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Just Do It

“It’s not the dreamers that are remembered, it’s the doers.”

-Tim Tebow


This morning one of our top Global Macro leadership sources (ESPN) reports Tim Tebow is now America’s favorite athlete.


The poll, calculated monthly, had the Denver Broncos quarterback ranked atop the list for the month of December. In the last 18 years of the ESPN Sports Poll only 11 different athletes (Michael Jordan, Tiger Woods, etc.) have been No. 1.” (ESPN.com)


I can already hear the mumbling from the weenie bins  - ‘there goes that knucklehead hockey player talking about winners again’…


Yep – and I love it.


Back to the Global Macro Grind


When it comes to playing at the highest level of Global Macro Risk Management, you really have to do it each and every day. Global Markets wait for no one.


We were on a Hedgeye Morning Call in mid-December and our Financials guru, Josh Steiner, said ‘look Keith, people are just exhausted out there.’ On a call in late December, our Gaming Ace, Todd Jordan, said ‘no one is picking up the phones – it’s dead.’


And I love that too.


If you want to drive absolute returns, consistently, in up and/or down markets, dealing with emotions, losses, and exhaustion is part of this profession. You have to suck up its adversity, absorb it, and turn it into something positive. The alternative to not playing this game confidently is deer-in-headlights.


When I watch Europe trade this morning, that’s exactly what I see. I see a lot of people reacting to what was 2011’s playbook. I see journalists claiming authority on what to do with European positions into and out of bond auctions. And I see one mother of a short squeeze in almost everything that was going down in November.


This Game of Risk is globally interconnected. You can’t anchor on 1 fear-factor and react. You have to work your tail off to proactively prepare for where the game is going next.


“Hard work beats talent when talent doesn’t work hard.”

-poster above Tebow’s bed growing up in Jacksonville, Florida


What’s going on in Global Macro markets across our Multi-factor, Multi-duration, model this morning?



  1. US Dollar Index remains King (up +11.5% since the end of QE2)
  2. US Equities remain in a Bullish Formation (bullish TRADE, TREND, and TAIL)
  3. SP500’s immediate-term TRADE range moves to 1 (so buy red closer to 1277, sell green closer to 1299)
  4. US Equity Volatility (VIX) is breaking down into a Bearish Formation (bearish TRADE, TREND, TAIL)
  5. Strong/Stable US Dollar = Lower Volatility (30-day inverse correlation between USD and VIX = -0.77%!)
  6. US Equity Volume Studies are starting to shift to the bullish side (up volume days on up moves)
  7. US Treasuries not yet confirming a breakout in US Growth expectations (10yr under my TREND line of 2.03%)
  8. US Yield Spread (10yr yields minus 2s) = 170 bps wide = 6 basis points wider than where it started 2012
  9. The 3-day range (lead indicator for VIX) in my model is only 44 points wide = very trade-able market vs OCT-NOV
  10. All 9 Sectors in our S&P Sector ETF model are bullish from an immediate-term TRADE perspective
  11. 7 of 9 Sectors in our S&P Sector ETF model are bullish from an intermediate-term TREND perspective
  12. 2 of 9 Sectors in our S&P Sectors ETF model are bearish from a long-term TAIL perspective (Financials and Basic Materials)


  1. Chinese Equities = +3.5% for 2012 YTD and breaking out > immediate-term TRADE line support (Shanghai Composite)
  2. Chinese Consumer Inflation (CPI) falls to a 15-month low this morning at 4.1% = Deflating The Inflation
  3. Hang Seng (Hong Kong) = +3.6% YTD = bullish TREND
  4. Japan’s Nikkei is flashing a very negative divergence at down -0.8% for 2012 YTD = bearish TREND
  5. South Korean unemployment unchanged m/m at 3.1% for DEC and the KOSPI was up +1% overnight = bullish TREND
  6. India down -0.6% last night to 16,077 on the Sensex = bearish TREND
  7. Germany’s DAX is powering forward again this morning to +5.6% YTD = bullish TREND
  8. France’s CAC is up +1% this morning and has moved to bullish on our immediate-term TRADE duration
  9. Italian and Spanish stocks are getting squeezed after lower bond yields (vs last auction)
  10. Russia, Norway, Hungary – all markets that got spanked in 2011 = up and frustrating shorts
  11. Dr Copper breaking out > $3.45/lb TREND line support (this was new as of yesterday) = bearish TAIL up at $3.99/lb
  12. Gold is up +0.7% this morning and is trading in between a rock (TREND resistance = $1682) and TRADE support = $1633

That’s about ½ of what’s already hand-written in my notebook, every day, before 6AM.


What do we do with all of it? We hold ourselves accountable to every play we make, time-stamping every position, so that you can trust that the summary of all our hard work has conclusions that we have the convictions to act on.


Sometimes (like now in Europe), we have no positions. Sometimes we have many. But all of the time, we want to try to make this Tebow Time at Hedgeye Risk Management.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, and the SP500 are now $1, $111.89-115.99, $1.26-1.28, $80.64-81.73, 2, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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Commodity price changes were mixed over the past week as chicken wings, cheese, and coffee gained while beef and grains declined.  The strengthening dollar is putting a dampener on food inflation, particularly with respect to grain prices, and this, if it continues, will help to ease price inflation – eventually – in derivative food groups like proteins and dairy.  One beneficiary could be PNRA while companies with exposure to dairy and protein like CAKE, CMG, TXRH and JACK will likely have to work through other supply and demand factors that are sustaining higher commodity prices in those groups.  The bad news for BWLD was wing prices increasing by over 7% week-over-week.







