Position: We are long livestock via the etf COW in the Hedgeye Virtual Portfolio.


This morning Keith went long the etf COW at $31.02 as “cattle correlations and supplies look better than most things in the commodities complex.”




The largest (63%) component of COW is live cattle futures.  Cattle futures and wholesale beef prices have launched higher in recent months as a combination of drought and high feed costs has led to the smallest calf crop in more than fifty years, with a smaller crop expected in 2012 (Cattle Network).  This result has had an obvious impact on beef production: the USDA reported that production in November was 25,070 MM lbs – down 2% YoY and the lowest since 2004.






While domestic consumption comprises 80% of total demand for US-produced beef (Cattle Network), strength in the export market has been a tailwind to price, which shows no sign of abating as emerging market economies increase their per capita beef consumption.  The US exported 2,775 MM lbs of beef in November, +22% YoY.






The minority component (37%) in the COW etf is lean hog futures; both cattle and hogs are flashing positive correlations with the US Dollar on the immediate-term TRADE and intermediate-term TREND durations.  With the USD in a Bullish Formation we are encouraged by the positive relationship developing between the dollar and livestock.


Correlations with USD Index



From a quantitative view, COW is bullish on the TREND duration with support at $30.22; and the underlying live cattle futures contract is entering a seasonally bullish season.


BUYING LIVESTOCK - live cattle 1130


Daryl Jones


Kevin Kaiser

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Retail: Ominous Start to Q4


November sales coupled with several retail earnings reports out after yesterday’s close add a dose of reality to recent Black Friday bullishness. We expected fewer misses (9 companies missed to 11 beats) given the strength at month’s end, which suggests the first 80% of November was not nearly as impressive. We chalk this up to a large extent to consumers becoming increasingly conditioned to wait for the deep discounts associated with Black Friday despite some retailers getting an earlier start this year.


The takeaway here is consistent with last week’s post “Key 4Q Themes,” expect underperformance in the domestic mid-tier market as retailers get increasingly more competitive on pricing in an attempt to manage inventories. This was reflected in results at both JCP (-2%) and KSS (-6%), which came in below expectations. Not surprisingly, the few retailers that highlighted favorable inventory positions headed into the holidays (ROST & TGT) posted positive sales while KSS – expecting inventories up +LSD – did not. Volatility is picking up in retail and is starting to reveal a bifurcation between upward and downward revisions that we expect will continue through this quarter and into next year.


A few additional callouts in November:

  • The High/Low-end performance spread has widened once again. Within department stores, SKS +9.3%, JWN +5.6%, M +4.8% were solid while JCP -2% and KSS -6.2% both came in lower than expectations in addition to continued underperformance at BONT -4.9%.
  • Food/Grocery continues to outperform driving results at discounters. Retailers with exposure there (TGT up mid-teen and COST up LDD) fared better than most with similar results to last month i.e. COST betting expectations and TGT coming in light, though still up +1.8% and up +1.2% seq on 2yr basis.
  • JCP missed expectations again just 2-weeks after reporting disappointing Q3 results. The company’s e-commerce sales were down -6.9% for the fourth consecutive month though it resulted in an improvement in the 2yr trend on top of tougher compares (+12% ly). With others like Macy’s posting sales up +50%, continues to grossly underperform. In addition, despite citing a competitive disadvantage to not opening until 4am on Black Friday, the company noted sales remained weak through the weekend. The reality is that it wouldn’t have made much of a difference.
  • KSS posted the biggest miss of the month relative to expectations coming in -6% vs. +2%E with all categories coming in negative.
  • From a regional perspective, it’s hard not to highlight the fact that virtually every single retailer flagged California or the west coast among the best performing regions. I can’t recall the last time I saw that much consistency.
  • At a category level, footwear outperformed apparel by and large. This could indicate consumer’s response to higher prices at retail, but will be worth watching through the key holiday season as it could precipitate an acceleration in discounting.
  • The magnitude of downward revisions out of several apparel companies reporting quarterly results after the close yesterday is also worth noting. GES & ARO kicked it off taking numbers down next quarter to $0.35-$0.38 from $0.45E and $1.03-$1.09 from $1.22E respectively. This morning GIL took next quarter down to a loss of -$0.40 from $0.28E and guided F12 EPS 40% below consensus expectations to $1.30 from $2.26E.


Longs: LIZ, NKE, RL, WMT


Retail: Ominous Start to Q4 - total SSS


Retail: Ominous Start to Q4 - 1 yr comp SSS


Retail: Ominous Start to Q4 - 2 yr SSS


Retail: Ominous Start to Q4 - SSS equal weights


Retail: Ominous Start to Q4 - Industry SIGMA


Retail: Ominous Start to Q4 - SSS BeatsMisses


Casey Flavin


European PMIs in the Red

Positions in Europe: Short France (EWQ)

Below we show a table of European Manufacturing PMI figures as reported from Markit/Reuters for November. The call-out here is that month-over-month the majority of reporting countries contracted, and are now firmly under the 50 line that divides contraction (below 50) and expansion (above).  Russia and Italy saw a gain M/M, however Italy is decidedly in negative territory at 44. In an environment of elevated and inflationary commodity prices, we expect Russia to benefit. Oil and gas contribute to low 20% of GDP at these prices.


