Bullish Babble

This note was originally published at 8am on August 18, 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 can forecast confidently that it will vary.”

-Lord John Browne


That was a quote from the former CEO of British Petroleum on forecasting the price of oil. It’s the opening line in Chapter 2 of a must-read book that’s in my summer pile titled “BabbleWhy Expert Predictions Fail and Why We Believe Them Anyway.” Good thing our Keynesian overlords in Washington and the manic media that fawns on them don’t consider me an “expert”…


I was on what we affectionately refer to as a Hedgeye Client Roady in New York City with our all-star European analyst Matt Hedrick yesterday. It was hot. We were sweaty. And, oh, were we all beared up (to be “beared up” means to be Bearish Enough).


Is the Sell-Side Bearish Enough?


Given that most of the Bullish Babble I have been reading from Wall Street’s “Sell-Side” (investment banks and brokers who market the Perma-Bull) in 2011 has not yet turned bearish (never mind Bearish Enough), the answer to that question is unequivocally no.


Is the Buy Side Bearish Enough?


The “Buy-Side” (asset managers) is definitely not bullish like the Sell-Side. But I don’t think they are Bearish Enough yet either. There’s certainly a qualitative element to that conclusion (my gut), but there’s also quantitative evidence (S&P Futures down -23 handles this morning and yesterday’s Institutional Investor Sentiment survey showed only 23.7% of people admitting they are bearish.


Back to the Global Macro Grind


Wall Street/Washington “blue chip” forecasts on US GDP Growth continue to be so far away from the area code of reality that S&P actually looks accurate (S&P cut its Q4 US GDP estimate to 1.8% yesterday – Hedgeye’s Q4 GDP range is 0.6%-1.3% for Q4).


From a risk management modeling process perspective, we use a range because we aren’t yet dumb enough to take the government’s word for it when they can revise the GDP number down by 81% in 3 months (Q1 2011).


In terms of Global GDP Growth, Morgan Stanley is snagging the #1 “Most Read” headline on Bloomberg Economic News this morning by “Lowering Global Growth Forecast” by a whole 30 basis points to 3.9%. Oooh, lah, lah… the bearishness of it all.


Meanwhile, the Global Macro Economic Data continues to confirm our baseline case for Global Equities – that stocks will be assigned a lower multiple because A) the Street is using the wrong GDP and earnings numbers and B) The Stagflation earns a much lower multiple.


Around the world this morning, Gentlemen and Ladies of Hedgeye, here are your real-time economic taps:

  1. SINGAPORE (ASIA) EXPORT SLOWDOWN – exports down -2.8% in July (that’s a year-over-year number!) and if you didn’t know that the Singaporeans A) advise the Chinese and B) were dead serious about what they said on growth when I signaled it last week… now you know.
  2. BRITISH STAGFLATION – after reporting a whopper of a Consumer Price Inflation (CPI) number for July on Tuesday (+4.4% y/y), the Brits printed a 0.00% Retail Sales growth number for July this morning. ZERO growth + inflation = The Stagflation.
  3. AMERICAN STAGFLATION – yesterday’s Producer Price Index (PPI) for July came in at +7.2% year-over-year growth and this morning’s Consumer Price Inflation (CPI) print should be close to +3.5% y/y. ZERO point 36 percent Q1 GDP Growth + 1.3% Q2 GDP Growth + Inflation readings that are orders of magnitude higher than real-growth = Le Stagflation, Monsieur Bernank.

So what do you do with that this morning? Hopefully the answer to that question resides in what you’ve already done to preserve and protect your family’s capital. We’ve already made the “call” to go to ZERO percent asset allocation to both US and European Equities and on Monday we cut our asset allocation to Chinese Equities in half (from 6% to 3%) in the Hedgeye Asset Allocation Model.


Q (on yesterday’s Client Roady): “what would change your mind?”



  1. Global Macro Economic Data
  2. Sentiment/Expectations
  3. Market Prices

While plenty of Fed Heads have changed their tunes to a more passive-aggressive Rick Perry sounding country song in the last 24 hours (Bullard, Fisher, Plosser, etc), I have not changed mine.


