Short EWI – Italy Has Yet To Find A Bottom

Last Friday Keith added a short signal in Italy (via the etf EWI) to our Real-Time Alerts. We were tactically afforded the opportunity to short EWI as Italian stocks have bounced to lower-highs but remain bearish TREND (21,525 in the FTSE MIB Index).

Short EWI – Italy Has Yet To Find A Bottom - w. italy mib


Getting Short Persistent Italian Underperformance


Our thesis on Italy is relatively simple:

  • GDP Underperformance – a 2H deceleration should lead to 2014 Italian GDP flat to -0.3% versus +0.6% to +0.8% in the Eurozone. 
  • Sticky Unemployment – we expect the unemployment rate to be grounded at 12-13% for the remainder of the year, versus Eurozone average of low to mid 11%.  Italy’s monster Youth Unemployment of 42.9% will continue to present a real drag on confidence and extend the length of a “recovery” over the medium term TREND and pose a generational drag over the long term TAIL.
  • Fiscal/Budget Squabbles – we continue to get mixed signals from the Renzi government. More fiscal consolidation or less?  The lack of a definitive voice should only provide further uncertainty to the populous and dampen consumer confidence around an inflection: late last week undersecretary at the economy ministry Enrico Zanetti said that Italy may seek to delay bringing its structural budget deficit into balance until 2016 (versus the previous guidance of 2015).
  • ECB is No Savior – despite cutting the main interest rates to near zero and deposit rates to negative first in June, the policy move to further cut last week will not lead to increased lending to businesses that are willing to invest in and grow the European economy. We expect investment to the region, and Italy in particular, to remain severely challenged over the medium term.  
  • Regional Partners Also Weak – we have monitored weeks and months of declining data across the region and our propriety GIP model (growth, inflation and policy) for assessing economies suggests the Eurozone economy will land in the ugly quads #3 and #4 in 2H, representing growth slowing as inflation decelerates/accelerates. With 54% of Italy’s exports heading to EU countries, we suspect that weaker demand from the EU in 2H will continue to put downward pressure on growth. 

Short EWI – Italy Has Yet To Find A Bottom - EUROZONE


Just Charts

Below we show 4 charts that are representative of Italy’s underperformance.

  • Italy’s PMI Services for the August reading ticked below the 50 line, indicating contraction
  • Italy’s Unemployment Rate is poised to remain above the Eurozone average
  • Italian Retail Sales have inflected back to the downside
  • Italian Economic Sentiment inflected downward in the August reading – we expect further declines in 2H

Short EWI – Italy Has Yet To Find A Bottom - W. Italy PMI

Short EWI – Italy Has Yet To Find A Bottom - w. ITALY UNEMPLOY

Short EWI – Italy Has Yet To Find A Bottom - w. ITALY RETAIL SALES

Short EWI – Italy Has Yet To Find A Bottom - W. ITALY SENTIMENT


Matthew Hedrick


Keith's Macro Notebook 9/8: Europe | Oil | UST 10YR

Daily Trading Ranges, Refreshed [Unlocked]

Takeaway: This is a complimentary look at our proprietary buy and sell levels on major markets, commodities and currencies.

This note was originally published September 08, 2014 at 07:45 in Daily Trading Ranges. Click here to learn how to subscribe.

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Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    



1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “large speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.


The Sugar, Orange Juice, and Corn markets experienced the most BULLISH relative positioning change in the CRB week-over-week.

The bullish positioning changes in sugar and corn reflect the near-term expectation for prices increases:

  • Sugar and Corn have the most bullish expectation for both near-term and longer-term price increases in the CRB Index as measured by the difference between spot prices and longer-dated futures contract prices--> “basis differential” (see below).  
  • Sugar and Corn prices both lower last week adding to the negative basis spread:
    • Corn: -4.2%
    • Sugar: -3.2%

The Cotton, Heating Oil, and Copper markets experienced the most BEARISH relative positioning change in the CRB week-over-week:

Commodities Weekly Sentiment Tracker - chart1 CFTC Net Positions


2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The Sugar, Wheat, and Corn markets are positioned for HIGHER PRICES near-term
  • The Lean Hogs, Soybeans, and Gasoline markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart 2 spot 2nd month



3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The Sugar, Wheat, and Corn markets are positioned for HIGHER PRICES in 1-year  
  • The Lean Hogs, Soybeans, and Gasoline markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1 YR basis


4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.

Commodities Weekly Sentiment Tracker - chart 4 open interest   


Ben Ryan



Monday Mashup: BLMN, PLKI and More

Investment Ideas

The table below lists our Investment Ideas as well as our Bench -- a list of potential ideas we are watching closely.  We intend to update this table regularly and will provide detail on any material changes.


