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The Macau Metro Monitor, July 6th, 2010



According to Xinhua News Agency, Minister of Land and Resources Xu Shaoshi said, "Home transaction volumes have declined and prices have stagnated.  In about a quarter's time, the property market will probably reach a full correction and prices will fall, but it's hard to predict the extent of the price falls."  The June property price data is released next week.


ELECTRIC DREAMS Inside Asian Gaming

Despite the public's aversion to electronic table games in Macau, Aruze's Lucky Sic Bo has been quite popular on the mass floors.  In Singapore, electronic table games seem to have more success as suppliers such as TCS JOHNHUXLEY and Spielo reported close to 100% occupancy at its roulette terminals.  According to IAG, the suppliers also noted that the Singaporean casino operators have replaced some baccarat tables with either blackjack tables, slots, or electronic gaming terminals, particularly roulette.


GAME CHANGER Inside Asian Gaming

There have been reports that suggest RWS continues to attract more VIP players than MBS.  Whether this stems from loyal relationships from Genting's Malaysian property or better incentives, it remains to be seen.


TOUGH LOVE Inside Asian Gaming

According to a Macau junket source, the high GGR growth in May may be attributed to a small group of established VIP customers rolling greater amounts on the strength of a strong economy rather than new VIP customers.  The source also said that junkets are very careful about which customers get credit and lending only a fraction (e.g. 25%) of what the player wants.  The source said, in contrast to past times, a customer who is denied credit at one property would not be allowed credit at another property, as junkets would share information through a "Rumor Control". 



Macao Dragon will launch two ferry boats this weekend--servicing between Hong Kong Macau Ferry Terminal and Taipa Temporary Ferry Terminal.  IM believes the new ferries' competitive prices for tour groups would allow Venetian to be more flexible in subsidizing its CotaiJet ferries. IM said CoD would also benefit from these new boats.

Americans Get It

“It is hard enough luck being a monarch, without being a target also.”

-Mark Twain


The monarchy of Keynesian Spending has finally fallen from its saddle – and the citizenry is hungry. Welcome back from your long weekend.


Away from Harvard historian Niall Ferguson pitching a version of our American Austerity theme in Aspen at the “Ideas Conference” yesterday, the most important consensus builder coming out of this long weekend came from a WSJ/NBC Poll that asked Americans what the President should worry about:

  1. Keeping the US Deficit down = 63%
  2. Boosting the US Economy = 34%

Once again, whether they are getting the message from Canadian or Scottish strategists makes no difference – Americans get it. “Boosting the economy” with government spending dollars that have no multiplier effect isn’t working. It’s time to save America’s balance sheet and get austere.


The current leadership on the economic side of the US Administration doesn’t get this yet. That’s marked-to-market by a simple 3 factor model every day:

  1. Currency Market: US Dollar was down for the 4th consecutive week last week, trading down another -1% to $84.61 (we are short the UUP).
  2. Stock Market: SP500 was down -5% last week and has closed in the red in 9 out of the last 10 trading days, making lower-YTD-lows.
  3. Jobs Market: US unemployment remains nauseatingly high and jobless claims jumped higher again last week to 472,000 (+13,000 wk/wk).

If this reality check doesn’t make you feel all red, white, and blue after some of the best weather Americans have had in decades, maybe it’s best to close your eyes, buy, and hope.


Maybe not.


Hope is not an investment process…


The good news here is that reality is starting to get priced into the market. As we like to say at Hedgeye, everything has a time and price. Now that we have had a -16% correction in the SP500 since April 23rd and China finally stopped making lower-lows for the YTD overnight, the US stock market should bounce.


