As we look at today’s set up for the S&P 500, the range is 44 points or 2.3% (1,059) downside and 1.8% (1,103) upside.  Equity futures are trading above fair value, as technology stocks in Europe are among the leading performers, buoyed by strong results from Apple (AAPL).


The Recovery/Reflation trade drove the market higher yesterday as Materials (XLB), Energy (XLE) and Industrials (XLI) were the three best performing sectors yesterday.  The RECOVERY trade benefited from a  three-week high in China shares on speculation surrounding a relaxation of tightening measures aimed at the residential property market. In addition, Spain, Ireland and Greece held relatively successful bond auctions yesterday.


China closed up another 0.26% this morning.  Also helping to confirm the move in the RECOVERY trade yesterday, copper rose 1.6% - the most in three weeks.     


Following yesterday’s move in the S&P 500, the Materials (XLB) and Energy (XLE) are now positive on TRADE, bringing the total to five of nine - the other three Utilities (XLU), Consumer Staples (XLP), and Technology (XLK).  Utilities (XLU) remains the only sector positive on TREND.


The only sector to decline yesterday was Healthcare (XLV).  The weakness largely attributed to JNJ which declined 1.7%.  JNJ missed on the top-line for Q2 and lowered its 2010 EPS guidance by a larger-than-expected $0.15 to reflect the impact of the OTC recall and manufacturing suspension and FX headwinds.


Fed Chairman Ben S. Bernanke will give his semiannual report on monetary policy to the Senate

Banking Committee today and will testify at the House Financial Services Committee tomorrow. 


Treasuries were unchanged to a tad firmer yesterday despite the recovery in stocks. The dollar index traded up 0.1% and the VIX declined 7.9%. 


The Investors Intelligence poll sees bullish sentiment increases to 35.6% from 32.6% in the latest Investor's Intelligence poll. 






Yesterday of the 26 companies that reported 2Q earnings 81% beat the earnings estimates, while 35% of the companies missed revenue expectations.  Those same percentages hold for what we have seen so far in the 2Q earnings season. 
















In preparation for the HOT Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from the company’s Q1 earnings release/call and subsequent conferences



“Despite all the good news and the better-than-expected REVPAR, we still see reasons to consider less sanguine scenarios. To borrow a phrase from Warren Buffett, we should be fearful when others are greedy. We want to avoid the mistake of taking actions born out newfound optimism. After all, the global economy remains volatile. China risks overheating. Greece and the eurozone are grappling with major fiscal and philosophical issues, not to mention the mountain of U.S. government debt. Finally, volcanoes in Iceland, Red Shirts in Thailand and unrest in Mexico remind us that our industry is susceptible to sudden changes from many unforeseen corners.”


YouTUBE from Q1

  • “While we feel good about projecting the current trend into Q2, giving you a definitive view of the back half is quite another matter. The engine of the recovery so far has been late-breaking corporate business, which is hard to see four to six months out. Even for group business, the booking window is unusually short right now. REVPAR comparisons get tougher in the back half, and exchange rates go from being a tailwind to neutral and potentially even a modest headwind.”
  • “Thanks to lower costs at equivalent REVPAR levels, our EBITDA would be at least $100 million higher than before 2009.”
  • “The favorable trends that we experienced in Q1 continued into April and bode well for the balance of the year.”
  • “Leisure and transient demand remained firm, more than offsetting group business that was canceled or not booked in 2009. Importantly, the strongest results came from our urban markets such as New York, London and Paris and in the four and five star categories, all of Starwood's sweet spots. Corporate transient revenue in London and Paris was up 43% in the quarter.”
  • “Group production was improving quickly off a low base. Remember that last year, we had little new bookings and a high cancellation activity. Our gross production, i.e. new bookings, is up 30% for 2010, and importantly, cancellations, block adjustments and wash at arrival are down from record levels last year, and in fact, are now trending below normal levels. This translate into net production, which is projected net revenue for the year and in the year, being up triple digits.”
  •  “Asia was already off to a strong start, up 11% in January. This momentum accelerated as REVPAR grew 16% in the quarter and is up 20% in April.”
  • “The return of corporate travel is of course the primary driver. In Asia as elsewhere, there was significant unanticipated late-breaking corporate business, both transient and group. Occupancies in the quarter were up 10 points, rate was down 3%. The rate trend through the quarter improved, down 10% in January, flattish in March and now up 2% in April.”
  • “Company-operated REVPAR was down 3% in January, flat in February. We then saw a sharp uptick in March, up 9%, which has continued into April. As you have heard from others, the major driver is late-breaking corporate business, both transient and group. The recovery is broad-based across sectors and across geographies.”
  • “In April, we are seeing the first positive ADR change in North America since this downturn” began.”
  • “It is fair to say that Europe did not outperform as much as the U.S. did. In March, European REVPAR was up 5%.”
  • “In Q2, Mexico will lap the huge H1N1 decline in 2009 so growth rates will turn positive. So far in April, Mexico is up 7%. Our five hotels in Chile have been impacted by the earthquake. Business is down significantly and the recovery will be slow.”
  • “In our Vacation Ownership business, conditions continue to stabilize. Price reductions helped both close rates and price realization in several markets.”
  • “Expected margin improvement in Q2 reflects the fact that REVPAR growth is driven primarily by occupancy, which does not flow through at the same level as ADR increases. Also 300 basis points of forex-driven top line growth does not drive margin gains.”
  • “We should point out some other items that impact year-over-year comparisons in Q2: Net asset sales through 2009, Bliss, the W San Francisco, the Fifth Avenue shops and now The Court, Tuscany. These assets contributed approximately $5 million in EBITDA in Q2 last year. Also, in the fees and other income line last year, we recognized other income of $7 million from a non-refundable deposit, which is non-recurring.”
  • Guidance
    • “Our newly revised mid-range scenario shows worldwide company-operated REVPAR to be between plus 5% and 8% in 2010 and REVPAR at our worldwide-owned hotels to be plus 4% to 7%.”
    • “For owned hotels worldwide, we're going from a range of minus 2% to plus 2%, to 4% to 7%. Exchange rates will add another 100 basis points to REVPAR as reported in dollars.”
    • “Full year company EBITDA of $810 million, up from $750 million.”

