The Macau Metro Monitor, May 27th, 2010



According to LUSA, casino gross gaming revenue in May is on track to hit between MOP17 or 18 billion.  If LUSA is right, this would represent 100% YoY growth.



A transit permit, which allows Chinese passport-holders, with RMB 200 and an itinerary, to pass through Macau on to a third destination, has been reinstated by the Zhuhai Customs and Immigration Authority after being suspended in mid 2008.  This permit would allow the visitor to stay for a maximum of 7 days.  The reinstatement of the transit permit is great news for junkets, allowing them to move people into Macau with more ease.


ENCORE IS THE WORD Intelligence Macau

Steve Wynn wants Encore to be an attractive destination for direct-VIP players.  According to IM, compared with those of junkets, margins on direct -VIP players are almost double; win-hold % are also higher for direct-VIP players because of tougher credit decisions made by management and retaining customer loyalty. The Sky Casino also caters to high rolling  slot players with machines in private, elaborately-designed rooms.


LOT 5&6 ON THE MOVE? Intelligence Macau

Activity is returning to Lots 5&6.  IM knows suppliers who have signed contracts that include a requirement of 30% local labor in their workforce, not one-for-one, as had been expected. According to Macao Daily, the government's Labor Bureau will meet with Sands CEO Jacobs to discuss his plan and requirements for imported labor quotas. 


For concessionaires that have been employing more electronic table games to supplement the capped table limits, loose regulatory times may soon come to end.  According to IM, caps on electronic tables games are coming within the next three months.


Yesterday, the rebound in the EURO seemed to be the big driver of the shift in sentiment, as the S&P rose 3.3% to 1,103.   The REFLATION trade benefitted from a strong rebound in the Chinese market and surging commodity prices.  The Hedgeye Risk management models now have Consumer Discretionary (XLY) as the only sector positive on TREND.  


Financials (XLF), Energy (XLE), and Materials (XLB) were the three best performing sectors yesterday.  There were a number of positive dynamics at work in the energy sector today, including the outperformance of the underlying commodities with July crude +4.2%.   Of note, BP rose 7% on reports that it had some success in stopping the flow of oil from a leaking well in the gulf.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (71.25) and Sell Trade (77.68).


Treasuries came under pressure today with the dampened risk aversion trade.  Moreover, the VIX declined 15.2% yesterday. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (28.07) and Sell Trade (45.20). 


Yesterday, we covered our short in the Dollar as the Euro bounces right back to the top end of our immediate term range.  The Dollar Index is in the process of putting in an intermediate term top, but we need to manage risk around the daily volatility of the position.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.27) and Sell Trade (86.97). 


The big news yesterday was that volatility in the Eurozone will not have a significant impact on China’s strategy of diversifying its foreign-currency reserves.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.21) and Sell Trade (1.24).


Within the Financials (XLF), the banking group led the way with the BKX up 4%.  C +4.2%, BAC +4.6% and JPM +4.2% were all strong performers.  With the pickup in risk appetite the higher bets regional names such as RF +6.5% and KEY 6.4% were among the best performers.


The Technology sector mad a notable recovery following Wednesday’s dramatic underperformance.  The hardware group provided a good chunk of upside leadership, along with recovery in the software sector.  The semis also finished sharply higher today with the SOX +5.2%.


In early trading, copper is trading higher and headed for the first weekly gain in seven weeks.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.03) and Sell Trade (3.21).    


So far this week, gold has rallied 3% and is trading higher today.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,191) and Sell Trade (1,233).


As we look at today’s set up for the S&P 500, the range is 96 points or 5.2% (1,046) downside and 3.5% (1,142) upside.  Equity futures are trading mixed to fair value in the wake of Thursday's pop. 


