The Macau Metro Monitor, April 14th, 2010




Las Vegas Sands’ US$1.75BN-equivalent loan has still not closed. Six lenders are said to have joined the general syndication of the facility. Commitments have topped US$100m so far. A handful of additional lenders are currently processing internal credit approvals, said sources.


The loan has a US$750MM Term Loan A, a US$750MM Delayed Draw Term Loan B and a US$250MM Revolving Credit Tranche C. The facility is denominated in HK Dollars, Macau Pataca and US Dollars. The portions for each currency will be determined upon closing. The facility pays a top level all-in of 499bps for commitments of US$50MM or more.

A 10-bank mandated lead arranger group (Banco Nacional Ultramarino, Bank of China (Macau), BNP Paribas, Barclays Capital, Citigroup, DBS, Goldman Sachs, OCBC, ICBC (Macau) and UBS) has fully underwritten the deal. Proceeds will fund the construction of lots 5 and 6 of the Venetian Macau.




Macau's Executive Council declared that permanent residents who earn less than MOP12,000 per quarter and work for a minimum of 152 hours each month may be qualified to receive a subsidy until their quarterly income reaches MOP12,000. Upon approval, subsidies will be deposited into designated accounts in May, August, November 2010 and February 2011 separately. The government expects the scheme to cost around MOP100 million this year.


The Executive Council also proposed to raise the ceiling of the credit guarantee amount provided by the SAR government for small and medium sized enterprises (SMEs) from MOP200 million to MOP500 million. As for the SME Special Credit Guarantee Scheme, the cap will remain at MOP100 million.



According to the Ministry of Trade and Industry (MTI), the Singapore economy is expected to grow 7-9% in 2010.

Manufacturing led the growth, with a 139% QoQ expansion in 1Q 2010. The robust expansion of electronics products and a surge in biomedical manufacturing output underpinned the growth. The construction sector grew by 11.3% YoY in 1Q 2010, supported by sustained public sector civil engineering activities and an increase in the number of residential construction projects.


The services producing industries also expanded, registering a YoY growth of 8.4% in 1Q 2010. This was largely due to wholesale trade, which improved on the back of sharp increases in exports of electronic goods. Growth in transport and storage, hotels and restaurants as well as financial and business services also contributed to its improved performance.


The overall CPI inflation forecast for 2010 is revised from 2.0%-3.0% to 2.5-3.5% in view of the strong economic recovery.


Starwood's announced sale of two Ws highlight the impact of deferred capex on valuations.



On April 13th, Starwood announced that it had reached an agreement to sell W Tuscany and W Court in Manhattan to St. Giles Hotels LLC.  Unlike past sales, Starwood will not be maintaining management contracts on these two assets.  As of midnight tonight both hotels will exit the Starwood system.


The hotels sold for $78MM which with 318 rooms combined implies a per key price of $245k – a rather low number given the location of the assets.  However, part of the reason for the “low” price per key is the fact that these hotels have a lot of deferred capex – which is true for the vast majority of ‘distressed’ assets that are already up for sale or will come to market over the next few years.   When you couple that with lower loan-to-values in the 50-55% range, unavailability of CMBS financing, higher interest rates, desire of banks to reduce exposure to lodging, and depressed NOI’s we believe that we may not see the same types of valuations that were seen in 2007 for a very long time (and yes that’s more than 3 years).

Will the Fed's exit from the mortgage markets bring inflation?

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Long of Oil

Position: Long Oil via etf USO


Earlier today we initiated a position in oil via the etf USO, which the United States Oil Fund.  With heightened geopolitical risk, oil will garner a more substantial price premium.  We believe one of the outcomes of the nuclear summit that President Obama is hosting in Washington this week is that there will be no real resolution on major nuclear proliferation issues.   The derivative impact of this will be that Iran will continue to disregard international sanctions and rhetoric as it relates to its nuclear reactors.  Thus this risk premium in oil should increase.


