No question Mass is still generating sequential growth but VIP growth looks flattish since June.  Our 2012 growth projection of 10% has Mass leading the charge.



It may sound snobbish for us to turn our nose up to a month where Gross Gaming Revenues (GGR) grew 32% YoY, but November confirmed a negative trend that began around June.  Seasonally adjusted sequentially growth in Junket volumes (Rolling Chip or RC) has been fairly flat since June.  In other words, June was the last month where we saw a non-seasonal jump in GGR. 


RC in June of 2011 only fell 6% MoM while June of 2010 dropped 19%.  Since June of 2011, MoM growth has lagged 2010 significantly.  Using June as the base for each year, the 2nd half of 2011 lag is even more pronounced.  Looking at it a different way, the chart below shows that RC volume was actually lower at the end of November than it was in August on a 3 month moving average.  Since June was the first month of the 3 month average ending August 2011, that roughly confirms the MoM analysis.  Finally, November generated the 3rd lowest RC volume of this year, behind only January and April.  Interestingly, October 2011 – which was a record and viewed as a blockbuster month – experienced the slowest MoM growth since the financial crisis, and that was off of a low September 2011 base. 




2012 Projections 

As can be seen in the above chart, the good news is that the Mass business is still in an upward trajectory.  We expect that to continue.  For 2012, we are projecting Mass growth of 22% but VIP revenue growth of only 6%.  Our RC volume growth estimate is 5%, with approximately 11% growth in the first half of the year and low single digit growth in the second half.  This implies very little sequential growth in dollar volumes from current levels.  Given the macro environment and the tremendous growth in junket liquidity, credit, and volumes over the last few years, we think this is a reasonable, if not conservative, assumption.  While only a 10% YoY total GGR growth year could spook investors, profitability will still be strong and not far from consensus estimates, assuming there is no junket war.  Mass revenue is the key and we see tremendous long-term growth in this high margin business.





Commodities are generating a lot of attention in the capital markets at the moment as the dollar gains.  Corn and wheat gained on the week even as the dollar strengthened.  Chicken wing prices continue to head higher.




Chicken Wings – BWLD


We have been highlighting our short thesis on BWLD for some time.  Based on our analysis, we think the stock could go to $45.  Chicken Wing prices broke through $1.40 this past week for the first time since 2Q10.  Now up almost 20% year-over-year, the increase in wing prices is having an impact on price action in the stock and – we believe – our thesis is gaining credibility as investors realize that a selling food cheaply in an inflationary environment is not a sustainable strategy for restaurant companies.  Olive Garden’s recent results proved to be the catalyst for BWLD but we believe that sentiment has further to fall and some difficult quarters, particularly 1Q12, lay ahead.


SUPPLY: Supply continues to contract in the chicken industry.  For the week ended December 3, commercial hatcheries represented in the 19 state weekly USDA data saw egg sets decline ~6% on a trailing six-week basis.  Production in the industry will continue to contract, year-over-year, for some time as the industry seeks to find its feet after a disastrous year. 


DEMAND:  As demand from food service companies for chicken strengthens (high beef costs), we expect prices to continue higher. 


Below we are including a long term chart of chicken wing prices.  The current spike in wing prices may correct at some point, but the overall trend could continue much higher given the right fundamentals. 







Beef prices remain elevated despite the decline over the last week.  Much of the recent correction in beef prices, it seems, has been related to concerns around the economic crisis in Europe.  For WEN, TXRH, JACK, CMG and others, high beef prices represent a concern for business trends today and in 2012.  While some substitution is likely to bolster chicken prices and slow the increase in beef prices, we believe that beef prices are likely to remain elevated for at least the first half of 2012 absent a massive economic slowdown.  


SUPPLY: The supply picture is bullish for prices as the number of cattle sent to feedlots for fattening fell for the second consecutive months month during November as corn prices continue to pose a hurdle for processors’ profitability.  The impact of the drought in Texas and some surrounding states will also have an impact on supply as farmers try to increase the size of their now-depleted herds.


