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Valued Client,


5-10 minutes prior to the 11AM EST start time please dial:


(Toll Free) or (Direct)

Conference Code: 135512#


Materials: http://docs.hedgeye.com/Q22012.pdf


To submit questions for the live Q&A, please email




Today Friday, April 13th at 11am EST, the Hedgeye Macro Team, led by CEO, Keith McCullough, and DOR, Daryl Jones, will be hosting our 2Q12 Macro Themes Call.


Topics will include:   

  • The Last War: Fed Fighting - We take a historical look at U.S. Federal Reserve policy to contextualize the impact of Ben Bernanke's Policy to Inflate, Extend & Pretend rock-bottom interest rates, and Burn the Buck on the broader economy and financial markets from Main Street to Wall Street.
  • Bernanke's Bubbles - A highlight of the top ten leverage price bubble charts perpetuated and encouraged by The Bernank's policy stance.
  • Asymmetric Risks - In a macro environment of slow global growth and historically low interest rates we present asymmetric risks to capitalize on over the intermediate term. Low equity market volatility is but one signal of what's ahead for investors. 

Please contact if you have any questions. As always, the replay podcast will be made available shortly after the call.




The Hedgeye Macro Team


Could be a mixed bag but given the calendar and weather, they should’ve done better.



Given the favorable Q1 calendar, we thought the regional markets would’ve performed better.  With the exception of BYD and maybe PNK, Q1 earnings/EBITDA are likely to come in-line or even down for the regional gaming operators.  Q1 contained 3 extra weekend days, 91 days overall, due to Leap Year, and the weather was fantastic.  Remember that the Midwest was hammered with snowstorms last year in Q1.






BYD looks like the standout for Q1.  The Street’s $125 million EBITDA estimate looks light by about 5%.  We are still awaiting Louisiana’s results but it’s hard to imagine they will move the needle enough to prove the Street correct.  While BYD’s regional properties mostly had decent Q1s, the big properties made the difference this quarter – LV locals, Borgata, and even Downtown LV.  On an EPS basis, the Street is at $0.08, guidance was for $0.05-0.09, but we think $0.11 is more likely.




ASCA looks like the loser this quarter.  We think the company could miss EBITDA expectations by $2 million for Q1 and EPS by $0.03.  ASCA is a good operator with well maintained, quality facilities.  However, we think they are more a victim of sluggish market conditions, new competition in the Kansas City market, and high gas prices. 




Louisiana supplies most of PNK’s EBITDA and since that state hasn’t reported March gaming revenues yet, it’s difficult to make a call on Q1 earnings.  Their other properties appear to be tracking ahead of the Street.  It’s subject to change, but we think Q1 EBITDA could come in 2-3% higher than the Street’s $68 million estimate and EPS 1c above the Street’s $0.20 EPS estimate.  River City has been the positive differentiator so far.




PENN looks in-line to us, which is actually a disappointment.  After a better than expected January and February, PENN was cruising for a sizable beat.  March was weak for them, particularly in Illinois where they have too much exposure, and in Kansas City.  Their new property in Kansas has experienced disappointing results in its first two months while cannibalization of their Riverside casino on the Missouri side has been higher.  








Comments: Keith sold EAT yesterday based on our concerns about casual dining sales starting to slow.  We have liked this name for a long time, as we wrote yesterday, but these stocks trade together and Chili’s will not be immune to any slowdown in industry trends.






CPI data for March was released by the Bureau of Labor Statistics yesterday.  Inflation for Food Away from Home slowed to 3% from 3.1% and inflation for Food at Home slowed to 3.6% from 4.5%.  The spread between the two narrowed from 140 basis points to 60 basis points.  The benefit that restaurants received from grocery aisle inflation being so rampant on a relative basis last year is quickly going away.


