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  • "The first quarter of the year is historically strong due to the seasonal impact of Chinese New Year. Surprisingly the second quarter has posted a record performance for April and the outlook for the full year remains promising."
  • GEG EBITDA increased 79% y-o-y to HK$417MM on revenue growth of 51% to HK$3.95BN
  • Starworld EBITDA increased 81% y-o-y to HK$369MM on record VIP turnover of HK$102BN (up 86% y-o-y)
    • EBITDA margin for the quarter was 11% compared to 10% in Q109 or approximately 18% compared to 16% in Q109 under the US GAAP calculation
  • City Clubs casinos contributed HK$30MM in 1Q2010
  • Construction materials earned HK$285MM of revenues and HK$68MM of EBITDA up 51% y-o-y.  The improvement in results reflects a strategic shift to a number of new Joint Ventures in Mainland China.
  • Galaxy Macau still on schedule and on budget to open early 2011.


  • Sentiment in Asia is very positive and that positive sentiment is driving spending growth
  • Had 2.9% hold compared to 3.1% in 4Q09
  • Shifted the business mix of construction business to higher margin products. Don't report revenue from minority partnerships but do report EBITDA. Hence the decline in revenue but increase in EBITDA
  • Invested a little over HK$5BN through 1Q2010 on Galaxy Macau


  • Early 2011 means 1Q2011 for the Galaxy Macau opening
  • $50-60MM corporate expense guidance going forward increasing somewhat going into the opening of Galaxy Macau
  • Increased their margins due to mix within VIP and more efficient scheduled, despite lower hold this Q
  • Had 242 tables, opened 2 more rooms this quarter and shifted more tables to VIP 130 from 110 and had 95 Mass tables from 110 last quarter.  Balance is premium direct business play. VIP only increased a little because the shift occurred mid quarter. Expect more visible benefit next quarter
  • Encore opening has actually helped the Peninsula and they haven't felt any negative impact from it
  • Feel confident that they profitable operate on Cotai given the growth in the market and the latent demand. Also infrastructure improvements coming over the next few months (increase in Guanbau gate capacity and airport, construction of high speed rail there as well)
  • Very conservative on extending working capital to their junkets.  They have increased it modestly but not relative to the volume growth
  • Anything special driving the surge in gaming revenues - especially in May?
    • Doesn't feel like there is a recession in Asia - economy is solid and improving and that's reflected in people's comfort in spending more
    • Increase in RMB flows buying the HKD

Testy Bears

“Bears get testy when they come out of hibernation.”

-John R. McCullough


Yesterday was a tough day for the bulls. After seeing a low volume Buy-And-Hope rally take the SP500 straight up to 1093 by 1030AM on the first day of a new month, the market saw a stiff -2.1% intraday reversal to the downside.  The SP500 is down -3% in the last 2 trading days and down -12.1% from its April 23rd closing high of 1217.


Correction? Yes, a big one. Crash from here? Maybe.


Markets crash when consensus expectations aren’t aligned with reality. Looking at this morning’s weekly Institutional Investor Bullish/Bearish survey, I still don’t think consensus is in the area code of being Bearish Enough. This isn’t a huge conceptual surprise, but a sniff of a fleeting market bid can get a perma-bull excited. Last Thursday’s dead cat bounce in US Equities apparently inspired some Institutional money managers to get LESS bearish.


On a week-over week basis, the Bulls climbed from 39% to 40%, while the Bears in the II Survey dropped from 29% to 28%. Having traversed my fair share of bear markets with live ammo (2000, 2001, 2002, 2008, 2010), I can tell you this – 28% of the pros admitting they are bearish is hardly Bearish Enough.


Bears on Wall Street are an interesting species. Most of them are perma-bears and, without naming names (Roubini, Rosenberg, Abelson, etc.), most of them have a tough time understanding that bottoms and tops are processes, not points. Most academic and sell-side bears have never been marked-to-market with a P&L. That poses problems that are practical in nature. Never go on a bear hunting expedition if you’ve never shot a gun.


