Keith bought EAT in the Hedgeye Virtual Portfolio this afternoon as the setup in his quantitative model was favorable.  From our angle, too, the stock looks good on the long side.


From a fundamental perspective, as we wrote in our note titled “EAT – CAN THEY EXECUTE?” on 10/27, we believe that the company is operating well and will continue to improve going forward.  At Chili’s, the remodeling program, kitchen retrofits and other initiatives are going to boost sales and customer satisfaction.  As our note following earnings (10/27) highlighted, we believe that the skepticism among the sell-side community is misguided and would not interpret this negative sentiment as being anything other than a positive for a buyer of the stock.  Having met with the company earlier this week (note titled “EAT MEETING”, dated 11/15), we are further convinced that Brinker is out-innovating the competition and, as a result, will outperform over the longer term TAIL duration.


This stock has been one of our favorite names for some time and is one of our top three long picks in the space over the intermediate term and long term despite it being overbought on the TRADE duration.


EAT: TRADE UPDATE - eat levels





Howard Penney

Managing Director


Rory Green



Shorting France (EWQ): Trade Update

Positions in Europe: Short France (EWQ); Short EUR-USD (FXE)


Keith shorted France via the eft EWQ in the Hedgeye Virtual Portfolio today.  We opportunistically shorted EWQ from a quantitative set-up with the CAC 40 broken on its intermediate-term TREND and immediate-term TRADE lines (see chart below).


Shorting France (EWQ): Trade Update - 1. cac


France remains an important EU country in the crosshairs—constrained by fiscal pressures (debt and deficit) and a web of cross-country sovereign banking exposure, the two combined put pressure on the country’s AAA credit rating. On 10/18 we penned a note titled “France is Going to Get Downgraded”, and made the important point that there exists an enormous outsized risk to the entire European bailout project for sovereigns and banks should France lose its credit rating: essentially the entire EFSF would be jeopardized, as France is the second largest contributor of collateral to the facility, at 20%, behind Germany at 27%.


From the fiscal side, France’s public debt as a % of GDP is likely to hit 88.4% this year, near the important 90% (and above) level that Reinhart and Rogoff outline in their seminal book This Time is Different as prohibitive to growth.  Through austerity, the government hopes to bring down the budget deficit, forecast to hit 5.7% of GDP this year, to 3% in 2013, or in compliance with the EU’s Growth and Stability Pact. Nevertheless, there’s been great push-back to Sarkozy’s austerity programs (including the most recent €8 Billion in additional budget cuts), which has also eroded his polling results for elections next April.


On the banking side, France is the largest holder of Italian public debt ($106.8B) and private debt ($309.6B) of any country according to June BIS report, which compounds risk given Italy’s own debt imbalances and investor uncertainty around leadership in the wake of Berlusconi.


Early this month Sarkozy’s government revised GDP to 1.0% in 2012 versus a previous estimate of 1.75%. Politically, Sarkozy remains faced with high unemployment, at 9.2% (vs 7% in Germany), or 22.8% among the French youth, and unlike Germany does not have the ability to cushion slowing growth through exports. 


As a risk signal, we continue to follow the spread between German bunds and 10YR French yields that has maintained a hockey stick pattern (see chart below). 


Matthew Hedrick

Senior Analyst


Shorting France (EWQ): Trade Update - 1. risk rising






Notes below from CEO Keith McCullough


HANG SENG – crashing. Period. Down another -1.7% overnight, down -7.6% since OCT28, and down -24.2% from 2011 peak. Within that nasty Singapore report yest (down -16.2% y/y OCT), Electronics exports were down -31.2%! Apple? I don’t know. But I do know that we’re staying short Hong Kong and Asia’s Growth Slowing.


DEAD CATS – across Europe, from the Euro itself (immediate-term TRADE oversold yest) to French and German Equities, they’re bouncing them right from where they should have. New ranges for the Euro, CAC, and DAX = 1.33-1.36, 3003-3146, and 5. Manage your risk proactively around those ranges w/ a bearish bias.


GOLD – bouncing right off its immediate-term TRADE line of support of $1722 this morning and I like that because we bought more GLD yesterday taking the position to 9% in the asset allocation model. Refreshed range = 1.





THE HBM: GMCR, YUM, MCD, DRI, BWLD - subsector fbr





GMCR: Green Mountain is making headlines on Bloomberg this morning.  An article on the company highlights September 16th, 2012 as the day that Green Mountain loses the main patents on its single-serve K-Cups.  This has obviously been known for some time but worth noting that it is being pointed out by media outlets.


GMCR: Green Mountain can see its shares return to the $60-$70 range over the next few months, according to SunTrust in a report reiterating its Buy rating and $90 PT.


YUM: Yum! Brands’ campaign to have laws changed so that low-income Americans using food stamps at its Taco Bell and KFC restaurants has hit a snag.  The USDA has voiced its opposition and encouraged states not to go along with Yum.


MCD: McDonald’s has been performing well of late, remains one of our favorite names, and GS bumped its PT for the stock to $103 from $100.




