Cattle futures rose to a record as demand for U.S. beef is increasing as shrinking domestic herds signal tighter supplies and higher costs for restaurant companies like TXRH with exposure to beef.


The decline in gasoline prices is good for casual dining traffic but, if like in 2008 it is due to a fall in demand as economic conditions deteriorate, the benefit of cheaper gas may be offset.  The price action in casual dining stocks certainly suggests that lower gas prices are not bolstering sales significantly.


THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - gasoline prices



The ICSC chain store sales index rose 0.1% last week; the second week of little change. Year-over-year growth jumped to 3.7%, the fastest growth in nine weeks as sales fell in the comparable week last year.





Yesterday was a tough day for all of the food, beverage and restaurants stocks.  Casual dining got beaten up again, declining -4.9% on average.


THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - subsector fbr





SONC: Sonic Corp. reported sales trends of 0.4% for the fourth quarter of its fiscal year ended September.  This represents a significant slowdown in trends for the drive-in chain.  The company expects positive same-store sales in FY12 and flat restaurant level margins.





YUM:  Yum! Brands reports after the close today and we will be listening carefully for commentary around trends in China in light of softening economic data.  We like YUM on the long side, believing that the company will deliver double-digit EPS growth for 2011.  Furthermore, in the past, concerns on China have provided favorable entry points for buyers of YUM’s stock.


CMG: Chipotle Mexican Grill was initiated Outperform at Credit Suisse. 


SBUX: Starbucks is offering any breakfast sandwich for $2 when customers buy any beverage from October 4-10that participating stores.


THE HBM: TXRH, SONC, YUM, CMG, SBUX, CAKE - sbux breakfast





CAKE:  The Cheesecake Factory was rated consumers’ favorite casual-dining restaurant for the second year in succession, according to Market Force Information’s rankings of casual dining restaurants.  Texas Roadhouse and Olive Garden took silver and bronze, respectively.





Howard Penney

Managing Director


Rory Green



TODAY’S S&P 500 SET-UP - October 4, 2011


This Correlation Crash is now readily evident to anyone who didn’t think it could happen.  As we look at today’s set up for the S&P 500, the range is 50 points or -1.75% downside to 1080 and 2.80% upside to 1130Good news is that yesterday, US stocks finally moved into immediate-term TRADE oversold territory – so today Keith is makeing the 3rd major Short Covering Opportunity call he’s made since the 1st one on August the 8th.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -2498 (-662) 
  • VOLUME: NYSE 1403.71 (+6.08%)
  • VIX:  45.45 +5.80% YTD PERFORMANCE: +156.06%
  • SPX PUT/CALL RATIO: 2.29 from 1.49 (+53.14%)




YIELD SPREAD – it will be fascinating to hear Bernanke testify today that this is working; the TWIST is compressing the Yield Spread to a fresh YTD low this morning (153bps wide) and only perpetuating the pain on the front lines of this fear that the banks cash earnings are under siege – in this case, the fear is well placed. I remain long the US Treasury Flattener (FLAT)

  • TED SPREAD: 37.25
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.80 from 1.92     
  • YIELD CURVE: 1.56 from 1.67


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45 a.m./8:55 a.m.: ICSC/Redbook weekly retail sales
  • 9 a.m.: Fed Gov. Raskin speaks on foreclosures
  • 10 a.m.: Fed Chairman Bernanke to testify on economic outlook before Joint Economic committee of Congress
  • 10 a.m.: Factory orders, est. 0.0%, prior 2.4%
  • 11 a.m.: U.S. Fed to purchase $4.25b-$5b notes/bonds
  • 11:30 a.m.: U.S. to sell $30b 4-wk bills
  • 4:30 p.m.: API inventories
  • President Obama speaks on American Jobs Act in Mesquite, Texas, before heading to campaign event in St. Louis
  • 10 a.m.: House meets to consider Senate amended continuing resolution, which provides FY12 funding through Nov. 18


  • Apple’s next iPhone may be showcase for improved voice controls, hinting at improved speech technology. Event at 1 p.m.
  • Belgium, France say they will act to prop up Dexia if necessary
  • Europe faces rising risk of double-dip recession, S&P says
  • Fed Chairman Bernanke testifies on economic outlook before Joint Economic Committee of Congress, 10 a.m.
  • U.S. regulators said to consider if as many as 4.5m foreclosure cases will be examined to determine if compensation is due: WSJ
  • General Maritime (GMR) is in talks with lenders, creditors on potential restructuring
  • Kinetic Concepts (KCI) unnamed bidder withdrew offer; co. expects to be taken private by Apax Partners for $68.50/shr
  • McGraw Hill (MHP) sells nine-station broadcasting group to E.W. Scripps (SSP) for $212m in cash


COMMODITY/GROWTH EXPECTATION                                                                    


COMMODITIES: crash in copper and oil continue; both immediate-term TRADE oversold (finally) at $2.95/lb and $76.09/barrel respectively


THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Goldman Cuts GDP Estimates; Sees German, French Recessions
  • Mordashov Expands Steel Output as Mittal Retrenches: Commodities
  • Commodities to Rally 20% on Emerging Markets, Goldman Says
  • Ivanhoe, Rio Reject Mongolian Bid to Change Oyu Tolgoi Deal
  • Oil Drops a Third Day as Goldman Cuts Forecast for Brent Crude
  • Gold Rallies for Fourth Day as Europe Crisis Spurs Haven Demand
  • BHP, Rio Bond Risk Soars to 2-Year High on Slowdown Concerns
  • Copper Falls for Fifth Day as European Crisis May Curb Demand
  • Record U.S. Gasoline Cargoes Drive 17% Gain in Tankers: Freight
  • Commodities to Extend Decline, Says Sarin: Technical Analysis
  • Oil Falls to Eight-Week Low on U.S. Supplies, Libyan Production
  • Copper Drops in London Before U.S. Factory Orders: LME Preview
  • Platinum-Gold Ratio Drops to Lowest Level Since at Least 1987
  • Sugar Production in India Delayed by Cane-Pricing Dispute
  • CME Group Increases Margins on Copper, Platinum Futures
  • Oil Speculation Rules Probed by Levin Panel as CFTC Nears Vote
  • Palm Oil Drops for Second Day on European Debt Crisis Concern
  • Gold Gains for Fourth Day as Europe Debt Concern Spurs Demand
  • Uranium Prices Rise as Fukushima Volatility Persists, Ux Saysd




THE HEDGEYE DAILY OUTLOOK - daily currency view





EUROPE: crash continues after DAX broke the line we signaled as critical support yesterday (5439); Italy (which we're short) = -38% since Feb.


DAX: the only line left (Germany’s TRADE line of support at 5439) is now gone and Ackerman (Deutsche Bank) is telling the world what we all know (the money-center banks of the world are going to miss badly and be forced to guide down)


THE HEDGEYE DAILY OUTLOOK - euro performance





ASIA – crashing equities and currencies continue to be led by Hong Kong (down another -3.4% overnight; down -33% since

US Equities peaked in April!); KOSPI crash continued at down -3.6% (down -23% since May); Singapore -3%; Thailand -2.7%, etc.


THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director

Leading From The Front

This note was originally published at 8am on September 29, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We will all sleep as I do, in the open.”



At the end of chapter 22 of “Gates of Fire”, King Leonidas gives an epic speech to his officers about leadership.


“I am telling the Spartans what I tell you now. You are the commanders; your men will look to you and act as you do. Let no officer keep to himself or his brother officers, but circulate day long among his men. Let them see you and see you unafraid.”


Compare and contrast that sense of responsibility and selflessness versus the putrid lack of accountability we have to wake up to as modern day capitalism comes under left-leaning Keynesian assault:


“Monetary policy is not a panacea. There are certainly some areas where other policy makers could contribute.”

-Ben Bernanke (in a speech yesterday)


There is no legitimate leadership in this country’s economic policy making inasmuch as there is none in France or Italy this morning. Losers are pointing fingers and making excuses rather than bellying up to the bar like Red Sox GM Theo Epstein did last night:


You can’t sugarcoat this. This is awful. We did it to ourselves and put ourselves in a position like this to end our season.”


The winners in this country who bleed red, white, and blue get accountability. Our academic and political policy makers, who have never had to meet a payroll in their life, do not.


Back to the Global Macro Grind


In Monday’s Early Look I outlined this week’s calendar of Global Macro catalysts. The last 2 catalysts left for the Big Government Intervention “is the best path to long-term economic prosperity” club, were a vote for the Euro-TARP bailout in the Bundestag and month-end markups.


If the German vote was your catalyst to be long anything European or US Equities, that catalyst is now gone. What do you do now? Hope for another left-leaning central plan to suspend economic gravity? Or just say hey – this whole Keynesian thing “is not a panacea?”


Rather than lean on the losing side of this year’s Global Macro trade, it’s time to get back to winning again here this morning. From New Haven, Connecticut to St. Louis, Missouri, we’re issuing a friendly challenge to all of the winners of the 2011 game of Globally Interconnected Risk to unite.


First, let’s stick with this week’s game plan:

  1. Monday, I cut our asset allocation to US Equities to 0% again (sold Utilities, XLU)
  2. Monday, I cut our asset allocation to Commodities to 0% again (sold Gold, GLD)
  3. Tuesday, I moved the Hedgeye Portfolio back to net short (more shorts than longs)

This isn’t being “over-confident”, “uber bearish”, or whatever the losers and the haters out there want to call us. This is simply a reminder that we have a repeatable risk management process at this firm that has saved our clients and their clients a lot of money in both 2008 and 2011.


"Winning takes talent, to repeat takes character."

-John Wooden


Winning doesn’t require bailing out losers. It doesn’t require extending the short-selling ban like the French are doing again this morning either. Winning requires accountability, confidence, and trust. If people don’t trust you or your economic policy making process, you should be fired.


The SP500 is down -26.5% from the October 2007 high. It’s down -15.6% from the April 2011 lower-long-term high. This is called losing. And the best way to start winning again is to end whatever it is that these people keep doing to our markets, over and over and over, again.