Bears in the real world don’t have anywhere to hide. My Dad lives down at our lake house in a northern part of Ontario called Shuniah. This is what he wrote to me last Thursday when I named another name that claimed I was a Thunder Bay Bear who was going to “squirm”:


“Bears get testy when they come out of hibernation. You know they cancelled the spring bear hunt in Ontario a few years back… and the young bear population has taken to the highest levels ever. The one thing about bears is that although they are fiercely hunted… they too can become the hunter, especially when challenged on their own turf! Funny how life on the "streets" can imitate life in the wild. Keep dancing - and having fun!”


Fair enough. Sometimes I get a little testy. Mostly when someone calls me into the bull/bear faceoff circle or wants to drop the analytical mitts. I write this note in 40 minutes every morning and really don’t have time to be political or popular. The game is the game. I play it with every ounce of passion in me. What you see is what you get.


Back to market expectations…


There are three bearish US market catalysts pending in the next 3 days that kept me from chasing my own tail and covering shorts during yesterday’s hopeful morning rally:


1. Wednesday – The Financial Crisis Inquiry Commission will interview Warren Buffett on the credibility of the Ratings Agencies. Given that he is Moody’s largest shareholder, this should get interesting as the patriarch of American investing deals with this subpoena and, hopefully, the truth. The ratings agencies are conflicted, compromised, and constrained.


2. Thursday - Monthly US Retail Sales for May will be released and this is the first month in forever that the Hedgeye Retail team has been signaling to me that sales are at best in line and that EPS “beats and guide ups” are going to decelerate sequentially. All that was nirvana about being long Retail last year does need to be “comped”, indeed.


3. Friday – the US Employment report for the month of May could be the bogeyman that Mr. Macro Market saw coming yesterday – versus expectations that is. Our US Strategist,  Howard Penney sent me a note and an astute question:  “Looking ahead to Nonfarm payroll number to be reported on 6/4. The Bloomberg Survey is looking for a BIG uptick (especially relative to the latest print).  The last time the spread was this wide the Economists were missing number to the downside in 2008….  What are the chances they get it right this time?”


To be sure, there are some bullish data points this morning in global macro – there usually are:


1. Brazil’s inflation rate dropped in May to +0.21% sequentially versus +0.76% in April. This is in-line with what we are seeing in the Hedgeye Inflation Index which toned down sequentially (month-over-month) in the US in May.


2. Australian GDP was up for the 5th consecutive month to +2.7% year-over-year growth in Q110, proving that you can have interest rates greater than ZERO percent and see unemployment drop at the same time as less-cyclically oriented economic growth continues (Australia has raised rates 6 times to 4.5% and can now cut if they need to – the US and Japan can’t).


3. Japan saw another Fiat Fool Prime Minister resign. It’s hard to keep track of all these guys’ names, but the reality is that the Bernanke and Trichet fiat currency experiment has a precedent (Japan). This edition of the social system’s bureaucracy lasted less than 9 months as PM. Seeing the Bubble in Fiat Politics pop is good.


To be, or not to be, Bearish Enough – that is the question. It was also William Shakespeare who gave us one of the most important lessons in risk management – “expectations are the root of all heartache.”


My immediate term support and resistance lines for the SP500 are now 1052 and 1084, respectively.


Happy Birthday Dad, and best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Testy Bears - Day


The world’s economic recovery engine is slowing.  From the opening bell, the S&P was under pressure from the MACRO news coming from Asia and Europe.  Even the better-than- expected US economic data is not enough to pull this market out of bearish territory.  Not getting the attention that it should, the Bank of Canada raised its benchmark interest rate to 0.50% from 0.25% and the Reserve Bank of Australia left its cash rate unchanged at 4.5%.


