• run with the bulls

    get your first month

    of hedgeye free



An extra day and an easy weather comparison should produce a strong February and Q1 for the regionals.  If Missouri is any indication, it may not be good enough.



YoY gaming revenue growth in Missouri will come in between 3 and 4% for the month of February.  On the surface and relative to trend, that may seem like a positive.  However, there was a massive storm on February 1st of last year and Feb 2012 obviously contained one extra day.  We would argue that growth should be at least 5%.  January was an unfavorable month from a calendar perspective and same-store gaming revenues fell a combined 4% in the mature regional markets.  However, the regional gaming stocks spiked as calendar driven expectations were low.


The calendar tailwind continues for one more month.  March 2012 contains 2 extra weekend days versus last year. 

However, it all reverses in Q2:

  • April:  1 less Friday and Saturday; 1 more Sunday
  • May:  1 less Sunday
  • June:  1 less Friday and Saturday

If the regional markets are only going to be up 3-4% in January and February, that won’t bode well for Q2, particularly if gas prices continue to increase.  Of course, Missouri is only one state and one month from one state does not make a trend.  We’ll have more commentary after the states release gaming revenues over the coming weeks.

Short Covering Opportunity: SP500 Levels, Refreshed

POSITION: Long Utilities (XLU), Short Consumer Discretionary (XLY)


That beta “down-shift” from 1 was good for 30 handles, or -2.2%, in the SP500. We’ll take that – literally. At a minimum, you should be covering oversold short positions here.


Across all 3 core risk management durations in my model, here are the lines that matter most right now: 

  1. Immediate-term TRADE resistance = 1366
  2. Immediate-term TRADE support = 1346
  3. Intermediate-term TREND support = 1283 

Snapping that 1366 line yesterday is now yesterday’s risk management news.


Now we’re right at support. This is a Short Covering Opportunity.



Keith R. McCullough
Chief Executive Officer


Short Covering Opportunity: SP500 Levels, Refreshed - SPX

Shorting The Pursuit of Inflation: FXY Trade Update

Conclusion: The Japanese yen carries a great deal of asymmetric downside risk over the long-term TAIL. This view is supported by the combination of incrementally aggressive inflation targeting and accelerating sovereign debt risk.


Position: Short the Japanese Yen via the ETF: FXY


This morning, Keith used this morning’s short-term pop in the Japanese yen to short the currency via the ETF FXY, which tracks the USD/JPY pair in lockstep across multiple durations. As we have seen in recent years, that cross continues to be dominated largely by the spread between short-term interest rate expectations emanating from Federal Reserve and Bank of Japan monetary policy.


Shorting The Pursuit of Inflation: FXY Trade Update - 1


Longer term, we think the yen will come under increased selling pressure as the Bank of Japan looks to meaningfully step up its pursuit of inflation, which would serve to erode the real yield advantage of holding Japanese fixed-income assets – including JGBs, which are an asset we have flagged in recent weeks for its heightening risk profile.


For more details behind these conclusions, refer to our Triangulating Asia note from MAR 5 and our DEBT, DEFICIT & DEMOGRAPHIC RECKONING presentation from MAR 2: 

Our quantitative risk management levels on the yen are included in the chart below.


Darius Dale

Senior Analyst


Shorting The Pursuit of Inflation: FXY Trade Update - 2

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Shorting Misguided Expectations: STPP Trade Update

Position: Short the iPath U.S. Treasury Steepener (STPP)


Yesterday afternoon in our Virtual Portfolio, Keith shorted the iPath U.S. Treasury Steepener ETN (STPP). By shorting this security, we are making an explicit call that we expect the U.S. Treasury curve to compress. Our conviction in this position is rock solid – especially given that we’re already long the iPath U.S. Treasury Flattener ETN (FLAT) in our Virtual Portfolio.


Broken TRADE and TREND, the U.S. sovereign debt market is not confirming higher-highs in U.S. equities – at least for now. That could of course change, but we need to see more data to assign a higher probability to the view that the equity market will lead domestic bond yields higher. After all, long-term Treasury yields have led U.S. equities lower in every market sell-off dating back to 2007.


