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TALES OF THE TAPE

Almost every restaurant stock we monitor surged yesterday.  It is important to note the laggards.  Of the 40 Restaurant stocks we follow closely, two are down year-to-date: BWLD and GMCR. 

 

All QSR stocks (that we monitor) were up; the average move was +4.8%!  Volume for the group, as compared to the 30 day average, was also up albeit due to exceptional volume seen in trading of RUBO.  RUBO agreed to be acquired by private-equity firm Mill Road Capital LP for about $91 million.  In casual dining, stocks moved an average of 4.3%.  DIN, BOBE, and RT were the notable outperformers, posting strong gains on strong volume.  Notably, BWLD and KONA posted declines.

 

I see the down move in BWLD, in the face of such a strong intra-day market, as particularly telling and supportive of my view that is running a model that has lost sustainability.  I wrote in detail on this point in 4/28 in a note entitled, “BWLD – IT ALL COMES BACK TO ‘SUSTAINABILITY’”.  Interestingly, BWLD was upgraded to buy from neutral today.  CAKE was also upgraded from neutral to outperform.

 

TALES OF THE TAPE - stocks 5.10

 

TALES OF THE TAPE - cmd 5.10

 

Howard Penney

Managing Director


THE M3: SANDS TO CLOSE COTAI FINANCING; MELCO 10.5% BOND DEAL; FOREIGN WORKERS; AIRPORT/MICE

The Macau Metro Monitor, May 11th, 2010


 

SANDS CHINA TO CLOSE US$1.75 BLN FINANCING FOR COTAI PROJECT BY MONDAY WSJ, Reuters,

Sands China should close the $1.75BN financing for its Cotai expansion project no later than May 17 according to CEO of Sands China, Steve Jacobs, which will pave the way for construction to resume on the property.  Jacobs said phase one of the project, which will include 3,700 hotel rooms for the Shangri-La, Traders and Sheraton hotel brands, will open in the third quarter of 2011, representing a "three to four month" delay from the initial plan to open in June 2011.  Jacobs reiterated the project would open with 670 tables despite the Macau government's decision to cap gambling tables in the city.  He also said the company would "find a way" to eventually employ the up to 10,500 construction workers needed to complete the project despite a government proposal to require one local construction worker be employed for every worker from outside Macau brought onto a project.  Jacobs added he is sure there are now fewer than 2,000 workers in Macau available given the flurry of construction projects in the Chinese territory.

 

According to Jacobs, the company also saw a "low probability" of cost overruns at Sites 5 and 6.  In addition, Sands, which has been approached by local gaming firms in Japan, is eager to move into a market with the potential to be Asia's largest gambling market, Jacobs said.


MELCO SETS GUIDANCE AROUND 10.5% FOR DLR BONDS-SOURCE Reuters

MPEL has given price guidance of around 10.5% for its planned sale of up to $600MM of eight-year dollar bonds, according to a close to the deal.  Deutsche Bank, Bank of America Merrill Lynch, and Royal Bank of Scotland are the lead managers for the proposed bond, which will be non-callable for the first four years.  A series of meeting with investors in Singapore, Hong Kong, London, Boston and New York were held ahead of the proposed bond sale.

 

DEMOGRAPHIC STATISTICS FOR THE 1ST QUARTER 2010 DSEC

In the end of 1Q2010, the total number of non-resident workers decreased by 2,062 QoQ to 72,843.


AIRPORT HOLDING BACK MICE macaubusiness.com

The lack of adequate infrastructure, particularly an airport with extensive international connections, is the main reason Macau’s meetings business has not grown as fast as expected, says Michael Leven, president and COO of Las Vegas Sands. The city started pursuing business travelers seriously with the 2007 opening of the Venetian Macau, ''but we didn’t have enough hotel rooms to get the big functions." ''Even if we have 3,000 rooms at the Venetian, we needed more, which is what we’re building now'', Leven told The New York Times.


CMG - PICS OF THE LONDON STORE

Our London contacts sent us some pictures of Chipotle’s first Euro-store.

 

The following pictures were taken at 11am GMT today, prior to the lunch rush.  The locals seem to think that prices are a little high.  In the U.S., lunch is the most important day part.  If the London location is open late, the higher price point would likely make it non-competitive. At night, it is unlikely the Brits will forgo an extra pint to afford a burrito if they can go to a kebab joint and eat for less.

