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TALES OF THE TAPE: MCD, BWLD, GCMR, SBUX

Notable news items and price action over the past twenty four hours.

  • MCD was added to the “Key Calls” list at UBS.  Shares are Buy rated with a price target of $86.
  • MCD’s largest global franchisee is preparing for a U.S. IPO, according to the Financial Times.
  • BWLD reported after the close.  Comps slowed and the Gap-to-Knapp went negative on a one-year basis.  Highly favorable chicken wing prices and other margin gains helped the company beat on the bottom line.
  • BWLD target raised to $55 from $52 at Deutsche Bank.
  • GMCR has been outperforming the QSR space and is not the best performing QSR stock over the last week and month.  Yesterday the stock gained 3.2% on good volume.
  • SBUX also saw its share price gain, by 2.4%, on accelerating volume.

TALES OF THE TAPE: MCD, BWLD, GCMR, SBUX - stocks 29

 

Howard Penney

Managing Director


THE M3: BOMBARDIER INJUNCTION; HO DRAMA; S'PORE MICE; LOANS

The Macau Metro Monitor, February 9, 2011

 

GOVERNMENT CHALLENGES BOMBARDIER INJUNCTION Macau Daily Times, macaubusiness.com

A Transportation Infrastructure Office (GIT) spokesperson said the Macau government has challenged Bombardier's injunction by claiming the injunction would seriously harm the population, by delaying the construction works of LRT and the conclusion of the regional transportation network it belongs to.  Last week, GIT said the injunction would not have “a great impact on the project’s full development.”

 

The challenge was filed at the Court of Second Instance (TSI).  TSI should reach a final decision within two weeks.  If the court accepts the injunction, Bombardier is likely to launch a legal appeal against the tender decision, which means the LRT process could remain frozen for up to a year

 

Another bidder in the MRT tender, Siemens, has requested more details on the process from the government. The company has not decided whether also to pursue an injunction.

 

STANLEY HO HAS YET TO RECEIVE PROPOSALS TO SOLVE FAMILY BRAWL: LAWYER macaubusiness.com

Stanley Ho still has not received a formal proposal from family members to solve the dispute over his assets distribution.  Mr. Oldham, Ho's lawyer, said a new court case would be filed today against Mr. Ho's family to recover his assets.


EXPO ADDS CONVENTION WING TO UP MICE INDUSTRY SHARE Strait Times

Resorts World Sentosa hosted more than 1,000 events last year, while Marina Bay Sands hosted 700 events.  The Singapore Expo is adding a new convention wing called Max Atria which has 23 meeting rooms and function areas.  It is scheduled to open in 1Q 2012.

 

LOANS RISE FAST macaubusiness.com

According to the Monetary Authority, domestic loans to the private sector grew 4.9% on a monthly basis to MOP130.5BN in December.  Loans to restaurants, hotels and similar businesses, personal housing loans and loans to the gaming sector increased QoQ at 20.9%, 11.3% and 7.5%, respectively.



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Known Unknowns

This note was originally published at 8am on February 04, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know.”

-Donald Rumsfeld

 

A few nights ago, I participated in a panel on CNBC’s The Kudlow Report to discuss the outlook for the U.S. equity markets.  Interestingly, my co-panelists were an actor, Tommy Belesis, who was featured in Wall Street II and Lee Munson, who is not an actor, at least professionally, but is a veritable Jim Carey wannabe.  Larry asked all three of us about Egypt and both of my co-panelists suggested the spread of democracy would be a great thing for the markets.  Call me a nerdy hockey player from Yale, but my response was a bit more nuanced.

 

Stepping back for a second, I tend to agree that the proliferation of democracy is a positive force in this world.  (Hopefully that goes without saying.)  From a pure geo-political risk perspective, there are very few examples of modern democracies going to war.   Thus, the more democracies there are globally, the more likely it is that there will be less armed conflict between nation states.  This is a positive when considering a risk premium to apply to certain equity markets.

