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THE HBM: DNKN, BAGL, SBUX, WEN, RRGB, CEC, MSSR

THE HEDGEYE BREAKFAST MENU

 

CALLOUT OF THE DAY

 

The DNKN visual below, (from http://www.dunkinfranchising.com) promoting Dunkin’ Donuts franchising opportunities, is a great visual that shows how truly regional the Dunkin brand is. 

 

THE HBM: DNKN, BAGL, SBUX, WEN, RRGB, CEC, MSSR - opportunities brewing

 

 

MACRO

 

Employment

 

The U.S. Monster Employment Index fell 2 points in July to 144. The fall in labor demand is in line with other surveys which suggest the U.S. labor market failed to improve markedly in July. A stronger U.S. recovery hinges on an improving labor market.

 

Consumer

 

According to the Bloomberg Weekly Consumer Comfort Index, sentiment fell from -46.8 to -47.6 for the week ending July 31st. The index has declined for two consecutive weeks and is at its lowest since May.

 

THE HBM: DNKN, BAGL, SBUX, WEN, RRGB, CEC, MSSR - bloomberg comfort

 

 

Subsectors

 

Yesterday was a bloodbath in the market – no subsector was “safe” – but food retail outperformed the other food, beverage and restaurants categories.  Food processors traded down -6.2%, underperforming the other categories.  The decline in the food processing stock was somewhat surprising given the significant decline in commodity costs.  

 

THE HBM: DNKN, BAGL, SBUX, WEN, RRGB, CEC, MSSR - subsector fbr

 

 

PRICE ACTION 

 

Consistent with the broader market, a number of stocks in the restaurant space fell on accelerating volume.  The names that stand out that did not see accelerating volume are also some of the strongest fundamentally (valuation aside).  In the QSR space: MCD, CMG, SONC, KKD, BAGL and GMCR.  In the casual dining space: KONA, RRGB, DRI, RT, MSSR.

 

 

QUICK SERVICE

  • BAGL reported Q2 EPS of $0.18 versus consensus $0.21; SSS 0.2% versus year-ago 0.8%
  • SBUX Japan reported in line numbers for the period ended June 30.
  • WEN will do business as “The Wendy’s Company” effective Tuesday and continue to trade under the ticker “WEN” following the completion of the sale of Arby’s Restaurant Group to Roark Capital.

 

FULL SERVICE

  • RRGB initiated outperform at BMO Capital
  • CEC reported Q2 EPS $0.34 versus consensus $0.32; SSS sales were up 0.8% during H1 of 2011 and were down 7.9% during the first four weeks of Q3 of 2011.  Guidance EPS $2.75-2.95 versus prior guidance $3.00-$3.10
  • MSSR reported Q2 EPS $0.09 ex-items versus $0.09 Comparable restaurant sales -2.7% versus consensus of -2.5%; Guidance (Dec 2011): EPS $0.26-0.31 versus prior guidance $0.31-0.36.

THE HBM: DNKN, BAGL, SBUX, WEN, RRGB, CEC, MSSR - stocks 85

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE M3: MPEL HK IPO; SANDS COTAI CENTRAL

The Macau Metro Monitor, August 5, 2011

 

 

MELCO CROWN EYES $600 MILLION HONG KONG IPO: REPORT West Australian

According to a Dow Jones source, MPEL is looking to raise $400-600MM for its HK IPO.  The source also said the IPO would launch in Q4.

 

SANDS CHINA SIGNS DEAL WITH HILTON, IHG FOR COTAI PROJECT WSJ

Sands China has signed franchise agreements with Hilton Worldwide and IHG for hotels at Sands Cotai Central.  Hilton's five-star Conrad is expected to open in 1Q 2012 with more than 600 rooms.  A four-star Holiday Inn by InterContinental should also open in 1Q 2012 with more than 1,200 rooms.

 


SLOTS: GREEK VLT BILL PASSED

If the European Commission fight ends amicably, this would be a positive catalyst for the slot guys.

 

 

Yesterday, the Greek parliament passed an omnibus bill which included the VLT/online gaming bill.  While we expected the bill to pass in late 2011 (GREECE: DRAFT GAMING BILL SUBMITTED TO PARLIAMENT (3/21/11)), the fast-track status it obtained by clinging onto a broader legislation package was not foreseen. According to Greek finance minister Venizelos, Greece had to pass the omnibus bill before the EU/IMF audit team arrives on Aug 22.  Under the bill, OPAP will receive an exclusive license to operate all 35,000 VLTs, operating 16,500 machines itself and sub-contracting the rest.

