Unless, Sardar Biglari makes an offer the take CBRL private, I don’t think the stock goes much above $50.  Today, CBRL was sold short today in the Hedgeye Virtual Portfolio.


In the 2006/2007, when CBRL faced Nelson Peltz, the stock peaked at $50.74 and in 2007, CBRL generated $225 million in EBITDA versus $228 million in fiscal 2010.


Given the secular decline I see in the concept’s business, I don’t see much value past the $50 level, because the cost of fixing declining traffic trends is both time- and capital-intensive.  One of the biggest issues is that the company is consistently raises prices in an attempt to protect margins and driving the core customer away in the process.  The core Cracker Barrel customer skews older with little disposable income and has suffered from the economic malaise of the past few years.


As I said in my CBRL note on 6/16 “I let you be the judge of the company’s performance since the beginning of fiscal 2007 (the last time the company faced an activist investor).  The store base has grown by 11%, sales by 2.3%, EBITDA by $3.4 million, EBIT has declined by $68,000 and the share price has gone nowhere. 


The questions investors need to ponder are: can Mr. Woodhouse fend off Mr. Biglari and what will he do to create value?  Will he pursue the same path he did against Nelson Peltz?  A transaction we know created ZERO value for shareholders.


While we wait the pressure on the core business will persist. 






Howard Penney

Managing Director

Squeezy The Shark: SP500 Levels, Refreshed

POSITION: No position SPY


He’s back!


Back by popular demand is our old behavioral market reality - Squeezy The Shark. She dwells in the depths of the hedge fund community. She bites you when you don’t have it in you to Cover Low. She wants a look at the 1293 line.


There were 2 economic data points left this morning to get the shorts paid: 

  1. Michigan Consumer Confidence = DOWN 2.5 points m/m to 71.8 (reversing all of May’s gains)
  2. US Leading Indicators = +0.8% sequentially (but it’s an April # and basically irrelevant) 

Neither of these data points matter. If you didn’t know consumer confidence was falling as home and stock prices have, now you know. Markets discount.


What matters is the USD/Euro cross. And for now, the market morons (Greek politicians) in Europe have the career risk management trade on into the weekend. Euro UP = USD DOWN = Stocks UP.


This is very immediate-term analysis but, like driving a car, risk management occurs all of the time. Provided that 1277 in the SP500 holds, there’s a heightening probability that the SP500 rallies to a lower-high at 1293 – and nothing “fundamental” from an intermediate-term perspective will have changed.


The masses shorted the lows, and now Squeezy is hungry.



Keith R. McCullough
Chief Executive Officer


Squeezy The Shark: SP500 Levels, Refreshed - 1

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 80.52%
  • SHORT SIGNALS 78.67%


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


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