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First of three strong regional earnings reports. This one was very good.  PNK and ASCA next.



"With first quarter results exceeding guidance and cautious expectations for continued positive operating momentum throughout 2011, we are raising our full year 2011 revenue and adjusted EBITDA guidance to $2.7 billion and $677.0 million, respectively. We're generally seeing a stabilization of consumer spending across our businesses and markets, though we are hesitant to forecast higher revenues based on February and March trends which benefited from favorable weather versus 2010."

Peter M. Carlino, Chairman and Chief Executive Officer of Penn National Gaming




  • Development/Acquisition updates:
    • "Beginning in June 2011, operating results are expected to reflect the acquisition of The M Resort. The property generated adjusted EBITDA of $6.2 million in the first quarter and we believe that our operating discipline, rationalized approach to marketing and active player database can gradually improve the property's financial performance.  Since sending offers to stay at M Resort to some of our highest value players earlier this year, the facility has booked approximately 2,500 incremental room nights and we are now developing other plans to drive profitable revenue at the property."
    • "Based on the current pace of construction, Hollywood Casino at Kansas Speedway and Hollywood Casino Toledo are expected to open in the first and second quarter of 2012, respectively, provided the required regulatory framework and approvals are in place."
    • "In Columbus, we have instituted legal proceedings and requested injunctive relief to protect our rights to continue to receive water and to utilize pre-existing sewer services from the district's sole provider, the City of Columbus, at the former Delphi Automotive site in Franklin Township. In the meantime, we recently named Smoot Construction Company of Ohio as our construction manager for the project and are planning a groundbreaking on April 25... We remain hopeful that the project will open as originally contemplated in the fourth quarter of 2012."
    • "On April 8, Penn National closed on its 50/50 joint venture to own and operate the Sam Houston Race Park in Houston, Texas, the Valley Race Park in Harlingen, Texas and a planned racetrack in Laredo, Texas. Our joint venture ownership also includes significant real estate, including interests in 323 acres at Sam Houston Race Park, 80 acres at Valley Race Park and an option to purchase 135 acres for the planned racetrack in Laredo... we are seeking legislative action to permit the addition of slot machines at existing Texas pari-mutuel facilities in order to maximize the overall value of these businesses. Recent polls indicate that the overwhelming majority of Texans want the right to express their position on slot machines at racetracks through a state-wide referendum"
  • Guidance:
    • Net revenue: Q2: $682.7MM; 2011: $2,707.5MM
    • Adjusted EBITDA: Q2: $179.4MM (Consensus $171MM); 2011: $677MM (Consensus of $662MM)
    • EPS: Q2: $0.47 (Consensus of $0.41); 2011: $1.64 (Consensus of $1.54)
    • Pre-opening expenses:  Q2: $1.1MM ; 2011: $9MM (up from $7MM previously)
    • D&A: Q2: $57.9MM; 2011: $239.5MM
    • Non-cash stock comp: Q2: $6.3MM; 2011: $25.1MM
    • Blended tax rate: 43.2%
    • Diluted Share count: 107MM



  • More optimistic than in the past
  • Columbus going as planned
  • Cost cuts went well
  • Still not seeing robust top line growth except Penn National and Charlestown


