The Macau Metro Monitor, March 30th, 2010



A report from Reuters says an examination of Hong Kong court records, U.S. depositions of a former Sands executive and interviews with law enforcement in the United States and Macau show a connection between LVS and Cheung Chi-tai, an investor in a company that helps bring wealthy clients to casinos in Macau. According to Reuters, a Sands Macau patron also said that Cheung ran one of the VIP rooms at the property. Cheung has been accused of masterminding a scheme to murder a Sands Macau dealer suspected of helping a patron cheat millions of dollars from the business, the report said.

The allegations could have legal implications in Nevada for Las Vegas Sands: The state's Foreign Gaming Act requires officials here to determine if professional relationships involving international business partners and locally based casino operators would damage Nevada's reputation.


LVS officials say that Cheung is not listed as a director or shareholder with any gaming promoters the company uses in Macau. The operator also said it manages all its VIP rooms.


The S&P 500 closed higher by 0.6% yesterday as breadth expanded for the third straight day.  With Energy’s (XLE) out-performance yesterday, the sector moved to positive on TRADE and TREND.  The Utilities (XLU) now stand alone - broken on TREND. 


On the MACRO front, a number of smaller, but positive data points helped lift the RECOVERY/REFLATION trade. 1) the S&P affirmed the UK’s AAA rating, but with an negative outlook; 2) Europe had better than expected confidence numbers for March and; 3) Greece managed to raise €5B in 7-year bonds at 5.9% after an agreement at the EU summit last week.


In the US, personal spending was in-line with consensus at 0.3%. This is the fifth month in a row with an increase in personal spending.  On the other hand, February personal income was flat vs consensus +0.1%, but January Personal Income was revised to +0.3% from +0.1%. With spending up and income flat, the savings rate declined to 3.1% in February from 3.4% in January.


Yesterday, Energy (XLE) was the best performing sector, with support from a weaker dollar and higher crude prices.  The Philadelphia Oil exploration index was up 3.3% and the S&P 500 Coal index was up 3%.  Crude was up 2.7% to $82.17.


The Dollar index is in a three day correction, declining another 0.39% yesterday.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (80.62) and sell TRADE (82.51).  The Materials (XLB) continue to benefit from the weaker dollar, as it was the best performing sector on Friday and the third best performing sector yesterday. 


Yesterday, Financials (XLF) was the worst performing sector, but closed in positive territory for the sixth day in a row. With the regional and money center banks down slightly, asset management and brokers outperformed. 


The VIX declined 1% yesterday and 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 (18.34). 


In early trading, crude oil rose for a second day in New York on a resurgence in the REFLATION trade, as the U.S. economy continues to show signs of recovery.  The Hedgeye Risk Management models have the following levels for OIL – Buy TRADE (80.87) and Sell TRADE (83.49). 


Gold is higher for a fourth day in London as the dollar index weakens.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,082) and Sell TRADE (1,116).


Yesterday, copper surged to an 11-week high as inventories declined and the dollar declined.  Stockpiles of copper in warehouses monitored by the London Metal Exchange fell for a 19th straight time - the longest slump since July.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.36) and Sell TRADE (3.51).


In early trading, equity futures are trading above fair value with markets buoyed more by a lack of any bad news rather than anything distinctly positive. Events in Greece and Ireland remain in focus.  As we look at today’s set up the range for the S&P 500 is 8 points or 0.5% (1,167) downside and 0.2% (1,175) upside. 


Today's MACRO highlights are:

  • January Case-Shiller Home Price Index
  • March Consumer Confidence
  • ABC Consumer Confidence


Howard Penney

Managing Director














Industry same-store sales and traffic trends are out for February.


Malcolm Knapp reported February same-store sales and traffic results of -3.2% and -3.9%, respectively.  For same-store sales, this constitutes a two-year average number of -3.6%, which is level with the two-year average decline of 3.6% in January.  The traffic number represents a two-year average of -4.8%, a sequential decline of 30 bps from January’s two-year average traffic number.  In the Knapp-Track report, it is explained that the first week of February was negatively impacted by the Super Bowl Football Championship game calendar shift (from 2/1/09 to 2/7/10).  Additionally, the unusually heavy snowfall, particularly in Washington, D.C., impacted trends.  California had rain “nearly every weekend”. 


February is the third consecutive month where comparable-store sales exceeded guest counts.  From May through November of 2009, driven by the aggressive discounting environment, guest counts had exceeded comparable store sales. 


The bifurcation between consumer confidence and consumer spending metrics continues; the Consumer Confidence Index is up 20.7 points from February 2009.  Importantly, as Knapp notes, while the Expectations component of the Consumer Confidence Index is up 36.5 index points year-over-year, the Current Outlook component of the Consumer Confidence Index decreased 2.9 index points from last year.  We continue to see inflationary pressure (particularly in the cost of gasoline) and unemployment suppressing any resurgence in sales trends. 