DRI: Darden Restaurants was cut to Equal Weight at Morgan Stanley.  The report cited weakness at Olive Garden.


BWLD: Buffalo Wild Wings remains a Buy with a $72 PT, according to Sterne Agee, citing strong same-store sales.


THE HBM: GMCR, YUM, MCD, DRI, BWLD - stocks 1118



Howard Penney

Managing Director


Rory Green



investing ideas

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The Macau Metro Monitor, November 18, 2011




  • Taking account of current market sentiment, MPEL does not intend to carry out a global offering in conjunction with the Proposed HK Dual Listing.
  • Currently aiming to complete the Proposed HK Dual Listing by end of 2011
  • The shareholders' loans initially provided in 2006 by wholly-owned subsidiaries of major shareholders, Melco International Development Limited and Crown Limited, will be converted into ordinary shares of the company on or around November 29, 2011.
    • Following the conversion, Melco and Crown will maintain their interests in the company in equal proportions. 
    • Conversion price will be determined as one-third of the VWAP of the company's ADS over the period of the five trading days immediately preceding the date of conversion, as each ADS represents three Shares.
  • As of September 30, 2011, the combined outstanding shareholders' loan balances due to Melco and Crown by the Company are HK$899.8MM (approximately US$115.6MM). 
  • The dilution impact from the conversion of the shareholders' loans on existing shareholders of the Company (other than Melco and Crown), based on closed price of $8.93, is approximately 0.8%.


Wynn Macau would pay a special dividend of HK$1.20 per share to those shareholders who hold shares through Dec 7.  The dividend will be paid on Dec 19.  This is the 2nd time Wynn Macau has paid a dividend.  Last November, Wynn Macau declared a special dividend of 76 Hong Kong cents per share, and said it would consider paying recurring dividends with a target yield of 1%-3% per year.



Galaxy is looking to beat consensus estimates of 15-20% growth in 2012, said CFO Robert Drake.  “Everyone is looking at the VIP market in particular. We haven't seen any signs of slowing. There is plenty of liquidity in the market and visitation remains strong,” Drake commented.



In the first 10 months of 2011, the Macau government’s total public expenditure was MOP31.3 BN (US$3.9 BN).  That is less than 60% of what it budgeted for the overall year, when there is only two more months to go.  A fiscal surplus of MOP 59.53 BN was recorded in the first ten months of 2011, up by 68.3% YoY, due to the increment in public revenue from the direct taxes on gaming.


TODAY’S S&P 500 SET-UP - November 18, 2011


As we look at today’s set up for the S&P 500, the range is 27 points or -0.34% downside to 1212 and 1.88% upside to 1239. 






THE HEDGEYE DAILY OUTLOOK - daily sector performance


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -1878 (-1594) 
  • VOLUME: NYSE 1024.67 (+11.5%)
  • VIX:  +34.51 +2.9% YTD PERFORMANCE: +94.42%
  • SPX PUT/CALL RATIO: 2.11 from 2.54 (-17%)



  • TED SPREAD: 47.94
  • 3-MONTH T-BILL YIELD: 0.00%
  • 10-Year: 2.02 from 1.96    
  • YIELD CURVE: 1.74 from 1.70


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:15am: Fed’s Dudley speaks on economy in Albany, NY
  • 10am: Leading indicators, est. 0.6% (prior 0.2%)
  • 1pm: Baker Hughes rig count
  • 1:15pm: Fed’s Fisher speaks on economy in Dallas
  • 1:50pm: Fed’s Williams speaks in Chile



  • U.S. economy may end 2011 expanding at fastest pace in 18 months as analysts raise 4Q forecasts
  • Bill Gross said Europe poses the biggest risk to the U.S. economy; Laurence Fink said Germany is playing a “dangerous” game letting markets push debt-laden European nations to fiscal discipline
  • ECB President Mario Draghi said the bank should remain focused on price stability, pressed govts. to act on promises to end the sovereign debt crisis
  • Hewlett-Packard added shareholder Ralph Whitworth to its board
  • Ex-Olympus President Michael Woodford said to face questions from SEC
  • Zoellick Says Europe may get support from China, U.S. via IMF
  • MF Global said to have moved hundreds of millions of dollars from its client accounts to its own securities brokerage before its Oct. 31 bankruptcy
  • Miramax said to plan $142m dividend with refinancing bid
  • Luxor Capital Group poised to gain control of William Lyon Homes after builder filed a plan with regulators for a prepackaged bankruptcy
  • FDA decision due on Regeneron’s BLA for Eylea (VEGF Trap- Eye) in wet AMD
  • U.S. Congress votes to raise FHA mortgage limits to $729,750, Obama expected to sign into law today



