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BYI: We Have A Winner

Our Gaming, Leisure and Lodging team recently spent some time in Las Vegas speaking with executives at various gaming companies and one name that impressed us is Bally Technologies (BYI). Keith bought the name in our Real-Time Alerts yesterday.

 

Bally has a nice product cycle ahead of it and the announcements they made at the G2E show this week were positives in our view. Their customers are providing incontrovertible feedback. Historically, BYI is a reel spinning slot supplier and now they’re making the move to video. Approximately 80% of units shipped  in North America are video and unbeknownst to most investors, BYI’s recent video slot shipments have also been around 80% of its total.  So their video content is already driving higher share recently, and this will likely increase their high teens overall share.

 

 

BYI: We Have A Winner  - BYI2 normal

 

 

Things are going well for Bally’s stock right now and we’re in-line with the September quarter. Looking out at 2013, however, we believe estimates may be too low. Shipments to Illinois and Canada could help exceed expectations and push earnings higher.


Lowering Expectations

LOWERING EXPECTATIONS

 

 

CLIENT TALKING POINTS

 

LOWERING EXPECTATIONS

Big companies like FedEx (FDX) and Caterpillar (CAT) have already provided caution to the earnings slowdown that is occurring and it’s spreading throughout the market quickly as third-quarter earnings reports come in day after day. Just look at Zynga (ZNGA) which was down -19% pre-market. Looks like people are starting to realize that people would rather put gas in their car then buy virtual goods in Farmville. Wait and see. As we head into next week, you’re going to see weak guidance across the board, regardless of what Romney and Obama have up their sleeves.

 

 

STRONG AIN’T WRONG

There’s nothing wrong with a strong currency and the United States should focus on restoring confidence in the greenback. Strengthening the dollar helps strengthen America; your neighbor isn’t going to complain about commodity prices going lower, that’s for sure. The dollar and cereal boxes have a lot in common these days - they’re shrinking. Let’s see where next week takes us and remember: get the dollar right, you get a lot of other things right. 

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                UP

 

U.S. Equities:   Flat

 

Int'l Equities:   DOWN   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

UNDER ARMOUR (UA)

This company’s on track to post $3Bn in revenues by ’14 – impressive given a $1.5Bn print in 2011. Perhaps more impressive is the breadth of growth drivers that will get it there – women’s, accessories, new underwear platform etc. in addition to footwear. UA is gaining share in both apparel and footwear quarter-to-date. While some may be concerned over the loss of UA’s SVP/Sourcing we’re 8% ahead of the Street in the upcoming quarter and buyers on weakness.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“If #obama can't stand up to #Romney and challenge him on facts. How do we expect him to stand up to Iran and other world leaders ? #debate” -@greenbergcap

 

 

QUOTE OF THE DAY

“I don't mind what Congress does, as long as they don't do it in the streets and frighten the horses.” -Victor Hugo

                       

 

STAT OF THE DAY

US September Non-Farm Payrolls rise slightly less than expected, up by 114,000 in September; Jobless Rate falls to 7.8%


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 5, 2012


As we look at today’s set up for the S&P 500, the range is 20 points or -1.05% downside to 1446 and 0.31% upside to 1466. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1a

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

EQUITY SENTIMENT:


FLOWS – they’ve convinced me I can trade this tape w/ a bullish bias, but they haven’t convinced The People; Equity Fund Flows negative for the 3rd consecutive wk despite the US stock market at 4.5 yr highs (Lipper data had outflows of another -$2.4B wk-over-wk vs -$1.3B last); no trust = no volume.

  • ADVANCE/DECLINE LINE: on 10/04 NYSE 1384
    • Increase versus the prior day’s trading of -2
  • VOLUME: on 10/04 NYSE 674.72
    • Increase versus prior day’s trading of 1.32%
  • VIX:  as of 10/04 was at 14.55
    • Decrease versus most recent day’s trading of -5.70%
    • Year-to-date decrease of -37.82%
  • SPX PUT/CALL RATIO: as of 10/04 closed at 1.58
    • Down from the day prior at 1.93

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 25.09
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.68%
    • Increase from prior day’s trading of 1.67%
  • YIELD CURVE: as of this morning 1.44
    • Up from prior day’s trading at 1.43

MACRO DATA POINTS (Bloomberg Estimates)

  • 8:30 am: Non-farm Payrolls change, Sept. est. 115k (prior 96k)
  • Change in Private Payrolls, Sept. est. 130k (prior 103k)
  • Change in Manufacturing Payrolls, Sept. est. 0k (prior -15k)
  • Unemployment Rate, Sept. est. 8.2% (prior 8.1%)
  • 10:00am: Fed’s Dudley at conference in New York
  • 11:00am: Fed’s Duke speaks in New York on neighborhood stabilization
  • 1pm: Baker Hughes rig count
  • 3:00pm: Consumer credit, Aug. est. $7.5b (prior -$3.276b)

GOVERNMENT:

    • Most provisions of FCC rule requiring cable companies to share programming with competitors lapse on this date
    • Obama campaigns in Fairfax, Va.; Cleveland
    • Romney campaigns in Abingdon, Va.; St. Petersburg, Fla.

