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




With all six companies reporting on the Hedgeye Alpha - Restaurant list we can report a 50-66% success rate depending on how you want to account for EAT.  The notable issues we had were on the short-side with bets against PNRA and BWLD.  We are going to be making changes to the ALPHA list in the coming days.  While we have not finalized the list yet, we still believe in BWLD on the short side despite having been early.  Although PNRA has significant challenges from a comparison stand point in 4Q, we’re not sure that is enough to cause a significant revaluation of the company given the momentum shown in the third quarter.  The other name on the short side was DNKN and we still hold a negative view of the company from a TRADE, TREND and TAIL stand point.  The implication of the announcement of the secondary offering is that Private Equity firms holding the stock are looking to book their gains.


On the long side, I still think MCD and YUM are going to perform ahead of expectations.





For the week ending October 28, 2011, the MBA purchased app index inched up 0.2% driven by an uptick in purchase applications. The purchase index increased 1.8% WoW; still well below year-ago levels.  The refinance index slipped 0.2%, but its upward trend is unchanged because of attractive mortgage rates.










The coffee sector was down on significant higher volume yesterday


PEET:  Peet’s Coffee reported another strong quarter, reporting adjusted EPS of $0.28 versus $0.27 consensus on the back of 14% revenue growth and flat EPS growth which was impacted by coffee costs which were up 53% year-over-year in 3Q versus up 26% year-over-year in 1H11.  The company is still on target to meet the higher end of the $1.43-$1.50 guidance range that it reaffirmed.


SBUX:  Starbucks is launching K-Cups this week.


DNKN:  Dunkin’ Brands dropped Goldman Sachs as an underwriter for its secondary because of a research note GS published today. 





TXRH:  Texas Roadhous is a name we have thought was a short and this was confirmed by the quarter they reported last night.  The company guided to 7% to 9% in food inflation for 2012.  The stock was downgraded to Neutral from Outperform at Credit Suisse.


RRGB:  Red Robin Gourmet Burgers is the latest casual dining chain to try its hand at a simplified, lower-price, limited-service concept via the crowded gourmet burger business.  The company plans to open a fast-casual concept with burgers, beer and wine called Burger Works.  We don’t see how this is good for the core business


CBRL: Cracker Barrel is fighting back against Biglari, the activist shareholder in their stock, with gusto.  Read the story here.





Howard Penney

Managing Director



Rory Green




In preparation for MGM's Q3 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • Should poker legislation be enacted, and MGM Resorts would offer, subject to regulatory approval, an online platform that employs leading technologies and processes to ensure the integrity of the game and the security of player accounts and information.


  • Underway this week, the $160 million remodel includes all 3,570 guest rooms and 642 suites in the hotel's main tower and is expected to conclude by September 2012. The initial set of redesigned rooms will be complete by the end of November 2011.



  • “Tunica is now back on track and performing well.”
  • “We reported RevPAR up 10% due to a nice increase in short-term bookings and really strong demand across our portfolio.”
  • “Casino revenues were up despite the low hold that I talked about. Our hold was below our normal range. We didn’t do as well as we have been doing for many quarters internationally; we didn’t do well in April. But we had a really good quarter on our national rated play, second consecutive quarter of growth there."
  • “M life, has been rolling out with great momentum…we launched that on the strip here in January of this year and we’ve seen a nice increase in our active players and in trips in the quarter. Promotional spend, by the way, is down as a percentage of revenue largely due to more targeted marketing, more clever marketing from our perspective. We’re excited about this because next month in September we roll out all the non-gaming elements of M life into our regional properties. And then in the following month in October, we do the same thing here in Las Vegas. That will be the culmination of the full M life launch and with this rollout, we believe we’re going to see nice increases in the non-gaming revenues against even what we’ve been doing thus far this year”
  • “Depreciation and amortization expense will increase by approximately $85 million to $95 million per quarter as a result by the accounting adjustments for the consolidation of Macau”
  • “We are expanding further in Asia with our Hospitality division and they’re bringing the first hotel online literally this year in Sanya in Hainan Island.”
    • “Well on the management side… it doesn’t become substantial until we get into 2013 and ‘14.”


