Not surprisingly, SJM reports strong results.



“Our strong balance sheet provides a solid platform for the group to pursue its strategy of growing our mass market and VIP businesses. In addition to our flagship casinos Grand Lisboa and Lisboa, the restructured third party-promoted casinos are contributing nicely to the revenue and earnings of the group and our newest casino Oceanus is ramping up to meet our expectations.  We expect that the year 2010 will be a rewarding one."


--Ambrose So, CEO of SJM Holdings



  • SJM grew faster than market in 2Q
  • Oceanus performing close to expectations
  • Will expand Portuguese school site, which SJM is pursuing


  • Grand Lisboa results--2Q driven by volume, not hold.
  • Satellite casinos margin decrease QoQ
    • Lower margin because of better volume from VIP business, which has lower margin
  • Provision for losses attributable to junket is the lowest in the industry
  • Oceanus walkway has support from government authorities  
  • Grand Lisboa 32 tables--migration from other properties, not new tables
  • Mr. Fok appointment-- contribution to cultural and non-gaming activities
  • Interim dividend: more cautious.... Full-year 2010 dividend will continue 50% payout policy
  • Capex YTD: $305 MM; $500MM-600MM for 2nd half of 2010, used for Oceanus, Grand Lisboa, and Ponte 16; for 2011, less than 2010 until movement on Cotai
  • Cotai: negotiating one of the plots with adjacent owner; hopefully, will be settled by 1Q 2011. No land premium has been paid, still waiting for land grant from Government.
  • Expecting some pressure on labor costs with new products coming online on Cotai
    • Some promotions and then backfill those positions; may see up to 10% rise in labor costs
    • Will have a retention plan in 4Q 2010
    • For 2Q 2010, 8.1% YoY increase in labor costs
  • 3rd party casinos
    • VIP business least susceptible to downturn
    • 3-5% revenue share contracts--3-4 year contracts
    • If in a downturn, they will close down tables and give them to SJM, which it can use for expansion purposes
  • Dr. Ho is recovering well

AD: More Alpha

An experimental ad.



AD: More Alpha - Screen shot 2010 08 27 at 4.34.52 PM



The Week Ahead

The Economic Data calendar for the week of the 30th of August through the 3rd of September 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

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Bear Market Macro: SP500 Levels, Refreshed

It’s been a great week for the proactively prepared. This week’s action in the SP500 reminds us that managing risk works both ways.


While the SP500 remains broken across all 3 of our investment durations (TRADE, TREND, and TAIL) it’s also proving to have some predictability in terms of how it behaves on the downside.


In my Early Look note this week titled “Focus On Risk”, this is how we laid out Risk/Reward:


“Risk/Reward: For the sake of this illustration I’ll use the SP500 (SPY) short position – moving to a 3 standard deviation level of downside support I was coming up with 1040 (the 2.5 standard deviation level = 1053), and in terms of immediate term TRADE upside I was registering 1077 on a 2 standard deviation move.”


Now that partly explained why I covered some short positions on the drawdown to 1040 (the intra-day and intra-week low for the SP500 was 1041). The next risk management question is obviously where do we put our short position in the SPY back on? My answer as of 3PM EST is 1067. That’s our refreshed level of immediate term TRADE resistance. A close above that puts 1092 in play, in short order. A close below that, puts 1035 in play on the downside.




Keith R. McCullough
Chief Executive Officer


Bear Market Macro: SP500 Levels, Refreshed  - S P

No Confidence, but we have “Preconditions”

No matter where you turn, the evidence of an economic slowdown is here.  The recent figures are showing slowdowns in housing, business investment and consumer spending!


Despite these facts, Ben Bernanke is in a room full of “Fiat Fools” in Wyoming today saying that “preconditions” for growth in 2011 are “in place.”  A quick turn to Google and you can see that a precondition is defined as a “condition that must exist or be established before something can occur or be considered; a prerequisite.”  In computer programming, a precondition is a condition or predicate that must always be true just prior to the execution of some section of code. 


What condition is present that gives the Fed chairman the ability to use the word precondition? What can he or President Obama do to reignite growth in the USA?  Call the Chinese? 


Over the past 18 months, government spending programs have not create any new demand; they only shifted the time at which American consumers were going to make purchases they were going to make anyway.  And today’s consumer confidence print from the University of Michigan is proof of that.       


The University of Michigan final index of consumer sentiment came in at 68.9 from 67.8 in July, which was the lowest reading since November 2009.  What is even more interesting is that the FED chairman made the statement of “preconditions” knowing that 2Q GDP was going to slow by 50% quarter-over-quarter.  