Our read-through on PMI figures is that they have further room to run on the downside and provide further evidence that growth expectations will need to come in even further over the next months. We think the performance of European capital markets will move based on the political decisions of Eurocrats; within the last months we attribute the negative trend to the inability of Eurocrats to present a credible plan on the key topics of expanding/leveraging the EFSF; a bank recapitalization contingency program; and Greek haircuts. Enhancing the downside risk is the Germany and ECB stance that the ECB will only be a lender of last resorts.


European PMIs in the Red - 1. france


Below we show French Manufacturing and Services PMI (note: Nov. French Services will be released on 12/5). An interesting contribution from our internal meeting today came from our Financials sector head Josh Steiner. He noted that the assets of France’s three largest banks (SocGen, Credit Agricole, and BNP Paribas) represented 240% of French GDP, versus 57% for the US’s top three banks as a % of US GDP. This data point adds one more layer to our short position in France, which we’re currently playing in the Hedgeye Virtual Portfolio via EWQ.


European PMIs in the Red - 2. France


Matthew Hedrick

Senior Analyst


Regional markets not a great place to be.


"Even in this uncertain economic environment, I am confident that we are doing the right things and continuing to refine the type of customer experience that will benefit our business and drive profitability moving forward...We are facing the challenges of increased competition in some of our key markets, the possibility of still prolonged economic hardship, and our need to continue to raise the bar on the customer experience while maintaining fiscal responsibility during a period of uncertainty.  In spite of these challenges, I believe we are moving in the right direction for a future of increased profitability." 


- President and Chief Executive Officer Virginia McDowell 




  • 3 cent a share impact in the Q from flooding. 
  • Capex was $200k for the quarter
  • $28MM was outstanding on the R/C. Leverage was 6.4x for covenant purposes



  • Believe anything that changes the center of gravity in Blackhawk will help them
  • Florida - feel like the existing proposed legislation has put the existing facilities at a big disadvantage.  Want full parity if the bill passes.  Hope to participate should table games and a lower tax rate come to FL. 
  • MA/NH: Always looking at opportunities but there is nothing to comment on.  Most of the MA candidates are well publicized - i.e. they will not be participating
  • Sale in Iowa- still having conversations with the cities' preferred developers but have opened it up to other players recently 
  • They are fully back to capacity post flooding and road re-opening in the Quad Cities
  • Lake Charles - they do get a modest amount of money if the deal doesn't go through.  



  • "Properties in Lula, Natchez and Vicksburg, Mississippi continued to be affected by the impact of Mississippi River flooding earlier in the year as business was slow to return to pre-flood levels.  In Lula, the Company operated with only one of the two casinos until September 2, 2011.  These factors led to both decreased net revenues and increased marketing expenses associated with the effort to return business to normal levels. The Company estimates that the impact on second quarter EBITDA was approximately $2.0 million."
  • "In Black Hawk...Recent renovations to the casino floor, a new Asian-themed restaurant and expanded poker facilities, along with improved marketing efforts led to increased market share and ...increase in EBITDA."  
  • "In Boonville and Waterloo, cost containment efforts led to increased EBITDA"
  • "In the Quad Cities, increased competition caused by the opening of the Des Plaines, Illinois casino, as well as road construction at the entrance of the Davenport casino, led to decreased EBITDA" 
  • "Costs increased in Lake Charles during the quarter due to expenses associated with realigning the casino floor, as well as refurbishments including new carpet and paint throughout the entire facility, which are expected to be substantially complete by the end of the calendar year."
  • "Our spend per customer grew by about 7% during the quarter, as we focused on marketing to our best customers and controlling the things we can control in a tough economy.  While our volumes were down slightly, due in part to conditions in Mississippi, this strategy still had a net positive impact on our revenues, largely driven by more business from our upper segment database customers, partially offset by decreased visitation by customers in our lower segments."
  • "We recently implemented the initial trial of our enhanced customer loyalty program at our property in Pompano.  This new program, which we expect to roll out across the portfolio and have fully implemented by early 2013, will give our customers more control over their rewards, more options for ways to use their points and more incentive for repeat visitation to our properties."  
  • "We will also be introducing a new buffet concept in Boonville that we plan to extend across the portfolio.  We are also currently completing the design for the refurbishment of our Lake Charles hotel.  Lastly, we are beginning the conversion and rebrand our Vicksburg property as a Lady Luck Casino.  The $4.5 million project will be completed in several phases, which we expect to be substantially complete by late spring 2012."
  • Cape Girardeau, Missouri:  "made substantial progress including completion of the primary feeder road to the property, basin and floating floor construction and is currently erecting structural steel at the site. We still expect to open the facility in December 2012."
  • Nemacolin Woodlands Resort, Pennsylvania: "Appeal of the award has been filed by a competing party. The plaintiff's briefs have been filed.  The timeline for ultimate resolution of the matter is not known at this time."
  • Lake Charles, Louisiana:  "Relating to the potential sale of the smaller of the Company's two riverboats in Lake Charles, on November 19, 2011 voters in Bossier Parish, Louisiana approved the ballot referendum, which would allow for the construction of a new casino to be built by the potential buyer. Additionally, the Company recently reached an agreement with the buyer to extend the option period to December 30, 2011 from November 30, 2011. If the option is exercised, terms call for the transaction to be finalized within 30 days after exercise."

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 78.68%