Monday Mashup: Long BOBE, Short DFRG

Investment Ideas

The table below lists our Investment Ideas as well as our Watch List – a list of potential ideas that we are in the process of evaluating.  We intend to update this table regularly and will provide detail on any material changes.


Monday Mashup: Long BOBE, Short DFRG - 111

Recent Notes

06/09/14  Monday Mashup: DFRG, CAKE, PNRA

06/09/14  MCD: Time For A Change

06/12/14  New Best Idea: Short DFRG (Replay)

06/13/14  BOBE: Reiterating Best Idea Long

Events This Week

06/17/14  KKD Annual General Meeting

06/17/14  Deutsche Bank Global Consumer Conference: BAGL

06/17/14  Jefferies Global Consumer Conference: CHUY

06/17/14  BOBE earnings release 4:00pm EST

06/18/14  Jefferies Global Consumer Conference: BBRG, DNKN, FRGI, FRSH, JACK, NDLS, RUTH, ZOES

06/18/14  BOBE earnings call 10:00am EST

06/20/14  DRI earnings release BMO, earnings call 8:30am EST

Chart of the Day

Monday Mashup: Long BOBE, Short DFRG - 222

Recent News Flow

Monday, June 9th

  • EAT Chili’s announced the completion of its nationwide rollout of tabletop tablets in the U.S., which included the installation of 45,000+ Ziosk tablets in 823 company-owned restaurants.

Tuesday, June 10th

  • DPZ initiated buy at Jefferies with an $85 PT.
  • BJRI officially launched a mobile ordering/payment app for its restaurants.  The new app allows customers to use their mobile devices to order ahead for dine-in and takeout, move ahead in line for a table and pay at their own convenience.
  • WEN was downgraded to hold from buy at Argus Research based on “uncertainty” around the company’s remodeling initiatives.
  • GMCR announced an initiative to expand its presence at SUBWAY, by bringing Keurig single serve brewers to thousands of restaurants.
  • DNKN announced the locations of its first traditional restaurants in CA.  They are currently planned for Downey, Long Beach, Modesto, Santa Monica and Whittier.  Construction is planned to begin later in June, earlier than expected.
  • PZZA Papa John’s announced the appointment of former AIG Executive Chairman, Laurette Koellner, to its Board of Directors.

Wednesday, June 11th

  • No major news.

Thursday, June 12th

  • PNRA closed on a $100 million term loan from BoA, Wells Fargo and TD Bank. Proceeds from the loan will primarily be used for general corporate purposes.

Friday, June 13th

  • No major news.

Sector Performance

The XLY (-1.7%) underperformed the SPX (-0.7%) last week.  Casual dining stocks underperformed the narrower XLY index, while quick service stocks outperformed.

Monday Mashup: Long BOBE, Short DFRG - 33

Monday Mashup: Long BOBE, Short DFRG - 44

U.S. Macro Consumption

The Hedgeye U.S. Consumption Model continues to signal bearish, flashing red on 7 out of 12 metrics.

Monday Mashup: Long BOBE, Short DFRG - chart5

XLY Quantitative Setup


From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.

Monday Mashup: Long BOBE, Short DFRG - 66

Casual Dining Restaurants

Monday Mashup: Long BOBE, Short DFRG - 77

Monday Mashup: Long BOBE, Short DFRG - 88

Quick Service Restaurants

Monday Mashup: Long BOBE, Short DFRG - 99

Monday Mashup: Long BOBE, Short DFRG - 1010


Howard Penney

Managing Director


Fred Masotta


LEISURE LETTER (06/16/2014)

Tickers: IGT


  • Tues-Thur June 17-19: Todd in Singapore & Macau for meetings
  • Wed-Thurs June 18-19:  Hedgeye Cruise survey (pre-CCL F2Q)
  • Thurs June 19: LA May revs released


IGT –two interesting press releases early this morning...

