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Notable macro data points, news items, and price action pertaining to the restaurant space.






The most important macro statistic for the restaurant industry is job growth.  Today, jobs data is a complete bomb.  Payroll employment was flat during the month. Even if Verizon's 45,000 striking workers are added back into the mix, payroll gains were far weaker than was expected. 




THE HBM: WEN, DPZ, CBRL, MSSR - subsectors fbr





WEN traded strongly yesterday on the news that Emil Brolick will soon take over as CEO.


DPZ CEO Jerry Doyle made an appearance on CNBC yesterday.  Doyle said that cheese prices are in the $1.78-$1.79 range, the NFL strike settlement is positive for his company’s business, and that the company has used cash “efficiently”.





CBRL’s board has unanimously declined the demand to appoint Biglari to the board. The company, according to a press release issued last night, “endeavored to avoid proxy fight, and held numerous discussions with Biglari and offered him the opportunity to appoint two qualified independent directors.


MSSR rated “New Buy” at GFI Group


THE HBM: WEN, DPZ, CBRL, MSSR - stocks 92



Howard Penney

Managing Director



Rory Green






TODAY’S S&P 500 SET-UP - September 2, 2011


With the SP500 closing 1 point above its immediate-term TRADE line of 1203 yesterday, this morning’s jobs print in the US becomes very relevant.   We have ZERO edge on what the number will be (the government makes up the birth/death adjustment), but we have a process/ plan post print.

  1. If the SPX breaks and holds below 1203, immediate term TRADE support becomes 1182
  2. On a breach of 1182 and a VIX breakout > 35.40, retest of the 2011 lows is in play
  3. If the SPX draws down and recovers 1203, immediate-term upside to 1234


As we look at today’s set up for the S&P 500, the range is 41 points or -1.86% downside to 1182 and 1.54% upside to 1223.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -1433 (-2334)  
  • VOLUME: NYSE 1017.95 (+19.54%)
  • VIX:  31.82 +0.63% YTD PERFORMANCE: +79.27%
  • SPX PUT/CALL RATIO: 1.78 from 1.40 +27.11%


  • TED SPREAD: 31.93
  • 3-MONTH T-BILL YIELD: 0.02% +0.01%
  • 10-Year: 2.22 from 2.19    
  • YIELD CURVE: 2.03 from 1.99

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30 a.m.: Unemployment rate, est. 9.1%, prior 9.1%
  • Change in non-farm payolls, est. 68k, prior 117k
  • 1 p.m.: Baker Hughes rig count



  • Bank of America, JP Morgan, other banks may be sued by the U.S. FHFA for misrepresenting quality of mortgage securities during height of housing bubble: NY Times
  • Bank of America told by Fed to show steps it would take if its financial condition worsens: WSJ 
  • BP, Exxon Mobil, others shut almost 6% of Gulf crude output ahead of tropical depression
  • Netflix said Starz walked away from talks on new streaming deal; contract ends next Feb.



COMMODITIES: big breakout lines in Gold and Silver = $1819 and $41.53


THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • China Buries Obama’s Solar-Power Ambitions With $34.4 Billion
  • Gold Gains for Second Day as Equities Drop on Growth Concern
  • Oil Drops Before U.S. Jobs Data; Gulf Rigs Shut as Storm Builds
  • Saudi Oil May Gain as China Refineries Restart: Energy Markets
  • Shanghai Plans Fivefold Increase in Metal Bonded Warehousing
  • Baosteel Group Pays $1.95 Billion for Stake in Niobium Miner
  • Copper Falls for Second Day as Growth Concerns Weigh on Demand
  • Corn Rallies After Biggest Drop in Two Months Spurs Purchases
  • Glencore Proposes Cash Bid Valuing Optimum Coal at $1.2 Billion
  • Gold May Advance on Concern About Slowing Growth, Survey Shows
  • Palm Oil Gains as Widening Discount to Soybean Oil Lures Buyers
  • Ukraine’s Corn Exports Surge Capping Price Rally as U.S. Bakes
  • Australia Wheat Forecast Cut 4 Percent on Dry East, ANZ Says



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: broadly lower lead by Greece and Germany down 3.6% and 2.8%, respectively. 
  • Greek Finance Minister denies that EU/IMF talks are suspended, says new cycle of talks will begin on 14-Sept -- Reuters
  • Eurozone July PPI +6.1% y/y vs consensus +6.1% and prior +5.9%; Eurozone July PPI +0.5% m/m vs consensus +0.5% and prior +0.0%


THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: mixed last night (Japan and China down 1.2% and 1.1%), but the Philippines (which I am long) was up 0.6% moving to up +1% for September









Howard Penney

Managing Director

CHART OF THE DAY: Contemplating Inevitabilities


CHART OF THE DAY: Contemplating Inevitabilities - 1. DJ

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Contemplating Inevitabilities

“Old age is a shipwreck.”

