It's become clear that Singapore benefited from a significant honeymoon period.



It happened sooner than we thought.  The number of Singaporean visitors to the Integrated Resorts is falling.  Many markets/casinos experience a honeymoon period but this looks unprecedented.  Of course, we shouldn't forget that the Singapore market exploded out of the blocks.  We still expect 2012 growth but it certainly won't come from the local population.


Genting Singapore mentioned a couple of quarters ago that mass market growth has been limited by a stagnant local population and inability to promote gaming to locals.  According to numbers released by Acting Minister for Community Development, Youth and Sports, Chan Chun Sing, total Singaporean visitation for the two integrated resorts dropped 22% YoY.  At RWS, the number of local gamblers fell by 31.7% from 199,783 in 2010 to 136,434 in 2011.  For MBS, the number dropped by 8.9% from 150,691 in 2010 to 137,259 in 2011.


This data provides further confirmation of our view that Singapore growth will moderate significantly in 2012.  Without more rooms or junket approval, Singapore growth might slip into the single digits in 2012.  See our note GENTING BLOWS IT (2/23/11).


The Macau Metro Monitor, February 23, 2012




Some 200,000 Singaporeans visited the two casinos here in 2011, said Acting Minister for Community Development, Youth and Sports Chan Chun Sing.  The number of domestic casino gamblers at each of the casinos also dropped from 2010 to 2011.


At RWS, the number of local gamblers fell by 31.7% from 199,783 in 2010 to 136,434 in 2011.  For MBS, the number dropped by 8.9% from 150,691 in 2010 to 137,259 in 2011.



According to sources, the nine-person Wynn Macau board - which includes five members with ties to Wynn - can take unilateral action to drop Okada from among their ranks this Friday.  The Wynn Macau unit can take action on its own but parent company Wynn Resorts cannot remove Okada from its 12-person board without first convening a special shareholders' meeting.



In January 2012, total visitor arrivals surged by 18.6% YoY to 2,461,640 attributable to the Lunar New Year holidays.  The average length of stay of visitors decreased by 0.2 day YoY to 0.9 day.
Visitors from Mainland China increased by 22.5% YoY to 1,494,877 (60.7% of total), mostly from Guangdong Province (777,564), Fujian Province (65,966) and Zhejiang Province (51,549).  Mainland visitors traveling to Macau under the Individual Visit Scheme (IVS) totaled 711,475, up 32.2% YoY.  The average length of stay of Mainland visitors was 0.9 day.





S'pore CPI rose 4.8% YoY, beating consensus of 4.7%.  The core inflation rate was 3.5%.   Singapore's Monetary Authority of Singapore said inflation will remain “elevated and volatile” in the next few months even after consumer price gains eased to the slowest pace since May.  It added that core inflation may be about 3% for the next few months.


After the close, JACK reported a decent quarter on nearly every metric, but the quarter also highlights why the company is not getting the “full” valuations it deserves.  Our thesis for owning the stock today is centered on improving operating performance and better valuation stemming from a less volatile business model.  We will learn additional details on the conference call at 11am but it is likely that much more will emerge at the analyst meeting next week.


JACK is reporting FY Guidance (9/12) of GAAP EPS of $1.15-1.40 and operating EPS $0.95-1.10.  The reality is that the only number that matters is what the core earnings power of the company is.  So when the popular financial press is reporting that it is “unclear which range is comparable to FactSet $1.32” we immediately have a problem we don’t need to have.  When things are unclear or uncertain, people shy away.  By the end of FY12, this issue should be going away – a net positive.


Included in operating earnings this quarter were re-image incentive payments of $5.7 million, or approximately $0.08 per share versus $0.02 last year and $0.06 per share in impairment charges. 


Operating EPS Calculation

GAAP: $0.27

Refranchising Gain: ($0.02)

Franchise payments: $0.08

Impairment charge: $0.06

Operating EPS: $0.39


In 1Q12 Jack in the Box company same-store sales were 5.3% versus consensus +4.1% and guidance of +4-5%.  Franchise same-store sales were 2.8%, bringing the system same-store sales number to 3.6%.  Qdoba system same-store sales were 3.8% versus consensus +2.9% and guidance for +2-3%. 


Consolidated restaurant operating margin was 13.5% vs. 12.6% last year with an 8% increase in commodity costs.  This represents the second quarter in a row where the company is operating with positive same-store sales and expanding margins – the “Nirvana” quadrant in the chart below.  Typically, companies operating in that quadrant are awarded a higher multiple by the Street.


