Heads or Bails?







Moody’s came out last night and lowered their outlook on Germany and the Netherlands’ credit ratings. While Angela Merkel’s AAA rating remains intact, the curtain is being pulled back, revealing that Germany has the same #GrowthSlowing problem as everyone else. Estimates floating around now guess that German Q3 GDP could even turn negative on a year-over-year basis; the consensus is up +0.5%.



Our idea of a country being “Too Big To Bail” isn’t some pipe dream we came up with – it’s reality. Bailout mechanisms like the IMF and EFSF only have a finite amount of funds and it’s not exactly trillions upon trillions of dollars either. Spain and Greece go and ask for more money every week, like spoiled children going to the shopping mall.


And then there is Italy. Italy has over $1 trillion of debt maturing in the next 12 months. The country will have a tough time with austerity measures, too, we’d imagine. This is a country truly too big to bail.



Seriously, holler at the US dollar. As Keith mentioned on The Kudlow Report last evening: get the dollar right and you’re going to get a lot of other things right. We’re bullish on the USD and thus we’ve had a fairly good time watching things like Brent oil, the EUR/USD and gold move lower as the dollar goes higher. The commodities game is basically winding to a close since the Federal Reserve is out of bullets.




Cash:  Flat    U.S. Equities: Up


Int'l Equities: Up           Commodities: Flat


Fixed Income: Down     Int'l Currencies: Flat





This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.







SS volume accelerated in 1Q12 and employment remains a tailwind to both admissions & mix. We expect acuity to stabilize and births and outpatient utilization to accelerate out of 1Q12, while supply cost management continues as a margin driver and acquisition opportunities remain a source for upside.







We continue to expect outpatient utilization to pick up in 2H12 alongside stabilization in acuity with ortho and cardiac/ICD volumes supporting both pricing and inpatient admissions growth. Births should serve as a tailwind into year-end, recent and prospective acquisitions offer some upside to 2012/13 numbers and the in place repo offers some earnings flexibility. With European and Asian growth slowing, we like targeted domestic revenue exposure as well.








Tweet of the Day: “So this is it. A battle three years in the making. The US Housing Market vs Europe. Good luck, gentlemen. $$” -@ReformedBroker


Quote of the Day: “In great affairs men show themselves as they wish to be seen; in small things they show themselves as they are.” –Nicholas Chamfort


Stat of the Day: The Russell 2000 has dropped over -5% since July 4, snapping both our TRADE and TREND lines of support.



In preparation for WYN's 2Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • “We've been generating between $600 million or $700 million of free cash flow or $1 billion of available cash flow because we've stated that we are not afraid to lever up if we have additional EBITDA that will allow us to borrow more and still maintain our bottom of investment grade rating.  So, that's been a heavy focus of our business over the last couple of years.  Also, a heavy focus on growth, all of our businesses are growing and they have different attributes that are growing both domestically as well as internationally.”
  • “Europe represents about 15% of our overall EBITDA.  The largest business we have there is Vacation Rental business… largely focused in Northern Europe.  Our three largest markets for product is the UK, Holland and Denmark, and those three countries plus Germany represent the four main source markets for us. It was very resilient during the last downturn. We continue to see a stable environment for our rental businesses over in Europe. We've said that that's what we expected. When we entered the year, we said that's what we saw through the first quarter after the first quarter call, and now with April and May in the books, we'll see the exact same thing." 
  • “We had expected kind of a mid-single digit VPG growth and we ended up with a, I think, 11% VPG growth for the first quarter. We're not suggesting that that's the pace that we're going to remain at going forward.”
  • “We're continuing to see great growth in that Chinese market. I think we're doing an okay job there. I think we could frankly be doing a better job and that's not a knock on anybody who is doing the effort over there. It's just the opportunity is so large and I think we have the opportunity to even be doing better than we're doing right now.  Super 8, eight is a lucky number in China, so we got lucky with that brand. Wyndham is growing very rapidly. Our pipeline on Wyndham is tremendous. Howard Johnson is actually a stronger brand in its product quality and presence in China than it is in the U.S. Last time I was over in Shanghai and stayed at our Howard Johnson in Shanghai it's a beautiful, beautiful product."
  • "I don't see us ever going back to the model we had before where we were building at a pace of $600 million of build a year in order to fuel the kind of growth that that business was on. Right now, we're spending $125 million a year to finish the development of inventory that we already have on our balance sheet. And that's a pace that we'll be at for the next eight to 10 years. And then after that we may go more heavily on this WAAM model and not even have that much development in the future."





