The Macau Metro Monitor, April 19th, 2010


Sands China CEO Steve Jacobs said Monday that the expansion project in Cotai is on track to open in July 2011, and the company plans to have 670 gaming tables at the opening. According to Jacobs, Sands China has no funding constraints and is ramping up the construction of the project.


The comments come after Sands China postponed a news conference for a signing ceremony with contractors to restart construction of the project last month. The postponement raised concerns the project would face further delays after construction was halted in 2008 at the height of the financial crisis.



According to official figures released by the Gaming Inspection and Coordination Bureau, Macau casinos raked in MOP40.95 billion in the first quarter of 2010, an increase of 57.4% YOY. Overall gross revenues from different gaming activities – including casino, greyhound racing, horse racing, Chinese lottery, instant lottery and sports lottery – rose to MOP41.25 billion. VIP baccarat continues to lead with MOP28.76 billion, around 70% of the overall gross gaming revenue, followed by mass market baccarat at MOP 8.02 billion. Together, both forms of baccarat accounted for almost 90% of the casino gross gaming revenues for the first quarter of the year.



Like elsewhere in the world, fees and taxes do apply to property purchases. With the exception of the Purchase Deed,  fees and taxes are applicable after the sales contract has been signed. Some fees and taxes to consider:


1.  Purchase Deed Fee: The cost varies according to your purchase price. Approximate fee is .1% of the purchase price. If your purchase deed involves a mortgage you will need to add approximately HKD1,500 to the fee quoted above.


2. Notary and Registration Fees--payable to the Macau Legal Affairs Bureau Fees are again determined by the property purchase price. A set fee of HK4500 is payable plus .3% of excess over 1Million. The registration fee for a property of the same value attracts a set fee of HK3500 plus .2% of excess over 1Million.

3. Property Tax--applicable whether you are an owner occupier or an investor. Property tax is 10% on the official rateable value for owner occupied property,  Tax is charged at 16% on the actual rental income or 10% on the official rateable value if not rented out.


4. Stamp Duty – Transfer of real estate is subject to a stamp duty equal to 3% + a further 0.15% of the property purchase price or the official ratable value, whichever is higher. Stamp Duty should be paid to the Macau Finance Department upon completion of the property purchase. The government has announced a reduction in stamp duty to 1% in 2009.



Now that there’s blood in the water, here come the sharks.  Germany and the UK calling for probe of Goldman Sachs.  What about Goldman’s link to Greece and its financial problems?  BofA/ML, Morgan - are they innocent?  What is to come of financial reform?


Time to pull up a chair and settle in, as we could be here for a while… For those trading GS today, the Hedgeye Risk Management models have levels for GS is: buy TRADE ($131) and sell TRADE ($164)


On the Goldman news the S&P finished down 1.6% on a big spike in volume and volatility.  Volume was up 54% day-over-day and the VIX surged 15.0%.  The Hedgeye Risk Management models have levels for the VIX at: buy TRADE (17.08) and sell TRADE (19.67). 


The Hedgeye Risk management models have Utilities (XLU) broken on both TRADE and TREND, while Healthcare (XLV) is now broken on TRADE.


Friday’s carnage did not seem excessive and the mayhem seemed orderly.  The uncertainty over what happens next is what's important, especially considering that the financial regulatory reform bill is expected on the Senate floor next week.  The question surrounding the financials centers around what the business model looks like and how to value the cash flow streams.  This issue will plague the financials for the coming months. 


Fridays’ MACRO day points were mixed at best, although the housing data numbers were higher than expected.  March housing starts were 626,000 vs. consensus 610,000, and February was revised to 616,000 from 575,000.  Building permits were 685,000 vs. consensus 625,000, and February was revised to 637,000 from 612,000. Preliminary April University of Michigan Confidence was a bomb at 69.5, well below consensus 75.0. The final reading for March was 73.6. Lastly, the Eurozone March CPI was +1.4% year-over-years vs. consensus +1.5% and prior +0.9%; although an increase, consumer prices are still below the ECB’s target.


Along with Financials (XLF), Industrials (XLI), Materials (XLB), and Energy (XLE) all underperformed on Friday.  All of these sectors came under pressure as the dollar rallies and commodities collapsed. The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (79.61) and sell TRADE (80.88). 


The CRB declined 1.25% on the day.  On Friday, OIL traded down 2.97% and is currently trading at a three week low on the Goldman news.  The Hedgeye Risk Management models have the following levels for OIL – Buy TRADE (79.82) and Sell TRADE (83.43). 


In early trading, gold is trading at a two-week low.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,123) and Sell TRADE (1,150).