  1. IGT regularly considers, and on occasion explores, a broad range of strategic alternatives, including but not limited to business combinations, changes to our capital structure and adjustments to our portfolio of businesses, with the goal of maximizing shareholder value. The IGT Board of Directors and senior management are currently engaged in such an exploration, but no decisions have been made by the Board regarding any particular alternative available to the Company and there can be no assurances that any transaction or other strategic change will be entered into as a result of the current exploration of alternatives.  IGT does not intend to discuss or disclose developments with respect to this general subject unless and until the Board has approved a definitive course of action.
  2. GTECH (GGTK.IM) announced that it is engaged in preliminary, exploratory discussions as part of a process regarding a potential transaction with IGT. GTECH noted the transaction could potentially involve the use of a mix of cash and equity as consideration. However, the Company does not anticipate that a capital increase for cash will be required.

Takeaway: Let the bidding begin...we believe IGT is worth $18-$22/share per our conference call last week. 


Summit Ascent – approved the acquisition of an additional interest in a casino resort in Vladivostok Russia. Summit Ascent will pay US$20.2 million to Elegant City Group Ltd, an entity controlled by Russian businessman Oleg Drozdov, in order to acquire a 14% equity stake in the project. Elegant City will keep a 15% interest in the casino resort.  Summit Ascent now owns 60% in the casino resort.

Takeaway:  The initial development agreement called for Summit Ascent to receive a management fee of 3% of GGR on Phase 1 which included a casino with 25 VIP tables, 40 mass tables, and 800 slots, as well as a 199 room hotel located on Lot 9 of the development. 


SINO.PM – Philippine-listed Sinophil Corp is changing its name to Premium Leisure Corp. On June 6, Belle Corp announced it would reorganize its gaming assets under Sinophil, including its ownership of Premium Leisure and Amusement Inc, and its shares representing 34.5% of online lottery system provider Pacific Online Systems Corp.

Takeaway: We wondered when SInophil would change its name to a moniker more reflective of gaming or leisure. 


UnionPay (LUSA) citing Macau police sources, the new agency reported the value of transactions using unregistered China UnionPay Ltd terminals in Macau amounted to MOP180 million (US$22.5 million) between January and mid-May 2014. 

Takeaway: If accurate, the $22.5 million represents a mere 36 basis points of total mass GGR and 12 basis points of overall total revenue.


Iowa Gaming Expansion – following the issuance of the 19th commercial gaming license by the Iowa Racing & Gaming Commission last week, IRGC Chairman Lamberti indicated the Commission may consider a moratorium on additional gaming licenses at the July 31 commission meeting. 

Takeaway: The moratorium seems like a reasonable decision given the saturation of gaming within Iowa.


Germans' appetite for short trips lifts European cruise industry (CLIA) – Europe's cruise lines passenger growth rose in 2013 due to the popularity of the Mediterranean as a destination and Germans' appetite for short trips in northern Europe.  Germany saw a 9.2% rise in passengers, drawing level with Britain as Europe's largest markets, with each accounting for around 27%.

Takeaway: While there are probably too many short itineraries in the Caribbean, there may still be opportunities to expand in Europe


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


Client Talking Points


CRB Commodities Index (19 Commodities) was up another +1.5% last week to +10.6% year-to-date. WTI Crude Oil led the inflation melt-up at +4.2% on the week to +10.8% year-to-date. Natural Gas and Coffee prices were up another +1% last week to +14.8% and +50.6% year-to-date, respectively.


While Total U.S. Equity Market Volume was down -34% (vs. the 3 month average) on Friday’s +0.3% SPX negative breadth up-day, we finally got some real equity and commodity market volatility last week; oil volatility (Oil VIX) was +34.3% last week to 19.47 and U.S. Equity volatility (VIX) was +11.8% last week to 12.18.