 

But it’s not smooth sailing yet. Greece passed the bill despite European Gambling and Betting Association’s (EGBA) and European Commission’s (EC) protectionism and discrimination concerns which violate EU law. All eyes will be on August 8—the deadline for Greek lawmakers to reply to the objections. If Greece fails to address the Commission’s objections, the EC could launch infringement proceedings in the European Court of Justice.

 

However, if Greece work things out with the EC on the gambling bill, here are the next steps:

  • Bill sent to President Papoulias for promulgation and publication in the Government Gazette
  • Setup of new gaming supervising committee
  • Tender process

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Repetitive Drills

This note was originally published at 8am on August 02, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Even in his repetitive drills he had a way of making the mundane seem important.”

-David Maraniss (on Vince Lombardi)

 

That quote comes from an inspirational excerpt on page 212 of “When Pride Still Mattered” where David Maraniss boils down the deep simplicity of Lombardi’s coaching process. If you’re trying to lead a country, company, or family this morning, I confidently submit that consuming this perspective is well worth your time. America needs you, The People, to lead us out of this mess.

 

Vince Lombardi was “the football variation of a masterly novelist who could take the muddle of everyday life and bring clarity and sense to it, and allow readers to see, for the first time what was in front of their eyes all along. Bart Starr was on the edge of his seat, listening – getting it for the first time. All the crap was gone; this was right to the bone, simple, yet so refreshing and exciting.”

 

“Everything was accounted for, labeled, identified, put in order, fundamental and sound. You could tell that the coach believed in what he was doing. His tone of voice, his posture, his manner – it all made you believe. It all made sense.”

 

So let’s grind. This globally interconnected marketplace all makes sense – you just need to account for “everything”:

  1. US TREASURIES – across the curve, 2s, 10s, and 30-year UST yields are making fresh YTD lows this morning in the face of a very wrong bet by some of our industry’s losing teams that suggested there was US “credit risk” coming down the pike. Not today.
  2. US DOLLARS – had a breakout day yesterday, trading right back above an important line of immediate-term support ($74.11 on the US Dollar Index) as clarity on the “Debt Deal” found her way into the market’s currency expectations.
  3. US EQUITIES – not good folks; not good – but are you surprised? With “Debt Deal” being replaced by “Growth Slowing” in this morning’s headlines, many a macro market observer has come to realize that more than just US politics makes globally interconnected risk go round.

Perversely, since La Bernank has addicted the entire Institutional Investing Community to chasing yield, what’s good for America’s currency is quite bad, in the immediate-term, for stocks and commodities.

 

We’ve labeled this The Correlation Risk (USD up = stocks and commodities down). Sadly, Bernanke and Geithner have been negligent in addressing this massive tail risk to the American people when under oath.

 

So what do you do with that?

  1. Short the Euro
  2. Short European Equities
  3. Sell US Equity and Commodity exposure

People want “clarity” in this market place. There it is.

 

On yesterday’s proactively predictable opening market strength, I sold down my US Equity exposure in the Hedgeye Asset Allocation Model to 0%. That’s ZERO. Like my long exposure to European Equities – ZERO.

 

As of yesterday’s close, here’s how the Hedgeye Asset Allocation Model is positioned:

  1. Cash = 52% (up from 43% last week)
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener – TLT and FLAT)
  3. International Currencies = 12% (US Dollar and Canadian Dollar – UUP and FXC)
  4. International Equities = 12% (China, India, and S&P International Dividend ETF – CAF, INP, and DWX)
  5. Commodities = 6% (Silver – SLV)
  6. US Equities = 0%

Now the Hedgeye Portfolio (14 LONGS and 12 SHORTS) is a different product obviously than long-only asset allocation. Neither of these products are perfect. No one’s risk management process in this business ever will be. We get that – but every move we make is based on a repeatable process that changes as the math does. And, believe me, the coach over here believes in what he is doing.

 

My goal is simple. I want to win. And my team will stand here alongside you on the front lines of Global Macro market risk, just as we did during the thralls of 2008, so that you don’t lose your hard earned net wealth. We don’t make excuses. We make moves.

 

Since January 2011, we have led the debate that Global Growth Slowing was going to equate to lower than expected US Equity returns. Every morning since, we have been banging the drums with our often Repetitive Drills to remind you what we are seeing and when.

