Bad news expected



Weaker pricing but strong bookings (though not as strong as 3 months ago) may be the theme of CCL’s 3Q conference call next Tuesday.  But investors are already expecting soft business commentary.  While guidance may be lowered slightly, business is not that bad and we don’t expect the earnings release to be a big negative. But we are also not overly bullish on CCL for a couple of reasons: 1) Q4 North America pricing concerns; 2) valuation not cheap enough.


While we expect in-line results for 3Q due to good expense control, we are a little concerned about their 4Q guidance, particularly pertaining to North America.  According to our pricing database, Carnival’s Q4 pricing power in the Caribbean has been lackluster particularly for ships such as Glory, Liberty, and Miracle.  In addition, we are not seeing much positive pricing momentum for the rest of the North America itineraries.  As a result, CCL may lower the outlook for North America, which wouldn’t be surprising given the US macro environment. 


We are less concerned about the European outlook.  The company will address the many cancellations stemming from the unrest in that region.  However, we’re seeing pricing stability in some of the European itineraries which had taken a severe beating.


The stock is not super cheap as it is only down 11% since July 21 (Q2 earnings release); comparatively, RCL is 33% lower. CCL is currently trading at 11x forward earnings, above its trough March 2009 valuation of 8x.  Moreover, despite all the downgrades and negative sentiment from the sell-side, only 4% has been shaved from consensus FY2012 EPS since Q2 earnings.


Nevertheless, expectations are low going into the call. So unless guidance is a complete bomb, much of the bad news has already been reflected in the stock.



Q3 Detail:


Q3 2011: $1.63 EPS vs. consensus of $1.64 (guidance $1.60-1.64)

All numbers in Constant Currency unless otherwise noted.


  • Net Yield per ALBD: 1.5% (5.8% in current dollars)
    • Fleetwide ticket yield of 1.6%
      • North America brand ticket yield: 3.9%
      • EAA brand ticket yield: -1.4%
  • On board yield: 1.5%

Revenues: $5.0BN, 2% higher than consensus


  • Net Cruise costs per ALBD ex Fuel: 7.1% (in Current dollars)—lower end of guidance
  • Fuel: $682/metric ton; 848k metric tons consumed

Squeezy Returns: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)


What a rip that was. Our old friend Squeezy The Short Seller’s Shark has returned.


This week was the 2nd up week out of the last 4 for the SP500. That puts it down for 6 of the last 8. So what to do with that? Embrace being Duration Agnostic. In Hedgeye speak, we’ll call this market Bullish TRADE and Bearish TAIL. 

  1. TAIL (long-term) resistance = 1265
  2. TRADE (immediate-term) resistance = 1220
  3. TRADE support = 1182 

In the end, the TAIL trumps the TRADE (that’s why we still have a big Cash position). But that doesn’t mean that in the right now that the TRADE can’t impact your returns. So the way I think about this from both a gross and net exposure positioning perspective is simple. 

  1. If the TRADE line of 1182 holds, I’m ok with expanding my gross and my net exposures on weakness
  2. If the TAIL line of 1265 holds, I’m ok with selling down gross exposure and tightening my net on rallies to TRADE line resistance 

That’s exactly what I did today. The best I can do from a net exposure perspective is use my LONGS minus SHORTS in the Hedgeye Portfolio as a hybrid way to express my risk management view in real-time. I realize that’s far from perfect, but I’m trying to communicate the general idea.


At this time yesterday, I had 14 LONGS and 7 SHORTS. Into this morning’s Squeezy covering to 1219, I moved back to 11 LONGS and 8 SHORTS.


Enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Squeezy Returns: SP500 Levels, Refreshed - SPX

Shorting EUR-USD

Position in Europe: Short EUR-USD (FXE)

Keith shorted the EUR-USD currency pair via the eft FXE in the Hedgeye Virtual Portfolio today with the pair trading towards the top side of our immediate term TRADE range of $1.34 - $1.39 and broken across our intermediate term TREND level of $1.39 (see chart below).


In the last two weeks the pair has seen significant swings based on the political rhetoric of Eurocrats – from those suggesting the imminent default of Greece to those stating that additional funding assistance will be provide to prevent a default. Yesterday’s news that the ECB is coordinating with the Fed, BOE, BOJ, and SNB to extend 3M dollar loans to Eurozone banks in an effort to ensure they have enough cash for the rest of the year has buoyed the pair, yet we’ll fade the news for a TRADE as we think it is but another near term filler in Europe’s sovereign and banking debt contagion "crisis". 


We’re waiting to hear if any major decisions are reached at the European Finance Ministers meeting in Poland today, including whispers of IMF chief Christine Lagarde’s Euro-TARP proposal. Trichet is due to give a speech at 8pm. We think Germany’s EFSF vote on September 29th is the main catalyst to keep front and center as it is the lynchpin for future policy decisions.