I am forecasting, confidently, that market prices will vary – and that managing risk starts with accepting uncertainty.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1755-1834, $80.07-89.87, and 1172-1207, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bullish Babble - Chart of the Day


Bullish Babble - Virtual Portfolio




TODAY’S S&P 500 SET-UP - August 23, 2011


Bottoms are processes, not points – and, globally, that’s going to take some time as long as the economic data and market prices continue to lean bearish.  As we look at today’s set up for the S&P 500, the range is 64 points or -2.39% downside to 1097 and 3.31% upside to 1161.








  • ADVANCE/DECLINE LINE: -356 (+1217)  
  • VOLUME: NYSE 1191.57 (-21.03%)
  • VIX:  42.44 -1.42% YTD PERFORMANCE: +139.10%
  • SPX PUT/CALL RATIO: 2.01 from 1.67 +20.01%



UST YIELDS – The Hedgeye downside target in the 10-year was hit right on the nose on Friday (2.06%) and now you’re seeing the proactively predictable bounce in bond yields that is inversely correlated with Gold/Silver; remember Gold/Silver really outperforms when real-rates-of return on bonds are negative; the immediate-term TRADE range for 10s is now 2.01%-2.19%; manage risk around that range.


  • TED SPREAD: 30.84
  • 3-MONTH T-BILL YIELD: 0.01% -0.01%
  • 10-Year: 2.10 from 2.07    
  • YIELD CURVE: 1.88 from 1.87

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45 a.m.: ICSC weekly sales 
  • 8:45 a.m.: Alan Greenspan Q&A at Washington Convention Center
  • 8:55 a.m.: Johnson/Redbook weekly sales
  • 10 a.m.: July new home sales, est. 310k, prior 312k
  • 10 a.m.: Aug. Richmond Fed manufacturing, est. -5, prior -1
  • 11:30 a.m.: U.S. to auction $35b 4-wk bills, $25b 52-wk bills
  • 1 p.m.: U.S. to auction $35b 2-year notes
  • 4:30 p.m.: API inventories, prior crude build 1.75m bbl


  • New homes sales in the US due out this morning should be another bearish data point for both Americans and the financial stocks.
  • Newmont Mining (NEM); Plans new underground exploration in New Zealand, may extend gold, silver mining to 2020 and beyond
  • Hurricane Irene strengthens to category 2 storm, threatening U.S. coast
  • McGraw-Hill has “underperformed its potential” and should break into 4 parts, shareholders Jana Partners, Ontario Teachers’ Pension Plan proposed



  • STAGFLATION – begging for the Bernank to QE3 us is keeping a lid on any USD recovery and that’s a problem for Sticky Stagflation – yesterday the CRB Index was up 2pts on the day and this morning commodities are in many cases outpacing equity market gains. We will get less bearish on Equities, globally, when Oil is at $72.





  • Gold Tops $1,910 for First Time as Platinum Reaches 3-Year High
  • Silver `Neckline' Break May Signal 15% Rally: Technical Analysis
  • Oil Gains a Second Day on U.S. Fuel Demand, Libya Supply Outlook
  • Australia May Ship Most Wheat Since 2004: Freight Markets
  • Oil Supplies Gain in Survey on Reserve Release: Energy Markets
  • Copper Rises on Improving Chinese Demand, U.S. Stimulus Outlook
  • Shanghai Gold Exchange Raises Margin Requirement to 12%
  • Irene Strengthens to Category 2 Storm, Threatening U.S. Coast
  • ‘Saudi Arabia’ of Copper Fails to Lift Output: Chart of the Day
  • Corn Advances to 10-Week High as U.S. Crop Condition Worsens
  • King Says Commodity Price Drop to Ease Income Squeeze Sooner
  • Palm Oil Gains as Dry Weather Threatens Soybean Crop Prospects
  •  Gold Extends Rally Above $1,900 as Economic Concerns Lift Demand







  • EUROPE – PMI numbers across the board for August are plain bearish, but markets have been pricing that in so we’re seeing another low-volume, low-conviction, rally in everything that’s been going down (other than Greece, which is down again this morn and down -45% since FEB); most interesting number was France dropping below the 50 line on PMI; GDP expectations in France (and their AAA rating) need to come down.
  • EuroZone Aug preliminary Manufacturing PMI 49.7 vs consensus 49.5 and prior 50.4
  • EuroZone Aug preliminary Services PMI 51.5 vs consensus 50.9 and prior 51.6
  • EuroZone Aug preliminary Composite PMI 51.1 vs consensus 50.1 and prior 51.1
  • German Aug ZEW current conditions 53.5 vs consensus 87.0; economic sentiment (37.6) vs con (25.0)





  • ASIA: China put up a better than bad number last night and stocks stopped going down +1.5% overnight; Korea stopped crashing, which is nice.
  • HSBC Flash Manufacturing PMI for China beat expectations and came in higher m/m, still indicated a contraction.