Bank of England getting two big thumbs up from us on discussing why rate hikes are good.  As the Bank of England builds currency credibility the British Pound continues to power forward. Strong currency, strong policy equates to stronger policy and stronger consumption. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


TREASURIES: 10yr back down to 2.58% as inflation continues to slow real U.S. Growth expectations @KeithMcCullough


“Either you run the day or the day runs you.”

-Jim Rohn


China overtakes the U.S. in company debt issued, with non-financial corporate debt in China reaching $14.2 trillion. (Financial Times)

Early Look

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Force Rapid Learning

This note was originally published at 8am on June 02, 2014 for Hedgeye subscribers.

“There is nothing quite like ignorance combined with a driving need to succeed to force rapid learning.”

-Ed Catmull


With three kids, I’d say that quote pretty much sums up my life right now. It’s also the opening line to chapter 3 of the book I have my nose in these days – Creativity Inc., by one of the founders and leaders at Pixar Animation Studios, Ed Catmull.


When it comes to the market side of my life, it isn’t what it used to be. I have the dubious task of running both my mouth and a company. On the latter, I can assure you that there is no driving force greater than owning it. If Hedgeye isn’t constantly evolving, we’re failing. And that’s not an option.


We’ve built both the risk management process and firm on the same principles. We wake up every morning with our eyes wide open to the reality that we do not know what is going to happen next. Embracing uncertainty forces rapid learning. And we like that.


Back to the Global Macro Grind


If all you did at the start of last week was get rid of the most consensus short position on the planet (short SPX Index + E-minis),  and focused on expressing slow-growth #YieldChasing where at least 66% of hedge funds out there haven’t yet, you’d have liked that too.


With the net SHORT position (CFTC non-commercial futures and options contracts) in the SP500 dropping week-over-week from -114,248 contracts (1yr high) to a net SHORT position of -57,737 this morning, I still wouldn’t be using that consensus “hedge.” Use the Russell.


What is the Russell?


  1. The Russell 2000 is a much purer read-through on US domestic growth than the multinational Dow or SP500
  2. The Russell 2000 (IWM) was down -0.5% in an “up tape” on Friday (SPX closed +0.18% at an all-time bubble high)
  3. The Russell 2000 is down -6.1% from its March 2014 high and -2.5% YTD


The alternative to being levered long US growth and/or social bubble stocks (i.e. the alternative to being down YTD) is:


  1. Being long #InflationAccelerating (CRB Commodities and Food Indexes are +9% and +22% YTD, respectively)
  2. Being long slow-growth via the long bond (10yr yield down another -6bps last wk and -55bps YTD at 2.48%)
  3. Being long anything US Equity #YieldChasing that looks like a bond (Utilities up another +2.3% last wk = +12.6% YTD)


“So” why bang your head against the #OldWall shorting spooos and trying to pick no-volume-v-bottoms in bubble stocks that blew up in March-April, when you can just keep doing more of what’s been a relatively low volatility position to keep?


A: it’s not consensus (yet)


No worries though, as time, price, and economic data change, consensus futures/options positioning changes:


  1. SPX Index + E-mini net SHORT position of -57,737 contracts today (vs. -19,488 net SHORT 3 month avg)
  2. 10YR US Treasury bond net LONG position of +22,876 contracts (vs. -59,080 net SHORT 3 month avg)
  3. Gold net LONG position of 68,393 contracts (vs. +103,404 net LONG 3 months ago)


In other words, 3 months ago (on March 1st):


  1. Hedge funds started getting short the consensus SPX hedge  (after the JAN-FEB drawdown in the SP500)
  2. Consensus still didn’t think bond yields could go down in 2014 (so the 10yr yield crashed)
  3. And consensus momentum players chased being long Gold at $1350




Nothing forces rapid learning faster than doing precisely the same thing (at the same time) as thousands of other money managers and getting plugged.


But please don’t confuse consensus getting whipped around in an oversupplied asset management industry with the US or global economy. They are nowhere in the area code of the same thing.


