• Gaming revenues grew 21.7% to HK$34.1BN (US$4.4BN) and Adjusted EBITDA increased 41.8% to HK$2.27BN (US$293MM). If calculated on a US GAAP basis, EBITDA margin would have been 10.8%.
  •  In 2009 SJM's overall market share gaming revenue rose to 29.4% from 26.5% in 2008.
    •  Share of Mass market table revenues was 40.7% and SJM's share of VIP gaming revenue was 25.8%.
  • VIP table revenues accounted for 58.8% of total gaming revenues. At Dec 31, 2009, SJM had 320 VIP tables with 30 junkets compared to 180 VIP tables with 40 junkets at the end of 2008.
    • Average net daily win per table increased to HK$229,536 (US$29.6K).
    • RC Volumes increased 29.8% y-o-y to HK$718.8BN
    • Hold rate decreased to 2.78% in 2009 from 2.88% in 2008
  • Mass market revenues accounted for 38.3% of total gaming revenues in 2009. At Dec 31, 2009, SJM had 1,404 mass table, including 249 new mass tables at Oceanus and 99 mass tables at Casino L'Arc, compared to 1,154 mass tables at Dec 31, 2008.
    • Average win per daily table increased to HK$29,978 ($US 3,866)
  • Slot machine revenues comprised of 3% of SJM's total gaming revenue in 2009. SJM had 4,567 slot machines at year end, compared to 3,867 last year.  The increase was mainly due to the addition of 521 slots at Oceanus and 383 slots at L'Arc.
    • SJM operated slots in 15 of its casinos and 4 slot halls.
    • Average win daily per machine increased to HK$3,955 (US$510)
  • Casino Grand Lisboa Adjusted Property EBITDA was HK$1,654MM (US$213MM) with an EBITDA margin of 17.5% (or 25.8% if prepared on a US GAAP basis) 
    • Daily win per Mass table increased 23.6% to HK$35,908 ($4,630)
    • Net win per VIP table increased by 12.9% to HK$329,905 (US$42.5K)
    • Net win per slot grew 27% to HK1,241 (US$160)
    • "During the year two VIP promoters relocated from Casino Grand Lisboa to satellite casinos, and in October 2009, 16 new VIP gaming tables were added to the 36th floor of Grand Lisboa. After October 2009 the property’s VIP gaming revenue increased, and Casino Grand Lisboa contributed $22,974 million in VIP chips sales in the month of December 2009, or 32.9% of the Company’s total VIP chips sales for that month"
      • We understand that this is where SJM is offering a 55% payout to junkets in return for absorption of certain costs
    • Average daily visitors were 26,241
  • Casino Lisboa contributed gaming revenues of HK$9.4BN
    • VIP operations accounted for HK$7.76BN and RC VIP volume of HK$290.2BN
    • Average VIP win per table of HK$347,141 (US$44.8K)
    • Mass market revenues were HK$1,630 and slots revenues were $27MM. Average net win per mass table were HK$30,942 (US$3,990)
  • Casino Jai Alai & Oceanus contributed gaming revenues of HK$681MM
  • "During 2009 SJM obtained more attractive terms in revised service agreements for its satellite (third party-promoted) casinos, and opened three additional satellite casinos: Casino Jimei, Casino Lan Kwai Fong Macau and Casino L’Arc Macau."
  • CAPEX projects:
    • Grand Lisboa: The 2 additional VIP floors are scheduled to open with 31 tables in 4Q2010.
    • Lisboa: Will renovate certain mass market and VIP gaming areas in 2010
    • Casino Jai Alai & Oceanus:  In April 2010 they will open a new set of escalators leading to the overhead walkway to Casino Oceanus from the ferry terminal. Later in the 2010 SJM will open a second walkway connecting Oceanus to Jai Lai.  Subject to approvals, SJM will also commence renovation plans at former Casino Jai Alai premises.
    • Longer term plans for 2 sites on Cotai:
      • 10,000 square meter site directly across from LVS's convention center
      • 73,856 square meter site adjacent to the Macau East Asian Games Dome
      • No timeline - but they are taking a wait and see approach - want to see how 5 & 6 do.