On the economic front to be reported today will be:

  • Apr Personal Income and Spending
  • PCE Deflator
  • Core PCE
  • May Chicago PMI
  • May U. of Michigan Confidence
  • May NAPM Milwaukee

Howard Penney













America's Trident

“As we are always told, you have to earn that Trident every day. We never stop learning, never stop training.”

-Marcus Luttrell (Navy SEAL, Team Leader, SDV Team 1, Alfa Platoon)


God knows I spend too much time ranting about what’s broken in this country. For anyone who has analyzed Congress and the Debtor Nation that it has created, America’s problems are finally crystal clear. This morning it’s time to celebrate what’s never been compromised - the sheer will of the men and women who serve this country, accountably, with their lives each and every day.


I have cited this book before. It’s a modern day American inspiration for many. In “Lone Survivor”, Marcus Luttrell not only reminds us of what America’s bravest do for us while we are sleeping, but he hammers home that it’s ok to want to be the best that we can be.


No matter where you go this morning, here we are. Let professional politicians be political. Let socialists pander to collectivism. Let excuse makers avoid mirrors. But please… please don’t stop letting the real leaders of this country be patriots.


Unlike the Fiat Fools, who point fingers and say “no one saw this coming” Luttrell admits, “we do have our own brand of arrogance. But we paid for every last drop of that sin in sweat, blood, and brutally hard work.”


It’s ok to be confident if you’ve done your own work. You don’t owe willfully blind politicians and incompetent bankers who are chasing one another’s compensation tails a lick of sympathy. America isn’t a country of losers. “Every Navy SEAL is supremely confident because we’re indoctrinated with a belief in victory at all costs.”


The victory of America’s Trident stands for all that we can be when no one is looking. Enough of the self interest. Enough of the me me me. The single grade medal Navy SEAL Trident is one of the most recognizable badges on earth because there is nothing else like it. It stands for selflessness, pride, and honor.


After a horrendous month for stock and commodity markets around the world (SP500 down -7.1% for the month-to-date), take this Memorial Day weekend as an opportunity to take a step back – take a deep breath – and think about what you can do to be the change you want to see in this country.


Rather than listening to the broken promises of professional politicians, stand up for yourself and look your kids in the eye and promise them that you’ll do all that you can to make the roofs over their heads as credible as the skies that our military’s finest guard above them.


You want real American leadership? You have to get out there and be it. Next time a bad guy at work is whining, send him this message from Instructor Eric Hall (a veteran Navy SEAL of 6 combat platoons) from page 150 of Lone Survivor:


“We don’t put up with people who feel sorry for themselves. Any problems with drugs or alcohol, you’re gone. Anyone lies, cheats, or steals, you’re done because that’s not tolerated here. Just so we’re clear, gentlemen.”


Just so we’re clear. There will be no political fear-mongering in my family or firm’s hard earned savings accounts. There will be no crack-pot sell-side strategist slapping a perma-buy on everything that is a rally of global risk from Wednesday’s YTD low. There will be a real-time risk management process however; and it will be our own.


On yesterday’s market strength, I raised the cash position in our Asset Allocation Model to 76%. We’ve had a winning month, and I am not about to put my team’s fate in the hands of mediocrity.


“Never stop learning, never stop training.”


God bless America’s finest on this Memorial Day Weekend,



Keith R. McCullough
Chief Executive Officer


America's Trident - Pic of the Day

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.


The news agency LUSA is reporting May total gaming revenues may come in at 17-18bn MOP. We think business slowed the last week so the low end of that range is more likely.



We should be getting the Macau property numbers for the month of May next week but LUSA is already reporting that total gaming revenues could be in the range of 17-18 billion MOP.  We think LUSA is basing that projection on the results through the first three weeks which we already reported were very strong in our 5/25/10 post “WHITE HOT MACAU”.  However, our sources indicated that business has slowed over the past week.  We think 16.5-17 billion MOP is probably the right range.  That still represents approximately 90% growth.


