Notable macro and industry-specific news items and price action from the restaurant space as well as our fundamental view on select names.



  • Corn for July delivery, the most actively traded contract dropped $0.24 cents, or 3.3%, to a one-month low of $7.01 1/2 a bushel; wheat and soybean futures also tumbled at the Chicago Board of Trade. Driving prices lower was heavy selling fueled by jitters about the global economy and improving weather forecasts.
  • The Obama administration intensified a crackdown on employers of illegal immigrants, notifying another 1,000 companies in all 50 states Wednesday the government plans to inspect their hiring records, according The Wall Street Journal.


  • SBUX is hoping that new menu initiatives help to turn around the company’s UK business, which made a loss in 2010.
  • SBUX is scrambling to deal with a PR fallout after a manager of a Long Island store allegedly harassed a gay employee.  Also, the controversy surrounding the company’s switching of milk suppliers for the NYC stores is being opposed by further demonstrations at City Hall today.
  • COSI and CMG are the only two QSR names to underperform the S&P 500 over the past week.
  • On average, the QSR sector outperformed the S&P 500 by 4% this week.



  • KONA, RRGB, MRT and MSSR are the only two FSR name to underperform the S&P 500 over the past week.
  • On average the FSR sector outperformed the S&P 500 by 2.4% this week.




Howard Penney

Managing Director


The Macau Metro Monitor, June 17, 2011



MPEL CEO Lawrence Ho says that Macao Studio City (MSC) will open with 300 to 400 gambling tables and 1,200 slot machines, pending government approval.  Ho also said that the project would cost a further US$1.7 BN (MOP13.6 BN).  It will include 2,000 hotel rooms, 200,000 square feet of retail space and entertainment offerings.


Regarding the opening date, Ho remarked that MSC will not open by 2013 as stated in the land concession contract but said that "we wouldn't have done this without the Macau government's blessing.”  The tentative deadline to open the property is the first half of 2015.



Singapore's Casino Regulatory Authority (CRA) will launch a full-scale inspection on MBS and RWS at the end of the year to make sure that the operators are complying with all the rules and regulations.  Richard Magnus, chairman of the CRA, said that checks are necessary to determine whether the casino operators are complying with the Casino Control Act, its regulations and licensing requirement, internal controls and approved game rules.

Bullish Bears

This note was originally published at 8am on June 14, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I was just saying on that particular play, I would have played it different.”

-Roberto Luongo (Vancouver Canucks)


If you’re going to get paid to play this game at the highest level, whether you like it or not, you will be held accountable to both your words and performance. I’m not just talking about the Stanley Cup Playoffs. I am talking about the Future of Finance.


Last night in Boston, the Bruins chased Vancouver Canucks’ goalie Roberto Luongo to the bench within the first 10 minutes of the game (to chase de goalie means to pull him from de net – and make him feel shame). At that point, the score was already 3-0 en route to a big Bruins’ Game 6 win. Boston goalie Tim Thomas played the 1st period “differently.”


I played against Tim Thomas in college. He was at Vermont. I was at Yale. They were a national powerhouse. We were in the dog house. I’ll never forget coming onto the ice for the warm-up in their barn. I was like a Thunder Bay deer in headlights facing a full student section of kids clanging cow bells and playing some version of the Smurfs song while I tried to pretend they weren’t there.


You can pretend your competition isn’t there, but you’ll have a really big problem if they’re really good and Proactively Prepared to beat you. From Boston last night to Vermont in 1995, that’s what winners do – they wake-up every morning expecting to win.


I don’t expect to be Bullish inasmuch as I don’t expect to be Bearish. I expect my teammates and I to execute on our research and risk management process to the best of our ability every day. When we fail, we learned. When we win, we expected to.


This morning’s economic data and, more importantly, the market’s reaction to it, is bullish:

  1. Chinese Data – Growth Slowed at a SLOWER RATE as Inflation Accelerated at a SLOWER RATE (May data)
  2. Deflating The Inflation (Q2 Hedgeye Macro Theme) – oil prices falling to a 1 month low deflated the CRB Index by 1.1% yesterday
  3. Stock Markets – after 6 consecutive down weeks, around the world, they stopped going down

But can you be a Bullish Bear?


Yes We Can. Our risk management task every morning isn’t to be either Bullish or Bearish – it’s to be right.


That’s the American (and Canadian) Optimism we’re looking to champion. That’s the winning attitude we can believe in.


Are there bearish data points in my notebook this morning? You bet your Madoff there are:

  1. United Kingdom Stagflation – continued in May with Consumer Prices (CPI) remaining in-line with April’s print of +4.5%
  2. Hong Kong Property Bubble Popping – in motion now that HK Industrial Production has dropped to 3.5% (versus 5.7% last quarter)
  3. Spanish/Greek Piggies Don’t Fly – both countries issued more Pig Paper (fiat debt) this morning at higher yields than last auction

But what trumps what? In the aggregate, are these 6 bullish and bearish data points more bullish or bearish? Do you have an investment mandate to be bullish or bearish, regardless? Or are you tasked with neither being a Perma-Bull nor a Perma-Bear?