  • Dividend of 9 cents per share was recommended by the Board and will be considered at May's Board meeting
  • Opened/ Reopened 4 casinos in 2009
  • Improved operational efficiencies, only increased employees by 300 despite large gaming increase
  • They are very optimistic about the future
  • Will renovate some part of Casino Lisboa and install some IT and player tracking systems. Will also outfit more floors of Casino Grand Lisboa for additional VIP tables
    • BYI is installing the mentioned tracking systems


  • Oceanus is ramping up nicely using their yield management systems. Target is 20k win per table and they believe they will hit that.  The initial ramp was slow.
  • New service contracts with promoters clearing 5% net share of gaming revenues. Have 13 to 14 of the 3rd party casinos on the new form of contracts.  New contracts allowed them to increased EBITDA by HK $500MM
  • Will start breaking out quarterly numbers going forward and provide more disclosure
  • Old Lisboa is making positive EBITDA and the promoters casinos are also positive EBITDA contributors in 2009
  • Don't think that the table cap will have much of an impact on them. They don't plan to add more capacity over the next 3 years. They can always reshuffle their tables to increase their efficiency
  • Would they consider going to Cotai?
    • Taking a wait and see approach on Cotai
    • Want to see the timing of 5 & 6 and how well it does when it opens
  • Given the liquidity in available opportunities in Macau they will continue to hold a lot of cash
  • L'Hermitage?
    • They have a strategy there.  Its built to lease but they aren't planning on doing anything there imminently
  • Commission rate that they are paying to junkets
    • EBITDA margin was 17.7% in 1H09 and 17.5% for FY meaning that they got no leverage in commission caps
    • Not a VIP business at Lisboa - increased the VIP mix there - and therefore decreased the margin
    • Moving forward if they continue to expand VIP as a % of total their margin will be impacted
  • Wouldn't assume that just because of the table cap that SJM won't be building anything new over the next 3 years. They have 1,700 tables out of 5,000 or so in the market. If they want to open something new they can reshuffle their tables
    • Pursing the Portuguese school site next to Grand Lisboa
  • EBITDA at Grand Lisboa going forward? In 2010 - VIP has been the source of growth in the market, and that growth comes at a lower margin, though still additive. So margins will be down in 1Q2010 y-o-y.
  • Will they continue to payout their historical payout ratio of 50% 
    • Yes - for the time being unless they have a very strong financial commitment to make
  • Hard call to say how VIP and general Macau growth will trend for the rest of the year.
  • Why report quarterly results?
    • BC their competitors do it and HK will move to a quarterly system within the next few years
  • Don't know the impact of tightening measures in China on the rest of the year.  Don't see this level of business activity as a bubble. Have no idea how the rest of the year will grow.
    • China says GDP growth will be close to 8% and thinks that Macau will do a little better
  • Minority interest is all Ponte 16
  • What is driving this huge growth in VIP business. 
    • Think its money supply - there is lots of cash floating around... you can put your cash in the bank or lend it to your junkets to lend out to gamblers... and make a return that way
    • Thinks that the government has continued with the loose monetary policy
  • Risk of the government clamping down on growth
    • China has not changed the visitation scheme.  China wants a rotation of visitation vs. operators just tapping the same players repeatedly
    • China said that they will continue with monetary easing and that should continue to benefit them
  • CoD hasn't generated the level of business that many expected - so they are still taking to a wait and see approach to Cotai (in regards to the site across from LVS's convention center that they were looking at developing at some point in the future)

Aussie-Rules Economics

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

-F.A. Hayek


Either the Reserve Bank of Australia’s Chief, Glenn Stevens, has it really right these days or he is setting himself up to get this really wrong. Economics is not a science of laws. After all, as American historian Ben Bernanke recently told Congress: “Monetary policy is an art.”


