McCarran Airport reported a 1.2% decline in passenger traffic.  Here’s how it may have translated into revenues.



November Strip gaming revenues face a relatively difficult comparison as November 2009 grew over 8%.  Last year’s increase was derived on the tables – table volume up almost 20%.  Specifically, similar to much of 2009, Baccarat volume was the standout in November, up 84%.  Hold percentages were close to normal last November so with Airport volume down, our model projects only a small single digit decline in gaming revenues for November 2010.  Of course, our estimate assumes normal hold percentages.


Slot handle should continue to be the Strip laggard.  Following October’s surprising handle growth of 2%, we expect that metric to turn negative once again.  With Vegas still flat lining, it’s hard to get excited about the prospects for anything more than muddling growth next year. 


The following chart shows our projections for the Strip in November:



Taxing Onions

This note was originally published at 8am on December 23, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Inflation is taxation without legislation.”
-Milton Friedman
Ben Bernanke got what he ordered for Christmas - global inflation.
While economic news in the US is light this morning, the rest of the world is waking up to continued signals that Global Growth is Slowing as Global Inflation Accelerates.
With Chinese Equities closing down for the 6th out of the last 7 trading days in Shanghai (China is down -12.9% YTD), here are the 3 most important inflation headlines that continued to pressure Asian Equity markets overnight:
1.       India’s weekly wholesale food inflation accelerated to +12.13% versus +9.46% last week
2.       Singapore reported another sequential acceleration in consumer prices (CPI) to +3.8% in NOV vs +3.5% in OCT.
3.       CRB Commodities Index closed at another YTD high of 328 = +15% since OCT and +29% since JUL.
Unlike in the US where the government has changed the inflation calculation 9 times since 1996 and tells you to focus on the “core” (no gas in your car, heat in your home, or food in your belly), India’s food inflation index includes the things that people eat. Things like lentils, veggies, and rice are very popular items for consumption.
Onions are a sought after food item in most parts of the world as well. It’s hard to fire up your curry without onions and the Indian government takes this practical matter quite seriously. India is calling for “emergency measures” this morning to address the onion supply imbalances due to rainfall damaged crops. Global food and water supply shocks? Heli-Ben, what are those?
Not that the people making curry for the holidays notice this (they’re probably much more focused on Quantitative Guessing and how great that is for Americans who still have 401k’s that aren’t choking on bond allocations), but the price of onions is up +34% year-over-year.
We get the year-end storytelling about “cheap” American stocks and how the world is awash with fiat currency, but we also get that inflation is a policy. Governments either fight it or perpetuate it – and there’s an Eastern versus Western view of the world emerging on this front.
Inflation is the #1 fear of emerging market economies and global bond investors alike. That’s why China, India, and Brazil’s stock markets have been going down since November. These markets apparently don’t care so much for how many 600 thread count sheets Americans are buying at Bed Bath and Beyond.
As global inflation accelerates the US Dollar Index and US Treasury yields are also rising. Again, the bulls are saying what they said on this score back in 2007 (after 64 consecutive quarters of positive US consumer spending) – everything is benign in the land of riskless nod until year-end bonuses are paid out.
We remain bullish on US Dollars and bearish on US Stocks and Bonds. Either the rest of the world won’t matter in 2011 or it will. And while hope is not an investment process, we can only hope and pray that the 45 MILLION Americans who are on food stamps this Christmas are sheltered with one of the only things left in life that the government can’t infuse with price volatility – the love of their families in times of need.
My immediate term support and resistance lines for the SP500 are now 1245 and 1259, respectively. I shorted the SP500 again yesterday.
Merry Christmas and Happy Holidays to you and your loved ones,
Keith R. McCullough
Chief Executive Officer


Taxing Onions - onions

The Golden Haze: Gold Levels, Refreshed

POSITIONS: long US Dollar Index (UUP), long Canadian Dollar (FXC), long Chinese Yuan (CYB),  short Euro (FXE), short Yen (FXY)


While we don’t currently have a position in Gold (GLD), we’ve been very active in foreign currency as of late. We did make the call to sell our entire long Gold position in both the Hedgeye Portfolio and Asset Allocation models on December the 6th. I’ve been following up with notes on why (Early Look note from December 17th, “The Golden Haze”) since.


The question in my mind right now isn’t where do I buy gold back? It’s where do I short it?


Gold is competing against rising bond yields. Gold is also fighting the Fed’s policy to inflate. Gold is always a lot of different things to a lot of different people, but the most important thing about gold is its last price.


If gold closes below $1379/oz this week, this will be the 3rd consecutive week of gold closing down on a week-over-week basis. That would be bad for the immediate-term price momentum in gold but, by our risk management score card, its already broken from an immediate-term TRADE perspective anyway.


In the chart below we show the refreshed immediate-term TRADE line of resistance for gold up at $1399. There’s significant resistance between $1, so you can also use that as a range of resistance.


