Comanche Market

“… and meant, anyone who is against me all the time.”

-S.C Gwynne


That’s what the white guys in New Mexico “translated in various ways (Cumanche, Commanche), but eventually as “Comanche.” It would take the Spaniards years to figure out exactly who these new invaders were.” (S.C. Gwynne)


As I come to the end of what’s been a wildly educating experience reading Gwynne’s Empire of The Summer Moon, it’s twisting so many thoughts in my head that I don’t particularly know what I’m allowed to write about it. So I’ll just stop there.


All I can tell you is that as a professional short seller of everything US Dollar debauchery and centrally planned markets, I’m getting really comfortable having all of the same people against me all of the time. Their moves are becoming blatantly predictable.


Back to the Global Macro Grind


Against me? How about +25% at the pump against you? That’s what the price of Brent Oil has done since it bottomed at the end of June. With the US Dollar down now for 3 consecutive weeks, the purchasing power of your currency is once again under enemy attack.


Enemy? Who is the enemy? Is it Johnny Hilsenrath with his now almost daily Dollar debauchery articles in the Wall Street Journal? Or is it his editor? Or is it his editor’s brother’s boss who just plowed back a $35,000 plate at Obama’s CT dinner last night?


Whoever you are, market prices can see you now.


Got causality (begging for more Qe policies) that are driving immediate-term market price correlations? Here’s an update on that (USD versus Big Macro stock and commodity market moves in the last 3 weeks):


  1. Brent Oil vs USD = -0.74
  2. SP500 vs USD = -0.90
  3. EuroStoxx600 vs USD = -0.92


That’s right folks. Today’s centrally planned market is American-European. How else can Italy deliver a -2.5% year-over-year GDP disaster for Q2 2012 this morning (and 36% youth unemployment), and have their stock market “up” on that? Dollar down this morning.


Devaluing your currency is cool though, right? Look at how well life is going in Venezuela after Chavez devalued The People’s currency by 50%. The stock market  in Venezuela leads the world YTD at +110% YTD (not a typo). How screwed up is that?


President Obama and his centrally planned stock market advisors have figured this out. If the US stock market goes up, his chances of winning the Presidential Election go way up. In this morning’s Chart of The Day, we show you that in our Hedgeye Election Indicator:


  1. Obama’s chances went up +110 basis points wk-over-wk
  2. At 58.7% probability, this is the highest we’ve scored Obama’s chances since mid-May
  3. Unless the US Dollar stops going down (and US stock stop going up), Obama could run the tables


Now isn’t that a tad perverse? Burn The People’s hard earned currency at the stake, keep rates of return on hard earned Fixed Incomes at 0%, and pretend that jamming them with $4.50/gallon at the pump isn’t going to leave a mark on the 99%’s dinner table tonight.




Unfortunately, the globally interconnected growth signals around the world get that Down Dollar, Up Oil is only going to perpetuate the world’s biggest problem (#GrowthSlowing) further.


Here’s your latest real-time signaling on the Global Macro front:


  1. Chinese Stocks (Shanghai Composite) whimpered in day 2 of the “stock market rally”, closing up +0.13%, failing at resistance
  2. South Korea’s leading indicator (KOSPI) barely banged out a green close last night, closing +0.05%, failing at resistance
  3. Dr. Copper, one of the world’s best growth indicators, was down -1.7% last week, and remains broken this morning at $3.40


Those are just growth signals though (Asia, demand, etc.). But who needs those when we can chase Energy and Basic Material stocks in order to keep up with the SP500’s “being up” +1% already for August?


We’ve seen this movie before. Month by month, we’re killing whatever trust remains in our said “free” markets. Like the devastation of what was a wild, yet free, Comancheria, a centrally planned life ends in tears for many, and smiles for some.


Eric Rosengren, inflation is not growth.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Russell2000, and the SP500 are now $1, $106.40-110.84, $82.05-82.84, $1.23-1.24, 782-803, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Comanche Market - Chart of the Day


Comanche Market - Virtual Portfolio

RL: Idea Alert

Keith shorted RL into tomorrow’s print for a TRADE. To be clear on this one, there’s a sharp delineation between where we like RL over each duration. In the event of a sell-off, we'd be looking for a point of entry once the dust settles to get involved with what could be $12 in earnings power. 


TAIL (3-Years or Less): This is one of our favorite TAIL ideas, as we think that the consensus is underestimating RL’s 3-year earnings power by  nearly a dollar. When we add up the opportunities by country, product category, and most notably – by channel (ie, we think that people are underestimating the leverage inherent to this model.  Specifically, we’re looking at nearly $10 in EPS next year, and over $11.50 the year after. A 10% premium to the market suggests a stock near $175. A 1x PEG is $200+ over 2 years.