-Charles de Gaulle


In life, there are certain inevitabilities, with aging at the top of the list.  No amount of money, fame, or religion prevents the reality that we will all grow old, at least physically, one day.  While in his quote above de Gaulle could easily have been talking about the fiscal discipline of Greece, he was, in fact, appropriately describing the reality of our bodies naturally aging and eventually deteriorating.


Now that I’ve started your morning off on a completely somber note, I’ll offer another reality, which is that aging and longevity research suggests that all of our life spans will be extended versus prior generations.  Not only that, we will age more gracefully and comfortably as well.  In her new book, “100+ : How The Coming Age of Longevity Will Change Everything, From Careers And Relationships To Family and Faith”, Sonia Arrison, a fellow Canadian and senior researcher at the Pacific Research Institute, provides an insightful overview of the technology of longevity.


In fact, as Arrison notes, human life has generally been extending since human life began.  During the Cro-Magnon era, humans could have expected to live just long enough to graduate from high school, or to the ripe old age of eighteen.  By the time of the European Renaissance life expectancy had almost doubled to thirty.   By 1850, just as the U.S. population hit 23.1 million, the average age reached forty-three.   Today, with the acceleration of medical breakthroughs, the average person in the Western world can expect to celebrate his, or her, eightieth birthday.  In the future, according to Arrison:


“The first person to live to 150 years has probably already been born.”


The pursuit of longevity has been ongoing since the beginning of recorded history.  One of the first contemplations of death actually occurs in Genesis, the first book of the bible.  After willfully disobeying God by eating the forbidden from the Tree of Knowledge of good and evil, Adam and Eve were kicked out of the Garden of Eden, a place of immortality, into the real world where they faced sickness, death, and the threat of crazy New York taxi cab drivers.


I don’t need to restate the entire history of human aging to assure you that it is a topic that has been and likely always will be front and center for mankind.  As a result, a vibrant growth industry has risen around areas of extending lives and more gracefully aging.  In her book, Arrison discuss some of the key areas of development and investment, which we’ve borrowed and outlined in the table below:


Contemplating Inevitabilities - 1. DJ


The key question that arises of any discussion of the extension of human life is whether the earth has the physical resources to support a growing population.  Obviously, an important question given that human population has grown from 900 million in 1800 to just under 7 billion people today.  The most famous critic of the earth’s ability to sustain population growth is Thomas Malthus, who in 1798 wrote in his “Essay on the Principle of Population”:


“Population, when unchecked, goes on doubling itself every 25 years, or increases in a geometrical ratio.”


Interestingly, Malthus’ thesis ended up being spot on for the growth of the earth’s population.  Where Malthus ultimately failed was in his belief that subsistence could only grow arithmetically, which, according to his theories, would create a major issue in the future as there wouldn’t be enough resources to support the population.


Long term commodities bulls are obviously major advocates of Malthusian theories, as they describe a natural tightening of supply and demand for food, energy, and building materials. Ultimately this supply and demand will lead, according to commodity bulls, to long term favorable real price performance for commodities and impending disaster for those humans who can’t afford the accelerating price of commodities.


This is an interesting theory, but it hasn’t really played out in practice.  The most prominent modern advocate of Malthusian theories is Stanford professor Paul Ehrlich, author of “The Population Bomb”.  In the 1970s, he predicted that the world would run out of food (it didn’t) and in 1980 bet Julian Simon that over the next ten years, five specific metals would increase in price. So, what was the outcome?  As Arrrison writes:


“During the decade from 1980 to 1990, world population grew more than 800 million – a huge increase that, according to Ehrlich, should have spelled disaster . . .  Without fail, every single metal decreased in price, and Ehrlich was forced to admit defeat.”


The moral of the story is that even as the population has grown geometrically, humans have continued to innovate, live longer and healthier, and decreased their dependence on finite resources.  (Incidentally, as shown in the Chart of the Day, the decade from 1980 to 1990 was also a period in which the U.S. dollar was flat (albeit with huge strengthening in between), versus trending down thereafter, which likely served to keep commodity inflation in check.)


So, as you head into the long weekend contemplating your longevity, I’ll offer a few tips.  To start with, there does appear to be some credence to the health benefits of red wine, especially for those who are a little overweight, but the single and simplest tip to living a long and healthy life . . . . caloric restriction. Not sexy, but eating less works.


Enjoy the long weekend with your friends and families.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Contemplating Inevitabilities - Chart of the Day


Contemplating Inevitabilities - Virtual Portfolio

Feeling Good

This note was originally published at 8am on August 30, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Feeling good about a judgment is a prerequisite to acting upon it.”

-Dan Gardner (Future Babble, 2010)


I moved the Hedgeye Portfolio to net short (more shorts than longs) for the first time since June 23rd yesterday.


Did I feel good about it? Did I feel as good as I felt about running net short in June of 2011? How good did I feel moving to one of my most net long positions (more longs than shorts) on August 8th, 2011?