 

CMG - PICS OF THE LONDON STORE - cmg1

 

CMG - PICS OF THE LONDON STORE - cmg2

 

CMG - PICS OF THE LONDON STORE - cmg3

 

CMG - PICS OF THE LONDON STORE - cmg4

 

CMG - PICS OF THE LONDON STORE - cmg5

 

CMG - PICS OF THE LONDON STORE - cmg6

 

CMG - PICS OF THE LONDON STORE - cmg7

 

CMG - PICS OF THE LONDON STORE - CMG8

 

Howard Penney

Managing Director


investing ideas

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Try Again

“I make many changes, and reject and try again, until I am satisfied.”

-Beethoven

 

Managing risk in these globally interconnected times isn’t easy. That’s why we do it. You have to have your feet on the floor early every morning. You have to acknowledge new price data for what it is. You have to consume it, synthesize it, reject it – and try again…

 

This morning we are waking up to a whole host of Chinese numbers. On balance, they continue to confirm the conclusions embedded in all 3 of our Global Macro Themes for Q2 (Sovereign Debt Dichotomy, Inflation’s V-Bottom, April Flowers/May Showers) and remind us of one of the most important calls we made at the beginning of 2010, Chinese Ox In A Box (white hot loan and money supply growth in China would lead to inflation and government tightening).

 

We don’t try to shape the data to our investment themes. Sometimes it just does. The data is always changing, and our task as risk managers is to objectively change with it. Whether it’s the people who entered the year raging long everything China (after an 80% up year for China in 2009) or those who entered the month of May levered up long everything USA, it’s all one and the same. Making macro calls remains a competitive process. There will be winners and losers.

 

The biggest losers around the world today are those citizens who are hostage to the local inflation that they are experiencing in their domestic economies. At the end of the day, China is now importing the inflation associated with a politically charged Western World that creates fiat currencies out of thin air in order to attempt to solve for its sovereign debt problems.

 

Piling Debt Upon Debt Upon Debt results in long term inflation; particularly in countries where currencies are being debased. Last year, Timmy Geithner and Ben Bernanke debauched the Dollar. This year it’s Jean-Claude Trichet’s turn in clipping coins via a devaluation in the Euro. For those strategists who thought this wouldn’t end in a cyclical spike in global inflation, think again…

 

Here is a summary of the most important (inflationary) Chinese economic data released in the last 48 hours that took the Shanghai Composite down another -1.9% overnight to -19.2% for 2010 YTD:

  1. Chinese imports spiked to +49.7% year-over-year growth
  2. Chinese loan growth up +51% sequentially (m/m) in April to 774B Yuan (versus 511B Yuan in March)
  3. Chinese property prices (70 cities) +12.8% year-over-year representing the largest jump since 2005
  4. Chinese inflation (CPI and PPI) up again sequentially to +2.8% and +6.8% y/y, respectively
  5. Chinese Industrial Production (April) +17.9% versus +18.1% y/y in March
  6. China’s Money Supply (M2) for April slowed month-over-month by 100bps, but is still up +21.5% y/y!

Again, Inflation’s V-Bottom is a global reality born out of one of the world’s largest importers (China) buying things that are priced in Western Fiat Currencies. For those perpetual inflation doves and stock market bulls who don’t think creating 1 TRILLION Euros isn’t going to debase Europe’s currency value, try again…

 

After The Keynesian Elixir was applied to those wannabe short sellers of everything Friday May 7th oversold lows, we got what we wanted to see yesterday – the gut check. Did you chase or did you sell?

 

We sold… all day long…

 

For transparency purposes, here is my accountability card with time stamps (all EST) in the real-time Virtual Long/Short Portfolio at www.hedgeye.com (if you’d like to receive them real-time throughout each risk management day please email ):

  1. 955AM – sold CIT
  2. 1005AM – sold BBBY
  3. 1010AM – sold PRSP
  4. 1045AM – sold SPY
  5. 320PM – sold MYGN
  6. 327PM – shorted BRK.A
  7. 335PM – shorted BX

While ECB Chief Jean-Claude Trichet is lucky that the Coinage Act that was signed into law by President George Washington in 1792 is no longer strictly or universally applied (death sentence to politicians who clipped the citizenry’s coins), that doesn’t change the fact that the Euro is getting smoked right back to new lows again this morning. These politicians have no idea where their inflationary decisions fit in the halls of the last 3 centuries of global economic history. Nor do they care. It’s sad.

 

Some people have a blind trust that US and European governments are doing the right thing for markets. Some people don’t see the largest Sovereign Debt Bubble in world history as a leading indicator for inflation. Some people don’t see any risks in global markets until it’s too late.