TREND (3-Months or More): RL still has a full 75% of its (March) FY left to go, so the company will be guarded into the print. RL laps European category expansion (intro of Polo FW), Denim & Supply, FX, and double digit retail comps – which are tougher to bank on this year.


TRADE (3-Weeks or Less): The company has every reason in the world to offer up a cautious outlook – given all that’s going on in the world – especially Western Europe (it has minimal exposure to China) and the clear trend of other companies putting up weak numbers. Add in the Olympic spending, tough wholesale and store productivity comps, and our analysis that stretches to find more than 10% of CFO changes that end up being a near-term positive earnings event, and we’re more inclined to be on the negative side of this print. This is a perfect ‘buy on pullback’ stock. 


RL: Idea Alert - RL TTT

President Obama's Reelection Chances

*Note: last week’s 58.2% reading was revised down to 57.6% post our latest update of the multiple regression model. Also, 58.7% is good for the highest reading since mid-MAY.


As the fundraising battle heats up and we head into August, President Obama continues to stay ahead according to the Hedgeye Election Indicator. Week-over-week, the President’s chances of being reelected rose 1.1% to 58.7%


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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In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • WORSE:  Better results on the game sales side were offset by continued poor gaming operations performance.  Investments in the interactive crushed margins, leading to an EPS miss.  Guidance of basically flat YoY EPS, which is 23% below consensus estimates has got to be hugely disappointing.


  • WORSE:  Gaming operations produced yet another miss.  Despite increases in the EOP install base, the average install base actually decreased. So much for the backlog.
  • PREVIOUSLY: “Typically we see our Q4 ramping up to be our seasonally busiest quarter of the year. It goes Q4, Q3, Q2, Q1. And so I think April, the month of April was a little bit softer than we would like in our gaming operations business. But our order book is building dramatically, so that offsets that.”


  • WORSE:  Revenues were down 4% YoY but operating margins also decreased from 34.1% to 33.9% YoY
  • PREVIOUSLY: “We expect total revenues in the June 2012 quarter to be modestly below year-ago June quarterly revenues, while our operating margin is expected to improve on a year-over-year basis, adjusting out the net impact of restructuring, impairment and other charges in the prior year.”


  • WORSE:  WMS still expects growth in the their participation install base in 2013 although given the heightened competition they're not sure of what churn will look like
  • PREVIOUSLY: “We believe that WMS has turned the corner on our efforts to restore growth in our gaming operations business. Looking out over the next few quarters, we expect our normalized flow of innovative new products for our product sales and participation operations scheduled to launch during the next 12 to 24 months.”


  • WORSE:  End of period units increased but that did little to help the quarter since the average install base was still down QoQ due to high churn.  Revenue per day was also down.  WMS remains hopeful for growth in the install base in FY13, but the talk on the call was definitely toned down from last quarter.
  • PREVIOUSLY: “With current open orders for now over 2,100 units and five new participation games expected to receive their regulatory approvals this quarter…. and with our improving product performance, we expect further growth in the installed participation base and revenue per day in the June quarter and beyond.  We're confident that the unusually high number of refreshes in the last several quarters will moderate over the next several quarters and slowly return to more historical rates. 


  • SAME: Floor share of new casinos openings was in the high-teens as expected
  • PREVIOUSLY:  “Our floor share for new casino openings this year is expected to be in the high teens”


  • WORSE:  WMS guided to modest growth in ship share in the US & Canada which we do not believe is good enough to get to mid-20's ship share
  • PREVIOUSLY: “We expect over time to recapture ship share and reestablish our fair share of the market.  I would expect us to get back to more the mid-20%s here in fiscal 2013 based on the performance of our content and we're very excited”


  • SAME:  ASPs came in just under $16k.  WMS expects continued pricing pressures into next year. They do not expect any ASP growth with VLT mix offsetting the impact of their new cabinet in late FY13.
  • PREVIOUSLY: “I would think that from a modeling standpoint, you'd probably want to use the last three quarters or so as a more typical ASP price going forward. I think given the competitive pressures, you're not going see us have great pricing leverage in the next two to three quarters, but I think it will be a more normalized run rate going forward, call it the $16,000 range.”


  • WORSE:  Given the current market place environment coupled with the expected range of VLT pricing from ongoing market pressures, ASPs in FY13 are likely to exhibit greater variability on a quarterly sequential basis depending on the product mix in the given quarter.  Their new cabinet release in 2H13 is not likely to be able to offset pricing pressures in 1H13.
  • PREVIOUSLY:  “I think that going forward, you're going to continue to see us be competitive with pricing. I wouldn't use the word aggressive but we're going to be competitive.  We have several premium for sale products coming out in fiscal 2013 that we hope will drive ASP.” 


