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Average table revenues slowed dramatically this past week, averaging only HK$775MM per day, still up 1% YoY.  Our full-month projection for April is now for GGR of HK$25.5-26.5 billion, which represents YoY growth of +5-9%, down from our previous estimate of +11-15%.  We heard that hold may have been low this past week.


In terms of market share, MPEL and Sands China continue to track above recent trend.  Despite the softness this past week, we remain positive on MPEL, given its likely strong Q1 earnings report, continued market share gains, and relatively low valuation. 






Friday’s earnings release from McDonald’s confirms our thesis that the magnitude of acceleration in same-restaurant sales that the Street is expecting in 2013 is unlikely to materialize. 


History Repeating Itself?


Knowing that, in late 2003, the aggressive push for positive comparable sales growth via promotion of the dollar menu did not fix the underlying problems of the business, it seems clear that the current value message is merely a stop-gap measure for the recent slide in comparable sales growth. 2014 earnings estimates may be under threat if management is slow to respond to changes in the marketplace and unwilling to correct past mistakes.  Part of a sustainable improvement in McDonald’s top line growth will be achieved through driving efficiency in the stores.  Of late, sales initiatives seem to be adding to the complexity of the menu and dragging on store-level efficiency.


Addressing these issues will require investment and time and will also likely negatively impact operating margins and EPS over the near-term.  The chart below implies that there is a disconnect between earnings expectations and the stock price. Taking the long-term perspective on same-restaurant sales into account, it seems unlikely that the earnings multiple can continue to expand from here.


MCD THESIS INTACT - mcd px vs eps





The last earnings call offered little in terms of incremental initiatives that the company is  implementing to improve upon the 1Q13 global same-store sales number of -1%.  The “three global priorities” of optimizing the menu, modernizing the customer experience, and broadening accessibility to “Brand McDonald’s” around the world comprise a message that is stale and, lately, ineffectual.



United States


1Q13 same-store sales declined -1.2% and operating income declined -3% but management stated that improved trends over the balance of the year will be driven by:

  1. Premium McWraps: with April same store sales still negative, the impact may not be sufficient
  2. Egg White Delight: according to GrubGrade 55% of consumer surveyed are NOT excited to try this product
  3. Blueberry Pomegranate Smoothies (imported from Canada)

MCD THESIS INTACT - mcd us sss





In 1Q13, same store sales were down 1.1 % and operating income was up 1% (in constant currencies).  The countries that were weak in 2012 (Germany and France) continue to remain soft in 2013.  The two countries that were strong in 2012 (U.K. and Russia) outperformed 1Q13, but their trends are slowing.  Further complicating the problem, the decline in inflation in Russia is limiting the company’s pricing power.  Importantly, the U.K. and Russia represent over half of the Europe division’s company-operated margin dollars.  


Like the USA, Europe is also focused on value, but at the same time trying to feature premium products and promotions that try to get the consumer to trade-up and increase the average check. This strategy is not well suited for the current challenging consumer environment throughout most of Europe.


MCD THESIS INTACT - mcd europe sss





While comparable sales were down 3.3 % for the quarter, operating income increased 2 % in constant currencies. Management’s comments highlighted the following:

  1. Continued emphasis on our value platforms
  2. Accelerating growth at breakfast (this requires changing consumer behavior)
  3. Enhancing service and convenience initiatives

In Australia (like Europe), management is trying to balance value initiatives with promotional activities that encourage trade-up. Japan's performance for the quarter was negatively impacted by the difficult economy and management is still trying to evaluate and adjust its plans to complement existing value initiatives. China saw same-store sales of -4.6 % in 1Q13 partly due to the residual effects of consumer sensitivity around the supply chain issue and the recent bird flu is also slowing a potential recovery.


MCD THESIS INTACT - mcd apmea sss



Global Margin Pressure


Margin pressure will likely persist in 2013. In 1Q13 margins declined around the world for McDonald’s and there is no end in sight.  The company specifically said they are in a market share battle and they intend to win, which suggests further margin pressure even if sales improve in 2H13.  As we have said before, we do not see a sales recovery for MCD in 2H13.