  • "Vacation Ownership had an outstanding quarter, supported by strong consumer travel in the U.S. and continuing progress in optimizing marketing efficiencies. And Exchange and Rental was highly effective in managing a difficult operating environment in Europe, as well as limited growth in the broader timeshare industry."
  • "Our board has approved an additional $750 million to be added to our share repurchase authorization.  We continue to believe that share repurchase offers a compelling return, and with the $750 million increase as of market close yesterday, we have $940 million available in our share repurchase program."
  • "We expect our European vacation rental business to remain stable overall due to the strength and resiliency of our portfolio of established brands and customer bases as well as our strong experienced management teams."
  • "Since our last conference in September of 2010, there's been an obvious improvement in the mood and outlook of our franchisees and partners. Many of our suppliers saw increased order and lead activity, and almost without exception, the owners and managers I spoke with strongly felt that things were improving. And hotel owners are looking to invest in their hotels as well. So in addition to the numbers we are seeing, this is great confirmation that for us, the lodging and recovery is firmly established."
  • "Wyndham Hotel Group continues to make progress in executing its Apollo initiatives, which is a series of technology projects focused on improving our value proposition to franchisees. Our franchisees will be able to measure our results by the number of direct room nights we deliver to overall bookings, primarily through online strategy. Our goal is to capture the maximum amount of online traffic and then convert these online visitors to stay-in guest. Remember that the launch of our new hotel brand websites and improved content were the first step in our Apollo plan to drive more room nights through our online direct distribution channels. Preliminary results have exceeded our expectations with brand booking increases averaging over 10%."
  • "In 2011, we piloted TripAdvisor ratings and reviews on Industry research indicates that up to 50% of consumers will not book a hotel without reading a review. Making ratings and reviews readily available on our own brand sites ensures consumers don't have to leave our site to get that information and ultimately book us. We saw an approximate 30% increase in bookings during the pilot period.  This past quarter, we rolled out TripAdvisor to the majority of our websites and will be fully implemented by the end of May. In conjunction with the rollout, we launched WynReview, a suite of tools and services designed to help our franchisees manage their online ratings and reviews. We expect our affiliation with TripAdvisor, one of the first in the industry, to drive conversions as well as support brand quality."
  • "We are also excited about our new mobile websites. By the end of next year it is expected that more people will access the Internet using a mobile device than a computer. Research indicates that nearly 65% of mobile bookings are made on the day of arrival, many within five miles of the hotel. Based on the narrow booking window of our consumers as well as the distribution of our hotels, we feel this represents a significant opportunity for us to capture the on-road connected traveler." 
  • "In the second quarter, we expect to launch two significant initiatives. First, in North America, we will consolidate 23 Rental websites into a single improved site. Second, in Europe, we will integrate the inventory and reservation platform of our UK cottages, parts and lodges brands into a common property management system, a change the will enable further yield management and operational efficiencies." 
  • "The strength of RCI's technology continues to pay off with online transaction penetration growing to over 40%, up more than 400 basis points from last year."
  • "We recently signed our first WAAM agreement for our WorldMark by Wyndham product. Located in the South Mountain region of Arizona near Scottsdale, our fifth WAAM deal is a purpose-filled timeshare project that will nicely complement our three existing Arizona locations within in the WorldMark portfolio. We expect to start sales on this product in the fourth quarter."
  • "We expect VPG growth to moderate somewhat throughout the year as we lap the rollout of the credit prescreening program. Consistent with last year, we expect to add 27,000 new owners in 2012."
  • "We believe that our Hotel business will have good margin progress by the end of the year – but at least on – at this quarter basis, we had higher marketing spend than we had last year."
  • VOI mix: “It's about 65%-ish upgrades and 35% new owners”

President Obama's Reelection Chances

The polls have been heating up and we have ourselves an official reversal. If you’ll recall, over the last four weeks, President Obama’s chances of being reelected climbed for three weeks straight until holding flat last week according to the Hedgeye Election Indicator (HEI). This week, the President’s odds of being reelected dropped 70 basis points (-0.7%) to 57.1% chance.


Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.


Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.


President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.


President Obama's Reelection Chances - HEI

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The Macau Metro Monitor, July 24, 2012




Macau raised its typhoon warning to Signal 9 at 2:15am, the first time it was used since 1999.  The Meteorological and Geophysical Bureau downgraded the storm warning at 5:00am.  More than 100 passengers were stranded at the Outer Harbor Ferry Terminal after failing to get onto the final ferry to Hong Kong, and some sources said over 1,800 passengers were grounded at the airport.  Ferry terminals for boats to Macau and China have been closed.



According to Shanghai Securities News, China's biggest four banks issued around CNY50 billion (US$7.9 billion) in new yuan loans in the first half of July, double that of the same period of last month.  The increase was due partly to banks starting to extend loans for some projects that are aimed at revitalizing economic growth.


The four banks--Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd --usually account for 30% of new yuan loans issued by China's whole banking system.  New yuan loans issued by China's whole banking system are expected to be around CNY650 billion in July.


Chinese financial institutions extended CNY919.8 billion in new yuan loans in June, up from CNY793.2 billion in May, in another sign of easing liquidity as policy makers try to boost economic growth.




