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Yesterday, the S&P 500 finished higher by 0.9%, bringing the three day rally to 4.6%.  It should be noted that volume has declined by 9% during the same time period.  The Hedgeye sector models now have three (XLV, XLP and XLU) sectors positive on TRADE and one positive (XLU) on TREND.


While the three sectors that are positive on TRADE are low beta sectors, the past three days have seen a pickup in the RISK trade.  While the MACRO data of late clearly points to slowing global growth, yesterday’s “headline” initial jobless claims print was positive.  While Initial claims this week fell 21k (18k net of the revision), the positive print continued the volatile pattern of the last four weeks, in which the week-over-week change has been more than 15k up or down each week.  Importantly, the more notable four-week rolling average decreased, by only 1k, to 466k.  For another week, claims remain in the 450-470k range they've occupied for most of the year, well above the 375-400k range needed for unemployment to materially improve.  


In addition, although the IMF upgraded its 2010 global growth forecast, it also noted downside risks to the path of recovery from the Euro zone debt crisis. The ECB left its key policy rate unchanged at 1%, as was expected. Economists highlighted a slightly more optimistic tone from ECB President Trichet, who downplayed double-dip and financial instability concerns.  As a result, the euro climbed above $1.27 for the first time since May.  The Hedgeye Risk Management models have the following levels for the euro – Buy Trade (1.22) and Sell Trade (1.28).


For the second day in a row, treasuries were weaker with the dampened risk aversion in the markets and the VIX declined 4.2% yesterday. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (24.29) and Sell Trade (29.76).


The dollar index traded in a tight range yesterday and closed flat on the day.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (83.52) and Sell Trade (83.98).


While the June same-store sales data appeared to be strong on the surface, the trends failed to provide any meaningful overall direction for the market or consumer centric stocks.  The Thompson Reuters Same Store Sales Index posted a +3.1% comp in June, just below the +3.2% consensus.  Importantly, there were no hints in the June data that would alleviate the 2H10 concerns surrounding difficult comps and discounting trends.


Also yesterday, as noted by our Financials analyst Josh Steiner, “the government released its G-19 data, which measures non-mortgage consumer credit (credit card, auto and student loan debt). The May data remained staunchly negative for the Financials (XLF) industry. Revolving consumer credit (card debt) declined 10.5% in May, marking the 20th sequential month of decline.  Last month, we highlighted the flattening of overall non-mortgage debt, but the most recent data revision wiped out that silver lining. “


The best performing sectors yesterday were the ones levered to the RISK/RECOVERY trade - Materials (XLB) and Energy (ELE).  Mixed in with the RECOVERY trade, the Consumer Staples rose 1.5% on the day.  Tobacco stocks provided some upside leadership for the sector (RAI +2.7%, LO +2.3%, PM +2.1% and MO +2.1%).  The drug stores were another bright spot today with RAD +6.7% and WAG +3.6% outperforming. 


Significant concerns about global growth continue to keep copper from rallying.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.95) and Sell Trade (3.09).


Gold is heading for a third straight weekly decline, on speculation that a rebound in the euro will reduce demand.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,083) and Sell Trade (1,220). 


Crude oil rose to a one-week high as U.S. inventories tumbled after Hurricane Alex disrupted output and deliveries in the Gulf of Mexico.   The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (70.48) and Sell Trade (78.78).  


As we look at today’s set up for the S&P 500, the range is 71 points or 6.1% (1,005) downside and 0.5% (1,076) upside.   Equity futures are trading mixed to fair value after the S&P 500 0.9% gain yesterday.  Today is light on headline MACRO news with only Wholesale Inventories and Wholesale Sales to be reported. 


Howard Penney














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

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Why China is putting the brakes on export-driven growth


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.

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.