Anyone that has been watching either the Chinese stock market or commodity prices for the last six weeks won’t be surprised that we received a couple of data points this morning that confirm economic growth is slowing incrementally in China.  Yesterday’s lower than expected reading for Chinese May manufacturing suggests that this growth has slowed more than anticipated (Chinese Ox in a Box).  China May manufacturing PMI was 53.9 vs. consensus 54.5 and prior 55.7. The official reading was reinforced by the HSBC China May PMI reading of 52.7 vs. prior 55.2. It was also reported that May property sales in several major Chinese cities had fallen significantly; providing evidence that the government’s tightening moves were impacting activity.


The Eurozone May Manufacturing PMI was 55.8 vs. consensus 55.9 and down from prior 57.6. The ECB warned that Eurozone banks are facing more losses and that write-offs could reach €195B. The ECB also commented that the financial sector and economy remain exposed to hazardous contagion effects from the sovereign debt crisis.  The Eurozone April unemployment crept up to 10.1% vs. consensus and prior 10.0%.


In reaction, the Euro traded down as low as $1.21, a four-year low, and was a leading cause for concern early in the day. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.21) and Sell Trade (1.23).


In the USA, a better-than-expected increase in April construction spending provided a temporary reprieve.  April construction spending was 2.7% month-over-month vs. consensus 0.0%; March was revised to 0.4% from 0.2%.  The May ISM manufacturing number indicated a slow down, but came in better than expected; 59.7 vs. consensus 59.0 and prior 60.4. May ISM prices paid was 77.5 vs. consensus 72.0 and prior 78.0. May ISM employment was 59.8 vs. prior 58.5.


The Dollar index traded higher yesterday by 0.34%.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.35) and Sell Trade (87.11).  The VIX rallied 10.8% yesterday and the Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (29.36) and Sell Trade (45.11). 


For the second day in a row, the two worst performing sectors were Energy (XLE) and Materials (XLB).  The XLE is under sustained pressure from the Gulf of Mexico oil spill; BP was down 15.0%, RIG down 11.9% and HAL down 14.8%. Servicers and drillers were down significantly, with the OSX down 7.51%. 


Yesterday crude dropped 1.8% to 72.58.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (68.01) and Sell Trade (75.34).


AAPL, MSFT and GOOG provided leadership that allowed Technology (XLK) to outperform.  AAPL reported that iPad sales have hit 2 million units. The Semis were lower on the day, with the SOX down 2.3%. 


Evidence that growth is slowing, especially in China, is dragging down the price of copper.  In early trading, copper fell for a third day to the lowest price in almost two weeks.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.92) and Sell Trade (3.03).    


The U.S. Mint sold 190,000 ounces of American Eagle gold bullion coins last month, the most since sales of 231,500 ounces in December.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,201) and Sell Trade (1,231).   


As we look at today’s set up for the S&P 500, the range is 32 points or 1.7% (1,052) downside and 1.2% (1,084) upside.  Equity futures are trading mixed to fair value, and off earlier highs. 


On the economic front to be reported today will be:

  • MBA Mortgage Applications
  • May Challenger Job Cuts
  • Apr Pending Home Sales
  • May domestic vehicle sales

Howard Penney













Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Rolling And Shaking, continued

Positions: Short France (EWQ)


1.       Germany


The latest German unemployment rate ticked down to 7.7% in May from 7.8% in the previous month and continues to trend at a healthy level (especially when compared to Spain at 20.05% or Ireland at 13.4% and the Eurozone average of 10.1%). However, despite a bullish employment report, we’ve noted a recent slowing across fundamentals, which also prompted our sale of the German equity market via EWG in our virtual portfolio last week (see our recent post “The Contagion Drag” on 5/26).


Rolling And Shaking, continued - m1


Further, the resignation of German President Horst Koehler late Friday adds political pressure and uncertainty to Chancellor Merkel’s government that has struggled to exude confidence: not only was an aid package to Greece et al not supported, it cost her party (the Christian Democratic Union or CDU) an election in the important economic state of North Rhine-Westphalia (NRW) and uprooted her party’s majority in the upper house of parliament (Bundesrat), which will drive a wedge in the party’s future policy making.


