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Exorbitant Privilege

“The US is not a superpower. The US is a financially dependent country that foreign lenders can close down at will. Washington still hasn’t learned this. American hubris can lead the administration and Congress into a bailout solution that the rest of the world, which has to finance it, might not accept.”

-Paul Craig Roberts


I read this quote just a few minutes ago from a respected American who has served his country well.  As an American, it’s painful and embarrassing at the same time to get up each morning and read sentiments like this.  It makes me want to move to Canada (kidding).


Valéry Giscard d’Estaing, a French Minister of Finance in the 1960’s referred to the benefits the United States had in the US Dollar being the international reserve currency as an “exorbitant privilege”.


Yesterday the S&P 500 closed flat on the day on anemic volume; it feels like everyone is on summer vacation.  We learned yesterday that the Chinese are selling their holding of US Treasuries in favor of Europe and Japan.  We are financially dependent on foreign lenders and our biggest creditor is saying “no mas” - on this news the S&P 500 traded flat on the day.   


The dollar sent the right message yesterday, declining 0.50% and it is headed lower.   The actions of the Chinese are telling the rest of the world to flee dollar-denominated paper assets.  This is a problem for the dollar as the Federal Reserve appears to be a lender of last resort for the U.S. Treasury.  While the selling of foreign-held dollar-denominated debt has been orderly so far, the inflow of foreign-held dollars into the U.S. will debase the dollar and lead to higher inflation.  Despite what the FED sees (it’s focused on the “core” figure), the signs of inflation abound in the economy. 


(1)    Gold traded higher yesterday (looking to gain for a fourth day in a row) and has rallied 3.1% in the past month.

(2)    Copper traded up 0.8% yesterday and is up 13.3% over the past month.

(3)    Last Friday, the US CPI number crept higher and will again in August.

(4)    Today’s UK inflation reading is above the BOE target rate

(5)    The US PPI number will also post an upside surprise


Since the US does not have the balance sheet to execute on any creditable plan and the world has little faith in our political leaders, it’s hard to see a way out.  The “Fiat Fools” in Washington have already done everything in their power to spend or to create whatever money was needed to prevent systemic collapse in 2008. 


Yet, today we seem to find ourselves in a precarious position.  While the situation is not overly similar to 2008 (yet); Lehman Brothers’ collapse is one important difference that shocked markets. Many facets of the economy are on a knife edge: housing is once more coming to the center of people’s attention as a concern and unemployment remains at elevated levels. 


Should inflation meaningfully take hold, it would be a death knell for the margin story embedded in the current estimates for the S&P 500.  The only action that will expeditiously calm the markets is more spending or creating of U.S. cash (which creates inflation).  Daryl Jones has written extensively on this; our economy is addicted to foreign financing just as acutely as it is addicted to foreign oil. 


The futures are rallying today on the back of China rising for the third day (up 0.4%) on signs that the Chinese economy is maintaining some momentum in June.  But this is not the case in the US.  The surging trade deficit and anemic retail sales (plus the Fed’s own admission) suggest that 2Q GDP will be revised downward and that 2H10 GDP will be even slower. 


With consumer credit continuing to contract and confidence readings trending downward, downward sequential movement in GDP growth rhymes with what the data is indicating.  We estimate that personal consumption growth will slow to less than 1% in 4Q10 and discretionary spending growth will slow to a rate close to what we experienced in 1Q09. 


The unease with which Valéry Giscard d’Estaing viewed a US Dollar denominated world reserve currency is not a relic of the 1960’s.   In 2009, Luo Ping, director general at China’s Banking Regulatory Commission, said in New York, “Once you start issuing $1 trillion-$2 trillion…we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do”.  Yesterday, we saw this sentiment manifest itself in action.  Keith highlighted Ping’s comment in real-time back in early 2009, and the selling of U.S. Treasuries by the Chinese is indicating that the turn in 10 year US Treasury yields is coming.


Function in disaster; finish in style

Howard Penney


Exorbitant Privilege - hpel

COMPLIANCE: The Birthday Boy of Last Resort

We can share what we got of yours, ‘cause we done shared all of mine…
-         Grateful Dead, “Jack Straw”



It’s Friday the 13th, and Fed Chairman Bernanke is baaaaack, astride his battle-scarred helicopter.  Where foreign central bank officials used to suffer Chopper Envy, the measly purchases the Fed will be able to undertake going forward, as announced by a distinctly half-hearted Chairman Bernanke, make it clear the Chairman’s whirly-bird has been chopped down to size.
And while we’re on the subject, Happy Birthday to Secretary Geithner (born August 18, 1961).  In the spirit of the times, we wish the Secretary many extraordinary and extended returns of the day.
What will be the next shoe to drop?  And will it turn the perpetually youthful Secretary Geithner from a lean and mean 49 year-old into a suddenly decrepit semi-centenarian, or will he continue to tough it out?  His deluded and tenacious clinging to what are generally called “Keynesian” principles notwithstanding, we like Secretary Geithner and wish he were on our side.  (“If only he had used his genius for good…!”)