DEMAND:  October was another excellent month for domestic pork and beef exports, according to the USDA.  With two months to spare, pork and beef exports for 2011 hit a new record of $4.93 billion and $4.49 billion, respectively.   Beef exports are increasing to all regions of the world.  Over the longer term, The United Nations’ Food and Agriculture Organization said that it expects global meat consumption to jump almost 73% by 2050 as populations and incomes grow.





Corn and wheat prices moved lower on the week as concerns around the European crisis persist.  For the restaurant industry, and the broader food industry, corn prices are a key factor in driving input costs.


SUPPLY: Last Friday, the USDA World Agriculture Supply and Demand Estimates led grain prices lower on higher global inventories before the 2012 harvest.   Wheat stockpiles are expected to rise to the highest level since 2000 before next year’s harvest and China’s corn harvest is also expected to be a record crop.


DEMAND:  Slowing exports are persuading some that there is further ground to give up.  Corn seems to be the primary target of the grain bears as feed wheat has become far cheaper than feed corn.  In October, corn exports decreased 9% versus the year prior.  In addition, some analysts are anticipating that hog and chicken producers may use more soybean meal in feed rations due to its relative price versus corn being at its cheapest in more than five years.  This strategy’s effectiveness may fade, however, as weather in South America could bring soybean prices higher in 2012.

































Chicken – Whole Breast


WEEKLY COMMODITY CHARTBOOK - chicken whole breast



Chicken Wings















Howard Penney

Managing Director


Rory Green


Bad Santa: SP500 Levels, Refreshed

POSITION: Long Healthcare (XLV), Long Consumer Discretionary (XLY)


Recognizing the 1232 TRADE break yesterday was important. That’s now immediate-term TRADE resistance. Trying to find another immediate-term trading low is not as easy as it was when holding 1232.


Across our 3 risk management durations, these are the lines that matter to me most: 

  1. Long-term TAIL resistance = 1270 (the highs for both 2011 and Q4 likely are in)
  2. TRADE resistance = 1232
  3. TRADE support = 1212 

Breaking 1212, puts 1204 in play (intermediate-term TREND support). On the way down, I want to be buying US Consumption stocks as that’s where you’ll get paid with a Strong Dollar – a less levered and less cyclical America.


With the SP500 down for both November and December, versus late October expectations this is a Bad Santa if I have ever seen one.



Keith R. McCullough
Chief Executive Officer


Bad Santa: SP500 Levels, Refreshed - SPX

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Comments from CEO Keith McCullough


Sold SPY yesterday at 1249 resistance and got hedged, fast. That’s the only way to play the game that’s in front of you right now.

  1. CHINA – apparently not getting the Santa Claus rally memo from the US centric perma bulls; Chinese stocks down for the 5th consecutive day, down another -0.89% to fresh 3yr lows, and back in crash mode (down -20.7% YTD) as China’s Money Supply (M2) gets reported at the lowest level since May of 2001! (12.7%)
  2. KING DOLLAR – remains our Hedgeye Macro Theme #1 for Q411 and I’m sticking to it. Get the EUR/USD right and you’ll get most other things that are extremely correlated right. All of Asia and Latin America in rate cutting mode; Europeans getting bazooka’d.
  3. CORRELATION CRASH – remains my Hedgeye Macro Theme #2 for Q411 as it’s born out of Theme #1. Gold is doing what it did when my correlation risk model blew out in Q4 of 2008. This morning’s immediate-term TRADE correlation (inverse) b/t USD and Gold = -0.84% and commodities like Corn are looking like the Euro.


Keep moving out there. Risk is.







THE HBM: GMCR, DNKN, EAT - subsector fbr





GMCR: Green Mountain Coffee Roasters is seeing a deceleration in shipments of Keurig brewers, according to Stifel Nicolaus.


GMCR: Green Mountain Coffee Roasters was cut to Neutral versus Buy at Dougherty.


