In preparation for HST's Q3 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from HST’s Q2 earnings call.



  • “The fundamentals of our business remain attractive. Transient demand has recovered to prior peak levels, and group demand continues to improve. As RevPAR is increasingly driven by improvements in average rate, margin growth and flow-through will accelerate. Additions to supply have been restrained and will likely remain well below historical levels for at least the next three years. Construction costs are beginning to increase again, which will further help limit new supply”
  • “We expected our operating results to be significant impacted by substantial renovations at our Sheraton New York and Philadelphia Marriot hotels in the second quarter. Excluding results from these hotels, our RevPAR increase for the quarter would have been 7.6%. In addition, it is worth noting that our comparable hotel results do not include the performance of the $1.7 billion of acquisitions we have completed over the last 12 months, which are performing exceptionally well and have generated an average RevPAR increase of over 18% for the quarter”
  • “Our business mix trends for the quarter were quite favorable as we saw strong demand increases from our higher rated customer segments and solid rate growth across the board. Rate growth in Q2, driven by exceptional growth in transient demand, was the best we had seen since 2007.”
  • “Group demand for the quarter was essentially flat with last year as increases in corporate and association business were essentially offset by reductions in discount groups. The growth in these higher priced segments was even more pronounced in our luxury hotels.”
  • Repositioning: “We expect to spend $220 million to $240 million on these types of projects”
  • “We expect to spend approximately $320 million to $345 million on maintenance capital expenditures.”
  • “We are expecting improved performance in the second half of the year due to less disruption from renovation at our hotels, an improving macroeconomic outlook relative to the first half of the year and solid group bookings for the third and fourth quarters”
  • We will continue to be aggressive, but disciplined, as we evaluate new investments to further enhance the value of our company.”
  • “We’ve seen a big increase in tour groups throughout Europe this year. I think that a better economy in the rest of the world has ultimately contributed to better results in Europe. So I think we may see that trend moderate a little bit for the second half of the year only as we start to move out of the tourist season. But the bottom line is so far … Europe seems to be holding up relatively well”
  • “I think as we also feel that as we look at the group booking pace as it carries into the second half of the year, it does seem to be a little bit stronger, the rate does seems to be growing. So that gives us a fair amount of confidence that things should be a little bit better.”
  • Guidance FY11:
    • Comparable hotel RevPAR: +6% to 7.5%
    • Adjusted operating profit margins: +90 to 120bps
    • Adjusted EBITDA of $1.020 to $1.050BN
    • FFO per diluted share of $0.87 to $0.91 which has been reduced by $0.03 per share for acquisitions, debt repayment and impairment costs
    • “We expect the RevPAR increase to continue to be driven more by rate growth than occupancy, which should lead to strong rooms flow-through, even with growth in wage and benefit costs above inflation”
    • “We expect some increase in group demand as well as higher quality groups, which  should help to drive growth in banquet and audio-visual revenues and solid F&B flow through”
    • “We expect unallocated costs to increase more than inflation, particularly for utilities where we expect higher growth due to an increase in both rates and volume, and sales and marketing cost, where higher revenues will increase cost. We also expect property taxes to rise in excess of inflation and property insurance to increase well in excess of inflation due to an increase in insurable values and premium increases in the second half of the year”
    • Regional guidance for 3Q11:
      • San Fran: “continue to outperform our portfolio in the third quarter due to excellent group and transient demand and further ADR increases.”
      • Hawaii: “Slightly underperform the portfolio in the third quarter due to some disruption from renovation activity.”
      • “Tampa hotels to perform very well in the third quarter due to strong group bookings”
      • “We expect our Miami and Fort Lauderdale hotels to have a great third quarter and to outperform the portfolio because of strong group demand which should drive a significant increase in ADR.”
      • “We expect the Phoenix market to significantly outperform our portfolio in the third quarter due to strong group demand and growth in both group and transient rates, particularly at the Westin Kierland which will benefit from the new ballroom.”
      • “We expect our San Diego hotels to underperform the portfolio due to lower levels of group business which will result in weak transient pricing through the summer months”
      • “We expect the Chicago market to perform very well in the third quarter.”
      • “We expect RevPAR for our New York hotels to improve significantly for the rest of the year.”
      • “We expect the D.C. market to continue to underperform the portfolio in the third quarter; however, our urban hotels will continue to significantly outperform the suburban hotels.”
      • “Our Boston hotels are expected to continue to underperform the portfolio in the third quarter due to lower levels of group demand.”
      • “We expect the Philadelphia market to outperform the portfolio in the third quarter as the renovation wraps up and group demand increases”

Shorting the Aussie Dollar

Conclusion: Though we’ve seen a big move in recent months (AUD/USD -9.4% since peaking in late-July), we still think the Aussie dollar could go a lot lower vs. the U.S. dollar and, thus, we remain bearish on it over the intermediate-term TREND. 