Next Thursday, on September 22nd, 2011, the Hedgeye Macro Team will be hosting a conference call to discuss the future of the Eurozone and the implications for global markets. The call will focus specifically on three topics:

  1. Review of the history and structure of the Eurozone
  2. Assessment of the current situation and imminent risks and opportunities
  3. Analysis of potential and realistic scenarios to solve the crisis in Europe

Please contact  if you do not currently subscribe to our Macro vertical and would like to attend this conference and receive the materials. 


Matthew Hedrick

Senior Analyst


Shorting EUR-USD - 1. heut

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.




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






Food processing stocks have been performing well over the last week, primarily due to strong price gains in PPC, which is the worst performing stock in the subsector on a one-year, year-to-date, six month, and three month duration. 


THE HBM: PPC, MCD, MSSR, DRI - subsectors




  • MCD is planning to open 25 new restaurants per year in South Africa while doubling revenue over the next four years, according to BusinessDay.



  • MSSR was rated “New Buy” at Capstone, the price target is $9.
  • DRI was on the receiving end of some high praise from Michelle Obama.  The First Lady called the company’s commitment to cut calories and sodium in its meals by 20% over a decade “a breakthrough moment in the restaurant industry”.

THE HBM: PPC, MCD, MSSR, DRI - stocks 916



Howard Penney

Managing Director



Rory Green



Food inflation is far worse in grocery stores than restaurants


TODAY’S S&P 500 SET-UP - September 16, 2011


As we look at today’s set up for the S&P 500, the range is 34 points or -2.57% downside to 1178 and 0.24% upside to 1212.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: 1586 (1430)
  • VOLUME: NYSE 964.01 (-11.2%)
  • VIX:  31.97 -7.6% YTD PERFORMANCE: +80.11%
  • SPX PUT/CALL RATIO: 1.28 from 1.45



  • TED SPREAD: 35.02
  • 3-MONTH T-BILL YIELD: 0.0000
  • 10-Year: 2.0828 from 2.0820
  • YIELD CURVE: 1.894 form 1.893


MACRO DATA POINTS (Bloomberg Estimates):

  • 9 a.m.: Long-term TIC flows, est. $30.0b, prior $3.7b
  • 9:55 a.m.: UMichigan Confidence, est. 57.9, prior 55.7
  • Noon: Flow of funds
  • 1 p.m.: Baker Hughes rig count



  • Treasury Secretary Geithner in Poland to participate in a meeting of European government finance officials
  • Jefferson County, Ala., votes on JPMorgan settlement; if it’s rejected, county may declare what would be biggest municipal U.S. bankruptcy
  • Air France-KLM plans to order $12b worth of Boeing 787’s
  • UBS has credit rating put under review by Moody’s, citing “ongoing weaknesses in the group’s risk management and controls”
  • FDA holds meeting to get feedback on recommendations for changes to 510(k) approval process for medical devices
  • Apollo Management is likely soon to bid $22-$24 a share for 99 Cents Only, the New York Post said
  • KKR has raised more than $1b for its first fund to originate debt for takeovers
  • ITC said it will review a judge’s finding that HTC infringed two Apple patents
  • Blackstone agreed to buy Mint Hotels group for $947m
  • Goldman said it’s shutting Global Alpha fund
  • No IPOs are expected




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Crude Oil Heads for Fifth Weekly Gain in London on Europe Plan
  • Copper Rises for Second Day on Reduced European Crisis Concern
  • Corn Rises, Cutting Weekly Drop, as Lower Prices May Spur Demand
  • Freeport’s Indonesia Strike May Cut Output by 230,000 Tons
  • Sugar Declines Amid Weakening Demand; Arabica Coffee Advances
  • Gold May Fall as ECB Coordinates With Fed to Lend Banks Dollars
  • Rice Imports by Bangladesh May Miss Forecast on Output
  • Palm Oil to Climb on Soybean Oil Supply Cut, Demand, Mistry Says
  • California’s Carbon Commanding ‘Real Prices’: Energy Markets
  • Commodities May Dip to Lowest Since November: Technical Analysis
  • Rio Cuts Debt Costs Amid Record-Low Yields: Australia Credit
  • Miner’s Body Found by Emergency Workers at Flooded Welsh Pit
  • De Beers to Move Diamond Trading to Botswana From London
  • Gold May Gain on Physical Buying, Europe Concern, Survey Shows
  • BP Wins U.S. Dismissal of Some Investors’ Derivative Spill Suits
  • Silver May Drop to $38 by End of September: Technical Analysis
  • BHP, Vale, Rio ‘Cheap’ on Catastrophic Fears: Chart of the Day




THE HEDGEYE DAILY OUTLOOK - daily curreny view





THE HEDGEYE DAILY OUTLOOK - euro performance





THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director



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.