While volumes will not be as strong as Q1, Q2 should prove out our projection of an annual EBITDA run rate well north of S$1 billion.


We estimate that RWS will report S$665MM of revenues and S$272MM of EBITDA for Q2.  Obviously, there will be some slow down in daily volumes compared to Q1, and lower win per position as more positions opened.  Longer term we believe the Singapore market could easily grow at 10% a year for the next few years.  If and when junkets get licensed, VIP revenues should grow at a faster clip than Mass since there are no junkets operating in Singapore.  While some junkets may get licensed by Q3, they are likely to be the Singapore-based junkets and are unlikely to grow the market materially.  The hotels and the theme park should be positive EBITDA contributors this quarter, albeit at lower margins than the gaming operations as they are still ramping. 


We believe our Q2 estimates are above Street consensus.  Here is how we get to our numbers.


Modeling Assumptions:

  • Non-gaming revenues of S$97MM
    • Hotel
      • Average of 1,000 rooms operating at a rate of S$250 and occupancy of 70%
      • Assume that all 1,300 rooms are open by 4Q2010
    • Universal Studios
      • Spend per visitor of S$100 and 8k average daily visitors
      • Breakeven visitation of 6k/ day
      • Assume that by 4Q2010, daily average visitation increases to 12,000
  • Net gaming revenue of S$557MM
    • Slot revenue:  S$128MM
      • 1,200 slots and electronic table gaming positions at an average win per day of S$1,170
      • Assuming a 8% win rate, slot handle in 1Q2010 was S$871MM which we believe will increase to ~S$1,600 in 2Q2010
    • VIP Gross revenue of S$350MM
      • Rebate rate of 1.2% & net VIP win of S$209MM
      • Assume 3% hold, which implies that the first 46 days produced RC volume of S$6.35BN 
      • We assume that RC volume in 2Q2010 grows to S$11.6BN
      • Increased # of tables to 115 from 100 in 1Q2010
    • Mass table revenue of S$220MM
      • Assuming a 22% hold rate, 1Q2010 drop was roughly S$535MM and we assume that 2Q2010 drop will be about S$1BN
      • Increased number of operating tables to 235 from 200 in 1Q2010

Sitting Tight

“The market does not beat them.  They beat themselves because, though they have brains, they cannot sit tight.”

-Jesse Livermore


Waiting and watching for my SP500 level of 1076 last week wasn’t easy. Shorting Slowly into a bear market bounce never is, but I made 6 moves into Friday afternoon’s low-volume strength: 5 short sales (including shorting the SPY) and 1 sale on the long side (Baxter - BAX).


Five and ten years ago, I wouldn’t have been able to sit tight. I would have started shorting the SP500 on Wednesday and averaged up the entire way. The best way to learn how to manage risk is by doing it with live ammo.


There are 3 ways that I generally look at a market: Bullish, Bearish, or Not Enough of one or the other. Last week’s price action in the US reminded me that institutional investors are not yet Bearish Enough. Plenty of bulls still have the same catalyst – “earnings”. They are going to be “great”, allegedly…


Despite the SP500 rallying to where it should have, we have to give credit where credit is due. The bulls just realized their first 4-day rally since early April. From the YTD closing low established on July 2nd at 1022, the SP500 went up +5.4% in a straight line.


That’s bullish on a 4-day basis, but that doesn’t mean that anything has changed from a risk management perspective when you look out past 3 weeks toward our 3 core investment durations (TRADE, TREND, and TAIL). As of Friday’s close, here are my refreshed lines of resistance for the SP500:


1.       TRADE = 1078

2.       TREND = 1144

3.       TAIL = 1094


So the way I look at my risk in being short the SP500 is that a closing price greater than 1078 will continue to put pressure on me to sit tight and wait for the more influential line of resistance up at 1094. If the SP500 cannot close above 1078 and the bulls are forced to sell into week 1 of their “earnings” catalyst, the step downs in the SP500 are real. First line of support is down at 1048, then there is no support until 1005 (-6.7% downside from here).


We’re just past the half way mark of this 2010 game and I see no reason why I wouldn’t sit tight here. With the SP500 down -11.5% from its April 23rd high and down -3.4% YTD, the better benefit of the doubt remains in the bear camp. The question I ask myself every morning isn’t whether I should be bullish, but whether or not I am Bearish Enough?