THE HBM: COSI, EAT - food at home vs food away from home



Commentary from CEO Keith McCullough


Someone saying Growth Slowing, globally:

  1. CHINA – GDP growth slows from 8.9% Q4 to 8.1% Q1, missing whatever whisper found its way into the mo mo community yesterday (someone should tell them Global Macro isn’t like small cap rumoring); Chinese stocks acted fine on that b/c they act inversely w/ Commodity inflation and Chinese bank lending. Commodities bulls freak out.
  2. EUROPE – certified train wreck remains in motion – its not different this time – you can’t ban economic gravity when imposing Stagflation on your people (Italian CPI +3.3% with Growth flat to down); Sold my long Germany position yesterday and re-shorted France b/c I think the gap b/t Spain -12% YTD and France’s CAC +2% YTD is going to narrow #Mean Reversion
  3. GROWTH SLOWING – away from the economic data (which now includes US employment gains slowing), Copper and 10yr UST yields are the most obvious signals this morning w/ Copper moving into a falling knife formation (-1.6%) and 10yr slicing back through my intermediate-term TREND support of 2.03% to 2.01% last.

SP500 failing at my 1391 line yesterday keeps my entire intermediate-term Growth Slowing thesis intact.






THE HBM: COSI, EAT - subsecto





COSI: Cosi is planning to launch a rights offering for up to 19.9% of the company’s common stock to its shareholders.  Assuming the rights offering is fully subscribed, the company currently expects to receive gross proceeds of approximately $15m.




CMG: Chipotle gained 2.5% on accelerating volume.


CBOU: Caribou declined 2.6% on accelerating volume.





EAT: Brinker was pleased with the opinion released yesterday by the California Supreme Court that, according to the company, “effectively truncates the Hohnbaum class action lawsuit” that the company was facing and “resolves the legal standards to be applied to California meal period and rest break actions”.




EAT: Brinker gained 1.3% on accelerating volume.



THE HBM: COSI, EAT - stocks



Howard Penney

Managing Director


Rory Green



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 80.51%
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Unproductive Works

“Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.”

-John Stuart Mill


John Stuart Mill was arguably the most influential philosopher of the nineteenth century and his writings are still widely studied.  Mill is probably best known for “On Liberty”, which discusses the limits of power that can be justly exercised by society over the individual.  Underscoring his views on liberty are the harm principle and the idea that the individual should have the right to act as she wants as long as those actions do not harm others.  To Mill, protecting and defending individual rights in the face of a potentially tyrannical majority are critical.


One way a majority can negatively influence the rights of the minority is through capital allocation by the government.  We often cite the long run historical work of Reinhart and Rogoff that highlights when government debt-as-a-percentage of GDP reaches 90%, or more, economic growth slows.  Certainly governments play a critical role in providing certain services that are critical and broadly benefit society, but, at a point, government works become unproductive.


With all that is happening in the world, I’m sure many of you missed the U.S. budget numbers for March.  As I said on twitter ( @HedgeyeDJ ), they were, in one word, ugly.  The federal government received $171 billion in revenue and spent $369 billion for a total budget deficit of -$198 billion, or 5.5% year-over-year monthly growth in the deficit. This is the largest March budget deficit of any nation, ever. 


Almost exactly a year ago, in a note titled “The Case of the Missing Stimulus”, I wrote:


“Interestingly, if we look at government spending in the 2008 – 2010 period we can actually see the impact of the stimulus act on government ledgers. In fact, according to usgovernmentspending.com the U.S. federal government spent $2.98 trillion in 2008 and $3.59 trillion in 2010. So, the net increase over this period was just over $600 billion, which roughly equates to the spending portion of The Stimulus.”


My point in that note was that while there was a one-time step up in government spending, there has not been a step down as the stimulus plan has been anniversaried.  A year later the same story holds. 


The Chart of the Day today highlights government outlays by month going back ten years.  The conclusion is that the “one-time” increasing in government spending for the stimulus plan has led to a seemingly permanent increase in government spending.  Given the anemic growth we’ve seen in the U.S. over the last 18 months, it is pretty clear this spending fits the category of Unproductive Works.


