• run with the bulls

    get your first month

    of hedgeye free



The Macau Metro Monitor, September 22nd 2010



CEO So believes he will receive a response from the Government regarding its two plots on Cotai by the end of 2010.  “We hope to have a larger space for development... SJM has the least exposure in Cotai so we’ve expressed that if there is other land available [Sands China parcels 7 and 8] we’ll be interested in it,” So said.  “I think any organizations or concessionaires can express their interest and there is nothing wrong with it,” So added.  Meanwhile, So denied there are any plans to cooperate with Macao Studio City or any of the other five gaming operators to jointly develop the Cotai Strip.


So also said 4Q GGR will not grow as much as in the first nine months of this year. “For the whole year of 2010, I expect there will be an increase of around 40%,” So said.  In addition, he urged the Government to give a clearer idea about the allocation of imported labour quotas so that the gaming operators can prepare their human resources development plan accordingly.  So also suggested pegging the Pataca with the Yuan  to ease inflation pressures.



The US consul general for Macau and Hong Kong, Stephen Young, says he is optimistic that these policy changes will not damage the interests of US companies operating in Macau.  “I’ve been assured by the chief executive and others that the necessary workers that these guys [US-based casino companies operating in Macau] need to do their jobs to both build and run casinos will be available, and it’s an ongoing dialogue that they and I and the government of Macau continue to pursue,” he said.


Mr Young said he has already met CEO Chui and representatives from LVS, WYNN, and MGM.  He added he would meet with Sands' new management team today.



Total visitor arrivals rose by 14.2% YoY to 2,357,689 in August.  Visitors from Mainland China increased by 20.3% YoY to 1,263,442 (53.6% of total visitor arrivals), with 590,271 traveling to Macao under the Individual Visit Scheme, up by 18.2% from August 2009.



The number of passengers passing though Changi Airport in August rose 9.6% to 3.47 million.

Fed Says, "No Inflation" - Today's Headlines On Bloomberg

This note was originally published September 21, 2010 at 16:03 in Macro

Bernanke didn't see inflation with $147 oil back in 2008. So of course he doesn't see it now. Pull up a chart of gold, agricultural commodities, or base metals if you want the truth.


Today's Bloomberg headlines:


  • Gold Futures Surge to Record as Dollar Tumbles on Fed's Policy Statement
  • Cotton Rises, Extends Rally to 15-Year High as China Increases Purchases
  • Orange-Juice Futures Advance to Three-Year High on Florida Storm Concerns
  • Lumber Futures Jump Exchange Limit as U.S. Housing Gain May Revive Demand
  • Copper Declines as Uneven U.S. Recovery Tempers Gain in Asia Metals Demand
  • Sugar Drops on Reduced Concern About Supplies From Brazil; Coffee Climbs
  • Uranium Prices at 10-Month High Attract Hedge Funds, Investors, UxC Says
  • Rusal Sees Aluminum Rising to $2,400 to $2,500 Next Year on Chinese Demand
  • Oil Declines for Fifth Time in Six Days on Bets U.S. Refinery Output Fell
  • Wheat Declines on Bets Prices Climbed Too High Relative to Corn Futures
  • Hog Futures Rise on Signs of Shrinking U.S. Meatpacker Supply; Cattle Gain


Howard Penney

Managing Director


Fed Says, "No Inflation" - Today's Headlines On Bloomberg - 3


Fed Says, "No Inflation" - Today's Headlines On Bloomberg - 1


Here are more notes from the WMS Analyst Day, including Q&A and the panel discussions.



Ultra Hit Progressive:

  • On average, a 31% coin in premium compared to other games without the progressive
  • 2nd - 4th portals performed even better. 2nd one is Winner's share: collects coins- lands on platform and may be 1x-4x the win. 3rd is metascreen (first theme is pirate battle- combo of community + competitive gaming). All of the portals can be mixed and matched with other games. 4th family is mega multiplier - allows player to win an amount and apply it to the pinball - which they can shoot during any point of their game for up to a 100x multiplier.

5th Adaptive gaming:

  • Aimed at active online gaming (bejeweled etc).  My Charm is the first game that will have this online element.
  • Their service window (player user window) is called "freedom port window", which is internet based. Opening the door to operators to put whatever content they want on the user window. They are developing portal applications for the window. Offer dragon world - accruing non-monetary points that you can use to customize your dragon avatar. They already have web widgets offered through Harrah's site. Allows casinos to see not only the activity at their casino but also across all properties where that person gambles.

