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The Posse Catches Cowboy Perry

Conclusion: Romney has caught Perry in the race for the Republican nomination making it a true two horse race with the support of other front runners eventually being critical.  In the recent special races, the bad news builds for Democrats suggesting Republicans could gain the Presidency and Senate.

 

Two nights ago, the Republican candidates for President held their second debate.  The message from this debate was clear: the Republican posse is not going to let the cowboy from Texas remain at the front of the pack without a fight. Indeed, Texas Governor Perry suffered shots from all of his fellow nominees and while he handled himself reasonably well, former Massachusetts Governor Mitt Romney was the clear beneficiary after the debate.

 

In fact, according to the most recent contracts on InTrade, Romney’s probability of becoming the Republican nominee for President now surpasses Perry’s probability.  Based on the futures contracts on InTrade, Perry now has 35.4% probability of becoming President, while Romney is at 39.7%.  Perry’s probability is not off dramatically from its highs, but Romeny’s, on the other hand and as shown in the chart below, has skyrocketed. 

 

The Posse Catches Cowboy Perry - 9 15 2011 10 23 34 AM

 

The other key take away from these InTrade contracts, and most national polls, is that this race is most definitely a two candidate race.  On a combined basis, the probability of either Romney or Perry becoming the nominee is north of 75%.  Interestingly, the key for either getting nomination could very likely be the endorsement of one of the other front runners, namely Gingrich, Bachmann, or Paul. 

 

In that vein, Tim Pawlenty, who admittedly knows both candidates well, opted to publically come out and support Romney (and Romney supporters purportedly have agreed to help retire Pawlenty’s campaign debt).  Since Pawlenty was a marginal national candidate at best, he likely only had a marginal impact on Romney’s standing.  The next endorsements will be much more critical and will likely come much closer to Presidential primary season.  

 

The tentative primary dates to be focused on are as follows:

  • Iowa, December 5th, 2011;
  • New Hampshire, December 13th, 2011;
  • Nevada, December 13th, 2011; and
  • South Carolina, December 17th, 2011

These dates are subject to change, but it is in this general time frame that the Republican nominee should be crowned and if the race between Perry and Romney stays tight, it will likely be determined by endorsements from the other front runners.  Then, after the Republican nominee is named, the real political race begins.  Or does it?

 

There can be no doubt that President Obama will face a tough race given the state of the economy and his own approval rating.  Interestingly, many polls suggest that the race will be close and the President Obama is still the odds on favorite.  In fact, a poll released by Public Policy Polling yesterday shows Obama beating Romney by 4 points, Perry by 11 points, and Bachmann by 14. 

 

Polls, of course, are notoriously inaccurate when analyzed on a standalone basis.  The recent results from Congressman Anthony Weiner’s former district, the 9thCongressional District, and other special races, are perhaps more telling than recent polls.  Specifically, New York-9 has not elected a Republican in over a hundred years and has 3:1 registered Democrats versus Republicans.  Not only did presumptive Congressman Bob Turner (R-NY) win the seat, he crushed the presumptive Weiner heir by a margin of almost 9 percent. 

 

The other two recent special elections, though not as newsworthy, have had similar results.   In Nevada-2 on September 13th, the Republican candidate won by 22 points and in California-36 on July 12th, the Republican only lost by 10 points.  In both of these races, the Republican candidates dramatically outperformed their Partisan Voting Index (PVI), a measure of how the district voted based on the past two presidential elections, by a margin of +12 and +14 respectively.  Collectively, in California-36, Nevada-2, and New York-9, the Republicans outperformed versus the PVI-expected outcome by a staggering 15 points on average.

 

Clearly, these are only a few races, but certainly telling.  As one Queens voter told the New York Times:

 

“I am a registered Democrat, I have always been a registered Democrat, I come from a family of Democrats — and I hate to say this, I voted Republican. I need to send a message to the president that he’s not doing a very good job. Our economy is horrible. People are scared.”

 

To that end, we will be releasing our Hedgeye Election Index in coming months that takes real time economic data and provides insight into future election results.  In part, the Hedgeye Election Index will be based on Yale Professor Ray Fair’s work.  Professor Fair looked at more than one hundred years of national elections and found that the most consistent and relevant factors that predict elections are recent economic performance, specifically growth.  Currently, based on our financial estimates, Fair’s model shows that Obama will only get 49.7%, so lose in a squeaker, but the Republicans will also gain control of the Senate.

 

Daryl G. Jones

Director of Research


THE HBM: YUM, PNRA, CMG, CHUX, EAT

THE HEDGEYE BREAKFAST MENU

 

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

 

MACRO

 

Consumer

 

CPI ex-food and energy came in at 0.2%, in line with expectations.  CPI grew 3.8% year-over-year, versus expectations of 3.6%.