At 11 am eastern today we will be holding our quarterly theme call. (Please email if you are qualified subscriber and do not currently have the dial in information.)  The quarterly theme call is our summary of what we think will matter in the coming quarter from a global macro perspective and the best way to play the themes via asset allocation.  The themes for this quarter are as follows:

  • The Last War: Fed Fighting - We take a historical look at U.S. Federal Reserve policy to contextualize the impact of Ben Bernanke's Policy to Inflate, Extend & Pretend rock-bottom interest rates, and Burn the Buck on the broader economy and financial markets from Main Street to Wall Street.
  • Bernanke Bubbles - A highlight of the top ten leverage price bubble charts perpetuated and encouraged by The Bernank's policy stance.
  • Obvious Asymmetric Risks - In a macro environment of slow global growth and historically low interest rates we present asymmetric risks to capitalize on over the intermediate term. Low equity market volatility is but one signal of what's ahead for investors.

Underlying much of the discussion today, will be our view that global growth is slowing.  On that note, and despite rumors to the contrary, Chinese GDP growth came in at 8.1%.  This was well short of the estimate of 8.4% growth and dramatically below the “whisper” number of 9.0% that was floated yesterday.  This is the 5thconsecutive decline and the slowest growth rate in three years.  As our Asian Analyst Darius Dale would likely tell you, the actual number shouldn’t surprise anyone as the Chinese have already told us they are going to slow growth.


In other global macro news, European sovereign debt issues are once again front and center.  Yesterday, I wrote a note on Spain and the impact of further decline in real estate prices on Spanish growth (if you didn’t read the note and want a copy, ping ).  Spanish 5-year CDS are wider again this morning at 492 basis points.  Meanwhile, Spanish equities are down another -2% taking their return in the year-to-date to -14%.  As if that wasn’t bad enough, Spanish CPI was also up +0.7% for the month.  (Not so great for the 23% of Spaniards that are unemployed.)


If you are looking for a positive catalyst today, Chairman Bernanke speaks at 1 pm today in New York.  Even if he doesn’t hint at it, no doubts rumors of QE 3, 4, 5, and 6 will be spreading faster than Chinese growth ahead of his speech.


As you head into the weekend and start contemplating the upcoming Presidential election, I’ll leave you with a quote from a guy that knows a thing or two about U.S government, former President George Washington, who said:


“Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.”




The immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), Euro/USD, and the SP500 are now $1, $118.89-122.64, $78.74-79.66, $79.83-83.02, $1.31-1.33, and 1, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Unproductive Works - Chart of the Day


Unproductive Works - Virtual Portfolio


The Macau Metro Monitor, April 13, 2012




Singapore's 1Q GDP growth came in at 9.9% in seasonally adjusted and annualized terms, higher than the 6.3% median forecast in a Dow Jones poll.  The Monetary Authority of Singapore (MAS) restored a narrower trading band for the local dollar, reflecting reduced tolerance for volatility, while continuing with its policy of a modest and gradual appreciation of the Singapore dollar nominal effective exchange rate policy band.  There will be no change to the level at which the band is centered, it added.


Along with its policy review, the MAS said it now expects CPI to average between 3.5% and 4.5% this year, higher than its earlier estimate of 2.5%-3.5%.  It said its core inflation measure, which strips out private road transport and accommodation costs, will average between 2.5% and 3% in 2012, higher than the earlier estimate of 1.5%-2%.



The government will spend around MOP4.1 billion (US$513 million) in this year’s cash handout scheme, which starts on April 24.  Permanent residents will each receive MOP7,000, while non-permanent residents will get MOP4,200.



Sands Cotai Central welcomed over 84,000 visitors during the first six hours of its opening.  In total, Sands China properties – Sands Macao, Venetian Macao, Plaza Macao and Sands Cotai Central – welcomed over 200,000 visitors on Wednesday, the company said.

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