  • SAME:  WMS launched their first 2 games in the June quarter on their new platform
  • PREVIOUSLY: “I am excited by the prospects to reenergize our customer slot floors with the innovation and potential that will come with the launch of our first games, our next-generation CPU-NXT3 operating system…We are on track to commercialize this new operating system on the Sensory Immersion 2.0 platform, with initial approvals and the launch of the Aladdin & Magic Quest game in the latter part of the June quarter.”


  • SAME:  Expect to ship a few hundred My Poker units in the December 2012 quarter
  • PREVIOUSLY: “Another driver of revenue by the end of calendar 2012 will come from the expected launch of My Poker video poker platform.”


  • WORSE:  IL is still expected to benefit 2013 but there was no mention of Italy
  • PREVIOUSLY: “We anticipate the placements of VLTs in Illinois and Italy, which we expect to begin in fiscal 2013, may result in a greater amount of operating leases, which will require gaming operations capital.”


  • SAME:  WMS expects a 20% YoY decline in aggregate capex spending- mostly on the PP&E side
  • PREVIOUSLY: “Looking to fiscal 2013, we expect capital expenditures for property plant and equipment to decline as we'll complete two significant projects over the next few months.”


  • WORSE:  Capex was $58MM - up a lot QoQ
  • PREVIOUSLY: “June quarter… it's likely that CapEx in gaming operations is going to be at or a little above what it was in Q3 as we now get to the point of … incrementing the installed base:”


In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • WORSE:  Soft gaming revenues in Vegas and worse than expected margins drove an EBITDA miss.  Management was much more cautious about the demand environment.



  • SAME:  Las Vegas REVPAR growth came in at +4.4% YoY, with occupancies falling 2.6% and cash ADR rising 4.5%.
  • PREVIOUSLY: "Our Company in the past couple of quarters has enjoyed all-time occupancy highs here in Las Vegas. What we hope to achieve is improving mix over time and … less of a reliance on wholesale operators which for us right now stands at 10% or less of our room nights. Continuing to shift that mix into FIT and gaming customers …. will drive RevPAR growth, not really … occupancy growth. Occupancy is not going to be a big driver for us. In terms of thinking about RevPAR growth…. the low to mid-single digit RevPAR growth… we'd be comfortable with that number.”



  • WORSE:  Margins fell YoY at all the Midwest/South properties.
  • PREVIOUSLY: "There is certainly room to increase those margins....Our margins should be able to grow even in the face of flat revenues because of the delivery of the savings from our Project Renewal program."


  • BETTER:  Managed, international, & other segment revenues grew YoY in each category. Playtika particularly outperformed.
  • PREVIOUSLY: "Our online business which is growing nicely is in that category… London Clubs and Punta del Este as well as our managed properties are growing nicely."


  • SAME:  AC 2Q results benefited from a ~$7MM decrease in property tax expense due to lower property tax assessments
  • PREVIOUSLY: "One element which drove improvement in Atlantic City was the elimination or severe reduction of our property taxes in that market and that will continue to deliver the benefit throughout the year and into next year as well."


  • WORSE:  Margins fell by more than 200bps YoY as the AC market remains extremely competitive and battered
  • PREVIOUSLY: "The environment in Atlantic City... continues to be challenging and we remain focused on modifying our cost structure there to realize appropriate returns."


  • SAME:  In the state-by-state route for online gaming, CZR has been proactive in California, Nevada, and Delaware.
  • PREVIOUSLY: "There will be online gaming here in Nevada by the end of the year and potentially some other states as well, and we're getting ready for that. I expect a favorable result in New Jersey, but probably not immediately.”


  • SAME:  Retail portion of Linq will be open before 2013, while the Wheel of Linq will open in 2Q 2014
  • PREVIOUSLY: "The Linq will open in phases beginning in mid to late 2013. We'll begin to announce some of the tenants for this project in the next several months. O'Shea's will reopen with a prominent new space when the Linq is completed."


  • SAME:  On track to open at the end of 2012
  • PREVIOUSLY: "Nobu Tower will open at the end of 2012. Cost is $30 million with about 280 rooms"


Rough Q, cautious outlook.  Las Vegas was the biggest miss



"After a strong first quarter, difficult economic conditions led to lower visitation in several regions, impacting our core operating results in the second quarter.  While the economy may continue to pose challenges, we remain focused on controlling costs, investing in growth opportunities and our core brands and strengthening our capital structure.  Our alliance with Rock Gaming LLC opened Ohio's first casino, Horseshoe Cleveland, and is ahead of schedule on construction of Horseshoe Cincinnati, which is expected to open early next year. Horseshoe Cleveland has drawn larger than expected crowds and enrolled more than 50,000 new members in our Total Rewards loyalty-program during the quarter."


