Looking at the table below, it is clear that there has been a high level of covering in the restaurant space.


I would call out the following moves as noteworthy in our table:

  • Short covering is driving CMG and CAKE higher over recent weeks
  • MCD and YUM have low short interest but the level is slowly building
  • DRI, EAT, and BOBE have seen short interest grow over the past two months of reported data
  • DIN’s short interest has declined markedly following their debt refinancing and strong 3Q performance

SHORT INTEREST UPDATE - restaurant short interest


Howard Penney

Managing Director

R3: M, LVMH, JCP, Armani


November 26, 2010






  • Macy’s confirmed a partnership with Karl Lagerfeld is in fact underway.  Surprisingly, the collaboration is not the only one in the works.   The store’s “Impulse” designer concept to be launched in September 2011, is also likely to include diffusion lines by Vivienne Westwood, Paul Smith, Calvin Klein, Costume National, and Versace.  Certainly sounds like Macy’s is taking a page out of H&M’s playbook.
  • Add luggage, overnight bags, and totes to the growing luxury offering from shoemaker Jimmy Choo.  The product extensions are expected to hit the market in February 2011, just in time to continue building the case for an IPO.
  • According to ComScore, early holiday spending is up 13% y/y for the first 21 days of November.  77% of consumers say that free-shipping is a key factor in their decision to purchase online, while 41% of online retail offers actually include free shipping.



LVMH Buys Additional Stake in Societe Samaritaine - LVMH Moët Hennessy Louis Vuitton said on Thursday it has bought an additional 40.1 percent stake in Société Samaritaine from the Fondation Cognacq-Jay, giving it almost full ownership of the company, which owns the La Samaritaine complex. Financial details of the transaction were not disclosed. LVMH now owns almost 100 percent of Société Samaritaine, though a spokeswoman declined to disclose its exact stake. The French luxury group earlier this week said chief financial officer Jean-Jacques Guiony would take over as president of La Samaritaine as the landmark Paris department store gears up for its transformation into a complex combining stores, offices, housing and a hotel. The project is slated to be completed in 2013. The Fondation Cognacq-Jaÿ was created in 1916 by Ernest Cognacq and Louise Jaÿ, the original founders of La Samaritaine, and focuses on social projects. <WWD>

Hedgeye Retail’s Take: Add this trophy property to the list of “non-core” assets within the LVMH empire.  We wonder if some day this property becomes a mecca for LVMH loving consumers.


Armani Online in China - Giorgio Armani SpA is launching an Emporio Armani online store in China, becoming the first western fashion brand to open an official e-store in the country, according to those involved in the project. The site,, is powered by Italian online retailer Yoox. Giorgio Armani said that the growing importance of the Chinese online market prompted him to launch the site, which is being unveiled today. The company “identified a significant group of fashion consumers who will certainly appreciate this new approach to shopping, one that becomes more popular every day," the designer said. In addition to Emporio collections for men and for women, the store will also carry the EA7 sports line, a selection of the Armani Jeans collections, accessories, watches, eyewear and jewelry. The site will be entirely adapted to the market in terms of language and customer care, size conversions, payment systems and currency. There will also be specifically branded bags and packaging. "Our relationship with Emporio Armani has grown since 2007 when we launched their online flagship store in the U.S., followed in 2008 by EU and Japan in 2009,” said Federico Marchetti, chairman and founder of Yoox. “This exciting new chapter in China is the result of our two teams working in tandem for almost a year to be the first to enter the world's biggest e-commerce market." <WWD>

Hedgeye Retail’s Take: Interesting, lower cost way to enter the Chinese market.  Online sales should help gage geographic and product demand so long as the website remains accessible to the general population.  Recall that Chinese internet access is not without its limits.