Game Edge: 

  • Account based wagering - covers non-gaming patrons as well to the operator.
  • Will have custom lighting at each machine to celebrate different events. Diamond hunt is one of the first user window applications (side wager).
  • Games that are ready for sale or will be shortly.
    • Have 4 more episodes coming to Lord of the Rings shortly in the next installments
    • Attack on Mars: player can choose their perspective
    • Monopoly big money spin: if one of the games triggers a big event, then everyone on that bank gets a multiplier. Has the touch screen dice.
    • GodFather - (LAP) when the progressive triggers - you can take the offer or risk it for a bigger progressive. When you max bet and hit a trigger, you automatically go to the progressive. If not max bet, then it's not automatic.  (Industry first)
    • Price is Right mechanical with new base game, sensory chair and transmissive reel, and community gaming
    • All of their mechanicals use transmissive reels
    • New line of traditional looking 3 reel spinners with the character overlay
    • G+5+4 ( 5 reels with 4 lines)
    • BBxD: hybrid slant top/with the profile of an upright.  Duel screen that's networked gaming - can put reel or video on it. Have emotive lighting -where the lighting is integrated into the software (meaning colors change with wins).

Long term strategic focus and long term financial growth:

  • Use networked gaming as a differentiator and opportunity to build relationships with operators and players
  • Want to pull forward some of their R&D efforts
  • Convergence of online gambling, casino, and social gaming
  • Goal is to be the leading NA supplier
  • Guidance for FY2011 isn't based on any recovery of the replacement cycle
  • Have a weekly forecast meeting: bc they have that data real time they can react to that quickly.
  • Receivables: Mexico - most of the deals were class 2 operating lease deals. They decided to sell the games and take a receivable instead as the market was changing from class II to class III. Also the termination of the Oklahoma deal with MGAM also caused receivables to grow and finally Florida Seminoles are likely to use floor financing. At least WMS is growing its revenue as receivables grow compared to their competitors.
  • $50mm incremental spend: on transition to BB2 from BB1 (participation); Italy (lease market); accelerating development.
  • Repurchased $31mm of stock through Sept 20th at $37.60
  • Proforma peer comparisons: WMS has the 2nd highest gross margin after BYI (due to the systems business); WMS leads the pack in R&D spend as a % of revenue. Had the lowest decline in units sold (only 5.5% vs over 20% for everyone else); highest revenue per day (but it's not exactly comparable)
  • Reiterated guidance for FY11: assume higher 12 month ship share in NA, further penetration into Australia/New south Wales, Mexico, Class 2/centrally determined; entry into MD, IL, KS, and Italy; recognize revenues from portal apps and wage net
  • Longer term growth opps: do expect further gaming expansion, improvement in the replacement market, growing ship share and participation business
  • Believe that they can do a 12-15% (low/mid) CAGR on revenues through 2015
  • 55% near term gross margin goal and 25% intermediate term annual operating margin
  • Schweinfurth exercised 62,500 options that were due to expire in 60 days and that he's had for 10 years.

New Revenues Opportunities and Growth potential:

  • Want to lead the charge in the networked gaming space
  • Gaming portal applications:  allows operator to mix and match games in a unique way to maximize their returns. Ulta Hit Progressive first 2 themes (piggy banking/jackpot party) recently launched.  Ultra Hit is their most basic product of the portal applications out of the 5 they have. All of their titles produced over the last year are already compatible with portal apps. Look to launch a new family of portal applications each quarter.
  • Online gaming: allows operators to market with their content online (like Lord of the Rings); allows players to play casual games online even before the product is launched.  Drives cross play between casino gaming and casual play. Players Life Winstream shows players winning on these games across the globe. If casino gaming gets legalized, they can just flip a switch.
  • Lord of the Rings has had 50% more accounts created in its life compared to Star Trek over a comparable period
  • Players Life is also an app on iPhone
  • Jackpot Party Casino is launching in the UK soon. This entire site is a platform. Will have a progressive that all players can participate in.  Will use their branded products on the site like Star Trek and Wizard of Oz (recreated for the online space).
  • CPU-NXT (processor in the box) launched 7 yrs ago. First platform with ethernet--CPU-NXT 2 was launched 4 yrs ago.
  • This year, they will launch CPU-NXT 3 (will have 10x more power than v.2) new 3D audio platform. 2D + 3D graphics. Graphics are really cool on this platform.
  • 25 games with Players Life will be at the show, plus 9 CPU NXT games and 38 portal games