Howard Penney

Managing Director

Weekly Latin America Risk Monitor

As usual, we’re keeping it brief. Email us at if you’d like to dialogue further on anything you see below.



Growth continues to slow in Latin America while recent and future policy actions are creating some obvious warnings signs in the system – particularly as it relates to the FX exposure of investors and corporations alike.



Last week was rough week for Latin American equity markets, closing down -2.2% wk/wk on average. We did see the larger markets like Brazil’s Bovespa Index and Mexico’s IPC Index outperform the smaller, more illiquid markets like Argentina’s Merval Index and Colombia’s IGBC General Index, with the notable exception of Venezuela’s Stock Market Index (up +51.4% YTD). In Latin American FX markets, currencies broadly appreciated vs. the USD wk/wk, with the exception of the Argentinean peso (ARS) who’s -0.5% wk/wk decline echoes a developing trend of capital flight from the country.


The big callout in Latin American fixed income markets is the -50bps wk/wk decline in Brazilian 2yr sovereign debt yields as expectations for future interest rate cuts continue to get priced into Brazil’s interest rate market (1yr on-shore swap rates declined -37bps wk/wk and -95bps MoM). Interestingly, Friday’s closing yield of 11.54% is a full 96bps below the Brazilian central bank’s benchmark interest rate (the Selic), currently at 12.5%. In Latin American CDS markets, the key callout is the +10bps backup in Argentina’s 5yr swaps amid broad-based declines throughout the region.


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Brazil: Last week was a busy week for Latin America’s largest economy. Early in the week, it was reported by O Globo that the external debt for large Brazilian corporations had increased +74% from 3Q08 levels. We continue to flag the external debt buildup of many emerging-market economies over the last ~2 years as an incremental risk for some emerging market equities heading into an environment of slower global growth – particularly if the dollar continues to strengthen against EM currencies (a lower exchange rate increases their nominal debt burden). The Brazilian real in particular is down -2.3% vs. the USD over the last month, in part due to the latest 1% tax on FX derivatives (imposed on July 27). Anecdotally, the latest measure has been said to have increased volatility in Brazil’s on-shore FX derivatives market as well as reduced corporate incentive to hedge the FX risk.


Elsewhere in the Brazilian economy, we see signs that Brazil is headed in the wrong direction from a fiscal policy/regulatory perspective per the roadmap we outlined in our recent deep dive on the Brazilian economy (email us if you’d like a copy). First, it was reported by Miriam Leitao that president Rousseff vetoed proposed legislation that contained a balanced budget proposal, as well as other legislation that would have added transparency to the Treasury’s dealings with BNDES – both supportive of higher rates of inflation over the long-term TAIL as the government rejects fiscal discipline on the margin. Secondly, the government added yet another layer to the Brazilian bureaucracy by creating the National Commission of Airport Authorities – a move we see as negative on the margin for the expediency of getting the country’s airport infrastructure up to speed in time for the 2014 World Cup. Lastly, it was leaked to Brazilian newspaper Valor Economico that the government was considering reducing its primary surplus in 2012 – a negative development for the necessary positive adjustment to Brazil’s gross national savings rate in light of the country’s infrastructure initiatives over the next 2-3 years.


From an economic data perspective, Brazilian growth continued to slow with registered job creation slowing to +140.6k MoM in July and the Economic Activity Index (proxy for GDP) slowing in June to +2.9% YoY and -0.26% MoM – the first MoM decline since December 2008! We remain bearish on Brazilian equities for the intermediate-term TREND as growth continues to slow and inflation remains sticky.


