Regional markets looked better in August but that was predictable.


  • Mature regional gaming market revenue declined “only” 1.0%, beating our projection slightly.
  • However, the underlying trends are not good and we expect that to show through in September
  • Given the results from June-August, we estimate September 2013 same-store casino revenue will fall more than 8% (down 1 Saturday)



Takeaway: Hedgeye CEO Keith McCullough offers his thoughts on this Pulitzer Prize-winning book.

American PrometheusThe Triumph and Tragedy of J. Robert Oppenheimer, by Kai Bird & Martin Sherwin (2005)


This book captures the complexity of the human mind but, at the same time, simplifies the predictable behavior of politicians. In many ways Oppenheimer’s story reminds us how fragile our freedoms can become.


Summary Thoughts

  1. Deserving winner of a Pulitzer Prize; a true human story of science, evolution, and conscience 
  2. Knowledge threatens political power; especially when it has a liberal mind that doesn’t pander to government
  3. Respect (from practitioners) vs. Reprimand (by politicians) – Oppenheimer battled bureaucrats to his grave




Content Highlights

  1. “Damn it, I happen to love this country.” (pg 3) #truth, Oppenheimer wasn’t the communist his haters wanted him to be
  2. “He received every idea as perfectly beautiful” (pg 9) #objective research defined
  3. “Well, neither one of us came over on the Mayflower” (pg 25) on being Jewish, Oppie to his Scotch-Irish friend at #Harvard
  4.  “The notion that I was travelling down a clear track would be wrong” (pg 29) #honesty about learning (1922 enrolled @Harvard)
  5. Proust’s “A La Recherche du Temp Perdu” (pg 51) a book that left an impression on him in college #introspection
  6.  “Becoming a scientist, Oppenheimer later remarked, is like climbing a mountain in a tunnel” (pg 67) #Gottingen 1927 Germany
  7. “Quantum mechanics describes nature as absurd from the point of view of common sense” –Feynman (pg 79) #Oppie liked
  8. “Oppie” = title of Chapter 6 (Oppenheimer’s nickname, humanizes the man as he moved on to teach in California)
  9. “How far is it wise to respond to a mood?” –Oppenheimer in #1930 (pg 95), we was 26 yrs old, #mentoring brother Frank
  10. “In 1936 my interests began to change” –Oppie (pg 111) met his 1st love, young #communist party member, Jean Tatlock
  11. “FBI would never resolve the question of whether or not Robert was a CP member” (pg 142) b/c he wasn’t a #communist
  12. “devoted to working for social and economic justice… he chose to stand with the left” (pg152) left isn’t Russian Communist
  13. “By the end of 1939, Oppenheimer’s often stormy relationship with Jeadn Tatlock had disintegrated” (pg 153)
  14. “I’d had about enough of the Spanish cause… there were more pressing crises in the world” (pg 178) #1941 post Pearl Harbor
  15. “Only an atomic bomb could dislodge Hitler from Europe” –Oppenheimer to #Teller in #1942
  16. “Groves is a bastard but he’s a straightforward one” –Oppenheimer (pg 185) on his boss at #LosAlamos
  17. “He’s a genius, a real genius” –Groves on Oppenheimer (pg 185) #1942, peer #respect
  18. “Robert was beginning a new life. As the Director of a weapons laboratory…” (pg 205) #1942, he was 38 yrs old
  19. “No, no, you’re crazy… that’s nuts” –Dick Feynman (pg 217) Feynman, Bethe, Bohr + Oppenheimer = genius collaboration