All that government spending accomplished was to not let the market forces run their course and added uncertainty into the economy, which is making it harder for businesses to plan their next move (i.e. not hiring additional employees).  The leveraging of our balance sheet did not create new wealth for consumers; it diverted capital and resources from other places. 


Given the facts as we see them today, we see the preconditions in place for a significant slowdown in consumer spending in 4Q10.


Howard Penney


No Confidence, but we have “Preconditions”   - hpchart

EARLY LOOK: Panza Policy

This note was originally published at 8am this morning, August 27, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK in real-time, published by 8am every trading day.



“Never stand begging for what you have the power to earn.”
-Miguel de Cervantes Saavedra


EARLY LOOK: Panza Policy - Don Quiote



This is an important quote from one of Western literature’s most important authors. Cervantes wrote Don Quixote in two volumes (in 1605 and 1615) and to this day it is regarded as one of the greatest fictional works of all time.
Wikipedia summarizes the Cervantes central characters well: “Don Quixote is noble-minded, an enthusiastic admirer of everything good and great, yet having all these fine qualities accidentally blended with a relative kind of madness. He is paired with a character of opposite qualities, Sancho Panza <> , a man of low self-esteem, who is a compound of grossness and simplicity.”
As we prepare to hear the proclamations of Fiat Faith from our central planners in Jackson Hole, Wyoming this morning, we must realize that the developing story of Sancho America is far from fiction. Consumer and small business confidence in this country is abysmally low and the causes of the slowdown in US economic growth are being grossly misrepresented by both the US government and its dogmatic economic advisors.
The “grossness and simplicity” of it all is now being compounded by the world YouTubing us for who our professional politicians have become. When the most compromised and conflicted of all central planners in the world (Japan) launches into public attacks on Americans being “simple” and “single-celled organisms”, folks we have a problem.
Those are Ichiro Ozawa’s quotes. He is challenging the current Japanese Bureaucrat in Chief, Naoto Kan, to an election in Japan on September 14th. The battle lines have already been drawn. This economic disaster of a Japanese quantitative easing experiment provides for a proactively predictable political debate.
Never mind whether his challenger’s platform is calling America a modern day Sancho Panza, there is only one question that matters here. It’s the same question that the Fiat Republic of Japan has been asking of its countless PM’s since Paul Krugman talked the Bank of Japan into “PRINTING LOTS OF MONEY” in 1997. After only 2 months on the job will the current PM of Japan lose his job to an antagonistic charge that he isn’t doing more of what hasn’t worked?
Want hasn’t worked in Japan is government “stimulus spending” that is financed with borrowed money (government debt). This week, the Japanese sold 1.1 TRILLION Yen in 20-year debt in order to ostensibly give Naoto Kan that last heroin shot he needs to give his citizenry another enema before the election.
All the while back in America we have our own Panza Policy that will be pandered to, big time, in Jackson Hole as the czars of ‘government is good’ throw down the gauntlet of their long-standing, fear-mongering, marketing message to the American people.
This morning, Paul Krugman has already accused the US government of “sugar coating” the messaging about the recovery. This must me some sad and sadistic attempt to make sure that the fear-mongering messaging that leaves America effectively begging Bernanke for free moneys remains Washington consensus.
Never mind empowering American independence and confidence. Out with the grind and grit that makes the great leaders on this country’s fields of battle earn the world’s respect. Bring in the government  - it’s the elixir you need – debt financed spending will give us all “the power to earn.”
I wish I was coloring Krugman unfairly – I really do. Sadly, the alternative to believing this man doesn’t have an impact on how Bernanke thinks is also fiction. In the flesh, here are the 2 comments that were most alarming to me in his New York Times editorial this morning:
1.      “This isn’t a recovery, in any sense that matters… and policy makers should be doing everything they can to change that fact.”

2.       “We’ve already seen the consequences of playing it safe, and waiting for recovery to happen all by itself… It has landed us in what looks increasingly like a permanent state of stagnation and high unemployment.”

Alarming, yes. And being blunt about the economy being a mess isn’t what alarms me. It’s A) the misrepresented cause of the mess and B) the dogmatic solution to this mess that makes us trust government so little.
If Americans think that the answer to this Failed Fiat Experiment is empowering government to compound their Japanese spending and quantitative easing mistakes, this is not the United States of America that we used to be.
Put on our cowboy hats in Jackson Hole and pretend you are patriots. Begging for Bernanke and stimulus will have no power in earning this simple man in New Haven, Connecticut’s respect.
My immediate term support and resistance levels for the SP500 are now 1038 and 1070, respectively. I continue to register lower-lows of support and lower-highs of resistance on both the US Dollar and the US stock market. Stocks are down -14% since April and down -33% since 2007. These markets don’t lie folks, politicians do.
Have a great weekend and best of luck out there today,

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.