There’s an immediate-term TRADE line of support down at $1368, but it’s a weak one. The more important line to manage risk towards is the mean reversion move down to gold’s intermediate-term TREND line of $1313.


Last year I gave my Dad gold bullion coins for Christmas – this year I hope he doesn’t give them back!





Keith R. McCullough
Chief Executive Officer


The Golden Haze: Gold Levels, Refreshed - gold chart

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PENN management throws a wet blanket on 2011 regional growth expectations.



At the grand re-opening of Hollywood Casino Joliet, Penn National's president and COO, Tim Wilmott, said PENN is not expecting a better 2011 for the casino business.  He stressed that unemployment and plummeting housing values will continue to depress spending.  We've consistently shown these two variables are the most critical in assessing regional gaming revenues.  As we mentioned in our note, "REGIONAL GAMING HEAD FAKE?" (12/23/10), we haven't seen clear evidence of a recovery in the regional gaming market, despite the October head fake.

Natural Gas Seasonality, Or Lack Thereof

Conclusion: There is a noted lack of seasonality in natural gas prices this year, which we view as a bearish leading indicator.


There is no shortage of prognosticators on commodity prices who are bearish on the price of natural gas heading into 2011. As I sat in my hotel room in California yesterday watching CNBC, two things were obvious after listening to much of the commentary. The consensus is to be long U.S. equities and short U.S. natural gas. Since we are currently short the SP500, we disagree with the former, but on the latter we’ve been consistently bearish on natural gas prices for most of 2010. Currently, seasonal prices moves, or lack thereof, seem to be supporting this view.


Since 2000, natural gas prices (based on the Energy Information Administration’s wellhead price) have shown a consistent seasonal pattern. In 9 of the last 10 years, from 2000 - 2009, natural gas prices have increased from October to December. On average the price increase from the full month average in October to the full month average in December has been 15.5%. Clearly, we’ve seen meaningful seasonal moves as the weather starts to get cold heading into December.


While the EIA hasn’t reported their wellhead prices for October or December yet, if we look at their reported front month contract prices, it becomes clear that this normal seasonality is not occurring this year. On October 1st the front month contract for natural gas, according to the EIA, was priced at $4.04 per Mcf and as of yesterday the front month contract was priced at $4.06 per Mcf according the EIA. Seasonality? Not so much.


This lack of seasonality is likely a signal that the market remains in imbalance and will remain so heading into the winter. Some of the recent data points, which we’ve previously highlighted, support this. Specifically:


Supply - Currently, natural gas in storage is 8.5% above the 5-year average with 3,368 Bcf in storage. This is obviously a bearish amount of natural gas in storage, though it is down about 1.6% on a year-over-year basis, but remains well above historical norms.


Production – Our energy Sector Head Lou Gagliardi has written about this point extensively, but the growth of production in the United States continues to be one of the most overriding bearish factors for natural gas price. With seemingly little concern for the growth of supply, major E&P companies continue to invest in the natural gas industry in the United States, especially in the various shale plays. In fact production growth is so high that the Department of Energy is predicting that storage by March 2011 will be 10% above 2010 levels.


Demand – We’ve been quite vocal as to our expectation of slowing economic growth in the United States in 1H 2011 due to tough comps, consumer headwinds, and a lack of future government stimulus. If we are correct in our assessment, it is likely that demand for natural gas could be flat or fall in 2011 versus 2010. In 2009, demand for natural gas was down more than 2% from 2008 levels. Moreover, natural gas is not exactly a growth industry as overall consumption has only grown 9.1% over the 40-year period from 1969 through 2009. The Department of Energy is currently expecting demand to be flat in 2011.


It seems that many investors still are not bearish enough on natural gas. While there are many arguments as to why demand should increase overtime, we currently are in a supply glut driven by production. In the chart below, we show monthly production numbers in the U.S. going back to 1994. This chart quite clearly shows that we are in a new paradigm as it relates to the production of natural gas, primarily due to technology advances via horizontal drilling and massive discoveries in the shale areas.


The reality is, natural gas can go a lot lower. It is a localized commodity that is not driven by the same global demand (emerging markets) and price (U.S. dollar weakness) as oil. In fact, from 1994 to 1996 natural gas varied between $1.50 per Mcf and $3.00 per Mcf and spent most of that period below $2.00 per Mcf. This lack of seasonal price moves is an important data point as we consider the next move in price.


Daryl G. Jones

Managing Director


Natural Gas Seasonality, Or Lack Thereof - monthly natty



December 23, 2010





  • Like many retailers, online sales growth is a key initiative to drive top-line growth over the near-to-intermediate term at Finish Line. What sets this goal apart from peers is that management is looking to grow online sales as a percent of the total to the mid-teens – well beyond the 10% hurdle most retailers are citing.   
  • Among the key drivers of steadily improving apparel comps throughout the quarter, Finish Line highlighted “powerful” sales of The North Face gear for both men’s and women’s – consistent with what we’ve seen in weekly athletic sales data.
  • While gross margins contracted modestly during Bed Bath’s 3Q, the company noted that coupon redemptions were actually down year-over-year providing a positive offset – further evidence of improving consumer confidence.



