (SKS, M, DDS and JWN) were notable outperformers.  Also, WSM rallied after beating on Q4 earnings and raised 2010 guidance.


Semis provided much of the upside leadership for Technology (XLK), with M&A and the semi-cap equipment group leading the way. 


The notable laggard on the day was the Industrials (XLI).  Within the XLI, FDX and UTX gave back some of their gains from last week. 


Yesterday we sold our LONG position in the VXX.  The VIX continues to be broken on all three durations - TRADE, TREND and TAIL.  The Hedgeye Risk Management models have levels for the volatility Index (VIX) at:  buy Trade (16.22) and sell Trade (18.73). 


In early trading, equity futures are trading above fair value, following yesterday's up move.  The US MACRO calendar is void of any significant events.  As we look at today’s set up the range for the S&P 500 is 15 points or 0.8% (1,157) downside and 0.5% (1,172) upside.  Today's MACRO highlight will be February existing home sales. 


In early trading, copper is trading lower as the dollar is higher.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.33) and Sell Trade (3.42).


In early trading Gold is trading lower for the third day in a row.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,093) and Sell Trade (1,120).


Howard Penney

Managing Director














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FL: RUN This Town

FL: RUN This Town


We took a trip to RUN by Foot Locker over the weekend.  While we hope to see a more exciting store prototype in the future, at the end of the day, what we saw was a credible first effort and just the beginning of management’s efforts to revitalize and grow the chain. 


“We gonna run this town”



Over the weekend we visited Foot Locker’s latest prototype in Manhattan’s Union Square, which is called RUN.  And while there is still a long way before Foot Locker is “running” any town, let alone Union Square, we believe this is step in the right direction.  The store was celebrating its official grand opening although a salesperson noted that it was open for about three weeks.  There were a couple of interesting takeaways from the visit, a few of which we share below .


Importantly, the key components to a successful running shop were all present- performance product, customer service, and community involvement.  On the flip side, we expected a more exciting and differentiated store environment.  At the end of the day, what we saw was a credible first effort that is designed to take direct aim at specialty running shops and the performance running market.  We hope we’ll see a more exciting store prototype in the future and one that is visually differentiated and unique.  For now, it’s important to remember that this is just a one store test and it is just the beginning of management’s efforts to revitalize and grow the chain.


So what did we see?


  • The grand opening event was highlighted by window signage offering 20% off the entire store (over the weekend only).   Whether it was the discount or the store’s prime location in Union Square, the store was filled with customers.

 FL: RUN This Town - 1

  • Upon entry (front 1/3 of store), the walls to the left and right were separated by gender but dominated by Nike.  This prime real estate in the store was clearly designated to showcase Nike apparel with Nike footwear, although there were other brands integrated on the wall that fit into similar color palettes.  

 FL: RUN This Town - 2

  • The footwear walls dominate the middle 1/3 of the store, with clear signage delineating different types of running footwear (Stability, Cushioning, Trail, etc…).  From a brand perspective, most major technical running product is offered.  I observed Asics, Brooks, Saucony, New Balance, Mizuno, Nike, Reebok, Adidas, and Under Armour.  Higher end product was also well represented, making the offering more akin to a Road Runner Sports and less like a traditional Foot Locker.  There was very little product in the store that could even be construed as a fashion item.  Differentiation is clearly at work here.

 FL: RUN This Town - 3

  • Sales help was abundant and the employees were not forced to wear the traditional “Striper” uniform.  Instead, employees were wearing tight fitting compression tops in black, adorned with the RUN logo.  If rolled out, we wonder if physique will begin to play a bigger role in staffing.  Service levels were noticeable, if not aggressive.  At several times during our visit, we were approached and asked if we needed any assistance.  We did engage several associates and found that knowledge levels were surprisingly high on specific running questions.  Anecdotally, we heard salespeople explaining the merits of non-Nike footwear for true running. 
  • The back one-third of the store was the most active.  In this area, we found accessories, more apparel (including technical brands like Sugoi), the cash wrap, a community room (containing trail maps, running literature, and message boards advertising local events), and two high tech treadmills (for testing shoes and conducting gait analysis).   

FL: RUN This Town - 4


Overall, we were impressed with the overall look and feel of the store but recognize this is just a one store test.   We suspect that there will be numerous tweaks to the store model, merchandise, and in-store environment as additional locations are opened.  Importantly, we see this as just one small step in the company’s efforts to 1) differentiate the store base between concepts, and 2) build new vendor relationships beyond the core.  With no major national chain of running stores, there is a great opportunity for RUN by Foot Locker to tap into of the largest athletic footwear sub-segments.



Eric Levine


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