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We’re projecting over $1.5bn of net gaming revenues at MBS next year.  Rev per visitor should be above Highlands and close to Venetian Macau, while daily visitations will likely be below both.



LVS’s Marina Bay Sands (MBS) resort in Singapore will open in April and we are projecting a little over $1.5bn in gaming revenue in its first full year of operations (2011).  Venetian Macau generates approximately US$96 in gaming revenue per visitor while attracting around 60k visitors per day.  That property is on a run rate of over US$2bn in total annual gaming revenues.  The nearest casino to Singapore is Genting’s Highlands in Malaysia which as a monopoly, produced revenue per visitor of $68 and daily visitation of 53k.


Similar to most Macau casinos, Venetian benefits from an astronomical amount of VIP play, a level which Singapore is unlikely to attain.  Venetian’s Mass revenue per visitor is only $46, less than half of its total.  Despite a much smaller VIP book, MBS could benefit from a long length of stay given the extensive entertainment options.  The average visitor spends close to 4 days in Singapore while the average visitor to Macau spends about 36 hours.


In terms of daily visitation, MBS is unlikely to produce the levels of either Venetian or Highlands.  Singapore locals will be swayed by the S$100 levy.  Moreover, Highlands was operating as a monopoly and now, must compete with MBS and its sister operation, Resorts World, which already opened in Singapore.


Our US$1.5bn gaming revenue estimate for MBS contemplates revenue per visitor of US$90-100 and daily visitation of 40-50k.  The following chart shows the gaming revenue possibilities for MBS. 




Carbonated soft drink market is shrinking, MCD shifting gears


My initial reaction to the news that MCD will be selling all soft drinks, no matter the size, for $1 this summer was one of surprise.  While I still maintain that the company is overly-focused on transaction-counts, an article published last night by the Atlanta Journal Constitution entitled, “Soda business shrinks for fifth straight year” may give some indication as to MCD’s reasoning:

  • According to Beverage Digest, the volume of the U.S. soda business declined 2.1% last year
  • The publication believes that many more years of decline are in store for soft drinks
  • Energy drinks and ready-to-drink teas posted slight increases last year, according to Beverage Marketing Corp.
  • Health and obesity concerns continue to hamper full-calorie soda sales

While MCD has sold drinks for $1 in past summers, the promotion this year is lasting 150 days compared to 100 days in years prior and this year drinks of all sizes will be priced at $1.  The concession may serve to effectively take traffic from competitors and fuel the discounting war.  The “ready-to-eat” smoothie market has grown dramatically in recent times, with more than 80% of the consumption growth coming in the last five years, according to smoothiestatistics.com.  There are valid concerns regarding MCD’s ability to sell $4 blended drinks alongside $1 soft drinks, but the respective market trends are indicating a shift from soft drinks to the “health and wellness” segments.


Howard Penney

Managing Director


There appears to be a bit of waning upside momentum, but the daily pattern of higher-highs and higher-lows remains intact.  The S&P 500 closed down 0.5%, with volume up 3.3% day-over-day.  Breadth declined significantly with the advance/decline at -2353 to -992. 


The US MACRO data points continue to come in with a mixed message.  On one hand, the durable goods report was positive for the third month at 0.5%, though slightly below expectations of 0.6%.  On the other hand, housing continues with a string of disappointments as new home sales hit a record low.   The February new home sales were 308,000; lower than consensus 315,000 and down from a revised January report of 315,000. The Census Bureau estimate of new houses for sale at the end of February was 236,000, which represents 9.2 months of supply; up slightly from 9.1 months in January.  Overseas, Fitch’s downgrade of Portugal created increased sovereign debt concerns. 


The Dollar index had another strong day improving 1.2% and is down slightly in early trading today. 


The VIX was up 7.3% yesterday, the biggest up day since February 4, 2010.  The VIX continues to be broken on all three durations - TRADE, TREND and TAIL. 


The Financials (XLF) was the only sector to close up on the day.  The XLF was driven by the banks with the BXK +0.4% on the day.  BAC is leading the money center names higher after the company announced that it would start forgiving mortgage loan principal for homeowners who owe more than 120% of their homes' value.  MBIA and Genworth Financial were the two best performing stocks in the XLF. 


