Final Frontier: Q&A With Michael Blum

Editor's note: Hedgeye President Michael Blum has been aboard the Hedgeye train since Day One. Actually, before that. Michael was college roommates with Hedgeye Founder and CEO Keith McCullough during their freshman year at Yale University. He speaks below about about one of his greatest passions in life - space travel.


Final Frontier: Q&A With Michael Blum - blum

You’re the keynote speaker tomorrow at the Community Partnership Luncheon tomorrow hosted by the International Symposium for Personal & Commercial Spaceflight. What exactly is this and what do you plan to discuss?


Well, following the 2004 Ansari X-Prize win by Mojave, CA based Scaled Composites (today part of Northrop Grumman (NOC)) Richard Branson set up Virgin Galactic to offer sub-orbital space tourism flight. Branson and then-Governor of New Mexico Bill Richardson teamed up to develop Spaceport America, just west of the White Sands Missile Range. The location is ideal due to its weather and landscape conditions and the availability of unlimited airspace for continuous rocket launch operations.


SpacePort America cost $209M to build and was funded by the State of New Mexico and local county sources, including tax bond proceeds.


The local community has often been very skeptical of this project to which development delays at Virgin Galactic have contributed. But light is at the end of the tunnel with operational flights out of Spaceport America now being targeted by late 2014.


While Southern New Mexico has a rich cultural history dating back many thousands of years, it does not have a lot of tourism related infrastructure. With the Spaceport built and operations on the horizon, the local community must now start to develop hospitality and entertainment concepts needed to support the travelers who will soon be pouring into the area.


You mentioned Richard Branson and Virgin Galactic. Who are some of the other big players in the game?


The commercial space industry has only recently had a chance to begin its “golden age” as a result of the budget constraints facing NASA’s long term ability to serve the US Government’s needs both in Low Earth Orbit (LEO) and on scientific exploration missions into the far reaches of our solar system. This has led to private investment and entrepreneurial competition in an industry previously controlled by governments.


Elon Musk founded Space Exploration Technologies (SpaceX) in 2002 after selling PayPal to eBay largely because NASA had no active plans to go to Mars. With funding from Peter Thiel’s Founders Fund, Rothenberg Ventures and Draper Fisher Jurvetson among others (including NASA via the Commercial Orbital Transportation Services and the Commercial Crew Development programs), Musk today controls the only reusable spacecraft capable of servicing the International Space Station. And Musk has ambitions to make manned travel to Mars commercially viable.


Amazon’s Jeff Bezos started highly secretive Blue Origin in 2000. Since his high school days, Bezos has been fascinated with the prospects of establishing colonies in space. Blue Origin is in the process of developing both suborbital and orbital launch vehicles and has developed a family of rocket engines to support such missions.


Las Vegas-based real estate entrepreneur Robert Bigelow founded Bigelow Aerospace in 1998 to develop space habitats – commercially operated space stations. He initially licensed an expandable space module technology that NASA had discarded. After many years of refining various components, two test modules were launched into Orbit in 2006/2007 where they currently remain. Bigelow’s development is ahead of current launch capacity and he awaits both availability of SpaceX’s Falcon 9 and Boeing’s CST-100 (Crew Space Transportation) spacecraft to launch his space stations and deliver humans to them.


If you had a crystal ball, and were able to predict the future, what are some of the more intriguing developments we might see in our lifetime?


Great question.  My fellow Virgin Galactic Future Astronauts PJ King, Edwin Sahakian and I are Executive Producing a film with the National Space Society on this very topic!


The real breakthrough has been a 95%-plus reduction in launch costs to LEO following the mothballing of the Space Shuttle. Entrepreneurial spirit and competition has effectively solved the problem of the first 100 miles – overcoming Earth’s gravity and carrying cargo altitude.This is leading to a revolution as big as the computer revolution the 20th Century.


As a result, we will see a far larger number of satellite launches leading to massive cost reductions in satellite manufacturing. We will start to see LEO constellation networks rather than geo-synchronous orbit satellites – again leading to massive savings. We will be able to cost effectively test the viability of space based solar power systems. There will be an enormous increase in environmental data collection and a whole new understand of the upper atmosphere.


The ability to cheaply launch components into LEO for assembly there will allow us to develop staging areas as jumping off points to longer missions – be that manned return to the Moon, Mars or beyond such as visits to Asteroids. And we will likely see this within a decade. On the planetary science front, deep space missions will no longer be billion dollar enterprises.


