Miles High

“I’ve experienced the highest of highs and lowest of lows. I think to really appreciate anything you have to be at both ends of the spectrum.”

-John Elway


I was flying from Denver to Kansas City last night and had one of those nights where nothing went my way. This is the game and nothing teaches you how to play it better than the game itself.


Over the last few years plenty has gone right for my family and firm. For that, I am plenty grateful. No matter where I want to go this morning, the best place is to get right back to where I have always been – feet on the floor, starting from the lowest of lows.


Mile High Stadium stood in Denver, Colorado from 1948 until 2001. That’s where legendary quarterback, John Elway, played his entire career. It’s also where Denver Broncos fans sustained the world’s loudest roar for 10 seconds (October 1st of 2000 with a reading of 128.74 decibels). Interestingly, the hearts and minds of Broncos fans registered loudest after John Elway was gone. I’d say that’s because the image of the man and his teams never left.


Not many players in this game of life win at the highest level in what is their last game. John Elway did. After beating the Atlanta Falcons 34–19 in Super Bowl XXXIII, Elway was voted MVP in one of this world’s biggest games. That proved to be the last game of his career. He decided his fate. No one else. That’s something I can believe in.


This morning you are waking up to a US stock market that is Miles High relative to the lowest of lows in expectations. While this game tends to oscillate between both ends of the spectrum of greed and fear, the expectation of what is coming next is really what its all about.


To understand where to go in the market or in life, you truly need to understand where you’ve been. Otherwise you will have learned nothing and will not evolve. The SP500 closed up +0.07% last night at 1197. That’s what we call a higher-high. That’s also what we call bullish, until it isn’t.


This morning’s Institutional Investor survey (weekly) shows one of the widest spreads between “bulls” and “bears” since 2007. After the SP500 is miles higher than most would have expected, this is what we call a contra-indicator.


Before markets correct, institutional investors get either too bullish or not bearish enough. After markets rally, institutional investors fear missing the next leg up or getting squeezed. Most great players in this life don’t wake up living in fear. They wake up with a repeatable process that they can trust, and they carry on.


On a week-over-week basis, “bulls” in the Institutional Investor survey moved from 49% to 51%, while bears remained completely depressed at 18.9%. I measure the spread between bulls and bears across multiple durations, and anytime the spread in this data set exceeds 30 points, it’s significant contrarian indicator. This morning’s spread between bulls and bears, of course, is 32 points.


The only sad parts about being on the road is missing my wife and kids and having to endure watching CNBC. While I have the manic media channel on mute, the body language of it all can make any accountable American want to leave this stadium of conflicted one-way players for good. After cheering the market right off a cliff in 2007, then calling for a Great Depression at the bottom, right before a +77.1% rally – and getting bullish up here again, after the move… well, its just sad to watch.


This morning’s ABC/Washington Post consumer confidence reading confirms that our high-low society is indeed what Americans won’t cheer for no matter what CNBC pipes into their homes. This week’s confidence reading dropped from minus 43 to minus 47. This too, is just sad. This is the new America we have created.


The US stock market may very well be Miles High relative to the fear-mongering expectations of some who never saw the crash or the recovery coming, but it never forgets. I won’t either. Today is a new day, and everything starts from this price.


My immediate term support and resistance lines for the SP500 are now 1186 and 1204, respectively.


Best of luck out there today,



Miles High - Pic of the Day



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).

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

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






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