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Hurricanes And Gas Prices

In 2011, Hurricane Irene drew the attention of the media and meteorologists as it approached the Northeast coastline. Since very few hurricanes actually make it to the New England coastal area and make impact, it's important to pay attention to the effects these storms have when they do make landfall. When Irene hit New York City in  late August, gas prices shot up temporarily as people rushed to fill up their cars while they could. With Hurricane Sandy, history is likely to repeat itself.


Hurricanes And Gas Prices - irene


On track for new monthly record


With the 3rd and 4th week of October now in, we think October will squeak out a gain off of a tough comp and set a record for monthly GGR.  We are projecting flat to up 4% for the month.  Average daily table revenue actually increased 7% YoY the past two weeks.  We continue to believe that double digit YoY growth could resume in November and December for two reasons:  easier comparisons and the Beijing government handover.




The past two weeks were good ones for LVS.  Market share has gone from 19.7% to 20.8%, well above trend.  Assuming normal hold, we expect LVS to remain over 20% and slowly increase its share over the coming year up to 22-24%.  This is likely above consensus of around 20%.  Wynn has had an awful month with market share of only 9.5%, mostly due to low hold we're sure but we do expect the property to be a market share loser until Wynn Cotai opens.  MGM also struggled this month.  MPEL is pretty much in-line with the trend.



Sandy Markets

Client Talking Points

Sandy Markets

US Equity markets are closed today but the rest of the world continues to trade. And in Chicago, down at the Board of Trade floor, S&P 500 futures are moving down with commodities joining the party as the US dollar makes an upward move. What’s interesting about this hurricane here on the East Coast is that retailers will likely blame Sandy for any sort of miss on their next earnings report, whether it’s actually true or not. Some retailers will actually be impacted by the storm, but others have major fundamental issues that need to be addressed anyway. 

Chinese Cycles

China has been crashing for the last six-to-eight months and even longer than that if you use certain metrics. With Chinese stocks obliterated since March, a lot of people are coming out of the woodwork and declaring that “China has bottomed!” They will likely follow that statement up with something along the lines of how Chinese stocks are “cheap.” We have not bottomed and cheap can get a whole lot cheaper. Remember that. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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.


While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

Three for the Road


“EVERY retailer will blame #sandy, many genuinely impacted!” -@herbgreenberg


“Free advice is worth the price.” -Robert Half


Italy sells 8 billion euros of 6 month Treasury bills at 1.347% as borrowing costs fell, the lowest since March 28.

Early Look

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POSTPONED: What’s Next For Agriculture Prices? (Corn, Wheat, Soybeans and Protein)

Takeaway: Today's call has been postponed, a new date and time will be circulated once it has been scheduled.

The Hedgeye Macro Team and Restaurants Team will be hosting a Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends. 


Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices next year (or next 6 - 12 months) for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken

Current subscribers of our Macro and/or Restaurant verticals will receive notification with the new date and time of this call along with the dial-in information automatically, if you have any further questions please email .


Good's Background

Darrel Good has a comprehensive understanding of agricultural markets and their economic implications.

"There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Developed, along with two other faculty members at U of I, a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • Writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts
    • Evaluation of pricing performance of Illinois corn and soybean producers  


Due to the US markets and many offices being closed, we are postponing today's Expert Call on Ag Prices until a later date.



Howard Penney

Managing Director


Rory Green






European Banking Monitor: Risk Moves with Downgrade

Takeaway: US and EU bank swaps moved higher this week, reflecting concerns surrounding weak earnings and a Moody's downgrade of 5 Spanish regions.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


Key Takeaways:


* U.S. and EU bank swaps were wider last week as a spate of blue-chip U.S. companies disappointed on 3Q earnings and/or guidance. Meanwhile, Romney's momentum slowed and Fiscal Cliff concerns are again taking center stage. In Europe, French, Italian and Spanish bank swaps showed the most deterioration.


* Perennial laggards Spain, Italy and Portugal saw their swaps widen notably last week. However, the U.S., Japan, Germany and France all saw government default swaps tighten.


On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated to date.



If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





European Financials CDS Monitor – Europe took its cues from America. European bank swaps were wider for 34 out of 37 reference entities WoW. Out of the three swaps that tightened this week, two were German (Deutsche Bank AG & IKB Deutsche Industriebank AG) and one was Belgian (Dexia S.A.). Spanish banks were sharply wider, where the average reference entity widened by 9.2%. This is the result of Moody's downgrading 5 Spanish regions on Monday of last week. Italian and French bank default swaps were also notably wider week-over-week.


European Banking Monitor: Risk Moves with Downgrade - 111.banks


Euribor-OIS spread – The Euribor-OIS spread tightened by less than a basis point to 10.4 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: Risk Moves with Downgrade - 111. Euribor


ECB Liquidity Recourse to the Deposit Facility – ECB Liquidity Facility balances ticked lower again this past week. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  


European Banking Monitor: Risk Moves with Downgrade - 111. facility

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