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What Happens If #EOW Fails?

Dubai is ripping. Again.

 

The country’s stock index surged +8.5% today after Obama said the US would put a Syrian strike on hold if they surrender its chemical weapons. (Evidently, the United Arab Emirates likes the no-action in Syria call too.)

 

UAE is up over 55% year-to-date now. Can you begin to imagine what happens if the world doesn't come to an end? Lots to consider.

 

Because despite Nasdaq up over 20% YTD, every downtick in US growth stocks still has everyone and their sister on the edge of their seats worried about it.

 

#EOW?

What Happens If #EOW Fails? - Dubai   QQQ

 

(Editor's note: This is a brief excerpt from Hedgeye CEO Keith McCullough's morning research. For more information on how you can begin receiving our research, please click here.)


MCD: U.S. SALES DISAPPOINT

MCD reported August global same-store sales growth of +1.9% versus +3.7% in 2012.  However, the two-year trend ticked up 245 bps sequentially.

 

The U.S. and Europe regions showed same-store sales growth of +0.2% and +3.3%, respectively.  The U.S. missed consensus expectations by 60 bps, while Europe beat by 340 bps.  The two-year trends accelerated sequentially to +1.6% in the U.S. and +3.2% in Europe.  The APMEA region reported same-store sales growth of -0.5% versus +5.7% a year ago, beating consensus expectations by 40 bps.  The two-year trend accelerated sequentially to +2.6%.

 

Overall, August sales were slightly better than we had expected—but not enough to change our fundamental view.  Although Global sales were better than estimates, U.S. sales disappointed and remain a point of concern for us.  MCD continues to refer to the U.S. environment as “persistently challenging,” which, interestingly enough mirrors the chatter we have been hearing from a majority of the larger casual dining companies more so than that of other QSRs.

 

Despite a flurry of recent initiatives regarding new items and menu changes propelling the stock higher, we remain comfortable with our thesis.  In fact, we’ve had a rather bearish take on this news, as we believe these initiatives could add to the operational complexities of McDonald’s stores.  Please see our recent note “MCD: A Pending Mighty Disaster” for more thoughts on this topic.

 

We continue to believe there is a disconnect between investors’ expectations and the company’s fundamentals.  MCD will present tomorrow morning at the Goldman Sachs Global Retailing Conference.  We’ll post on anything incremental following the presentation.

 

 

 

MCD: U.S. SALES DISAPPOINT - final

 

MCD: U.S. SALES DISAPPOINT - MCD Sales Note

 

 

 

Howard Penney

Managing Director


Morning Reads on Our Radar Screen

Takeaway: A quick look at stories on Hedgeye's radar screen.

Keith McCullough – CEO

Obama 'could pause Syria attack plans' (via BBC)

WTI Falls a Second Day on Sign of Diplomatic End to Syria Crisis (via Bloomberg)

Dubai Index Rallies Most Since 2009 on Syria Strike Delay (via Bloomberg)

Japan Readies Stimulus to Cushion Blow of Sales-Tax Increase (via Bloomberg)

China Warns of Jail for Viral Posts Deemed Libel (via NYT)

 

Morning Reads on Our Radar Screen - ob5

 

Daryl Jones – Macro

Young analyst draws Wall Street ire taking on Kinder Morgan (via Reuters)

 

Josh Steiner – Financials

BofA Cuts Jobs as Mortgage Slump Traps JPMorgan, Wells Fargo (via Bloomberg)

 

Jonathan Casteleyn – Financials

France to Submit Syria Chemical Weapons Proposal to UN (JC note: If a settlement is negotiated over Syria...the markets should unwind that big 3% drop in the S&P 500 in August … via Bloomberg)

 

Brian McGough – Retail

Clog Maker Crocs Drops After Cutting Third-Quarter Forecast (BM note: Can $CROX do anything right? Just goes to show how a powerfully fading trend in a brand's core market can decimate its financials. via Bloomberg)

 

Howard Penney – Restaurants

Olive Garden Thinks Tapas Are Cool, Proves Tapas Are Not Cool (via Atlantic Wire)

McDonald’s Selling Steak for Breakfast in Menu Overhaul (via BBW)

Papa Murphy’s debuts new restaurant design (via NRN)

 

 


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The M3: HO AND NAGACORP TO BUILD IN RUSSIA; SANDS, MGM, SJM JOCKEY FOR JAPAN; SJM TRIPLES IN COTAI

THE MACAU METRO MONITOR, SEPTEMBER 10, 2013

 

 

RUSSIA SIGNS GAMING DEAL WITH LAWRENCE HO macaubusiness.com

Lawrence Ho and his Russian partner, First Gambling Co of the East, received approval to develop a US$700MM casino resort in the Primorye zone located in the Far East region of Russia. Ho's partner has invested about US$70MM into the project.  Tourism officials expect between 8-12 million, primarily Asian visitors to the region annually.

 

SANDS AND MGM SCOUT CASINO SITES IN JAPAN AS TOKYO GETS OLYMPICS macaudailytimes.com.mo

LVS and MGM are scouting sites for casino development in Japan as confidence of gaming legalization being passed received a boost with Japan's selection to host the 2020 Olympics. Speculation is that the country's Olympic 

selection makes the development of casino resorts more attractive, as they will enhance existing entertainment and accommodation offerings, create jobs and draw about US$10BN in sales to bolster the economy.

 

Other operators including, Caesars and MELCO, have also shown interest in developing a casino resort in Japan should gaming become legalized.  Potential Japanese development partners include Mitsui & Co., Mitsubishi Corp., Itochu Corp, Sega Sammy Holdings Inc. and Konami Corp.

