Cosi's Turnaround Story Is On; New CEO Buys Stock


EBITDA would’ve been 8% lower with normal hold.  In this note, we focus on two forward issues for LVS.



We don’t want to bore you with the details of LVS’s Q4 – there’s plenty of sell-side research that can do the trick better than we can (I mean, the boring part).  The quarter was not as good as we were projecting.  Moreover, the quarter benefited from high hold, the net impact of which boosted company EBITDA by $69 million (8% of total).  Worse, the property we are most concerned about vis-à-vis expectations, MBS, was the beneficiary of most of it.


LVS is in great shape over the long-term.  No question.  We would be buyers of the stock at this price for the long haul.  However, it is the near and intermediate term that concerns us.  Our near-term focus is on two issues:  2012 growth in the Singapore market and the cannibalization at Venetian from Sands Cotai Central.


So what did we learn from this quarter related to these two issues:

  1. MBS Singapore – Q4 YoY EBITDA growth was 40%. Fantastic. However, it was 71% in Q3. EBITDA only grew 3% QoQ. Worse, on a hold adjusted basis for both quarters, EBITDA would have fallen 13% QoQ. So is seasonality to blame? Certainly, that is a factor.  But that isn’t all of it.  Singapore growth is likely slowing.


    Of course, Q1 has a very easy comparison due to low hold and the newness of the market in Q1 of last year.  Q1 2011 EBITDA was only $285 million. However, on a hold adjusted go forward basis, we think top line growth of 5-10% for the market is more likely than the 15-20% expected by the Street.  Beyond Q1, we see EBITDA growing only 5-10% YoY. This could be a disappointment.


  2. Sands Cotai Central will open in March or April.  Given the overlap with Venetian, we are expecting cannibalization. With its new focus on the VIP, Four Seasons should be fine.  So what can we learn from Q4? Well, Venetian and Sands are badly trailing the market in revenue and EPS growth.  Given past cannibalization (Venetian on Sands, Grand Lisboa on Lisboa, and CoD on Altira), we have little reason to believe that these numbers are going to improve upon the opening of a sister property.  Four Seasons is on a different path because of its new focus on VIP.

The following table outlines the property performance for the quarter.




This note was originally published at 8am on January 30, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The conclusion is straightforward: self-control requires attention and effort.”

-Daniel Kahneman


That’s a very simple quote from a very important chapter in “Thinking, Fast and Slow” titled The Lazy Controller. I personally have a lot of work to do on this front. As an athlete, I was much better at this than I am as an investor – control what you can control.


It required some attention and effort to sell into the stock and commodity market inflations inspired by The Bernank Tax last week. With the S&P futures trading at 1305 this morning, US stocks are down over -2% from Thursday morning’s intraday 2012 high of 1333.


With China coming back from the holiday closing down -1.5% overnight, it looks like I should have sold that too (I sold everything else). The Chinese do not appreciate US policies to inflate because food and energy inflation slows Chinese growth.


Back to the Global Macro Grind


I make a lot of mistakes. The biggest ones tend to occur when I either get influenced by someone else’s process and/or when I don’t let the market stop me out of my own.


Thinking fast about the immediate-term while thinking slow about the long-term is the holy grail of being at what Kahneman calls “cognitive ease.” I can’t work any harder – so for me, at this stage of my career, my goal is to work smarter.


I think Kahneman nails my own issues to the boards in saying that, sometimes, “too much concern about how well one is doing in a task sometimes disrupts performance by loading short-term memory with pointless anxious thoughts.” (page 41)


But, most of the time, that’s our over-supplied profession’s short-term cross to bear more than it is my own – and we can turn that regressive energy into positive P&L by coming to the most straightforward conclusion, fast.


As a reminder, our primary conclusions about Big Government Interventions in markets for the last 4 years has been:


1.       They Shorten Economic Cycles

2.       They Amplify Market Volatility


This is the #1 reason why I am such a bull on stabilizing/strengthening the #1 factor in my Global Macro Model that drives short-termism in global market prices/volatilities – the US Dollar Index.


Last week’s price action doesn’t lie, Keynesian policy makers do. With the US Dollar down -1.6% week-over-week, here’s what the big stuff did:

  1. CRB Index (18 commodities) Inflation = straight up +1.6%
  2. US Stocks = flat (Dow down -0.5%; SP500 up +0.1%)
  3. US Treasuries = 10-year yields dropped -6.4% to 1.89%



1.       Inflation Expectations were rising

2.       Growth Expectations were falling


And, again, that’s how my risk management model rolls:

  1. Policy drives currency
  2. Currency debauchery drives inflation expectations
  3. Inflation expectations drive growth (and margin) expectations

If you go back and analyze every single big investment mistake I have made in the last 13 years (I have), unless there’s something like a take-out in one of my short positions (I was short Reebok when Adidas bought them), almost all of the time I was long something where Growth Slowed and Margins Compressed.