JCP's Deluge of Deals - More than 40,000 deals will be available on on Cyber Monday. In addition, the retailer will offer free shipping on online purchases of $25 and more beginning today [Nov. 24] through Nov. 30. Cyber Monday savings is expected on men’s, women’s, teens’ and kids’ apparel, as well as home décor and video games. “As one of the largest apparel and home furnishing sites on the Internet, offers a vast assortment of merchandise including styles, sizes and colors not available in stores,” says Tom Nealon, group executive vice president for JCPenney. “We know customers are increasingly shopping online, which is why we’re confident that will be the shopping destination this Cyber Monday as customers discover our exciting promotions and great merchandise selection along with convenient features that make their online shopping experience easier than ever.” <WWD>

Hedgeye Retail’s Take: The volume of JCP’s deals are at such a level that customer presentation is now among the key elements to executing the company’s pricing strategy – after all, what good is a deal if you don’t see it.


South Korean Consumer Still Buying - On Thursday afternoon, less than 48 hours after hundreds of North Korean shells rained down on South Korea’s Yeonpyeong Island, department stores here were bustling with shoppers searching for winter clothes. Lines formed outside Louis Vuitton boutiques. Other luxury stores were not necessarily packed, but definitely crowded. According to a saleswoman in a Prada boutique located in a Shinsegae Department Store in eastern Seoul, aside from initial shock, surprise and nervousness immediately after Tuesday’s attacks, it has otherwise been business as usual: “Some people went to grocery stores to buy extra noodles,” she said. “Otherwise everything is normal.” That’s likely to reassure fashion and luxury goods companies, who have been touting the potential of the fast-growing Korean market and its style-conscious citizens in recent years. Meanwhile Seoul is emerging as one of Asia’s most vibrant capitals with a lively fashion and arts scene. Last year, Prada’s much-hyped Transformer structure, created in collaboration with Rem Koolhaas, elevated Seoul’s profile even more. Korea weathered the financial crisis surprisingly unscathed with luxury sales rising nearly 17 percent in department stores in 2008 and 2009, according to a 2010 McKinsey South Korea Luxury Goods Survey. Korea’s $4 billion luxury market accounts for four percent of global sales, the report said. <WWD>

Hedgeye Retail’s Take: Sadly business as usual in the face of a military offensive is the reality for Korean consumers. Keep in mind that similar to other regional currency arbs, Korea continues to be a key shopping market for the Chinese that consist of a material portion of retail sales in Korea.


Pakistan Leather Exports Continue to Grow - Pakistan's leather exports in October were up by 27.6% compared to the same month in 2009, according to the Federal Bureau of Statistics. During the month of October, the country exported finished leather, leathergoods and leather footwear worth $33.2 million, $46.3 million and $7.8 million respectively. Pakistan's leather sector exports for the first four months of current financial year (July-October 2010) rose by 20.1% to $353.4 million compared to the same period last year. <FashionNetAsia>

Hedgeye Retail’s Take: Pakistan’s leather export growth continues to coincide with China’s heightened regulations regarding highly polluting tanneries – expect this trend to continue in the intermediate-term.


TODAY’S S&P 500 SET-UP - November 26, 2010

As we look at today’s set up for the S&P 500, the range is 36 points or -2.12% downside to 1173 and 0.89% upside to 1209.  The Asia Pacific heads for biggest loss in two weeks, as North Korea’s state news agency warns its confrontation with South Korea could lead to war.  In addition, there are increased concern China will tighten monetary policy. European markets are down more than 1% amid continuing concern about region’s dent crisis. U.S. stock index futures are sharply lower.

  • Bank of America (BAC): Apax Partners agreed to buy Advantage Sales & Marketing from private equity firm J.W. Childs and Bank of America. A person familiar with the transaction said earlier it was valued at $1.8b
  • Del Monte (DLM): KKR-led buyout group agreed to buy Del Monte for $4b or $19-shr in cash
  • Genzyme (GENZ) has drawn up a list of possible defensive measures against Sanofi-Aventis takeover, has made no decision on whether to use them, CEO Henri Termeer told French daily Le Figaro
  • Simon Property (SPG) approaches Capital Shopping Centres saying it might seek to buy CSC LN for more than NAV, which was 368p-shr on June 30; may spark auction, Nomura says
  • Suntech Power (STP) aims to increase shipments of solar panels next year by ~30% to meet demand from markets including Europe, CEO Shi Zhengrong said


  • One day: Dow +1.37%, S&P +1.49%, Nasdaq +1.93%, Russell +2.31%
  • Year-to-date: Dow +12.07%, S&P +7.47%, Nasdaq +12.07%, Russell +17.77%