The answers to these questions are uncertain. I never feel good about any position until it’s working. And there is usually a huge difference between what I am feeling versus what I am actually doing with my longs and shorts.


“Confirmation bias” is a term that was coined by cognitive psychologist and Master Chess player, Peter Wason, in the 1960s. Per Wikipedia, the simple definition of confirmation bias is the “tendency for people to favor information that confirms their preconceptions or hypotheses regardless of whether the information is true.”


Confirmation bias, as Dan Gardner astutely calls out on page 84 of “Future Babble – Why Expert Predictions Fail and Why We Believe Them Anyway”, “is as simple as it is dangerous.” As Global Macro Risk Managers, we need to be thinking long and hard about that.


“In Peter Wason’s seminal experiment, he provided people with feedback so that when they sought out confirming evidence and came to a false conclusion, they were told clearly and unmistakably, that it was incorrect. Then they were asked to try again. Incredibly, half of those who had been told their belief was false continued to search for confirmation that it was right.” (Future Babble, page 85)


Can you imagine if Wason’s sample study was today’s short-term performance chasing hedge fund community? Never mind half – that number would be a lot higher than 50%. After all, we hedge fund people were born on this good earth to be able to judge sales, margins, and “valuations” light-years beyond our contemporaries who are still caged up in the Bronx Zoo.


Back to the Global Macro Grind


While I was right in my call for a “Short Covering Opportunity” (time stamped 10:47AM August 8th, 2011) in early August, I was wrong last week in suggesting that the SP500 could breakdown to lower-YTD-lows.


Being wrong happens. Most people just don’t like to admit it does. The key in this profession is being right a lot more than you are wrong. And not being really wrong when you aren’t right.


When I decided to move the Hedgeye Portfolio to net short yesterday, it was a conscious decision based on my multi-factor, multi-duration, Global Macro Model – not solely on what the SP500 was doing.


That’s not to say what the SP500 is doing doesn’t matter. What it has been doing does too (SP500 returns):

  1. DOWN -22.7% from its October 2007 top
  2. DOWN -11.2% from its lower-long-term high established in April 2011
  3. UP +8.1% from its higher-immediate-term low established in August 2011

Now a Perma-Bull will quickly snort … but but but, “we’re up huge from the 2009 low.” And we all get where that is coming from – what the bull means is that the US stock market is up +78% from the 2009 low. His client’s money isn’t.


Math doesn’t uphold the principles of storytelling or confirmation bias:

  1. The SP500 lost 57% from October 2007 to March of 2009
  2. In order to “break even” on that loss, your buy-the-dip bull would need to be up +131% off the bottom
  3. That, of course, assumes he nailed every move along the way (for 3 years)

So when the manic media is hammering you with “Greek stocks are having their best day ever” yesterday (they did on a percentage basis), remember that on Friday Greek stocks had crashed (down -48% since February 2011) and they’d need to “rally” +92% “off the lows” to get you back to break even versus only 6 months ago.


Or how about Bank of America? How good am I “feeling” about shorting that stock again yesterday in the Hedgeye Portfolio?

  1. Early September 2010 when we were shorting BAC, the stock was at $13.21
  2. By August 23, 2011, BAC had lost 52% of its “value” in less than a year
  3. BAC needs to rally +110% “off the lows” to get back to a 1 year break even return

I didn’t feel good about shorting BAC yesterday. I felt as uncertain as I should feel when a short position is -11.28% against me. While our Financials Managing Director, Josh Steiner, and I have shorted this stock 10x since 2010 (and been right 10x), that and a case of Molson Canadians will maybe make us prolific horseshoe players down at the lake tonight – nothing more.


If I was being paid what I used to be overpaid working at hedge funds and I said that in a morning meeting, everyone who wanted me to fail would be whispering “uh, it doesn’t sound like Keith has conviction anymore does it”…


That’s Wall Street. They want everyone to be “Feeling Good” about their “best ideas”, all of the time.


My immediate-term TRADE ranges of support and resistance for Gold, Oil, and the SP500 are now $1733-1817, $85.03-88.62, and 1163-1219, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Feeling Good - Chart of the Day


Feeling Good - Virtual Portfolio


The Macau Metro Monitor, September 2, 2011




According to preliminary information compiled by Macau Business, here are the August GGR share numbers—SJM: 27%, GALAXY: 20%, MPEL: just less than 15%, LVS: above 14%, WYNN: 13%, and MGM: 11%.



Private equity firm Permira has raised HK$4.78 BN (US$613 MM) by selling 6.5% of its stake in GALAXY at a price of HK$17.70 per share.  The deal reduced Permira’s stake in the company to 12.8% from 19.3%.


“We are confident of further appreciation in the value of the company and the investment. As such, the Permira funds currently have no immediate plan to dispose of further shares in the company and intend to continue to hold the remaining shares as long-term investment,” Permira said.

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