  • Commodity ETF Assets May Triple in Asia, S&P’s Steadman Says
  • Copper Heads for Third Weekly Drop on European Crisis Concern
  • Oil Recovers as Euro Rebound Sparks Optimism for Crisis Solution
  • Copper Traders Most Bearish in Two Months on Europe: Commodities
  • Soybeans Rally From Five-Week Low After China Boosts Purchases
  • Gold May Gain in London as Europe Debt Woes Spur Investor Demand
  • Cocoa Falls as Ivorian Port Deliveries Rise; White Sugar Slides
  • China Buys 1 Mln Tons Cotton to Boost Reserves, Cottonchina Says
  • Molycorp Says Rare Earth Price Plunge May Crimp New Mine Funding
  • Olam Wresting Rival Noble’s Stock Premium on Risk Management
  • Biggest Gazprom Bond in Two Years Breaks Drought: Russia Credit
  • China Power Firms Face Worst Margins Since ‘06: Chart of the Day
  • Kate’s Sapphire Gives Royal Boost to Sri Lanka as Exports Jump
  • COMMODITIES DAYBOOK: Oil Climbs as Euro Rebound Sparks Optimism
  • BHP Cuts Costs With First Bond Sale Since ‘09: Australia Credit
  • Pemex Seeking to Revive Fixed-Rate Bond Offering: Mexico Credit

GOLD – bouncing right off its immediate-term TRADE line of support of $1722 this morning and KM likes that because we bought more GLD yesterday taking the position to 9% in the asset allocation model. Refreshed range = 1.


THE HEDGEYE DAILY OUTLOOK - daily commodity view





THE HEDGEYE DAILY OUTLOOK - daily currency view





DEAD CATS – across Europe, from the Euro itself (immediate-term TRADE oversold yest) to French and German Equities, they’re bouncing them right from where they should have. New ranges for the Euro, CAC, and DAX = 1.33-1.36, 3003-3146, and 5. Manage your risk proactively around those ranges w/ a bearish bias.

THE HEDGEYE DAILY OUTLOOK - euro performance




HANG SENG – crashing. Period. Down another -1.7% overnight, down -7.6% since OCT28, and down -24.2% from 2011 peak. Within that nasty Singapore report yesterday (down -16.2% y/y OCT), Electronics exports were down -31.2%! Apple? We don’t know. But we’re staying short Hong Kong and Asia’s Growth Slowing.


THE HEDGEYE DAILY OUTLOOK - asia performance








The Hedgeye Macro Team

Howard Penney

Managing Director




Fade Fear

This note was originally published at 8am on November 15, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Fear is nothing more than a state of mind.”

-Napoleon Hill


Hedge Funds fear being short. Mutual Funds fear missing Santa Claus. Central planners fear-monger.


What is a Global Macro Risk Manager to do?


Fade Fear.


Last night, while the elephantine academic intellect of Larry Summers was engrossed in The Munk Debates in Toronto (I LIVE tweeted the entire debate from 700-830PM EST), at one point he paused and stated, “in a democracy, fear does the work of reason.”


Fade Larry Summers.


Last week, as the Euro was punching up against my $1.37-1.38 TRADE wall of immediate-term resistance, Goldman’s currency strategist said fear the short squeeze and buy the Euro.


Fade Thomas Stolper.


Last month, after the biggest stock market rally ever in October (ever is a long time), JP Morgan’s Thomas Lee said to stop thinking about everything else and chase beta.


Fade Thomas Lee.


With the US stocks down a full 1% yesterday, they are down for both November and 2011 YTD. Some Santa Claus rally we’re having here in mid-November…


I’m short the SP500 (SPY), long the Long-Bond (TLT), and long the US Dollar (UUP) – and relatively loud about all three of those positions. If you’ve been fading me since October 2007 or April 2011, you still have some Thanksgiving hay to bail (for November 2011 to-date, Hedgeye is 12 for 14 in the Hedgeye Portfolio).


To get back to SP500 breakeven:

  1. You’ll need to be up +25% (from here) to recapture the -20% from October 2007 watermark
  2. You’ll need to be up +8.9% (from here) to recapture the -8.2% from April 2007 watermark

Geometric math is hard to fade.


But since the Keynesians continue to attempt to ban gravity, I supposed they could move towards banning math after this morning’s drawdown in Global Equities too. If we’re fundamentally scared out of our bloody minds, there is no telling what central plan is possible.


Back to The Munk Debates - I thought David Rosenberg won last night. For those of you who missed it, the debate was between the teams of David Rosenberg/Paul Krugman and Larry Summers/Ian Bremmer.


What was crystal clear after the opening statements was that Krugman and Summers were actually on the same team.  Rosie, The Canadian, was quick to figure that out and proceeded to physically poke his debate partner (Krugman), then proceeded to tell Summers he was “dropping the gloves” … reminding Larry of how bad his economic “forecasts” have been…


Fade Keynesian Economics.


Summers was literally quoting Keynes during the debate as he and Krugman agreed that the only answer to this mess is to do a lot more of what has not worked.


If you’re going to fear anything this morning, fear that.


My immediate-term support and resistance ranges for Gold, Oil, France’s CAC, Germany’s DAX, and the SP500 are now $1735-1808, $96.13-99.73, 3031-3179, 5771-5959, and 1233-1269, respectively. If 1233 in the SP500 holds, I’ll consider covering SPY there.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fade Fear - Chart of the Day


Fade Fear - Virtual Portfolio

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