- Gary Loveman, CEO and President of CZR 




  • Weakening US economy led to a more challenging environment in 2Q
  • Visitation/occupancy held up in Vegas but gaming revenues were weak
  • Horseshoe Cleveland: now has reached a total of million visitors
  • Horseshoe Cincinnati opening: Spring 2013
  • Linq Vegas project progressing well
  • Nobu tower will open at end of 2012; will take reservations in October
  • Harrah's Baltimore opening: 2Q 2014
  • Playtika performing well
  • Nevada granted two online gaming applications recently; CZR has submitted an application to be an online operator
  • $21.7 billion debt; $985 MM cash ex restricted cash
  • Systemwide rated spend per trip down 1.9%; hotel ADR was flat; cash ADR rose 2.7%; systemwide hotel REVPAR increased 3.8%
  • Las Vegas: VIP segment particularly weak across the board; Hotel REVPAR up 4.4% YoY (occu down 2.6%, cash ADR rising 4.5%)
  • Atlantic City:  additional supply has not grown the market
  • IL/IN: continue to experience competitive pressures which is offset in flood-related property closures last year
  • Managed/International/Other: strong performance from social gaming segment; received mgmt fees from Horseshoe Cleveland.


  • Guarded outlook? Yes. Economic conditions around the world have gotten more worse.
  • CMBS maturity: has an extension option in 2013 and in 2014; 50 bps fee associated with the extension; can elect to extend 6 months before the extension period.
  • Search for CFO will not affect future capital market transactions
  • No material hold impact in Vegas in 2Q
  • Lower spend per visit in Vegas not affected by hold
  • Atlantic City: margins under tremendous pressure
  • Federal online gaming:  cannot legalize gaming if Congress can't even act on fiscal cliff issues
    • Has been more active on Delaware and California on the state-by-state route
  • Retail portion of Linq will be open before 2013
  • Wheel of Linq will open in 2Q 2014
  • Harrah's Baltimore:  54% will be owned by Caesars; will be financed with project specific debt
  • Revolver was undrawn;
  • Consolidated cash balance: 985MM
    • CEOC: 658MM; CMBS: 206MM; remainder at parent
  • Consumers are cautious in spending
  • Expect weak general macro conditions to persist
  • Late arriving portion of customers have been weaker in 2012. 2013 should be more encouraging.
  • Difficult to predict what will happen in Maryland
    • Either sees nothing happens or table games will be granted
  • Massachusetts: sees two gaming proposal sites to be decided in late 2013
  • St. Louis proceeds to fund capex : renovation/development capital
    • Any leftover St. Louis proceeds to buy back 1st lien OpCo debt
  • Will try to repurchase junior CMBS debt if the opportunity arises
  • Debt equity swaps: $8 in stock price is not compelling right now
  • NV Online gaming pool of states? Yes. It's possible. Other states would have to have own independent approval.
  • Maryland Live!, Revel, PA, and Genting New York all impacting AC
  • Social Gaming: Playtika has had a great mobile strategy
  • Online Interpretation: NY resident holding phone in Las Vegas will be able to gamble on the phone
  • Are cost cuts from Project Renewal (target $400MM/year) being offset by higher costs elsewhere?
    • $42MM savings in 2Q; $147MM savings left in the program
  • Issued 15,000 shares and purchased $5MM of debt in addition to CMBS purchase




  • Harrah's St. Louis:  The sale is expected to close in 2H 2012. CZR will use proceeds to fund CEOC capital expenditures or to repurchase certain outstanding debt obligations of CEOC. As a result of the transaction, its assets and liabilities are classified as discontinued ops.  
  • Atlantic City: lower casino revenues caused in part by a decline in trips. However, spend per trip metrics for both lodger and non-lodger segments did not decline significantly compared with prior year. Expects the market to continue to be challenged by local and regional competition in future quarters.
  • IA/MO: decline in casino revenues resulting from fewer trips partly attributable to increased competition in the region; however, spend per trip increased.
  • IN/IL: While trips rose slightly in 2012 compared to 2011 there was a decline in spend per trip.
  • "In Las Vegas, we will begin taking reservations in October for the Nobu Tower at Caesars Place, and expect to announce soon some of the key anchor tenants for the $550 million Linq retail, dining and entertainment experience across from Caesars on the Las Vegas Strip."

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