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The Macau Metro Monitor, July 9th, 2010


GOVERNMENT CUTS GALAXY 1,000 WORKERS Macau Daily Times, Inside Asian Gaming

Coordinator of the HR Office (GRH) Wong Chi Hong said at the Legislative Assembly that the Labor Affairs Bureau (DSAL) has decided to cut 1/3 of Galaxy’s imported labour quotas for its Cotai construction because Galaxy failed to comply with the 1:1 labor policy.  As a result, nearly 1,000 non-local workers will be leaving Macau.


Wong also said the Venetian has been placing recruitment notices seeking Macau workers at the DSAL for sites 5 & 6.  Although he has previously confirmed that the Venetian has already filed an imported construction worker application, he stressed yesterday that the GRH will only say yes according to the recruitment results at the DSAL.


According to IAG, Galaxy had known for some weeks that it had a potential labor problem and was privately advising 3rd parties of possible 'adjustments' to the Q1 2011 opening date. 



Macao Dragon's weekday single economy fare from Hong Kong to the Pac On Ferry Terminal at Taipa, is HKD88, a steep discount to CotaiJet's HKD134, TurboJET's HKD134, and New World First Ferry's HKD133 for the same route.  IAG believes this could initiate a ferry price war.


It's possible that Macao Dragon may team up with a casino operator.  CotaiJet is a Sands China entity; TurboJET is operated by Pansy Ho's Shun Tak Holdings; New World First Ferry Services Ltd is owned by Chow Tai Fook Enterprises Ltd, whose Chairman, Cheng Yu-tung, was a L'Arc investor.



Total deposits with the banking sector dropped 0.7% MoM.  Domestic loans to the private sector grew 2% MoM.  The loan-to-deposit ratio rose 1.0% MoM.

Senatorial Manipulators

“When people learn no tools of judgment and merely follow their hopes, the seeds of political manipulation are sown.”

-Stephen Jay Gould


If you have their email addresses, take a minute this weekend and send a US Senatorial Manipulator this message: STOP with the “China is a manipulator” fear-mongering; LOOK in the mirror; and FOCUS on fixing the problems with your own currency, deficit, and balance sheet.


Last night, after Timmy Geithner made his best policy decision as US Treasury Secretary to-date by not calling our largest creditor names, it was an American donkey race between Schumer, Hatch, and Baucus to see who could prove their analytical incompetence on global macro matters first.


Now most readers of the Early Look know that I am not a Geithner fan, but I am a fan of giving credit where credit is due. Geithner had the political spine to fight the protectionist wind on this issue because he finally understands the alternative. If the US continues to aggravate its Big Creditor, and China decides to unload the nuclear economic option (selling US Treasuries), the US economy would be blown to smithereens.


We’ve been hammering on this since we introduced our Q3 Macro theme of American Austerity last week (email if you’d like the 35 slide presentation with our US GDP model), but its important to repeat and review 3 critical factors in the US economic model that are changing:

  1. GDP growth
  2. Deficit spending
  3. Debt accumulation

Jokes about these ridiculous IMF assumptions for US GDP growth aside, we are finally starting to see some rational macro economists take down their US GDP growth targets for the back half of the year. At the same time, the Krugmanites of ‘feed a man a fish for a day’ (as opposed to teaching him to respect the cost of capital and access to it for life) are begging for more US government spending handouts as the US debt balance climbs.


Clearly some in Congress don’t get the relationship between debt and compounding interest expense, or they wouldn’t be mooning their Chinese landlord. If China starts selling US Treasuries, rates will rise sharply and so will America’s interest expense line. Ask the Greeks how this math works.


US Balance Sheet Update: here are the most recent data points on the debt accumulation that Senatorial Manipulators have been signing off on:

  1. US National Debt leapt $166 billion in a single day last week, the third-largest one day increase in U.S. history
  2. The Federal Reserve’s balance sheet expanded another $1.6B week-over-week to $2.34 TRILLION DOLLARS

Chuck Schumer is the modern day version of a Senator from Rome circa 71BC. He waves his orator’s plumage from upon high and purges the citizenry’s life savings as he feeds on his fish ponds of entitlements that he and his professional politician friends in Washington have created for themselves.


Hearing Schumer fear-monger Rumsfeld style about “great depressions” and the lack of Chinese transparency as he gorges himself on the fruits of this great nation’s legacy is over the top. This is the Senatorial Manipulator from New York who oversaw the biggest gong shows in US financial history. Madoff, Lehman, AIG? Wake-up dude.


