While we agree, what does that say about valuations 2 months and 30% ago when Goldman had a Buy rating on the sector?



Goldman is passing itself off as a contrarian on Lodging because he is bullish.  We’re bullish too but only as of very recently.  GS has been bullish all the way through the recent carnage.  This reminds me of the market perma-bulls in March of 2009 who patted themselves on the back because they called the March low – after calling the Feb low, the Jan low, the December low, well you get the picture.  Even a broken clock is right twice a day.


GS lowered their 2012 RevPAR forecast to +4-5% due to economic concerns which begs a couple of questions.  One, what were you doing at 5-7% in the first place?  Second, what is the value add to make a change after the stocks have corrected 30%? The stock market is a discounting mechanism after all.  We’re projecting 3-4% RevPAR growth but that is splitting hairs.  The reality will likely be that if our target is reached, these stocks are going higher.


We certainly agree with Goldman’s assertion that valuations are reasonable now.  However, if they are only reasonable now, how did they characterize them when the stocks were 30% higher?  Looks like the term was “attractive”.  Not sure I would characterize that as shrewd analysis.


We would characterize the current valuations as more than reasonable or even attractive.  MAR, for instance, is trading right at its March 2009 trough.  HOT is trading at 7.5x 2012 EV/EBITDA.  This isn’t just a valuation call either.  We actually think YoY RevPAR growth will accelerate the rest of the year from the July/August lows which will allay fears of massive earnings reductions.  See our recent positive lodging posts "LODGING: REVPAR REVS UP (9/9/11)" and “IT’S NOT THE ECONOMY STUPID! (8/25/11)."


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






Full service restaurants outperformed for a second straight day.  Over the past three months, the subsector has been severely beaten down, declining almost 13%.


THE HBM: WEN, MCD, MRT - subsectors fbr




  • WEN is testing four prototypical new store designs, one of which is described in an article posted on yesterday.  MCD is clearly putting pressure on competitors to keep up with its modernization of its store base.
  • MCD advertisements shown by Channel Seven in Australia during children’s TV programming have earned the broadcaster censure from the broadcasting watchdog.



  • MRT was reiterated “Overweight” at Piper Jaffray with a $9 price target. “Travel data” was highlighted as a key factor in the “high-end consumer recovery thesis” related to this stock.

THE HBM: WEN, MCD, MRT - stocks 914



Howard Penney

Managing Director


Rory Green



The Macau Metro Monitor, September 14, 2011




The Hengqin checkpoint recorded 27k border crossings in the 3-day mid-autumn festival holiday, up 42% YoY. 



Visitor arrivals in package tours soared by 46.1% YoY to 670,664 in July 2011.  Visitors from Mainland China (489,503); Taiwan (46,776); Republic of Korea (31,066); and Hong Kong (28,839) surged by 51.2%, 90.8%, 151.1% and 19.3% respectively. 


At the end of July 2011, total number of available guest rooms of hotels and guest-houses increased by 2,080 (+10.5%) YoY to 21,804 rooms, with that of 5-star hotels accounting for 62.8% of the total.  The average length of stay of guests decreased by 0.07 night to 1.4 nights. The average occupancy rate of hotels and guest-houses notched up a record high of 88.2%, up by 8.2% points YoY.



According to Shanghai Securities News, home transactions in first-tier cities in China fell significantly in early September.  New home transactions in the first 12-day period in September in Beijing averaged just 135 units, the lowest level since February; while Shanghai new home transactions so far in September fell 4% MoM to 1,648 units.

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The Stage

This note was originally published at 8am on September 09, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“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


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Gravity's Bark

“Gravity is only the bark of wisdom’s tree, but it preserves it.”



I am definitely not as long as I was 24 hours ago. This morning’s Global Macro Grind is just not good.