Post Earnings Conference Commentary

  • “Our most recent expectations on a global basis is a 5 to 8% RevPAR growth.” [reiterated in June] 
  • “As we get into June and July, last year we started to see a recovery, first with leisure travel and then later in the year with business travel, so in fact last year there was a meaningful reduction in the rate of decline in Q3 and Q4.” 
  • “I think what you should watch for is what’s happening to business confidence, consumer confidence and how corporate profit expectations are being adjusted. If you see those being adjusted downwards, then of course there will be an impact on our business.”
  • “So for the rates of growth we’ve seen to sustain themselves, the absolute level of growth would have to improve substantially. So it wouldn’t be surprising for us to see the rate of growth as you compare it to last year to begin to moderate from the level that it’s at right now. That’s still okay because absolute levels of growth still remain high. So our guidance for Q3 and Q4 in effect implied. In Q2 we said we’d have double-digit growth, but if you looked at our guidance in Q3 and Q4, we implied some moderation as you compare to better numbers from last year.”
  • “In terms of the euro itself, I think it’s too early to tell what the overall impact will be. It all depends on what the economic impact is…Our owned hotels have tended to be a very U.S. driven. We should be helped there. But more broadly, I mean we have 200 hotels in Europe, more broadly our hotels are fundamentally business driven and so it will depend on how the European economy does.”           
    • “When it comes to the euro, for the last several years, we’ve hedged about half of our exposure. And I think if you read the queue, the average rate that we hedged that for this year is something like 1.40.”
  • “We’ve been fairly clear I think in some of earnings calls that in fact getting back to investment grade is one of things we intend to do. When will that happen, I don’t know…”
  • Group Booking: “So, 2009, I will put it kindly, a disaster. 2010 has been a good solid rebound, and if what we’re seeing today from a bookings perspective continues, 2011 should be a stronger year.”

Miscellaneous comments

  • “In the U.S., over the last 40 years for which data is available, room demand has grown compounded at 2.6%.”
  • “So we really think of ourselves as a growth business that happens to have cycles along the way, and in fact if you look at the non-U.S. part of the business, we think the case for secular growth there is even more obvious because in most parts of the world the infrastructure that was built in the U.S. and in Europe over the last 50 or 100 years is only now being built.”


