Here are a few thoughts from my trip yesterday in Singapore.  I will follow up with Macau comments later in the week.


  • No visibility on junket approval
  • Underground junkets not a major factor for Genting anymore.  Been cracking down from government pressure.  May explain some of the market share loss that is sure to be sustainable.
  • Genting seriously thinking about becoming more transparent.
  • Singapore economy still strong but little growth from local population expected and may even be difficult to maintain.  Approximately 30% of visitors are local.
  • Genting thinking they can hold 50% market share in Q3 but we’re not so sure.
  • Junkets think they can grow volumes by at least 20%.




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




As I posted yesterday for the MACRO team my thesis on the consumer is consistent with a fundamentally-weak economy: no job growth, declining real income, Bernanke-inspired price volatility, declining stock prices, falling house prices, sticky gasoline prices, and zero confidence.


Overall, the MACRO data out yesterday on consumer trends is consistent with the factors listed above.  Yet, there are silver linings!  Well, maybe…


Yesterday, the high frequency – ICSC chain store sales index – confirms the decelerating thesis, as the index fell 0.2% last week.  This is consistent with the painfully slow downward trend (the index is now down 6 of the last 8 weeks.)  On a year-over-year basis, growth dipped to 2.7%, the slowest pace in three weeks, though consistent with the trends of 1H11.  Is there a silver lining here?


Also bouncing along the bottom is the Richmond Fed survey, which contracted for the third consecutive month in September. The pace of decline moderated from August, as the composite index rose 4 points to -6.  Looking at the details, new and unfilled orders remained on downward trends but employment growth accelerated and input cost pressures eased.  The increase in employment month-over-month is the first silver lining in the overall sluggish environment


Lastly, after plunging 14 points in August, the Conference Board Confidence Index was virtually unchanged in September (rising only 0.2).  Last month saw a slight 0.7-point upward revision to the August print.  The improvement was led by better employment expectations, which is the second silver lining.


If the economy were to accelerate confidence should recover, but given the excessive debt burden domestically and in Europe, it’s unlikely that growth is going to accelerate.  Our 3Q GDP estimate is 1.1 to 1.4% year-over-year; the risk to the downside is that the low confidence results stay on a continued downward trajectory in sales trends, and causes further economic weakness. 


The third silver lining is not one from today’s data, but one that economists often cite as a reason to buy equities here: that corporate America is flush with cash.  That cash waiting in the wings coupled with pent-up demand could lead to a quick improvement in the jobs picture and an acceleration of growth.


Hope springs eternal, but is not an investment process!




Deflating the Inflation - is great for the Food Processing sector and not so good for food retail. 






PNRA & DNKN were notable decliners on positive volume studies


Domino’s Pizza downgraded to hold from buy at Peel Hunt


Domino's Pizza UL & IRL interim management statement: says on track and confident that it'll finish the year in line with market expectations - For 2Q11 - SSS up +3.9%(605 stores) vs year-ago +9.9% (553 stores); UK only SSS+ 4.1% vs year-ago +11.5%; Republic of Ireland SSS in Euros fell (4.4%) vs year-ago (0.5%); E-commerce accounted for 46.6% of UK delivered sales vs year-ago 39.7% and Total online sales up +36.4% to £45.0M vs year-ago £33.0M


CMG initiated outperform with $400 target - Wedbush


PNRA initiated neutral with $116 target - Wedbush


COSI holder Blum Growth Fund calls for new board of directors and has also offered to serve as Chairman and CEO for a salary of $1 for the first year. Also, stated that would be attempting to influence the future of the company through changes to the board and management.


SONC - initiated equal-weight at Stephens






BWLD - had a strong day yesterday on positive studies - initiated outperform with $82 target - Wedbush


BJRI had a strong day yesterday on positive studies - initiated neutral with $45 target - Wedbush


DRI & TXRH were notable decliners on positive volume studies.  TXRH remains a favorite on the short side.




Howard Penney

Managing Director



The Macau Metro Monitor, September 28, 2011




Sands China Ltd has entered into an term loan and revolving facilities agreement of US$3.7BN.  The credit agreement consists of (i) a US$3.2BN term loan that may be drawn until Nov 29, 2011 (Term Loan Facility) and (ii) a US$500MM revolving credit facility available until one month prior to the fifth anniversary of the date of the initial funding of loans under the Term Loan Facility.