  20. “Oppenheimer is telling the truth…” (pg 236) people may have not liked the #truth, but he was usually telling it; that’s life
  21. “I am disgusted with everything” –Jean Tatlock (pg 249), in #1944 Oppenheimer’s 1st love committed #suicide
  22. “December 1943, Niels Bohr arrived at Los Alamos” (pg 268) Oppie was his #prophet
  23. “If Bohr was convinced, then Oppenheimer must have realized that German physicists were in all likelihood far behind” (pg 276)
  24. “Everyone sensed Oppie’s presence. He drove himself around The Hill in an army jeep” (pg 277) #leader amongst peers
  25. “Well, Roosevelt was a great architect, perhaps Truman will be a good carpenter” –Oppenheimer (pg 290) he respected POTUS
  26. “I feel I have blood on my hands” –Oppenheimer (pg 323) October 16, #1946 to #Truman (and Truman didn’t like the honesty)
  27. “Oppenheimer arrived in Princeton in mid-July 1947” (pg 369) he was appointed Director of Einstein’s Institute #thinktank
  28. “After Einstein, Oppenheimer was undoubtedly the most renowned scientist in the country” (pg 390) #1948 (so he was a #threat)
  29. “Our atomic monopoly is like a cake of ice melting in the sun…” –Oppenheimer (cover of Time Magazine 1948) (pg 418)
  30. “The Administration now supported a program to build a bomb 1,000x as lethal as the Hiroshima weapon” (pg 430)
  31. “You probably don’t know to what extent you have become my intellectual conscience” –George Kennan to Oppie #1950 (pg 431)
  32. “We may be likened to 2 scorpions in a bottle, each capable of killing the other, but only at the risk of his own life” –Oppenheimer (pg 462)
  33. In 1953 Oppenheimer sent the new Eisenhower Administration a report “urging a policy of candor” (pg 463) #transparency
  34. “I must reveal its nature without revealing anything” –Oppenheimer on #nuclear weapons in 1953 #candor (pg 463)
  35. “The President had read Oppie’s essay and had found himself to be in general accord with its argument” (pg 468) #Strauss was enraged
  36. Strauss and the anti-Oppenheimer hawks went after Oppie (ultimately he “collapsed on his bathroom floor”) (pg 484) #pressure 1953
  37. Einstein, not impressed, thought Oppenheimer “a man who was easily hurt and intimidated” (pg 498) #fair assessment
  38. “The Oppenheimer hearing thus represented … the narrowing of the public forum during the early Cold War” (pg 550)
  39. “It achieved just what his opponents wanted to achieve; it destroyed him” –I.I. Rabi (pg 551) #1954
  40. “How can the independent experimental mind survive in such an atmosphere?” –The New Statesman (pg 556) #1954
  41. “By the early 1960s, with the return of Democrats… Oppenheimer was no longer a political pariah” (pg 574) #JFK
  42. “I think it is just possible Mr. President that is has taken some charity and some courage to make his award” (pg 574)
  43. “In 1963, Oppenheimer learned that President Kennedy gave him the prestigious Fermi Prize” (pg 575) #validation
  44. “In 1965, Oppie visited his doctor for a physical… 2 months later his smoker’s cough became noticeably worse” (pg 581)
  45. “Robert has cancer” –Kitty (pg 582) #1966
  46. Oppenheimer’s Memorial Service was in Princeton on February 25, 1967 (pg 588)
  47. “Kitty took her husband’s ashes in an urn to Hawksnest Bay... and dropped the urn overboard” (pg 588) #St.John
  48. “That’s where he wanted to be” –Kitty (pg 588)