Monday Mashup: BLMN, PLKI and More - 1

Recent Notes

09/02/14 Post-Labor Day Mashup

09/03/14 DRI: A Logical Fallacy

09/04/14 MCD: Why We Are Short

09/05/14 Employment Growth Encouraging for Restaurants

Events This Week

Tuesday, September 9th

  • DEN, PLKI CL King & Associates Best Ideas Conference
  • KKD earnings call 4:30pm EST
  • MCD August 2014 Sales and Revenue Release

Friday, September 12th

  • DRI earnings call 8:30am EST

Chart of the Day

2H14 and 2015 estimates remain too aggressive for MCD and will likely be revised lower over the coming months.


Monday Mashup: BLMN, PLKI and More - 2

Recent News Flow

Tuesday, September 2nd

  • DNKN opened its first two full expression restaurants in Modesto and Santa Monica, California.
  • DRI guided 1QF15 EPS $0.31-$0.33 vs. $0.33 consensus and proposed a new board structure that would include four incumbents, four new company nominees and four Starboard nominees.
  • BWLD launched GameBreak, a multi-platform gaming experiencing that allows guests to play a range of fantasy-style and competitive sports games in the restaurant, online, and on a mobile app.
  • RRGB announced the LTO of its Beam-N-Bacon Boozy Shake made with Jim Beam Maple Bourbon, caramel and vanilla soft serve.  The offer will run through Nov. 2nd.
  • BLMN appointed Donagh Herlihy as Executive VP Digital & Chief Information Officer.  Herlihy previously led eCommerce and global information technology strategy and operations at Avon.

Wednesday, September 3rd

  • PLKI promoted Hector Munoz to VP & Chief Marketing Officer-U.S.  Munoz will lead the company's domestic marketing efforts and will report directly to Chief Brand Experience Officer, Dick Lynch.
  • YUM disclosed the impact of supplier issues on comps in China, estimating the division's sales to be down ~13% in 3Q.

Thursday, September 4th

  • JACK announced that Frances Allen is joining the company as President of the Jack in the Box brand, effective October 27th.  Allen previously held senior leadership roles at Denny's, Dunkin' Brands, Sony Ericsson Mobile Communications, PepsiCo and Frito-Lay.

Sector Performance

The SPX (+0.5%) underperformed the XLY (+0.6%) last week.  In aggregate, casual dining and quick service stocks outperformed the SPX.


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XLY Quantitative Setup

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


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Casual Dining Restaurants

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Monday Mashup: BLMN, PLKI and More - 7

Quick Service Restaurants

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Monday Mashup: BLMN, PLKI and More - 9


Howard Penney

Managing Director


Fred Masotta


LEISURE LETTER (09/08/2014)



  • Sept 8: China/Macau - Mid-Autumn Festival
  • Sept 8: MAR Analyst Meeting 10 am start
  • Sept 9: 
    • BofAML Gaming & Lodging Conference
    • GLPI & HPT at Wells Fargo Net Lease REIT Forum
    • EXPE & OWW at DB Technology Conference


CZR – the newly developed and opened, Horseshoe Casino Baltimore, generated nearly $6 million in its first six days of operation - that compares to just over $80 million for Maryland's statewide August reported gaming revenue.

Takeaway: Very strong early results from this property. Maryland continues to outperform.


CZR (NY Post) Apollo Management, is in talks to restructure most of the senior debt in its Caesars Entertainment casino company and has recently bought up much of the rest of the debt as well — except for that owned by David Tepper’s Appaloosa Management. Tepper’s $4.5 billion in junior debt has fallen in value to just over 25 cents on the dollar from 58 cents in the last year.  Tepper will have to decide whether to sell the bonds to Black at a loss — or stand firm against the PE mogul and risk losing the full value of his bond investment in a Chapter 11.

Takeaway: A battle of the titans in the making.


MGAM – announced today that it will be acquired by Global Cash Access Holdings, Inc. for $36.50 per share, for an aggregate purchase price of approximately $1.2 billion in cash with an expected closing date in early 2015.  According to the press release, the merger is expected to achieve about $30 million of synergies as a combined entity; and, on a pro forma basis, is estimated to generate about $800 million in revenues and $217 million in Adjusted EBITDA based on the last twelve months results as of June 30, 2014. The transaction has been unanimously approved by the boards of directors of the two companies. 

Takeaway: Slot supplier consolidation continues but this one is strange. Why would a ATM servicer buy a slot manufacturer?


MGM – selling the Railroad Pass casino in Las Vegas to real estate developer Joe DeSimone’s First Federal Realty for an undisclosed price and the sale should close by year end 2014. Railroad Pass has an 11,000-square-foot casino with 324 slot machines and six table games. It also has 120 hotel rooms, a steakhouse, buffet, coffee shop, a sports book and sits on 24 acres near U.S. Highway 95/93 near the Boulder City border.

Takeaway:  The first small asset sale by MGM and there could be other such sales coming.