Before I get you all bulled up and carried away here, let’s remind ourselves that bouncing to lower-highs before we make lower-lows isn’t cool – Americans get that too. We call this a bear market, and the bulls are finally starting to agree:


“I’m worried that we could have not just a soft patch but a double dip which lasts two or three quarters and where nominal GDP is only up 2 or 3 percent and that’ll have a big effect on profits… It’ll scare everybody and I’m afraid the market goes down another 10 or 15 percent if that happens.” (Barton Biggs July 2, 2010)


But don’t be scared – this was, after all, proactively predictable. As American investors, we are starting to get this too. Using the institutional leanings of perma- bulls and perma-bears always provides us a backboard of consensus to play against. The only “perma” we want to be is permanently managing risk.


Taking a step back before we have the conviction to make another market call is always critical. The institutionalization of asset management in America is something that everyone in this country needs to get.


Per the Federal Reserve’s flow of funds data, in the early 1990’s less than 40% of the US stock market was controlled by institutions and the “cash levels” of US Equity mutual funds were north of 12%. Today, over 60% of the market is controlled by institutions and cash levels of US Equity mutual funds is below 4%. That’s going to change.


If you get that the Perceived Wisdoms of the Buy-And-Hope institutional investor community is going by the way of the horse and buggy whip, you are definitely putting yourself in a position to get it right here in 2010 and beyond. The US government doesn’t “have to spend” to make this economy right and the institutional investor class doesn’t “have to be fully invested” to save their clients from losing their hard earned capital.


In the face of finding lower prices, the Hedgeye Asset Allocation Model has dropped its “cash” position from a YTD high of 79% to 58%. We aren’t asset managers, so we aren’t going to proclaim that maintaining a high and dynamically managed allocation to cash in a bear market is working for our fund – by design, we don’t have one. That said, our clients do  - and its working for them.


As a practical rather than theoretical matter, we go through the positioning of our asset allocation every morning at 830AM EST on the Hedgeye Morning Call (if you’d like to trial the call please email ). Our goal is to continue to move away from the lip service Washington and Wall Street give to “transparency and accountability” and give our clients a measurable tool that they can use to augment their respective investment processes every day.


We confidently submit that if you provide investors with the right risk management “call” on markets every day, they’ll get that too.


My immediate term support and resistance levels for the SP500 are now 1005 and 1059, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Americans Get It - cash


After a strong start to the month, growth tapered off.  Digging below the headline +65%, we find that volumes were not as strong.



June table revenues came in at $1.62BN, increasing 66% YoY, while total gaming revenues increased 65%.  June's number should be no surprise to our readers as we had projected 67% last week.  Mass revenues increased 39% YoY while VIP revenues grew 77% YoY, compared to only 53% growth in Junket RC volumes.  Similar to May, easy hold comparison contributed to some of the big growth we saw this month.  Adjusting for direct play levels, we estimate that VIP hold was 2.83% in June vs. 2.45% last year.  If we normalize for hold, table revenues would have been only up 50% YoY this month.


The gods of luck smiled on WYNN and LVS but frowned upon SJM and Galaxy.  Luck (and Encore) explain most of the share shifts this month. 


Remember that July faces the first positive YoY monthly comparison of the year.  Additionally, World Cup betting should continue to steal volumes from the Macau tables.  For more details, keep reading.


YoY Table Revenue Observations


LVS table revenues increased 38%, with growth coming from a 53% increase in VIP revenues and only a 15% increase in Mass revenues.

  • Sands grew 20%.
    • 28% increase in VIP revenues.
    • 8% increase in Mass revenues.
    • Junket RC increased 34%.
  • Venetian was up 21%, driven by a 21% increase in VIP revenues and a 20% increase in Mass revenues
    • Junket RC decreased 1% YoY, however, hold more than made up the difference.  Assuming 20% direct VIP play volume, we estimate that hold for June was 3.2%.  Last June, assuming 16% direct play, the hold percentage was 2.75%.
    • Venetian VIP turnover growth was negative for the 3rd straight month.
    • Lowest mass share for LVS since pre-Venetian.
  • Four Seasons was up 283% YoY driven by 542% VIP growth and Mass growing a relatively small 11%.
    • Junket VIP RC increased 263% to $781MM.
    • If we assume over 40% VIP turnover came from direct play, hold still looks very high at north of 4%.

