• Marriott’s 1-yr forward NA RevPAR guidance has been directionally accurate but its forecasting error is high
  • MAR's 12M forward RevPAR projections overshot in down markets and have historically been conservative during recoveries
  • 2012 initial guidance has already followed the historical pattern of being too conservative as MAR has already raised the mid-point of their guidance range from 6% to 7%
  • The guidance that MAR gave last night for 2012-2014 (+6-8%) seems aggressive on the surface but it's not out of line with growth during last recovery period (2004-2006) which averaged just under 8% 


BBBY: Straight Outta Comps

Bed Bath and Beyond (BBBY) is a company that is doing well in terms of same store sales (SSS). Our estimates indicate that BBBY comps (increase in SSS) will come in at +6.5% versus the consensus expectation of +4.1% when the company reports Wednesday. Essentially, it looks like BBBY will once again beat the Street.


However, there is one major problem for BBBY and that is e-commerce. Considering that BBBY and have 93% product overlap and the love online shoppers have for Amazon, online growth remains a concern. BBBY’s inability to penetrate the online sector will surely haunt the company as it reports in future quarters.


BBBY: Straight Outta Comps - BBBY compschart



Let us be clear: we have not been bullish on JCP for some time now despite calls from “legendary investor” Bill Ackman that this company has legs. With the departure of President and Head of Merchandising Michael Francis, the credibility of this company is shot to pieces.


Francis was only at the company for 9 months and took a nice paycheck along with it – not a bad trade. Any morale that was left in this company has left the building. Confidence in the company has eroded both publicly and privately. After all, last we checked, no one is looking to purchase sweater vests. CEO Ron Johnson’s turnaround plan is progressing, but this is a huge setback.


Hedgeye Retail Sector Head Brian McGough has outlined four issues with the company that are plaguing JCP:


Make no mistake, this is an unmitigated disaster, for four reasons. 1) Francis just hired a merchandising organization. Now he's out. What does that tell the troops as it relates to organizational stability? 2) He probably did not get canned because 'he was smoking plan.' 3) What happened to a long-term plan? 4) ) Most notably, this blows Johnson's credibility, which was already hanging by a thread after how poorly he handled the 1Q release, and sold stock before the event.”


For those that can wait out the next five years to witness Johnson’s almighty plan, we salute you. We implore you to watch the above video when McGough appeared on CNBC back in December of 2011 and essentially schooled the Street on what was really going on behind the scenes at JCP. 

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There may be one other restaurant analyst covering Wendy’s that attended an analyst meeting held by the late Jim Near. 




Mr. Near worked at Wendy’s for twenty-one years and was appointed COO by the founder of Wendy’s, Dave Thomas, in 1986 to help turn the then-ailing restaurant chain around.  At that point, the restaurant was suffering from failed attempts to launch breakfast as well as declining morale within the Wendy’s system.  In 1989, Near was named CEO of Wendy’s and the legacy of his six-year tenure was encouraging Dave Thomas to become the face of the company; advertisements featuring Thomas became highly successful.  Near and Thomas died in 1996 and 2002, respectively, and the company has struggled to replace the considerable impact they both had, individually, on the business.



Getting Out


On June 11, 2012, Wendy’s International, Inc. completed the purchase of 30 Wendy’s restaurants in the Austin, Texas area from David and Jason Near, two sons of Jim Near, for $19.8 million in cash.  Wendy’s International agreed to lease the real estate, buildings and improvements related to 23 of the acquired restaurants from the Sellers and to assume the leasehold interests in the real estate, buildings and improvements related to the other 7 acquired restaurants.


The Near family has been involved with Wendy’s since 1974 when Jim Near purchased his first Wendy’s franchise.  There could be numerous reasons why the family is selling but we believe that it could be a sign of the times given the family’s deep ties to the chain.  Beyond Jim Near’s intimate involvement in the evolution of the company, his son David Near was named as Chief Operations Officer of the Wendy’s brand in 2006 by then-CEO and President Kerrii Anderson.





Part of the Wendy’s turnaround efforts will be centered on the company buying back stores from underperforming franchisees who cannot afford to carry out the reimaging program.  We see it as a possible negative that one of the most significant families in the company’s history is selling out.  It’s certainly a headline that the folks in Dublin would like to have avoided.



Howard Penney

Managing Director


Rory Green


Failed Policy

This note was originally published at 8am on June 05, 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 fact that this policy had failed spectacularly in 1973 did not deter the weak dollar crowd.”