In preparation for PNK's 2Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • "We expect to open, in full, L'Auberge Baton Rouge late August this summer."
  • "Our revenue per admission continues to grow across the portfolio and we remain extremely disciplined about how and when we spend resources in managing the business."
  • "It is our belief that there is material upside to our margins in 2012 and in future years."
  • [River Downs]  "We expect to begin work at some point this summer.... our ability to get a project off the ground this year and having that first phase that may open as early by the end of next year it's pretty high."
  • "At Ho Tram in Vietnam, the project is on track for an opening by the end of the first quarter of 2013."
  • [Retama] "Our total investment will be about $23 million of which $10 million has already been deployed. We expect the second phase of the transaction and remaining investment to close in the second half of 2012. Retama lost about $1.5 million last year on an EBITDA basis but we expect to improve this once we manage through operations and integrate the property into our portfolio. Obviously, should there be an expansion of gaming at racetracks in Texas – we will manage that operation as well."
  • [River City construction impact] "As the temperatures climb in the summer and that walk from further away gets to be more troublesome for folks, we may see a deeper impact. Our point here was that in the first quarter, we didn't see much of an impact at all out of that additional walk. So we'll see how things go as the summer progresses. We do expect the garage to be operational by the end of the year. So hopefully before the snow and winter come at the end of the year, we'll have that garage operational. So once that garage is finished, we will then break ground and build that hotel. And we believe we can have that hotel done by the end of 2013."
  • "The Houston market continues to be under penetrated and that's been our position for a long time. I think that market has been mostly capacity constraint and that's why it hasn't grown more. We have been focusing on trying to drive profitable revenue, so our top line has been driven mostly by adjustments that we've made both in marketing as well as some of the property improvements that came in and have been operational throughout the first quarter."
  • [New Orleans property] "It's something that's on all of our mind on a regular basis that we have seen declining revenues there. It's a variety of things, including competitive pressures in that market. We've pointed out that especially on the West Bank, there's a change because of what happened with the Deep Horizon disaster a couple of years ago. I don't want to use that as an excuse. We... can compete better than we are in that market, and we're focused on doing that through specific program changes at that property."
  • "We have spent considerable time putting together a marketing plan that will launch in the summer. It will be focused at the gaming customers, both in Baton Rouge and in the regional markets, and will also, of course, be communicated aggressively to Pinnacle customers who reside in Louisiana."
  • [1Q corp expense as run rate] "So, I think that is for purposes of your model, certainly a reasonable run rate."
  • [Loss from Vietnam investment] "We do expect it to ramp up as the year progresses. And, obviously, there is an expectation that this will turn profitable in 2013 following that opening."
  • [Baton Rouge opening] "I think you can expect to see that there will be a ramp-up. There will be some awareness that will need to occur in the first couple of quarters. I do think because of the shared services that we've put together and the investment we've made in our pre-opening team. We brought people on much earlier than what people would typically do to open up a property. I would expect if you were just to look at what normally happens in a market that this will be above that curve but you should expect that there will be a ramp-up for the first couple of quarters."
  • [AC discontinued ops]  "As it relates to the process itself, it's underway, it's early in that process."

UA: Great Early Read


Conclusion: A great print from UA. One of the few companies to up guidance without any mention of the words  economy’, ‘slowdown’ or ‘headwinds’. We were concerned about a potential CMG scenario headed into this print and hedged our positive TAIL exposure. That caution was misplaced.

  • Great, clean quarter from UA – definitely did not pull a CMG or NKE, which was a distinct possibility.
  • Revenue was in-line with our estimate of 28% growth – 600bp better than the Street.
  • To our surprise, there were literally no cautionary statements thrown out by management about economic headwinds. In fairness (and in irony), part of UA’s resilience is due to its own failure to penetrate International markets to date. But regardless, the lack of any form of caution is clearly noteworthy. International remains only 5.6% of sales, down slightly from 1Q and up 80bps from ly.
  • Direct to consumer revenue is up to 29%. Nike is drooling over this staggering statistic. This is a stealth part of this story that people are not focused enough on.
  • The company is maintaining its 300bp-500bp estimate for EBIT growth above revenue growth – but on a 200bp-300bp better top line growth rate (22%-24%).
  • UA took up the year by $20mm in revenue guidance, despite beating 2Q by $12mm. Granted, it did not provide this 2Q guidance. So for all we know the consensus simply printed a number below a conservative plan. But still, this delta is notable.
  • Footwear came in guardedly positive. Top-line growth was 44%, but the 2-year comp accelerated by 16 points to 37%.
  • The balance sheet clearly improved, with the sales/inventory spread poking its head in positive territory for the first time in 7 quarters, which is gross-margin bullish for 2H.
  • Tough to poke holes in this one.


UA: Great Early Read - UA SIGMA