  • How are they measuring the ROI on their R&D without an acceleration of the replacement cycle?
    • Seeing little bits of positive news right now - they are negotiating a big deal now (biggest one that they've done)
  • IL isn't really in their guidance for FY11 (very small)
  • For 2011-2012, they will be at the same level of R&D as a % of revenues but over the longer term it will decrease to low teens.
  • What are the easy parts of their guidance to achieve?
    • ASP
    • Margins (xD and participations)
    • Replacement cycle is the biggest question mark
  • What drives the higher win per days?
    • More WAP mix
    • Lord of the Rings doing well
    • Players Life
  • Resistance to rising ASPs?
    • Cost of xD is a lot more than than BB2
    • Volume is also important - 80% of the cost is variable - 20% is mostly fixed.
  • Will likely lose some money on the online gaming piece. Will make money on the networked gaming. Online gaming is strategic for them.


Focusing on growth through developing new products, entering new markets, and looking for new channels of distribution


Panel discussion: Mark Pace: Networked Gaming Engineering; Jeff Allen: networked gaming tech; Richard Schwartz: Pres of Online Gaming; Allon Englman: Game Strategy + Design


Networked Gaming:

  • Successfully completed field trials and beta tests with remote config and download at 5 sites : Barona, Bellagio, Canada Inns, Island Views, Mohegan Sun
  • Ultra-Hit Progressive at 3 sites is showing a 30+% lift in coin in: Mohegan (28 games), Turtle Creek (32 games), Chances (14)
  • Pricing Model for Ultra - hit: reasonable daily fee and are contemplating a one-time fee model
  • Game Edge - "system integration" Wage-Net account based wagering
    • Has the ability to manage live data. Allows players to use their card as an ATM throughout the entire facility.
  • Are not burdened by legacy systems that their competitors have. Came into the systems business with cutting edge technology.
  • Freedom port is interoperable. They don't care about the window - just about being able to deploy their portal apps across different manufacturers games
  • Players Life: evolution of adaptive gaming - where players create an account that allows them to progress through the game. Want to create opportunities that transcend the casino. It launched at the end of June. Allows players to see what's happening globally on each title.  Players life doesn't have direct revenues today but should enhance play at the game.  Has been a hard sell initially because of data share info- but they are making traction as operators look to differentiate casino experience.  Utilization trends? Star Trek - 1.2mm accounts, have 2x as many Players Life in just 3 months. More than 10% of people that create online accounts go the casino. Haven't spent lot of money marketing it.
  • Online Gaming: also have 60 card games in addition to 20 slot games
    • Every game has a preview video - like a movie preview.  Quality is similar to casino experience.  Players have leader boards and post their wins on Facebook.  WMS's advantage is the unique content.
  • Online gaming becoming legal in the US? thinks that it will but timing is very uncertain.
  • UK - so far the revenue opportunity is modest - but if it works in the UK, they can take it globally.
  • Game development is like a fashion business now. Lead the way in making "gambling" entertainment and therefore drawing in more casual gamers and new players. Star Trek/Lord of the Rings - gives them huge information into players' preferences for bonuses and such.
  • Hasbro partnership - will introduce Battleship + Clue + Aladdin
  • Pioneering player preferences and research- leads to high success rate of new games
  • Pick brands that go along with their concept so once they developed episodic gaming they moved to those brands
  • Decided to build their own brand so that they have the ability to innovate. They aren't ruling out B2B though.

