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TODAY’S S&P 500 SET-UP - September 9, 2011


As we look at today’s set up for the S&P 500, the range is 49 points or -0.41% downside to 1181 and 3.72% upside to 1230.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -1699 (2420)
  • VOLUME: NYSE 946.67 (-0.8%)
  • VIX:  34.32 +2.82% YTD PERFORMANCE: +93.35%
  • SPX PUT/CALL RATIO: 1.23 from 1.99



  • TED SPREAD: 32.66
  • 3-MONTH T-BILL YIELD: 0.0102
  • 10-Year: 2.00 from2.05
  • YIELD CURVE: 1.81 from 1.84


MACRO DATA POINTS (Bloomberg Estimates):

  • 10 a.m.: Wholesale inventories, est. 0.7%, prior 0.6%
  • 11:45 a.m.: Fed’s Williams speaks at symposium in SF
  • 1 p.m.: Baker Hughes rig count



  • G-7 finance ministers and central bankers gather in Marseille, France, to discuss the European sovereign debt crisis and outlook for global growth
  • Tropical Storm Nate expected to strengthen to hurricane today as it forces energy cos. to begin evacuating platforms in Gulf of Mexico; final track still in question
  • NLRB holds hearings on Boeing 787 plant in South Carolina
  • Dish Network may be headed for split with ESPN over increasing rights fees: N.Y. Post
  • Amazon.com would drop quest to exempt itself from collecting sales taxes in Calif., state would forfeit ~$200m under pact lawmakers must act on today if it’s to be adopted
  • FDA AdCom on safety of osteoporosis drugs
  • Senate passed biggest change to U.S. patent law since at least 1952 yesterday, now heads to White House for Obama’s signature
  • No IPOs expected to price today





THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Oil Drops a Second Day as Rising Dollar Counters Storm Concerns
  • Corn, Soy May Open Higher on Shrinking Crops; Wheat Seen Steady
  • Soybeans Advance, Reducing Weekly Decline, on Yield Estimates
  • Copper Erases Weekly Gain as Slowing Economies May Curb Demand
  • Gold Drops in New York as Dollar’s Rise Prompts Investor Sales
  • Coffee Falls on Demand Concerns Before Large Crops; Sugar Rises
  • Fortress Commodity Fund Said to Beat BlueGold in August
  • Wheat Supplies From India May Add to Surplus, Pressure Price
  • Refiners in U.S. Most Dependent Ever on Exports: Energy Markets
  • Copper May Decline 5.1% in Next Few Weeks: Technical Analysis
  • Aluminum Usage in Cars Will Double in Four Years, Novelis Says
  • Corn, Soybean Yields Cut on Adverse Weather, Goldman Says
  • Libya Said to Ship First Oil From West as Production Resumes
  • Africa’s New Friend China Finances $9.3 Billion of Hydropower
  • U.S. Soybean, Wheat, Soyoil Exports Fell Last Week, Survey Shows
  • Steelmakers Set to Curb Output as Costs Surge: Chart of the Day
  • India’s Cotton Exports May Jump 21% Next Year, Group Says




THE HEDGEYE DAILY OUTLOOK - daily currency view





THE HEDGEYE DAILY OUTLOOK - euro performance





THE HEDGEYE DAILY OUTLOOK - asia performance









Howard Penney

Managing Director



MCD’s global same-store sales results for August were, across the board, below expectations.


MCD global comparable sales growth in August was +3.5%.  By segment, U.S. comps were up +3.9% versus StreetAccount consensus of +4.7%, Europe comps were up +2.7% versus StreetAccount consensus of +5.5%, and APMEA comps declined -0.3% versus StreetAccount consensus of +3.9%.


The U.S. comparable sales number was a mere 10 basis points below expectations as the McCafé beverage line-up continues to drive strong sales.  Breakfast, including Fruit & Maple Oatmeal, and the new Premium Chicken sandwiches were also highlighted at strong points for the U.S. business.