That’s why I think, fast and slow, about Countries/Economies this way. Ultimately, on the margins of Growth and Inflation, they act like companies.


I know there’s a lot of controversy around my macro views. I know there’s a lot of emotion in what we do. I know I should have been long Gold last week. I know what I know.


What I don’t know is what really matters to me. That’s why I need the Self-Control to Embrace Uncertainty and let the market tell me what to do next.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, Shanghai Composite, German DAX, and the SP500 are now $1682-1739, $110.12-112.06, $1.29-1.31, 2221-2351, 6440-6503, and 1297-1326, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


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TODAY’S S&P 500 SET-UP – February 2, 2012

As we look at today’s set up for the S&P 500, the range is 9 points or -0.54% downside to 1317 and 0.14% upside to 1326. 











  • ADVANCE/DECLINE LINE: 1973 (1456) 
  • VOLUME: NYSE 892.64 (-13.69%)
  • VIX:  18.55 -4.58% YTD PERFORMANCE: -20.73%
  • SPX PUT/CALL RATIO: 1.68 from 1.56 (7.69%)



TREASURIES – if you only bet with the bond market for the last year on its implied growth slowing/accelerating signals, you’d have not been sucked into any of the lower-highs in US Equities (FEB 2011, APR 2011, JAN 2012). We bought the long-bond back yesterday as the 10yr yield looks like it wants to make lower-lows for the YTD.

  • TED SPREAD: 48.12
  • 3-MONTH T-BILL YIELD: 0.06%
  • 10-Year: 1.83 from 1.83
  • YIELD CURVE: 1.61 from 1.60

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: Challenger Job Cuts (Y/y), Jan.
  • 8:30am: Nonfarm Productivity (4Q P), est. 0.8% (prior 2.3%)
  • 8:30am: Jobless Claims, wk of Jan. 28, est. 370k (prior 377k)
  • 9am: Fed’s Evans speaks to reporters in Chicago
  • 9:45am: Bloomberg Consumer Comfort, week of Jan. 29
  • 10am: Fed’s Bernanke testifies before House Budget Committee
  • 7:15pm: Fed’s Fisher speaks in Austin, Texas


  • President Obama attends 60th National Prayer Breakfast, 7:30am
  • Fed Chairman Ben Bernanke testifies on U.S. economy before House Budget Cmte., 10am
  • Fannie Mae Chief Economist Douglas Duncan gives outlook for housing market to National Economists Club, noon
  • House transportation committee considers 5-yr, $260b highway construction bill
  • House, Senate in session:
    • House Energy and Commerce subcommittee receives report of blue-ribbon commission on America’s nuclear future, 9:30am (Will hear from FDA Commissioner Margaret Hamburg on reauthorization of the prescription drug user fee act) 10am
    • House-Senate payroll tax cut conference committee meets, 10am
    • House Budget Committee hears from CBO Director Doug Elmendorf on the economic outlook, 10am


  • ECB is likely to refuse to show its hand on how it will help cut Greece’s debt burden until investors and the govt. have agreed to a deal, economists said
  • U.S. retailers inc. Macy’s, Gap report Jan. comp sales; Retail Metrics est. 2% gain, would be weakest monthly sales growth since Oct. 2010
  • Glencore offered to buy outstanding $35b stake Xstrata that it doesn’t already own
  • Facebook filed to raise $5b in largest Internet IPO on record
  • IPO may value Mark Zuckerberg’s stake at $28.4b
  • MF Global risk chief switch stalled euro debt cut by 6 mos.
  • Ex-Credit Suisse CDO chief charged in scheme to boost bonuses
  • Deutsche Bank reported 76% drop in 4Q profit as sovereign debt crisis curbed trading
  • Sony Corp. more than doubled its annual loss forecast to $2.9b
  • AstraZeneca to cut 7,300 jobs
  • Deadline for states whether to join a proposed nationwide foreclosure settlement with banks to Feb. 6 from Feb. 3, Iowa’s Attorney General said