In preparation for the PENN Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from the company’s Q1 earnings release/call and subsequent conferences



Q1 Conference Call

  • “The one area the country that we're seeing the most softness is in Southern Mississippi and Southern Louisiana. And it was a year ago in the first quarter in '09, it was one of the stronger markets we had. So we think it's got a bit of a lag effect and we have not seen any material signs of recovery from what's being reported by the state so far. And in addition, the level of promotional activity especially in Southern Mississippi remains -- is probably the one market in the United States or markets in the United States that continues to show the most softness.” 
  • “There's clearly a little bit of little better margins reflected in the rest of the year but also reflecting that as we get a little more cost conscious on our marketing programs some of those -- we're going to have some negative impact on our revenue as we pull out from possible customers... So I think what you're seeing is slightly improved margins for the rest of the year, but I wouldn't say that we meaningfully moved our EBITDA guidance at the end of the day.” 
  • “We're seeing…customers coming but their spend per visit has been down and that's been a trend now for about three or four quarters. So we've gone back in our businesses and looked at on a customer-by-customer basis the profitability we have against these customers given our past marketing practices and in certain segments of our business, certain groups of customers were spending less. We're redefining the terms of what they're going to get in terms of their rewards and incentives, and pulling back to make them more profitable for us to continue the relationship going forward, and it's really just as simple as that. Going in program by program down to the customer level and determining what margins we want to operate these programs against, and then making tough decisions on customers, where they got an offer before they're going to get either a lower offer or no offer going forward. And that's what you saw in the first quarter and that's what we're working on as we continue into the second quarter and the balance of the year.”
  • “Second quarter we're projecting about $1.8 million in cap interest and then $7.1 million for the year.”
  • Q: “And then corporate overhead, it's ran, what $16 million or so in the quarter? Is that a decent run rate?”
    • A:  We're projecting a little higher than that. We're on a normalized run rate looking at probably about $58 million for the year.” 
  • “We're going to certainly have some increased marketing spends in advertising and creating awareness of these two properties that table games is now being offered. For West Virginia, we're expecting sometime in July to get up and running. So probably in June, July and maybe partially in August and then it will start to burn off after that. At Penn National, probably it's going to be later in the third quarter, we're anticipating. So it would probably a third quarter kind of effort to create the awareness that table games is there as well. And then once the awareness is created and we start driving the trial, then you'll see the pullback of those advertising efforts.”
  • “Second quarter, we're projecting project CapEx of roughly $85.7 million and maintenance CapEx of $23.6 million. For the year, these numbers are highly dependent on -- or expect the inclusion of paying $100 million in license fees for Columbus and Toledo. We're looking at project CapEx for the year of roughly $439.8 million, maintenance CapEx is now looking closer to $94 million for a total of $533.8 million.”


Post Earnings Conference Commentary

  • “In terms of visitation we’re flat across most of our properties and it’s been flat for a long time, actually in the gaming industry in general and at our properties specifically. Where we’ve seen the decline obviously is in the spend per visit, that was down pretty significantly in ‘09….I think that sort of portfolio-wide, it’s steady as she goes and I think April and May have been sort of the same as what we’ve seen in the first quarter as well.” 
  • “I think on the Gulf Coast, we’ve seen a little bit of weakness there primarily because of the lagged effect of the hurricanes in 2005, there was obviously a big boom period there in that part of  the country and that’s starting to obviously recede now and so that’s sort of what we’re seeing there. On the other hand, there are some markets that are doing pretty well, primarily due to capital that we put into those properties, I’m thinking primarily of Lawrenceburg and Penn National.” 

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In preparation for the RCL Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from RCL's Q1 earnings release/call and CCL's recent FQ2 release




  • “The economy is clearly still weighing on our performance, and the improvement that we’ve had is off of a dismal base. But we have now reached an inflection point on yield and that’s an important milestone worth noting. We’re certainly not where we want to be, but turning the corner is the first step to real and significant improvement and we have clearly turned that corner.”
  • “On January 28 …We were about a month into the Wave Season and felt confident we would see yields improve between 3 and 6% for the year. Those projections have proven to be fairly accurate, although since our last call the demand environment has continued to gradually improve.”
  • “Sales since the start of the year have been very healthy, with booking volumes running about 20% ahead of the same time last year. We have also seen a modest improvement in the booking window, with European and Alaska itineraries being the biggest beneficiaries. As of today, the second, third and fourth quarters are booked well ahead of the same time last year.”
  • “Pricing is clearly better than last year, but frankly the comparables are pretty low by historical standards, especially in the second and third quarter. We expect all of our major product groups to show yield improvement this year, but we are especially pleased with the performance of our developmental itineraries.”
  • “We currently expect yields to improve around 6% in the second quarter, and between 4 and 5% for the full year…. From a business perspective, we are feeling better today than we were three months ago. However, since we provided guidance at the end of January, the dollar has strengthened about 4.3% versus the British pound and 6.7% versus the euro, and consequently devalued the European point-of-sale business. The travel disruptions resulting from the volcanic ash also had a negative impact on yields. Absent these changes, we would be improving our full year guidance by about 100 basis points based on the improvements we have seen since the middle of the Wave Season.”
  • “I had said last time that Spain has stabilized and it has. And in fact, we are a little bit ahead of budget with respect to Spain. The bad news is that it stabilized at a terrible level and the Spanish economy frankly doesn’t show a lot of signs of improvement yet.”
  • “Most of the first time cruisers we’re introducing our product to are international guests. In fact, our North American guest sourcing has been flat for the past several years.”
  • “We will continue to grow (new ships) but probably at a slower pace than heretofore.”
  • “Based upon our current guidance, many of our credit metrics will show significant improvement this year and we expect to maintain an improving trajectory over the next few years.”
  • “We have traditionally guided the Street for roughly $200 million in non-new build CapEx and for now, we would continue to maintain that guidance as we look to work on our fleet.”