We continue to believe that MPEL and Wynn gained market share sequentially, mostly at the expense of LVS.  Apparently, Wynn’s hold percentage came off very high levels in the 2nd half of the month so market share will not be as high as the 18% it had mid-month.


The explosive growth will once again be fueled by the VIP segment.  One possible explanation for at least part of the strong growth came to light recently.  Apparently, certain mainland visa restrictions from the Zhuhai Province were lifted recently.  This specific restriction impacted junket players but now mid and high rollers face no restrictions.  This favorably impacted May and likely will continue to do so in future months.

PSS: Mind the Earnings Juice

It’s always nice to find a solid multi-year story that actually has near-term earnings juice.  PSS is one of the few.



There’s been increasing evidence to suggest that Payless’ Performance Lifestyle Group along with core retail stores are likely having a solid first quarter. In fact, our above-consensus estimate for the quarter of $0.88 vs. Street at $0.74 may be looking a bit conservative given some mid-quarter data points. Additionally, though sourcing is less of a driver that it has been, it should still fuel GM% to come in 2x expectations. The key variable is how aggressively the company reinvests in SG&A during the quarter – we’re modeling 5% growth yy. With rent and DC savings offset by growth investments in PLG there could be some variability in opex, but the bottom line here is that the two most important lines of the P&L are tracking nicely.


Here are a few facts to consider:

  • First, as it pertains to Saucony.  It’s no secret that performance running has been and still is one of the strongest performing sub-categories of athletic footwear.  Last month we addressed the strength vis-a-vis, Brooks - a direct competitor to Saucony as well as another of the niche “running only” brands.  Brooks CEO recently noted that after a mid-single digit increase last year, the company’s U.S sales are tracking up 25% through April with a double digit positive backlog through the Fall.  Keep in mind this is also consistent with commentary from FL and HIBB last week, both of which highlighted performance running as a leading category. 


  • Secondly, the NPD monthly brand data is directionally accurate.  While in no way does the data capture all U.S sales of the Performance Lifestyle Group’s big brands, it has still proven to track closely with reported trends.  The charts below include trends through the end of April.  Despite an Easter induced spike in March, trends turned positive across all major brands on a sequential basis during the quarter (bottom chart).

PSS: Mind the Earnings Juice - 1


PSS: Mind the Earnings Juice - 2


  • What about the backlog?  Unbeknownst to most investors and analysts, PSS began reporting a backlog number for the wholesale division at the end of its fiscal year with the filing of its 10-K.  Perhaps last year’s data point was lost in the shuffle during the market meltdown, which is why not many people are focusing on this year’s version.  According to the filing, PSS’ Performance Lifestyle Group backlog (for orders delivered this year) was up 36%.  Now keep in mind the order book does not include or account for cancelations or shipment delays, but this is impressive growth nonetheless. In taking a look at the past 2-years, approximately 88%-90% of year-end backlog has been realized in Q1 revenues. With a backlog of $222mm at year-end, if we assume only 80% is realized (which we have) that suggests 20% growth yy, or 3.5% to the top-line alone.

PSS: Mind the Earnings Juice - PSS WhslRevs 5 10


  • Finally, the overall health of the family footwear channel suggests our 3% same store sales estimate for the core retail business may prove conservative.  Recall that 4Q same store sales were light given lack of inventory support for key trends including boots as well as the post-Oprah hangover.  Continued strength in mall traffic as indicated by Q1 retail sales along with a conservative forecast for a flat ticket, we further believe a 3% comp may indeed be too low.  Consider the following charts as a proxy for PSS’ historical same store sales results as well as the charts illustrating relative comp trajectories including preannouncements from both DSW and SCVL.

PSS: Mind the Earnings Juice - PSS Comp Trends


PSS: Mind the Earnings Juice - PSS comp trends 2 yr


PSS: Mind the Earnings Juice - FamFWComp Table 5 10


PSS: Mind the Earnings Juice - FamFWComp Chart 5 10



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