  • “The signs of the recovery here in Las Vegas is consistent; we’re going to see continued improvement as we move into the back half of this year and into 2012”
  • “We continue to expect to spend around $275 million in capital in 2011 which includes room remodel activity at both Bellagio and MGM Grand Las Vegas.  Bellagio’s room remodel program began on June 20th and will finish in time for the December holiday.  We have already turned two floors and the new rooms are receiving great feedback from our customers.  We expect we’ll earn up to an approximate $30 per night rate premium once these new rooms come on- line."
  • “We saw particular strength within the retail segment; or in other words, our FIT and leisure markets. And that led to additional increases in occupancy and in ADR and in fact June was surprisingly strong and was actually our biggest RevPAR growth month in the quarter, up in the low teens.”
  •  “Aria is seeing increased bookings in 2011 and beyond. Residential sales pace continues to be slow. However, we’re having a great deal of success with the residential component of CityCenter. To date, we’ve leased 346 units and we’ll produce total annual lease income of around $8 million.”
    • “On the win per unit slots at Aria, it’s up 9.4%. It’s $206 versus $188 a year ago.”
    • “We actually have 68% of our rooms booked for 2012 which is, as Dan pointed out, ahead of the pace we would normally expect and much better than last year.”
  • “Our booking pace is so far up quite nicely for the summer and really throughout the fall period as well. We expect RevPAR in the third quarter here in the Las Vegas strip to be up around 10%. We’re particularly encouraged in terms of second half of the year on our convention calendar, most notably the months of September and October; they’re exceptionally strong. And in fact, the third quarter convention mix is expected to be up about 300 basis points over last year’s mix.”
  • “We’ve seen zero impact to our call center. We’ve had no change in our cancellation activity at all. We had a very strong – we’re having a very strong August in terms of occupancy, great weekend trends; and I know it’s important to you, but we’re just in the real world living watching people coming to Las Vegas here, there has been no change at all.”
  •  “Our payroll is pretty flat, our expenses are up a little bit in terms of salaries, bonus accruals, the culinary contract. But in terms of any major cost savings beyond what we accomplished early and effectively, I don’t anticipate seeing anything significant. Every year we look to take costs out of our business. We do that in the January-February period as we get into a year; we’ll do that again. But at this point, we’re showing margin growth. We are seeing great occupancy across our portfolios. Our food covers are up; our retail sales in most every venue is up. Slot revenue is up and so I don’t see a need or even an opportunity to cut costs when our revenues are building”


  • “We opened the Platinum Lounge which is part of the main floor operation; that comes on the first phase in August… The upgrade for the in-house VIP customers, that’s now looking unfortunately we’re going to miss National Day holiday but we do have gaming capacity to cover that in late October, early November.”
  • “Philosophically, we have an under-leveraged asset today that’s generating a great return, but we want to grow that company nicely in Macau and Taiwan too if that should be a possibility.  So I would say that there will be an opportunity for both dividends to shareholders and growing in Macau, and I think that the future holds for both of them. But in terms of whether we’re going to do periodic distributions or quarterly distributions, we’re not prepared to discuss it at this time. We need to discuss that with our Board.”


This note was originally published at 8am on October 28, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“High absolute return is much more recognizable and titillating than superior risk-adjusted performance.”

-Howard Marks (The Most Important Thing, page 57)


I wasn’t short the SP500 until 326PM EST (1290) yesterday. I’d sold all of my long-term Treasuries (TLT) on Wednesday. I wasn’t short anything Commodities and/or European Equities…


So, yesterday could have been worse.


Where I got killed was in my long US Dollar position. The US Dollar Index was down huge (-1.7%), making a fresh low for the month as US stocks completed their biggest 18 day short squeeze ever.


Ever is a long time.


Like my “Short Covering Opportunity” call on October 4th, my “Buy The US Dollar” call on October 21st has a Time Stamp. While there were plenty of risks building a US Financial Services and Media firm in the 2008-2011 period, for me at least, one of them wasn’t showing you every position I take, when I take it.


Time Stamps are cool on Wall St 2.0 because they save you from having to take my word for it.