-Jim Rickards


Between today’s G-7 meeting, tomorrow’s ECB decision, and Thursday’s Bernanke testimony, there will be plenty of opportunity for politicians and their pandering economists to beg and fear-monger for more of what simply has not worked.


That’s the short-run. The conflicted and compromised will do whatever it takes for their short-term political survival. In the long-run, apparently Keynes had the duration of the policy trade wrong – the rest of us aren’t all yet dead.


Taking a step back, the last 60 years of history are obviously littered with examples from Charles de Gaulle to Richard Nixon where sovereign currency devaluation and debt monetization did not work. If you’d like to get back up to speed on that, Jim Rickards does a great job walking through part of this  history in Chapter 5 of Currency Wars (1967-1987).


Back to the Global Macro Grind


Real-time market prices don’t lie; politicians do. Within hours of last week’s US Growth Slowing double-header (US GDP slowed to 1.9% in Q1 versus 3% in Q4, then the May Employment Report bomb detonated), the US Dollar stopped going up.


Why? Because the rest of the world fully expects an un-elected central planner in Washington (Ben Bernanke) to launch an iQe4 Upgrade. He did it on January 25th (pushing 0% rates out to 2014) and there’s no reason to expect he doesn’t do something again between Thursday’s Joint Economic Committee meeting and the FOMC meeting on June 20th. He’s fighting for his political life.


All that said, we have no idea what he is going to do. So don’t look for us to give you the super-secret whisper on that. Our strategy remains playing the game that’s in front of us, Embracing Uncertainty. We think the US Election puts him in a box.


Right, the man walked on water during 2008 and we should perpetually give him thanks and praise. But seriously, what Bernanke should have done and what he did have been 2 very different things since 2010.  


By the summer of 2010 Bernanke had bi-partisan support (the Republicans wanted to win the mid-term elections) to move to Quantitative Easing (Policy To Inflate). Both parties wanted the stock market up. Now only one of them do.


What Bernanke does next must also be contextualized on a relative basis. This is not 2008 or 2010 in that regard either. Today you have a currency war between the 3 major currencies of the world (Dollar, Euro, and Yen). They trade relative to the expedience of the latest Fiat Fool (failed) Policy that is designed to debauch them. The Fed, ECB, and BOJ don’t get paid to act unilaterally.


So what are currency markets signaling happens next?


1.   The US Dollar – remains in what we call a Bullish Formation (bullish across all 3 of our risk management durations, TRADE/TREND/TAIL) with immediate-term TRADE support at $81.55 and next resistance = $83.31.


2.   The Euro (vs USD) – remains in what we call a Bearish Formation (bearish across all 3 of our durations) with an immediate-term TRADE support/resistance range of $1.22-1.25.


3.   The Yen (vs USD) – is in a neutral position with long-term TAIL resistance at $77.68 and immediate-term TRADE support at $79.05.


In other words, if we had to pick one and #TimeStamp our highest probability scenario right now (we do), we’d be long the US Dollar and short the Euro (which we re-shorted on yesterday’s bounce).


It’s another way of saying that both Hedgeye and Global Macro markets think that the Europeans are in a much more dire situation (for now) than the United States of America is.


That could change at literally any minute of any day now – and that, of course, is why most sane people don’t trust these markets or the politicians attempting to centrally plan them.


Back to the ‘for now’…  


We still aren’t all brain dead, and we have to deal with whatever tomorrow’s European move to debauch the Euro back down to $1.22 brings. Then we have to react to Bernanke’s reaction to the reaction. Then we all have to pray.


Prayer, in markets, is obviously not a risk management process. Neither is hope. That said, my only long-term hope for this country and the free-market economy that we used to have is to get Ben Bernanke out of the way of expectations, let prices at the pump clear, and let US Consumption Growth recover again.


With Bernanke having not been able to really do anything for the last 5-6 weeks, the US Dollar has risen steadily and Oil, Gold, Copper, etc. prices have fallen precipitously. That’s good for American consumers.


That’s bad if you are long Energy stocks (the Energy ETF (XLE) is down -10.3% for the YTD). That’s good if you are short them and long Consumer Discretionary stocks (the Consumer ETF (XLY) is +7.4% for the YTD).


Strong Dollar = Strong America (via Stronger Consumption). That’s not more of a 1973 like Failed Policy. That’s a new idea.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1599-1625, $97.21-102.78, $1.22-1.25, and 1258-1283, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Failed Policy - Chart of the Day


Failed Policy - Virtual Portfolio

Italy, not Spain or Greece, should be on the mind at G20 meetings