COMPLIANCE: The Birthday Boy of Last Resort - chart1



John Maynard Keynes was a highly successful currency trader, a self-made millionaire in a day when a million was actually… well… a million, and a man who honed his intestinal fortitude and grasp of human nature where it most counts: in the arena of putting one’s own money at risk.
We do not pretend to speak for Mr. Keynes, but we think his trader’s acumen would temper a bureaucrat’s blind urge to shovel good money after bad in the current scenario.  Indeed, as a currency trader, Keynes would no doubt recognize that today’s money is no longer so Good.  (Tim, maybe you should tell you friend Ben?)
One of the ways in which the yawing Helicopter is trying to stave off the Inevitable is by buying everything that is not bolted down.  And while it has become popular political sport to attack the likes of Congressman Barney Frank, he appears not to be to blame.
It is “Common Knowledge” today that Frank single-handedly trashed the American economy by “rolling the dice” on housing, letting Fannie and Freddie run wild with the public checkbook.  But while Freddie and Fannie enjoy “Most Favored Too Big To Fail” status, the fact is that the private sector issued far much paper, of far lower quality, than Fannie and Freddie combined.  Perhaps the biggest issuer of the worst paper was Lehman Brothers – probably the reason it was subjected to involuntary assisted suicide at the hands of the former Treasury Secretary while the Birthday Boy looked on.
The “real problem” with Fannie and Freddie, as everyone will tell you (but really… everyone.  We hear it from our barber, the guy at the pizzeria and half the cab drivers in town.) is that the government remains on the hook for its debts, but will not acknowledge it.  Indeed, even the steely-eyed Secretary Geithner had occasion to balk when asked outright whether GSE debt is sovereign debt of the United States.
Let’s get it straight: debt incurred by the government on behalf of poor citizens is not sovereign debt.  Debt incurred by powerful private corporations in the process of scamming poor citizens, and foreign investors – that is sovereign debt.  If you don’t think so, look at how much subprime paper has made it onto the Fed’s balance sheet.  TARP was designed to wall off toxic debt by buying it from the banks – a process which would have driven down prices to a less mythical level – but ended up giving money to the banks outright, while allowing them to not write down the worthless paper they continue to hold.  Now where does that paper go?  Behold Helicopter Ben, spinning his blades in reverse, sucking up all that nasty stuff, putting it on the public balance sheet.
Since it’s your birthday, Tim, we thought we’d show you the next tranche of toxic waste to grace the Fed’s balance sheet.  Call it our present to you.
With the ink on Dodd-Frankenstein barely dry, we read (Bloomberg, 9 August, “Structured Notes Are Wall Street’s Next Bubble, Whalen Says”) about the opaque and unregulated market in “structured notes.”  Christopher Whalen, of Institutional Risk Analytics, is credited with predicting the collapse of the mortgage backed market as early as March of 2007, so his insights may bear examination.
Whalen says the banks are using the same loophole that permitted the over-the-counter CDO and auction-rate securities markets to metastasize, and selling illiquid structured notes – one-off private contracts – often with little disclosure, and promising “enhanced yields that go well into double digits.”
The firms originating these contracts have no obligation to make markets in them.  Indeed, it is not clear what regulatory regime they may be brought under.  A spokesman for the Structured Products Association says they are “used by sophisticated investors to make tailored bets,” and “while it’s true that firms make clear in the prospectuses that they are under no legal obligation to provide liquidity, they have provided it over the last two decades without a single hiccup.”  But as we saw in the Goldman / Abacus hearings, “sophistication” is a concept open to a broad range of interpretations, and every new instrument created by Wall Street always worked fine – until it didn’t.  Retail sales of structured notes hit almost $30 billion this year, a 72% increase over last year.  Are all those people “sophisticated,” or are they blinded by nominal double-digit returns?  We can just hear Fabrice Toure saying “Dat’s de deal!”
Whalen writes that these investments are being packaged by the same firms now making an elaborate public show of the burden Dodd-Frankenstein represents for their business.  He says there are no standards for what must be contained in such a package, and that often they are “pure derivatives,” meaning no actual security underlies the projected return.  A bank could issue a note and make an offsetting bet.  Or it could just hope the market will trade in its favor, and that it can fill its own order to make payments to the investor when the time is right.  In short, an IOU.  Whalen says he is aware of two hedge funds being created “specifically to buy this crap from distressed retail investors” who will see the value of their holdings crushed when Treasury rates finally turn up.