 

As it relates specifically to Egypt, the view I articulated the other night is that the outcome is very uncertain.  We don’t know that this is the onset of flourishing democracies in the Middle East.  Further, we don’t know what the unintended consequences of a regime change in Egypt will be.  As Former Secretary of Defense Rumsfeld notes above, the outcome of this historic last month of protests in the Middle East is, at best, a “known unknown.”

 

The benefit in having our headquarters at the Taft Mansion on Yale’s Campus is more than just easy access to Yale Hockey games at historic Ingalls Rink, but also easy access to Yale’s academic engine.  To the last point, we are hosting a call at 10 a.m. for institutional subscribers and prospects with Yale Professor Charles Hill.  The title of the call is “Analyzing the Geopolitical Chessboard: Is This Checkmate for American Influence in the Middle East?” If you’d like to join us for the call, please ping sales at sales@hedgye.com.

 

Rather than acting, we decided to bring in an expert to discuss the situation in the Middle East and North Africa.  Professor Hill teaches the Grand Strategy class at Yale, and is the former Chief of Staff of the State Department, an advisor to former Secretary of State George Shultz, and former Secretary-General of the United Nations Boutros Boutros-Ghali.  Needless to say, Professor Hill forgets more foreign policy strategy in a day than most of us will ever know.

 

Currently, the primary issue as it relates to U.S. foreign policy in the Middle East is centered on the future of Egypt, which has been a long standing ally of the United States in the region.   After the 1973 Arab-Israeli War, Egyptian foreign policy shifted under Anwar Sadat, who opted to pursue a peace process with Israel, which he believed was in the best long term interest of Egypt.  As a result, the U.S. has been a major sponsor of both military and economic aid to Egypt.  In fact, Egypt is the second largest non-NATO recipient of military aid from the United States after Israel.

 

From an economic perspective, Egypt is the 27th largest economy in the world and, perhaps more importantly, controls the Suez Canal, which connects the Mediterranean and Red Seas.  The key benefit of the Suez Canal from a global economic perspective is that it allows water transportation from Asia to Europe without the need to circumvent Africa.  In aggregate, the Suez Canal carries almost 8% of the world’s sea trade.

 

Egypt’s strategic and economic importance can obviously not be understated in global affairs, and whilst it is difficult not to support popular protests against a non-Democratic regime, such as the one run by Hosni Mubarak in Egypt, as risk managers we also need to understand the alternatives.  If Mubarak was nothing else, he was a strong American ally in the region.

 

The debate over the future of Egypt currently centers on the role in which the Muslim Brotherhood will play.  The Muslim Brotherhood is the world’s largest and oldest Islamic political group, and was actually founded in Egypt in 1928.  Currently, the Brotherhood is banned in Egypt, but in the post-Mubarak era, the Brotherhood will have a role which could shift Egyptian foreign policy quite dramatically.  In fact, a leading member of the Muslim Brotherhood, Muhammad Ghannem, recently said to the Arab Press, “The people should be prepared for war against Israel.”

 

There are some that believe the Muslim Brotherhood is an effectual organization.  This was best articulated by Scott Atran, author of "Talking to the Enemy: Faith, Brotherhood and the (Un)making of Terrorists", in the New York Times yesterday when he wrote:

 

“Ever since its founding in 1928 as a rival to Western-inspired nationalist movements that had failed to free Egypt from foreign powers, the Muslim Brotherhood has tried to revive Islamic power. Yet in 83 years it has botched every opportunity.”

 

On the other side of the debate is Dr. George Friedman from STRATFOR who recently wrote:

 

“The demonstrations open the door for the Muslim Brotherhood, which is stronger than others may believe. They might keep the demonstrations going after Hosni leaves, and radicalize the streets to force regime change. It could also be the Muslim Brotherhood organizing quietly. Whoever it is, they are lying low, trying to make themselves look weaker than they are — while letting the liberals undermine the regime, generate anti-Mubarak feeling in the West, and pave the way for whatever it is they are planning.”