Despite the disappointing news in housing, the S&P 500 Homebuilding index rose +1.9%; the third straight daily gain.  LEN reported a much smaller loss than expected and said that it is on track to achieve profitability in fiscal 2010.


Crude was down 1.6% following a larger than expected build in crude inventory.  Yesterday, crude broke the Hedgeye immediate term risk management line, so we sold out of our position in the USO.  With Global Sovereign Debt risk mounting, we don't get paid to hope oil holds support.


Yesterday, gold prices are trading lower nearing a six-week low as continued negative Euro zone news lifted the dollar.  In early trading, copper is trading lower also as the dollar is trading higher. 


In early trading, equity futures are trading above fair value, in an effort to reverse yesterday's declines.  As we look at today’s set up the range for the S&P 500 is 17 points or 0.7% (1,160) downside and 0.5% (1,174) upside. 


Today's MACRO highlights are:

  • weekly jobless claims
  • Bernanke testifies on the FEDs exit strategy
  • weekly natural gas inventories


Howard Penney

Managing Director

Professional Forecasting

“We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know.”

-John Kenneth Galbraith


I have that quote scotch taped on the insert of my investment notebook. I keep it there not to remind myself how wrong the consensus groupthinkers tend to be, but to always remember that I don’t know what I don’t know. Mr. Macro Market knows all.


I have never been afraid to shoot the puck or make a call on markets. You can call that brave or arrogant. I call it strapping it on every morning and playing the game to win. For any of you who have done anything at the highest level in your life, you get this. Confidence beats cowardice.


What gives me confidence is my investment team and market prices. Before I make a call on anything out there, I check with what Mr. Macro Market tells me to look at, then I ask my analysts what they think. That’s it – we start each day by admitting that we may not know what market prices are telling us.


Every three months, we change our Top 3 Macro Investment Themes. Why do we change them? Well, that’s easy – because market prices change. We get a lot of questions on where we will wash out on our Q2 Macro Themes. We are waiting until the seconds run out on the game clock for Q1 to do that.


Any professional athlete, entertainer, or investor worth their title wakes up every morning reviewing their performance. Sometimes people don’t like others talking about performance. Sometimes people appreciate accountability. But no matter where you go in the morning, there your performance will be.


By next Thursday, my Macro Team’s performance will be on the scoreboard for Q1 of 2010. While I myself have made plenty of tactical mistakes out there, I think my teammates have performed admirably on nailing down 3 big macro moves. As a reminder, our Q1 macro calls have been:

  1. Buck Breakout (bullish on the US Dollar; bearish on commodities, gold, euro, etc…)
  2. Chinese Ox In A Box (bearish on Chinese stocks; bullish on Chinese yields and currency)
  3. Rate Run-up (bearish on US Treasuries)

My biggest question every morning is where do our macro themes start to go wrong. The score is the score. What matters from here is what to make of it. Am I becoming consensus? Where do I sell the US Dollar? Should I cover my short position in gold? Should I short Chinese stocks again, or should I be long them?


Well, the good news is that my business model allows me to change my views on all of this with a click of a button. The conflicted and compromised ratings models of the Investment Banking Inc. can’t do that for you but I, like the buy-side, can. We call that cool.


Becoming consensus isn’t cool. Neither is not knowing that you don’t know that consensus can remain longer than you can remain solvent. I have learned this lesson plenty enough times in my career to never disrespect it.


So, before I wrap up, let’s quickly look at consensus relative to what Mr. Macro Market is telling me this morning relative to our Q1 Macro Themes:

  1. US Dollar is overbought anywhere north of $81.92 on the USD Index. The big breakout line (support) is the immediate term TRADE line at $80.45.
  2. Chinese stocks got spanked again last night, trading down -1.2% on the SSEC, and breaking my immediate term TRADE line of support of 3034.
  3. US Treasury rates blasted right through every line of resistance I have in my macro models yesterday, across durations.