Supply & Demand

Tomorrow’s World Agricultural Supply and Demand Estimates update from the World Agricultural Outlook Board will shed new light on supply and demand pressures on wheat and other foodstuffs.  Analysts are expecting a large increase in the size of the winter crop planted – the largest for three years – just as global supplies are growing to their highest levels in 10 years.  Russia, Ukraine, Canada, and India also harvested larger crops in 2011 than in 2010 due, in some cases, to adverse weather conditions in 2010.


Demand is still expected to be strong in 2012.  The USDA expects growth in demand to exceed 4% with feed use in wheat rising 16% year-over-year as corn prices push farmers to substitute more for corn in livestock feed.





Panera follows a laddering purchasing strategy for wheat and, as a result, the cost of the grain for PNRA is expected to be flat in 2011 versus the year prior.


As of the last earnings call, on October 26th, management declined invitations to provide thoughts on the quarterly cadence of commodity inflation for 2012 instead providing 4% as an annual inflation estimate.   The company locks into some of its wheat needs up to a year in advance so we do not expect any revision in near-term expectations due to the spot price declining.  The top-line has been strong, however, so the company could continue to deliver in the face of commodity pressure.




Dominos is locked into wheat “partway” into 2012.



Chicken Wings – BWLD


Supply & Demand


As the impact of processors cutting production is felt in the supply of chicken and the demand for chicken from the food service industry increases in 2012, we expect prices to increase for chicken wings. 




Our bearish thesis that we laid out for Buffalo Wild Wings’ stock in October was based on wing prices of $1.40 in 1Q12.  Prices are currently at $1.70 and we think downgrades and a change in tone from management are likely as the investment community looks to 2012.





Supply & Demand


Beef prices declined on the week as rains in Texas boosted winter wheat and cattle pastures.  2011 was the driest year on record in Texas and the domestic herd size is depleted due to high feed costs coinciding with the drought in the Lone Star State and high feed costs.  Feed costs remain high but, if corn prices come down then margins for processors could improve over the intermediate to long term.


Demand for beef continues to grow as changing diets in emerging markets and fading BSE-related restrictions on U.S. beef are bullish tailwinds over the long term.





As this week's beef chart shows, companies with exposure to beef prices are facing significant year-over-year cost inflation for at least the first quarter. 
































Chicken – Whole Breast


WEEKLY COMMODITY CHARTBOOK - whole chicken breast



Chicken Wings















Howard Penney

Managing Director


Rory Green




BYD Q4 looks like a beat.  Will the sell side finally give this stock a break?



As always, BYD is pretty low on the list of what’s ‘sexy’ in gaming right now, and maybe that’s why we like it.  In a slow but steady US GDP growth environment, we believe Las Vegas – both the Strip and Locals – could surprise on the upside in 2012. 


For Q4, BYD could beat pretty handily.  We’re projecting $115 million in EBITDA and the Street is only at $111 million.  Even our number may be conservative.  Our EPS estimate is $0.01.  This should be the first YoY increase in EPS since Q3 2007.  We think management will be positive on 2012 during the conference call, particularly about the LV Locals market which finally may start to show consistent, albeit slow, growth going forward.


BYD is definitely not a consensus long call.  Most analysts have Neutrals, Holds, and Sells on the stock.  JPM and Lazard recently downgraded it due to Atlantic City concerns, right before New Jersey released strong December numbers.



Model details:


We estimate that BYD will report $583MM of revenues and $115MM of EBITDA in 4Q11.

  • Las Vegas locals revenue will be down just -0.5% YoY to $151MM and EBITDA will increase to $35MM due to a 2% YoY reduction in operating expenses.
    • 4QTD Locals revenue has been up 6.8% but due to an accounting peculiarity in the Nevada Gaming Commission reporting, December will likely be down.  
  • Downtown revenue of $58MM and EBITDA of $11MM
  • Midwest & South revenue of $197MM and EBITDA of $39MM – which includes $27MM of revenues and $8MM of EBITDA from Imperial Palace
  • Borgata revenue of $174MM and EBITDA of $40MM

Other assumptions:

  • $10MM of corporate expense
  • $35MM of D&A
  • $2MM of share based comp
  • $1MM of deferred rent
  • $40MM of interest expense




January 11, 2012


Valued Client,

Earlier today, Hedgeye's Macro Team, led by CEO Keith McCullough and DOR Daryl G. Jones, hosted their quarterly themes conference call. In addition to another lively and robust Q&A session, the core topics included: 

  • Strong Dollar = Strong Consumption: Our King Dollar thesis continues to strengthen and with it the outlook for U.S. consumption, roughly 70% of GDP, and U.S. consumption-related equities.
  • Deflating the Inflation II: Alongside the strengthening of the King Dollar and the continued high inverse correlation of commodities to the U.S. dollar, we expect to see commodity inflation continue to subside. Winners include: domestic and international consumers. Losers include: commodity producers and emerging market currencies as their central banks ease monetary policy.
  • Growth Slowing's Bottom: One standard bearer of global macro markets is that they revert to the mean.  As economic growth bottoms out, certain equity markets, notably China, Germany, and the U.S., look set to outperform.

To access the replay podcast, please copy/paste the link below into the URL of your browser:



To access the accompanying slide presentation, simply click on the following link:

"Q1 2012 THEMES"


Please contact if you have any questions.  


Best regards,


The Hedgeye Macro Team