For reasons beyond our meager ability to comprehend, structured notes are available to retail buyers, apparently without any regulatory requirement or standards of minimal disclosure, or a sophistication test.  Writes JP Morgan, “a principal protected note is backed by the firm that issued the note.”  They explain that the notes are not FDIC insured.  If an issuer goes bankrupt, the “principal protected” note is unsecured debt of the issuer.  Which means that the instruments underlying the note could be profitable, but the holder of the note might still receive nothing – exactly what happened to holders of notes issued by Lehman Bros.
JPM also clarifies that there is no aftermarket for the notes, that “will generally trade at a discount to their value at issuance” because of something called “distribution and hedging fees embedded in the original issue price.”
Allow us to point to two troubling usages here.  First, the instruments trade at a discount to their issue price, not to their value.  “Value,” as Marx points out in the early pages of Das Kapital, is a moral and spiritual concept, not to be confused with market price.  Second, the reason these notes trade at a discount is that the issuer takes hefty sales commissions (“distribution fees”) and banking and trading commissions (“hedging fees”) and builds them into the price to the buyer.  Like the structured derivatives offered to the likes of Jefferson County and the government of Greece, since there is no market quote for these notes, only the seller knows what price they should trade at.  What price is that?  How much can I get you to pay?
To JPM’s credit, they say the notes are “not intended to be actively traded instruments and are intended to be held to maturity.”  In common parlance, they are what we call “To who?” securities.  When the customer calls demanding to sell out a position, the broker asks, “Sell?  To who???”
When the debacle in unsecured structured notes hits, how many will end up on the Fed’s balance sheet?  The notes are unsecured obligations of the issuer, which will need to make a reserve based on their own internal calculation of the percentage likelihood of having to pay a projected dollar amount at maturity.  But this is an unregulated contract, so there appear to be no set standards for reserve computation.  This tips us off to two things.  First, when the “perfect storm” in these notes hits, the banks will not have the funds to pay out.  Bloomberg reported last month (16 July, “Bank of America Leads Sales of Structured Notes in What May Be Record Year”) “banks have sold $22 billion of structured notes to individual investors in the US this year,” with B of A accounting for $4.7 billion.  We sincerely doubt B of A has reserved $4.7 billion to pay off these notes.  Who is going to haul B of A’s chestnuts out of the fire if these IOUs actually come due?  Unlike Lehman, B of A has a huge percentage of Americans’ wealth in its deposit accounts.  And unlike Lehman, it is FDIC insured.
So our first question is answered: there is a good likelihood that a Perfect Storm will hit structured notes.  When it does, they will have to be sucked onto the Fed balance sheet, because FDIC insurance will not go far enough to cover the face amount outstanding.
So Happy Birthday, Tim!  Your BFF over at the Fed has launched a new party game called Pin the Tail on the Administration, where every toxic piece of financial excrement that no one has the political will to flush down the tube gets bought at inflated prices with the taxpayers’ money and socked away in the Secret Stash.  This game proceeds with all the players blindfolded and will only end when someone removes the blindfold and says out loud, “But these numbers are way overvalued!”  So, Tim, your Secret Birthday Question is: who’s going to buy from the Buyer of Last Resort?  In God we trust, indeed!
But here’s a better question.  The reason the banks have so little capital reserved against these notes is that they believe they will never have to pay out on them.  Buyer beware?  How about, buyer, be an idiot?



Moshe Silver

Chief Compliance Officer


This insight was originally published on July 8, 2010 for subscribers. RISK MANAGER SUBSCRIBERS have access to SELECT MACRO content in real-time.




Conclusion: Washington’s Economic Officialdom doesn’t understand that a ZERO percent “risk free” rate of return not only scares capital out of this country, but that it is also a tax on the fixed incomes of baby boomers with hard earned savings accounts.