Sands expects to draw the full amount of the Term Loan Facility prior to Nov 29, after satisfying certain initial funding conditions and government approval.  The proceeds of the Facilities will be used to refinance outstanding debt and working capitals needs, including those for its Sands Cotai Central project.  


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The Price of Winning

This note was originally published at 8am on September 23, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Nothing good in life comes but at a price.”



In the darkest hours before his death at The Battle of Thermopylae, King Leonidas of Sparta provided a light that would last forever. It wasn’t about him or his valor – it was about leadership  - and the ultimate price leaders have to pay to prove they are selfless.


Whether you are American, Canadian, or Polish, the ultimate price your parents and grand-parents have paid for you is that which we all cherish, but sometimes forget to take the time to respect. Liberty.


“Sweetest of all is liberty. This we have chosen and this we pay for.”

-Leonidas, Gates of Fire (page 212)


If what you have seen unfold in the last 3-5 years in our said “free markets” makes you proud, confident, or trustworthy of our said liberties and freedoms, I will call you the contrarian this morning.


It’s one thing to have the courage to stand up to ideological tyrants. It’s entirely another thing to seize the moment when they’ve been revealed for who they really are. Losers. And there has never been a more pressing time in modern American history where this country needs winners to start leading them into daily battle again.


Being called a loser is hard. In our profession it’s actually harder to read than it is to accept. Most people aren’t forced to accept responsibility in recommendation. That’s because we have created a culture in Washington and on Wall Street where losers don’t lose.


They win.


All the while, we sweat equity capitalists who are winning have to keep putting up with their losing ideas. This devastates confidence. That’s the bad and old news.


The good and new news is that the US Dollar strengthening. I think the market is sending us a tremendous opportunity to be the change we all want to see in our markets.


We don’t need policy. We need to pay the price to get rid of its broken promise.


Back to the Global Macro Grind


I’m just going to give you what you need this morning. My positioning and the risk management levels that matter across this Globally Interconnect battlefield of risk.


Hedgeye Asset Allocation Model: 

  1. CASH = I raised our Cash position from 64% to 70% yesterday by selling my long-term US Treasuries. I have zero appetite for Ben Bernanke’s last asset bubble.
  2. INTERNATIONAL FX = 9% and next to Cash, being long the US Dollar Index outright is my highest conviction Global Macro position. Get the US Dollar right (we’ve made 24 calls on the USD since 2008 and been right 23 times), you’ll get a lot of other things right.
  3. INTERNATIONAL EQUITIES = 9% (long China and the Philippines) and this has been dead wrong not only this week, but for all of September. I am not a buyer of more of this mistake on weakness. I am a seller on strength.
  4. FIXED INCOME = 6% (US Treasury Flattener) and I sold 3% of that FLAT long position yesterday on strength alongside selling the rest of our exposure to long-term Treasuries (TLT). Everything has a price, and I’ve been making the Growth Slowing call since February (when we bought FLAT) – so, to a degree, we need to be booking the Growth Slowing trade gains up here.
  5. US EQUITIES = 6% (long Utilities) and this continues to be the only place I would commit capital from a S&P Sector perspective. Utilities (XLU) is the only Sector ETF in our model that is bullish on both the TRADE and TREND durations. The other 8 of 9 Sector ETF’s in our model are in what we call a Bearish Formation (bearish on all 3 durations – TRADE, TREND, and TAIL).
  6. COMMODITIES = 0%. 

That’s not a typo. ZERO percent means 0%. I’ve made my fair share of mistakes this year, but one of them has not been telling you to get out of asset classes (we went to 0% US and European Equities in June; we went to 0% International FX in July). One of the critical things about winning in this business is that it’s a lot easier to do when you remove your potential losers, entirely, from the field. Cash is king.


Dollar UP is pulverizing International FX and Commodity markets again this morning. Here are some critical Global Macro factors to consider that remind me that “valuation” is not a catalyst: 

  1. South Korea’s KOSPI Index and the Hang Sang in Hong Kong continued to crash overnight (down -5.7% and -1.4%, respectively).
  2. Germany, France, and Greece all reversed, hard, from their “bounce” and are continuing to crash on the downside.
  3. Russia, Oil, Copper didn’t have a bounce at all – this is called the Deflating The Inflation (our call since April) with USD strength. 

Here’s what the US stock market has done across our 3 core risk management durations: down 4 consecutive days; down 7 of the last 9 weeks; and down -27.8% since 2007’s free money leverage-cycle peak. Do we need more Big Government Intervention in our markets?


