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In preparation for ISLE's F2Q 2013 earnings release Thursday, we’ve put together the recent pertinent forward looking company commentary.



Isle of Capri Casinos, Inc. Opens Isle Casino Cape Girardeau (10/31)




  • "While we've been able to mitigate the economic issues at most of the properties in the portfolio through our continuing cost containment measures, our results in Pompano and Kansas City were impacted by an increasing competitive environment."
  • "We also continue to experience construction disruption in Vicksburg and Lake Charles as we focus on asset renewal, and by road construction in Black Hawk."
  • "We received good news from the Supreme Court in Pennsylvania last week and are finally looking forward to starting construction of our Lady Luck property at the Nemacolin Woodlands Resort in Western Pennsylvania. At the point that we're able to do so, it will be 9 to 12 months before our flagship Lady Luck welcomes our first guests."
  • "Shortly after the end of the quarter, we completed the refinancing of the 7% subordinated notes which were due in 2014 with a new subordinated debt issue due 2020. Our nearest maturity is now 2016. Related to this refinancing, we will incur charges of approximately $3 million in the second quarter on the underwriting discounts and various fees related to the financing."
  • "Interest expense for the balance of the year is now expected to be approximately $66 million."
  • [Midwest] "I can't specifically say we're seeing it related to the drought; we have seen a pullback just like the rest of the group has, probably since the end of the first calendar quarter. So I can't pinpoint anything specifically to the drought or farming."
    • "You don't know how many people sold forward. And then the other thing is, to the extent that there is yield in the fields, the corn is at pretty live prices right now. So how all that balances out, I think it's really going to be into the fall before we know the full impact."
  • [Florida] "There is promotional war right now they started out when they opened with two to three promotional mail offers a month, now they're up to 10 to 12. So they are up over 300% just with their mailing to their customers and that's what we're facing."
  • [Depreciation guidance of $76-78MM for FY 2013] "We're still on target for what we expected for the 12 months."
  • [Annual corporate cost run rate] "$40 million (includes $6 million of stock comp)."
  • [$50 million maintenance capex guidance]  "We've been running in the $40 million to $50 million range in any given year. I think that that's probably a pretty good number."
    • "We're comfortable with where the slot floor is now. We're up to speed at all of our properties or most of our properties where the slot floor needs to be."
  • [Lake Charles] "But we do expect the margins to increase. We started the fan club in the quarter, we have some additional expenses there with some comp reserves that we left because they are such heavy table play in that market that we made a decision to leave some comp residual in their accounts. So we're tweaking all of that along with our marketing spend and our labor to find to your point where we really need to be post-Crown and where that labor and marketing needs to settle in."
  • "I think the issue in Mississippi right now is really being driven by Lula. We are continuing to modify the way we act at the property. The way we market the property down there and operate to kind of find the right mix on this volume, but you know, we really just have seen what I believe now
    appears to be kind of a permanent diminution in that market."
  • "In Vicksburg, we're under some pretty heavy construction disruption right now with – redoing our casino floor and some of the couple of the restaurant products there.  The re-branding there that's getting done and the renovations have had a pretty good impact on the property in the quarter. And that should start to subside as this stuff finishes up later this year."
  • [New Black Hawk competitor] "We've had a great communication with them in terms of just moving forward as our neighbor. We installed a new sign. We got their permission to put up a big truck in middle of the road to kind of impact what they did for a week. Everything we've done with them has been positive, but we haven't seen any promotional challenges or anything that would cause us any concern."
  • [Black Hawk improving margins] "I think we're seeing good results from the hotel rooms that we've been able to refurbish. And so I think we've been up against some pressure with the rest of the market. Instead of being the first stop with the highway construction, we became the last stop as traffic got rerouted. And I think our marketing promotions have been developed in such a way that they take into account people that show up rather than a sunk cost for promotion. So, I think we've tailored a lot of what we did this quarter in a more efficient way, better yielding in the hotel, better food product, able to raise some prices in our buffet and things like that. So, I think we've been able to overcome that along with a tax increase July 1."

Return Of Rebar

The price of spot Chinese steel rebar has undergone a sharp drop in price since August of 2011 and continues to head lower month-after-month. While the price bounced back in August of this year, it was a dead cat bounce and quickly sold off. The price of rebar once correlated tightly with Brent crude oil until the Federal Reserve began quantitative easing which inflated the price of oil but not Chinese steel. Chinese steel is not a financialized market like oil markets have become, so investors can’t pile into Chinese steel as an “inflation hedge.” For the correlation to return, Brent crude would have to come down significantly and rebar would have to increase in price to some degree.


Return Of Rebar - REBAR

It Only Takes One

Client Talking Points

One Catalyst

It's easy to look at a major even that's occurred during a trading day and blame that for whatever direction the market decided to go. For instance, many people yesterday thought Harry Reid's comments sunk the market. But in reality, there's more going on behind the scenes. Growth continues to slow, earnings are under pressure and we face a political bubble that's quite unique in regards to the fiscal cliff. All these things (and many others we fail to mention here) all factor in to trading and markets. It's easy to pick a target and lay the blame on it, but it's pointless in ways.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

After a long downward slide, TCB has finally turned the corner. The margin has stabilized after the balance sheet restructuring. Loans are growing thanks to the equipment finance business. Non-interest income is more likely to go up than down going forward, a reversal from the past 18 months. Credit quality has a tailwind from a distressed housing recovery in TCB’s core markets: Minneapolis, Detroit and Chicago. On top of this, the CEO, Bill Cooper, is one of the oldest regional bank CEOs, which raises the probability that the bank will be sold. Expectations are bombed out at this point, so we think it’s time to move from bearish to bullish on TCB.