Mexico: The key callout as it relates to Mexico last week was a slowing 2Q GDP print of +3.3% YoY (vs. a prior reading of +4.6%). Moreover, the Global Economic Indicator Index (a proxy for GDP) slowed in June to +3.6% YoY (vs. a prior reading of +4.6%). The late-quarter slowdown highlights a key point we’ve been aggressively making since March – the slowdown in global growth is not merely a function of Japan’s earthquake/tsunami.


Mexico’s Ministry of Finance believes the country is likely to expand +4% YoY in 2011 and, while accelerating same store sales growth (+6.4% YoY in July) remains supportive of Mexico’s consumer story, our models continue to point to a full-year GDP growth rate roughly 100bps shy of those expectations. Net-net, we remain the bears on Mexican equities for the intermediate-term TREND as growth slows and the bears on the Mexican peso (MXN) over the same duration as said economic slowdown causes Banco de Mexico president Ron Carstens to continue with Indefinitely Dovish policy well into 2012 as TIIE futures are indicating.


Chile: Another country, another growth slowdown; 2Q GDP growth slowed from +9.9% YoY to +6.8% YoY. Our models point to Chilean economic growth continuing to slow in 2H (though to rates just shy of current levels), and, apparently, so do the central bank’s. Last week they held their benchmark interest rate flat at 5.25%, marking their third pause YTD. In the monetary policy announcement, board members dropped previous mention of possibly raising borrowing costs in the future, citing “the implications of internal and external macroeconomic conditions”.


Like us and the Chilean central bank, the country’s Ministry of Finance is also modeling in a continuation of the current slowdown in Chilean economic growth in 2H. Finance Minster Felipe Larrain is on record saying, “Chile’s economic growth, as well as consumption and investment levels will decelerate in the second half of the year after a solid first-half expansion.” We remain the bears on Chilean equities for the intermediate-term TREND.


Colombia: Like Brazil, Colombia screened poorly in our (growing) external debt monitor. In fact, it was reported last week that Colombian corporations have borrowed externally at a record pace YTD, growing the stock of external debt by a +$1.1B YoY in just the first seven months alone! For a sense of the magnitude, this is on top of a mere -$184M decline in full-year 2010. As with most emerging markets, the gaping interest rate differentials between on-shore paper (4.5% benchmark lending rate) and US dollar/euro/yen denominated paper is driving Colombian debtors abroad.


Both Colombia’s central bank and Ministry of Finance are griping about the “rising dollar inflows” putting upward pressure on Colombia’s exchange rate and we believe interventionist measures, like the deposit scheme of 2007, are on the policy debate table in the coming weeks. Colombian President Juan Manuel Santos explicitly agrees, saying last week that, “Latin American governments must intervene in [FX] markets to correct any failures… authorities can’t take a passive approach to currency appreciation that diminishes the competitiveness of exporters.” Holders of the Colombian peso, peso-denominate assets, and highly-levered Colombian equities beware.


Argentina: The key callouts out of Argentina last week centered on President Fernandez’s sweeping victory in the Argentinean primary election and capital flight/currency devaluation. To the first point, Christina Fernandez garnered just over 50% of the votes while the closest opposition candidate came away with just over 12% apiece – all but ensuring she’ll win a second term as president in upcoming election on the 23rd of October. Her victory is leading some to believe that she’ll purse a more expedient form of currency devaluation upon re-taking office. This is due to the likelihood that Argentina’s “free and available reserves” (FX reserves less monetary base/M0) shrinks to ~$4.7B by year-end (down -65.6% YoY). This is important because Argentina, like Venezuela, favors using FX reserves to fund government expenditures, like the repayment of external debt, for instance.


A currency devaluation would increase the convertible value of Argentina’s “free and available reserves” and give the Argentinean government some wiggle room to continue servicing restructured debt and potentially pursuing expansionary fiscal policy in 2012. The central bank is held hostage from lowering interest rates to support the economy (in the event it becomes necessary) due to the record pace of capital flight (-$9.8B YTD vs. -$11.4B in all of 2010) and elevated rates of consumer price inflation, which Argentinean consumers and private economists believe to be around +25% YoY (vs. the government’s officially-tainted report of +9.7% YoY).