As macroeconomic concerns weigh on confidence in the Eurozone, MCD’s performance has suffered in the region as evidenced by the +2.7% print for August.  This result implies the lowest two-year average comp (+2.5%) since December 2010 (2.3%) and the steepest sequential decline, of 285 bps, in the two-year average trend since August 2010.  The U.K. and Russia were highlighted as performance leaders in August.  Germany was included, alongside the U.K. and Russia, in the July release but was not mentioned in the August results.





In APMEA, Japan sales weighed on the overall results.  Japan SSS declined -8.2% in August while China, Australia and other markets saw sales growth.  This was clearly a significant miss versus expectations and is likely a key reason why MCD share are trading down pre-market.





Howard Penney

Managing Director


Rory Green



The Macau Metro Monitor, September 9, 2011





Delta Corp founder Jaydev Mody said,Delta Corp is in talks with MGM and CZR for a possible strategic investment.  The potential investors are currently studying foreign investment, technical collaboration and licensing norms. 


"We continue to monitor developments in India and we would welcome the day when a legal and regulatory structure emerges that would permit our company to invest there.  It would be inappropriate for us to comment on any discussions we may have had with any specific company," Gordon M Absher, vice-president of public affairs at MGM Resorts, said. 


Delta is the biggest casino firm in India, where the gaming business is growing 50% YoY.  The gaming business has few licenses and is concentrated in Goa, a popular global tourist destination.  But casino owners are now expanding to Sikkim, Daman and even in Sri Lanka, with demand on the rise.


RevPAR growth has started to reaccelerate but not because of the economy.  Hotels look more attractive than gaming or leisure.



While the global markets experienced one of the most volatile months in stock market history, hotel performance—not that of hotel stocks—actually improved throughout the month of August.  Is this because hotels do better in tough and volatile economic times?  Certainly not.  It’s just the sequential math.  We estimate August Upper Upscale REVPAR will come in at $102 or 5.5% YoY growth.  This growth is impressive considering August included a hurricane-battered week and that the 1st half of August averaged a mere 4% growth.   If you look at the chart of 3-week rolling UUP REVPAR YoY change (shown below), REVPAR accelerated in the 2nd half of August, which our math predicted in our note, “IT’S NOT THE ECONOMY STUPID! (8/25/11)”. 




So where do we go from here?  According to our model, which tracks sequential, seasonally-adjusted dollar RevPAR, we still expect a sustained pickup in REVPAR growth for the rest of the year—as long as the US economy continues to chug along at a snail’s pace or better but not double dip.  So far so good.  Last week’s RevPAR increased 8.6%. 


With the stocks down 40% year to date, a RevPAR reacceleration should help investor sentiment tremendously.  Hotel stocks almost across the board are looking attractive to us.  Of course, we would still need a stable or up stock market for hotel stocks to work.  Although MAR doesn’t have the same ownership leverage to RevPAR growth as the REITs or HOT and H, sentiment around MAR is as low as we’ve seen it.  Moreover, MAR has the least downside relative to its March 2009 trough valuation among the lodgers and some potential positive catalysts such as a very aggressive stock buyback and potentially higher than expected FCF growth.

The Stage

“All the world’s a stage,

And all the men and women merely players:

They have their exits and entrances;

And one man in time plays many parts.”

-William Shakespeare


If U.S. politics is beginning to feel like theater, it should.  Two nights ago, we had the Republican presidential candidates on stage.  Last night, we had President Obama on center stage (albeit not the prime time stage due to a NFL matchup).  All the political world is, indeed, a stage.


In Act 1, the Republican nominees took turns taking various shots at each other and at the current resident of the White House.  According to the main stream media, former Massachusetts Governor Mitt Romney emerged as the protagonist in the dramatic comedy that has become the Republican race.  Meanwhile, current Texas Governor Rick Perry seems to have lost, at least for now, his role as leading man.  Although he did reaffirm his willingness to star in more independent films with the following statement about Social Security:


“It is a Ponzi scheme to tell our kids that are 25 or 30 years old today, you're paying into a program that's going to be there.”