And I suspect there will be nothing normal about the next three months in global macro risk management either. So have another coffee. It’s Monday June 2nd (Happy Birthday Dad!). Prepare to embrace the uncertainty of what tomorrow will inevitably bring.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.42-2.51%

SPX 1888-1932

RUT 1090-1154

EUR/USD 1.35-1.37

WTIC Oil 102.19-104.95

Gold 1240-1294


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Force Rapid Learning - Chart of the Day

June 16, 2014

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TODAY’S S&P 500 SET-UP – June 16, 2014

As we look at today's setup for the S&P 500, the range is 37 points or 1.14% downside to 1914 and 0.77% upside to 1951.                                                              













  • YIELD CURVE: 2.12 from 2.15
  • VIX closed at 12.18 1 day percent change of -3.03%


MACRO DATA POINTS (Bloomberg Estimates):           

  • 8:30am: Empire Manufacturing, June, est. 15 (prior 19.01)
  • 9am: Net Long-Term TIC Flows, April, est. $37.5b (prior $4b)
  • 9:15am: Industrial Production m/m, May, est. 0.5% (prior -0.6%)
  • 10am: NAHB Housing Market Index, June, est. 47 (prior 45)



    • House not in session; Senate returns at 2pm
    • Treasury Sec. Jack Lew on trip to Abu Dhabi, UAE, Saudi Arabia, Jerusalem and Berlin
    • House Transportation Cmte’s panel holds meeting on role of financial sector in infrastructure, with JPMorgan’s Jamison Feheley, Macquarie’s Karl Kuchel, IFM Investors’ Tom Osborne, Barclays’ Steve Howard among participants
    • 10am: Supreme Court to issue decisions
    • Washington Week Ahead
    • U.S. ELECTION WRAP: Tea Party’s Reach; Coal Electorate              



  • Medronic agrees to buy Dublin-based Covidien for $42.9b
  • Williams buys control of Access Midstream Partners for $6b
  • Siemens said to prepare bid for Alstom’s energy unit
  • Mitsubishi offering to buy ~10% Alstom stake: Nikkei
  • Russell makes Egypt frontier mkt, lists Russell 3k changes
  • Intel, county in talks that may save $1b in taxes: Oregonian
  • American Express, Citi, others report May charge-offs
  • American Tower to buy BR Towers for $978m; sees $131m/y rev.
  • ‘22 Jump Street’ tops ‘How to Train Your Dragon 2’ in sales
  • Iraq attacks militants north of Baghdad; U.S. Emb. cuts staff
  • Russia, Ukraine fail to reach gas payment deal



    • Korn/Ferry Intl (KFY) 4:15pm, $0.39



  • European Gas Jumps Most Since March as Ukraine Faces Supply Cut
  • Gold Climbs to Three-Week High as Iraq Violence Boosts Demand
  • Hedge Funds Cut Crop Wagers the Most Since January: Commodities
  • Oil Topping $116 Seen Possible as Iraq Conflict Widens: Energy
  • Iraq Crisis: Basrah Output Holds the Key to Global Oil Prices
  • Copper Climbs as China’s Central Bank Moves to Support Growth
  • China Adds to Iron Ore Glut as Record Output Seen This Year
  • Wheat Rebounds From Weekly Slide as U.S. Rain Threatens Quality
  • Sugar Gains With Brazilian Mills Slowing Harvest; Coffee Drops
  • Iraq Oil Exports to Jordan Won’t Resume Soon on Security: Hamed
  • Coal’s Share of World Energy Demand at Highest Since 1970
  • Norwegian Oil Industry Faces Mediation to Avoid Output Halt
  • Iraq Uprising Draws In OPEC Nations, Boosts Oil Price: Bull Case
  • WTI, Brent Pare Gains as Iraq Unrest Seen Sparing Crude Supplies


























The Hedgeye Macro Team














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