In other news… President Obama’s approval rating from “independents” surveyed in the Gallup poll has dropped below the 40% line for the first time ever. With only 38% of theoretically independent votes telling us that they don’t think the President of the United States gets it, it’s probably time he puts a muzzle on some of his economic storytellers. Americans think politicians are lying to them and our deficit and debt math supports that claim.


All of this keeps us as bearish as we can be on the US Dollar (short UUP). Politicians may lie; but markets don’t - and we think that with the US Dollar Index down for the 5th consecutive week, we are onto something here that our Professional Politicians need to be paying acute attention to.


Despite the US stock market putting on a 3-day rally from its July 2nd YTD low, from its October 2007 and April 2010 ZERO-percent-money-cycle peaks, the SP500 is down -31.6% and -12.1%, respectively. We’re not currently short the SP500 (SPY) but we are waiting and watching for our selling opportunity.


Our immediate term TRADE lines of support and resistance are now 1006 and 1076, respectively.


Have a great weekend and best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Senatorial Manipulators - SEN

Why China is putting the brakes on export-driven growth

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.


Now that we have the June Macau detail, we think Wynn Macau will beat the Street but Wynn Las Vegas will fall short.  Good thing this is essentially a Macau company.



We estimate WYNN will report Q2 revenue of $1.03BN and EBITDA of $261MM, exceeding rising consensus revenue and EBITDA numbers by 7% and 11% respectively.  Not surprisingly, we expect the beat to come from Macau and for Vegas to produce another uninspiring quarter. 




We estimate that Wynn will report $313MM of net revenue and $62MM of EBITDA this quarter in Vegas. 

  • Net casino revenue of $132MM, non-gaming revenue of $235MM, and $45MM of promotional expenses.
  • RevPAR down 5% YoY.
  • Table drop flat with last year due to expected Baccarat share losses to MGM.  Unlike last quarter, Wynn has a more difficult hold comp.  In 1Q2010 Wynn’s tables held at 23.2% compared to 17.7% in 1Q2009.  Coupled with a 7% increase in table drop, Vegas table win produced a YoY increase of 40%.  Unfortunately, 2Q09 hold in Vegas was normal at 20.7% and therefore, we expect to see only flat to slightly down table win.
  • We project slot handle to be down around 10% YoY compared to a 27% YoY decline last quarter.  Encore opened Dec 22, 2008, so the first half of '09, especially 1Q2009, got a lot of traffic “checking out” the new product, making 1H09 a tough comp for Wynn compared to that of other strip properties.



We estimate that Wynn’s Macau property will report $719MM of net revenue and $211MM of EBITDA. Good luck this quarter aided an already strong performance.

  • VIP win of $709MM.
    • We estimate $22.5BN of RC volume.
    • We estimate 14% of RC will come from direct play--up from 10% last quarter--due to Encore.
    • Hold of 3.15%.
  • Mass table win of $128MM (up 24%) and slot win of $49MM (+15%)
  • We assume rebates of $213MM (30% of win rate or 95bps) and all-in commissions of 41% vs. 39% in 1Q2010.


2Q brought about a sharp upswing in comparable store sales. 


On 6/25, I wrote a post titled “COSI – SALES MOMENTUM IN 2Q” detailing my view that 2Q10 would bring a sequential improvement in same-store sales, driven by product initiatives and marketing efforts.   Company-owned comparable store sales for 2Q came in at 3.3%, versus -12.7% in 2Q09 and -4.3% in 1Q10.  On a two-year basis, this implies a 310 bp sequential improvement in top line trends.  Our comparable store sales estimate from 6/25 of +5% implied a two-year trend sequential improvement of 395 bps – a difference of 85 bps. 


This result is encouraging but what gives me additional conviction on the story is that comps in June came in at +5.5%, indicating that trends were improving throughout the quarter.  In the press release, President and Chief Executive Officer of Cosi, James Hyatt, said that the strong performance was largely due to the company’s “expanded marketing efforts” aimed at broadening consumer reach and driving traffic in multiple dayparts.   Traffic trends at Cosi improved from -5.6% in 1Q to +3.1%.  On a two-year basis, trends improved by 410 bps sequentially.




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 80.46%
  • SHORT SIGNALS 78.35%