I think we will see SpaceX send a scientific mission to mars within the next decade with humans following on a SpaceX vehicle shortly thereafter. Elon may also be able to get the Mars Cycler going which would allow for up to 80,000 people to travel to Mars every year.


We will find applications of this new technology that we are not even yet dreaming of.


On a more personal note, what was the genesis of your interest in Space?


My interest in space began when I was 5 or 6 years old, sitting in my 1st grade classroom and watching the first Space Shuttle launch. I knew I wanted to be an astronaut then.


In 2006, I was able to buy my ticket on Virgin Galactic and in 2010 I also bought a ticket on competitor Space Expedition Corporation. I speak to university students around the world on entrepreneurship in commercial space, have spoken at new space conferences and am the author of the essay titled A Tourist’s Perspective on Space published in the book Space Commerce: The Inside Story By The People Who Are Making it Happen.


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 80.52%
  • SHORT SIGNALS 78.67%

End of the World? Ask Gold.

You’d think that if #EOW ("End of the World") Republicans and Democrats were credible that Gold would be ripping higher right? Nope. It's still crashing. Gold was down -3.2% last week. It's up 0.69% today.

End of the World? Ask Gold. - Gold

Don’t make the mistake of confusing the real risk of US #GrowthSlowing with “default risk.” They are two very different things.


Takeaway: September marked the end of an ugly 3Q13. Same-restaurant sales showed marginal (if any) improvement and traffic remains a huge concern.

We have been bearish on the casual dining sector since early July and, on Friday, Black Box gave us a look at September sales trends, which show a marginal improvement from an ugly July and August.  Traffic trends, however, remain anemic.  But, before we delve further into the details of the release, we thought it would be useful to point out which casual dining companies saw consensus metrix same-restaurant sales estimates adjusted in September.


The following companies saw 3Q13 same-restaurant sales estimates revised upward over the past month: EAT


The following companies saw 3Q13 same-restaurant sales estimates remain unchanged over the past month: BOBE, CBRL, CEC, KONA, RRGB, TXRH


The following companies saw 3Q13 same-restaurant sales estimates revised down over the past month: BBRG, BJRI, BLMN, BWLD, CAKE, CHUY, DIN, RUTH



Moving back to the release, Black Box reported that September 2013 same-restaurant sales increased +0.1%, while comparable traffic trends decreased -1.9% – same-restaurant sales improved +30 bps sequentially, while comparable traffic trends held flat.  These estimates come against September 2012 comps of -0.8% and -2.4%, respectively.  For the third quarter, same-restaurant sales and traffic are estimated to have declined -0.3% and -2.0%, respectively.  Both metrics declined -70 bps and -10 bps, respectively, over the prior quarter. 









Malcolm Knapp also released his September estimates last week.  Knapp-Track casual dining comparable restaurant sales declined -1.9%, while comparable guest counts declined -3.6% – comparable restaurant sales decreased -10 bps and guest counts decreased -40 bps, sequentially.  These results come against September 2012 comps of -0.5% and -2.3%, respectively. 


For the third quarter, comparable restaurant sales and comparable guest counts are estimated to have declined -2.5% and -4.0%, respectively.  This would indicate that both metrics declined -220 bps and -250 bps, respectively, over the prior quarter.  Knapp also noted that comparable restaurant sales and comparable guest counts were negative for all four weeks in September.


Currently, consensus metrix estimates for the 24 casual dining chains we track in the space are for 3Q13 same-restaurant sales growth of +0.7% (excluding DRI brands) versus +1.5% in 2Q13.  This would imply a -40 bps sequential deceleration in same-restaurant sales on a trailing twelve month basis over the prior quarter.