Back to the Global Macro Grind


Get the US Dollar right and you’ll get mostly everything else right – if that’s not obvious to someone who is confusing their “high absolute returns” yesterday (everyone nailed it, right?) with what we call beta, I don’t know what is…


Using our immediate-term TRADE duration to measure Correlation Risk, here’s a real-time update on the USD’s inverse correlations:

  1. SP500 = -0.97
  2. CRB Commodities Index = -0.88
  3. 10-year US Treasury Yields = -0.81

No matter where you go this morning, there it is. If you have been bearish on the US Dollar (and bullish on the Euro) for the last 3 weeks, you have absolutely crushed it.


If you’ve been levered-long beta since April’s YTD high in the SP500 of 1363, you’re still getting crushed. Over that time span, the US Dollar Index is up +2.7% and the SP500 is down -5.8%.


But today, all of what you’ve done for 2011 doesn’t matter to the market at all. Mr Macro Market doesn’t care about who is doing the crushing or who is getting crushed. She tends to inflict the most amount of pain on the most amount of players at the same time.


So, what do I do “right here, right now?”


I was asked that yesterday at a lunch meeting in Boston. My answer: “I finish our meeting then go to my next meeting. And if I see my immediate-term TRADE overbought level in the SP500, I’ll short it, for a trade.”


Then client then asked me, “at what price?”


I said, “I don’t know. I need to fire up my machine and remodel my volatility parameters for the draw down in the VIX and melt-up in the SP500’s price. I let my process tell me what to do, not my emotions.”


So, at 326PM, I hit the button, “shorting the SP500 (SPY) as it is immediate-term TRADE overbought.” Time Stamped.


What do I do with that position today?


Same answer. The risk management process will tell me what to do. All of my decisions are risk-adjusted to the market’s last price. In other words, Prices Rule my process. Period.


The SP500’s setup is now as follows:

  1. Immediate-term TRADE overbought = 1290
  2. Intermediate-term TREND support = 1257
  3. Long-term TAIL support = 1266

In other words, on any pullback towards 1257-1266, I’ll cover that short position and get longer of US Equity exposure. If 1266 doesn’t hold, I get shorter.


Currently, in the Hedgeye Asset Allocation Model, I have a 9% position in US Equities – that’s all in Consumer Discretionary (XLY). Obviously if I stay wrong on the US Dollar, US Consumption will be adversely affected by inflation. Strong Dollar = Strong America. So with Goldman telling you to chase beta this morning, remember what that implies longer-term – Debauched Dollar = Mad America.


If my long-term bullish case for the US Dollar doesn’t convince you of that – let The People. In the face of the biggest 4-week rally ever, Bloomberg’s weekly Consumer Confidence survey dropped to minus -51.1 versus -48.4 last week. Titillating.


My immediate-term support and resistance ranges for Gold (bullish TRADE and TREND again), Oil (bullish TRADE; bearish TAIL), German DAX (bullish TRADE and TREND; bearish TAIL), and the SP500 are now $1703-1756, $89.36-93.87, 6127-6428, and 1233-1290, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Titillating - Chart of the Day


Titillating - Virtual Portfolio

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Unequal Outcomes

“Equality of outcome is a form of inequality.”

-Paul Ryan


As I sit here in my hotel room in San Francisco this morning, the elephantine intellects of the Fiat Fool system continue to attempt to centrally plan us towards “equality.” Meanwhile, markets are producing very Unequal Outcomes.


Instead of stability, we have volatility. If the +41.9% rip in the Volatility Index (VIX) in the last 3 days isn’t a reminder of that, I don’t know what is…


My longest of long-term theses about Big Government Intervention and money printing remains. From Japan, to the USA, to Europe, and back again, Fiat Fool policies to inflate A) shorten economic cycles and B) amplify market volatility.


Back to the Global Macro Grind


Get the US Dollar right, and you’ll get mostly everything else right. As bad as I looked being long the US Dollar last week is as good as my team looks this week. The US Dollar has put on an impressive +3% move, recovering its TREND line of support (75.37 on the US Dollar Index), and mostly every asset class price that’s inversely correlated to that has fallen, hard.


Since I shorted the SP500 on Thursday at 1290 (Time Stamp), US stocks have had a straight down correction of -5.6%, taking the SP500’s correction from its 2011 YTD high (April) back to a double digit loss (-10.6%). Longer-term, like Japanese stocks, the SP500 has crashed from its all time peak (down -22.2% from October 2007). Bull market?