We are entering the darkest hours of American leadership. Let winners win. Let losers lose. And give me my liberty to lead from the front in these markets, or give my firm’s vision death.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1733-1799, $81.09-86.90, and 1119-1166, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Price of Winning - Chart of the Day


The Price of Winning - Virtual Portfolio

Snares and Delusions

“If we mean to prosper long term, I am sure we need to act to make debt less attractive to everybody: it really is a snare and a delusion.”

-Jeremy Grantham


I sold my Gold again yesterday, taking the Hedgeye Asset Allocation to Commodities back to 0%. I took my long US Dollar position up to 12%. I have a 70% asset allocation to Cash and couldn’t care less about missing the last few days of another Month-End Markup.


Long-term investors: if you’re betting against the Fiat Fool system of conflicted, compromised, and constrained monetary and fiscal policy, ultimately you are betting on King Dollar’s return. That’s the only way out. We need to let losers lose. We need to deflate.


Deflation is only bad if you are one of the people whose business is to earn a fee on perma-inflating asset prices. For we commoners who have our own capital at risk and are running our own companies for cash flow, deflation is good. We like to buy low, sell high, and earn a spread.


My sense is that the people who didn’t sell high (either in October 2007 or April 2011 – the SP500 is down -25% and -14% from those Policy To Inflate tops, respectively) are the ones whining the most right now, just like they were then.


“Then” was Q3 of 2008. That’s when Old Wall Street’s finest were begging for the “bazooka.” Remember that? “We need some shock-and-awe rate cuts” from the Fed … we “need” Paulson to deliver us the biggest one-sided bailout in the history of the world…


Today, with certain French and Belgian banks not looking any different to us than Lehman did then (marking their Pig Paper at par; Dick Fuld called this “level-3 asset pricing”), what are the Keynesians begging for? Another Bazooka.


This is no ordinary Keynesian Bazooka. This one needs to be 2-3x the size of the biggest man-made financially engineered Delusion, ever.


Back to Grantham…


The aforementioned quote came from Mr. Grantham’s August 2011 Quarterly Letter titled “Danger: Children At Play”, where he opened his always thought-leading missive with the following fear:


“My worst fear about the potential loss of confidence in our leaders, institutions, and capitalism itself are being realized. We have been digging this hole for a long time. We really must be serious in our attempts to resuscitate the fortunes of the average worker.”


Effectively, what he’s calling for is the end of the plundering of American wages and savings accounts; the end of policies to inflate the debt of bad debtors; and the end of abusing our currency for the sake of a conflicted few.


Back to this morning’s Global Macro Grind


Strong Dollar = Strong America. Period. It did under Reagan inasmuch as it did under Clinton. Both of these Presidents not only saw much lower levels of commodity inflation imposed on their citizenry, they saw the highest levels of employment in modern American history.

  1. Q: Who needs Commodity inflation? A: The people who are long of commodities.
  2. Q: What happens when you strengthen the US Dollar? A: You Deflate The Inflation.

With the US Dollar being one of the best Global Macro investments you could have made in the last 3 months, let’s look at what the correlation math says about everything that trades globally in US Dollars (these are inverse correlations – USD up = everything down):

  1. WTI Crude Oil = -0.87
  2. Heating Oil = -0.94
  3. Silver = -0.81
  4. Copper = -0.88
  5. Coffee = -0.87
  6. Oats = -0.87

Now if you take a Washington/Old Wall Street car service to work and don’t need to pay for gas, or if you’re not planning on heating your home this winter… or drinking coffee, or eating oatmeal… or anything like that at all… You should be supporting policies to inflate via US Dollar debauchery.


Otherwise, don’t call yourself a patriot trying to solve this country’s long-term problems via a currency devaluation. Patriots attack the tyranny of self-dealing government policy; they don’t perpetuate it.


Destroying our currency through failed policies didn’t work for us in the 1970s and it’s not working now. It didn’t work for Charles de Gaulle in France in the 1960s, and it won’t work for Sarkozy’s Eurocrats this time around either.


Intraday rallies on rate cuts and bazookas are the Snares and Delusions that I have personally had enough of. This is not leadership. Neither is it going to put America back on the long-term path to prosperity.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $78.21-84.49, and 1118-1182, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Snares and Delusions - Chart of the Day


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