WHAT TO WATCH:

  • Jobless rate probably climed as US employers limited hiring
  • Jobless data seen aiding Romney if rates soars from 8.1%
  • EU doubts on deficit cutting may hinder Spain’s path to bailout
  • BOJ refrains from more stimulus as political pressure mounts
  • Zynga cuts forecast for FY adj. Ebitda and bookings
  • OCBC, CIMB said to mull bids for GE’s Bank of Ayudhya stake
  • FDA advisory panel meets on use of Optical Coherence Tomography technology for treatment of glaucoma
  • Sprint said to take fresh look at MetroPCS after Feb. talks
  • Paulson hedge funds said to further cut 2012 losses in Sept.
  • Credit Suisse sued by US regulator over faulty MBS’s
  • California refiners ration gasoline as prices soar to record
  • UnitedHealth said in talks with Brazil’s Amil Participacoes
  • Hewlett-Packard’s long-term ratings may be cut by Moody’s
  • Palo Alto Networks said to be readying secondary stock offering
  • G-7, IMF Meeting, Nobel Prizes, Sandusky: Week Ahead Oct. 6-13

EARNINGS:

    • Constellation Brands (STZ), 7:31am, $0.54

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL – bubbles trade like this as they are popping, violently; not a shocker to see Oil meltup alongside the Euro yesterday; neither should it surprise you that Oil is back down this morn alongside the same. Our immediate-term TRADE duration correlation b/t USD and WTIC = -0.78.

  • Gold Seen Advancing After Reaching 10-Month High on Stimulus
  • Gold Traders More Bullish as Holdings Reach Record: Commodities
  • Palm Oil Stockpiles in Malaysia Set for Record on Production
  • Copper Swings Between Gains and Declines Before U.S. Jobs Report
  • Rubber Drops to Pare Fifth Weekly Gain as BOJ Holds Off Stimulus
  • Robusta Coffee Falls to One-Week Low on Stockpiles; Cocoa Climbs
  • Iron-Ore Swaps Fall 0.2% in London Trading, Clarkson Data Show
  • Oil’s Best Second Half to Hand OPEC $1 Trillion: Energy Markets
  • Soybeans Fall 0.2% to $15.4775 a Bushel, Erasing Earlier Gains
  • Oil May Fall as U.S. Crude Production Increases, Survey Shows
  • Ivory Coast Cocoa Farmers to Put Pay Raise in Crop Production
  • Silver Set to Beat Gold on QE3 in 2011 Re-Run: Chart of the Day
  • Savers Push $374 Billion U.S. Utility Industry to Shift: Energy
  • Palm Oil Climbs as Plunge to Three-Year Low Spurs Import Demand

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


EURO – big up move yesterday so we re-shorted the EUR/USD just inside of our long-term TAIL risk line of $1.31; Greece +3.6% this morning after telling the world they lied again (so they need more bailout moneys); Spain’s bailout is Rumor Off, for now, as the IBEX remains bearish TRADE (7903 resistance).

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 


ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 

 

 

 

 


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Pain & Progress

This note was originally published at 8am on September 21, 2012 for Hedgeye subscribers.

“Pain plus reflection equals progress.”

-Ray Dalio

 

As a hedge fund analyst, turned Portfolio Manager, turned Canadian-American Entrepreneur, there are very few quotes that resonate with me more than that one. Ray Dalio remains, The Man.

 

In order to really learn how to win, I need to feel the pain of my mistakes. If I’m not making mistakes, that means I’m probably not pushing myself hard enough to try something new. John Cage frames that thought about risk taking another way: “I can’t understand why people are frightened of new ideas. I’m frightened of the old ones.”

 

As you watch the bull market crowd cheer on 10 million iPhone5 sales this weekend but, at the same time, beg for more of what has not worked (Spain Bailouts), remember that in order to foster Apple like innovation, we can’t incubate an American culture of socializing losses.

 

Back to the Global Macro Grind

 

For me at least, last week’s pain was this week’s gain. With the US Dollar Index having its 1st up week in the last 7, the CRB Commodities Index has had its long-term TAIL spanked for a -4.4% wk-to-date move.