The least consensus call we have left is that rates are going to continue to Run-up. As a reminder, our call on US interest rates going higher is fairly straightforward and it’s based on 3 forecasts:

  1. The Data – we think inflation (CPI), globally, will accelerate sequentially in March vs. February. We think unemployment rates (including the USA) are setting up to drop, sequentially, for the next 3 months, and that reported global growth will continue to surprise to the upside.
  2. The Decision – Bernanke is preparing to remove the “extended and exceptional” language from consensus policy.
  3. The Debtor – whether USA’s The Creditor be China or the US taxpayer in California, Piling more Debt Upon US debt Upon Debt from here is bearish for government bonds (we are short IEF and MUB).

Here are three fresh quotes that support our forecast for higher interest rates, globally, this morning:

  1. Sovereign Debt - “Our financial support demonstrates our commitment to finding a fair and equitable solution for all stakeholders in the wider interest of the economy.” -UAE Supreme Fiscal Committee chairman, Sheikh Ahmed Bin Saeed Al Maktoum, on bailing out Dubai World at a price.
  2. Sovereign Debt - “in an emergency, such aid would have to be provided as a combination of the International Monetary Fund and joint bilateral measures in the euro zone.” –Germany’s Merkel on pushing the Greeks to higher lending rates at the IMF.
  3. Sovereign Debt - “We have clearly underestimated the impact on the euro from the European sovereign crisis and perhaps also from the broader macro adjustment that it portends.” –Goldman Sachs, capitulating on their bullish view of the Euro.

At least someone at Goldman is admitting that they too don’t always know what they don’t know. Cheers to professional forecasting. If you want to get in this game, be prepared to win and lose - because everyone, whether they like you personally or not, will be keeping score.


My immediate term support and resistance levels for the SP500 are now 1147 and 1177, respectively.


Best of luck out there today,



Professional Forecasting - Professional Forecasting





The Macau Metro Monitor, March 25th, 2010

SJM SLOT PARLOUR TO GO AHEAD macaubusiness.com

SJM's project to transform its Guangzhou Hotel into a slot-machines parlour was been granted approval by the Gaming Inspection and Coordination Bureau (DICJ) as an initiative to promote businesses, hospitality and tourism in the Inner Harbour. This was a surprise since the government "stands firm" on moving slot-machines parlours out of residential areas. According to DICJ’s director, Manuel Joaquim das Neves, no other locations in the Inner Harbour has been approved to open slot machine venues.


COTAI SANDS READY TO SHIFT macaubusiness.com

On Monday, March 29, Sands China will hold a contract signing ceremony with a contractor to restart construction on parcels 5 and 6 on the Cotai Strip. The actual start date of the construction is TBD. Phase I of the project is expected to be ready in 18 months and will cost approximately US$2 billion.


At the end of 4Q 2009, the Gaming Sector had 44,020 employees, up slightly by 0.4% YoY. Analyzed by occupations that are directly related to betting services, 18,274 were dealers, up slightly by 0.4% YoY; 12,040 were hard & soft count clerks, cage cashiers, pit bosses, casino floor persons, betting service operators, etc., up by 1.4%. Meanwhile, 5,283 were casino & slot machine attendants, security guards, surveillance room operators, etc., up by 4.4% from a year earlier.


In December 2009, average earnings (excluding bonuses and allowances) for full-time employees dropped by 3.4% year-on-year to MOP 15,100. The average earnings for dealers fell by 4.9% over December 2008 to MOP 13,270, and that for hard & soft count clerks, cage cashiers, pit bosses, casino floor persons, betting service operators, etc. stood at MOP 18,400, down by 5.7%. The average earnings for casino & slot machine attendants, security guards, surveillance room operators, etc. registered a YoY increase of 4.7% to MOP 10,060.

At the end of December 2009, number of vacancies of the Gaming Sector increased by 48.1% YoY to 382, with 114 for dealers, 57 for hard & soft count clerks, cage cashiers, pit bosses, casino floor persons, betting service operators, etc. and 66 for  casino & slot machine attendants, security guards, surveillance room operators, etc.

With respect to the indicators that measure the inflow and outflow of human resources, as well as staffing needs of the sector, the employee turnover rate and recruitment rate of the Gaming Sector were 4.1% and 4.9% respectively in the fourth quarter of 2009, while the job vacancy rate was 0.9%.


MFS's Pozen Discusses Financial Regulation Overhaul

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