Pricing & Geographic trend commentary:

  • For net ticket yields, we saw a yield increase of 1.6% in local currency. Our North American brands were up 3.8%, driven by increases in Europe, Alaska and other exotic itineraries. Our European brands experienced 1.2% lower local currency ticket yields... Similar to the first quarter, the declines were driven by challenging winter season in the Brazilian market, with significant capacity increases this past winter. If you exclude the five ships that Costa and Ibero had in Brazil in the month of March, the European brands’ net ticket revenue yields in local currency was flat.”
  • For net on-board and other revenue yields, we reported a yield increase of 3.1% in local currency. The increase occurred on both sides of the Atlantic. Our North American brands were up 4.6% and our European brands were up 3.2% in local currency.” 
  • “We expect greater improvements in yields for the remainder of the year.”
  • “On a fleet-wide basis, booking volumes and pricing …in the last 13 weeks or so, covering the next three quarters have held up quite well. Even booking volumes for the last six weeks during a significant downturn in global equity markets have held up well, although we have seen reduced booking volumes for certain itineraries”
  • “For our North American brands on slightly lower year-over-year booking volumes for the last 13 weeks, we have experienced double-digit price increases. Keep in mind our comparisons of this year’s booking volumes are against a 26% increase in booking volumes for the same period as last year, when we were selling at deeply discounted prices to move our inventory.
  • “With respect to bookings by itinerary during the last 13 weeks for North American brands
    • We have seen strong volumes and pricing for Caribbean programs…
    • Alaska...on lower booking volumes has experienced significantly higher year-over-year pricing…
    • Europe itineraries have also experienced lower booking volumes but with significantly higher pricing…
    • We have also seen stronger year-over-year pricing for our Mexican Riviera itineraries”
  • "For our European brands during the last 13 weeks, booking volumes for the next three quarters have been quite strong, with moderate year-over-year local current pricing improvements."
    • "Booking volumes for European itineraries…have been higher and are keeping pace with year-over-year European brand capacity increases. These bookings are showing moderate increases in prices on a local currency basis…”
  • “Beginning in early May, the effect of the volcanic ash issue in the UK and Western Europe did cause nervousness about air travel, particularly for North American consumers taking airline flights across the Atlantic. Compounding this was the European sovereign debt crisis and the resultant negative effect it had on global equity markets… from late April through late May, U.S. equity markets…were down about 12% or so. We believe this caused consumers, especially those in North America, to re-think their discretionary travel decisions. But even with these events, fleet-wide bookings for the last six weeks for our cruises over the next three quarters continue to run ahead of last year on a fleet-wide basis, significantly ahead for Europe… and just slightly behind for North American brands. And prices for bookings for North America and Europe brands continue to be running nicely higher.”

CCL Cost commentary:

  • “Cruise costs per available lower berth day, excluding fuel and in local currency, were down 4.9% versus the prior year. The decline was driven by fewer dry docks, economies of scale relating to double-digit growth at certain of our brands, benefits from cost reduction programs, a low inflationary environment and the timing of certain SG&A expenses.”
  • “Net cruise costs per available lower berth day, excluding fuel for the third quarter, would have been projected to be flat to down 1%.  For the full year, net cruise costs per available lower berth day, excluding fuel and in local currency, are projected to be down 2.5 to 3.5%. The decline is driven by our ongoing cost reductions, the first-quarter gain on the sale of the P&O Cruises’ Artemis and lower dry dock costs.” 

Fiat Guns

“You can get further with a kind word and a gun than you can with just a kind word."

Capone - The Untouchables


Yesterday’s intraday rally in the US stock market was decorated with rumors of Spanish politicians prancing around talking about successful “stress tests” and Ben Bernanke pulling out the “quantitative easing” gun. Thank God for the modern day Triumvirate of Fiat Fools (BOJ, ECB, and the Fed). Without professional politicians deciding our fate, what hope would we western capitalists turned socialist turtles have left?


