The Macau Metro Monitor, July 26th, 2010



According to HVS Madrid, Adelson plans to invest more than €8 billion in a mixed-use tourism development in Spain.  He has begun talks with Spanish authorities over possible locations in Madrid or Barcelona.


LVS's President and COO, Michael Leven, said that the new executive vice president and chief casino officer, along with the new president and chief operating officer of Sands China will arrive on August 10.  Leven has been named Sands's acting CEO and currently serves as a special adviser to the Sands China Board of Directors.  According to MDT, Stephen Weaver, who will serve as an adviser to Leven, does not seem interested in the CEO position.



Owning to signs of Singapore's inflation accelerating, the IMF believes the Singapore dollar appears “somewhat weaker” than its medium-term equilibrium level.  “The return to a modest and gradual appreciation of the Singapore dollar in nominal effective terms is consistent with internal and external stability,” the IMF said. “Directors pointed out that changes in the outlook for growth or inflation warrant vigilance and could call for a further recalibration of monetary policy in the period ahead.”  On April 14, the Monetary Authority of Singapore (MAS) allowed a revaluation and shifted to a stance of gradual appreciation.


Singapore's monetary policy is conducted via the local currency, which is traded against a basket of currencies of its major trading partners within an undisclosed band known as the nominal effective exchange rate. 

Borrow To Finance

“My job is to make sure we can borrow to finance.”

-Timothy Geithner, July 25, 2010


That’s what US Treasury Secretary Timmy Geithner told Meet The Press host David Gregory yesterday. Timmy has already told us that he “isn’t an economist.” He’s not a mathematician or risk manager either. He’s simply a professional politician who is doing his job.


In another article by Bloomberg’s Daniel Kruger this morning titled “Deficits Don’t Matter as Geithner Growth Gets Lowest Yield”, Timmy expanded upon his aforementioned job description explaining that “if you look at financial markets, say, look at how much the Treasury is paying to borrow today, there is a lot of confidence, not just of Americans but investors around the world, that we’re going to find the political way to do it… there’s no alternative for us.”


There may not be an alternative to marking-US-interest-rates-to-model, yet… but the days of seeing American politicians borrow from their citizenry’s long term future in order to finance their short term political agendas are numbered. Borrowing short to lever yourself up long of debt doesn’t work.


Geithner must not realize that his financial outlook and fiscal policies contradict one another. If US economic growth were to, as he said yesterday, “gradually strengthen for the next year or so”, what in God’s good name are US bond yields doing at all time lows?


This is already getting priced into political polling expectations, but Timmy and the Administration of Groupthink Inc. will meet their maker come the fall (unless they change the reporting date, Q3 US GDP is going to be reported 4 days before the mid-term elections and we think that US GDP growth will slow sequentially). I think global risk managers already get that, but do they get how this game of US currency and interest rate manipulation ends?


Without reviewing his entire book this morning, one way to start answering the question of how this gigantic game of over-leveraged countries playing a Fiat Fool version of Monopoly ends is reading Richard Duncan’s, “The Dollar Crisis.”


Originally published out of Asia in 2003, Duncan’s International Bestseller has recently been revised and updated, but it gets a real-time update that is marked-to-market by the US Dollar, deficit, and debt balances every day. The upshot of Duncan’s answer is that this game will not end well.


Lets score these 3 D’s (Dollar, Deficit, and Debt) as of this morning’s levels:

  1. DOLLAR: US Dollar Index was down for the 7th consecutive week last week, closing out the week at $82.46, down -7% since June.
  2. DEFICIT: In their mid-year review, the OMB revised its 2011 budget deficit HIGHER on Friday to $1.42 TRILLION (versus $1.27 TRILLION prior).
  3. DEBT: US Debt (which now shows US State Debt/GDP ratios) continues to tick higher by the second ($13,240,034,568,703 and counting).

By any long term historical measure, this global experiment of having a Washington Squirrel Hunter make sure he can “borrow to finance” a Fiat Republic is new – so just keep that in mind when you consider the great US financial empire of treasury debt “safe”…


This, of course, is not safe (if you want the real-time wakeup call on this, pull up that site while you read this note – it’s very distracting - and it should be). Ever since Nixon undermined Bretton Woods and abandoned the gold standard in 1971, the US government has given itself the global entitlement to print moneys in order to finance unfunded liabilities.


Before 1971, as Duncan succinctly explains, “the crucial difference between the reserve assets then and now is that gold could not be created by a government or by any other entity to finance a balance of payments deficit.”


On Friday, we’ll get the BEA’s overstated estimate of Q2 US GDP. As a reminder, our Q3 Macro Theme of American Austerity continues to forecast that A) the denominator (US GDP) will slow in Q3 and B) the numerators for both the 2011 deficit and debt to GDP ratios will continue to worsen as a result.


My immediate term support and resistance levels for the SP500 are now 1085 and 1112, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Borrow To Finance - debt




As we look at today’s set up for the S&P 500, the range is 27 points or 1.6% (1,085) downside and 0.8% (1,112) upside.  The equity futures are trading mixed ahead of the housing data point and little earnings news. 




