A combination of game mix and “tighter” slots has driven a consistent uptrend in slot hold percentage over the past 15 years. Slot hold refers to the percentage of dollars played that is kept by the casino as win or revenue. The increasing popularity of video slots and penny slots has led to a more favorable hold mix for the casinos. Casinos can also tighten slots so that customers win less often. So in other words, consumers are getting less and less paid back to them in winnings for every dollar they put in.

Hold percentage can be viewed as pricing. Slot pricing has gone up for the consumer, similar to hotel rates, F&B, entertainment, and everything else in Las Vegas as we’ve been writing about. Room rates are already falling and F&B pricing are probably not far behind. Looser slots could surely expedite the margin compression scenario discussed in our 6/22/08 posting.

Shark Chart

NYSE Short Interest Overlaid with the XLE and the XLF

More Evidence to Support our Thesis on MCD and Coffee

A Crain’s article reported today that MCD’s specialty beverage rollout is falling short of the company’s target of selling 350 specialty coffees per restaurant each week. The article states that according to MCD documents that sales in the Kansas City test market peaked at 359 coffees in one week in December and have since declined steadily to 217 a week in June. The sales results show that a majority of the specialty coffee sales are not bringing in new customers but rather are coming at the expense of regular coffee sales. Two other test markets in Bakersfield, CA and Raleigh-Durham, NC are showing similar trends.
  • I have been saying for some time now that the specialty coffee rollout would not prove to be another silver bullet for MCD’s U.S. business as I do not think MCD will be able to change consumer perception enough to steal meaningful share from Starbucks. Additionally, it will be difficult in today’s environment to convince the average MCD customer to spend $3 for a cup of coffee (as evidenced by SBUX’s recent traffic trends). This new beverage platform requires franchisee investment (costing the entire system more than $1 billion to implement nationwide) at a time when franchisees’ bottom lines are already under pressure from rising commodity costs and increased dollar menu transactions.

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%

Hong Kong's Hot Plate Chart

The crowd bought on the news in Asia overnight, after the well anticipated Hong Kong inflation report came in at a new ytd high of +6.1% year over year. If I am right, July’s inflation data could be lower sequentially from this June report. That would continue to inspire a short term covering rally in Asia, particularly Hong Kong.

The Hang Sang Index closed at 22,532, up +3% overnight. My short term resistance level was 22,209, so this is a positive event. The next critical level is 23,742, and I will rest comfortably, dependent on the incoming data, to make a call around that pin.

chart courtesy of


According to a report by real estate research firm Reis, U.S. store closings and cutbacks turned the second quarter into the worst one for strip mall owners in 30 years. Strip malls saw average vacancies spike 0.5% to 8.2%, a level not seen since 1995. To date, we have not seen a corresponding reduction in capacity at casual dining restaurants. The reduced traffic to the malls and strip centers puts downward pressure on traffic trends at restaurants adjacent to these locations.
  • The end of the current cycle will be marked by a reduction in Casual Dining capacity.
Casual Dining traffic trends versus Vacancy rates


The Volatility Index (VIX) has come in hot from our 31-32 target, correcting -22% in less than a week. A breakdown and close below the 23.99 line, gets me more confident in the holding long exposure for a continued market squeeze to test S&P-1289.

There is blood in the water. The sharks are circling the shorts. Be nimble, and be careful out there.


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