Koehler’s decision to step down resulted from a comment he made last week that “a country like Germany, which is reliant on foreign trade, must know that military intervention could be necessary to uphold economic interests.” His gaffe on a hot-button topic like Germany’s involvement in Afghanistan (Germany has a sizable military presence in Afghanistan but little popular support) prompted the decision. Interestingly, Merkel encouraged the broadly liked Koehler to stay on.  While the position of President is very much ceremonial in Germany, the move creates further consternation; a new President is set to be appointed on June 30th. 


Lastly, Koehler’s resignation follows CDU state Premier of Hesse Roland Koch’s resignation last week to work in the private sector.



2.       France


France’s PPI popped up to 4% in April year-over-year versus 2.0% in March Y/Y. As we’ve called for a ramp in inflation (globally), it’s important to note that we now forecast inflation to dampen on sequentially tougher annual compares as we head into late Q2 and Q3. Nevertheless, our bearish case on France remains and we’re short the country in our virtual portfolio via EWQ. Like Spain and Italy, France’s deficit and debt imbalances will gain the spotlight like Greece and cause further downward pressure on its capital markets. We also expect its AAA sovereign debt rating to be cut.


Rolling And Shaking, continued - m2



3.       Eurozone PMI


Manufacturing PMI contracted across most of Europe with the Eurozone average declining to 55.8 in May from 55.9 in the previous month. The chart below shows waning momentum, reflective of contagion fears, which we’d expect to continue over the coming months.


Rolling And Shaking, continued - m3


Matthew Hedrick


R3: June 1, 2010


June 1, 2010





-In an example of how big the viral nature of the internet can be, Nike’s “Write the Future” ad set a new record for the most views.  According to web video analytics company Visible Measures, the Nike ad focused on the World Cup has achieved 7.8 million views in its first week alone.  This compares favorably to the recently launched “Earl and Tiger” video which reached 6.3 million views in its first week. 

Hedgeye Comment: Yet another blow to the traditional advertising model.  Aside from the cost to produce the 3 minute video, it certainly seems more effective to post on youtube and let the consumer do the rest.


-While continued demand for the male shape-wear may not surprise many (think Spanx for men), what did catch our eye in a NY Times article this past weekend is the primary demographic. Equmen, another leading shape-wear brand, noted that 75% of its sales come from males aged 37 to 42 - perhaps a sign of deferred gym memberships. Less surprising is the fact that online sales are significantly more brisk than at retail suggesting this trend may still be the best kept secret for many.

Hedgeye Comment: As one of the few hot spots in men’s retai (albeit small), we wouldn’t be surprised to see major leading brands dip their toes in the waters with variations of this product in the coming months. However, can shape-wear and toning co-exist?  Maybe some cross marketing between the two is on the horizon as well. (Note from McGough: the product works. Please allow me to maintain a shred of dignity and don’t ask me how I know).





ICSC Sees 2011 as the Retail Property Turnaround - Developers and retailers at the International Council of Shopping Centers ReCon convention here said bankruptcies, widespread store closures and falling consumer demand are in the rearview mirror, but don’t anticipate a strong, sustained recovery until at least next year. One fear is that there could be a false sense of security. Depending on the disruption in Europe, you could have a liquidity crisis again. Many retailers aren’t waiting out the uncertainty on the sidelines. With shoppers perking up, retailers that withstood the worst of the downturn have cash on hand and are considering expanding before rents rise. Most shopping center players agreed that retailer momentum would pick up starting next year. “There are a lot of people talking about new stores, but there are a lot of people talking about them in 2011,” said Michael Glimcher, CEO of Glimcher Realty Trust. <wwd.com/business-news>

Hedgeye Comment: With earnings for most retailers now reported, the latest commentary from the retailers themselves remains consistent with the ICSC chatter.  This especially holds true for new developments, which still appear to be at least a couple of years away from rebuilding a measurable pipeline.  We continue to believe the environment will remain much better for all players if they continue to stay on the sidelines, pursuing modest growth.  The old days of growth for the sake of growth seem to be relegated to IPO’s disguised as growth stories- at least for now. 