So before I get into Geithner, Lagarde (IMF), and Barroso (EU) policies to suspend gravity, let’s go through that grind and take a walk down the world’s fundamental path of a continued Growth Slowdown:

  1. JAPAN – Japanese stocks fell another -1.1% overnight to a fresh 18 month low. It’s not “headline” news, but that doesn’t mean that one of the world’s Top 3 economies ceases to exist. This remains the land of Keynesian nod.
  2. KOREA – as in the South side, saw its main stock index (and really one of the biggest leading indicators for industrial and tech demand, globally), the KOSPI, collapse for another -3.5% move overnight. Since May, the KOSPI has crashed (down -21.5%).
  3. CHINA – Chinese stocks bounced “off the lows” to close up +0.55% overnight. While we highly doubt that the best “idea” the Chinese have is investing in Berlusconi Bonds, they are captive to a Global Growth Slowdown, even if they don’t perpetuate it.
  4. GERMANY – the train wreck that has become the German stock market crashing continues. When I write the word crash, I mean it, literally. If the SP500 was down as much as the German DAX since May (down -33%), the SP500 would be testing the 900 level and Geithner would be promoting a $3 TRILLION TARP at today’s Delivering Alpha Conference.
  5. ITALY/SPAIN/GREECE – dead cats bounce all of the time in a global economic system where the suspension of gravity remains the primary policy – but they bounce to lower-highs. And unless Lagarde (IMF) and Barroso (EU) start TARPing these pig banks in the coming days, both the Euro and these European crash markets will come under further selling pressure.
  6. RUSSIA – yep, they’re still around but what was The Inflation Trade bid (USD Down, Oil Up) of Q1 2011 (QE2) in the Russian stock market is now gone. The RTSI index is down again this morning and testing fresh YTD lows.
  7. BRAZIL – like many of the countries in Asia, the Brazilians appropriately raised interest rates when the US should have and can now start cutting them. This has Brazil looking a lot better than most European and US stock market indices all of a sudden but, again, cutting interest rates requires fear mongering (ie Growth Is Slowing people), so plenty to ponder there.
  8. CANADA – if all Keynesian Policy finger pointing fails, Geithner can still blame Canada.

Sorry. Did I say I was going to wait until I addressed the Fiat Foolery of Geithner, Lagarde, and Barroso? I couldn’t help myself.


Sadly, Gravity’s Bark will have to deal with these people intervening in what were our “free” market lives until they sufficiently blow this entire thing up.


Obviously Greek bonds, Italian stocks, and US Financials have been blowing up since February. This is not new. What is new is that consensus has been forced to realize that policy perpetuates the growth slowdown problem as opposed to rescuing it.


Geithner loves this stuff. He’s a big Anti-Gravity guy. Spending 47% of his born life at the US Treasury and Federal Reserve (New York Banker kind) and not accepting any responsibility in his policy recommendations across 23 years of his being on the Big Government Intervention team is impressive. That’s what gets you the nod as a keynote to generate some alpha!


As for what France’s lovely Christine Madeleine Odette Lagarde (new head of the IMF post the other French guy having some transparency problems) and Jose Manuel Durao Barroso (President of the European Commission) can do to drive some volatility in these very price stable and socialized markets … let’s consider their options:

  1. TARP the Europig Banks with some Geithner/Paulson policy (that’s what the EFSF is – a hybrid TARP)
  2. Start issuing some Eurobonds so that the Europig Bonds get a little lift from the German Bund mix
  3. Fire Greece out of the EU

Fire, as in the “rapid oxidation of a material in the chemical process of combustion” (Wikipedia). Or, as in firing the Greeks (after the Troika meetings) for lying about their numbers. There may not be gravity in the Fiat world – but there will be fire!


This is obviously a gong show at this point and, as a result, I see no reason not to trade this Global Macro market risk aggressively.


Rick Perry went with the “treason” thing. And Jamie Dimon opted for the “blatantly anti-American” thing.


I am going to go with fading the anti-gravity thing.


My immediate-term support and resistance ranges for Gold, Oil, Copper, Germany’s DAX, and the SP500 are now $86.18-90.11, $1, $3.93-4.04, 4, and 1141-1181, respectively. Don’t be ideological about all of this – just trade the ranges.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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