Position: Short the Aussie Dollar (etf: FXA). Long the U.S. Dollar (etf: UUP).


Yesterday, we added a short position in Australia’s currency, the Aussie dollar (AUD), to our Virtual Portfolio.  This is not a new thesis for Hedgeye Macro clients, as we’ve been the bear in this market from a research perspective since 2Q and from a risk management perspective as early as July 27 (coincidentally the day the Aussie dollar hit an all-time closing price high vs. the USD), but it’s worth briefly rehashing the idea to those of you who may not be familiar.


The thesis behind our bearish view of Australia’s currency (particularly relative to the U.S. Dollar) is six-fold: 

  1. Slowing Growth is Australia’s domestic economy leading to dovish monetary policy;
  2. Slowing Growth globally – particularly in key export markets;
  3. Housing Headwinds in Australia’s domestic property market;
  4. Deflating the Inflation both across the commodity complex and in Australia’s domestic economy leading to declining terms of trade and incrementally dovish monetary policy;
  5. Winner’s Risk a.k.a. mean reversion; and
  6. Correlation Risk bred out of Interconnected Risk Compounding (the trailing 3yr positive correlations to the S&P 500 and CRB Index are r² = 0.90 and 0.82, respectively). 

Net-net, the confluence of these six factors should get the Reserve Bank of Australia to cut interest rates at some point over the intermediate-term TREND and reduce the Aussie dollar’s real yield advantage over the U.S. dollar. Admittedly, a lot of this is priced into various Aussie interest rate markets, but we see further room for decline in the currency market.


Shorting the Aussie Dollar - 1


As we’ve mentioned prior, the Aussie dollar has a lot of potential for mean reversion – particularly if the institutional investment community continues to have liquidity headwinds. It’s worth noting that the AUD has appreciated +58.1% vs. the USD since the March ’09 SPX bottom – the second largest advance out of the 48 currencies and FX indices we track over this time period.


Shorting the Aussie Dollar - 2


Regarding Australia’s domestic economy, Aussie economic data continues to come in largely sour on the margin. Manufacturing and Construction PMI’s are at 2009 [low] levels and the Services PMI has slowed in September as well. Business Confidence, which edged up in September, is likely to be contained absent further declines in the currency and an easing of corporate credit conditions – the latter of which we don’t see happening anytime soon (Aussie corporate credits spreads closed last week one basis point off of a 26-month high). We continue to think inflation – both at the consumer and producer level – will trend lower over the intermediate-term TREND and we’re seeing that in both the data and in market prices.


Shorting the Aussie Dollar - 3


Shorting the Aussie Dollar - 4


Shorting the Aussie Dollar - 5


In Australia’s housing market, a benchmark rate cut(s) should be pushed through to mortgage rates and eventually help mortgage demand, which continues to make new all-time lows. This glaring lack of demand is causing Australian housing prices to deteriorate further, which should incrementally slow consumer spending growth in the coming months alongside rising joblessness (the unemployment rate has backed up +40bps since April). Some key metrics to consider regarding the headwinds facing Australia’s housing market over the long-term TAIL:

  • Nearly 2/3rds of Australian citizens own homes (population = 22.5 million);
  • Roughly 90% of encumbered households have variable-rate mortgages, which makes consumer finances incredibly sensitive to interest rate fluctuations;
  • At 155% of disposable incomes, Australian households are more +16.5% more levered than U.S. households were just prior to the financial crisis (133%);
  • Australia has the most unaffordable housing in the English speaking world, according to a January Demographia survey (6.1x gross annual household income vs. 3x in the U.S.); and
  • A recent survey confirms the Demographia survey results: the median house price in Australia ($503k in May) is nearly 3x that of the U.S. ($184k in June).  

Shorting the Aussie Dollar - 6


Shorting the Aussie Dollar - 7


Our proprietary quantitative levels on the FXA etf and the CRB Index (raw materials account for 60% of Australia’s exports) are below:


Shorting the Aussie Dollar - 8


Shorting the Aussie Dollar - 9


For more in-depth analysis behind this position, refer to the notes below (email us for copies). We’re also happy to follow up with a call for those looking for additional color: 

