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DIN: LIQUIDITY SHOULD BE A MAJOR CONCERN

Monday, 8 Sep 2008 - DineEquity, Inc. Announces Chief Financial Officer Transition
Tuesday, 7 Oct 2008 - DineEquity, Inc. Declares Quarterly Dividend
Monday, 27 Oct 2008 - DineEquity, Inc. Agrees To Sell 66 Applebee's Locations
Friday, 5 Dec 2008 - Southeastern Asset files 13D Reports in DineEquity
Thursday, 11 Dec 2008 DineEquity, Inc. Announces Suspension of Common Dividend

The company declared a dividend in October and then suspended it in early December. During the intervening time period sales for the casual dining industry slowed significantly. The dividend announcement speaks directly to the liquidity issues the company is facing.

There is no reason that DIN should be trading at a premium to any of its peers in the restaurant industry, and yet, the company is trading at 8.7x on a NTM EV/EBITDA basis relative to its casual dining peers at 5.5x.




Lulling Chinese Bears To Sleep

Chinese consumers are paying less at the cash register, AND they are still shopping …

CPI data from China released today came in at +2.4%. This was a positive surprise for The New Reality where Chinese bulls are getting paid.

Lower commodity costs now provide the Central Bank the much needed room to make further rate cuts. The rate of food cost inflation in particular has come down dramatically from the stratospheric levels at the beginning of the year , declining from 23% in February to under 6% in November –the lowest level since January of 2007, when everyone loved China.

Interestingly, Chinese retail sales were +21% y/y in November, only 1% less than October, indicating that the pace of China’s growing consumer culture is continuing to show resilience in the face of the global meltdown.

We think that domestic consumption will provide continued strength to the Chinese economy on a relative basis (unlike their former “BRIC” cohorts India and Russia). With more money to put to work, more room to cut rates and more new consumers coming into the market they are definitely sitting at the head of the table.

We are long the Chinese equity market via the FXI ETF.

Andrew Barber
Director

Getting Nervous?

My math says SP500 close at/above 875 is bullish.
KM

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 80.64%
  • SHORT SIGNALS 78.61%

Bear Mace: Volatility (VIX)

Every time this market has sold off this week, the VIX has not confirmed the newfound ideas of “risk management” that some of the market’s players are implementing. Some people were not cut out to be short sellers – that’s part of The New Reality.

Let’s analyze today’s intraday SP500 selloff versus the fear you should see in the VIX – there was none – nada – zero. The VIX is still down -3% here on the day, and worrying the dizzied bears like fresh fluorescent spray of bear mace.

The chart below outlines both the double top and the recent momentum breakdown in the VIX. At 62.22, I’ll change alongside those facts. The good news, if you’re long, is that those aren’t facts yet – the VIX is at 54, the bears are worried, and they should be. If the VIX breaks and closes below 48.86, I think you’ll be staring a SP500 bull of 1,036 right in the eyes.

Buy low.
KM

King Kong Chart: Hong Kong

The Hang Sang Index close up another 23 basis points last night. While that may not impress on an absolute basis, the ability for this index to hold its recent gains must.

Since it's October 27, 2008 low, the Hang Seng has shot the moon, tacking on a +42% move! No giveback in this market is getting a lot of people to ask us questions now. Ordinarily, I would be selling into these questions, but we do have more upside left here.

Looking at the EWH exchange traded fund, next stop is $11.40/share. If the EWH can close above $12.09, the shorts might be asking me a better question - does King Kong really live?!

Macro matters, and so does China's recent "Re-flation."
KM

Capitalism's Most Bullish Chart Bottoming Again?

Albeit at a “no drama” Obama pace, for 5 consecutive days, the slope of this curve has steepened. See the chart measuring the spread between 10s and 2s below. We like to see a positive and expanding slope to the curve because it allows for liquid long capitalists to make money off of the levered.

Borrow short; Lend long – that’s not a new investment model, but it is one that I need to see in order for The New Reality to prosper.

Flat yield curves beget banks taking on undue amounts of leverage in order to earn a return. I don’t do that. Call me conservative, or call me right. I think this is the kind of American Capitalism that people can buy into and trust.
KM

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