  • Gotten off to decent start in April; will watch Easter calendar shift this year.
  • 1Q Corporate expense: high legal expenses (TX, MD)
  • Can't extrapolate margin improvement in 1Q for rest of FY 2011
    • Can't expect 3Q/4Q margins to be as good as 1Q/2Q
    • they might be sandbagging a bit
  • Assuming revenues are basically flat for FY 2011
  • Charles Town: Tables games revs will start to anniversary so YoY growth will come back in-line, in other words, not as strong as 1Q.
  • M Resort - will act as a typical LV Local business
  • Columbus water dispute: considering alternatives
  • Have met with Gov Kasich's staff, but no meaningful dialogue yet; hopes Ohio will follow PA's example
  • Vegas alliance? Do not see any opportunities at this time.
  • 1Q consumer spending: slight strength in VIP and mass non-rated play; generally flat
  • March was generally flat; February higher, driven by weather.
  • Gas price impact: does not see any correlation with spending; most of their consumers reside within 30 miles of the property so high gas prices not significant.
  • Texas: standalone slots at racetrack bill pending, final bill/hearing may come next week. There could be a special session in June/July.
  • Illinois smoking ban bill: pending in Senate
  • Sees JV track losses to be lower going forward
  • Maryland Jockey Club - will be positive in 2Q because of Preakness; also, Maryland state may provide funding to mitigate losses in MJC--waiting on Governor's desk.
  • LV Locals-- not much change in promotional spending in 1Q, it's "moderate";
    • Fairly stagnant; modest growth in group business and Southern Cali business
  • Anne Arundel: nothing in guidance; no smoking facility (Charles Town has smoking)
  • Charles Town: adding 20 more tables games in 2Q; opening $40MM entertainment/sports bar in June/July
  • 1Q total cash: $234 MM; unrestricted sub: $59MM;  $175MM operating cash;
  • Debt: $35MM non-revolver debt; $1.518BN term loan B; $1.53BN total bank debt; $2.135BN total debt
  • 1Q Capex: 54.5MM (14.7MM maintenance, 39.8MM project); FY 2011 Capex: $443MM (85MM maintenance, 287MM project)
  • Promotional spending: very rational at this time across the country
  • Margin trends: cost structure very sustainable; if top-line continues to grow, still room for improvement
  • Online gaming: not interested
  • In 1Q, low-end rated play ($1-$99) declined but non-rated play increased
  • Non-rated retail spending picked up
  • Gulf coast properties: have reduced insurance costs
  • Admission counts flat 
  • Term loan B: L+175bps
  • 10th IL gaming license impact: Elgin takes biggest hit, followed by Aurora and Joliet, and Northwest Indiana
  • Unrated customers in 1Q: low to mid single digit growth benefited by tables games in WV and PA
  • No pre-opening expense in Joliet
  • Joliet: not satisfied with performance; have picked up share from Harrah's Joliet but still need non-gaming business to do better

German IFO Business Survey Down

Positions in Europe: Long British Pound (FXB)


The German IFO business survey for April was published today. As we called for in previous weeks and mentioned in a note yesterday titled “Europe: Sweden Hikes Rate as PIIGS Tumble”, we expected to see a slowdown in the German survey numbers, and we got it. IFO reported:


Germany IFO Business Climate               110.4 APR    vs 111.1 MAR

Germany IFO Current Assessment           116.3 APR    vs 115.8 MAR

Germany IFO Expectations                      104.7 APR    vs 106.5 MAR


German IFO Business Survey Down - IFO


While one survey does not confirm a trend (and we tend to focus more on the 6-month forward-looking Expectations number), recent confidence numbers are in line with a slight slowing of high frequency data from Germany, including Services and Manufacturing PMI, as inflationary pressures gradually increase.


The capital markets of Europe’s stronger and fiscally sober economies like Germany, France, Sweden held relatively strong this week despite existing sovereign debt contagion fears, namely an outstanding bailout to Portugal and continued concern over Greece’s fiscal house. Equally, the EUR-USD trade has held strong, largely a function of the severe weakness in the USD, in our opinion. Our immediate term TRADE range for the EUR-USD is $1.44-$1.46.


German IFO Business Survey Down - EUR2


In other European news, German Finance Minister Wolfgang Schaeuble praised Mario Draghi, the favorite to take over as ECB President when Trichet steps down in late June, calling his qualifications undisputed. This sentiment is a clear inflection from the German camp (although German Chancellor Angela Merkel remains silent on her pick) that has largely voted against him, due in part to assumptions that he was a dovish-leaning puppet of Trichet, and preference for Bundesbank President Axel Weber. However, in February when Weber announced he would not run for another term as Bundesbank President, nor put his name in for the ECB job, his decision has left the German camp uncertain on who to back.


Fresh in the mind of Merkel, in particular, has been the baggage Draghi carries as Italy’s Central Banker (a state with a considerable load of public debt--2nd highest after Greece-- and scandalous headlines from the country's PM Berlusconi) and his 3-year stint at Goldman Sachs in early 2000 in which among other responsibilities he arranged currency swaps that helped Greece hide the extent of its budget deficit. 