 

Initial jobless claims came in at 428k versus expectations of 411k and 417k (revised) the prior week.

 

THE HBM: YUM, PNRA, CMG, CHUX, EAT - initial claims

 

 

Subsectors

 

Restaurant significantly outperformed yesterday, but on low volume.  The more cyclical FSR name were higher on accelerating volume 

 

THE HBM: YUM, PNRA, CMG, CHUX, EAT - subsectors fbr

 

 

QUICK SERVICE

  • YUM announced a 14% increase in its quarterly dividend.  The increase raises the annual dividend rate to $1.14 a share, 2.1% yield.
  • PNRA is changing its menu for the fall season, with a new Roasted Turkey Artichoke Panini one of the offerings.  (link here)
  • CMG’s new concept, ShopHouse Southeast Asian Kitchen will open to the public today in Washington D.C.’s DuPont Circle.  Some images of the menu are below, courtesy of dcist.com

THE HBM: YUM, PNRA, CMG, CHUX, EAT - CMG shophouse

 

 

FULL SERVICE

  • CHUX has appointed former KONA CEO Marc Buehler as the O’Charley’s Concept President, effective tomorrow.  Given how “on trend” Kona has been of late, this is a perplexing move. 
  • EAT traded higher on accelerating volume yesterday, while RRGB was notable on the decliners side, also trading on strong volume.

 

THE HBM: YUM, PNRA, CMG, CHUX, EAT - stocks 915

 

 

Howard Penney

Managing Director

            

 

Rory Green

Analyst

 


INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE

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Initial Claims Rise 14k WoW

Initial claims rose 14k WoW last week (11k net of the revision to the prior week).  This brings the level to 428k, the highest level since late June.  On a 4-week rolling basis, claims are up 4k WoW to 419k. As a reminder, in looking at the spread between the S&P and 4-wk claims, the current S&P level would equate to a rolling claims level of 452k.  

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims rolling

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims raw

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims and sp

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims nsa

 

2-10 Spread Not Letting Up 

Acute margin pressure remains in force, looking at the 10-year yield and the 2-10 spread.  The 10-year yield is now 120 bps lower than it was at the end of 2Q. 

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - SPREADS

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - SPREADS QOQ

 

Subsector Performance

The chart below shows the performance of financial stocks by subsector.

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - PERF

 

 

Joshua Steiner, CFA

 

Allison Kaptur

 

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THE M3: OCEANUS, MACAO DRAGON, S'PORE HOME SALES; JACOBS CASE

The Macau Metro Monitor, September 15, 2011

 

 

UPWARDLY MOBILE Inside Asian Gaming

Casino Oceanus has acquired its 1st VIP room partner, CCUE VIP.  CCUE is chaired by U lo Hung, who was involved in developing AMA.  CCUE currently has 6 VIP tables on the 2nd floor at Oceanus and has plans to expand to 12 tables.  CCUE also has 6 VIP tables at L'Arc and at Altira Macau.  In early August, it opened 6 VIP tables at MGM Macau.  A financial advisor to CCUE mentioned that the VIP room at Oceanus will operate on a profit-share basis with its agents and host property rather than on a commission basis. 

 

MACAO DRAGON FERRY GOES BUST AFTER JUST 14 MONTHS OF SERVICE Macau News, SCMP

Macao Dragon Company Limited has filed for bankruptcy and ceased all operations.  According to a company statement, it is no longer able to run its service due to a government passenger capacity cap that shrunk the ferry company’s passenger capacity from 1,152 to 750 on each sailing from Hong Kong to Macau, and 600 from Macau to Hong Kong.  The company was the only one of the four ferry operators that had not been issued a permit to operate night sailings.

 
Maritime Administration said that Macao Dragon had not officially informed the local authorities about its bankruptcy, adding that the cap on passenger capacity was a decision made based on the safety of the passengers and the capacity of the ferry terminal in Taipa.  Macao Dragon is also being pursued by the Hong Kong Marine Department for HK$1.88MM in unpaid berthing fees and passenger embarking fees.

 

PRIVATE HOME SALES DIP 3.6% IN AUGUST Channel News Asia

Private home sales in Singapore fell 3.6% MoM in August, compared with a rise of 17% MoM in July.  Some 1,348 units were sold in August, excluding executive condos (ECs).  The dip comes after the government increased the income ceiling for public flats and executive condominiums in August.

 

LAS VEGAS SANDS ACCUSES FORMER MACAU CEO OF STEALING INFORMATION VEGAS INC

LVS has accused Steve Jacobs of stealing sensitive and/or privileged documents and refusing to return it.  Justin Jones, one of the Las Vegas Sands attorneys, said in a court declaration he discussed the issue with Jacobs’ attorneys on Aug. 1 of this year and Jacobs’ counsel related that:  "Jacobs does not believe that he is bound to keep confidential those documents obtained during the course of his employment because he asserts that he did not sign any confidentiality policy or other document containing a confidentially provision. Jacobs believes that Macau data privacy laws do not prohibit him from disclosing documents in this matter and that Macau data privacy laws are being used by defendants as a 'farcical canard' to avoid disclosure of documents."  Jacobs and his defense team have previously argued against such claims. 



