Takeaway: Despite still difficult market conditions, ASCA met our and consensus expectations. Management continues to deliver strong margins.

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




  • IN-LINE:  Despite still difficult market conditions, ASCA met our and consensus expectations.  Management continues to deliver strong margins.


  • SAME:  Road disruption on main street affected the property for most of the quarter and there is now preparatory work for the Interstate 70 bridge project.
  • PREVIOUSLY:  "We also have had some road disruption in the St. Charles area. They have been repaving project on Main Street, which is one of the main roads running right in front of our property, and that will be finished in mid-September and also the state is doing some preparatory work for the Interstate 70 bridge project that will begin later this year in earnest."


  • WORSE:  Low table hold and increased promotional spending (+600k YoY) due to a highly competitive market drove down results.  But ASCA said that promotional campaign has since been dialed back. 
  • PREVIOUSLY:  "We have found ways to profitably grab market share in the Northwest Indiana market and are exhibiting tight cost controls not only at that property but company wide."


  • SAME:  Construction began on July 20.  Target spend of $560-580 million remains unchanged.  ASCA has the flexibility to add a 2nd hotel if market conditions warrant it.  Following an initial ramp-up period, the project is expected to generate a 15% ROI.  ASCA will fund the project through a combination of cash from operations and borrowings under our revolving credit facility.  The resort is expected to open 3Q 2014. 
    • We now having to include the purchase price of Creative, we expect to spend about $560 million to $580 million excluding capitalized interest and pre-opening expenses."
      • "The budget factors that have gone into this decision include rightsizing some of the food and beverage outlets with the expectation that at some point, a second hotel tower will be warranted and developed at the property."
      • "We don't expect much borrowing under the revolver in 2012, as we believe we can fund much of the CapEx for Lake Charles out of free cash flow. We anticipate the full project funding will be split about 50/50 between free cash flow and revolver borrowing."


  • SAME:  ASCA does not expect the final decision on Massachusetts to be made until early 2014.
  • PREVIOUSLY:  "So my expectation is it'll probably still be late 2013 at the earliest – probably, the time that they would make license selections. It could stretch into the first half of 2014."


Macau: Slowing But Still Strong

Takeaway: Gaming revenues in Macau should reach record levels in October.

With October just about to go in the books, Macau’s gaming revenues for the month should squeak out a gain compared to some tough comps and should reach record levels, according to Hedgeye’s Gaming, Lodging and Leisure research team.


The team also says it still believes that double-digit year-on-year growth could resume in November and December for two key reasons: easier comparisons and the Beijing government handover.  


Below is a chart that shows average daily table revenue for the last few months.


Macau: Slowing But Still Strong - macauchart

Building Momentum?

Takeaway: The NAHB Remodeling Index shows a flat reading, but is at its highest level in seven years.

The NAHB Remodeling Index moved to a level of 50 last quarter, which indicates a flat reading. The index, which tracks the number of contractors who are reporting that remodeling activity is high or lower than the previous quarter, is at its highest level since the third quarter of 2005. A reading of 50 shows equal  numbers of respondents reporting activity higher or lower compared to the previous quarter. Below is a chart of the index since its inception in 2003.


Building Momentum? - Josh

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


Client Talking Points


It’s certainly a difficult time for millions of people impacted by the devastation of Hurricane Sandy. Our CEO, Keith McCullough, hopes for health and safety to the many in the dark on the East Coast. As Keith says, “Hope isn’t a risk management process.” He is really at a loss for words, so we wanted to offer you a few risk management lines.

  • US Dollar Index immediate-term TRADE breakout line $79.57 (long-term TAIL support=$78.11)
  • SP500 TRADE (1431) and TREND (1419) resistance
  • CRB Commodities Index TRADE (305) and TAIL (312) resistance


It’s the last day of October, which means it’s not only Halloween, but something potentially scarier -- the year-end for many mutual funds. Futures are indicating that we’re going to get a lift thanks to these month-end markups. That doesn’t change the big picture – global growth and corporate earnings both are slowing.


Many are saying that China’s stock market has bottomed. As we say, bottoms are processes, not points and we’re still bearish on a TRADE, TREND and TAIL basis for the Shanghai market. Sure, Chinese stocks rallied off two week lows to close up marginally (0.3%), but China hasn’t bottomed.


