The Macau Metro Monitor, April 22nd, 2010




The Macau government said Wednesday it hasn't authorized casino operator Sands China Ltd. (1928.HK) to hire foreign workers to finish construction of its massive expansion project in Cotai, suggesting the casino and hotel development could face further delays. The comments come after Sands China Chief Executive Steve Jacobs said Monday the company plans to hire all 2,000 qualified workers available in Macau for the project, but the rest of the construction force would need to come from Hong Kong or mainland China.


An official at Macau's Human Resources Office, which handles companies' requests to hire foreign workers, said the government would consider importing non-resident workers "only if the local market can't provide sufficient labor force and provided that the rights and interests of the local people aren't affected."



Shun Tak Holdings’ underlying net profit surged 510% in 2009, to HK$1.19 billion. The results were positively affected strong property sales. The company plans to launch the sale of 92 serviced apartments in One Central in the middle of the year. The complex will also see its five-star 213-room Mandarin Oriental Hotel to be launched in mid-2010. Shun Tak also revealed it “holds a 79% interest in a columbarium project in Taipa, providing approximately 50,000 columbarium niches to the undersupplied Macau, Hong Kong and Zhuhai markets. Foundation works are completed and superstructure work is in progress with tentative completion before the 2nd quarter of 2011.”


Two major sites solely held by Shun Tak, including a 4.3 million square feet project at the Nam Van lakefront earmarked for the Harbour Mile development comprising primarily residential apartments, as well as the Jumeirah Hotel Macau project in Cotai, are under review by the Macau Government, the company said.



Information from the Statistics and Census Service indicated that the Composite CPI (103.01) for March 2010 increased by 1.88% YOY, attributable to the price increase of  Food & Non-Alcoholic Beverages.

The CPI-A (102.8) and CPI-B (103.05) for March 2010 increased by 1.26% and 2.0% YoY respectively.  The CPI-A relates to about 50% of the households, which have an average monthly expenditure of MOP6,000 to MOP18,999.  The CPI-B relates to about 30% of the households, which have an average monthly expenditure of MOP19,000 to MOP34,999.


Each week we provide an update on initial jobless claims because we think it's one of the best leading indicators for the credit-sensitive names we follow and history has shown there to be a very high correlation. The reality, however, is that there has been quite a divergence that has taken place in the last four to five months.


Let's just get this week's data out of the way first. Claims for the most recent week, out this morning, dropped 24k to 456k from 480k (revised down 4k) in the prior week. This caused the rolling 4-week average to actually increase by 3k to 459.5k from 456.8k.


We hate to be the ones to take away the punchbowl, but consider this. As the charts below show, at 456,000, claims are at the same level they were at on 11/28/09 (457,000). In other words, claims have gone nowhere in almost five months. Compare this with the colossal improvement in claims from April 2009 through November 2009. In stark contrast to recent claims trends, the XLF has barreled higher some 17% over the last 4.5 months, with high-beta Financials rising by multiples of this.


While we've been patient in our weekly posts, waiting for claims to resume their downtrend, we think that enough data (20 weeks now) is in to begin to warrant some caution around prospective performance in the XLF. If claims continue to trend sideways at these levels, it will be difficult, and, frankly, unlikely, for Financials to continue to move higher if the backdrop of further employment gains stagnates. Because claims are a leading indicator, we treat them with greater significance than the unemployment rate. We have other reasons to be cautious heading into the seasonal summer doldrums, namely renewed housing concerns. Couple this with the blowout 1Q10 results so far, and layer on the marked increase in consensus expectations around normalized earnings, and it is starting to feel like the Financials are better positioned for correction than further gains. We don't want to be alarmist with this call, but the reality is that it was the inflection in jobless claims that marked the bottom at the March 2009 lows, and claims are now sending us a new signal so it's time to pay attention.


As a final word around the census, we've been bullish on the lift the census would add going into its peak employment months, but we're almost at the point now where it's time to start focusing on the drag it will create on the backside as the peak month of employment, May, is just 8 days away.




The following chart shows the raw claims data.





The following chart shows the census hiring timeline.




Joshua Steiner, CFA


Allison Kaptur





MAR reported a solid quarter this morning - as expected. However, guidance was particularly strong, especially the RevPAR guidance.  We need to really step back and digest the results, guidance and implications, but below are some quick thoughts.  Bottom line, we believe that this asset light model will still perform well in an inflationary recovery and MAR is a lot cheaper than the real estate lodging plays out there.


1Q2010 Results:

  • The upside vs. our estimates came from better incentive fees and timeshare results.
  • Franchised room growth was very strong - exceeding out estimates by 2.7% or 7.6k rooms.  Minimal attrition in the quarter was also quite impressive. 
  • ADR declines in the quarter were a little higher than our estimate while occupancies were better on the limited service brands


  • We know that RevPAR trends are strong, but frankly we are surprised by the how good MAR's RevPAR guidance is. We'll learn more on the call. All we can add is that their comps are much easier for 2Q and 3Q then 1Q - so that's certainly part of it. 
  • We suspect that MAR's capex is working well for them in securing better room growth by providing some key money to franchisees and managers.