 

 

SJM ALSO JOCKEYING FOR JAPANESE LICENSE macaubusiness.com

SJM chief executive Ambrose So Shu Fai told Bloomberg that while the company surveyed sites for casinos on the Penghu and Kinmen islands, their preference is for developing a casino-resort in Japan – preferably in Osaka – if gambling is liberalised there later this year.

 

SJM TO BUY STAKE IN PLOT TO TRIPLE MACAU CASINO RESORT SIZE macaudailytimes.com.mo

SJM is finalizing the terms of the the purchase of a stake in a neighboring plot which will enable the operator to triple the size of its planned casino development on Cotai. “By combining the two pieces of land, we’ll have a bigger site to develop a full-fledged resort,” So said. 

 

 

TOKYO FINANCIAL SERVICES FIRM INVESTS IN PONTE 16 macaubusiness.com

SBI Macau, a financial services firm listed in Tokyo, exercised a five-year-old option paying HK$130MM (US$16.8MM) to take an indirect stake in casino investor Success Universe Group Ltd, which controls 49% of the Ponte 16 casino-resort. Last week, Success Universe announced that it had repurchased HK$219MM of stock from pachinko hall operator Maruhan Corp. 

 

CAMBODIA'S NAGACORP PLANS CASINO-RESORT IN RUSSIA macaubusiness.com

Nagacorp plans to invest US$350MM to develop a casino in Primorye located in Russia's Far East region to open sometime after 2018.  The casino resort would encompass at least 1,000 hotel rooms, 100 gaming tables, and over 500 slots. 

 

PROSPECTIVE HENGUIN BUYERS ENTER A ZONE OF UNCERTAINTY www.scmp.com

Land prices in Henguin have soared since plans were unveiled to transform the island into a cultural and tourism center. Sea of Dreams, the first development offered for sale, will have 1,800 units ranging from 87 to 220 square meters targeting overseas buyers as Henguin is not covered by the central government's home purchase restrictions.  First batch sales are expected to fetch HK$31,400 per square meter.

 

GOVT SETS DEADLINE FOR ENDING RAILYWAY DISPUTE macaubusiness.com

Secretary for Transport and Public Works Lau Si Io has given a contractor four weeks to resume work on the Light Rapid Transit railway on Taipa. Work on a depot and transport hub near Macau Jockey Club came to a standstill due to a dispute between Transportation Infrastructure Office and its contractor Top Builders Group Ltd.

 

'HIDDEN-FEE' PACKAGE TOURS BANNED FROM NEXT MONTH macaubusiness.com

Starting October 1, 2013, China will ban "zero-fee" package tours to Macau, prohibiting travel agents from arranging the tours that force tourists to shop at designated shopping centers. The ban should lead to a higher quality of visitor according to Macau Brand Enterprise Chamber of Commerce president Choi Kai Weng.

 

GUANGDONG STUDYING A FREE-TRADE ZONE TO INCLUDE HONG KONG AND MACAU www.scmp.com

Guangdong authorities are studying a plan to create a free-trade zone covering parts of the province, Hong Kong and Macau. The discussions, which are still in their infancy, proposed plans to bundle the new zone with three existing special development zones in Guangdong. Those zones - earmarked as pilot free-trade zones - are Qianhai in Shenzhen, Hengqin Island off Zhuhai , and Nansha in Guangzhou. If formed, the new zone would cover more than 1,000 square kilometres, making it much bigger than Shanghai's 28.78 sq km zone.


Is Kinder Morgan Maintaining its Stock Prices instead of its Assets? (KMI, KMI/WS, KMP, KMR, EPB)

FULL REPORT

 

Conference Call to discuss is TODAY, 9/10/2013 at 11AM EST.

 

Participant Dialing Instructions:

Toll Free Number:

Direct Dial Number:

Conference Code: 426945# 

Slide Deck for Call: SLIDES

 

Send any and all questions to ; they will be asked anonymously.

 

Kevin Kaiser 

Senior Analyst 


End of the World? Please

Client Talking Points

OIL

Well, they finally snapped an immediate-term TRADE momentum line that the machines are going to have to chase ($115.19 Brent is my signal line there). With crude futures/options net long contracts at all-time highs, will Oil make another lower-high versus its 2008 Bernanke Bubble peak? Consumer Discretionary stocks could be discounting that. The XLY is up +24.7% year-to-date.

MIDDLE EAST

Boom. Up +7.4% this morning. Evidently the United Arab Emirates stock market likes the no-action in Syria call too. Dubai is ripping again. Red hot up over 45% year-to-date now. Can you begin to imagine what happens if the world doesn't come to an end this month? Lots to consider right? #EOW

ASIA

One of the best 2-day moves of the year in Asian Equities. And it was broad based. Even the ugly markets that were imploding like India and Indonesia are both up over 3% this morning. Meanwhile, the Yen down -0.5% versus US Dollar drove the Nikkei up another +1.5%. It's up +7.5% for September and +39.5% YTD); China ripped an overbought signal on stabilized econ data

Asset Allocation

CASH 26% US EQUITIES 26%
INTL EQUITIES 23% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 25%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Does No-Action in Syria matter? United Arab Emirates stock market is +7.4% this morning

@KeithMcCullough

QUOTE OF THE DAY

"Greater than the tread of mighty armies is an idea whose time has come." - Victor Hugo

STAT OF THE DAY

Thanks to a sharp increase in home prices, 2.5 million more US mortgage borrowers are no longer underwater. By the end of June, 7.1 million, or 14.5%, of mortgage borrowers remained underwater on their loans compared with 9.6 million, or 19.7%, at the end of the first quarter. In late 2009, during the worst of the housing market's meltdown, 26% of all borrowers owed more on their mortgages than they were worth.  (CoreLogic)


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 80.64%
  • SHORT SIGNALS 78.57%
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