    • Cigna (CI) 6 a.m., $1.19
    • Diamond Offshore Drilling (DO) 6 a.m., $0.99
    • Starwood Hotels & Resorts Worldwide (HOT) 6 a.m., $0.57
    • Dow Chemical Co/The (DOW) 6:30 a.m., $0.31
    • PulteGroup (PHM) 6:30 a.m., $0.07
    • Roper Industries (ROP) 6:30 a.m., $1.21
    • Spectra Energy (SE) 6:30 a.m., $0.49
    • Boston Scientific (BSX) 7 a.m., $0.08
    • Cardinal Health (CAH) 7 a.m., $0.76
    • CME Group (CME) 7 a.m., $3.64
    • International Paper Co (IP) 7 a.m., $0.61
    • Merck & Co (MRK) 7 a.m., $0.95
    • National Oilwell Varco (NOV) 7 a.m., $1.30
    • Snap-on (SNA) 7 a.m., $1.18
    • Viacom (VIAB) 7 a.m., $1.05
    • Wisconsin Energy (WEC) 7 a.m., $0.47
    • Xcel Energy (XEL) 7 a.m., $0.30
    • Alliance Data Systems (ADS) 7 a.m., $1.49
    • Elizabeth Arden (RDEN) 7:04 a.m., $1.39
    • Goodrich (GR) 7:25 a.m., $1.57
    • Cummins (CMI) 7:30 a.m., $2.24
    • Sara Lee (SLE) 7:30 a.m., $0.25
    • TECO Energy (TE) 7:30 a.m., $0.28
    • Ryder System (R) 7:55 a.m., $0.97
    • Kellogg Co (K) 8 a.m., $0.62
    • Mastercard (MA) 8 a.m., $3.91
    • Cameron International (CAM) 8:15 a.m., $0.76
    • Blackstone Group (BX) 8:30 a.m., $0.40
    • New York Times (NYT) 8:30 a.m., $0.42
    • Royal Caribbean Cruises Ltd (RCL) 8:32 a.m., $0.16
    • Allergan (AGN) 9 a.m., $1.00
    • CareFusion (CFN) 4 p.m., $0.44
    • Edwards Lifesciences (EW) 4 p.m., $0.59
    • Principal Financial Group (PFG) 4 p.m., $0.75
    • Wynn Resorts Ltd (WYNN) 4 p.m., $1.29
    • Trimble Navigation Ltd (TRMB) 4 p.m., $0.48
    • Vertex Pharmaceuticals (VRTX) 4 p.m., $0.72
    • Fiserv (FISV) 4:01 p.m., $1.27
    • Sunoco (SUN) 4:01 p.m., $(0.29)
    • Stericycle (SRCL) 4:02 p.m., $0.74
    • Novellus Systems (NVLS) 4:04 p.m., $0.45
    • Con-way (CNW) 4:05 p.m., $0.36
    • Gilead Sciences (GILD) 4:05 p.m., $1.05
    • PerkinElmer (PKI) 4:05 p.m., $0.51
    • Take-Two Interactive Software (TTWO) 4:05 p.m., $0.23
    • Genworth MI Canada (MIC CN) 4:07 p.m., $0.78
    • Genworth Financial (GNW) 4:10 p.m., $0.19
    • Validus Holdings Ltd (VR) 4:15 p.m., $0.78



COPPER – the Doctor finally breaking its most immediate-term price momentum level of support of $3.83/lb this morning at the same time that Singaporean Stocks back off and moved red into the close. Stealth signals, but they’re leading ones that matter in our model. Copper’s long-term TAIL of 3.98/lb resistance intact – lower-highs.

  • Copper Falls on Signals Demand May Be Poised to Slow in China
  • Oil Falls to Six-Week Low as Stockpiles Rise, Fuel Demand Slips
  • Gold May Advance as European Debt Crisis Concerns Spur Demand
  • Glencore Makes Approach for Remaining $35 Billion Xstrata Stake
  • Colombia Drug Lords’ Cattle Theft Rob Rally Benefit: Commodities
  • Wheat Falls as Rain in U.S. Boosts Crop Prospects; Corn Drops
  • Coffee Falls for Sixth Session on Ample Supplies; Sugar Retreats
  • North Sea Oil Exports to Asia at 8-Year High: Energy Markets
  • Impala Fires 17,200 Workers at World’s Biggest Platinum Mine
  • Kinder Morgan Lapping Enbridge in Canadian Pipeline Race: Energy
  • Rail Bottlenecks Thwart India Efforts to End Blackouts: Freight
  • YPF Nationalization Concern Spurs Bond Plunge: Argentina Credit
  • Emerging Nations’ Buying to Drive Gold to Record, JPMorgan Says
  • Gold at Eight-Week High on Output, Dollar
  • Shell to Boost Dividend for First Time Since 2009 on Projects
  • EU Biofuels Targets to Cost Consumers $166 Billion, Study Says