Last year, the primary factor driving the price of oil, and most commodities, was the US dollar.  As the dollar declined, commodities moved in an inverse correlation that was close to -0.85.  As with many global macro correlations, they do not last in perpetuity.  As we have outlined in the chart below, the US dollar is up year-to-date, and so is oil.  The primary driver this year for oil is likely the resumption, or acceleration, of global growth, which will strengthen the demand picture for oil.


In September of last year we released our Oil Black Book, and I wanted to a highlight an excerpt from that thesis as it relates to oil supply:


“Specifically, over the last four years the growth in global oil production has averaged 0.48% annually, while the prior four years averaged 1.78%. The long term average of global production growth, going back to 1965, is 2.29%.  The conclusion is simply this: the last five years have shown a dramatic decline in the year-over-year growth of oil production.”


Make no mistake about until we have meaningful advances in technology that displace our thirst for oil, the primary supply and demand factor driving the price of oil will be supply; and, globally, supply will remain tight in an environment of normal economic growth.


Daryl G. Jones

Managing Director


Long of Oil - USD Oil


Two MACRO data points that highlight one common theme – INFLATION - that only a few can see!


Today, we learned that the National Federation of Independent Business Optimism Index dropped to 86.8 in March from 88.0 in February, the lowest level since July 2009.  Small businesses are the engine of job growth in the US and they are growing more concerned about sales trends and profitability.  Seven of the index’s 10 components declined in March and two were unchanged from February.   Small businesses are typically the first ones to see the consumer come back, and by and large, they are not seeing a pickup in demand.  More importantly, how likely is it that they are going to hire workers in significant numbers any time soon? 


Second, small businesses are less confident about the economy and profitability because the consumer is pinched and inflation is on the rise.  Prices of goods imported into the U.S. rose 0.7% in March following a revised 0.2% drop in February.   The free money polices of the FED and other central banks are pushing the envelope of global growth and pushing up commodities prices, but businesses haven't been able to pass the higher costs onto a weakened consumer. 


Backing out the cost of higher petroleum prices, import prices fell 0.2% in March, allowing the FED to argue that interest rates need to stay near zero for an “extended period” to heal the economy.


The FED will also need to ignore more data on inflation tomorrow.  Due for release tomorrow is the March 2010 CPI data which should show inflation accelerating, thanks to higher oil and gasoline prices, as well as to the slowly spreading broad impact of higher energy costs. 


A gambling man would favor something on the plus-side of consensus expectations. 


Howard Penney

Managing Director





A Very Sad Secular Chart: US Trade Deficit

Darius Dale and I were just grinding through US government data and had to keep pulling the curtain back to prior decades until we found one that actually showed a US Trade Surplus. Not months; not years; decades. You have to go back to 1976 before this chart registers anything that resembles a surplus (i.e. more exports than imports).


As we headed into the late 1970’s, the Keynesians were as willfully blind to the prospects for importing inflation are they are right here and now. But, as they say, nothing focuses the mind like a good ole hanging would in the ole West… and as harsh as that might sound, its the political metaphor to consider when these conflicted and compromised politicians promise that Americans will never have inflation and that interest rates will never go up.


You can look at this chart for what it is and tell me if you think running a national trade deficit policy has done anything but add to the cyclicality of a jobless economy. On a cumulative basis, the most recent decade (2000-2009) didn’t create any net jobs. ZERO. Why? Well, that’s easy. We import asset inflation and ignore it until we have a crisis; then we cut rates to zero and hope and pray that the world will consider this trade deficit chart a healthy solution.


Now there is always hope that we will have a Reagan revival and that we will get this trade deficit in order, but until the data supports that idea, it will be nothing but that – a hope. Hope is not an investment process.


This morning’s US Trade Deficit hooked down again to almost -$40B from January’s -$37B. I understand that a billion dollars aint what it used to be, but neither is a political hanging or the Coinage Act of 1792 (where a politician would be sentenced to death for debasing the currency of the citizenry).


This is a very sad long term secular chart, indeed. The world economy is starting to hold us accountable to what we are trying to ignore.



Keith R. McCullough
Chief Executive Officer


A Very Sad Secular Chart: US Trade Deficit - US Trade Deficit Long Term

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