It’s no secret that I am fond of Mr. Stevens ability to stand outside the political arena in making tough monetary policy decisions. He has raised interest rates multiple times since the narrative of a Great Wall Street Compensation Depression began. In doing so, he has actually seen the Australian unemployment rate drop and domestic consumption rise.


No, these aren’t Japanese or Americans style policies. These are Aussie-Rules Economics, mates. In Australia, the man who runs the place isn’t on 60 Minutes or writing Op-Eds for the Consensus Street Journal either. Glenn did his FIRST television interview last night since being appointed head of the RAB (he was appointed in 2006). Rock-star member of the Global Bubble in Politics this man is not.


When you read his quotes, consider them within the context of Washington’s current buy-in to government bailout Keynesian economics:

  1. “It’s not wise to leave interest rates right down at rock bottom any longer than you need”
  2. “It would be not doing people any favors to have a prolonged period of very low rates and then hammer them unexpectedly”
  3. “I think it is a mistake to assume that a riskless easy guaranteed way to prosperity is just to be leveraged up into property… It isn’t going to be that easy.”

You’d think with a radical hawk flying around the East side of this world like this that his stock market would be collapsing? Or would you? What is the best way to measure a country’s long term health anyway – by the recent up or down tick of its stock market? How about the strength of its currency; its bond market; or its international credibility?


Maybe I have a bias towards Glenn Stevens because he obtained his Masters in Canada (University of Western Ontario). Maybe I’m just a stickler for getting a rate of return greater than zero on moneys I have in a US Savings account for my children. Heck, maybe I’ll go hire another 30 people during the next economic downturn without government support if I actually generate some fixed income on those savings!


These are fascinating times by any economic measurement. I often wonder how our accomplished historians running on fear-mongering US politics think about where John Maynard Keynes’ fame came from – challenging the bureaucracy of Perceived Wisdoms that were born out of the last mega-cycle of government excess (the 1920’s in Britain).


Too much to think about on this rainy morning in New Haven. That’s a good thing, but I need to give you some macro meat to chew on in the meantime. Shifting gears, here’s where our Hedgeye macro lines washed out into last week’s end:

  1. The Buck Breakout continued to the upside – the US Dollar Index was up another +1.1% last week, taking its rise since the late November lows to +9.4%.
  2. The Euro was oversold again on the news of another lagging indicator (Portugal’s debt downgrade) – my immediate term risk management range remains 1.33-1.36.
  3. The CRB Commodities Index closed down another -1.8% on the wk and remains below my intermediate term TREND line of 275 (interest rates and US Dollar up hurts).
  4. WTIC Oil finally broke my immediate term TRADE line ($80.78); we sold out of our 3% position in Oil in the Asset Allocation Model on the breakdown.
  5. Volatility (VIX) in US Equities rose +5% on the week, but the VIX remains broken across all 3 of our investment durations (TRADE, TREND, and TAIL).
  6. 2-year Treasury Yields continued to breakout to the upside (we call this the Rate Run-up); the long term TAIL line of resistance at 0.96% is now support.
  7. 10-year Treasury Yields continue in what we call a Bullish Formation (bullish across all 3 investment durations); immediate term TRADE support = 3.71%.
  8. 3-month LIBOR continues to rise 1 basis point at a time and now stands at 0.29%, up +16% from where that reference rate was at the beginning of the month.
  9. 10-year swap spreads went negative for the first time (by 10 basis points); this means said ‘AAA’ rating of American finance is finally under attack by the quants.

On the calendar this week you have 3 big factors to proactively prepare for: the end of the Fed’s MBS bailout program and month/quarter end for the asset management industry on Wednesday; then the US unemployment report on Friday.


I am thankful that US Congress has gone to recess until April 12th. It will give me less morning news-flow to read that saddens me. Aussie-Rules Economics are making me feel better already.


My immediate term support and resistance levels for the SP500 are now 1157 and 1173, respectively.