Sales Panel and Questions to Executive Management Team:

  • Lord of the Rings is doing really well as is Ruby Slippers
  • Entering Class II is all about partnering, allowing them to maximize their bottom Line
  • Mohegan portal applications was put in a b-/c+ location to see if customers seek it out
  • Not every customer in Latin America can pay current ASPs on slots - hence the lower priced Helios platform. Now, they can target Columbia which has 80k slots
  • Lots of their customers have better balance sheets (Harrah's, Stations, Herbst) and it's easier to have conversations now than 12 months ago
  • Any deals with credit terms of over 90 days go to the credit committee review and they also make sure that they have adequate returns
  • Operators get less discounts and pay interest
  • Portal applications have a daily fee type model which is totally separate from games which they need to purchase. Customer needs to purchase the server rack from Dell for 15k or so. Fee contracts are monthly.
  • Over the next 24 months, see 30% from Latin America, 30% from Europe, 20% from Australia and Asia, and 20% coming from Italy.
  • Doesn't see any change in the footprint of participation on casino floors - they've been growing by gaining share, although some operators have increased the percentage of floors on participation because they have no capital
  • Thoughts on industry consolidation? Should happen but who knows if it will. They have been successful in building vs buying market share. More likely to accelerate investment into some of their new businesses.
  • Competitive environment is very challenging now but they are doing the best they can.  All they can do is put themselves in the best competitive position for when things turn.
  • Goal is to have 9 beta sites with portal apps by Oct 2010
  • Thoughts on Konami? Making some really good products.  They pay the most attention to them in terms of product. Thinks that IGT product has also gotten better in their content.
  • How far away are they from walking into a 3,000-4,000 unit casino and getting 30% share?  Well, if they had poker that would make a huge difference.  Often times, it's 15% of the floor. Thinks that portals will help them a lot given all the permutations.
  • Their current market share on existing market is 13-14%. They're getting between 20 to high 20s share in almost all markets.  They won't be happy with 30% share 2 years from now. They are working hard on a poker product.

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Fed Says, "No Inflation" - Today's Headlines On Bloomberg

Bernanke didn't see inflation with $150 oil back in 2008. So of course he doesn't see it now. Pull up a chart of gold, agricultural commodities, or base metals if you want the truth.


Today's Bloomberg headlines:


  • Gold Futures Surge to Record as Dollar Tumbles on Fed's Policy Statement
  • Cotton Rises, Extends Rally to 15-Year High as China Increases Purchases
  • Orange-Juice Futures Advance to Three-Year High on Florida Storm Concerns
  • Lumber Futures Jump Exchange Limit as U.S. Housing Gain May Revive Demand
  • Copper Declines as Uneven U.S. Recovery Tempers Gain in Asia Metals Demand
  • Sugar Drops on Reduced Concern About Supplies From Brazil; Coffee Climbs
  • Uranium Prices at 10-Month High Attract Hedge Funds, Investors, UxC Says
  • Rusal Sees Aluminum Rising to $2,400 to $2,500 Next Year on Chinese Demand
  • Oil Declines for Fifth Time in Six Days on Bets U.S. Refinery Output Fell
  • Wheat Declines on Bets Prices Climbed Too High Relative to Corn Futures
  • Hog Futures Rise on Signs of Shrinking U.S. Meatpacker Supply; Cattle Gain


Howard Penney
Managing Director
Fed Says, "No Inflation" - Today's Headlines On Bloomberg - 3
Fed Says, "No Inflation" - Today's Headlines On Bloomberg - 1

EARLY LOOK: Walk The Line


“Because your mine, I walk the line.”

-Johnny Cash


EARLY LOOK: Walk The Line - chart2





Since we introduced it at the beginning of July as our intermediate term TREND line of bearish resistance for Q3, it’s no secret that the 1144 line on the SP500 has been our line. Now that the SP500 has rallied sharply (+9.8%) from what we called immediate term TRADE support (1040), it’s time for me to walk the line.


Will I be bullish? Will I be bearish? Or will I be neither? I don’t have to make a call; I make calls when the probability in my math tells me to. I already made my selling moves yesterday and I will be accountable to them.



EARLY LOOK: Walk The Line - cash



It’s NFL season. This is a great time of year in America because it allows us to remind ourselves how real winners in this country behave. Professional athletes and their coaches like making calls too – unlike professional politicians of the Fiat Republic, they thrive on accountability.


Before the Monday Night Football game between the San Francisco 49ers and the New Orleans Saints, 49er head coach, Mike Singletary, made the call that “we will not try to stop Drew Brees – we will stop Drew Brees.”


After the game Brees said, “we won the game and that’s all that counts.”


Ultimately, this business is a lot like professional sports in that being right or wrong is really all that counts. This isn’t a charity. This isn’t a philanthropic venture. This is meat and potatoes bids versus asks. Take your position, and walk the line.