ASDA Buys Discount Retailer Netto - ASDA, a subsidiary of Walmart, has acquired the discount retailer Netto, which has 193 shops in the U.K., for £778 million ($1 billion), strengthening its position as the country's second-biggest food retailer and establishing a footprint in a small store format. ASDA intends to boost its smaller-format store portfolio and said the Netto outlets will be added to a new division set up for supermarkets smaller than 25,000 square feet. It hopes to complete the takeover later this summer, subject to regulatory approval, and rebrand the Netto stores by next summer. ASDA also intends to expand its non-food ASDA Living chain. <licensemag.com>

Hedgeye Comment: After staking its claim as a large format leader with stores nearly 20% larger on average than competitors, acquiring Netto is a  sharp contrast to the retailer’s prior growth strategy.  However, with large box real estate at a premium in the UK, it appears that WMT/ASDA clearly realizes that it may just have to shrink-to-grow, a step in the right direction and incremental positive in our view. It will be interesting to watch how WMT uses this acquisition over time to build a whole new level of expertise in small box distribution. 


American Brands Rushing to Europe for M&A to Sustain Growth - American brands are rushing to counterbalance the slowing domestic market by moving into undeveloped regions abroad, especially Europe. Several brands, such as Esprit and Tommy Hilfiger, once enjoyed great popularity in the U.S., only to fall out of favor later in their life cycles. Despite the loss of brand cachet in the U.S., however, these brands remained well accepted and fashionable in Europe. The weakening of the euro against the dollar over the last few weeks has only added urgency to American firms expanding into Europe. Growth-driven public companies have come to recognize they no longer have the luxury of relying on a single market, even the $10 trillion U.S. consumer economy. Acquisitions are a way to accrue real estate locations that would take years to develop on your own. <wwd.com/business-news>

Hedgeye Comment: With one major deal done this year (Tommy), it’s hard to envision a major rush here in M&A purely based on the Euro.  Remember, that US companies historically have had a hard time making a go at European retail in a large scale manner.  We find it very unlikely that retailers would look to make a “land grab” in a knee jerk manner, just to get a jumpstart when the Euro weakens.


SKS May Not Benefit All That Much From a Falling Euro - A 'Heard on the Street' column notes that while manufacturers increased prices when the euro strengthened against the dollar, prices may not be so quick to fall as the euro falls vs the dollar. Many European luxury makers have kept dollar prices firm but retailers may complain if the euro falls much further. However, the makers have a strong position with iconic brands. Plus, a weak euro could hurt the tourist shopper that has helped the company. The share price reflects takeover speculation and could fall quickly is either of the major holders decides to sell any of their stakes. <WSJ.com>

Hedgeye Comment: No direct exposure gives Saks an unquestionable advantage in a declining Euro/USD environment. Yes, tourist driven revs will take a hit, but let’s not forget the offset of domestic spending induced by increased confidence stemming from a stronger dollar.


PSS's Above The Rim Signs NBA Player Martell Webster - Above The Rim (ATR), which is being re-launched this year by Collective Licensing International, has signed a multi-year endorsement contract with rising NBA player Martell Webster. <sportsonesource.com>

Hedgeye Comment: The first of several signings we expect to be announced as CLI readies the brand for a revival in the 2H.  Also, keep an eye out for a push into basketball loving China.


Adidas Responds to Claims that the World Cup Ball Sucks - Adidas hit back Monday at criticism that the World Cup ball is difficult to control and a nightmare for goalkeepers, stressing that it was widely tested and approved long ago. <sportsonesource.com>

Hedgeye Comment: There’s nothing like a little controversy to drum up some free PR. Hey, it worked four years ago – no reason why it shouldn’t work again.