Copper fell to a three-week low in as investors shied away from riskier assets including commodities after U.S. regulators sued Goldman Sachs Group Inc. for alleged fraud.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.34) and Sell TRADE (3.59).


In early trading, equity futures are trading below fair value in continued global reaction to Friday's move by the SEC to charge Goldman of civil fraud.  Citi's Q1 earnings before the bell are expected to show a significant improvement year-over-year.  As we look at today’s set up the range for the S&P 500 is 39 points or 1.4% (1,175) downside and 1.8% (1,214) upside. 


On the MACRO calendar today:

  • March Leading Indicators


Howard Penney

Managing Director













The Week Ahead

The Economic Data calendar for the week of the 19th of April through the 23rd 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

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


I hope you had a great weekend!


Since Brinker’s announcement over six months ago about a new direction for Chili’s, we have wanted to see where they are going.  After the recent analyst meeting, and a little digging of our own, the timing is upon us.  There is a real, credible opportunity for management to create value and grow EBIT over the next 1-3 years.


The EAT Conference Call marks the publication of our EAT Black Book. The call is open to qualified institutional clients of Hedgeye's Restaurants vertical -- and for qualified prospective institutional clients.


The call, on Monday April 19th, at 11 a.m. EST, will cover in detail why we think EAT deserves a closer look, with real opportunity to invest free cash flow into an improving core business. Although we anticipate choppy near-term sales at EAT, we think menu changes and margin enhancement initiatives will lead to marked improvement across customer satisfaction and traffic, better execution and higher margins. We see EAT's potential corporate actions, alongside anticipated improved trends, as being beneficial to the stock.


Contact <mailto:> or reply to this email to request access to the conference call, or to request access/pricing on the EAT Black Book.








Sober and realistic have typically been good words to describe PENN management commentary. We’d say they apply to CFO Bill Clifford’s recent thoughts on MGM.



PENN CFO recently spoke at a conference and the commentary turned to Las Vegas and MGM.  Bill Clifford’s comments were enlightening and not just because we agree with them.  Here are a few:


Bill Clifford on Las Vegas and CityCenter

“I mean 63% occupancy for a CityCenter is a good thing? I don’t know, I mean. And I’m not trying to be – I mean obviously, it’s a new property and they’re going to grow into it and it’s a property that’s very focused on group business or it’s a property designed significantly for group business. And obviously that market’s got to come back, et cetera, et cetera. But – so I don’t want to downplay the CityCenter results as necessarily bad. I think that’s just a natural process and it’s an enormous facility. I mean it’s – I mean thousands and thousands of rooms that are – that they’ve got to fill. You’ve got Cosmopolitan coming. But all of a sudden the stock market’s basically saying, well, everything is great in Las Vegas. So valuations are up. I saw somebody’s report this morning. It wasn’t this guy. But 14 times is a good number. Okay, 12 times for next year, great. We can’t buy a facility at 14 times and make it work. We just can’t”


Basically, 12x is a ridiculous multiple for Las Vegas assets; unworkable from a buyout perspective.  The public equity multiple is higher than a private multiple, so what gives?  Investors must really be expecting a v-shaped recovery.  Our view is that there are too many structural issues with the consumer and the economy. The LV of 2005-2007 was housing fueled more than anything else.  We are not getting back to those levels anytime soon.  We think PENN management probably agrees.


Clifford was being fair when it came to CityCenter.  The property will get better but there are still a lot of hurdles including new capacity.  As of now, it is pretty much a disaster.


Bill Clifford on Borgata

“We’ve got 95 million for Perryville, I don’t how much Borgata can I get for [that much]...I don’t think it’s very much either. I mean buying Borgata, I just can’t imagine a situation where given that Boyd has a right for first refusal, I just can’t imagine there’s a price we would pay that Boyd wouldn’t match. So – and I don’t know anything about Boyd’s strategic objectives. But just given that they’re a controlling partner and our views on Atlantic City, the price that we’d offer is just not going to be something that I think Boyd would sit there… I actually very much expect Boyd would be 100% owner of Borgata”


Clifford’s Borgata comments followed a trashing of Atlantic City’s prospects.  The question really is how much would you pay for half of a good asset in a horrible market with no operating control from a forced seller.  The answer is not much which pretty much guarantees BYD will end up with 100% ownership at a very good price.  This is not good for MGM.


Of course, Clifford’s comments must be taken with a grain of salt.  It’s no secret that PENN maintains some dry powder and has expressed an interest in acquiring a Strip property.  From this perspective, management is probably not happy that Las Vegas valuations have gotten so high.  However, I’ve always known this management team to be straight shooters and Clifford’s assessment makes a lot of sense.

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