There’s no question that Draghi comes with much international experience, including as Executive Director of the World Bank. While we can only speculate how he’ll direct monetary policy should he win the seat, it’s clear that given his affinity with Trichet we’d expect he’d follow through with Trichet’s hawkish interest rate stance to control rising inflation across the Eurozone. This again could be a positive for the common currency and global investment in the region.


Matthew Hedrick



Jobless Claims Moving Sideways - No Improvement for Past 8 Weeks

The headline initial claims number fell 9k WoW to 403k (13k after a 4k upward revision to last week’s data).  Rolling claims rose 2.25k to 399k. On a non-seasonally-adjusted basis, reported claims fell 67k WoW, a typical seasonal move. 


We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve. We consider unemployment to be ~200 bps higher than the headline rate due to decreases in the labor force participation rate. In other words, if the labor force participation rate were at the long-term average level of the last decade, unemployment rate would be 10.8% rather than 8.8%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 10.8% actual rate.


Rolling claims have now trended sideways for the past 8 weeks.  








Two relationships that we are watching closely are the tight correlation between the S&P and claims and between Fed purchases (Treasuries & MBS) and claims.  With the end of QE2 looming, to the extent that this relationship is causal, it is quite concerning. 






Yield Curve Remains Wide

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 2Q is tracking 4 bps tighter than 1Q.  The current level of 273 bps is flat from than last week.






Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 






Joshua Steiner, CFA


Allison Kaptur

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Currency Rodeos

“A national debt, if it is not excessive, will be to us a national blessing.”
- Alexander Hamilton


Like Keith, I’m a born and bred Canadian.  Despite my nationality of birth, after living in the United States for upwards of the last fifteen years, I can quite confidently say this is a great country.   At Hedgeye, we spend a lot of time critiquing the political leadership in Washington, DC in our research, but that shouldn’t be confused with a general critique of the United States. I’ll say it again, this is great country. 


In 1999, the 106th Congress passed a bill that allocated federal funds to renovate the Hamilton Grange, which was Alexander Hamilton’s family home.  In that bill, Congress indicated that this preservation was to “honor the man who more than any other designed the Government of the United States.”  At times, we’ve sided more with the Jeffersonian philosophy as it relates to governing, but there is no disputing Hamilton’s influence on the founding of this nation.  Indeed, as the first Secretary of the Treasury his words continue to have relevance in fiscal and monetary policy discussions.


Setting aside the discussion of the extent to which the government should be involved in our lives, I think we would all agree that government does have its place and can, with the right leadership, do great things.  In fact, to Hamilton’s point, based on a government’s ability to tax and borrow (if done prudently these don’t have to be bad words!) it can build infrastructure and provide appropriate social services, which make the outcome of any government debt a “national blessing.” That is, if its use is not “excessive”.


Late last week in our Q2 quarterly theme call, we called for a potential crash in the U.S. dollar.  Once again, we didn’t make this call because we lack American patriotism, but rather because of the fundamentals.  Stepping back for a second, though, we should frame up what exactly a crash means for a currency.


In the last 30 years, the largest annual decline in the U.S. dollar index was -18.5% in 1985, while the average decline for that period was 0.11%.  In the year-to-date, the U.S. dollar index is down -6.6%.  So, we are four months into 2011 and the U.S. dollar is already down close to 1/3  of its largest annual decline ever.  Our view is that the U.S. dollar could decline potentially another -5% through the course of the quarter and roughly -10%-ish through the course of the rest of the year.  If this occurs, it would be the largest annual decline for the U.S. dollar index in 30-years and that, my friends, is a crash.


This morning, we are seeing a continuation of this move with many currencies, once again, trading up close to a percent versus the dollar.  Interestingly, even in Europe, where sovereign debt woes continue to accelerate, the currencies are strong this morning with the British Pound up +0.92% versus U.S. dollar and the Euro up +0.73%.