  • ADVANCE/DECLINE LINE: 1986 (+3683)  
  • VOLUME: NYSE - 823.48 (-19.60%)
  • VIX: 19.56 -5.19% - YTD PERFORMANCE: (-9.78%)
  • SPX PUT/CALL RATIO: 2.00 from 1.99 +0.44%  


  • TED SPREAD: 14.53 0.352 (+2.479%)
  • 3-MONTH T-BILL YIELD: 0.16% +0.01%
  • YIELD CURVE: 2.40 from 2.32


  • CRB: 302.34 +1.56%
  • Oil: 83.86 +3.21% - NEUTRAL
  • COPPER: 376.65 +1.50% - BEARISH
  • GOLD:  1,375.43 +0.12% - BEARISH


  • EURO: 1.3375 +0.03% - NEUTRAL
  • DOLLAR: 79.730 -0.17%  - BULLISH




  • DAX: (1.14%); CAC 40: (1.63%) FTSE: (1.70%)
  • European markets fell from the open as worries over the EuroZone debt crisis intensified and tensions in Korea continued to mount. All peripheral asset classes were pressured and the Euro is burning, despite denials on several rumors over future potential bailouts.
  • Bond spreads expanded to Euro lifetime highs and CDS's continued to rise.
  • All sectors trade lower with the Spanish market leading equity declines down over (2%).
  • Ireland was pressured by Irish Times article saying that the EU/IMF were pushing to make bondholders share the burden of the bailout package. Sources say a deal is very likely to be announced on Sunday.
  • Portuguese parliament is due to approve the austerity package today. Portugal's government denies news report on bailout and EU Commission says not aware of any talks over EU aid
  • Spain says not pressuring Portugal to seek for a financial rescue
  • Hungary, shares fell over (3.5%) on budget worries, pension reform and peripheral sentiment
  • France Oct Consumer Spending (0.7%) m/m vs consensus 0.0% 



  • Nikkei (0.4%); Hang Seng (0.8%); Shanghai Composite (0.9%)
  • Most Asian markets fell today.
  • Australia ended barely higher, as rising resource stocks fought with falling Telstra and banking shares. Sentiment was aided when the Governor of the Reserve Bank of Australia said it was unlikely that policy would be tightened over the next few months.
  • Lacking a lead from Wall Street, Japan stayed flat for most of the day before edging down on weakness in the brokerage and property sectors.
  • Chinese banks dragged Hong Kong to a loss. But Li & Fung outperformed the market and remained flat on indications that consumer spending is rising in the US.
  • China was weak as monetary tightening is starting to push up borrowing rates. Investors stayed away from banks, choosing small caps like fertilizer producer Ju Hua Corp, which jumped 7%.
  • The steel sector fell when the Dalian Commodity Exchange said it would raise margins and trading limits to deter speculators.
  • South Korea fell on worries about European debt and tensions on the Korean peninsula. 

Howard Penney
Manging Director

THE DAILY OUTLOOK - levels and trends













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The Stream and The Rock

“In the confrontation between the stream and the rock, the stream always wins.”



Global equity markets are a riskier place than they were 48 hours ago. The North Koreans are calling this an “escalated confrontation.” The Europeans are calling this post Thanksgiving trading day a mess.


Since the Fiat Fools in Europe introduced their 750 BILLION Euro rescue plan in May, the confrontation between the Fiats and those of us who loathe leverage has been crystal clear. Some people call this debate political. Some people think it’s ideological. I think it’s a marked-to-marked battle between The Stream and The Rock.


If Piling Sovereign Debt-Upon-Debt is the stream and Big Keynesian Government Intervention is the rock, we think those levered to the liability side of this trade are going to eventually get wiped out.


Spain’s Prime Minister of a leverage-fest gone global, Jose Luis Zapatero, begs to differ with the Thunder Bay Bear on this matter. This morning, as Spanish 10-year sovereign yields (5.24%) hit a record wide spread versus German bund yields (+258 basis points), this is what Mr. Zapatero has to say:


“I should warn those investors who are short-selling Spain that they are going to be wrong and will go against their own interests”


Gee, thanks for the warning.


