Don’t be surprised to find out that there won’t be a 6 month visa restriction enacted for Macau visitors. The Macau Special Administration Region (SAR) government announced an agreement to provide significant aid to the government of the earthquake stricken Sichuan province. Beijing is a bit of a black box, but I don’t think the Central Government was very pleased with Macau’s lagging contribution to the rebuilding effort. With the Macau government now on board it will be interesting to see if the concessionaires make any “voluntary” contributions to the effort. I’m sure they can find it in their hearts.

Macau shorts: be a touch wary. I still think the trend is down but status quo on the visa restrictions would send these stocks on a nice little squeeze ride.


Our friends at First Rain highlighted a Nevada poll showing 60% of Nevada voters approve a 3% tax increase to 13% of room revenues. The room tax issue will be on the ballot in a non-binding referendum. The referendum will likely apply pressure to legislators to actually enact a tax hike. This is consistent with our populism theme. As state budgets continue to deteriorate, look for legislators to attempt to hit up their favorite punching bags: the casinos; for the children, of course. Nevada, Illinois, and New Jersey remain in rough shape fiscally.

As can be seen in the chart, the impact to the Nevada gaming companies looks manageable. However, with 40,000 hotel rooms in the state, MGM would be hit the hardest, reducing 2009 EPS by about 7%.

MGM would be the hardest hit

MGM: Dubai bailout? Not today...

Suffice to say, the day trading community has had some fun whipping around in MGM the last few days. Up +20% on Friday, then down -9% today. Its a good thing my partner, Todd Jordan, has the edge here. Today's breakdown was a material one. This stock is a short to $26.20.
  • MGM closing below $30.99 is very bearish.
(chart courtesy of

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MCD – Mapping the Response

Earlier this morning, I posted the results to the question I posed to MCD franchisees regarding their current level of contentment (relative to past periods) as it relates to how they feel Oak Brook is handling the issues facing franchisees today (please refer to my ‘The Question’ posting for more details). To recount, “1” is 100% contentment and “10” is wanting out as fast as you can.

When you match up that franchisee sentiment with MCD’s stock price, it becomes apparent that increased levels of franchisee anxiety does not bode well for the overall MCD system and its stock price. For reference, the late 1990’s to 2002 was one of the worst periods for McDonald’s franchisees and not surprisingly, MCD’s stock. This number has now crept up to 5.2 (above the 3.7 average)…Stay tuned!
MCD’s Stock Price Relative to Franchisee Sentiment

Marking US Homes To Market

This morning's existing home sales release for the month of July was better than toxic. Toxic was the June report of 4.85M homes. July came in a touch better at 5.0M.

Prices are finally coming down (down -7% year over year), and this is starting to stimulate some tepid demand. I still think prices have to come in another -14% in order to alleviate this untenable inventory position of unsold homes. On the inventory front, month’s supply is still extremely elevated at 11.2 months.

If you are long a US home and looking to sell it, marking it to market rather than to model is my advice.


Requiem for the levered longs: swap rate spread to treasury vs. the S&P 500

This is a very interesting chart when you consider it in the context of cost of capital for the levered long "Activists" out there in the US market place; particularly those who rely heavily on “buying stock on swap”.

As the leverage cycle rolls over alongside the economic cycle, access to capital will continue to tighten. This will lead to some mega blowups in the land of levered long hedge funds.

Keep your eyes on this developing "Trend”.

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