This note was originally published September 17, 2013 at 16:43 in Consumer Staples

Last week we held an expert conference call titled, "Are Energy Drinks Harmful?" with Dr. Deborah Kennedy, a pediatric nutrition and expert on energy drinks.


Below are our main conclusions regarding regulatory concerns and evolution of the space based on Dr. Kennedy’s presentation and our own work. We also size up Monster Beverage Corp (MNST), which we’re bearish on from a quantitative perspective; however we remain bullish on the outperformance of energy drinks over the beverage category.




Key Considerations for the Industry

The FDA has left the door open for the amount of caffeine that energy drink (ED) manufacturers may put in their products. We do not see this stance changing over the near to intermediate term.



  1. The effects of caffeine are difficult to measure and are subjective to the consumer based on such factors as age, sex, weight, and existing medical conditions.
  2. There is no accepted standard for measuring caffeine.
  3. The FDA does not wish to open a pandora’s box until there’s more scientific evidence on caffeine: if energy drinks caffeine levels are regulated, what’s next, coffee? This is a can of worms that we do not believe will be addressed by the FDA over the intermediate term.


Longer Term Risks

  • Over the longer-term, keep in mind that the FDA has put a limit on the amount of caffeine in soda drinks, 71mg. A similar limit could be placed on energy drinks over time. However, we expect the FDA to assess increased scientific studies on caffeine and energy drinks but ultimately be slow to act to issue a similar limit to soda drinks for energy drinks.
  •  As Dr. Kennedy suggested, we think there’s a higher probability that energy drinks are banned for sale to kids under 12 years of age.
  • A ban on the marketing of energy drinks targeted at kids.
  • We do not expect energy drinks to be move behind the counter.


MNST – Bearish Stock, Bullish Category

MNST is a stock that currently is set-up bearish across our quantitative intermediate term TREND price level of $57.56 (dancing below the level, up 3.5% since last Friday). 




We continue to believe that energy drinks will maintain their outperformance over the beverage market. That said, MNST fundamentals have significantly eroded over the past 5 quarters. Below we show MNST’s top and bottom line Bloomberg consensus estimates for reference.  We believe this slide in performance is attributable to both weak overall beverage trends, including poor weather conditions across recent quarterly results, and litigation concerns. On the last point, we think that the existing litigation is now largely behind the company, as are the associated media headlines, which should buoy sentiment. Our call with energy drink expert Dr. Kennedy only furthered our opinion that despite health concerns related to energy drinks, the FDA is not in a position to act over the near to intermediate term on caffeine content for the reasons we highlighted above.   Finally on a comp basis, you’ll notice much more favorable comparisons over the next four quarters, which could prove a tailwind.  We’ll be watching our quantitative levels to see if MNST can overcome its bearish intermediate term set-up before we consider it on the long side.


ENERGY DRINKS: RISK AHEAD? - z. mnst sales




-Matt Hedrick

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In preparation for CCL FQ3 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • "Fleet-wide bookings during the last 11 weeks from the end of March covering the next three quarters are running higher year-over-year at higher prices."
    • "North American brands' bookings and pricing during this 11-week period are higher."
      • "Caribbean itinerary booking volumes in the last 11 weeks covering the next three quarters, are slightly lower year-over-year at slightly higher prices."
      • "Alaska bookings, again excluding Carnival, are significantly higher at lower prices."
      • "European itinerary bookings for North America brands, are slightly lower at nicely higher prices."
    • "EAA brands' bookings and pricing are also higher versus the prior year."
      • "European itinerary booking volumes, and that's approximately 50% of EAA capacity, are significantly higher at higher prices."
      • "Caribbean itinerary volumes for EAA brands, which are just under 10% of EAA capacity, are running behind last year, but also at nicely higher prices."


  • "Bookings and pricing over the last 11 weeks are both lower year-over-year in a high single-digits low double-digits range respectively." 
  • "On recent surveys, consumer perception of the brand has significantly improved since the incidents back in March, and we expect this trend to continue as confidence builds back in the brand. We will need to cycle through a full year before we begin to see positive pricing comparisons, which should begin in the second half of 2014."


  • "(Ex Carnival) On a fleet-wide basis at the present time, occupancies are slightly behind last year at slightly lower prices."
    • "(Ex Carnival) North American brand occupancies are slightly behind at flattish pricing, Alaska pricing is behind last year and North American brand, the European itinerary pricing, is higher versus last year."
      • "Carnival Cruise Lines' pricing is lower on all of its major itineraries versus last year."
    • "EAA brand occupancies for the third quarter, which are largely in Europe trades, are slightly behind last year at lower pricing.
      • "Occupancies for our Asian and Australian business are nicely higher year-over-year with slightly higher pricing. The performance of Costa in China is particularly encouraging given the doubling of its capacity in Asia during the quarter."


  • "On a fleet-wide basis, excluding Carnival, cumulative occupancies are slightly lower at slightly lower pricing."
    • "For North American brands, excluding Carnival again, occupancies are lower at higher prices."
      • "Carnival Cruise Lines' occupancies for the fourth quarter are also lower at slightly higher prices."
    • "For EAA brands, occupancies are flattish year-over-year at lower prices."
      • "Costa brand occupancies for the fourth quarter are nicely higher at lower prices...This is the first time during the last several quarters that Costa has been ahead of the closer-in booking curve this early in the booking process. We read this as a very positive sign are expecting Costa to have a nice increase in revenue yields in the fourth quarter."