Wynn Macau/Encore table revenues were up 108%, primarily driven by a 138% increase in VIP revenues and a 20% increase in Mass revenues.

  • Junket RC volume increased only 59%.  Junket RC volumes grew a lot less than VIP revenues since the majority of the Encore addition was dedicated to direct play tables; the disparity implies that it's likely that Wynn played very lucky in June and that the percentage of total play coming from direct VIP increased nicely. 
  • In 2Q09, direct play volumes at Wynn were roughly 11% of total VIP.  Assuming June was in line with the quarter, hold was a low 2.4%.  If we assume that direct play volumes increased to 16%, implied hold for June is 3.5%.  2Q2010 will show a reversal of luck for Mr. Wynn - who hasn't had a "lucky" quarter in Macau since 1Q2009.

MPEL table revenues grew 138% with the growth fueled by 124% growth in Mass and 142% growth in VIP.

  • Altira was up 42%, due to a 41% increase in VIP revenues and a 56% increase in Mass.
    • VIP RC was flat YoY, but hold comparisons were favorable. Altira seems to have held high at 3.1%, compared to low hold of 2.1% last June.
    • 2Q2010 should be the property's first quarter of hold north of 3% since 1Q2009.  Perhaps that will put a temporary end to the annoying sell side questions regarding hold.
  • CoD table revenue decreased 22% sequentially to $119MM due to a 28% decrease in VIP win and a 5% decrease in Mass revenues.
    • Mass was $35MM.
    • Junket VIP RC increased 21% sequentially.
    • If we assume 15% direct play at CoD, then this is the 3rd month in a row where hold is low.  We estimate June hold of only 2.4% and hold of only 2.3% for the quarter.
    • We have heard consistently that CoD is spending a lot to "buy" its business, so margins could disappoint.

SJM table revenues grew 63%.

  • Mass was up 53% and VIP was up 70%.
  • Junket RC volumes increased 92%.

Galaxy table revenue was up 38%, driven by a 40% increase in VIP win and a 30% increase in Mass.

  • Starworld's table revenue was up 58%, driven by 59% growth in VIP revenues and 51% growth in Mass.
  • The group RC volumes were up 78% while Starworld RC volumes increased 105%.  Starworld's June hold was low - roughly 2.5% vs. 3.2% in June 2009.

MGM table revenue was up 48%.

  • Mass revenue growth was 39%, while VIP grew 52%.
  • VIP RC grew 7%.
  • We estimate that MGM suffered from low hold in June, roughly 2.5%, and in the entire quarter (2.6%).  However, last June's hold appears to have been even worse at sub 2%.


Table Market Share


LVS table share increased 230bps sequentially to 21.2%, entirely driven by good luck on the VIP business.

  • LVS's share of VIP revenues increased to 19.7% from 16.5% in May.  LVS's share of Junket RC increased 170 bps to 13.9%.
  • Mass share decreased by 110 bps to 25.5%, which is the lowest share LVS has had of the Mass business in Macau since August 2007.
  • Sands market share continued to make new lows at 6.2%, down 10bps sequentially. June sequential share loss was driven by the Mass business.
  • Venetian gained 110bps to 11% sequentially.
    • Venetian's share gain was entirely driven by a 140bps increase in VIP, while Mass share declined by 80bps.
  • FS share increased by 130bps to 4.0% - an all-time high for the property driven by good luck and strong VIP play.

WYNN's table share increased to 17.2% from 15.6% in May.

  • VIP revenue share increased 260bps to 19.9% sequentially while Mass revenue share decreased 20bps to 9.7%.
  • Wynn's VIP share is second only to SJM at 26.3%, followed by LVS at 19.7%.
  • Some of Wynn's market share gains in VIP seem to be driven by luck.  Wynn Junket RC share decreased 120bps to 15%.

Crown's market share decreased by 60bps to 13.1% in June, with both properties contributing to the loss of share.