 

My job as your Risk Manager isn’t to be willfully blind. It’s to make as many changes as I can to my positioning until it feels right. I need to accept and reject data as it finds its way into the correlations associated with marked-to-market pricing. I need to respect that consensus can be right or wrong longer than I can remain solvent. I need to be accountable to every decision I make, because getting it wrong is the only path to figuring out how to get it right again.

 

My immediate term support and resistance levels for the SP500 are now 1143 and 1168, respectively. On a breakdown and close below 1143, I see no support for the US stock market until 1107. Yesterday I raised my Cash position in the Asset Allocation Model to 58%, dropping my allocation to US Equities from 6% to 3% on strength.

 

Best of luck out there today,

KM

 

Try Again - USDEURO

 


US STRATEGY – SETTLING INTO REALITY

Reality leaves a lot to the imagination. 

~John Lennon

 

In early trading, the U.S. stock-index futures are declining after the S&P 500 Index surged 4.4% the biggest move in more than a year.  The pressure in early trading is centered on the REALITY that the nearly $1 trillion emergency lending package does not fix the Eurozone's sovereign debt issues, as well as China being down 1.9% over night on signs of overheating. That brings China's year-to-date decline to -19.2%.  As we look at today’s setup, the range for the S&P 500 is 26 points or 1.4% (1,143) downside and 0.8% (1,169) upside. 

 

Inflation in China is also a REALITY.  China's consumer prices rose a greater-than-estimated 2.8% in April, the fastest pace in 18 months.  Chinese inflation accelerated from 2.4% March and the 2.7% median estimate on Bloomberg.  Chinese Producer prices jumped 6.8% from 5.9% in March and the 6.5% median estimate.  Importantly, China NDRC Housing prices rose by a record 12.8% in April from 11.5% in March.  The current government crackdown on slowing a white hot economy is having little impact as price pressures continue to build throughout the economy. 

 

The Hedgeye Risk management models have all nine sectors broken on TRADE and only three broken on TREND.  Two of the three sectors broken on TREND (XLE and XLB) are leveraged to the RECOVERY/REFLATION trade.  With the Chinese market also broken on TRADE and TREND, we would be looking to other sectors to outperform.  Currently, our 3% allocation to US equities is in the Q’s.       

 

Yesterday, short-covering was getting a bulk of the credit for the bounce, with parts of the RISK AVERSION trade was in place as the VIX down 29% on the day.  The Hedgeye Risk Management models have levels for the VIX at: buy Trade (25.90) and sell Trade (39.47).

 

Yesterday, the Dollar Index looked like it was going in for a rough ride, but ended up down only 0.35% on the day.  In early trading today, the DXY is trading up 0.5%.  The Hedgeye Risk Management models have levels for the DXY at: buy Trade (83.29) and sell Trade (85.52).

 

In Europe, today's REALITY is that the Euro is crashing right back down to the low end of our range from yesterday. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.25) and Sell Trade (1.29). 

 

Not surprisingly, the RISK/RECOVERY pockets of the market were some of the best performing sectors yesterday.  The Industrials (XLI), Financials (XLF) and Consumer Discretionary (XLY) were the three best performing sectors on the day.  Some of the notable subsectors that outperformed were, the S&P Machinery Index (up 6.9%), the S&P Steel Index (up 6.3%), Transports (up 5.5%) and S&P Homebuilder index (up 9.5%).

 

Within the XLF, the Banks lead the group higher; the BKX was up 6.2% on the day.  The mortgage insurers ran up sharply yesterday, while the Investment banks were some of the laggards (GS up 0.6% and MS up 4%). 

 

The SAFETY trade (Healthcare, Consumer Staples and Utilities) lagged the broader market after outperforming on the back of the defensive rotation seen last week. 

 

Yesterday, Copper and Natural Gas lead commodity prices higher.  Copper was up 2.6% yesterday, but is still broken on TREND and TRADE and in early trading, is following the Chinese market lower.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (3.06) and Sell Trade (3.34). 

 

OPEC raised estimates for global oil demand in 2010 on a more optimistic outlook for growth in China. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (75.06) and Sell Trade (80.36). 

 

The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,184) and Sell Trade (1,217).

 

Reality is the state of things as they actually exist, rather than as they may appear or may be thought to be.

 

Howard Penney

Managing Director

 

US STRATEGY – SETTLING INTO REALITY - S P

 

US STRATEGY – SETTLING INTO REALITY - DOLLAR

 

US STRATEGY – SETTLING INTO REALITY - VIX

 

US STRATEGY – SETTLING INTO REALITY - OIL

 

US STRATEGY – SETTLING INTO REALITY - GOLD

 

US STRATEGY – SETTLING INTO REALITY - COPPER



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