We’ve always believed that slot volume is the ultimate indicator of a Vegas recovery


  • Our predictive model has been proven effective in projecting monthly slot volume on the Strip as indicated by the high correlation between the red and blue lines
  • MGM is as close to a Strip pure play as there is and its stock has closely tracked changes in slot volumes on the Strip
  • We’re not optimistic about slot trends over the near term and maintain that Vegas may be in a secular slot decline due to poor demographics and an aging core slot customer base



OH SNAP: Have Food Stamps Hit Peak Enrollment?

We’ve analyzed the latest data for the Supplemental Nutritional Assistance Program (SNAP), better known as food stamps. Since President Obama took office in 2008, the participation has shot up drastically over the last four years. Currently, about 15% of the nation or about 46 million people are enrolled in the SNAP program.  


The year-over-year growth rate is actually declining at an accelerated rate. At the current trajectory, it should go negative by October. While a positive for the American taxpayer, dollar stores like Family Dollar (FDO) and Dollar General (DG) are going to feel the pressure as more people wean themselves off food stamps. Over the last five years, the growth in the SNAP program has been a positive for dollar stores, driving new business. All good things come to an end, though. Keep an eye on names like FDO and DG as the SNAP participation rate drops.



OH SNAP: Have Food Stamps Hit Peak Enrollment?  - SNAP Aug

Short Selling Opportunity: SP500 Levels, Refreshed

POSITIONS: Short Industrials (XLI) and SPY


Since February 15th, 2012 this is the 9th time I have issued a Short Selling Opportunity note. Maybe this will be the 1st time out of 9 that I am wrong. Maybe not. That’s the game. You either buy or sell here. You don’t hide from accountability.


Across my core risk management durations, here are the lines that matter to me most: 

  1. Immediate-term TRADE resistance = 1405 (lower highs)
  2. Immediate-term TRADE support = 1388 

Every time I do this, I feel like I have to re-live the last 5 years. It’s weird. People are pressured to buy high and sell low, I guess.


Given the fundamental growth picture in the world, this one looks as clear to me as the other 8 shots were.


As Gretzky said, you’ll miss 100% of the shots you don’t take.




Keith R. McCullough
Chief Executive Officer


Short Selling Opportunity: SP500 Levels, Refreshed - 1

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HedgeyeRetail Visual: SNAP/FDO Update


Latest data shows modest uptick in the percent of Americans benefitting from food stamps (otherwise known as SNAP – Supplemental Nutritional Assistance Program) to about 15%. Don’t be fooled. The year/year growth rate is actually declining at an accelerated rate. At the current trajectory, it should go negative by October.

We think that growing SNAP participation has been a significant tailwind for dollar stores over the last 5-years. The absence of which we think is something that will temper their top-line growth rate on the margin. We remain bearish on FDO.  


HedgeyeRetail Visual: SNAP/FDO Update       - SNAP





We held a call with clients on July 19th discussing our concerns about the long-term outlook for Darden’s stock.  We have written a longer - Black Book - that offers a comprehensive account of our thoughts on what we see as the most important factors affecting Darden’s financial health over the next three years.  Our view is that burgeoning growth in the company’s net units has masked some serious deficiencies in Darden’s two largest chains: Olive Garden and Red Lobster. 


The poor trends at Olive Garden and Red Lobster are pressing the company towards an impasse.  Specifically, the company is burning cash and the stock can no longer be all things to all investors.  A rich dividend, aggressive growth profile, and sturdy balance sheet have attracted investors of all different styles to buy Darden’s stock over the past few years.  One, or more, of these attributes is likely to fall away as maintaining all three becomes unsustainable.  A proactive reorganization, including a cessation or slowing of unit growth, would be preferable to the more likely reactive lowering of margins or slashing of the dividend that we think is becoming inevitable.


We have seen this movie before in the Restaurant Industry, and are advising clients to avoid Darden as a long-term buy idea until, at least, the facts change.


One of more daunting macro charts from the Black Book is the long-term trend in the population growth of the 55-64 YOA cohort.  The trend is decelerating and is set to continue decelerating for years to come.  This age group is a high-frequency customer within the industry, especially Red Lobster and Olive Garden. As Brinker CFO Guy Constant said at a recent conference: 


"What got you to win historically in casual dining was demographics in trade area and real estate. That's how you won. We all built many, many restaurants over many, many years and that's how you won. And in many ways we open the doors and they came because there were a lot of macroeconomic tailwinds who were contributing to that"




This trend is not encouraging for a company that is focusing on growing the unit count of concepts not producing consistent guest count growth.  


Call me with any questions.





Howard Penney

Managing Director


Rory Green


AXP: More Signs That Growth Is Slowing

It should come as no surprise that our call on Growth Slowing has come into fruition over the first half of the year. More and more companies are putting up numbers, metrics and comments that reflect the state of today’s economy. The latest company to own up to this theme is American Express (AXP).


American Express hosted its semi-annual Investor Day this week and the commentary from management was not positive to say the least. July billing numbers have slowed sequentially versus Q2 and only provided updates on an FX-adjusted basis, saying that global billed business grew 6% year-over-year in July, 2012 vs. 9% in 2Q12 and 13% in 1Q12. In other words, there’s a -7% of slowing growth in only four months.



AXP: More Signs That Growth Is Slowing  - AXP billing



While 93% of Street analysts have a buy/hold call on AXP, Hedgeye Financials Sector Head Josh Steiner has taken the contrarian route and remains bearish on the stock. The comment below from AXP CEO Ken Chenault backs up Steiner’s thesis:


“…there is no one specific driver of the recent trend; the Company’s billed business in July appears to reflect a weak overall economic environment, which shows up in a number of areas, including small business and corporate spending.”


The problem is obvious at this point to most people. Consumers are still worried about the economy and until we get some form or indicator that things have stabilized and are improving, they are more hesitant to go out and use their charge card for purchases. Some merchants are hoping that they’ll enjoy strong Back To School numbers for August but as we’ve said before: hope is not a risk management process.


The next quarter and back half of 2012 does not look good for AXP. When the time and price is right, we’ll be shorting it.

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