 

As for where Hedgeye stands, we covered our short Egypt position yesterday (via the etf EGPT) in our Virtual Portfolio.

Keep your head up and stick on the ice,

 

Daryl G. Jones

Managing Director

 

Known Unknowns - mass


Fooling The People

“If you once forfeit the confidence of your fellow citizens, you can never regain their respect and esteem.”

-Abraham Lincoln

 

In the same quote Lincoln went on to point out that while “it is true that you may fool all of the people some of the time… and “you can even fool some of the people all of the time”… “but you can’t fool all of the people all of the time.”

 

So how is The Ber-nank doing in Fooling The People of the United States of America that the inflation of the US stock market is good?

  1. Confidence – in the week that The Inflation he is playing for in US stocks was booming (SP500 +2.7% last week), the weekly ABC US Consumer Confidence reading got hammered down to -46 versus -41 in the week prior (those are minuses).
  2. Trust – in the latest boldprogressives.org poll, when asked “who do you think the Federal Reserve Chairman Ben Bernanke cares about more, Wall Street or Main Street?”, only 20% replied Main Street (even Geithner had a higher trust reading than Bernanke on that score).
  3. Invested Position – “91% of all equity holdings in the United States held by the top 20% income group in the country. The top 1% own 38% of all the equity valuation.” (from David Rosenberg and Zero Hedge yesterday).

Now if The People of America were as stupid about what’s in their wallets as the Fed must think they are, they’d be plowing through their snow covered driveways and barging through the doors at The Lehman Brother to open a brokerage account. Oh, wait – The Lehman Brother is gone – maybe that’s why Americans aren’t investing their confidence and trust in The Ber-nank’s inflation. Maybe it’s the snow and closed for business thing?

 

Whatever your opinion of the Incumbent 23rd Chairman of the Federal Reserve, odds are that if you are in the business of being long the inflation (stocks), after a +93.8% rally from the March 2009 low, you’ve got to be happy. I am.

 

But, to be crystal clear on this, you and I are not America  - and neither is a humble looking central planner who thinks he knows exactly how this is all going to play out. Some Americans were fooled by that when the perma-bulls were cheering Bernanke on to provide the “shock and awe” of interest rate cuts in late 2007 and early 2008. But you can’t fool all of America again on this Mr. Bernanke – not this time.

 

Sadly, at the end of the day this is all about storytelling and the worst part about the marketing message behind the Austrian versus Keynesian economic views right now is probably that Ron Paul is the one delivering the commercials. He’s much better in print than he is on TV. What Americans really need is Robert Rubin to massage this concept of how debauching the US Dollar perpetuates American unemployment.

 

Unfortunately, Robert Rubin isn’t for hire anymore. Last I heard he is living large and licking his Doritos fingers, forgetting that he didn’t foresee another sovereign debt default cycle pending.

 

Back to Fooling The People

 

In a recent survey from Selzer and Co., 7 out of 10 respondents said “the US is deliberately keeping the dollar low against other currencies, while only 1 in 4 think it’s letting the market decide the value of the greenback.”

 

I get it. The world’s largest bond fund manager gets it (see Bill Gross’ latest monthly letter). The American People get it. The Chinese get it. And now, even 2 of The Ber-nank’s Federal Reserve Presidents came out yesterday to remind the land of the living that they get it!

 

Yesterday, Federal Reserve Bank of Richmond President Jeffrey Lacker and Federal Reserve Bank of Dallas President Richard Fisher came out explicitly acknowledging both The Inflation trends in the global economic system and the need for the independent Federal Reserve to address it.

 

“I will be at the forefront of the effort to trim back our Treasury holdings and tighten monetary policy at the earliest sign of inflationary pressures are moving beyond the commodity markets and into the general price stream.”