In the press release, management upped its same-store sales guidance for the fiscal year 2012 to +3-4% at Jack in the Box restaurants versus prior guidance of +2-4% and +4-5% at Qdoba system restaurants versus prior guidance of +3-5%.  Given that the bulk of the Jack-In-The-Box restaurants are in “non-weather” states, the favorable impact of weather in the first calendar quarter will be much less significant than for others in the space.


From an operating perspective, JACK reported a strong quarter.   More details to come at 11 a.m.


JACK – ONE STEP CLOSER - jack quadrant


JACK – ONE STEP CLOSER - jack pod1


JACK – ONE STEP CLOSER - qdoba pod1



Howard Penney

Managing Director


Rory Green


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Bad Macro

This note was originally published at 8am on February 09, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The macro is so bad everywhere.  In America, our political leadership is doing nothing to help us get out of the current situation.  Worldwide, Europe is just in a state of financial collapse.  I think we are in plenty of trouble and have to watch ourselves closely.”

-Julian Robertson on CNBC, September 13th, 2011


While Julian Robertson is retired from managing other people’s money, prior to his retirement he established probably the best long term record of any money manager with a reported annual return of north of 30% from 1980 to 1998.  More impressive to me has been his ability to mentor, train, and seed successful money managers after retiring from the business himself.


I’ve had the pleasure of meeting Mr. Robertson a number of times.  The most notable for me was while I was attending Columbia Business School  and took a class called, “The Analyst’s Edge”, which was taught by John Griffin, founder of Blue Ridge Capital and the former President of Tiger Management.  This class offered me, and my fellow students, a crash course in analyzing companies from the practitioner’s perspective.  In lieu of a final exam, our final grade was based on pitching a stock to Julian Robertson in the Tiger Management boardroom. 


Not only was the situation itself intimidating, but the company I had spent the semester researching was Ace Aviation, more commonly known as Air Canada.   As background, in 1999, the year that Tiger Management dramatically underperformed the SP500 and eventually shut its doors, U.S. Airways was purportedly Tiger’s largest equity holding and a key reason for the underperformance.  So, yes, I was pitching an airline to Mr. Robertson, even though it was the industry that had burned him a few short years before.


Shockingly, despite my somewhat sweaty palms, the pitch actually went relatively well.  Mr. Robertson was very thoughtful in his questions as it related to my thesis, which was primarily based on a sum-of-the-parts analysis, and seemed very intrigued by the idea.  Now, of course, he may have just been trying to be polite, but I think the better answer is that a key reason he was, and remains, one of the world’s great investors, is his ability to have an open mind and change opinion.  In effect, he showed incredible mental flexibility.


I highlighted the quote above to flag the simple fact that Mr. Robertson went on CNBC to emphasize how negative the macro was at the literal 2011 bottom of the stock market.  In fact, since September 13th, 2011 the SP500 is up more than 15% and the Euro Stoxx 100 is up more than 23%.  On an annualized basis, those moves would equate to some of the best annual equity index returns in the last hundred years.  So, was Julian Robertson wrong based on his dour September 13th, 2011 macro outlook?  Well, that ultimately depends how his portfolio was positioned for the last four months.  My guess is that Mr. Robertson and his protégées managed the environment quite effectively and kept their feet moving.


Interestingly, on September 13th our CEO Keith McCullough (he is on the road today in Boston) wrote the Early Look and while we shared an eerily similar fundamental view as Mr. Robertson, Keith wrote the following that morning:


“Great short sellers in this game have one thing in common – they know when to cover . . . I’ve written 2 intraday notes in Q3 of 2011 titled “Short Covering Opportunity” (one on August 8th and one yesterday). Yesterday’s call to cover shorts generated as much questioning and feedback as any time I think I have ever made a call to cover shorts since the thralls of early 2009. This is an important sentiment indicator.”


In hindsight, making the aggressive short covering call on September 12th of last year was the correct call.  Some might call it luck, but for us it was born out of our global macro process.  Now, arguably, we probably should have gotten even more aggressively long.  As always though, the first step in the stock market business is to not lose money.


Coming into 2012 we were as bullish as we’ve been in awhile.  One of our key 2012 macro themes was that the rate of global growth slowing would bottom.  In our macro models, marginal rates of change in growth are critical, but as critical is monetary policy, which influences growth.  On January 25th of 2012, the FOMC released the policy statement post their December meeting, with the key line being:


“In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”


So, in one fatal swoop, The Bernank extended the Federal Reserve’s depression level monetary policy out another year.  Monetary policy influences our outlook on inflation, which influences our outlook on growth and equity returns.  Hence, we reversed course following the FOMC policy statement noted above.  Now, maybe that’s Bad Macro, or maybe it’s smart macro.  The data suggests it’s the latter.


