We've Got A Situation

RIA DAILY PLAYBOOK  

FOR RELEASE ON FRIDAY, JULY 27, 2012

CLIENT TALKING POINTS

BAILOUT NATIONS

By now it should be obvious that the Eurozone is a amalgamation of bailouts. Greece will soon need another and week-by-week it has become clear that Spain is in need of more money Spain just reported a record unemployment rate of 24.6%. That’s one-in-four people out of work. More QE leads to rising food and gas prices, which does not bode well for the 24.6%.

Please keep in mind that growth IS slowing and will continue to slow as we head into August. At this stage in the game, we can only wait and see what happens to Italy down the road. Spanish stocks lead the losers this morning, down -1.7% (down -30% since March) and we remain bearish on all 3 of our risk management durations: TRADE, TREND and TAIL.

As recording artist Notorious B.I.G. once quipped: “Mo’ Money, Mo’ Problems.”

TALL, NON-FAT MOCHA EARNINGS MISS

Starbucks (SBUX) missed their Q3FY12 earnings yesterday after the close. The company is enjoy the effects of higher costs courtesy of the Bernanke QE and trying to run five different concepts at once (La Boulange, Evolution Fresh, etc.). We still advise remaining on the sidelines for SBUX, however, as we’re not bearish enough on the brand to make a call yet. We’ve been long Starbucks in the Hedgeye Virtual Portfolio since 2009. We timed it right and got it at the right price. This simply isn’t a good entry point for Starbucks and we’ll continue to hold it in our Virtual Portfolio as Schultz & Co. try to work things out over time.

THE VIAGRA MARKET

Coined by Keith, this term summarizes yesterday’s rally in US equities quite well. We rip 20 handles in the S&P 500 to the upside and next thing you know, we’re in a bull market. Never mind that growth continues to slow on a global level. All it takes is a wave of the wand from a central planner to make people believe that there is hope in this market. And as we always say: hope is not a risk management process. A day of dollar down and US equities + gold up means everything is back to normal, right? We’ll see how long this farce keeps up for.

Really, we must wait patiently and see what Ben Bernanke does/says next week. We don’t think that QE3 is a reality and that includes some nonsense where the Fed goes buying mortgage-backed securities. Should our prediction prove correct, we’ll go looking to short the S&P 500 or Russell 2000 at the right time and price.

ASSET ALLOCATION

Cash:  Down                   U.S. Equities: Flat

Int'l Equities: Flat            Commodities: Flat

Fixed Income: Up            Int'l Currencies: Flat

TOP LONG IDEAS

JACK IN THE BOX (JACK)

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.

TRADE: LONG

TREND: LONG

TAIL: LONG            

HCA (HCA)

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.

TRADE: NEUTRAL

TREND: LONG

TAIL: NEUTRAL

LIFEPOINT HOSPITALS (LPNT)

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.

                                                                                                                                                                        TRADE: NEUTRAL

TREND: LONG

TAIL: LONG

THREE FOR THE ROAD

Tweet of the Day: “I'm not sure what a SIPC-like insurance fund capped at $500K would do for the futures industry. I'm not sure what [it] does for securities.” -@johnpneedham

Quote of the Day: “Democracy is a process by which the people are free to choose the man who will get the blame.” – Laurence J. Peter

Stat of the Day: Facebook posted first quarter 2012 revenues of $1.058 billion, up 45 percent year over year from $731 million. The company reported $1.18 billion in revenue. Earnings per share also came in right at 12 cents per share. 955 million active monthly readers.