Being the Critic

“The critic has to educate the public; the artist has to educate the critic.”

-Oscar Wilde

 

Life is short.  So short, in fact, that we should all try to find time to do things that we enjoy and derive some amount of satisfaction from doing them.  I’ll be honest, I think most Hedgeyes enjoy what they do every day.  As for other financial firms, I’m not so sure.

 

According to reports this morning, UBS lost roughly $2 billion from “unauthorized trading by a trader in its Investment Bank”.  Not to name names, but if you work at a certain investment bank this morning, that kind of sucks.

 

So, here’s the bottom line, Hedgeye is hiring. What are we looking for? Well, quite simply, people that have a passion for doing great research.  No, we aren’t going to offer anyone a super duper 3 by 10 guaranteed bonus, but if you do love what do and think your research is differentiated, well, then email me : .  Keith calls me Big Alberta and I’m more commonly known as the Director of Research at Hedgeye.

 

Back to the global macro grind. . .

 

Far be it for the lads at Hedgeye to be contrarian, but, are you sitting down, the SP500 is currently giving us a bullish immediate-term TRADE signal.  Not only that, but 7 of 9 S&P sectors are giving us the same quantitative signal.  Aye carumba ! Are the Hedgeye lads getting all bulled up? Well, at least for a trade. . .

 

Currently, the only two sectors that remain bearish on our TRADE duration are Financials (XLF) and Industrials (XLI).  In the Virtual Portfolio, we are long Utilities (XLU) and short Industrials (XLI).  Not only has this worked in the year-to-date with Industrials down -10.1% and Financials and Utilities up 7.0%, but we think it will continue to work.

 

It has been an interesting few weeks for us at Hedgeye.   In dramatic fashion, we have seen many of the largest sell side economists capitulate to our view on the economy and growth.  For those of our subscribers that read us somewhat regularly, they know being bearish is not new to Hedgeye.  In fact, by way of a time stamp, attached is an article that I wrote for Fortune on December 31st, 2010:

 

http://finance.fortune.cnn.com/2010/12/31/a-new-year-brings-new-economic-headwinds/

 

If you don’t have time to read it, I will highlight one quote, which is as follows:

 

“Currently, according to a Bloomberg survey of the strategists from 11 of the largest brokerage firms in the United States, the mean consensus target for the S&P 500 by year end 2011 is roughly 10% above current levels. Further, every single strategist is expecting a positive performance out of the index in 2011.”

 

As my 9-year old niece might say, OMG ! Indeed, it is somewhat scary to think that the reputed smartest economists on the street got the target for the most relevant stock market in the world so wrong. 

 

Yesterday CNBC hosted its Seeking Alpha Conference, which on some level was entertaining to watch.  Actually, it was entertaining on many levels. The most interesting excerpt was from Leon Cooperman who, and I’m paraphrasing, indicated that he recently had lunch with his top friends in money management and they are all under allocated to U.S. equities.  Now, obviously, Mr. Cooperman isn’t always right, but he has been around the block and his statement yesterday was insightful.  Incidentally, and not that we planned this, our current weighting to global equities is currently 24%, which is our highest allocation since early July . . . aye carumba, indeed !

 

In the longer term, we are not so bullish. In fact, in the Chart of the Day today, we highlight the long term interest rates of Japan.  Or as our Asian Analyst and former Yale lineman Darius Dale likes to characterize it : ZIRP.   For those of you that don’t know what ZIRP means, it stands for Zero Interest Rate Policy.  In the chart, Darius has outlined the dangers of ZIRP.

 

While conventional wisdom would have you believe that ZIRP means that equities are cheap on a relative basis, the history of Japan actually suggests otherwise. ZIRP was instituted in Japan in 1999 and the Nikkei has returned -37.4% since the start of that year. So while risk assets, like equities, look cheap vis-à-vis interest rates, it all depends on the assumed economic growth rate implied by interest rates.

 

On a totally non-linear note, I would like to end with a quote from a book that Keith is currently reading called “Gates of Fire”.  As Keith emailed the team late last night:

 

“There’s an excerpt in Gates of Fire where the Spartan officer, Dienekes, was told (on the eve of battle) that the Persian archers were so many in number that when they fired their volleys, the mass of arrows would block out the sun.

Dienekes looked at the messenger and said …

 

“Good. Then we will have our battle in the shade.””

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Being the Critic - Chart of the Day

 

Being the Critic - Virtual Portfolio


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