In the Chart of the Day, we’ve attached an analysis that looks at inflation versus the price to earnings ratio of U.S. equities from 1978 to 2008.  The r squared between CPI, the proxy for inflation, and P/E is very highly correlated at 0.76. As the curve demonstrates, inflation is bad for equities.  That’s not a guess, that’s a fact based on the data and underscores our shift in outlook post the FOMC statement in January.  Some call this mental flexibility, for us it is process. So far, by the way, we’ve been wrong on U.S. equities in the shorter term duration.  That said, fighting the Fed worked in 2011.


While I am on the topic of Julian Robertson this morning, I would like to give him credit for more than being one of the best money managers of our time and an incredible mentor of young money managers. I would also like to acknowledge his leadership in philanthropy.  As Albert Einstein said:


“The value of a man resides in what he gives and not in what he is capable of receiving.”




Our immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now 1717 – 1761, 113.42 – 118.27, 1.31 – 1.33, 78.51 – 78.94, and 1330 – 1360, respectively.


Keep your head up and your stick on the ice,


Daryl G. Jones

Director of Research


Bad Macro - EL Chart 2 9


Bad Macro - VP 2 9


TODAY’S S&P 500 SET-UP – February 23, 2012

As we look at today’s set up for the S&P 500, the range is 10 points or -0.34% downside to 1353 and 0.39% upside to 1363. 












  • ADVANCE/DECLINE LINE: -652 (-660) 
  • VOLUME: NYSE 729.05 (-8.64%)
  • VIX:  18.19 0.00% YTD PERFORMANCE: -22.26%
  • SPX PUT/CALL RATIO: 2.15 from 1.42 (51.41%)


  • TED SPREAD: 41.03
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 2.02 from 2.00
  • YIELD CURVE: 1.72 from 1.71

 MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Jobless Claims, week of Feb. 18, est. 355k (prior 348k)
  • 9:45am: Bloomberg Consumer Comfort, wk of Feb. 19 (prior -39.8)
  • 10am: House Price Index (M/m), Dec., est. 0.1% (prior 1.0%)
  • 10am: Freddie Mac 30-yr mortgage
  • 10:30am: EIA Natural Gas storage
  • 11am: DOE inventories
  • 11am: Kansas City Fed Manu., Feb., est. 9 (prior 7)
  • 1pm: U.S. to sell $29b 7-yr notes


    • Obama speaks on economy, rising oil prices at University of Miami, 2:30pm
    • Quinnipiac Univ. releases poll of American voters on economy, women’s health and military service, healthcare reform, 6am
    • National Economic Council Director Gene Sperling, FTC Chairman Jon Leibowitz speak at White House event on privacy, noon
    • House, Senate not in session
    • EU Commissioner Michel Barnier speaks at U.S. Chamber of
    • Commerce on financial services sector risks, 1pm
    • U.S., North Korean officials meet in Beijing


  • First USDA forecast of 2012-2013 crop season may predict largest corn crop since World War II
  • German business confidence rose more than economists forecast to a seven-month high in Feb.
  • New York Fed said to seek bids for more of the mortgage bonds assumed in rescue of AIG
  • Silver Lake sees buyout firms focusing in on makers of telecommunications and mobile-phone gear this year
  • Deutsche Telekom posts U.S. contract subscriber losses, forecasts lower 2012 profit
  • FDA panels vote on Chelsea Therapeutics’ Northera in neurogenic orthostatic hypotension, Forest Labs/Almirall’s aclidinium bromide in COPD
  • Google said it would support industry agreement to introduce a “do-not-track” button that will be embedded in Web browsers
  • Warner Music owner Len Blavatnik said to still pursue EMI recorded music unit
  • Apple holds first annual meeting since death of Steve Jobs