Howard Penney

Managing Director


Rory Green

Senior Analyst



JAPAN: Bend Or Break?

Nearly three weeks ago, the Bank of Japan announced it would be injecting $1.4 trillion into the economy as a stimulus measure. Stocks rallied on the news while the Japanese Yen sold off hard. Since the beginning of 2013, we've recommended shorting the Yen. Central bank intervention is commonplace these days and the effect it has on the currency and stock markets is quite powerful. The Nikkei 225, Japan's version of the S&P 500, made new year-to-date highs today, touching 13,568, up +1.9%. That puts the index at a whopping +31.5% year-to-date, making it the second best performing stock market in the world (Venezuela is #1, up +37% year-to-date). 


The chart below shows the performance of the USD/JPY (US Dollar relative to the Japanese Yen) currency cross and as you can see, the dollar has gained significantly against the Yen over the last year.


JAPAN: Bend Or Break? - USDJPY cross

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Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Bearish TRADE: SP500 Levels, Refreshed

Takeaway: On the way down to 1515-11529 support, I can then cover shorts and start to take up my gross long position again.



On our immediate-term TRADE duration, the SP500 just failed at TRADE resistance (1557) again. On our intermediate-term TREND duration, the market still looks fine (1515 TREND support). A market that’s in this position has what we call Duration Mismatch.


What to do? For me the answer had to be learned over the years – but now the playbook is pretty simple: A) take down gross exposure and B) make sure my net is tight. On the way down to 1 support, I can then cover shorts and start to take up my gross long position again.


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


  1. Immediate-term TRADE resistance = 1557
  2. Immediate-term TRADE support = 1529
  3. Intermediate-term TREND support = 1515


Being bullish at every minute of every day is no way to live. Neither is disrespecting my signal. So I’ll let that bearish immediate-term TRADE signal override what’s becoming an even more bullish intermediate-term TREND research view (Dollar Up, Down Oil).




Keith R. McCullough
Chief Executive Officer


Bearish TRADE: SP500 Levels, Refreshed - SPX

COPPER: Sliding Lower

While gold was at the epicenter of media attention during its multi-percentage point decline last week, copper is the metal everyone should really be paying attention to. After falling -6.1% last week, copper is down -1.2% this morning to $3.11/lb. That brings the damage on copper to -15% year-to-date, as you can see in the chart below that shows the de facto standard futures contract for copper: London Metals Exchange High Grade 3-Month Copper.


Copper and other commodities will continue to decline in price as the great commodity bubble created by Federal Reserve Chairman Ben Bernanke and his monetary policies deflates. We remain bearish on commodities and still like our Freeport-McMoRan Copper & Gold (FCX) short. The stock is already down -1.7% this morning and has declined -21.1% over the last three months.


COPPER: Sliding Lower - YTD copper

European Banking Monitor: Benign

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:


European sovereign swaps were largely uneventful last week with the only notable move coming from Portugal, tightening by 17 bps, and the Euribor-OIS spread was essentially unchanged at 13 bps last week.




European Financial CDS - European bank swaps were modestly wider last week. Societe Generale widened by 14 bps to 202 bps, while Banco Popolare widened 38 bps to 592 bps.


European Banking Monitor: Benign - tt. banks


Sovereign CDS – European sovereign swaps were largely uneventful last week with the only notable move coming from Portugal, tightening by 17 bps. 


European Banking Monitor: Benign - tt. sov 1


European Banking Monitor: Benign - tt.  sov 2


Euribor-OIS Spread – The Euribor-OIS spread was essentially unchanged at 13 bps last week. 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: Benign - tt. euribor


ECB Liquidity Recourse to the Deposit Facility – Deposits were lower by 4.8bn Euros last 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: Benign - tt. facility



Matthew Hedrick

Senior Analyst


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.51%
  • SHORT SIGNALS 78.32%