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Le Greek Deluge

“Apres nous, le deluge.”

-Madame de Pompadour


Greece Wins 2nd Bailout.” The Top 3 Most Read articles on Bloomberg this morning are about Greece. Great job by the world’s central planners. They have saved us from themselves, again.


Now what?


Not to be confused with one of the alleged prostitutes from the ex-Keynesian Chief at the IMF, Dominique Strauss-Kahn’s, “sex ring” this morning, Jeanne Antoinette Poisson (Madame de Pompadour) was big player in the French courts of 1740s France. As Chief Mistress to Louis XV, she had intimate edge on everything political that was going to happen next.


Short-term career risk management of conflicted politicians vs. Long-term globally interconnected what? Yes, it’s sad and pathetic to watch, even if that means we get a little short-term stock and commodity price inflation to lather us up somewhere in between.


My thoughts on what I call Duration Mismatch between long-term wants versus short-term political needs are not new. Never mind 18th century France or Rome in 49BC, this is 2012 baby. If you’re in the game of chasing short-term performance, you’ve just got to believe!


Or do you?


As our good ole counter-punching friend Friedrich von Hayek once said about Keynes and his throw-away line about “in the long-run, we are all dead”, “I fear that these believers in the principle of après nous le deluge may get what they have bargained for sooner than they wish.” (Keynes Hayek, page 186)


Back to the Global Macro Grind


While some of the world’s insider trading, tax evading, and prostitution ringing politicians of the Global Bubble in Keynesian Economics may want you to believe that “this time is different”, we still think that a Rising Price of Oil Slows Global Growth.


To be crystal clear, we’re not talking any price of oil. We like to talk about the price that’s being set on the margin. There has never been an oil price with a $100 handle per barrel that didn’t slow growth. Never is a long time.


Whether you look at Brent or West Texas crude oil, here’s what prices did last week: 

  1. Brent Oil = +2.0% to $119.58
  2. WTIC Oil = +4.6% to $103.24

Now, to be sure, there are a lot of things going on here like correlations, causalities, and Iranians – all at the same time - but the one thing that’s been consistent since Ben Bernanke’s Policy To Inflate (January 25th) are Inflation Expectations Rising

  1. Brent Oil (since January 25, 2011) = +9.1% (from $109.86/barrel)
  2. WTIC Oil (since January 25, 2011) = +7.6% (from $98.33/barrel) 

While it’s not clear to us why Old Wall Street’s economists and strategists have not yet cut their US GDP Growth forecasts for Q1 and Q2 of 2012 due to rising oil prices, it wasn’t clear to us why they didn’t at this time last year either.


Not to remind some of these perma-bull growth forecasters about the score, but last year plenty of them said that the price of oil crossing the Consumption Rubicon wasn’t going to matter. In fact, a lot of them said rising oil prices were a function of “accelerating demand.”


Oh, ok.


Someone might want to tell the Chinese about that…


Something (hint: Growth Slowing) is making the Chinese very nervous about this whole Global Money Printing thing. Nervous enough to cut the reserve requirement on banks for the 2nd time in the last few months. There are very few high-frequency economic data points coming out of China and/or Asia in the last week that don’t support this non-Greek headline of growth slowing sequentially.


But have no fear, Andrea Mitchell is here. Yes, as in the Maestro on these macro matters, Alan Greenspan’s, wife (and Foreign Affairs correspondent on everything NBC). On Meet The Press this Sunday Andrea called out that she saw “$5 Dollars for Supreme” at the pump.




“Apres nous, le deluge.” Sadly, maybe then, and only then, our elite central planners won’t have us pay for their taking car service to work.


After being long Consumer Discretionary (XLY) stocks for most of December-January (on Strong Dollar = Strong Consumption), I shorted the Sector ETF on Friday. My immediate-term support and resistance ranges for Gold, Brent Oil, WTIC Oil, EUR/USD, and the SP500 are now $$1, $116.89-120.56, $100.91-105.88, $1.30-1.32, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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Cheesecake Factory reports 4Q EPS after the market close tomorrow.  Here are some thoughts on the release and a recap of the most recent forward looking commentary from management.


On January 11th, we posted “CAKE: LOOKING AHEAD TO 4Q EARNINGS”.  Our stance at that time was that, following our bearish view of the stock during much of 2011, several sell-side downgrades and had seen expectations come more in line with our view of the stock. Our estimate remains at $0.51 versus the street at $0.52 but, despite being below consensus, we believe that the strength on the top-line will offset other concerns.  Expectations around the company’s food costs, in particular, are now more realistic, in our view, than they were during 2011.


One chart we published in January and would like to do so is below; CAKE system same-store sales versus the ICSC Chain Store Sales Index.  The correlation between the two data sets is +0.8.  Given that consumer metrics in general, not only the ICSC Chain Store Sales Index, have been indicating quite healthy levels of spending for 4Q, it is difficult to be bearish on CAKE’s top-line prospects.  CAKE is a beneficiary of traffic in malls and the strong dollar as much as any other player in the space. 





Despite some short covering over the past couple of months helping the stock move higher, sentiment around CAKE remains quite bearish relative to other restaurant names.  The current short interest of 13.8% of the float poses some risk for investors selling the stock short ahead of the print.


CAKE: EARNINGS CHECKLIST - cake sentiment1



Below is a selection of important forward looking comments from management pertaining to 4Q and 2012.  As a reminder, 2011 was a 53-week year for CAKE with the extra week falling in 4Q.