GMCR: Janney analyst Mitch Penheiro was quoted by Bloomberg as saying that the drop in IRI K-Cup share for GMCR is “irrelevant” because the company has 100% market share of the K-Cup category.  The market clearly does not think that the IRI data was irrelevant as we head into 2012, the year when the company loses its K-Cup patent.  GMCR traded down -11.6% on 1,177% volume versus the 30 day average.


DNKN: Dunkin’ Brands’ largest three investors have recently unloaded a total of $546.6 million in shares of the company.  TCG, Bain, and Thomas H. Lee sold $175.6 million, $191.4 million, and $179.6 million worth of shares, respectively.




EAT: Brinker was up yesterday on accelerating volume.  Dine Equity was down on strong volume.  Of late, the divergence between the two share prices has been stark with Brinker's stock outperforming.



THE HBM: GMCR, DNKN, EAT - stocks 1214



Howard Penney

Managing Director


Rory Green




TODAY’S S&P 500 SET-UP – December 14, 2011


Sold SPY yesterday at 1249 resistance and got hedged, fast. That’s the only way to play the game that’s in front of you right now.  As we look at today’s set up for the S&P 500, the range is 18 points or -0.96% downside to 1214 and 0.51% upside to 1232. 




KM started yesterday long SPY with a plan to sell it on a failure at 1249 (so I did).  In one of the uglier intraday reversals of the year, the SP500 ended up snapping my immediate-term TRADE line of support (1232) on the close. Now the Index (SPY) is back to bearish TAIL; bearish TRADE.  In conjunction with the SPY TRADE break of 1232, 5 of 9 sectors are bearish on my TRADE duration and 2 of them are bearish TRADE and TREND (Financials and Basic Materials which are the 2 Sectors we’ve flagged for the biggest drawdown risk to US Dollar up).  For the YTD, you can drive a truck through the Sector returns see below; but that truck rides a 4 lane highway that drives through 2 very big Macro calls in 2011 – 1H11 Growth Slowing and 2H11 King Dollar.  As the US Dollar continues to strengthen, I expect Strong Dollar = Deflate The Inflation = Strong Consumption = Long Healthcare + Consumer




THE HEDGEYE DAILY OUTLOOK - daily sector performance


THE HEDGEYE DAILY OUTLOOK - global performance



  • ADVANCE/DECLINE LINE:  -1377 (-490) 
  • VOLUME: NYSE 926.53 (+19.12%)
  • VIX:  25.41 -1.01% YTD PERFORMANCE: +43.15%
  • SPX PUT/CALL RATIO: 1.57 from 1.66 (-5.46%)



  • TED SPREAD: 54.12
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 1.96 from 2.03   
  • YIELD CURVE: 1.72 from 1.79


GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • 7:00am: MBA Mortgage Applications, week of Dec. 9
  • 8:30am: Import Price Index, M/m, Nov., est. 1.0% (prior 0.6%)
  • 8:30am: Fed’s Lockhart speaks about Atlanta
  • 10:30am: DoE inventories
  • 1:00pm: U.S. to sell $13b 30-yr bonds (reopening)
  • UK Oct ILO unemployment rate +8.3% vs consensus +8.4%, prior +8.3%
  • UK Nov claimant count (unemployment change) +3.0k vs consensus 14.9k



  • Oil declined amid speculation that OPEC will set an output ceiling near current production levels
  • Groupon ratings initiated at several firms including Deutsche Bank (hold) Goldman (buy), Wells Fargo (outperform)
  • China will impose anti-dumping, anti-subsidy duties on some U.S. vehicles
  • Data on sales of previously owned homes from 2007 to Oct. 2011 will be revised lower as a result of double counting: Reuters
  • Bullish sentiment decreases to 45.3% from 47.4% in the latest US Investor's Intelligence poll; Bearish sentiment increases to 30.5% from 29.5%; Those expecting a market correction increases to 24.2% from 23.1%




CORRELATION CRASH – remains my Hedgeye Macro Theme #2 for Q411 as its born out of Theme #1. Gold is doing what it did when my correlation risk model blew out in Q4 of 2008. This morning’s immediate-term TRADE correlation (inverse) b/t USD and Gold = -0.84% and commodities like Corn are looking like the Euro.