CHINA – all of the high-frequency economic data (inflation accel, growth decel) looks primed to slow in FEB as both the Shanghai Comp (+2% last night) and the Hang Seng (+12.5% YTD!) move to immediate-term TRADE overbought signals. Plenty of Johnny come lately pundits, who we didn’t hear a peep from when we bought China in DEC, going bullish.










The Hedgeye Macro Team


Feeling Certain

“You know far less about yourself than you feel you do.”

-Daniel Kahneman (Thinking, Fast and Slow)


Since last Thursday, when I made the call to go to 91% Cash (selling my US Dollar and US Equity positions down to 0%), I’ve re-invested 12% of that Cash (on red) in the Hedgeye Asset Allocation Model, dropping my Cash position back down to 79%.


After I write something like that, you should feel something. ‘Who is this guy? That’s not what I do? I love this guy. He can’t do that. I think he played hockey, etc.’


I don’t know what you are feeling right now. All I know is that the more I think I know about risk management, the less I know. As a result, the best path forward is to Embrace Uncertainty, keep moving, and banging out the early morning reps.


Back to the Global Macro Grind


People on Old Wall Street are funny. Yesterday, at Bloomberg’s China Conference, our rising star Asia analyst, Darius Dale, commented “this is really weird – I just spent the whole day listening to American investors tell me everything that they know about China.”


Where were the people from China?


I don’t know. What I do know is that there are highly intelligent people in this business that tend to think they know a lot more about what they don’t know than they actually do.


This, of course, isn’t new. In Chapter 4 of “Thinking, Fast and Slow”, The Associative Machine, Kahneman takes a step back to remind us that David Hume boiled this down to 3 principles of associative thinking in 1748: “resemblance, contiguity in time and place, and causality.” (page 52)


In other words, since most Perma-Bulls have been blown up by bubbles in the last 4 years, China must be a bubble. It resembles a bubble, right? We’re all here at the China Conference telling one another it’s a bubble, right? And notwithstanding any correlation math, we can all agree that credit bubbles cause bubbles, right?


Right, right.


So, after Gary Shilling’s consensus headline coming out of the Bloomberg Conference was “China Headed for Hard Landing”, Chinese stocks closed up another +2% last night (we’re up +16% on our CAF position since buying it on December 29th, 2011) and the Hang Seng moved to +12.5% YTD!


I’m Feeling Certain now that something hard landed somewhere last night, on a Chinese short sellers head.


Does that mean we run out and buy more China this morning? Of course not. It’s just a simple reminder that if some US centric investors don’t know what they don’t know about their own Macro market moves, how on God’s good earth do investors trust that they can pin the tail on the donkey on a 12 hour plane ride from Newark?


Back to our positioning in the Hedgeye Asset Allocation Model – here it is as of last night’s US market close:

  1. Cash = 79%
  2. International Equities = 9% (China – CAF)
  3. Fixed Income = 6% (Long-term Treasuries – TLT)
  4. US Equities = 6% (Energy – XLE)
  5. Commodities = 0%
  6. International FX = 0%

Feeling Certain about any of these asset allocations or Hedgeye Porfolio  LONG/SHORT positions we take is very hard to do. Feeling Certain that you can flip a switch from expecting Global Growth Acceleration to Deceleration in February is even harder to do.


With hindsight being crystal clear, the only thing I am certain about is how my model has worked over the last 4 years:

  1. When Inflation Expectations start to rise, people confuse commodity and stock market inflations with real-growth
  2. As real Growth Expectations start to fall, Gold, Treasuries, and Volatility start to rise
  3. As inflation expectations rise and growth expectations fall, confusion in markets starts to breed contempt

Confusion is as confusion does. The US stock market went down for 4 straight days after we made the move to 91% Cash last Thursday. After 1 up day in the last 5, the Perma-Bulls are back. But are they? How can you be perma bullish or bearish about anything after the last decade of getting paid to feel certain about everything?


My immediate-term support and resistance ranges for Gold, Oil (Brent), Copper, EUR/USD, Shanghai Composite, and the SP500 are now $1, $110.68-111.89, $3.75-3.83, $1.30-1.32, 2, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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