Shorting Misguided Expectations: STPP Trade Update - 1


For now, we maintain our conviction that Growth Slows As Inflation Accelerates and that the latter is largely driven by weak-dollar monetary and fiscal policy out of D.C. – which remains the one factor [among many] that few investors analyze with any real scrutiny. Moreover, why consensus continues to confuse accelerating inflation expectations with a faster outlook for growth via storytelling about topics such as “peak oil”, “emerging market demand”, and “U.S. manufacturing/exports” is far beyond our ability to comprehend at this point.


While it is not our style to search for confirmation from talking heads, it’s comforting to know that Federal Reserve Bank of Dallas President Richard Fisher shares our sentiment to some degree:


"I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation… Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial-market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery."


Consistently misguided growth expectations are personally perplexing indeed.


Darius Dale

Senior Analyst



We follow the ICSC U.S. Chain Store Sales Index closely and see the trend quarter-to-date as a red flag for Cheesecake Factory’s top line.


The ICSC-Goldman Sachs weekly chain store sales index rose by 1.3% in the latest week through March 3rd.  According to the ICSC, “year‐over‐year sales softened appreciably to a 1.7% pace‐‐its weakest pace since the week ending January 9, 2011 (+1.6%).”  Tellingly for CAKE, the ICSC-Goldman Sachs consumer tracking survey found a “modest pickup in discount store business over the past week, but weaker business at department stores.”  We see Cheesecake Factory’s business as being more closely tied to department store traffic than traffic at discount stores.


The two lines in the chart below represent Cheesecake Factory comps and the ICSC Chain Store Sales Index year-over-year change.  The aforementioned ICSC dataset details the weekly change but, clearly, for comparability purposes it is necessary to monitor Cheesecake Factory comps versus the year-over-year move in the ICSC data. The 1Q12 data point for Cheesecake Factory represents current consensus expectation of +2.63% while the ICSC Chain Store Sales Index year-over-year number is the quarter-to-date figure including all weeks through March 3rd.  The correlation for the data represented in this chart for 1Q02 through 4Q11 is 0.8. 





Howard Penney

Managing Director


Rory Green








Comments from CEO Keith McCullough


Can’t say we didn’t say Growth Slowing was in motion…

  1. INDIA – after getting tagged for a -1.6% loss last wk, down both days this week and down -6.8% since topping on Feb 21. With inflation running higher than nominal growth, this is what you get – modern stagflation. That’s why India’s Yield Curve has gone flat.
  2. COMMODITIES – Dollar Up = Deflates The Inflation; but it doesn’t all happen in a day. This should be bullish provided that the USD Index can hold its gains > $79.03 TREND line support – a Romney win tonight in Ohio could do it. What’s good for the USD is good for US Consumption. After snapping my TRADE line of 1735 last wk, Gold testing TREND line of 1691 right now.
  3. GROWTH – Small Caps, Basic Materials, Industrials – they’re all leading indicators inasmuch as Dr Copper and 10yr yields are – they are all telling me my model isn’t broken. The Old Wall’s is. Growth Slowing, globally, occurs b/c A) debt structurally impairs growth and B) inflation slows growth. Not from every time/price and debt levels – just these ones.

1366 is the line to watch now on the SP500.











MCD: McDonald’s franchisee Arcos Dorados is set to open no fewer than 50 locations in Brazil during 2012, according to Brazilian media publication, Valor.


ARCO: Arcos Dorados said yesterday that Brazil comps were up 6.3% in 4Q.  The short-term outlook is set to be “challenging”, according to management, with weaker currencies likely affecting results this year.


THI: Tim Hortons is to buy back up to 1.2mm shares for cancellation.





PFCB: P.F. Chang’s is rated “Buy” by Miller Tabek with a price target of $44.


PFCB: P.F. Chang’s was revealed yesterday as a “Long Research Tactical Idea” at Morgan Stanley.


DRI: Darden Restaurants was added to Bank of America’s list of favored equities.





PFCB: P.F. Chang’s outperformed on accelerating volume following yesterday’s upgrades.


DIN: Dine Equity underperformed the group on accelerating volume as the company presented at the Raymond James Institutional Investors Conference.





Howard Penney

Managing Director


Rory Green



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.