  • CoD's share decreased 20bps to 7.3% due to losses in VIP share which were partly offset by gains in Mass share.
  • Altira's share decreased to 5.8% from 6.3% in May.

SJM's share slipped by 280 bps to 30.3%, its lowest share since August 2009.

  • SJM's share loss was entirely driven by their loss of 450bps of share in VIP to 26.3%.  Part of this loss is due to lower hold YoY.  SJM held at 2.8% in June 2009 vs 2.5% this June.  July's hold comp is very easy though (last year was only 1.84%), so we expect to see large sequential share gains for SJM next month.
  • Mass share increased 60bps to 41.7% sequentially.

Galaxy's share fell 1% to 10.7%, driven by poor hold.

  • Starworld's market share decreased 60bps sequentially to 8.6%, due to a 60bps hold driven decline in VIP share which was somewhat offset by a gain of 30bps in Mass.
  • Junket RC share increased 20 bps sequentially to 13.3% for Starworld.

MGM's share increased by 50bps to 7.4%.

  • MGM's share gain can be attributed to a 70bps increase in VIP, which was somewhat offset by a 20bps decrease in Mass share.


JUNE WAS STRONG BUT... - macau table


JUNE WAS STRONG BUT... - macau mm


JUNE WAS STRONG BUT... - macau rolling

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The Week Ahead

The Economic Data calendar for the week of the 5th of July through the 9th 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 - c1

The Week Ahead - c2

European Chart of the Day: Swiss Franc

The Swiss National Bank is issuing language that suggests it may intervene (and sell Swiss Francs) to depreciate the value of the Swiss Franc, a move it made a number of times in 2009 to maintain a tight band to quell the appreciation of the Franc in Q1 2009.  With the sovereign debt contagion fears in Europe bubbling since the early part of this year, the Franc has gained substantially versus the EUR, up 10.96% YTD, hitting a high on 6/30, before selling off in lock step with gains in the EUR-USD over the last two days, to $1.25.


With Swiss Central Bankers reiterating that deflation risks have “largely disappeared”, they’re now worried that a Franc at these levels will choke off exports, which account for more than half of Swiss GDP. While the negative correlation of Exports to its closest trading partners in the EU and the CHF-EUR is only -0.44 over the duration of the chart, the correlation is nevertheless a formative one we’ll be following.


Matthew Hedrick



European Chart of the Day: Swiss Franc - CH


If you thought 3 for 20 was cheap…


For those following EAT closely it’s no surprise that Chili’s same store sales are trending below that of the overall industry, as measured by Knapp Track.  In fiscal 4Q, Chili’s SSS could be down as much as 4%.  In this environment, top-line sales are critical to the implied health of the company.  When sales are not good the market punishes the equity, as it should.  For EAT we are reaching maximum bearishness. 


Given our Bear Market Macro theme, there is the potential that the market could get even uglier - that is out of my control.  What I can control is what I understand.  EAT recently closed the sale of OTB and now has enough cash and debt capacity to buy back 25% of the company.  While it will not happen tomorrow, it will happen over the intermediate term.  That is good enough for me.


News of Chili’s struggling top line has sent the stock down 20% over the past month, with the stock now trading at 6.1x EV/EBITDA.  Looking a little more closely, things are even cheaper that they appear on the surface.  Examining the different pieces of EAT’s assets, the current implied value of the Chili’s business alone is 2.5X cash flow.


When we get within a six month window of a potential catalyst we like to press our bets, and we are getting close to that time.  As the calendar turns on 2011, EAT will be in a great position to show improving trends.  The catalysts are:


(1)    Lapping the self-inflicted wounds of shrinking the menu.

(2)    Getting past the excessive discounting of 3 for 20.

(3)    Building momentum on the in-store margin initiatives.



The last catalyst is critical and has the biggest potential for an upside surprise relative to street expectations.  For now the stock is trapped in the bearish sentiment for typical bar & grill companies.


In the meantime, while we wait for the catalysts to play out, the company is a big, big, big buyer of stock. 




Howard Penney

Managing Director