Hedgeye 2Q10 Theme “Housing Headwinds” - An important data point is out today with  consensus estimates showing sales of new U.S. homes up 3.7% to an 311,000 annual pace last month. The report is due at 10 a.m.


Other economic events today:

  • Chicago Fed Nat Activity Index 
  • Dallas Fed Manufacturing Activity
  • U.S. to sell $30b each in 3-mo., 6-mo. bills
  • Crop progress

With oil up 8.6% over the last three weeks, the average price of regular gasoline at U.S. filling stations rose to $2.73 a gallon.    


Over the weekend Treasury Secretary Timothy F. Geithner said U.S. companies scarred by the financial crisis remain “very cautious” and are trying to get more productivity from current employees before hiring new ones. Job growth is “not as fast as we need.”


India’s central bank is likely to raise interest rates for the fourth time since March after a strike to protest rising prices brought much of the nation to a halt this month.


Pound is finally overbought at 1.54 and the Euro at 1.30; In the Hedgeye virtual portfolio we are still short the USD and long the FXB, but will call overbought as it is.


In early trading today, Europe having a tough time deciding what to do today now that the stress test "news" isn’t news; FTSE flat and remains broken TREND.


Overnight China closes up for the 6th consecutive day and is now trading above Hedgeye's immediate term TRADE line of 2484 (Shanghai COMP).




Of the 149 S&P 500 companies that have reported so far, 124 beat consensus estimates on earnings, while 103 beat on revenues. The 81% beat ratio on the bottom line was down slightly from the 86% last week, while the 69% revenue beat ratio also fell from the 75% seen during the first week of earnings season.   This week's beat ratio on both the earnings and revenue lines remained well-above the long-term average and near the high end of the historical range.


So far this earnings season, the largely positive takeaways from earnings seem to have taken a backseat to some of the pushback surrounding a double-dip scenario as the big directional driver for the market.


Earnings were a headwind for Healthcare (XLV), which was the worst performing sector last week and the only sector in the Hedgeye models not to positive on TRADE. 


Industrials outperformed most sectors on strong earnings reports. Aerospace and defense one of the stronger spaces. The notable outperformers were HON up 2.0% on a beat and raise and GE rose 3.3% after the company announced a 20% dividend increases. 


Howard Penney

Managing Director


US STRATEGY - EARNINGS ERODING - levels and trends













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 80.45%
  • SHORT SIGNALS 78.38%


AC has seen 33% of its slots exit the market over the last 5 yrs including 2k or 7% since the end of 2009; yet, overall slots in the Northeast have grown.



The number of slot machines in Atlantic City has fallen from 42k to 28k in only 5 years.  That’s a 33% decline including a 7% decline just since December.  Atlantic City is a market long under pressure from slots in Delaware, New York, and Pennsylvania, and expansion in CT.  While this is probably a smart strategy to improve productivity in a declining market and save on taxes since New Jersey levies an annual $500 per slot license fee, fewer slots is not a positive trend for the equipment suppliers. 


While everyone tries to figure out whether the “new” replacement cycle is 7, 10, or 12 years, what if the slot base starts declining?  We guess that’s the potential partial offset to the new market thesis.  However, as the following analysis of the Northeastern market shows, new markets are the more powerful theme.  Despite the huge drop off in AC slots, non-AC slots in the northeast outnumbered AC beginning in Q4 2006.  Since then, AC lost 8k more slots through Q2 2010 while the other states gained 25k.




Our point is that the US slot market is a growth market, as it is internationally.  To be sure, mature markets tend to lose slots over time due to rationalization and more importantly, the opening of new and competing markets.  However, the US is not slot saturated.  New markets have always brought incremental slots.  Replacements ebb and flow but they remain.  Despite the Great Atlantic City Depression, per our conversations with the operators, casinos there are still replacing roughly 8% of their floors annually.


With the state budgets in serious decline, more and more states will legalize or expand gaming.  This may not be good for existing operators, but as the Northeastern market shows, it should be a big net positive for the slot suppliers.

The Week Ahead

The Economic Data calendar for the week of the 26th of July through the 30th 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

Bear Market Macro: SP500 Levels, Refreshed...

It’s kind of getting fun to watch this market trade between its TRADE (1085) and TREND lines (1144). Fun enough to be sitting here at 3PM on a Friday afternoon in July. Provided that 1144 remains overhead, I’ll call the US stock market a bear with refreshed immediate term TRADE resistance at 1109.


It was also fun watching American and European professional politicians make things up all week. I wrote two Early Look notes this week with one name in common, Fiat – the Fiat Guns and the Fiat Republic – but it’s really all one and the same. There is a very serious group of conflicted and compromised politicians in the Western world who genuinely believe that government is the answer to economic problems.


Next week’s big catalyst on the American Austerity front will be the National Commission on Fiscal Responsibility and Reform meeting in DC on Wednesday. Don’t forget that Clinton’s ex-Chief of Staff, Erskin Bowles, has already served up the opening volley on the deficit spending front by calling America’s debt and deficit balances “a cancer that can destroy the country from within.”


It’s the weekend – at least our long positions are safe until Monday.


Have a great weekend with your families,



Keith R. McCullough
Chief Executive Officer


Bear Market Macro: SP500 Levels, Refreshed...  - S P

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