Howard Penney

Managing Director



ICI Flows: No Follow Through in Bonds

Takeaway: Bond funds were unable to follow through on last week's inflow which was the first weekly in 9 weeks with more outflows this week

This note was originally published October 10, 2013 at 08:14 in Financials

Investment Company Institute Mutual Fund Data and ETF Money Flow:

ICI Flows: No Follow Through in Bonds - svb 

Fixed income mutual funds flow showed no follow through with an outflow of $400 million this week, a reversal from the $1.2 billion inflow last week which was the first inflow in 9 weeks


Equity mutual funds booked an another outflow of $3.3 billion for the 5 day period ending October 2nd, a continuation from the $3.7 billion redemption from last week


Within ETFs, passive equity products experienced inflow of $1.3 billion for the 5 day period ending October 2nd with Bond ETFs losing $2.0 billion of investor funds during the week


ICI Flows: No Follow Through in Bonds - cast1



For the week ending October 2nd, the Investment Company Institute reported another weekly outflow in combined stock funds to the tune of $3.3 billion, essentially in line with the $3.7 billion outflow last week. The $3.3 billion outflow for the week broke out to a $739 million inflow into international equity products and a $4.1 billion outflow within domestic stock funds. The equity category has been a tale of two tapes recently with domestic equity funds having had outflows in 7 of the past 12 weeks compared to international equity funds which have had inflows every week in the past 12. Despite this weak run in domestic stock fund flows, the year-to-date weekly average for 2013 for all equity mutual funds now sits at a $2.7 billion, a complete reversal from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, bond funds were not able to maintain the momentum from last week and for the 5 days ending October 2nd, the aggregate of taxable and tax-free bond funds booked a $400 million outflow. The taxable bond category had slight inflows of $468 million which was washed over by the $868 million outflow in tax-free or municipal bonds. While the sharp outflows that marked most of the summer and the start of the third quarter have moderated, the appetite for bonds has hardly rebounded. The 2013 weekly average for fixed income fund flows is now a $525 million weekly outflow, a far cry from the $5.8 billion weekly inflow averaged last year.


We highlighted the year-to-date tallies of this rotation from bonds and into equities last week with the first inflow into total equity funds in 6 years with stock funds running at a $106 billion inflow thus far in 2013. Conversely bond mutual funds are working on their first annual outflow since 2004 with a $23 billion outflow thus far in '13. This is a substantial reversal from the $303 billion inflow into fixed income funds as laid out in our research last week.


Within our asset management sector launch in the middle of the summer, we released our regression models that forecasted an prospective inflow for stock funds of $80 billion and conversely a forward 12 month outflow of $100 billion for bond funds. Thus far into our coverage of the asset managers, the equity rotation has occurred at a faster than expected rate and bond fund flows have been fairly stubborn, although our forecasts have been directionally relevant. As such, we continue to recommend investors are long leading equity manager T Rowe Price (TROW) to capture this shift and conversely avoid or be short a manager more dependent on bonds like Franklin Resources (BEN).


Hybrid funds, or products that combine both fixed income and equity allocation had a surprisingly light week with the first outflow in 14 weeks. The year-to-date weekly average inflow for hybrid products however is still $1.6 billion for '13, almost a 100% increase from 2012's $911 million weekly average.



ICI Flows: No Follow Through in Bonds - ICI chart 2

ICI Flows: No Follow Through in Bonds - ICI chart 3

ICI Flows: No Follow Through in Bonds - ICI chart 4

ICI Flows: No Follow Through in Bonds - ICI chart 5

ICI Flows: No Follow Through in Bonds - ICI chart 6



Passive Products:



Exchange traded funds experienced mixed trends during last week with equity products booking an inflow and bond ETFs experiencing redemptions. Equity ETFs gathered $1.3 billion in funds, a deceleration from the $7.3 billion in the prior week and also down from the impressive $25.8 billion two week's ago. Including this week's production however, 2013 weekly average equity ETF trends are averaging a $3.3 billion weekly inflow, a strong improvement from last year's $2.2 billion weekly inflow average.


Bond ETFs experienced the first redemption in 5 weeks of $2.0 billion which was a reversal from the $1.3 billion in new funds garnered last week. Including this most recent outflow within passive bond products, the 2013 weekly bond ETF average is flagging at just a $369 million inflow, much lower than the $1.0 billion average weekly inflow from 2012.


In last week's ICI report we outlined the brewing ETF record for equities with 2013 thus far having produced $129 billion in stock ETF flow, well above the $117 billion produced in 2012 with still a quarter left in the year. Fixed income ETFs are struggling with just a $15 billion annual inflow year-to-date thus far in '13. This is well below 2012's trends of a $56 billion inflow. 



ICI Flows: No Follow Through in Bonds - ICI chart 7

ICI Flows: No Follow Through in Bonds - ICI chart 8




Jonathan Casteleyn, CFA, CMT






Joshua Steiner, CFA



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