“For the fourth quarter of 2011, we estimate a range of comparable sales between 1.5% and 2.5%, consistent with our recent trends. Based on this assumption, our estimate for diluted earnings per share is between $0.51 and $0.53.”

“For the full-year 2012, we are currently estimating diluted earnings per share in a range of $1.80 to $1.90 based on an assumed comparable sales range of between 1% and 2%, extending the trends we see in 2011. Our earnings per share estimate assumes that we will use the majority of our free cash flow for share repurchases.”





“We continue to experience higher food costs related to certain non-contracted items, particularly dairy, as well as some grocery and produce items.”


“Food costs are not moderating on a comparative basis quite as much as we expected them to, and we are now projecting cost of sales to be flat to only slightly better versus the prior year in the fourth quarter. That impacts the fourth quarter by about $0.01 in earnings as compared to our prior expectations.”





“Looking ahead to 2012, it looks to be a solid year. We're currently expecting to open as many as 7 to 10 new restaurants next year, including a new Grand Lux Café. The pipeline for high-quality sites is strong and more robust than we've seen in quite some time.”


“Our projection for capital spending this year [2011] is now $75 million to $80 million, in support of our planned seven new restaurant openings in 2011 as well as expected early 2012 openings.”


“We plan to open as many as 7 to 10 new domestic restaurants next year [2012] as well as 3 internationally. Our total capital expenditures are expected to be between $105 million and $125 million.”





“We are increasing our target for share repurchases by $20 million in 2011 to a range of between $145 million and $170 million. Our restaurants generate a healthy amount of cash, and we are using the majority of our free cash flow to buy back our shares.”



Howard Penney

Managing Director


Rory Green


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The Knapp Track numbers for January were sequentially stronger than December’s.


Estimated Knapp Track casual dining comparable restaurant sales grew 3.2% in January versus a final accounting period number of 2.8% (prior estimate was +2.9%) for December.  The sequential change from December to January, in terms of the two-year average trend, was +30 bps.


Estimated Knapp Track casual dining comparable guest counts grew 0.5% in January versus a final accounting period number of 0.0% (prior estimate was +0.4%) for December.  The sequential change from December to January, in terms of the two-year average trend, was +5 bps.


While the numbers are impressive, it is important to note that there were weather- and calendar-related issues that impacted the print.  PNRA suggested that as much as 350 bps of its 1Q to-date (mainly January) +8.9% comparable restaurant sales growth was due to a positive weather impact. That impact will clearly vary by concept and we will have a post up on the weather factor of 1Q this week.



Howard Penney

Managing Director


Rory Green




February projection raised to 11-17% YoY growth.



Macau logged another big week, causing us to raise our February forecast yet again.  We are now projecting full month February GGR will be in the range of HK$21.5-22.5 million, up 11-17% YoY.


This past week, average daily table revenues (ADTR) were HK$775 million compared to HK$751 million the prior week.  Month to date, ADTR was HK$775 million compared to HK$748 million for all of January.




In terms of market share, MGM was the big loser, dropping 200bps in one week.  Galaxy lost more share this past week and its February share remains well below recent trend.  MPEL and Wynn both gained share again as MPEL approaches its recent trend rate and Wynn remains above.  LVS increased its share slightly and is in striking distance of its January share of 18.2%.  




In preparation for BYD's Q4 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • “As of September 30, IP generated about $36 million in LTM EBITDA… we continue to project we will be able to realize a minimum of $5 million additional EBITDA from the IP.”
  • “As the conversation about the legalization of online poker continues to gain momentum, we're working aggressively to position the company to take advantage of opportunities that may arise should Congress enact legislation related to the online gaming environment”
  • “We expect wholly-owned EBITDA, which includes corporate expense to be in the range of $73 million to $78 million inclusive of IP's results. Absent hurricanes and earthquakes, we expect Borgata to generate EBITDA of $34 million to $37 million compared to $34 million last year in the fourth quarter. With this range of EBITDA guidance including the IP's results adjusted EPS for the fourth quarter is expected to range from income of $0.01 per share to a loss of $0.04 per share.”
  • “I think as far as the impact of growth within the quarter overall the summer is obviously typically the slower part of the business for the Las Vegas Locals segment overall. The business overall has continued to improve, and if you go back a number of quarters, the rate of decline obviously continued to lessen and we've said it was a chance for us finally to post year-over-year revenue increase for the segment overall.”
  • “But overall on the gaming side of the business, we continue to see modest, but certainly positive improvements throughout the locals business.”
  • [4Q]: “I'm using the same tax rate that we had in Q3 because that's kind of the best information I have right now.”
  • “We get beyond kind of regular maintenance capital, I think the free cash flow is going to be going to de-leverage the business.”
  • [Maintenance Capex] “Our run rate probably for this year is about $70 million. We'll probably come in a little bit less than that I would expect. For next year, Boyd without kind of IP is probably $75 million to $80 million. And Borgata is about $8 million of maintenance for the third quarter and they'll end up spending probably on top of that this year probably about $20 million in capital related to their room refurbishment project.  So their normal maintenance would be normally around $15 million to $20 million and then about $20 million for the room refinish.  So again, $15 million to $20 million of maintenance and probably a little bit more for the refurbishment project related to just because of the spend, so you know maybe they end up  spending about $25 million to $30 million for that project. IP should be about $44 million of maintenance that we mentioned when we acquired that asset.”

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