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


“All people begging for banker and #oldwall bailouts when people in the dark need them, #reflect.” -@KeithMcCullough


“If the world was perfect, it wouldn’t be.” – Yogi Berra



8 million, the number of American homes without power after Hurrucane Sandy

Investigating Truth

This note was originally published at 8am on October 17, 2012 for Hedgeye subscribers.

“The first duty of a man is the seeking after and investigation of truth.”



Hail Mary end-zone finale to Packers/Seahawks? Last night’s end to the Presidential Debate was not, but Candy Crowley played the role of an NFL replacement ref, turning what I had scored as a tie into a late Obama win.


What is the truth in America? Was the moderator “fact-checking” Romney into the boards at the most critical point of the debate fair? Does it matter? Like many journalists in the manic media, Candy knows where her bread is buttered. Maintaining access to the party in power = priority #1. Sadly, for the country, that included her on-the-fly interpretation of Romney vs Obama truth.


Not surprisingly, the stock, currency, and commodity markets front-ran the momentum swing of the debate. It was a marginal win for Obama, but what happens on the margin in Macro matters most. What’s good (on the margin) for Obama, is bad for the US Dollar. It has been since he took office. Partisan Republicans may disagree with me on last night’s score; the market doesn’t.


Back to the Global Macro Grind


With the SP500 inverse correlation to the US Dollar of -0.95 right now, the truth is that if you get the immediate-term moves in the US Dollar right, you’ll get a lot of other things right. That’s the only reason why I feel compelled to score political momentum right now.


Perversely (even though I think Gold is in a long-term bubble) that’s why I bought Gold in front of last night’s debate. Obama up = Dollar down = Gold Up. Bubbles can remain bubbles for as long as causality (policies to debauch the Dollar) remains intact.


As I investigate other truths this morning, here are some big ones:


1.   #EarningsSlowing – this is our top Hedgeye Global Macro Theme for Q4 2012 (send an email if you want the slide-deck; I did meetings all day in Boston yesterday and we came away with plenty more long-cycle ideas to discuss on peak US Corporate margins). #EarningsSlowing remains very relevant this morning with both Intel (INTC) and IBM reiterating the same.


2.   Tech Stocks (XLK) – if you didn’t know global growth slowing would translate into +/- GDP businesses (semis, hardware, etc.) seeing top and bottom line slowdowns, now you know. Tech is down -2.4% for October.


3.   The sun rises in the East


While Obama, Geithner, and Bernanke continue to believe that they can “smooth” the economic cycle (Keynesian Economics 101), points #1 and #2 are now colliding with point #3 (gravity). The stock market hasn’t been the economy in 2012 but, eventually, they’ll collide.


What’s the market’s truth (last price) telling you this morning?

  1. Lower-highs in stocks (globally)
  2. Higher-lows in bonds (globally)
  3. EUR/USD testing its TAIL risk line of resistance

On that last point, I can’t overstate how important the next currency move is from here.


A)     IF the US Dollar snaps its TAIL line of support ($78.11)

B)      AND the Euro (vs USD) breaks out above its TAIL risk line of resistance ($1.31)

C)      THEN the market is probably telling you that Obama is going to win the Election


Four more years of the same (Big Government Interventions, Spending, and Regulation/Rule-Making on-the-fly) might actually be fantastic for the stock market – but it will continue to crush both real (inflation adjusted) economic growth, hiring, and confidence. I wonder what the 47% think about that?


Collectively, the American people aren’t as dumb as some of the media’s partisans. I highly doubt they’ll trust the stock market anymore today than they didn’t yesterday (stocks at 5yr highs = Equity Fund outflows and Financial Media ratings at YTD lows).


If you didn’t know Candy’s role in the debate was as politically rigged as Bernanke’s has been at the Fed, now you know that too. The truth about America 2.0: your un-elected and un-accountable pundits and politicians are running the gong-show.


My immediate-term risk ranges of support and resistance for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, Russell2000, and the SP500 are now $1734-1766, $112.60-115.26, $79.08-80.07, $1.29-1.31, 1.64-1.76%, 813-842, and 1419-1469, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Investigating Truth - Chart of the Day


Investigating Truth - Virtual Portfolio

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