No matter where I go this morning, here I am. Here are the moves I made yesterday:


1.  09/20/2010 02:45 PM SHORTING XLY $33.34

We covered this short position on August 24th and now we'll put it back on as we are bearish on US Consumer Spending for the intermediate term TREND, from this price. Timing matters.



2.  09/20/2010 10:42 AM SELLING CAF $28.24

Chinese stocks have closed down for 4 consecutive days and have broken their immediate term TRADE line. Could Chinese growth slow in SEP vs AUG?



3.  09/20/2010 10:34 AM SELLING GLD $125.22

I said I was going to do it in this morning's Early Look, so I'm doing it - booking a gain here in gold as it is immediate term TRADE overbought.



4.  09/20/2010 10:28 AM COVERING HCBK $12.14

US Housing data this week won't be as much of a bomb (relative to expectations) as the AUG24th report was. We'll cover here and re-short later.



5.  09/20/2010 10:22 AM SELLING ASPS $27.48

Steiner remains bullish on ASPS for the intermediate term TREND, but it is finally overbought here from an immediate term TRADE perspective. Selling high.



6.  09/20/2010 10:16 AM SHORTING HOT $53.23

Jordan and I remain bearish on the market's intermediate term expectations for revpar growth. Shorting green.



In summary, one of the first takeaways you’ll have from these 6 position changes is how mixed the research reasoning is. That, Dear Fundamentalist Sir, is the hallmark of both chaos theory and how you apply it to a modern day risk management model. Managing risk has nothing to do with the certainty of your “valuation model” or your latest super-duper “one-on-one” with a company. It has everything to do with accepting uncertainty.


When I make a call, I immediately start trying to prove myself wrong. Each position in the Hedgeye Portfolio has to undergo a disciplined and repeatable line of examination every morning, afternoon, and night. If you want to have a position playing on my team, your research is mine.


Sounds hard core, because it is. We’re not here to sell our clients some broken Greek bond promise, CNBC advertising, or an investment banking fee. We’re here to win – and the best way to ensure that is to keep moving as the game does.


My immediate term and intermediate term lines of resistance (TRADE and TREND) are the same line this morning, 1144. It’s time to walk the line.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer



This note was originally published at 8am this morning, September 21, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK and PORTFOLIO IDEAS in real-time.

The EU’s Guiding Hand

Hedgeye Portfolio: Long Germany (EWG); Long British Pound (FXB); bullish on EUR-USD


We thought we’d flash you a couple charts of Portugal, one country alongside Greece that is failing to meet its debt and deficit reduction targets for 2010, with Portugal’s Finance Minister saying today that it’s likely its budget gap will equal 9% of GDP by year-end, well above its target of 7.3%.


Our call on European debt and deficits threats remains one that is duration sensitive.  We think that for the near term TRADE and intermediate term TREND there’s plenty of downside for Europe’s fiscally weaker countries, especially those “affectionately” labeled the PIIGS. We highlight the risk trade with Portugal in the charts below:  (1.) yields on the 10YR Portuguese bond are rising above those last seen at the height of concern over Europe’s sovereign crisis, which culminated in the issuance of a €750 Billion rescue package on May 9th; and (2.) CDS is breaking out to the upside to a critical inflection line of 400bps, a line we initially discuss in late ’09 and 1H10 in regards to risk parameters for Greek default.  Certainly, Portugal is now flirting with this line. 


We’re also quick to point out that Greece’s default scare and the associated shock to the Euro put enough fear into the European community that we’d expect the EU to remain a backstop to support the Union at all costs should sovereign default fears rear its ugly head again. Recent data also helps to substantiate that a moderate floor could be in place, as Norway’s sovereign wealth fund (the 2nd largest in the world) decided to buy an undisclosed amount of Greek, Spanish, Italian and Portuguese debt a week ago, a bet that the EU will continue to feed its children the bottle during any time of need.


Again, we expect the inability of countries to cut deficit and debt levels to present further downward pressure on markets, however not to the extent that Greece did.  Therefore, we’re “surprisingly” bullish on the EUR-USD, given where we were 3-6 months ago, and outright bullish on the Pound-USD. Our bullish intermediate term TREND lines for the Euro and Pound are  $1.26 and $1.52, respectively.


Matthew Hedrick



The EU’s Guiding Hand - mh1


The EU’s Guiding Hand - mh2

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 80.37%
  • SHORT SIGNALS 78.32%