  • April 6, 2011: Aussie Dollar – Getting Long in the Tooth: We remain bearish on the Aussie dollar for the intermediate-term TREND and forsee a correction from its near all-time high (AUD/USD), primarily due to slowing economic growth down under in part aided by slowing growth in key export markets, which may lead to lower interest rates and more accommodative monetary policy.
  • May 19, 2011: Aussie Dollar – Dancing ‘til the Music Stops: We expect the Aussie dollar to correct over the intermediate term as consensus expectations for an RBA rate hike(s) over the next 3-6 months are irrational due to a pending slowdown in domestic growth. Additionally, our 2Q Macro Theme of Deflating the Inflation is incrementally negative for the AUD as the Inflation Trade unwinds.
  • July 27, 2011: We Wouldn’t Want to be Glenn Stevens Right About Now: RBA Governor Glenn Stevens could shock the Australian economy into a pronounced economic downturn by looking through the current slowdown and hiking rates within the next few months, but given recent economic data it seems more likely that the tightening cycle has peaked in Australia. 

Darius Dale



The California State Controller released the Statement of General Fund Cash Receipts and Disbursements for September 2011.


The monthly report issues yesterday by CA State Controller John Chiang covers the state’s cash balance, receipts and disbursements in September.  Revenues came in below projections from the recently passed state budget.  Chiang said that “September's revenues alone do not guarantee that triggers will be pulled. But as the largest revenue month before December, these numbers do not paint a hopeful picture.”


We focus on Retail Sales and Use Tax Receipts as one data point pertaining to the health of the consumer in the Golden State.  For the quarter ending September 30th, this figure dropped over 21% year-over-year.   Below, we chart this trend on a one- and two-year basis versus CAKE blended same-store sales.  The 3Q11 CAKE number (yellow bar) is a hypothetical comp arrived at by assuming that the two-year average trend in CAKE’s comparable sales trend holds flat.  We do not have access to enough data points to infer a meaningful correlation between these two metrics but certainly do not see the drop in retail sales tax receipts as bullish for the prospects of any restaurant/retail businesses with exposure to California.  20.7% of CAKE’s store base is in California.  BJRI and PFCB also have 50% and 14%, respectively, of their restaurants in California.





Howard Penney

Managing Director


Rory Green



real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

JNY: Insight On A Jeanswear Deal


To the extent that this is not a firesale because business is tanking, it makes sense strategically. But the timing is suspect.



There are puts and takes on this proposed JNY Jeanswear sale to Israel’s Delta Galil Industries (DELT.IT). Netting it all out, I come out on the plus side – IF it actually happens.


Biggest positive:  It would provide a $4.50 slug of cash to a company with a sub-$10 stock. And let’s face some facts, with brands like l.e.i, energie, Gloria, and Jessica Simpson selling squarely in mid and lower tier channels in a stagflationary environment, it’s not the most defendable business out there.  In fact, much of this content exists not because it should, but because years of deflationary sourcing costs and lower interest rates allowed JNY to roll up a portfolio of average content, and then keep it afloat while milking for cash.


The new reality removes the opacity of this model, and management knows this. If they can relieve the balance sheet pressure, get rid of the low end of the portfolio, and simply rid themselves of a distraction while they focus on real content – like Jones New York and Weitzman – then I’m ok with this.

  1. On the negative side, the company came out and said that it would use proceeds to repo stock. That’s great…really, it is. But they have over $7 per share in debt, deferred payments remaining  for its Stuart Weitzman acquisition and a sub-$10 stock. Maybe they have such huge confidence in their business such that a sub-$10 stock is ridiculous to them. That’d be super bullish, and I definitely won’t ignore that. But in this market, I’d like JNY to finally put on its conservatism pants and get rid of debt.
  2. The price seems out of whack. Either; a) the multiple is either really low, b) the business is really bad, or c) the business being discussed is actually a subset of what we otherwise currently classify as JNY Jeanswear. Wholesale Jeanswear generated about $820mm in revs last year at a respectable 9.3% EBIT margin. On those numbers, the range discussed amounts to 4.0-4.5x EBITDA. Granted, those margins are what I’d consider a peak. Haircut them by 25% to what’s realistic for this year, and it suggests 5.0-5.8x EBITDA on the disposal.  This compares to JNY’s current multiple of around 4.8x EBITDA.
  3. Of course, the bigger curve ball would be that JNY is missing the quarter meaningfully, making the multiple higher than it seems. That would also synch with timing of this leak. I wouldn’t put this past them to divert investors’ attention away from the quarter in favor of a capital markets event.

Lastly, be careful on this one. LIZ looked like a great idea at $10, and not a whole lot changed while it dropped to $4 – certainly not enough to explain away a 60% loss in equity value. Yes, JNY looks cheap. But it could be a value trap waiting to happen. I think LIZ offers up a better portfolio, more upside, and far stronger downside support.