Howard Penney

Managing Director

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Obama’s Air Traffic Controller Moment?

In less than a year and half, President Obama has governed through a roller coaster of both Presidential experiences and Presidential approval.  As we have often mentioned, he entered the Presidency with one of the highest approval ratings of any incoming President.  This was based on incredibly high approval from his base, but also very strong support from the independents, who embraced his “change” mantra after tiring of Republican leadership for eight years.  Over the past year and a half, Obama’s approval ratings have tumbled dramatically and his healthcare bill is being viewed in similar fashion.


A recent poll from Rasmussen highlighted current thoughts on the healthcare bill.  Specifically, 54% of those polled favor a repeal of the healthcare bill.  In addition, 50% now believe passage of the healthcare was bad for the country.  Obviously, these numbers aren’t incredibly positive for this bill, or for President Obama’s approval as it relates to his healthcare initiative.


Unlike President Obama, President Reagan was hardly given a mandate when he was elected.  At the convention in 1980, Reagan was very close to striking a deal with the moderate ex-President Gerald Ford to make him Vice President, which would have ceded some power over his agenda to moderate Republicans.  Instead, he selected George H.W. Bush, and was elected to his first term as President with the narrowest of popular vote margins, less than 51% in fact.


The most significant move that President Reagan made in the first year of his Presidency was related to the Air Controllers Strike.  Under law, the nation’s air controllers were not allowed to strike, along with a number of government unions.  Rather than negotiate with the union, as most thought he would do, President Reagan announced from the White Rose Garden that if the air traffic controllers “do not report for work within 48 hours, they have forfeited their jobs and will be terminated.”


Despite the threat of serious political backlash, President Reagan fired 11,345 striking air traffic controllers and broke the union.  While the nation’s air traffic control system would take years to recover, President Reagan had made his point and solidified his agenda.  He was on the side of private business and against big labor.  While this move wasn’t politically popular, it was important to President Reagan’s agenda.


The healthcare bill passage has parallels to the air traffic debate.  Despite risk of political back lash and to his approval ratings, both President Reagan and President Obama, pushed forward agenda items that directly reflected their ideologies, and not political appeasement.   On some levels, whether you agree with the politics or not, these decisions by both Presidents may be emblematic of their strong leadership.


In recent weeks, President Obama has made a number of decisions and taken a number of actions that seem to reinforce that he has had his Air Traffic Controller moment and is coming into his own as a political leader.  He hammered on healthcare and was successful in passing it.  He was strong on missile defense with the Russians, and was able to pass a successful arms control pact, even if delayed.   In a recent meeting with Prime Minister Netanyahu of Israel, President Obama continued to press for a halt a construction freeze in east Jerusalem.  Finally, President Obama recently made 15 recess appointments, including the contentions choice of Craig Becker to National Labor Relations Board.


So, what, if anything, will President Obama finding his leadership footing do for his approval and the Democratic party?  As of yet, the results appear decidedly mixed.   As of today, Obama’s approval rating on the Real Clear Politics poll average is 47.6%, which is basically at the lows of his Presidency.   On the Rasmussen Daily Tracking Poll, he has seen a slight positive move.  While those that Strongly Disapprove have held in at 44% over the last few days, which is his lowest reading since being elected, the Strongly Approve is now registering 30%, which is well off the March 9th trough of 22%.


As our Healthcare Sector Head Tom Tobin mentioned in his morning note, the midterm is widely anticipated to be a disaster for the Democrats.  But with some of President Obama’s recent moves, which do represent a leadership of sorts, perhaps consensus had become too bearish on the midterms for the Democrats.


Even if consensus is correct, perhaps it is less relevant for President Obama than many pundits currently believe.   Continuing with the comparison to Ronald Reagan, remember that President Reagan was first elected with just under 51% of the popular vote.  In his first midterm election, the Republicans lost 26 seats.  In his second Presidential election, President Reagan came back two years later and won an astounding 59% of the popular vote.  If this indeed is an Air Traffic Controller Moment for President Obama, perhaps we shouldn’t write him off just yet.


Daryl Jones

Managing Director


Piling on Obligations

On the theme of countries piling debt upon debt upon debt, which Keith “affectionately” refers to as “kicking the can further down the road”,  today Greece issued its first debt offering  since the EU and IMF agreed on 3/25 to “safeguard financial stability” in Greece.  The €5 Billion 7-year Greek bond yielded 6%, or 334bps above 7-year German bunds, the proceeds of which will be used to meet (or roll over) nearing debt payments, including €12 Billion in April and €8.5 Billion in May.


As we noted in our post from Friday titled “Politics vs. Pragmatism”, while Greece may have received the red-cross jersey late last week, sovereign debt issues among the other PIIGS remain at large. With some €53 Billion of Greek debt coming due this year and no clear policy from the Europeans to address bailout/default issues of its member states, we’d expect markets to continue to shake.  Stay tuned.


Matthew Hedrick

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