Venezuela: The major news out Venezuela last week that is relevant on a Global Macro basis is ailing president Hugo Chavez’s decision to nationalize Venezuela’s gold mining industry. He also announced that Venezuela plans to repatriate $11B of gold assets held abroad in a scheme designed to shift Venezuela’s liquid reserves to “allied countries” (including itself, China, Russia, and Brazil). The key callout here is that you typically see aggressive maneuvers like this near the peak of bubbles – something gold investors must become increasingly cognizant of.


Darius Dale


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.



Continuing on a theme I wrote about last week…  Some of the differences between 2008 and today are more problematic than the similarities: joblessness is higher, more people are reliant on food stamps for sustenance, and the financial crisis threatening to wreak havoc on our economy is not here in the US and therefore less within our government’s control. 


I’m going to add two more differences:


First, in 2008 Bernanke had not yet shown his hand and had not started the printing presses; we now we have negative real rates, with more to come, and people actually know how ineffective the Fed’s tools are.  In 2008, we didn't really know. 


The second comes from today’s Hedgeye Healthcaster.  The cost of funding healthcare premiums is being transferred from the employers to the individuals, further limiting the consumer’s discretionary spending.  


The following is taken from the today’s Hedgeye Healthcaster.


Employer Cost Shifting/Discretionary Healthcare:  In the latest Large Employer Survey on Expected 2012 benefit offerings, the National Business Group on Health (Here) found that some 53% of Employers would increase the amount workers pay toward their premiums next year while 40% said they would increase deductibles for in-network care. 


The music on this cost shifting dance has been playing for the better part of the last decade as benefit expense continues to grow at healthy premium to GDP.  


Employers have responded by attempting to transfer costs back to the individual – a move which has resulted in the accelerated growth in high deductible/co-pay health plans; which inhibits health consumption for many individuals, and is a meaningful contributor to the growing population classified as ‘underinsured’. 


The net effect of this ongoing cost shift has been an to push healthcare spending increasingly into the discretionary camp; especially into a downturn.  The correlation between Healthcare Spending and Discretionary Spending has been making higher highs over the last decade, reaching a peak TTM correlation of 0.97 into the March 2009 trough.  Looking back over prior recessionary periods, the most recent downturn showed the strongest correlation between healthcare & discretionary spending by a large margin.    


We’ve been highlighting the increasingly discretionary nature of healthcare spending for some time, but it’s probably worth another callout here as growth slows and employers continue to cost shift health expenses back on an employee base now mired in negative real wage growth. 


The similarities, given that we are comparing the present situation to crisis of 2008, are inherently negative.  Energy prices and the VIX are elevated, stocks have fallen off a cliff, and consumer confidence is depressed.





Howard Penney

Managing Director



Rory Green





Look for MPEL to beat even recently revised Q2 EBITDA estimates tomorrow. The bigger story is how much Q3 needs to go up (20%).


MPEL Proposed Dual Listing on HK Exchange (Aug 4)

  • We believe our proposed dual listing on the local bourse will not only put us on a par with our competitors, but will also provide our existing shareholders with much enhanced liquidity, while providing us with access to an additional source of capital. A dual listing on the SEHK will also allow local and Asian investors to directly access investment opportunities in our Company, thus broadening our investor universe."
  • 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.

MPEL Announced Successful Completion of the Acquisition of a 60% Interest in the Developer of the Macau Studio City Project (July 27)

  • Successful completion of the acquisition of a 60% equity interest and shareholder loan in the developer of Macau Studio City, a large scale integrated gaming, retail and entertainment resort to be developed in Macau jointly by MCE and New Cotai Holdings, LLC ("New Cotai Holdings"), an entity controlled by funds managed by Silver Point Capital, L.P. and Oaktree Capital.
  • Signing of a shareholders' agreement for Cyber One Agents Limited (together with its direct and indirect subsidiaries, the "Cyber One Group") with an affiliate of New Cotai Holdings. New Cotai Holdings retains its 40% indirect equity interest in the Cyber One Group.
  • Will open with 300 to 400 gambling tables and 1,200 slot machines, pending government approval. 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.
  • The tentative deadline to open the property is the first half of 2015.