There is improving visibility on 20%+ EPS growth with P/E of only 11x with better content leading to market share gains. New orders from Canada and IL should be a catalyst. Additionally, many people in the investment community are out in Las Vegas at the annual slot show (G2E) and should hear upbeat presentations by management.


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


“Wells notice to Stevie Cohen…imminent wrist slap" -@ZH_Crown


“What we call 'Progress' is the exchange of one nuisance for another nuisance.” -Havelock Ellis


GETCO offers to buy Knight Capital (KCG) for $3.50 a share.

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China Surprise


Hedgeye CEO Keith McCullough appeared on CNBC's Fast Money last night and did a web extra clip discussing what lies ahead for the commodity markets and China. Keith noted that there are three big factors that come into play: China, copper and bond yields. Global growth continues to slow and investors who believed that China had bottomed got smoked when they didn't realize that "cheap stocks" can always get cheaper.

Watch Keith's full breakdown on the markets in the clip posted above.

Taxing Profits

“The fuel that makes people work is profit.”

-Tom Girdler


If you want to know one of the critical business leadership differences between Obama and FDR, I highly recommend reading the book I just finished reviewing, Freedom’s Forge, “How American Business Produced Victory in WWII”, by Arthur Herman.


The aforementioned quote comes from an excellent chapter (page 244) near the end of the book titled “Victory Is Our Business.” Being a businessman, I absolutely loved it.  Empowering the best and brightest of this country to lead is the answer, not Congress.


Tom Girdler was a steel man. He was tough; he was an innovator; and he knew how to get things done. Bill Knudsen and Henry Kaiser (key FDR businessmen) were doers leading from the front too. These guys would put Harry Reid and Johnny Boehner to shame.


Back to the Global Macro Grind


If you want to tax me and my profits, that’s fine – I’ll just have less money to hire with. So just know that. I am not Warren Buffett. Most of us aren’t. Using him as a beacon for making the USA more like France is a joke. It’s elitist too.


The US stock market took an intraday nose dive yesterday after Harry Reid spoke about whatever he was trying to say. Today’s market “catalyst” is Obama “speaking with business leaders.” A market that hangs on the government’s next move is no “free” market. Yes They Can do this – and yes, they (Bush and Obama, Republicans and Democrat politicians) built this.


This is called a bubble in US Politics. So, when you are forced to live in a bubble of Big Government Intervention (government has been taxing and slowing growth in this country for a decade), what do you do?

  1. You buy Bonds (10yr UST Yield falls again this morning to 1.62%)
  2. You hold a large Cash position (our asset allocation to Cash = 58%)
  3. You pray that someone issues you more cash now (special dividend)

Prayer, of course, is not a risk management process for your portfolio – but if God is listening, he can provide you some perks. Check out these “special dividends” from the likes of Las Vegas Sands (LVS) and Costco (COST) in the last 48 hours. Special.


Now, if you aren’t long Costco this morning, you aren’t getting anything special (US futures down 5). If you are Costco, you are explicitly telling your investors that what you see coming down the pike isn’t special either. Taxing Profits changes behavior.


In other globally interconnected news:

  1. Chinese stocks move to within a hair of crash mode (-19.9% since March)
  2. Russian stocks move back into crash mode (-20.1% since March)
  3. Brazilians stocks are only down -17.6% since March (not quite crashing yet)

Perma Bull marketing firms used to call the B, R, and C (Brazil, Russia, China) a big component of the “BRICs.” Remember those? Those were the big growth engines of the world, until Bernanke started taxing their profits.


There are two big taxes that I, the businessman, can see, real fast:

  1. Tax Rate
  2. Rising Expenses

In the people business (provided that you give your employees great benefits like healthcare, dental, etc.), costs to run a small business in America are going up. If you work for the US Political Bubble and don’t get that, try it with your own money.


In Global Cycle businesses (transports, mining, etc.), when Bernanke devalues the currency in which your cost of goods sold (food, energy, etc.) are primarily priced, your margins are going down.


Since long-term commodity, healthcare, etc. inflation is sticky, there’s deleverage to your profits when global growth slows (sales slow faster than your costs). Then businesses are forced to right size their cost structure (i.e. fire people).


And on and on the profit cycle goes…


Or so it should. This is the fulcrum fault line in Keynesian Economic (Central Planning) assumptions – these people that both Bush and Obama empowered aren’t business people. They are academics who fundamentally believe they can “smooth” the profit cycle.


In March 2012, when we started making the global #GrowthSlowing call, this is why we got so loud about it. Yes, Bernanke was able to suspend the pricing of this economic gravity for 3 months. But now we are all hostage to it, again.


On Qe3, Emerson said that “for every benefit you receive, a tax is levied.” On taxing under the veil of class warfare, Andrew Jackson reminded Americans that “the wisdom of man never yet contrived a system of taxation that would operate with perfect equality.”


I’m here to remind you that a tax is a tax – and it’s up to you to figure out who is in your back pocket before it’s too late.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $107.52-110.38, $3.43-3.56, $80.06-80.63, $1.28-1.30, 1.55-1.68%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Taxing Profits - 44. tax


Taxing Profits - 44.vp

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