That line is certainly not characteristic of a mainstream Hollywood blockbuster, but for those of us that enjoy factual documentaries it is a noteworthy comment.


Sometimes hero and sometimes villain, Congressman Ron Paul also provided ample Oscar worthy material two nights ago, which included the following quips:


“It isn't authorized in the Constitution for us to run a welfare state. And it doesn't work. All it's filled up with is mandates. And the mandates are what we're objecting to. I want to repeal all the mandates.”


“You can buy a gallon of gasoline today for a silver dime. A silver dime is worth $3.50.”


As for President Obama, like a poorly reviewed low budget film, expectations were low for him heading into last night’s command performance.  While “expectations are the root of all heartache”, low expectations, on the other hand, are also the source of many upside surprises.  Unfortunately, President Obama had center stage last night, but like an off Broadway show that isn’t quite ready for the big lights, Obama fell short.


Initially, the equity futures cheered Obama on as it was clear that his American Jobs Act was to be an upside surprise at $447 billion versus the rumors of $300 billion, but the new ideas that he and his aides were hinting at were virtually non-existent.  The core tenets of his proposed job bill are as follows:


-          Cuts payroll taxes in half for every working American and small business ($240 billion);

-          Extends unemployment benefits for another year ($63 billion);

-          Immediate investment in infrastructure ($50 billion);

-          Rebuild and modernize at least 35,000 schools ($30 billion); and

-          Help prevent state and local governments from laying off teachers and police ($35 billion).


Sound like a sequel?  It should.  The American Jobs Act has very similar tenets to President Obama’s original $800+ billion stimulus program, a program whose benefit to the economy was dubious at best.  In fact, some estimates suggest that President Obama’s original stimulus bill cost an astronomical $280,000 per job.  This is not exactly Keynesian policy that we can believe in.


While I’m generally hesitant to support government intervention in the economy, I would admit that there are policies that the government can enact which could catalyze long term economic activity.  Unfortunately, this bill does not any. On the first key point of cutting payroll taxes, it is certainly a short term economic benefit, but short term cuts do not motivate long term investment.  On the second key point of infrastructure spending, while perhaps the United States needs heightened infrastructure investment, there is no multiplier effect or long term job creation with such.


In addition, not only did President Obama present a bill last night that has limited new ideas and likely wouldn’t meaningfully stimulate the economy, he also presented a bill that will likely not pass through Congress.  In presenting a bill last night that he did not first discuss or at least attempt to craft with Republican leadership, Obama continued to play into the highly partisan environment that is gripping Washington.  To be fair, the partisanship is not all his fault, but he is certainly reaffirming that he is not a disinterested statesman who is above the fray.


Three years into his Presidency, it is also now clear that President Obama owns the economy.   Without a doubt, he can blame the prior administration for leaving him with an economy that was on life support, but he and his administration have passed extensive legislature that has been largely ineffectual.  As Michael Boskin from the Wall Street Journal wrote yesterday:


“Cash for clunkers cost $3 billion, just to shift car sales forward a few months. The Public-Private Investment Partnership, despite cheap federal loans, generated 3% of the $1 trillion claimed, and toxic assets still hobble some financial institutions. The Dodd-Frank financial reform law institutionalized "too big to fail" amid greater concentration of banking assets and mortgages in Fannie and Freddie. The foreclosure relief program permanently modified only a small percentage of the four million mortgages the president promised. And even Mr. Obama now admits that the shovels weren't ready in all those "shovel-ready" stimulus projects.”


The best future advice for President Obama and his administration likely also comes from Shakespeare:


“Boldness be my friend.”


As it stands, the American Jobs Act is not bold, innovative, or likely to pass.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


The Stage - Chart of the Day


The Stage - Virtual Portfolio

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