Markets, as we like to say at Hedgeye, don’t lie; politicians do. So let’s look at our expert network called Mr. Macro Market for the score:

  1. Spain – stocks on the Spanish IBEX Index are down another -2.1% this morning, taking their cumulative losses since October 22nd to down -13.0%. For the YTD, Spain is down -20.4%.
  2. Italy – stocks on the Italian MIB Index are down another -1.9% this morning, taking their cumulative losses since October 21st to down -9.4%. For the YTD, Italy is down -15.8%.
  3. Greece – stocks on the Greek Athex Index are down another -1.3% this morning, taking their cumulative losses since October 25th to down -13.1%. For the YTD, Greece is down -35.2%.

Pundits may be quick to point out that I didn’t use Ireland’s unequivocal disaster to make my point. I don’t need it. The big boy talk that’s going on with the Euro in the market today (the Euro is breaking my intermediate term TREND line of support of 1.33) has a lot more to do with the big nuts of European sovereign debt (Spain and Italy) coming down the stream than the rock that is another compromised Irish politician.


I say this every other morning on the Hedgeye Morning Macro Call to our clients, but I think it’s worth repeating in print today – I think Italy and Spain will be the biggest sovereign debt concerns in the world for the next 3-6 months.


In terms of 2011 share of Eurozone gross investment debt for 2011, Italy, Spain, and Greece represent the Top 3:

  1. Italy = 23%
  2. Spain = 9%
  3. Greece = 4%

Nope, that Italian number isn’t a typo. Neither is the fact that Italy has the highest labor costs in the Eurozone by a country mile (second place on that score goes to Mr. Zapatero’s Spain).


Next to Japan, Italy is also the oldest country in the world today. These people are old, levered, and expensive. If you were looking for a company to invest in, I don’t think this place would be your rock.


Sure, there are plenty of issues sacking markets from Portugal to Hungary this morning as well (Hungary’s stock market is down -3.5% this morning and its Fiat Currency, the Forint, is down a full -1.2%, after the government issued an ultimatum to it’s citizenry to move their pension savings to the state’s accounts!), but The Stream of sovereign debt that’s piling up in Italy, Spain, and Greece override all of that.


Interestingly, ECB hawk Axel Weber said in Berlin this morning that, while he considers it “inconceivable”, if they needed to re-finance the entire wad (Greece, Ireland, Portugal, and Spain), they’d need 1.07 TRILLION of EU bailout moneys.


Nope, Weber leaving Italy’s mother-load of liabilities out of this calculation isn’t a typo either. And, from Capua to California, no matter where conflicted and compromised charlatans of government leverage go this morning, there it is – The Stream.


My immediate term TRADE lines of support and resistance for the SP500 are now 1173 and 1209, respectively. I re-shorted the SP500 (SPY) into Wednesday’s extremely low-volume rally.


Best of luck out there today and enjoy the rest of Thanksgiving with your loved ones,



Keith R. McCullough
Chief Executive Officer


The Stream and The Rock - capua


The Macau Metro Monitor, November 26th, 2010


Secretary Tam announced that to help local SMEs, the government has set a two-month deadline for 2011 for the approval of imported labour requests.  There will be no changes to its current imported labour policy.  Tam reiterated that the import of workers will only be approved after the local human resources are being “used properly”.  As of September 2010, some 4,100 skilled workers have obtained residency in Macau


Changi airport handled 3.58 million passengers in October 2010.  October's 7.9% YoY increase is the slowest growth this year.



Macau authorities found 21 illegal workers during a raid on the Galaxy Macau construction site.


Tang Nai Soon, a Malaysian lawmaker, said in the state assembly that he wants S'pore casinos to stop offering free trips to Malaysians and to discourage them from gambling across the Johor-Singapore Causeway.  He thinks an entrance fee should be levied on Malaysians and a limit should be imposed on the number of trips. 

Thinking Quant

This note was originally published at 8am this morning, November 24, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I think a model works if it’s a useful way of thinking about things.”