Hope, of course, is not an investment process; neither is hanging your hat on economies that allegedly only work with financial aid’s heavy hand of Big Keynesian intervention. Fear is the cement that provides the Fiat Triumvirate its political platform - and their podium is shaking.


I couldn’t make this up if I tried, but one of the top headlines from Bloomberg this morning takes the fear mongering by Fiat Fools running global monetary policy to new heights:


“Bank of Italy Says Financial Crisis Fosters Mafia”


As Western governments continue down the political path of scaring the hell out of you, be afraid fellow citizens, be very afraid – the Fiat Guns of quantitative easing and piling Debt Upon Debt Upon Debt will continue to kill both your domestic currencies and employment prospects.


This Italian headline, by the way, didn’t come from Rome’s version of Drudge. The manic media’s guns came out after the Italian Central Bank’s Deputy General Director, Anna Maria Tarantola, made explicit fear mongering statements that would make Julius Caesar’s messengers proud:


“The crisis has given organized crime room to thrive because access to credit has become more difficult… Whoever holds large amounts of cash, like crime groups, can make investments that aren’t possible for others. They can now invest in fully legal businesses.”


Wow. I guess cash really is king. Maybe we should start to take the government’s word for it and up our asset allocation to cash before Michael Corleone sends Timmy after us…


The catalysts for Spaniard and US Federal Reserve rumors were centered around 2 very clear and present dangers:

  1. Ben Bernanke’s semi-annual Revisionist Forecasting Report to the Senate of Modern Day Rome (today).
  2. Results for the made-up European “stress tests” that already have a prescribed (positive) outcome.

If there is one thing that the Fiat Fools have taught modern day risk managers who trade markets, it would be not fighting the Fiat Gun of intervention that they hold so dearly in their heavy government hands.


That’s why 32% of companies in the so called “great earnings” season of the US can miss the revenue line for the Q2 reporting period to-date, and you can see a monster intraday reversal of earnings oriented stock market weakness turn into a melt-up of short covering. As Max (James Woods) said in “Once Upon A Time In America”: “This country’s still growing up. Certain diseases, you’re better off having when you are still young.”


We have no idea what Ben Bernanke is going to say about quantitative easing programs today, but we do understand the basic algebra associated with adding more US debt to the US DEBT/GDP ratio (email if you want to see how we get to triple digit percentage US DEBT/GDP ratios for 2011; slide 11 of our Q3 Macro Themes presentation is in our Hedgeye Picture of The Day).


If he pulls out the Fiat Gun, at least we’ll continue to get paid on the short side of our US Dollar (UUP) position!


Back to the non-rumor mill oriented macroeconomic facts, Japan’s quarterly loan index plummeted in July to minus -17 (lowest since 2004) from minus -10 in the prior period. Japanese stocks closed down for the 6th day out of the last 7, taking the Nikkei to -12% for the YTD.


All the while, the great Japanese “quantitative easing” experiment that has spanned 2 decades reminds me that living in fear on the short side of a conflicted and compromised government balance sheet is no risk management life to live.


As Carlito said in Carlito’s Way, "there is a line you cross, you don't never come back from. Point of no return. Dave crossed it. I'm here with him. That's means I am going along for the ride. The whole ride. All the way to the end of the line, wherever that is."


My immediate term support and resistance lines for the SP500 are now 1059 and 1103, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fiat Guns - mob


The Macau Metro Monitor, July 21st, 2010




According to a SEC filing, LVS has drawn down the first US$750 MN tranche of its US$1.75 BN syndicated loan for its Sites 5 & 6 on Cotai.  Venetian Orient Limited (VOL), an indirect subsidiary of LVS, received the tranche on July 16.  In addition to the first tranche of money, the credit agreement makes available a US$750 million term loan offered on a delayed draw basis until 11/17/2011 and a US$250 million revolving credit facility available until 4/17/2015.


The ten lenders of the syndicated loan include Goldman Sachs Lending Partners LLC, BNP Paribas, Citibank and three Chinese banks– Bank of China, Industrial and Commercial Bank of China, and Oversea-Chinese Banking Corporation.


June CPI increased 2.68% YoY and 0.32% MoM.



Macau registered a budget surplus of MOP 26.6 BN in the first half of 2010, with direct taxes from gaming increasing 63% YoY.  Macau's surplus since 2002 reached more than MOP 122 BN, enough to cover the government’s budget for four years.  Direct taxes from gaming in the first half of 2010 totaled MOP 30 BN, representing 85% of the public finance revenue.


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