  • China Easing Case Grows on ‘Grim’ Outlook, Money Supply: Economy
  • Buffett’s Surging Silo Sales Boosting Cargill Costs: Commodities
  • Corzine Knew MF Made Loan From Customer Accounts, Duffy Says
  • Crude Drops From One-Week High in New York Before OPEC Meeting
  • Cheapest Foreign Coal in Three Years Lures China: Energy Markets
  • Sino-Forest Bonds Indicate No Recovery Expected: Canada Credit
  • Gold May Rebound From 7-Week Low as Europe Concern Spurs Demand
  • Sino-Forest Woes Spur Nine Dragons to Tap Shanghai: China Credit
  • Mozambique Ports Grow With Rio Tinto Appetite for Coal: Freight
  • Risk Rising of Deeper China Slowdown, Conference Board Says
  • Humala Pleases Peru Investors With Moves to Save Mine Projects
  • Copper Slumps to Two-Week Low as Fed Refrains From New Stimulus
  • Nippon Steel Gets Clearance for Take Over of Sumitomo Metal
  • Oil Surges on Speculation of Supply Disruption in Middle East
  • Iron Ore Trading System May Stir Swap Demand, Straits Says
  • Rio Tinto Doesn’t Plan Ivanhoe Bid After Arbitration Ruling
  • Gold Extends Losses as Fed Refrains From More Stimulus Measures
  • Death of Gold Bull Market Seen by Gartman as He Sells Metal


THE HEDGEYE DAILY OUTLOOK - daily commodity view




KING DOLLAR – remains our Hedgeye Macro Theme #1 for Q411 and I’m sticking to it. Get the EUR/USD right and you’ll get most other things that are extremely correlated right. All of Asia and Latin America in rate cutting mode; Europeans getting bazooka’d.



THE HEDGEYE DAILY OUTLOOK - daily currency view




THE HEDGEYE DAILY OUTLOOK - euro performance




CHINA – apparently not getting the Santa Claus rally memo from the US centric perma bulls; Chinese stocks down for the 5th consecutive day, down another -0.89% to fresh 3yr lows, and back in crash mode (down -20.7% YTD) as China’s Money Supply (M2) gets reported at the lowest level since May of 2001! (12.7%)



THE HEDGEYE DAILY OUTLOOK - asia performance




  • Hakkasan to Open in Four U.S. Cities as Restaurant Goes Global
  • Assad’s Detachment From Syria Killings Reveals Life in Cocoon
  • Saudi Arabia Names New Economic Team Amid Drive for Growth
  • OPEC in Talks to Complete 30 Million-Barrel Output Agreement
  • Mozambique Ports Grow With Rio Tinto Appetite for Coal: Freight
  • Saudi’s Naimi Sees ‘Great Agreement’ on Output Within OPEC
  • Six Themes for Oil & Gas Equities in 2012: Citigroup
  • Taqa Spread Over Corporates Widens on Debt Buyback: Arab Credit
  • Kuwait’s Burgan Bank Buys Eurobank Tekfen, Haberturk Says
  • Strait of Hormuz Not Closed, Iran Foreign Ministry Says
  • Hormuz Strait Closure Not on Iran’s Agenda, Al Alam Reports
  • Iraqi Oil Pipeline Near Basra Burns After Explosions, AP Says
  • Qatargas Says Planned Maintenance at LNG Trains 5,6,7 Completed
  • Sabic Working to Turn Crude Into Petrochems Without Refinery
  • Iraq to Open First Oil Sea Terminal, Plans Bids on March 7
  • Syrian Central Bank Fixes Pound Rate Against Other Currencies
  • U.A.E. New Company Law May Struggle to Prompt IPOs Amid Drop
  • Saudi Shares Rally on Speculation Loss Overdone, Reshuffle



The Hedgeye Macro Team

Howard Penney

Managing Director

The Secret

This note was originally published at 8am on December 09, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The secret is to work less as individuals and more as a team. As a Coach, I play not my eleven best, but my best eleven.”