-Emanuel Derman


Some of the “quants” make money. Some of them blow up. Thinking Quant is probably the most important shift I’ve made in my young investment career. I’ll always give Alec Litowitz at Magnetar credit for that. He helped me bridge the traditional long/short equity stock picking approach of the Dawson-Samberg era with some serious math.


That doesn’t make me a “quant.” However it ensures that I don’t confuse qualitative “channel checking” on Coach handbags with a repeatable risk management process. It makes me aware of quantitative facts that are occurring in this globally interconnected game of chaos theory. Awareness is important.


Emanuel Derman’s quantitative thought process was introduced to me in a book that I’ve cited in recent months called “Lecturing Birds On Flying” (by Pablo Triana). Goldman alums should be quick to ask me if I’m kidding – you don’t know Derman? (Derman ran Quantitative Strategies at GS from 1990 to 2000).


Nope, I didn’t know who Derman was and I’m thinking some of you don’t know who Gunner is either. That’s the most beautiful part of life – waking up every day knowing what you don’t know.


What some of the perma-bulls didn’t know about this globally interconnected marketplace is that there was an extremely high level of what we people who are sometimes Thinking Quant call Correlation Risk to the immediate-term price movements in the US Dollar Index.


Since we bought the US Dollar (UUP) on November 4th, you can see what asset prices from Chinese stocks to commodities like Copper have done. If you didn’t know they had extremely high immediate-term inverse-correlations to a Buck that stopped Burning, now you know…


With the US Dollar up for the 4th consecutive week, it’s realized a mean-reversion move to the upside of +5%. Since we like to consider risk on a Duration Agnostic basis, here are the two levels that currently matter most for the US Dollar Index in my macro model:

  1. Immediate-term TRADE support = $77.31
  2. Intermediate-term TREND resistance = $79.71

After globally interconnected risk to an UP Dollar has been revealed, THE questions on reactive risk managers’ minds this morning is trivial. They’ll be hyper focused on the risk that’s occurred in the rear-view mirror. Can we see a Buck Breakout above the TREND line? And if we do, should we sell everything that’s been inversely correlated to the US Dollar for the last 3 weeks?


Fortunately, this is where both the myopic modeling quants run into the same problems as the channel checkers who saw none of this coming to begin with. I say fortunately because making what we call “the turn” on big macro moves is where the big bowls full of alpha start barking.


RULE #1 about immediate term Correlation Risk: it’s never perpetual!


What this means is that you effectively have to have risk management systems that refresh real-time or you run the risk of getting run-over. When Correlation Risk reverses, the Chuck Prince music stops, and the macro moves turn quickly.


The best way to illustrate this investment point this morning is to refresh the THEN and NOW looks I gave you in my “Stepping On Cocaine” Early Look note from November 16th where I outlined the immediate-term inverse correlations vs. October 16th:


THEN (immediate-term TRADE correlations to USD on October 16th):

  1. SP500 = -0.80
  2. CRB Commodities Index = -0.88
  3. Brazil’s Bovespa Index = -0.92
  4. Oil = -0.91
  5. Gold = -0.96
  6. Copper = -0.95

NOW (immediate term TRADE correlations to USD this morning):

  1. SP500 = -0.58
  2. CRB Commodities Index = -0.51
  3. Brazil’s Bovespa Index = -0.91
  4. Oil = -0.56
  5. Gold = -0.37
  6. Copper -0.38

In other words, for the immediate-term DOLLAR UP TRADE, the easy risk management money has been made and now these immediate-term correlations are starting to burn off.


Thinking Theoretically, this makes a lot of sense to me. Using 8 centuries of data, there has never been a wealthy and prosperous country that has sustained living off of plundering their citizenry’s savings via a debauchery of their currency. Strong currency is good. In Thinking Quant, I see a US Dollar that’s starting to look strong like bull.


My immediate term TRADE lines of support and resistance for the SP500 are 1171 and 1193, respectively. I currently have a ZERO percent allocation to US Equities and a 6 % allocation to German Equities (which, incidentally, now have a POSITIVE correlation to the USD of +0.29).


Best of luck out there today and Happy American Thanksgiving,



Keith R. McCullough
Chief Executive Officer


Thinking Quant - quant