PNK – disclosed entered into a Separation Agreement and General Release with Michelle Shriver, the Company's Executive Vice President, Operations. Under the Separation Agreement, Ms. Shriver shall be entitled to an aggregate cash severance payment equal to $1,329,300, of which $787,500 shall be payable in accordance with the Company's regular salary payment schedule through February 29, 2016 and $541,800 shall be paid in two equal annual installments on September 4, 2015 and September 4, 2016

Takeaway: Expect another special, one-time but seemingly recurring corporate re-alignment/reorganization charge during the quarter.


WYNN – Boston Globe has voiced its support for WYNN over Mohegan Sun regarding the Boston area casino license.  The Globe said that Wynn comes closer to meeting the casino law’s primary objective of creating jobs and economic development, that it has demonstrated much greater public support and that it has better financial strength to deliver on its promises.  The commission starts its final hearings on the license today with the intention of deciding by Friday.

Takeaway: An important supporter for WYNN.  The race will be a close one.


WYNN – offered $6 million cash to the Massachusetts Bay Transportation Authority for the purchase of three parcels of land on Lower Broadway that would allow the potential casino the ability to create an access road from Rt. 99. The two-acre parcel is within the MBTA’s large maintenance facility on Lower Broadway and would allow for an access point that doesn’t cross Boston land. It also would allow for traffic signalization improvements to benefit the MBTA’s remaining pieces of land.

Takeaway: A unique solution to avoiding any traffic overlap with the City of Boston.


MTN – Judge Ryan Harris ruled Park City Mountain Resort (PCMR) must post a $17.5 million bond by this Friday in order to avoid eviction and operate the full resort for the 2014/15 ski season.  If PCMR fails to post the bond, the judge is likely to enforce his eviction notice. While the $17.5 million is more than the $6.6 million PCMR argued for during the hearing two weeks ago, it is well below the $124 millon sought by Vail.

Takeaway: An expected result



Genting – beginning October 14, Resorts World Bimini plans to add three weekly sailings between Fort Lauderdale and Bimini via its Bimini SuperFast vessel. 

Takeaway:  These are gaming-centric vessels on its way to a casino

Insider Transactions:

PNK – EVP John A. Godfrey acquired 25,000 shares through the excercise of options at $16.92/share and then sold the same 25,000 shares of stock on Friday, September 5th at an average price of $26.25. Following this transaction, Mr. Godfrey owns 141,722 shares of the company’s stock and 75,000 additional stock options. The transaction was effected per a 10b5-1 trading plan adopted on March 13, 2014. 


LHO – EVP and COO Alfred Young sold 10,000 shares of stock on Wednesday, September 3rd at an average price of $37.0921 and now directly owns 60,696 shares in the company.

Takeaway: Both executives selling near 52-week high prices.


Government moves to regulate remote gambling in Singapore Channel News Asia

The remote gambling bill, introduced in Parliament, will help define and prohibit gambling activities via communication platforms.  There will, however, be exemptions to the Bill that was described as a "tightly controlled regime".


Gerald Singham, a member of the National Council on Problem Gambling, said he believed that exemptions would apply to current activities like horse racing, F1 and football betting.  Observers say it is very likely that operators like Singapore Pools and the Turf Club, which both offer telephone betting services, will apply for the exemption. 

Takeaway: Small positive for the Singapore casinos


Japan Gaming Expansion (Japan Times) It was former Tokyo Gov. Shintaro Ishihara who first proposed it back in 1999 when he invited Diet members to a special promotional event he had set up in the Tokyo Metropolitan Government Building, complete with slot machines. His successor, Naoki Inose, was also quick to jump on the casino bandwagon. But not Inose’s successor, Yoichi Masuzoe, who assumed the post in February.  Masuzoe’s approach is more “cautious,”  and seems pretty determined to keep casinos out of the capital. Earlier this year, the Tokyo Metropolitan Government leased a large tract of public land on the waterfront to BMW for a test-drive course and showroom, land that had previously been set aside for an integrated resort that included a casino. When the metropolitan government was reorganized in July, the division that was nominally in charge of the casino plan was practically made irrelevant. Masuzoe’s most blatant show of opposition was an Aug. 17 appearance on a Fuji TV talk show, in which he talked about not wanting casinos in Tokyo. Members of the press duly noted the choice of medium, since Fuji TV, in collaboration with Mitsui Real Estate and Kashima Construction, had submitted a casino resort plan last September to the Diet committee in charge of special economic zones, one of the pillars of Prime Minister Shinzo Abe’s economic recovery plan.

Takeaway: Like all processes in Japan, the timeline is slow and thoughtful.


Macau MICE (GGRAsia) Assistant Professor in Gaming and Hospitality Management at the University of Macau, Glenn McCartney suggested Macau needs a government master plan for tourism as well as an independent commercially focused MICE promotion agency able to make quick decisions on behalf of the sector. Without such an agency, he suggested, the MICE portion of the tourism industry will continue to be shaped by the commercial needs of the gaming operators, some of whom focus primarily on gambling tourism.

Takeaway: The delicate balance between gaming vs. non-gaming remains very topical in front of the gaming concession renewal commentary. 


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.

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