Best of luck out there today,



Aussie-Rules Economics - Pic of the Day



The S&P 500 was mixed on Friday. At the end of the day, it was clear the character of the rally was weaker at the end of the week than at the beginning. The Hedgeye models still have Energy (XLE) and Utilities (XLU) broken on TRADE and TREND. On the MACRO front, there was some support that the euro-zone reached an agreement on a plan in which they would jointly bail out Greece with IMF help. 


In the US, there was a positive tone set from the better-than-expected final reading of the March University of Michigan Confidence. Final March University of Michigan Confidence was 73.6; higher than consensus 73.0 and up from preliminary reading of 72.5.  That said, confidence in this country continues to make a long term series of lower-highs.


The third report on Q4 GDP came in at 5.6%, which was lower than consensus and the second read, both of which were 5.9%.


The Dollar index corrected 0.54% on Friday, but was up 1.18% for the week.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (80.59) and sell TRADED (82.52).  The Materials (XLB) benefitted from the weaker dollar as it was the best performing sector on Friday.  Steel stocks outperformed, as the NYSE ARCA Steel Index was up 1.5%.  With crude weaker on Friday, Energy underperformed on Friday and continues to be broken on TRADE and TREND.


The commodity correction continues on the back of anticipated higher interest rates. The CRB was down 0.2% on Friday and down every day last week. 


Consumer discretionary (XLY) outperformed on Friday and was the best performing sector last week.  The retail sector, leads by apparel companies were especially strong. In addition, homebuilders were up on the day; closing higher five days in a row. 


Financials (XLF) only slightly outperformed on Friday, but was the second best performing sector last week.  Last week, the Obama administration introduced a new mortgage plan that seemed to provide support for the XLF. 


The VIX rallied 4.7% last week, but remains broken on all three durations - TRADE, TREND and TAIL.  The Hedgeye Risk Management models have levels for the Volatility Index (VIX) at: buy TRADE (16.01) and sell TRADE (18.45). 


In early trading, crude oil rose for the first time in four days on expectations demand will increase as the global economic recovery gains momentum.  In early trading oil is trading higher for the first day in the last three as the dollar weakens.  The Hedgeye Risk Management models have the following levels for OIL – Buy TRADE (77.79) and Sell TRADE (80.76). 


Gold is higher for a third day in London as the dollar index weakens.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,080) and Sell TRADE (1,116).


In early trading, copper rose to a 2 1/2-month high in London as inventories are declining and a weaker dollar is making all metals more appealing.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.35) and Sell TRADE (3.47).


In early trading, equity futures are trading above fair value despite Friday's late day sell-off and volatility higher last week.  This week's highlight will be the March employment report on Good Friday, though equity markets will be closed.  As we look at today’s set up the range for the S&P 500 is 16 points or 0.8% (1,157) downside and 0.5% (1,173) upside. 


Today's MACRO highlights are:

  • February Personal Income& Spending
  • February PCE Deflator 
  • Mar Dallas Fed Manufacturing activity


Howard Penney

Managing Director













Early Look

daily macro intelligence

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.

The Week Ahead

The Economic Data calendar for the week of the 29th of March through the 2nd of April is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - cal1

The Week Ahead - cal2



Politics vs. Pragmatism

“Europe’s problem is not its institutions, its Council, the Commission or Parliaments, the problem is  very often nationalism, populism, and narrow-minded parochial views of people who do not believe in the common project for Europe.” 

-Jose Manuel Barroso, 3/25/10


Late yesterday Jose Manuel Barroso (President of the European Commission) and Herman van Rompuy (President of the European Council) held a press conference in which they stated the willingness of Eurozone member states to take coordinated action with the IMF to “safeguard financial stability” for Greece, and the Eurozone members as a whole.


The “mixed formula” of financial support came without such details as:

  • When Greece, if needed, would receive loans or the value of said loans?
  • How much of the bilateral loan would come from the Europeans versus the IMF?
  • What budget deficit reduction requirements will be issued for other/all member states?

And to the first bullet point van Rompuy responded, “All this, we’ll work it out later.”  Is this policy?