With all but 3 country stock market indices in the entire world negative for the YTD, this is obviously not a bull market in equities. It’s a bull market in long-term US Treasuries. It’s a bull market in volatility. But these asset classes are pricing in very Unequal Economic Outcomes.


Update on the Eurocrat Bazooka:


This morning Old Wall Street’s finest brokerages tried to fire the first mini-missile of EFSF bond issuance from Ireland, and had to abort mission! Given that this was the 1st €3B of €600 or so BILLION of these fiat issues coming down the pike, I’d say that’s really not good.


Inclusive of attempts to ban short selling, ban CDS trading, and ban gravity, European markets have already been telling you how this sad story of Keynesian spending and leverage ends…

  1. Germany’s DAX snapped its TREND line of 6112 yesterday and is crashing again (down -22% from its 2011 peak)
  2. France’s CAC never recovered its TREND line of 3403, and continues to crash (down -26% from its 2011 peak)
  3. Greece’s Athex Index never recovered a risk management line of consequence in the last 12 weeks (down -56% from its 2011 peak)

Never mind the €2-3 TRILLION Bazooka, these professional politicians can’t sell the world on €3B in bonds!


The European Sovereign Bond market gets this obviously. In fact, they didn’t suspend disbelief like stock market people did last week either. Italian and French sovereign debt yields continue to make a series of higher-highs, reminding you that piling-debt-upon-debt-upon-debt structurally impairs economic growth.


Setting aside the differences between Europe, Japan, and the US, that’s the story of the Fiat Fools that isn’t getting its “fair share” of air-time, yet (Obama’s team is working on rectifying this inequality). The part about causality. The part that would require these central planners to accept responsibility for the bigger problem than maybe even the banks themselves – Growth Slowing.


If Growth Slowing takes Europe’s economy into the negative 1-3% GDP zone as inflation spikes into the +3-6% range, what do you get?


European Stagflation.


Stagflation earns the lowest multiple for stocks (read: in the 1970s, the SP500 traded at 7x earnings 3 different times in the same decade). Why is that so? Simple: the combo of Growth Slowing and Margins Compressing is the kiss of the “value” investor’s death.


That’s the bad news. And it’s a European problem that perversely could result in a Strong US Dollar which, in turn, would Deflate The Inflation in America (think commodity prices). In the long-term, while these are very Unequal Global Macro Outcomes relative to how the central planners of the 2011 Fiat were thinking, this should only perpetuate global economic volatility in the short-term.


As for the “price stability”, stay tuned for the Bernank’s latest on that at his 1230PM EST press conference.


My immediate-term support and resistance ranges for Gold (bullish TRADE and TREND), Oil (bullish TRADE; bearish TAIL), German DAX (bearish TRADE, TREND, and TAIL) and the SP500 (bullish TREND; bearish TAIL) are now $1, $91.16-93.87, 5, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Unequal Outcomes - Chart of the Day


Unequal Outcomes - Virtual Portfolio


November GGR will fall MoM and growth will slow sequentially.  That in and of itself should not be alarming.



November may be a telling month for Macau as it can be considered very normal.  There are no holidays to boost revenues.  However, November may also bring some volatility and confusion and potentially disappointing investor sentiment.  The month should display a substantial decline from October’s record results and YoY growth rate.  However, the sequential slowdown shouldn’t ring alarm bells unless it is more severe than our projections.  We use two methodologies to derive expected November Gross Gaming Revenue (GGR) YoY growth of 25-30%.


1) November GGR would rise 30% YoY to just under HK$22 billion based on September and October GGR, seasonally adjusted.  We analyze seasonality based on revenue from the previous 2 months, adjusted by seasonal factors, for mass revenue, hold-adjusted VIP revenue, and slot revenue.




2) Using the average daily revenue of the last two weeks of October and taking into account the number of weekend and weekdays, we project November GGR to grow 25% to just over HK$21 billion.


With October growing 40% to HK$26 billion, we believe a 15-20% sequential decline may concern some people.  However, we would consider it “as expected” and not indicative of a credit/liquidity/macro fueled slowdown.  October was an outstanding month with a rocket ship golden week that contributed to full month GGR growing 26% over September.  Hopefully, investor expectations are appropriately in check.