My answers to these questions are already in print. I think this morning’s Global Macro Grind flushes out as bullish as last night’s Bruins win. That doesn’t make me un-Canadian. Neither does it pigeon hole me into not being able to change my mind within the next 24 hours. The only rule in this game is to say what you think – take your position – and be accountable to it.


Across our 3 core risk management durations, the Bullish Bear’s view of US Equities from yesterday’s closing price is as follows:

  1. Immediate-term TRADE upside in the SP500 to 1290
  2. Intermediate-term TREND upside in the SP500 to 1320
  3. Long-term TAIL upside in the SP500 to 1377

Wow. Maybe on The Kudlow Report tonight (I’ll be on with Larry at 7PM EST) I’ll pretend I am Don Luskin and only be bullish. Maybe not.


Across our 3 core risk management durations, the Bearish Bull’s view of US Equities from yesterday’s closing price is as follows:

  1. Immediate-term TRADE downside in the SP500 to 1259
  2. Intermediate-term TREND downside in the SP500 to 1223
  3. Long-term TAIL downside in the SP500 to 1223

You see, if you are Duration Agnostic, there are two sides to every market debate – and, not surprisingly, two sides to every bid-ask spread across different times and prices. Sometimes durations converge (my intermediate and long-term support levels are the same right now). Sometimes they diverge. Sometimes you should be bullish; sometimes bearish.


Sometimes your competition is sleeping. All of the time we need to keep changing our positioning as the market’s time, price, and expectations do. As my great hockey Coach and mentor at Yale, Tim Taylor, taught me – you have to keep moving out there.


My immediate term support and resistance ranges for Gold (bought more yesterday), Oil (we remain bearish; Goldman bullish), and the SP500 (we have no long or short position here) are now $1517-1538, $97.60-100.03, and 1259-1290.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bullish Bears - Chart of the Day


Bullish Bears - Virtual Portfolio

Early Look

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TODAY’S S&P 500 SET-UP - June 17, 2011


Politicians may be market morons, but they understand career risk management. The Euro finding a bid this morning tells us the immediate-term TRADE coming out of this weekend's European meetings is UP to 1.43-1.44.  That's why we sold our long USD position yesterday (I want to buy it back lower).


Overall, the dominating intermediate-term TREND of Deflating The Inflation (housing, stocks, commodities) remains - but today's prices finally started to show some quantified exhaustion in the Hedgeye immediate-term TRADE models (VOLATILITY = overbought; VOLUME studies = oversold). I'm looking for the SP500 to hold 1260 - and if it does, we could easily see another immediate-term +2.5-3% short covering rally.


Our favorite 3 sectors remain (in this order):

1.       Healthcare (XLV)

2.       Utilities (XLU)

3.       Consumer Staples (XLP)


On the short side, we covered Basic Materials (XLB) on the down move and wouldn't short any sector until we see 1260 tested and the bounce. All of the Hedgeye TRADE and TREND levels are attached in the spreadsheet.  Call if you have any questions.  As we look at today’s set up for the S&P 500, the range is 18 points or -0.60% downside to 1260 and 0.82% upside to 1278.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -320 (+1778)  
  • VOLUME: NYSE 1050.56 (-1.71%)
  • VIX:  22.73 +6.61% YTD PERFORMANCE: +28.06%
  • SPX PUT/CALL RATIO: 1.92 from 2.86 (-32.95%)



  • TED SPREAD: 21.09
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 2.93 from 2.98
  • YIELD CURVE: 2.55 from 2.60 



  • 9:55 a.m.: UMich Consumer Confidence, est. 74.0, prior 74.3
  • 10 a.m.: Leading indicators, est. 0.3%, prior (-0.3%)
  • 1 p.m.: Baker Hughes Rig Count


  • Texas state court hearing in suit between AMR/Sabre over Sabre’s attempt to move entire action to federal court
  • Basel Committee considering extra capital requirements of as much as 3.5%: two people familiar with talks
  • Vice President Biden and U.S. lawmakers determined to find $4t in savings, Biden tells reporters after group’s third closed-door meeting this week



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • UBS Limits Commodities Hiring Expansion as Boom Leaves Scarcity of Talent
  • Food Prices Will Stay High for Next Decade on Slowing Output, UN, OECD Say
  • Oil Heads for Biggest Weekly Decline in Six on Concern Over European Debt
  • Soybeans Fall to Lowest Price in a Month on Slowing Chinese Import Demand
  • Gold Drops on Strengthening Dollar, Selling to Cover Losses in Commodities
  • Sugar Advances on Increasing Demand Before Ramadan; Coffee Prices Climb
  • Copper May Decline for a Third Day on Concern About Greece’s Debt Crisis
  • India Rules Out Ending Ban on Wheat, Rice Exports as Food Demand Increases
  • Oil’s Declines in Middle East Show No End on Saudi Offers: Energy Markets
  • Commodities May Decline 3.3% as S&P Index Falls Short: Technical Analysis
  • Mongolia to Offer Tavan Tolgoi Coal Mine to ‘3 or 4’ Bidders, Batbold Says
  • Defunct Gold Mines Lure Investors on New Technologies, Record Price Gains
  • Blood-Diamond Curbs Imperiled for De Beers, Tiffany by Zimbabwe Violence
  • Gold May Climb Next Week as Europe’s Debt Criss Spurs Demand, Survey Shows




THE HEDGEYE DAILY OUTLOOK - daily currency view



  • EUROPE: gong show continues; we're covering all shorts into the weekend though and going naked long (and worried) Germany; Greece crashing.


THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: end of darkness? awful week for Asian equities; we are getting long China on fear; staying short Japan on reality 


THE HEDGEYE DAILY OUTLOOK - asia performance







Howard Penney

Managing Director

Infinitesimal Truth

“Measured objectively, what a man can wrest from Truth by passionate striving is utterly infinitesimal.”

-Albert Einstein


What’s the truth? Greek politicians lied.


Market prices don’t lie; politicians do. We have politicians running countries and banks. Everyone but them realizes that most of them are market morons. Use that truth to your risk management advantage.


While professional politicians wouldn’t even know what Excel sheet to launch alongside a real-time market price to measure market risk, you can bet your Madoff that these people know how to manage their political career risk.


That’s what I expect to see coming out of this weekend in Europe. That’s why I think the Euro has an immediate-term bid this morning. That’s why I have looked at the 7th consecutive week of down Global Equities as a Short Covering Opportunity (moving to 12 LONGS, 7 SHORTS in the Hedgeye Portfolio).


What’s the truth?

  1. The US Dollar is finally stabilizing above our critical $74.41 support line
  2. The US Dollar going UP = Deflating The Inflation
  3. The Euro (and the Fiat Fools who back it) are perpetuating 1 and 2

To say that’s not the truth would imply that Mr. Macro Market is lying. There is Infinitesimal Truth in the market’s prices if you accept that A) uncertainty and B) interconnectedness can lead you to it.


What’s the truth?

  1. For June 2011 to-date, the SP500 is DOWN -5.8%
  2. For June 2011 to-date, the Russell2000 is DOWN -7.9%
  3. For June 2011 to-date, the CRB Commodities Index is DOWN -4.6%

At Hedgeye we’ve called this Deflating The Inflation (Q2 Macro Theme). It’s occurring in the price of your home, stocks, and commodities. And yes, in the end, Deflating The Inflation is going to be very bullish for Global Consumption (70% of US GDP).


What’s the truth?

  1. Week-to-date, the price of Oil (at $93, which was our target) = DOWN -6.1%
  2. Week-to-date, the price of Cotton = DOWN -10.1%
  3. Week-to-date, the price of Wheat = DOWN -9.9%

And the truth about Deflating The Inflation in commodity prices is that 99% of the free, socialist, and communist world likes it. As for the other 1% of us who are chasing monthly performance metrics to manage our own career risk, I don’t think God cares.


I’m not trying to be trite. I like God a lot – but he doesn’t owe me a return. From the day that I started this business, I have been focused on transparency, accountability, and trust. All encompassing in these principles is the truth.


Whether people who want to see me fail like it or not, the truth is that Hedgeye has been right on 16 of 17 closed positions (LONG and SHORT) in the Hedgeye Portfolio in June. The truth is that’s called alpha – and we want you to embrace the process that generated it.


We are passionately striving for Macro Market Truths. They are very different than political realities. Since the US Federal Reserve was created in 1913, the world has had to deal with the market volatility caused by Fiat Fools implementing short-term career risk policies.


I have been on the road talking about this chart for the last 10 weeks, so many of you who have given me some of your time will be familiar with it (see Chart of The Day attached). This is a Reinhart & Rogoff chart from “This Time Is Different” (by the way Mr. Greek Politician man, it’s not) that tracks the median inflation rate going back to the year 1500.


This is a Global Macro chart. And yes members of the Keynesian Kingdom, markets are now Globally Interconnected. Ever since the world allowed professional politicians to decide what the perceived “value” was for fiat currencies (the post Gold Standard period, 200 years of Global Industrialization, 1740 to WWII – see chart), we have done nothing but:

  1. Shorten economic cycles of inflation/deflation
  2. Amplify the volatility of those inflating/deflating prices

If La Bernank et La Trichet have an answer to the causality embedded in this 510 year picture, I think the 99% of us would be more than happy to hear their version of the truth.


My immediate-term support and resistance ranges for Gold (we are long), Oil (Goldman has been bullish; Hedgeye Bearish), and the SP500 (we have covered all sub-sector S&P ETF shorts), are now $1, $93.01-98.98, and 1, respectively.


Best of luck out there today and enjoy your weekend. Happy Father’s Day, Dad.



Keith R. McCullough
Chief Executive Officer


Infinitesimal Truth - Chart of the Day


Infinitesimal Truth - Virtual Portfolio

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