While the Greek market shot up over 4% today and investors’ fears may be allayed for at least a day, Eurozone leaders have done little to address policy measures for the sovereign debt issues of its members.  And surely the debt obligations of the other PIIGS aren’t going away just because the fear of a Greek default becomes yesterday’s news…


To return to Barroso’s quote above, Eurozone skeptics exists. And one could argue that the decision by Eurozone leaders to support Greece in a coordinated fashion—rather than a unilateral IMF-led loan—is born out of the desire of the European community to further substantiate the existence of the Eurozone as an entity. While Barroso as President of the European Commission will put his best foot forward in confirming that the Eurozone has a sound governing body, the fact remains that the Eurozone is young, only 10-years old, and still working through honing policy to benefit the whole.


Clearly, finding consensus on policy from country members with vast histories, and divergent economies and cultures, will remain a challenge. Countries will differ on stance; having a unified currency will put additional challenges (handcuffs) on exercising monetary and fiscal policy measures with such issues like debt restructuring and default.


Equally, imbalances in terms of economic weight and political influence will continue to weigh on decision making. These points were put on center stage with German Chancellor Angela Merkel’s full support of a unilateral IMF-led bailout for Greece. The fiscally conservative Chancellor wasn’t questioning the validity of the Eurozone, but suggesting that Greece continue to work to clean up its own “house” (budget deficit) before monies were placed on the table so as to not reducing Greece’s incentive to issue austerity measures to shave its imbalances. 


Merkel approached the issue from a pragmatic level, conscious of her own political and fiscal constraints at home—confidence in her party’s management has waned in recent months and reaching into German coffers for Greek aid would put further strain on the German taxpayer.


While pundits could endlessly debate the benefit of a large economy like Germany to the Eurozone and vice-versa, we’ll spend our time understanding the dichotomy that exists within the Eurozone, and collectively throughout Europe, to drive our investment decisions.  Despite Greece getting a hall pass for now, in light of the increasing global sovereign debt issues, things continue to shake. 


The charts below show divergence between Germany and Spain based on the DAX vs. the IBEX.  While the IBEX is broken on its intermediate term TREND (3 months or more), the DAX continues to trade above its TREND line. For more on our fundamental stance on Germany, see our note from yesterday titled ‘Frau “Nein”’.


Matthew Hedrick



Politics vs. Pragmatism - DAX


Confidence: Is It Really "A New Season In America?"

What a week this has been. We kicked off the week by having the President of the United States proclaim that this is “A New Season In America”, and I am definitely not going to disagree with him on that. The question is, what’s new for American investors?


  1. Healthcare Reform = higher spending, higher state level deficits (don’t take my word for it – 14 states filed suits against the government for a reason)
  2. Municipal Bond Market “Bid Rigging” is being thrown onto the mat while the SEC’s Greenberg (Muni-unit) sues PA non-profit hospitals for fraud
  3. Insider Trading rings get plastered all over the tape, but at the same time Bernanke’s elixir of cheap money has the 2007 LBO rumor mill picking up speed


The Treasury Bond market is getting crushed; interest rates are breaking out to the upside; and I wonder what all the folks in China and Japan holding $1.6 Trillion in us promises can trust in all of the aforementioned spending and storytelling.


In the chart below, Darius Dale accurately pinpoints that American Consumer Confidence nudged up from the preliminary University of Michigan reading from earlier this month. That said, confidence in this country continues to make a long term series of lower-highs.


Maybe Americans aren’t as naïve as their politicians deem them to be. Maybe they don’t buy into the CNBC mania of evaluating a America’s health on the tick of the stock market.


‘Tis a new season indeed.


Our immediate term support and resistance lines for the SP500 are now 1157 and 1175, respectively. We have been making sales in the Virtual Portfolio all morning into this hopeful stock market strength. Hope is not an investment process that we adhere to.



Keith R. McCullough
Chief Executive Officer


Confidence: Is It Really "A New Season In America?" - CConf1

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