 

That doesn’t mean I am going to own US Treasuries (TLT), Flatteners (FLAT), or Silver (SLV) forever. I could sell them all today and nothing will have changed unless I deviate from the process in order to make those decisions. If the process changes, I better know why. And I damn well better be able to explain it to my troops.

 

In a world where people have no reason to believe their country’s leaders…

 

In a world where politics trump objectively scored performance…

 

That’s the best we can do as leaders. We have to be accountable. We have to make sense.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1611-1637, $94.11-96.21, and 1275-1316, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Repetitive Drills - Chart of the Day

 

Repetitive Drills - Virtual Portfolio



Anniversary Day

“He who will not economize will have to agonize.”

-Confucius

 

I lost over three hundred dollars of my net wealth yesterday. Happy Anniversary Laura.

 

Actually, if you back into the valuation of my largest holding (Hedgeye)… assume a 3-month Treasury discount rate of 0.00% (this morning you almost have to pay the government to hold your money)… and infer that our team’s analytical competence added some value to our clients’ risk management process this week… I think I made back my three hundred bucks.

 

Like a lot of things manic media and the Wall Street/Washington they cover, their concept of CASH can be amusing. I personally invested approximately 1/3 of my CASH in this company during the thralls of 2008. I considered that a relatively “high conviction” idea.

 

But when Wall Street talks about CASH, bankers and brokers are usually talking about your money. There is a gargantuan marketing machine that stands behind this basic compensation mechanism – they need other people’s money to make money.

 

People are always asking me “what’s your best long term idea”? Away from Hedgeye, I think CASH is the best weapon for self defense in the modern Fiat Fool world in which we live. CASH saves you on a day like yesterday (worst day for US Equities since 2008). CASH also provides you the opportunity to make long (or short-term) investments when your competition is not allowed to make them.

 

Back to the Global Macro Grind

 

Before the price of Silver collapsed intraday, I raised another 12% CASH in the Hedgeye Asset Allocation Model. That takes my CASH position to 67%. I sold my 6% allocations to the US Dollar and Silver (total = 12%) at 10:27AM and 11:06AM, respectively. At the time, they were both up on the day. I was pleased.

 

Now a lot of people (and I mean a lot) told me I “couldn’t” go to 96% CASH in Q3 of 2008. Less people will tell me I can’t go to 67% CASH in 2011. Why? Most likely because I just did.

 

The idea here this morning isn’t to take a victory lap (although these things do occur for winning teams). The idea is the same idea I have been pounding on since 2008. Our industry needs new ideas, new risk management processes, and new blood. Re-think. Re-work. Evolve. Old Wall Street knows that. They are Too Big To Change as fast as Hedgeye has changed – Old Wall Street knows that too.

 

Today’s Hedgeye Asset Allocation is as follows:

  1. CASH = 67%
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener – TLT and FLAT)
  3. International Equities = 9% (China and S&P International Dividend ETF – CAF and DWX)
  4. International Currencies = 6% (Canadian Dollar – FXC)
  5. Commodities = 0%
  6. US Equities = 0%

Again, this is an asset allocation product, not a hedge fund or a book of long/short ideas (that’s the Hedgeye Portfolio – different product). When I think about this product, I think about Laura, Jack, and Callie. That’s who I work for when preserving our assets.

 

I also work for them to grow our assets. But another funny thing about Wall Street is that some people think you should be in “growth” mode every day.

 

In some asset classes, some of the time, sure – great idea. Most of the time, in most asset classes, that’s a really bad idea. Markets that are being manipulated by central planners do not owe us anything.

 

Globally interconnected markets care about a lot of things at the same time. Right now, they are anchoring on the #1 risk that no one was talking about in mainstream media yesterday: Fiat Fools trying to convince the Institutional Investing Community to chase yield.

 

Chasing yield is all good and fine until the music stops. Remember what the buy-side bus tour operator, Citigroup’s, retired storyteller (the artist formerly known as Chuck Prince) told the Financial Times on July 10, 2007:

 

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing…”

 

Today is August 5, 2011. It’s our 5thWedding Anniversary and I, for one, feel like the luckiest man in the world today. I married a beautiful, loving, and thoughtful woman. I have healthy children. I have a happy firm.

 

And I still have my cash.

 

My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $86.52-91.95, and 1165-1256, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Anniversary Day - Chart of the Day

 

Anniversary Day - Virtual Portfolio


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