MACRO: BERNANKE "GET IT OFF ZERO" - Screen shot 2010 08 17 at 9.02.04 AM



It’s no secret that we are not fans of Ben Bernanke and his Princeton crony Paul Krugman. We don’t believe in disrespecting the cost of (or access to) capital. When you socialize an economic system, you encourage bad behavior by undisciplined allocators of capital. Bad players then perpetuate existing problems.
Thankfully, there seems to be a reasonable voice at the US Federal Reserve who doesn’t wake up looking to pander to a Nobel Prize winner that has seen nothing but his 2008 theories fail. When you watch Krugman speak, you tell me if the man looks right stressed. If I were him, I would be too.
Kansas City Fed head, Thomas Hoenig, speaking with Kathleen Hays on Bloomberg Radio's "The Hays Advantage," yesterday at 11:30AM EST said he didn't think a one percent interest rate would be harmful to the economy. "I am not saying raise rates to very high levels. I am saying get it off zero," Hoenig said. (Source: Bloomberg)
Below, Darius Dale did a solid job paraphrasing the highlights from an outstanding Hays interview:

You have to be careful with resisting the inertia of “extended and exceptional”.  Just because the EU sovereign debt crisis scared investors and inflation fears subsided doesn’t mean that we should hold rates low indefinitely.

How do you incentive savings and subsequently loans when you’re giving people zero % returns on saving?

You can’t solve every problem with monetary policy. It is an allocative instrument and we need to use it carefully.
I’m not saying take rates up substantially. I’m advocating a policy towards a slow normalization of rates (i.e. what we’re seeing in Australia, etc.)

There is a time factor; the more we delay, the more difficult it will be to make a move, as uncertainties and issues build up. Slowing growth, housing, and the Bush tax cuts expiration will all be factored into the debate as we progress through the year.

There will always be risks and the more you delay in acting, the more the risks begin to pile up.

To have lived through three bubbles (housing, tech, 1970’s), not calling out the negative implications of negative real interest rates would be a derelict to my responsibility as a official of the FOMC.

It’s expensive to hire people in the U.S. That and uncertainty about the future – including burgeoning fiscal deficits – means we are going to have to wait until the confidence comes back for job creation to accelerate.

When I was elected Federal Reserve president of K.C., I was given a single reichsmark by my elderly German neighbor. He said to me, “When I was a boy, this could buy a small house. By the time I got older, it couldn’t even buy a loaf of bread. Don’t let that happen here.”

The German hyper-inflation was caused by trying to fix every single economic and political problem with monetary policy.

Keith McCullough
Chief Executive Officer
Darius Dale

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The Macau Metro Monitor, August 17th, 2010



Jointly announced by the Ministry of Interior and the Ministry of Transportation and Communications, revisions include an extension of entry permit validity to three months, more flexibility with the "OK Board" expedient, and looser qualifications for mainland citizens residing in Hong Kong, Macau, and other overseas locations.


The National Immigration Agency stated the new measure is in line with the government’s policy of continuing to open Taiwan up more to mainland tourists.


Melinda Chan Mei Yi, wife of chairman David Chow Kam Fai, has bought back the 45% of Macau Legend’s capital from foreign investors for USD 125 million (MOP 1 billion) in late July.  The USD 125MM buy-out is only 32% of the USD 390 MM (MOP 3.1 billion) they put into the company back in January 2007.  The group of shareholders included Merrill Lynch, Och-Ziff, TPG-Axon, David Ross, Sean Fitzpatrick, and Siger, an investment fund connected to the King of Morocco – but Siger, which manages the Moroccan royal family’s wealth, later pulled its investment out after finding out it was linked to gaming business.


Bureau of Labor and police raided Galaxy Macau's construction site and found 13 'black' workers after inspecting over 1846 workers (1429 local/ 417 foreign).

China's Selling Treasuries… Again

Conclusion: China continues to diversify its FX holdings away from U.S. Treasuries while the rest of the world (including the Fed) continues to buy. Just as it has been for global growth over the past 18-20 months, we believe China’s selling is an important lead indicator regarding the future of U.S. Treasuries and the U.S. dollar.


Position: Short 1-3 year U.S. Treasuries via the etf SHY. Short the U.S. dollar via the etf UUP. Long the Chinese yuan via the etf CYB.


The most recent TIC data was released today and it confirms one of Hedgeye’s key long-term TAIL ideas that the U.S. Dollar will continue to make a series of lower-highs and lower-lows from a long term perspective. China, the largest holder of U.S. Treasuries, continued to be a net seller, lowering its U.S. Treasury holdings by an additional $24 billion in June to $843.7 billion. Since July 2009’s peak holdings of $939.9 billion, China has sold a cumulative $96 billion of U.S. Treasuries with a quarter of that total coming in the most recent month for which we have data (June ’10). Moreover, China has nearly liquidated its holdings of short term bills, which peaked at $210.4 billion in May ’09 and are now at $4 billion – a 98% decline!