No more whispers, rumors, and squirreling around in the shadows of this fiat system. No more bailout money printing as the elixir of short-term political life. Stop.


I want to see shields flashing like mirrors, for this sight strikes terror into the enemy” (Leonidas in Gates of Fire, page 226). Give me transparency, or give me a place of American mediocrity where I can sleep in.


My support and resistance ranges for Gold, Oil, the German DAX, and the SP500 are now $1567-1667, $77.91-83.69, 5449-5741, and 1113-1171, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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The Macau Metro Monitor, October 4, 2011




Macau September Gross Gaming Revenue came in at 21.24BN MOP (20.63BN HKD, 2.65BN USD), representing YoY growth of +38.8%.



SJM CEO Ambrose So said, “I’m not too worried about the slowdown in China. Basically the growth is still in this region....We want to have a very strong growth. In the first few days [of October] we see that the trend is keeping up, despite the fact that people are talking about a slowdown in China and in this region. But we haven’t felt the impact yet....We are still waiting for a Government response to our application for a plot in Cotai close to the Macau Dome."

Theory vs Practice

“In theory there’s no difference between theory and practice, but in practice there is.”

-Yogi Berra


In theory, money printing and piling more debt-upon-debt was going to save the world’s biggest banks. In theory, Old Wall Street had Ben Bernanke’s back on +3-4% US GDP Growth for 2011. In theory, the Yankees should have beaten the Detroit Tigers last night too.


Then again, I’m a conflicted, compromised, and constrained Yankee fan – and with that theory, I may as well be a Keynesian this morning. In practice this is called marked-to-market risk management and the question this morning isn’t an ideological one – it’s, what do you do?


When I joined the hedge fund elite 12 years ago, I didn’t have to have a Global Macro view. Today, I do. In practice, this game of Globally Interconnected Risk is A) always on and B) always changing. Today, I have to play the game that’s in front of me.


Back to the Global Macro Grind


Immediate-term TRADE oversold is as oversold does. Today we’ll register the 3rdShort Covering Opportunity we’ll have called for in the last 2 months (the 1st call we made to cover shorts on August the 8th, 2011).


Here are the US Equity, Commodity, Currency, and Fixed Income factors that help me decide what we do now: 

  1. The SP500 is immediate-term TRADE oversold in the 1180-1197 range
  2. The Volatility Index (VIX) is immediate-term TRADE overbought at 47.11
  3. This is the first day in the last 6 trading days in US Equities where there’s more immediate-term upside vs downside
  4. The US Dollar Index is immediate-term TRADE overbought at $79.43
  5. The Euro/USD pair is immediate-term TRADE oversold at $1.31
  6. WTIC Oil is immediate-term TRADE oversold at $76.19
  7. Copper is immediate-term TRADE oversold at $2.95/lb
  8. US Treasury Yield Spread is putting in an oversold YTD low of 153 basis points wide
  9. US Treasury 2-year Yields are holding immediate-term TRADE support of 0.21%
  10. Goldman is cutting their Global Economic estimates across the board 

On top of the price/volume/volatility signals that help construct the 10 aforementioned factors in my model, we have a very newsy event on the tape with Deutsche Bank’s CEO (Ackerman) guiding Q3 down, big time.


In theory, this is all bad. In practice, a lot of what Goldman and Deutsche Bank are saying isn’t in the area code of what Hedgeye clients would consider new. Our Managing Director of Financials research, Josh Steiner, has been bearish on the banks since February.


The US Financials ETF (XLF) is down -29.3% for the YTD. That’s called a crash – and it’s readily apparent in the rear-view mirror. So is the SP500 having collapsed -29.8% and -19.4% from their October 2007 and April 2011 easy-money highs.


Today is a day to notice what no one will be focused on. In theory, your Risk Manager should have a process to impute everything that’s happening in the world as of last price. In practice, most money managers will be freaking out this morning making emotional decisions.


Capitalize on that.


What do I see that’s better than bad that people aren’t talking about this morning? 

  1. South Korean inflation (CPI) dropped sequentially to +4.3% for SEP versus +5.3% in AUG (on the margin that’s not bad)
  2. Chinese non-Manufacturing PMI rose sequentially to 59.3 for SEP versus 57.6 in AUG (China is not collapsing, yet)
  3. USA’s ISM report for SEP rose sequentially (month-over-month) to 51.6 versus 50.3 in AUG (Growth Slowing? not new) 

Again, I’m not calling for a new bull market. Neither am I saying that Growth Slowing has ended. I am simply suggesting that you see this for what it is in most things US Equities (and some things Asian and European Equities) this morning – a Short Covering Opportunity.


My immediate-term support and resistance ranges for Gold, Oil, Germany’s DAX, and the SP500 are now $1 (Gold is now bearish TRADE and TREND), $76.19-81.09 (Oil remains in a Bearish Formation – bearish on all 3 of our risk management durations), 5091-5439 (that TRADE line break in the DAX yesterday mattered), and 1080-1130, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Theory vs Practice - Chart of the Day


Theory vs Practice - Virtual Portfolio

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.52%
  • SHORT SIGNALS 78.67%