This morning’s run of global macro news reminds me of three things:


1.       Sovereign Debt issues are here to stay

2.       American Austerity is on the way

3.       Global growth is going to continue to slow


On the sovereign debt side:


1.       Japan’s latest Prime Minister, Naoto Kan, has already lost the Upper House. Apparently the Japanese don’t like tax hikes and austerity.

2.       Spain’s stock market is less impressed with the country’s definition of a “stress test” than it is their World Cup win, trading down this morning.

3.       Russia is looking to start selling Eurobonds!


In terms of American Austerity:


1.       The US Dollar closed down for the 5th consecutive week last week and is starting to look a lot like the Euro did in December of 2009. Ominous.

2.       US Bond yields on the short end of the curve remain at record lows, reminding us that reflation by devaluing a currency isn’t economic growth.

3.       Washington Post story by Dan Balz today: “Co-chairmen of President Obama's debt and deficit commission offered an ominous assessment of the nation's fiscal future here Sunday, calling current budgetary trends a cancer "that will destroy the country from within" unless checked…”


Finally, from a global growth perspective, the intermediate term TREND lines on our Bear Market Macro model continue to hold above current prices:


1.       China’s Shanghai Composite Index TREND line of resistance = 2798

2.       WTIC Oil’s intermediate term TREND line of resistance = $78.71/barrel

3.       Dr. Copper’s intermediate term TREND line of resistance = $3.21/lb


From India to China this morning you are seeing more of the same – both year-over-year prices and growth continue to slow. India’s industrial production growth for the month of May slid to +11.5% versus +16.5% in April. At the same time, China’s white hot real estate market continued to cool for the 2nd straight month. Property prices have now dropped to +11.4% y/y (June) versus the April peak of +12.8% y/y price growth.


There is plenty of fresh data in this interconnected global macro world to absorb. There is also plenty of time for the bears to keep Sitting Tight.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Sitting Tight - bmark


Last week ended on a positive tone with the S&P up 5.4%, rising every day last week.  The week’s strong performance left six sectors positive on TRADE and one that is positive on TREND in the Hedgeye Quant models.  All nine sectors closed higher on Friday and for the week. 


Until Friday nearly all the MACRO data points pointed to clear slowing in the economy.  May Wholesale Inventories rose 0.5% vs. consensus 0.4%; April’s number was revised to 0.2% from 0.4%.  Whether the rise is ultimately attributed to increased confidence or decreased end demand will be told in future quarters.


Last week also benefited from optimism for a strong earnings season from early reporting companies this week.  The first to report will be Alcoa then joined by GOOG, JPM, and GE; giving investors a preview of what's to come from a broad range of sectors.  All four of these stocks are down on average 20% over the past three months.


On Friday, for the third day in a row, treasuries were weaker with the dampened risk aversion in the markets and the VIX declined 2.8% yesterday. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (23.73) and Sell Trade (29.36).


The U.S. Dollar Index traded in a tight range on Friday and closed down 0.6% for the week.  The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (82.93) and Sell Trade (84.60).


 The EURO declined slightly on Friday, but closed up 0.6% for the week.  The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.22) and Sell Trade (1.28).


The three best performing sectors on Friday were those leveraged to a stronger economy - Materials (XLB +2.4%), Financials (XLF +1.4%) and Industrials (XLI +1.0%). 


The XLB benefited from the optimism surrounding Alcoa's upcoming earnings report, and also rising commodity prices; copper and gold traded up over 1% on the day.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.95) and Sell Trade (3.10).


The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,184) and Sell Trade (1,227). 


Despite the strength in commodity prices Energy (XLE) was the worst performing sector on Friday.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (74.81) and Sell Trade (78.71).  


Ahead of some key earnings announcements this week the Financials (XLF) was the second best performing sector on the day.  The move in the XLF was driven by the BKX which was up 2.4%; regionals led the way higher on general optimism for the economic recovery and the beta shift up.


As we look at today’s set up for the S&P 500, the range is 42 points or 2.8% (1,048) downside and 1.1% (1,090) upside.   Equity futures are trading below fair value, as we are face with a very quiet MACRO calendar. 


Howard Penney













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New Earnings Could Provide Some Hope for U.S. Economy

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%