German Inflation Continues To Abate...

Below is the chart of Germany's year over year consumer price inflation (CPI). This morning's report showed another month/month decline. It looks increasingly likely that Germany's inflation rate will approach 1-1.5% year over year growth within the next 3 months.

This, on the margin, is bullish for German Equities.

We remain long Germany via the EWG etf.

Eye on Leadership: Phil Falcone

We wanted to highlight Phil Faclone’s testimony in front of Congress yesterday. While Keith and I may be biased since we come from small town, blue collar roots and are former college hockey players (sorry Phil we had a winning record against Harvard when we played at Yale), his is a track record that is difficult to disparage. Phil has built one of the most impressive hedge funds in history.

The path from Chisholm, Minnesota was a not easy one, no doubt, and as Phil outlines below, he has suffered his share of bumps along the way. But at the end of the day, his hard work, integrity, and a process have led him to incredible success. We also have the pleasure of knowing a few of Phil’s colleagues and it is pretty obvious that success hasn’t changed the man. As they say, you can take the man out of Chisholm, but you can’t take the Chisholm out the man. Indeed.

Daryl G. Jones
Managing Director

“I would like to take just a moment to tell you a bit about myself. I currently reside in
New York City with my wife of 11 years and two children. By way of background, I was
born in Chisholm, Minnesota, population 5,000, on the Iron Range in Northern
Minnesota. I was the youngest of nine kids who grew up in a three-bedroom home in a
working class neighborhood. My father was a utility superintendent and never made
more than $14,000 per year, while my mother worked in the local shirt factory. I take
great pride in my upbringing, and it is important for the Committee and the public to
know that not everyone who runs a hedge fund was born on 5th Avenue - that is the
beauty of America.

I attended Chisholm Senior High and went on to Harvard University, where I received an
A.B. in Economics in 1984. After college, I pursued my first love, hockey, although an
injury cut short a professional hockey career abroad. I then moved to New York and
began working as a high-yield bond trader at Kidder, Peabody. A few years later, at the
age of 28, I teamed up with a friend to complete a leveraged buyout of a small company
based in Newark, New Jersey. Unfortunately, the recession in the early 1990's made that
venture quite difficult. As a result, by 1994, I was so 'financially challenged' that the
power in my apartment was shut off because I could not afford to pay the electric bill.
That experience, as painful as it was, stayed with me over the years and taught me several
valuable lessons that have had a profound impact upon my success as a hedge fund

Through hard work, and perhaps a little bit of luck, Harbinger Capital Partners has been
able to generate substantial returns for our investors since 2001. Our investment
philosophy is very simple; we study, often for months, the fundamentals of companies to
identify those that are undervalued or overvalued, and we act decisively when
opportunities present themselves. We are not momentum traders, nor are we day traders;
we are investors. It is not magic. My analysts perform thorough due diligence, rather
than relying on ratings agencies or other research reports -- like many of the reports that
improperly valued securitized mortgage products over the past few years.”

Philip A. Falcone
Senior Managing Director and co-founder of Harbinger Capital Partners
Testimony to Congress
November 13, 2008

US Consumer Confidence: Here comes Jimmy!

This morning's University of Michigan consumer confidence report gives us the most current reading on November... like Jimmy Braddock, the US consumer is coming back from the cold mat. The report improved, barely, but the point is that it improved to 57.9.

Consumer confidence in the USA bottomed in early October of 2008. Until I see a fact to support otherwise, that's one more reason why the October lows in the S&P500 can hold.

Everything that matters in our macro model happens on the margin. On the margin, this report registers a winning round for the bull who believes in Jimmy and that the this narrative fallacy of an 09’ Great Depression won’t keep him down and out.

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Casual Dining – October Traffic Trends

Casual dining same-store sales declined 6.1% versus down 1.1% a year ago. This represents a 230 bp sequential decline from September’s number. Most of this decline was driven by the continued fall off in traffic, which accelerated its declines in October, down 8.2%.


Market shares were remarkably consistent in October versus the previous few months. In terms of rolling chip (RC) volume, the only big movers were Crown (MPEL) and SJM. Crown continued its decline, dropping to around 12% from 14% in September, and well off its high of 20% in April. SJM was the main beneficiary of Crown’s woes. The other companies maintained September’s market share. MGM seems to have found its way in the RC business in maintaining its all-time high market share of 7% achieved in September.

Turning to mass market (MM) revenue, Wynn Macau lost a little market share to MGM, Crown, and SJM. It is unclear whether hold percentage played a role. Wynn Macau’s total Baccarat revenue share (MM and RC combined) declined to 17% in October from it 2008 high of 19% in September. Wynn held very high in September relative to the market. October was consistent with the YTD average of 17%. LVS’s MM market share remain consistent with the past few months although total Baccarat market share dropped sequentially from 28% to 25%. Similar to Wynn, September’s share was boosted by a low RC hold percentage for the market relative to LVS. The opening of the Four Seasons in August has kept market share at 25% or higher the last few months.

Overall, I think October was a fairly uneventful in terms of market share shifts. Visa restrictions continue to have an impact on the overall market but recent share trends seem to be holding.


Keith - BKC - short with impunity anywhere close to 24

Howard – BKC - The industry is still a zero sum game - WEN new value promotion is driving incremental traffic and MCD dollar menu is winning too. BKC’s trends suggest they are losing markets share in the US.

Keith - GMCR - short with impunity anywhere north of $33

Howard – GMCR - I don’t buy into the new coffee revolution and the P&L looks fragile…..

Keith - EAT buy at 7.08

Howard – EAT - Down 27% over the past 30 days! Of the 45 names that Malcolm Knapp tracks only one concept had sales trends better than Chili’s in the month of October.

Keith - MCD - short at 58.26, the monopoly game is ending here.

Howard – MCD - My concern is more about 2009. The MCD coffee program is challenged and looks like it will not provide the lift the company needs to drive incremental traffic in 2009. The reallocation of advertising money toward coffee will slow overall trends.

Keith - SBUX - I buy at 8.48; very negative divergence today

Howard – SBUX - It will take time to repair the damage done to this stock. One of the biggest negatives facing SBUX is that senior management is out of touch with the investment community.

Keith - DIN's big resistance line is 17.34

Howard – DIN - Yesterday DIN traded in a 30% range! In the early part of the 4th quarter nearly every casual dining stock has gotten crushed, but not DIN. Over the past month DIN is up 97%, while DRI is down 10% and EAT is down 27%. Of those three names only DIN has severe balance sheet issues! This market is insane!

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