Melco Crown Gaming (Macau) Limited Closes Refinancing (July 1)

  • The refinancing credit facilities ("New Facilities") are for approximately US$1,200 million
    • Amortizing term loan facility for the equivalent of approximatelyUS$800MM ("Term Loan Facility") for the purpose of partially refinancing existing debt and the payment of associated fees, costs and other expenses and a revolving credit facility for the equivalent of approximately US$400MM ("Revolving Credit Facility") to fund the partial refinancing of existing debt, certain maintenance capital expenditure and general working capital purposes. The Term Loan Facility has been fully drawn and the balance of the Revolving Credit Facility will be available for drawdown in Hong Kong dollars, each bearing interest at HIBOR plus a margin.
  • Although the pricing terms of the New Facilities are higher than the pricing terms of the City of Dreams Project Facility, we believe they are in line with market pricing terms. 
  • The term of the New Facilities is five years


Youtube from Q1 Conference Call

  • “Our customer database now has over 650,000 members and continues to grow, further allowing us to strategically target profitable customers now and in the future. GGR in Macau has continued to show strong growth with a year-over-year increase in April of 45% and May is off to a good start. As such, we continue to see upside in both our mass market and VIP gaming revenues as well as incremental revenue growth from our non-gaming operations for the remainder of the year.”
  • “The House of Dancing Water continues to sell out and remains at breakeven on a standalone basis while continuing to contribute to our casino, food and beverage, and hotel segments. With the addition of Cubic, as well as the opening of the Hard Rock Café scheduled for year-end, we believe that our entertainment offerings will continue to differentiate City of Dreams and drive visitation and revenue.”
  • “Depreciation and amortization expense is expected to be approximately $85 million. Corporate expense is expected to come in at approximately $20 million to $22 million. Net interest expense is expected to be approximately $30 million. We do not expect any meaningful pre-opening expense or capitalized interest in the second quarter of 2011.”
  • “We believe that the Galaxy opening is great for Macau and it’s even better for Cotai. We’ve seen traffic hold up at our property quite well; if anything, it’s increasing quite a bit.”
  • “Given the state of the site of Macau Studio City, if the two shareholders were to restart construction, I think it certainly would have a head start over some of the other sites that haven’t even gotten land approvals yet.”
  • [CoD development space] “It’s probably unlikely that the government will approve apartment hotels, after all they have been looking at it for the past five years. So I think the latest design that we have looked at is, really potentially looking at doing adding additional hotel rooms, being a pure hotel, it’s a big project because to give you a comparison, Altira is only 1 million square feet and the developable space at City of Dreams, which we call Phase III now, is 1.5 million, so, with 500,000 potentially in the podium and 1 million in the hotel tower…. it could be another 800-plus room hotel tower.”
  • “I think operating leverage and margin is a continued focus of ours and since our main focus at City of Dreams is on the premium mass segment, we’ve been able to do that by turning off some of the marketing expenses.”
  • [CoD margin] “The margin is stable and other than a small increase from Cubic, stable going into the second quarter as well.”
  • “We view our hold percentage of mass to be something that is really not an anomaly of luck at the table, that’s really a reflection of improvements in the experience that we’re providing to our gaming customers. So, it’s not normalized because we view that as being something that’s sustainable going forward.”


Paying a higher multiple for DNKN over SBUX, MCD and YUM does not make sense to us.  In just about a week’s time, we will be getting a close look at what the “paid supporters” think of the stock at these levels.  My guess is that we will see the sell-side consensus build around the “I like the long term prospects, but valuation is expensive” theme.     


We published our Black Book at the time of the IPO outlining our longer term view of the fundamentals and our view that the coffee space was in a “bubble.”  Valuations have since corrected, with the exception of DNKN.  As we have written, DNKN is a domestic regional brand with a plan to grow domestically into new markets within the U.S.  We find the practicalities of that plan less-than-certain and would absolutely not support a higher valuation for DNKN versus SBUX MCD and YUM which have more convincing growth prospects via international markets. 


Additionally, given the fact that broader economic growth in the U.S. is and will likely continue to be below that of international markets where Starbucks, McDonald’s and YUM are focusing their growth, we are only further convinced that the DNKN premium is unsustainable. 


I can appreciate that there is a K-CUP story developing at DNKN, but that is reflected in the current valuation.  What is not discounted is the potential for SSS to be less that blockbuster in the upcoming quarter if the K-Cups sell thru are less than stellar.  Not to mention the potential for K-Cup supply constraints coming from GMCR.     



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