Outstanding earnings driving volume and price, overall market fears persist.


Looking at the table below, it is clear to see that the combination of positive momentum and an increase in the stock price was largely reserved for those companies that reported earnings.  That is hardly surprising given the earnings/preannouncements that were released yesterday.  The moves in price have been less pronounced than the moves in comps and earnings, certainly, and this is possibly due to the waning momentum seen in the market yesterday.


Yesterday morning, MCD’s earnings were strong and, although the stock only moved 3 bps on strong volume despite the noticeably positive tone evident in management’s commentary.  Perhaps in anticipation of the 4.2% U.S. comparable sales number, perhaps not, the stock ran up 2% from Friday to yesterday morning before the release.  


After the close, SBUX posted extremely strong numbers also, with comparable store sales increasing 7% during the past quarter, driven by healthy increases in both traffic (+3%) and average check (+5%) in the U.S. with the international division also posting a +7% comp.  As you can see below, the positive move in price and volume followed but it was hardly a moon shot.  SBUX is up 1.65% premarket.  Interestingly, GMCR, which announces earnings next week, is also trading up 1.3% in premarket trading.  It should be noted that Starbucks CEO, Howard Schultz said last night that he has a watchful eye on GMCR and its success with the Keurig... “Stay tuned”.


PNRA posted a +10% comparable sales number Tuesday and saw its stock outperform since then; yesterday the stock rose 2.3% on strong volume.  With consensus estimates up 2.4% over the past week, expectations are for equally strong bottom line numbers being released on 4/27.


CMG beat the quarter handily on both top and bottom lines.  The company’s margins and growth trajectory are some of the best in the industry.  With same-store sales seemingly showing a healthy recovery, CMG joined PNRA as the strongest performer in QSR yesterday with a strong boost in price and volume ahead of the earnings release.  The stock is up an additional 4.9% premarket. 


It also should be note that EAT was up 1.2% on a 50% increase in average volume.  The strong performance despite a 10.3% decline in consensus estimates for next fiscal year EPS - the worst in casual dining.


TALES OF THE TAPE - stocks 4.22


TALES OF THE TAPE - commds 4.22



Howard Penney

Managing Director

Ocean Day

“How appropriate to call this planet Earth, when clearly it is Ocean.”

-Arthur C. Clarke


Today is Earth Day.  For those that didn’t know, Earth Day was founded 40 years ago by Senator Gaylord Nelson as a day to inspire awareness and appreciation for the environment.  That’s pretty simple, and, to use an overused phrase, it is what it is.


Personally, I’ve never really studied environmental issues, so I’m willing to admit what I don’t know.  Maybe Al Gore is a story teller.  Maybe he is not.  One thing I am willing to accept, though, is that respecting the environment is ultimately a good thing.  To that end, I drive a hybrid.  Yes, this right leaning, hockey playing, Alberta born, thirty something bachelor drives a hybrid.  There it is.


Just as in Arthur Clarke’s quote above, sometimes we just have to call things at face value.  Ultimately, I think that is the issue that Goldman Sachs is facing.  I don’t need to scrutinize the SEC’s case against them to know that they probably did something wrong, nor do I need to hear their high priced New York lawyered excuses to know that they can probably justify what they did. 


Warren Buffett famously said that it takes a life time to create a reputation and 10 minutes to destroy it.  Time will tell whether this is the 10 minutes of reputation destruction for Goldman.  My guess is it probably isn’t.  There are too many fine people that work at Goldman, some of whom we are honored to call friends, for the firm not to endure.


In the short term though, as we’ve outlined in the chart of Goldman Sachs below, there is an impact on the company’s valuation, and currently there is limited support for Goldman Sachs’ stock.  More critically, the Political War on Wall Street will accelerate with an enduring impact on Goldman and its peers.  As point in fact, and highlighted by NPR’s Planet Money blog, a Google search of "Goldman Sachs SEC" provides an advertisement for and “financial reform that protects main street”.  We’ve posted a picture of this below.


Ocean Day - goldman1


It is unlikely that Goldman Sachs will come out and admit wrongdoing in this instance, but being forthright and transparent may well be their most effective tool for taking the political momentum out of the sails of those who will now be focused on reforming Wall Street.  Imagine if Lloyd Blankfein stood up in front of Congress and said: “We failed our clients in this instance. And we will work to repair that trust.”  His stock would probably be on its way back towards $200 per share. 


Financial reform is a topic that will impact your investments over the coming month, so we want to highlight a few key dates as it relates to financial reform, which starts today:


1)      Today (4/22/10) - Senate likely to begin debate on Senator Dodd's (D-CT) Financial Reform bill.

2)      Today (4/22/10) - UK general election debate between PM Brown and Conservative Candidate Cameron will likely focus heavily on the GS/Financial Reform issue. US politicians may watch closely to gauge voters response to different posturing around this issues.

3)      Today (4/22/10) - President Obama will visit Manhattan to deliver a speech on the importance of Financial Reform at Cooper Union; an interesting choice of location, for it was there that President Abraham Lincoln galvanized New Yorkers for the first time in his quest to become President with one of his most famous speeches decrying slavery. 