    • Sears Holdings (SHLD) 6 a.m., $0.78
    • EchoStar (SATS) 6 a.m., $(0.19)
    • MetroPCS Communications (PCS) 6 a.m., $0.16
    • Iron Mountain (IRM) 6 a.m., $0.29
    • DISH Network (DISH) 6 a.m., $0.61
    • Trina Solar (TSL) 6:15 a.m., $(0.43)
    • Hormel Foods (HRL) 6:30 a.m., $0.48
    • Loblaw (L CN) 7 a.m., C$0.66
    • Patterson Cos (PDCO) 7 a.m., $0.50
    • Kohl’s (KSS) 7 a.m., $1.80
    • American Tower (AMT) 7 a.m., $0.29
    • Plains Exploration & Production Co (PXP) 7:25 a.m., $0.36
    • Public Service Enterprise Group (PEG) 7:25 a.m., $0.48
    • Tim Hortons (THI CN) 7:30 a.m., C$0.62
    • Target (TGT) 7:30 a.m., $1.39
    • Omnicare (OCR) 7:30 a.m., $0.56
    • CMS Energy (CMS) 7:30 a.m., $0.15
    • Ameren (AEE) 7:42 a.m., $0.15
    • Liberty Media - Liberty Capital (LMCA) 8:30 a.m., $0.40
    • Liberty Interactive (LINTA) 8:30 a.m., $0.38
    • Denbury Resources (DNR) 8:30 a.m., $0.34
    • Safeway (SWY) 9 a.m., $0.64
    • WPX Energy (WPX) Pre-mkt
    • WebMD Health (WBMD) 4 p.m., $0.29
    • TiVo (TIVO) 4 p.m., $(0.19)
    • SBA Communications (SBAC) 4 p.m., $(0.23)
    • Gap (GPS) 4 p.m., $0.42
    • American International Group (AIG) 4 p.m., $0.56
    • Crocs (CROX) 4 p.m., $0.04
    • Molycorp (MCP) 4:01 p.m., $0.40
    • Marvell Technology Group (MRVL) 4:02 p.m., $0.17
    • Autodesk (ADSK) 4:02 p.m., $0.45
    • Live Nation Entertainment (LYV) 4:05 p.m., $(0.31)
    • (CRM) 4:05 p.m., $0.40
    • SandRidge Energy (SD) 4:05 p.m., $(0.02)
    • Monster Beverage (MNST) 4:10 p.m., $0.37
    • KBR (KBR) 4:14 p.m., $0.64
    • Northeast Utilities (NU) 4:26 p.m., $0.69
    • HealthSouth (HLS) 4:30 p.m., $0.31
    • Westar Energy (WR) 5 p.m., $0.15
    • Public Storage (PSA) 5 p.m., $1.58
    • Magna International (MG CN) 5 p.m., $1.02
    • Ansys (ANSS) 5:03 p.m., $0.70
    • Iamgold (IMG CN) 5:15 p.m., $0.34



We were looking for a way to bridge the gap between what Inflation Expectations are doing (last price) and what partisan politicians are saying about oil prices this morning. In a globally interconnected marketplace of colliding factors, to call this rip to $124/barrel in oil prices simply a function of “Iran” is as simple does – un-American and uninspiring.

Multi-factor, Multi-Duration.

    1. Oil is up +13.3% in the last month
    2. Oil is up +160% in the last 3 years
    3. Oil is up +480% in the last 10 years 
  • Barrick’s Regent Sees Gold-Stock ‘Inflection Point’: Commodities
  • Gas Swings at 2-Year High as U.K. Flaws Exposed: Energy Markets
  • Brent Oil Rises to Nine-Month High on German Business Confidence
  • Copper Swings Between Gains, Losses on Oil Prices, Confidence
  • Wheat Declines as Global Stockpiles May Increase to a Record
  • Robusta Coffee Rises as Bets on Higher Prices Surge; Sugar Gains
  • Gold May Gain in London as Dollar’s Drop, Low Rates Spur Demand
  • Armajaro Cuts Cocoa Shortage Forecast by 50% on Port Deliveries
  • U.S. Eyes Record Corn Crop as Farmers Boost Acreage to 1944 High
  • Transocean Bonds Gain on Move to Avoid Junk: Corporate Finance
  • Aluminum Premiums Poised to Climb on Supply Outlook, CRU Says
  • Corn Imports by China Seen Increasing Sevenfold on Demand
  • Palm Oil Set to Rally Above $1,300 by Midyear, Coleman Says
  • Shell’s Cove Bid Starts Race for East African Gas Fields: Energy
  • BHP Record Bond Offering Taps Commodity Hunger: Australia Credit
  • Tin Exports From Indonesia in Quarter Seen Lowest Since 2010
  • Corn Futures in Dalian to Extend Decline: Technical Analysis 






















The Hedgeye Macro Team


CHART OF THE DAY: Politics and Prejudice


CHART OF THE DAY: Politics and Prejudice - Chart of the Day

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