Men's Outperforming This Holiday - Driven by pent-up demand, or just boredom with dated wardrobes, men’s wear has emerged as the star performer for many retailers this holiday season. This reverses a downtrend that has plagued men’s sales for nearly the entire year and offers the industry hope the momentum will carry through to 2011. Surprisingly, tailored clothing has been the sleeper hit of the season with the more-fitted silhouette leading to increased business for many stores. The luxury end of the market is also experiencing an uptick, stores report. In a recent survey, Mastercard’s SpendingPulse found that, through mid-month, men’s wear sales were leading the apparel category. While the apparel business in general has been strong this season through Dec. 11, men’s was up 8.4 percent, nearly double that of women’s, which is running ahead 4.4 percent. <WWD>

Hedgeye Retail’s Take: Consistent with what we heard on December retail sales calls, the outperformance in men’s apparel sales appears to be shaping into a 2-year trend that has occured since the turn of the century.


L.L. Bean's Robust Holiday Sales - L.L. Bean told USA Today that it has broken a number of records already this year, including the biggest sales day in its history on Dec. 19 and the biggest day for website traffic on Dec. 13.  The newspaper has been following Bean as part of its "Cautious Optimism" series this holiday season. Steve Fuller, chief marketing officer, told USA Today that consumers are less price driven this year and looking more for qualities such as "warm" or "dry." "Customers are still making highly considered purchases, but product quality and performance are taking much larger roles in the decision making," he said. CEO Chris McCormick, added that L.L. Bean has already sold out of almost anything made of flannel, as well as some slippers and boots. He believes "next year will be an even better Christmas than this year," says. <SportsOneSource>

Hedgeye Retail’s Take: Further indication that the trend in authentic “Americana” remains robust and has been for the better part of 2010. Sounds like the 2011 Christmas is going to look an awful lot like 1986.


California Rain Impacts Retail - Torrential rains in Southern California put a crimp in retailing, as power failures shut some stores and kept holiday shoppers under wraps. The deluge was expected to ease by today. Select stores at the Third Street Promenade and the revamped Santa Monica Place shopping center, including Bloomingdale’s, lost power Tuesday. In general, outdoor shopping centers and districts suffered as shoppers fled the downpours, although indoor shopping malls and online retail were said to have gained customers. Gov. Arnold Schwarzenegger has declared a state of emergency in six counties because of the downpours. The hardest-hit areas received rainfall of more than 20 inches. The rain caused mud slides and darkened neighborhoods. Flooding forced evacuations, and road closures were prevalent. <WWD>

Hedgeye Retail’s Take: Given the fragility of sales in the southwest of late, torrential rains are the last thing retailers need. On the other hand, favorable weather has lead to outperformance in the Northeast over recent weeks – a gap that apparently will be widening near-term.


CFO Hammer Resigns From Crocs - Crocs Inc. Wednesday said the company's chief financial officer, Russell C. Hammer, has resigned effective Dec. 31 in order to join an unnamed Chicago-based public company as its financial chief. The shoe maker said a search for Hammer's successor is underway. A company spokeswoman wasn't immediately available to comment further on the departure. Hammer served as CFO of Crocs since the beginning of 2008. He was responsible for the company's national and global financial operations. Prior to joining Crocs, he worked for Motorola Inc. for more than 30 years, serving in several senior-level executive positions, including as CFO and vice president of that company's $5 billion connected home solutions business. <DJNewswire>

Hedgeye Retail’s Take: After navigating the company and its financing from the brink of collapse, we’re not entirely surprised in the move given Russ never relocated his family, but commuted to Colorado for the past 2+ years. Optically, however, the company’s inability to retain top-talent is a bit disconcerting.


Christmas Shopping Survey - The International Council of Shopping Centers and Goldman Sachs announced that their joint holiday consumer tracking survey indicates roughly 15 percent of shoppers ages 16 and older - a total of 23 million consumers - plan to shop on the day before Christmas. "With many last-minute shoppers still needing to finish their gift lists, brick-and-mortar retailers will be buzzing with activity on Christmas Eve," Michael Kercheval, president of the shopping centers group, said in a news release. According to the survey, more men (17%) plan to shop that day than women (13%). By age, people 18 to 34 years old are more likely to be shopping (21%) than those 55 and over (8%). By region, 19% of those living in the Midwest said they were planning on doing last-minute holiday shopping on Christmas Eve, while those in the West (16%), Northeast (13%) and South (13%) were relatively less likely to shop that day. <SportsOneSource>

Hedgeye Retail’s Take: Interestingly, but at the same time predicable, the regions that have struggled the most of late are also the ones that plan to shop at the last minute more – perhaps in hopes of capturing extra savings associated with last minute deals.



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