1Q 2014 TRENDS

  • "On a fleet-wide basis, and this includes Carnival, occupancies are lower year-over-year at higher prices. North American brands' occupancies, again including Carnival, are lower year-over-year at nicely higher prices. EAA brands' occupancies are also lower at slightly higher prices."


  • "A major challenge in Europe right now is the weakened economies, especially in Italy and Spain."
  • "Northern Europe product did have a significant capacity increase this year relative to the Med, and we do not expect that to recur in 2014."


  • "So beginning in the second half of the year, we are planning to increase marketing spend across all North American brands and expect this to continue into 2014."
  • "We had talked about the vessel enhancements being a multiple year process. So there will be some of that in 2014 as well."


  • "There are some incremental operating expenses relating to the scrubbers, but there really isn't anything significant in the way of fuel consumption changes." 


  • "Even though our Northern European brands the yields are going down, the yields in P&O Cruises and AIDA are still some of the highest in our fleet. They're performing incredibly well."


We are publishing our SSS Monitor in order to provide a clear picture of same-store sales trends within the restaurant industry. Grouping chains by concept allows us to effectively measure a chain’s performance against its more immediate peers. Same-store sales are color coded green, if above, or red, if below, the sub-sectors mean.  2-year averages are color coded green, if accelerating, or red, if decelerating, on a sequential basis.


Overall, Fine Dining and Quick-Service same-store sales trends have been strong, while Casual Dining and Family Dining same-store sales trends remain anemic.  The tables below highlight these trends and provide consensus same-store sales estimates for the current fiscal quarter. 



Notable Trends

  • Casual Dining chains seeing accelerating trends: Applebee’s, Bonefish, Carraba’s, Cheesecake Factory, Chili’s, LongHorn, Maggiano’s, Outback, and Red Robin.
  • Casual Dining chains seeing decelerating trends: BJ’s, Buffalo Wild Wings, Olive Garden, Red Lobster, Ruby Tuesday, and Texas Roadhouse.
  • Fine Dining concepts continue to see strong mid-single digit SSS, but have begun to decelerate on a 2-year basis.
  • Family Dining concepts continue to see very low-single digit SSS, but are accelerating on a 2-year basis.
  • Fast Casual concepts are seeing SSS growth decelerate marginally, while remaining relatively flat on a 2-year basis.
  • In the Quick-Service segment – Chicken, Coffee/Snack, Mexican and Pizza concepts continue to see strong SSS growth while old line sandwich concepts continue to be the group laggard, with SSS remaining in the low-single digit range.  Burger King and McDonald's are lagging Wendy's and SONC, which are showing real menu innovation to drive incremental traffic.   









Howard Penney

Managing Director



Morning Reads on Our Radar Screen

Takeaway: A quick look at some stories on our radar screen.

Keith McCullough – CEO

Merkel romps to victory (via Reuters)

China Manufacturing Gauge Increases to Six-Month High (via Bloomberg)

Fed's Lockhart says U.S. losing some economic mojo (via Marketwatch)

Brawl, Goalie Fight Mar Leafs-Sabres Game (via ESPN)  


Morning Reads on Our Radar Screen - earth1


Darius Dale – Macro

The Sad Reality of Z.I.R.P. (via Twitter)


Josh Steiner – Financials

Signs of an easing of credit requirements are surfacing (via LA Times)

Metro Phoenix housing market's turnaround creates new issues (via


Matt Hedrick – Macro

At 77 He Prepares Burgers Earning in Week His Former Hourly Wage (via Bloomberg)

Merkel Seen Neglecting German Needs With Focus on Euro (via Bloomberg)


Howard Penney – Restaurants

Frothy Stocks Yield More IPOs (via Restaurant Finance Monitor)


Tom Tobin – Healthcare

Uncovered kids still a major problem (via


Jonathan Casteleyn – Financials

BlackRock Sees Growth Surprise as Bond Risk Slides: China Credit (via Bloomberg)

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