 

Within the parameters of our Multi-factor, Multi-duration Risk Management Model, we focus on 3 key durations of risk (TRADE, TREND, and TAIL). We define TAIL risk on a bi-partisan basis; it works both ways (up and down).

 

Across the Global Macro waterfront, here are some key TAIL duration risks (3 years or less) for long-term risk managers to consider:

  1. US Dollar Index long-term TAIL support = $78.11
  2. CRB Commodities Index long-term TAIL resistance = 309
  3. Oil (Brent) long-term TAIL resistance = $111.44/barrel
  4. US 10yr Treasury Yield long-term TAIL resistance = 1.91%
  5. EUR/USD long-term TAIL resistance = $1.31

The first and last TAIL risks are the mirrors of one another. One up, one down. That’s why I’ve been saying for a while now that if you get the US Dollar right, you get a lot of other things right. That’s where most multi-duration Correlation Risks associated with Policies To Inflate live.

 

The other thing that you need to get right is economic growth. Put another way, if you’ve had US and Global Growth right in 2012, you’ve had Treasury Bonds right (long). Despite all of the broken promises from Bernanke on delivering you the elixir of a centrally planned life, the bond market continues to make a series of higher-lows, as the 10yr yield’s TAIL resistance remains intact.

 

When you get both A) the biggest Ball Under Water Macro trade of the last decade (US Dollar) and B) US Growth (demand) right, you have a tremendous opportunity to get the holy grail of investing right – timing. Personally, I’ll always have room to improve on that.

 

But does Ben Bernanke? Who holds this man accountable? With a lack of progress, is America’s economy about to experience the most amount of pain yet? If we go back into the soup, what will he do next? Is he out of bullets?

 

If you know the answer to these critical long-term questions, tweet me.

 

In the meantime, here’s what you get for your Burning Bernanke Bucks:

  1. Unemployment: US Jobless Claims Rising on a 4-wk rolling average basis to 378,000 (382,000 reported for this wk)
  2. Inflation Expectations: 10yr Breakevens testing all-time highs immediately following Bernanke’s decision last Thursday
  3. Fund Flows: ex-ETFs, US Equity Fund Flows were negative (again) at -$1.9B wk-over-wk (outflows)

In other words, at 4.5 year highs in the US stock market, this is what multiple “Quantitative Easings” and countless “communication tools” about the pending Qe-upon-prior-Qe got us:

  1. Higher US unemployment than we had in 2009 (unemployment rate in January 2009 was 7.8%)
  2. The 3rd of 3 Greenspan/Bernanke Asset Bubbles (Commodities) that every money manager is dared to chase
  3. No trust and/or volume in what used to be America’s beacon of free-market capitalism (the US stock market)

Great job, dude.

 

Both Bush and Obama signed off on this guy. See the Chart of The Day (10yr Breakeven Inflation Expectations 2007-2012) and you tell me how much longer he can keep America’s Purchasing Power (US Dollar) down, Savings Rates on hard earned moneys at 0%, and show zero reflection on his academic dogma’s mistakes, never mind progress.

 

My immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500, are now $1756-1785, $108.03-111.44, $78.61-80.43, $1.29-1.31, 1.72-1.87%, and 1451-1474, respectively.

 

Best of luck out there today and enjoy your weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Pain & Progress - Chart of the Day

 

Pain & Progress - Virtual Portfolio


THE M3: SEPT MARKET SHARES; OCCUPANCY RATE; NO GRAND WALDO SALE

The Macau Metro Monitor, October 5, 2012

 

 

SANDS, GALAXY EVEN IN SECOND PLACE

According to Lusa sources, Galaxy and Sands China both had 18% share in September.  SJM had 27%, MPEL had 14%, WYNN had 13% and MGM remained steady at 10%. 

 

OCCUPANCY RATE AT 88% DURING THE GOLDEN WEEK HOLIDAY Macau Daily News

Vice‐president and secretary general of Macau Hoteliers & Innkeepers Association said that the average hotel occupancy rate stood at 88% on October 1, and the overall occupancy rate during the Golden Week is expected to be similar to that of last year.  Tourists were mainly from the Pearl River Delta region, and the number of individual tourists is expected to grow.  

 

GET NICE FAILS TO SELL GRAND WALDO Macau Business

Hong Kong-listed Get Nice Holdings Ltd failed to reach an agreement to sell its 65% stake in Grand Waldo.  The company told the Hong Kong Stock Exchange in July it was planning to sell the property to “a member of an international group engaged in the operation of a number of hotels, casinos and other entertainment facilities”.  On Wednesday, Get Nice announced that the deal fell through.

 




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