 

Well done, Mr. Fisher.

 

What’s most important about these dissenting Fed Head comments is the timing. Today, The Ber-nank is going to testify in front of the Congress that what is scaring the living daylights out of the US bond market (inflation) is wrong and that he, our Almighty Central Planner, is right.

 

This isn’t a centrally planned Russia folks. This is America  - and the next person who tells you our red, white, and blue free-market is what it used to be needs to go back and re-read the Constitution. As Steve Hanke states most succinctly, “the Constitution was designed to govern the government, not the people.”

 

Before you listen to Bernanke’s politicized view this morning, let me leave you with three Austrian economic thoughts (paraphrasing von Mises), because Ron Paul is going to have two thought leaders from this school lay down the opposite side of the Keynesian case today at the sub-committee meeting on Domestic Monetary Policy (that Bernanke won’t attend) in Washington, DC:

  1. Controlling Prices - “The metaphorical expression “price level” must never be used… with prices there is no such thing as a “level”… prices do not change at to the same extent at the same time” … as a central planner promises.
  2. Inflation’s Social Stratification - “When inflation starts, different groups within the population are affected by this inflation in different ways. Those groups who get the money first gain a temporary benefit.”
  3. Devaluation of a Currency - “If one devalues the currency and the workers are not clever enough to realize it, they will not offer resistance against a drop in real wages, as long as nominal wage rates remain the same.”

Sorry, Mr. Bernanke. Apparently America’s Main Street workers are clever enough. America’s small business owners aren’t hiring because they get this too. Best of luck out there in the Twitter-sphere and YouTube channels of modern day transparency in continuing to fool some of the people from here on in – the 60 Minutes gig isn’t working.

 

My immediate-term support and resistance lines for the SP500 are now 1303 and 1332, respectively. God Bless America.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fooling The People - d1

 

Fooling The People - d2


COULD BE A BIG BEAT FOR MAR

Still worried about Q2 industry RevPAR but MAR should beat Q4 and Q1 probably needs to go higher.

 

 

We project MAR will report Q4 Adjusted EBITDA and EPS of $363MM and $0.41. Our numbers are 8% and 13% ahead of consensus, respectively, and above company guidance of Adjusted EBITDA of $331-346MM and EPS of $0.33-$0.36.  At current valuations, some of the upside may be baked into these stocks.  This was evident when Starwood reported its results last week.  However, given the magnitude of the beat we are expecting, investors could move MAR higher.

 

We also think MAR could raise Q1 guidance.  We’re already ahead of the street for 1Q2011 but in-line for FY2011.  We continue to believe the Street is overestimating Q2 industry RevPAR.  Our research shows that the April-July period in 2010 was one of pent up demand and in terms of dollar RevPAR, was much stronger than the rest of the year.  The math shows that the comparisons during that period of 2011 will be very difficult.

 

For more details on our assumptions for Q4 please see below:

 

Details:

  • RevPAR growth of 7.4% vs. 6-8% guidance
  • Management and franchise fees of $385MM vs. guidance of $370-380MM
    • 1.5% growth in managed rooms and 6.1% growth in franchised system-wide rooms
    • 9.3% growth in base management fees to $178MM
    • 20% growth in incentive fees to $71MM
    • 14.5% growth in franchise fees
  • Owned, leased, corporate housing and other revenues of $356MM producing gross margins of $39MM compared to guidance of $40MM
    • Owned & leased room revenue up 8% to $121MM
    • 5% YoY increase in F&B & other revenues
    • $19MM of branding fees and $4MM of termination and other fees
  • $195MM of contract sales and Timeshare segment results of $48MM vs. guidance of $190-200MM of contract sales and segment results of $45-50MM
  • Other stuff:
    • $25MM of gains and other income (in-line with guidance)
    • $51MM of net interest expense (guidance of $50MM)
    • $10MM Equity loss (in-line with guidance)

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