We certainly get that being bearish on the U.S. dollar at this point isn’t exactly a contrarian call, but, to be fair, we’ve traded the U.S. dollar in the Virtual Portfolio 20 times since the firm’s inception and have been right 20 times. In addition, of the 46 currency positions we’ve taken in the Virtual Portfolio over the same duration, we booked a gain on 41 of them. Clearly, this isn’t our first Currency Rodeo. That said, according to a recent survey by Bank of America, all but 6% of their global clients are bearish on the U.S. dollar, which is not inconsistent with some of our internal surveys.  In addition, Barclays reported the commodity assets under management have reached an all-time high at $412BN.


Being long commodities is in many respects the same trade as being short the U.S. dollar, and we’d be remiss to not at least factor into our models that the investment community is leaning hard in one direction.  But the question remains: is consensus bearish enough on the dollar?  Our answer on this, until the facts change, is “no”.


As we analyze the U.S. dollar versus global currencies, we focus on three key factors: debt, deficit, and interest rates.  Currently, the U.S. dollar lines up negative on all three of these fronts, specifically:


1.  Excessive debt – In the last couple of years, it has become cool to quote Reinhart and Rogoff and bandy about sovereign debt-to-GDP ratios, so this isn’t new, but according to usdebtclock.org, the United States has a debt-to-GDP ratio of 96%.  This is negative for GDP growth, which is negative for the U.S. dollar as slower growth leads to longer term accommodative monetary policy and higher than expected fiscal deficits.  Further, the United States’ future debt trajectory is much steeper than any of its “AAA” peers (Canada, United Kingdom, Germany and France) due to a lack of a credible deficit reduction plan.  To add insult to injury, the politicians in Washington will once again debate increasing  the debt ceiling in mid-May while global currency traders watch real-time;


2.  Long term deficit – This year the United States federal government will run a deficit north of $1.5 trillion dollars, which is more than 10% of GDP.  (This is slightly better than Sierra Leone.)  The real issue with the deficit is a lack of a credible plan to reduce the deficit going forward.  While many nations globally have already begun austerity programs, the United States has no plan and the recently approved $38 billion spending reduction for the duration of this year is only likely to have a real benefit of some $380 million.  President Obama has given June as the time frame by which he hopes to have an agreement on a long term budget, but our view is that based on how far apart the Democrats and Republicans are on the tenets of the plan, this time frame will be blown threw;


3.  Monetary policy bifurcation - Simply put, interest rates and perceived future interest rates move currencies.   Almost every major modern nation in the world has either tightened policy (witness Sweden and China most recently) or is reporting data that suggests tightening is imminent.  In contrast, not only is the United States still implementing Quantitative Guessing Part II, but recent signals out of the Federal Reserve suggest we could see a version of QE-lite after June, so we think the U.S. Dollar will fall victim to additional easing in the face of the world tightening.


In order to shift our investment view on the U.S. Dollar we need to believe that these factors will improve absolutely and relatively and, as of yet, it is hard to make that case.  Meanwhile, the U.S. dollar index continues to be in a bear market in our quantitative models.


Currently in the Virtual Porfolio we are long the Canadian dollar, long the Chinese Yuan, and long the British Pound. We covered our short position in the U.S. dollar (UUP) yesterday.   This isn’t about politics or patriotism, but risk management.


Enjoy the long weekend with your families.


Keep our head up and stick on the ice,


Daryl G. Jones

Managing Director


Currency Rodeos - Chart of the Day


Currency Rodeos - Virtual Portfolio


The Macau Metro Monitor, April 21, 2011




Traffic at Singapore Changi Airport saw a 7.5% YoY in March with 3,708,592 passengers.



Visitor arrivals totaled 2,190,865 in March 2011, +8.9% YoY.  Visitors from Mainland China increased by 18.6% YoY to 1,254,117, with the majority coming from Guangdong Province, Fujian Province and Zhejiang Province.  Mainland visitors traveling to Macau under IVS were 501,276, +18.9% YoY.





Macau CPI rose 5.46% YoY and 0.47% MoM in March.

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 80.51%
  • SHORT SIGNALS 78.32%