4)      Thursday (5/6/10) - UK general election for Prime Minister.

5)      Memorial Day (5/31/10) - This is the Date President Obama has given to Congress to have a Financial Reform bill on his desk. After Memorial Day, Congress will go into full swing campaign mode, and passing any meaningful legislation will become difficult.


In completely non-sequitur fashion, I’m going to give one of our analysts, Howard Penney, a tire pump this morning.  He nailed his long call on Starbucks.  Since he recommended the stock, the unrealized return in our virtual portfolio is up ~120%. Last night, Starbucks reported same store sales that were +7%, which is the highest level in 4-years.


Like most large multinational companies, Starbucks also provides Macro analysts with some interesting nuggets.  As it relates to consumer spending, Starbucks’ comps were driven by a 5% increase in ticket prices (the amount spent per purchase).  In the year ago quarter, ticket prices declined by 3%.  The simple point as it relates to the consumer spending is that based on this Starbuck Proxy, consumers are willing to spend more and accept marginally higher prices.  Clearly, there are some inflation implications here.


If you don’t have access to our stock picks or Howard’s fine research, email us at .  While our research isn’t free, we’ll let you trial it for a few weeks and are confident you will be impressed.


We would be remiss this morning if we didn’t also mention Fitch’s warning on Japan’s credit worthiness.  While ratings agencies are typically lagging indicators, the reality is that Japan is a lesson for those nations that continue to Pile Debt Upon Debt. While Japan is not at imminent risk of a default, the unintended consequence of its massive government balance sheet was long term deflation, and hence its equity market has done nothing for more than 20-years.  That’s not good.


Enjoy Ocean Day!


Keep it real,


Daryl G. Jones

Managing Director


Ocean Day - Goldman


With yesterdays mixed performance, waning upside momentum remains the greatest concern.  The S&P 500 finished down 0.1% on a 6% uptick in volume, and breadth was very weak.  Yesterday’s headwinds centered around increased signs that there is momentum in Washington for a financial regulatory overhaul.  This was compounded by the disappointing guidance out of the healthcare sector as it relates to reform legislation. 


Some of the trades we did yesterday:


BUYING ICE  - We want some long exposure to the exchanges (transparency in OTC derivatives pricing) ahead of tomorrow's political circus that will be held in Washington.

BUYING XLV - Healthcare is getting crushed today.  Beyond $31.41 the XLV is 2.5 standard deviations oversold; buying red as the long term TAIL of support holds.

SHORTING GIL - Everyone knows GIL's quarter is going to be good, but everything has a price and this stock is immediate term overbought as cotton prices head higher.  KM

BUYING WFMI - We have no doubt that the higher-end income earners of this developing high-low society will continue to eat well. Immediate term TRADE line of support = 37.19.  KM

COVERING FXE - On this the Hedgeye Morning Call (830AM) we said we'd cover the Euro at 1.33, so I'll do that here. We remain bearish on the Euro with a new immediate term range of 1.33-1.35.  KM


Yesterday we also traded out of our VIX position. 


One of our key themes for 2Q is Sovereign Debt Dichotomy.  As we look at the macroeconomic environment ahead, what’s certain is that investor fears associated with sovereign debt default (globally) will persist.  In early trading, European markets are down after the European Union said Greece's budget deficit last year was worse that it previously forecast and could top 14% of GDP.     


The two best performing sectors yesterday were Industrials (XLI) and Consumer Discretionary (XLY).  Household Durables helped the XLY higher, lead by the Homebuilders (XHB +2.4%).  The home builders appeared to gain momentum as mortgage applications jumped just over 10% last week, while applications for refinancing surged nearly 16%.  At the same time, mortgage rates fell sharply for a second straight week.


Yesterday, Technology (XLK) took center stage with Q1 results from AAPL, which was up 6% on the day.  AAPL beat on both the top and bottom line, with help from better-than-expected iPhone and iPad demand.  On the other hand, YHOO declined 5.1% amid disappointment surrounding the performance in search.  The semis were also back on the defensive today, with the SOX down 1.1%.


With the Chinese market waning of late (down 1.1% last night), the Materials (XLB) is proving to be much more sensitive than the broader market to some of the recent macro headwinds.  FCX (3%) was a notable laggard despite posting strong operating results for Q1.   Steel stocks were mostly weak again yesterday.   Additionally, a stronger dollar is putting some pressure on the REFLATION trade and the commodity-related sectors. 


Yesterday, Healthcare (XLV) was the worst performing sector with Biotech BTK down 1.5% and the HMO index down 1.8%.  GILD sold off sharply after reducing its 2010 product sales guidance to reflect the impact of healthcare reform legislation.


In early trading, equity futures are trading at mixed-to-fair value as markets digest sovereign debt concerns among Europe's peripheral states with corporate earnings which continue to beat on EPS. As we look at today’s set up, the range for the S&P 500 is 37 points or 0.6% (1,199) downside and 0.6% (1,214) upside. 


Today’s MACRO calendar:

  • March PPI
  • Jobless claims
  • March RPX Composite
  • March Existing Home Sales
  • House Price Index

Howard Penney

Managing Director

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%