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CHEAP BUFFETS AND FOOD COURTS

As anyone who has visited Las Vegas over the past few years can attest, Vegas is damn expensive, especially the restaurants. I've written extensively on the vulnerable margin situation in Las Vegas (see 2 separate margin posts on 6/22/08). Food and beverage (F&B) operations are an important contributor to profits and profit margin. The problem is that Las Vegas needs to continue to attract visitors to capture the casino business. As consumer spending slows (contracts?) hotel rates and F&B menu pricing will retrench toward loss leader status. Contrast Las Vegas to the rest of the country where hotels and restaurants maintain pricing as long as possible to protect margins, even as occupancy and covers decline. Las Vegas doesn't have that option.
  • The chart to the right shows the estimated average check per meal in Las Vegas using data from the Las Vegas Convention Authority. Note that the significant increase in check has corresponded to rapidly expanding casino hotel EBITDA margins. I don't know about you but $20 per meal (including breakfast!) sounds like a lot of money to me and hardly sustainable. Look for a resurgence of the cheap buffet and the food court.

MCD - MCD And The Olympics

I know KFC has MCD on the run in China, but this is going a little too far....

From a sports Blog..

The Olympics are supposed to be about the spirit of competition among nations although we all know the games are about making money. With that in mind, McDonald's is seizing the opportunity to promote its brand - even if it's at the expense of America. Ronald, Grimace, the Hamburglar, and the other characters at McDonald's have chosen the slogan Wo jiu xihuan Zhongguo ying, for their Chinese marketing campaign. When translated the phrase means I love it when China wins. Think I'm Lovin' It with a sino addendum.


VFC/WRC vs The Private Giant

Before you read this, you gotta check out my post from Monday talking about how Levi's push into the male underwear category posed a threat to Warnaco's CK Underwear business (over 1/2 of cash flow and at peak margins). Now add another company to the list. VF Corp. Yes, VFC sold its underwear business well over a year ago, but unfortunately its Lee and Wrangler brands compete heavily with Levi's - which just printed a disastrous quarter.

  • Levi Strauss & Co is not public, so naturally no one in the equity world on Wall Street cares about it. But let's not forget that Levi is 50% bigger than VFC's Jeanswear business. Levi's and the VFC brands combined account for about 50% share of denim in mass channels. This is a zero sum game, and while slight shifts in share one way or another happen all the time, any major swings in results for one usually flow through to the other. Not good then that Levi's sales in the Americas were down 20% this quarter.
  • Granted, VFC just preannounced on the positive side - which suggests that its portfolio in aggregate is tracking better than Levi's (which is dependent on a narrow brand set -- Levi's and Dockers). But when such a big competitor prints the sharpest revenue slowdown in over 5 years, increased order cancellations, and gross margins rolling over on the margin, how can this NOT matter? Tack on the fact that Levi's is not public, and does not have to worry as much about external quarterly expectations and they can make the right business decision when times like this get tough. Top it all off with increased problems in implementing its new ERP system, and exposure to now-defunct Goody's, and it is not a pretty picture as it relates to control over its business.
  • Increasingly desperate giants in this business are usually angry and destructive giants. Levi's is huge and its temper is flaring. With VFC, now we face promise of an EPS growth ramp in 2H that is baked into estimates (consensus calls for 14% growth), which also coincides with VFC having to anniversary recent acquisitions. At the same time, short interest remains low, and VFC has been a perennial favorite among the sell side. In fact, there are no sell ratings, and the 'buy rating ratio' of 67% is as high as it has been in over 5 years. While it may not seem expensive at 7-8x EBITDA, it's tough to ignore that it has seen 4-5x in the past. Granted, it was a more asset-based and commodity-driven model during those periods. But even high quality names like Ralph Lauren are at 8x EBITDA. Others in the space are much cheaper.

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 80.64%
  • SHORT SIGNALS 78.61%

Alcoa (AA): -6.2% Intraday Reversal From Opening Highs, Ouch!

This kind of pin action doesn't make the hearts of the levered long momentum investing community grow fonder - that, I can assure you. Since my "Fading Fast Money" call on May 21, Alcoa has lost 1/3 of its value.

Short interest is only 2% of the float and we have some "concentrated" hedge fund players on the top holders list that are getting pretty good at buying tops. This continues to look like a great cyclical short.

Earnings season has officially begun.
KM

(chart courtesy of stockcharts.com)




Solid Gold: Amidst Today's Carnage, GLD Shines...

If you have a big allocation to anything that closed up on the day today, smile. That's called alpha. Gold continues to act well on days when US equities swoon. The best part about it is that it's no one's liability.

Attached is the chart of GLD. It's up over +7% since the mid May US bear market rally high in US stocks.

*Full Disclosure: I own GLD in my fund.
KM


Hedge Funds Facing The Reality Of Oversupply...

Bloomberg Article today By Katherine Burton and Saijel Kishan - "Hedge Fund Research Inc. show. It's the worst start to a year since the Chicago-based firm began tracking returns in 1990"....
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That story is getting a lot of air time today, and it should - 18 year lows are statistically significant. Can you imagine what these numbers would look like if they back tested 25,000 PM's performance across real bear market cycles like that of 1973-75?

The numbers for June's quarter end are rolling in, and the tide is rolling out on the levered long community. To borrow Buffet's analogy, now we can see who was swimming naked, without a risk management process.

I've been making this call since November of 2007 when I left the buy side. So now, at the very least, I do not have to endure the countless "you have an axe to grind" emails I was getting 9, 6, and 3 months ago from strangers. They were levered long, and ultimately proven wrong.

KM

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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