-Knute Rockne


Born in Voss, Norway, Knute Rockne was an American immigrant who coached college football in this country when the US Government didn’t have a perma-central plan for losers on the fields of finance to win.


Between 1918-1930, Rockne’s Notre Dame football teams amassed an amazing win/loss record of 105-12. He was not a qualitative analyst of the game. He was a chemist who learned how to change the game.


Re-think, Re-work, and Re-build – whether it was Rockne’s introduction of the forward pass, or Hedgeye’s vision of real-time risk management – this is the America that most of us love and believe in.


It was a great year…


I can say that tonight at the 4thannual Hedgeye Holiday Party. I can say that because we hired, net, more Americans than Bank of America, Citigroup, and Morgan Stanley, combined. I can say that because my team did so profitably (paid up +24% year-over-year). I can say that because we are building something, as a team, that no one can centrally plan away from us.


The Secret to our success is very simple. Whether you like our hockey learnings in life or not, my defense partner, Daryl Jones, summarized it best at our Company Meeting this week in New Haven:  


“It’s the name on the front of the jersey that matters more than the name on the back.”


That’s what USA Olympic Hockey Coach, Herb Brooks, famously said. It’s different than what Knute Rockne or Vince Lombardi said about winning – but it’s really all the same thing. It’s The Secret of American success.


Back to the Global Macro Grind


Yesterday’s intraday spanking of the S&P Futures came right on time with our catalyst – a failed European Summit. Failure, of course, being measured versus the market’s consensus expectations. With the SP500 dropping 34 handles from its Tuesday and Wednesday intraday highs, a -2.6% draw-down left a mark on Santa’s sleigh.


But where is old Saint Nick? We’ve done battle in the corners with any bull that wanted a piece of us in November. We’ve banged the boards for the home team on the “sell-high” side for the first 10 days of December. With the US and Global Equity markets down for both November and December, we’re calling this a win.


That’s just measuring success, of course, on our most immediate-term duration – at Hedgeye we call it the TRADE. And while many “long-term investors” don’t TRADE (or manage risk – same thing) like we do, we get that and also have a risk management framework that incorporates longer-term investor durations:

  1. Immediate-term TRADEs = 3 weeks or less
  2. Intermediate-term TRENDs = 3 months or more
  3. Long-term TAILs = 3 years or less 

Like Rockne’s vision of the forward pass, our vision of risk management has more to do with Embracing Uncertainty across durations than it does locking ourselves into a certainty of style. Our style isn’t to be bullish. It’s definitely not to be bearish either. It’s simply to be right – and being Duration Agnostic helps accomplish that.


In US Equities, across durations, what’s the score?

  1. TRADE = The SP500 is down -1% for December, 2011
  2. TREND = The SP500 is down -9.5% from its YTD high (April 2011)
  3. TAIL = The SP500 is down -21.2% (still in crash mode) from its October 2007 high

Since we’re one of the only teams that writes what we think to you in real-time that nailed both Global Growth Slowing calls of 2008 and 2011, we can celebrate our process tonight for what it’s accomplished – helping become a part of your risk management process.


That’s The Secret. We can collaborate and partner with our clients in a way that Marcus Goldman could. We can learn much more from your teams, collectively, than you can learn from ours – and we like that. It’s ok to learn. It’s ok to say I don’t know. It’s ok to say hey, we’re winning out there, together, and we’re proud of it.


I personally want to thank my teammates and all of you. As a Canadian immigrant to America, it’s both a pleasure and a privilege to wear this Made in the USA jersey every day.


My immediate-term support and resistance ranges for Gold (bearish TRADE and TREND), Brent Oil (bearish TAIL and TRADE), Gemany’s DAX and the SP500 are now  $1699-1743, $107.11-110.31, 5776-5986, and 1231-1251, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Secret - Chart of the Day


The Secret - Virtual Portfolio