Bebe’s Social Strategy Keeps Fans Up with its Kardashian Collection - Bebe Stores’ February social marketing campaign to promote a clothing line developed with TV reality stars the Kardashian sisters was so successful that the retailer turned to the online social realm again this month to support its newest collection. <internetretailer.com>

Hedgeye Comment: Let’s just hope that the Kardshian’s can stay in the spotlight long enough for the line to actually sell through.


BBBY Rolls Out Exclusive Elizabeth Arden Collection - Bed, Bath and Beyond is rolling out an exclusive line of spa-inspired items under the Elizabeth Arden brand. The collection from licensee London Luxury includes towels in 12 colors, bath robes and slippers. <licensemag.com>

Hedgeye Comment:  Another sign that the traditional department store channel continues to lose its stranglehold on the premium cosmetic sector.  Yes, this is a licensing deal but years ago it would have been unheard of to see the Arden brand in Bed Bath and Beyond.


Wal-Mart's Sam's Club Is Customizing Bargains For Individual Members - The company's eValues program is looking to tailor bargains for each individual member based on previous buying patterns. The company has improved coupon response rate from 1-2% to 20%-30% for eligible customers. <streetaccount.com>

Hedgeye Comment:  What better place than a membership-only environment to tailor promotions by customer?  Given that each of Sam’s millions of members holds a card, which is in turn tied to the entire customers purchasing history, it’s a no-brainer to offer targeted deals based on a consumer’s brand and product preferences.  Is Costco next?


Chinese PMI, Weaker Than Expected . . . But More Than Meets The Hedgeye

Anyone that has been watching either the Chinese stock market or commodity prices for the last six weeks won’t be surprised that we received a couple of data points this morning that confirm economic growth is slowing incrementally in China.  The first, the official China Federation of Logistics and Purchasing managers index fell to 53.9 in May from 55.7 in April. The second, the HSBC China Manufacturing Purchasing Managers Index, fell from 55.2 to April to 52.7 in May – which is the lowest level in a year. 


Despite the sequential decline, both of these indices are still above 50, which denotes expansion in economic activity. We’ve outlined this sequential change from April in the chart below, and would highlight that 54 on the Chinese PMI reading has historically been a bit of an important line, and the next move will be critical to watch.


Interestingly, the most noteworthy change in the Purchasing Managers Index was a change in input prices, which fell dramatically from April’s reading of 72.6 to 58.9 in May.  This implies that underlying unit demand was likely moderately stronger than the headline number suggests, which, perversely, is probably a negative leading indicator for the next PMI data point.  Presumably, the Chinese government will look at the components of the index, and realize that their efforts to slow the economic growth, or potential overheating, are working on the margin, but perhaps not slowing the economy to the extent Chinese officials had hoped.


This interpretation, in conjunction with some of the recent inflationary data points from China that we’ve highlighted below, could lead to more aggressive tightening from China.  These inflationary data points include: 

  • Chinese CPI (Consumer Price Index) and PPI (Producer Price Index) are up 2.8% and 6.8%, respectively, year-over-year. Combined, this is the largest spike in combined inflation in 18 months;
  • Chinese property prices, based on a survey of 70 cities, were up 12.8% year-over-year in April, which is the largest spike since 2005;
  • Chinese money supply growth was up 21.5% year-over-year in April;
  • Chinese loan growth was up 51% sequentially from March to April at 774B Yuan; and
  • Chinese industrial production was up 17.9% on a year-over-year basis in April. 

Obviously, these are primarily April numbers, so May data will also have to be appropriately inflationary to warrant further tightening, but while the headline PMI numbers suggest some economic slowing, the internals are less supportive and suggest still robust expansion in China.


Daryl G. Jones
Managing Director


Chinese PMI, Weaker Than Expected . . . But More Than Meets The Hedgeye - China PMI

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 80.48%
  • SHORT SIGNALS 78.35%