JNY Segment Results & 2011 Outlook:

JNY: Insight On A Jeanswear Deal - JNY Segs 10 11


JNY: Insight On A Jeanswear Deal - JNY Guid 10 11


JNY: Insight On A Jeanswear Deal - JNY 10 11


Brian McGough

Managing Director










Corn has declined in Chicago as speculation mounts that the U.S. may raise its global supply estimate tomorrow.





Casual Dining outperformed peer subsector groups during yesterday’s trading.


THE HBM: PNRA, RUTH - subsector fbr





PNRA:  Shares of Panera Bread gained almost 4% yesterday.  Wedbush Securities were quoted in the media as saying that the company may start buying back its own stock, which would provide potential upside to the company’s estimates.





RT: Ruth's Chris gained 15.7% on strong volume yesterday, outperforming both quick service and casual dining.


THE HBM: PNRA, RUTH - stocks 1011



Howard Penney

Managing Director


Rory Green



TODAY’S S&P 500 SET-UP - October 11, 2011


Levels matter and ASIA looks more bearish in the majors (HK, Nikkei, KOSPI, etc) than Germany, France, and Italy do right now – that’s telling you something about Global Growth that is ringing in the -1.1% and -2.7% selloffs in oil/copper this morning that should be respected. Every stock market in Asia and every major commodity has failed at TRADE resistance. 


As we look at today’s set up for the S&P 500, the range is 31 points or -2.23% downside to 1167 and 0.26% upside to 1198






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: 2530 (-1218) 
  • VOLUME: NYSE 888.12 (-22%)
  • VIX:  33.02 -8.8% YTD PERFORMANCE: +86.03%
  • SPX PUT/CALL RATIO: 2.24 from 2.54 (-11.80%)




From KM - US TREASURIES: very interesting action on the short end of the curve continues to develop w/ 2-year yields having broken out above my TRADE line of 0.21% and now testing my TREND line up at 0.30%. I expect short-term yields to back off here, but the short end of the curve should continue to pressure the Gold price (which failed again at $1678 TREND resistance)

  • TED SPREAD: 38.91
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.16 from 2.08     
  • YIELD CURVE: 1.85 from 1.79


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30 a.m.: NFIB Small Business, est. 88.8, prior 88.1
  • 10:00 a.m: IBD/TIPP Economic Optimism, est. 39.4, prior 39.9
  • 11:30 a.m: U.S. to sell $29b 3-mo., $27b 6-mo. bills
  • 1:00 p.m.: U.S. to sell $32b 3-yr notes
  • 2:30 p.m.: Treasury Secretary Timothy Geithner participates in Financial Stability Oversight Council meeting



  • FDIC to release Volcker Rule on proprietary trading
  • Chrysler talks with UAW continue
  • NBA cancels first two weeks of season
  • Hewlett-Packard said to decide future of WebOS, Palm this week, AppleInsider
  • FDA staff issues recommendation on Cook’s medicated heart stent ahead of 10/13 meeting; watch Medtronic, Baxter
  • Citigroup said to halt soliciting some Japanese retail business as it awaits government investigation outcome
  • Bloomberg/Washington Post Republican Presidential Debate at Dartmouth College, Hanover, N.H., 8 p.m.
  • No IPOs expeted to price today


COMMODITY/GROWTH EXPECTATION                                                                    


THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Soy Slump Ending as Record Demand Overwhelms Farms: Commodities
  • Oil Drops From Two-Week High in New York Before Europe Debt Vote
  • Copper Declines Most in a Week on Concern About Chinese Demand
  • Timah to Resume Refined-Tin Exports After Price Rebounds
  • Corn Falls as U.S. May Raise Supply Estimate; Wheat Advances
  • Gold Declines in London as Commodities Fall Before Slovakia Vote
  • Sugar Declines in New York as Slower Growth May Curb Demand
  • Rio Says Greece Risk Overdone as China Overcomes ‘Wall of Worry’
  • U.S. Refinery Runs at Four-Month Low in Survey: Energy Markets
  • Soy Sinks More Than Oil Deepens Bond Sell-Off: Argentina Credit
  • Economists Call for Crop-Trading Limits to Curb Volatility
  • Most Tankers Idled Since ‘80s Won’t Buoy Charter Rates: Freight
  • Alcoa’s Earnings Recovery Slows on Aluminum Price ‘Headwind’
  • COMMODITIES DAYBOOK: Gold Declines, Oil Falls From 2-Week High
  • Ship Futures Jump to Year’s High as China Surge Lifts Charters
  • Aluminum Demand to Grow as Much as 10% in 5 Years, Novelis Says




EURO – yesterday KM put up the $1.36 line in the sand and said short the Euro with “impunity” there.


THE HEDGEYE DAILY OUTLOOK - daily currency 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.