China's Selling Treasuries… Again - 1


In contrast to China’s selling, total net foreign purchases of U.S. Treasuries increased to $45.7 billion in June vs. +$24.3 billion in May. Japan (#2 holder) and the U.K. (#3 holder) each increased their exposure to U.S. Treasuries in June, up $16.9 billion and $12.2 billion, respectively.


We continue to have conviction that the largest bubble remaining in the global marketplace is that of short-term U.S. Treasuries. At ~50bps, the yield on 2-year Treasuries is at its lowest level ever. Ever, as they say, is a long time and that represents one of the most asymmetric risk setups globally marketplace – yields can’t go down much further from here, we believe. In fact, because of the premium investors are placing in “safe” assets in light of global growth slowing, we feel the market has not priced in what we feel are substantial long term risks to U.S. Treasuries and the U.S. Dollar. We highlighted those risks two weeks ago in a note titled: China’s Stress Tests(s): Risks to the Global Economy. Excerpts below:


In a recent study done by the Congressional Budget Office, U.S. federal debt held by the public as a % of GDP is likely to eclipse 185% in just 25 years under scenarios that we consider aggressive based on assumptions of above-trend tax receipts and below-trend expenditures – which certainly hasn’t been the case of late (see Daryl Jones’ note from 7/13: The Deficit Still Looks Ugly, Normalize for TARP and It Looks Uglier). The results of the mid-term elections may prove to be a positive catalyst on the margin for reigning in the deficit, but a slowing U.S. economy may ultimately prove to trump any form of American Austerity.


On August 3rd, we put out an extensive presentation regarding the future of U.S. sovereign debt (email us if you need the replay), with the key takeaways being: 1) current demographic trends will likely beget further deficit spending; 2) a low U.S. savings rate will necessitate that an increasing amount of foreign buyers will be required to fund new debt issuance; and 3) at current and conservatively-projected near-term debt levels (+90% of GDP), U.S. economic growth will be below-trend for years to come – likely furthering the “need” for additional government spending and investment. All told, the U.S. is likely to issue a great deal more of U.S. Treasury supply in the coming decades and buyers of that supply will be increasingly foreign entities, which increasingly makes the U.S. vulnerable to external shifts in demand for U.S. sovereign debt – which is currently near all-time highs. If we’ve learned anything from Greece’s sovereign debt woes, it is that, ultimately, the market can and will re-price sovereign debt and reset the cost of government borrowing.


China's Selling Treasuries… Again - 2


It is important to note that we aren’t suggesting that U.S. Treasuries are following in the footsteps of Greek sovereign bonds. What is likely to happen based on historical precedent set by Japan is that Treasury yields stay low as a result of prolonged near-zero interest rates. From a central bank action perspective, there hasn’t been a threat to Japanese Government Bonds in decades and the United States has already started on that path. What matters to China, however, is converting those debentures into cash upon maturity. The U.S. Dollar Index continues to make as series of lower-highs and lower-lows from a intermediate and long term perspective, meaning that as time elapses, China is likely to receive less and less purchasing power from converting U.S. Treasury debt into actual currency. The U.S. dollar is still the dominant currency as a percentage of world currency reserves, but, as we say, everything that matters in Macro happens on the margin. In the last ten years alone, the dollar has declined over one thousand basis points as a percentage of world FX reserves, falling from 71.9% in 1999 to 61.5% in 2009, according to the IMF. The outlook for the U.S.’s economic growth and debt build-up over the next 20-30 years suggests the dollar will not likely regain any of its lost value any time soon.”


All told, China considers the risks to holding U.S. treasuries so great, that it favors Japanese Government Bonds over them of late. China bought more Japanese bonds than it sold for a sixth month in June (456.4 billion yen vs. 735.2 billion yen in May), heading for the biggest annual increase since at least 2005, according to a recent report by the Ministry of Finance in Tokyo. Even with a government debt-to-GDP ratio north of 200%, JGB’s still represent a more attractive investment for China’s FX reserves than U.S. Treasuries, which says a lot about what could be coming down the proverbial pike for the U.S. Dollar.


As Keith penned in today’s Early Look, capital chases yield either through growth or high interest rates and the intermediate-to-long-term outlook for the U.S. has neither. Perhaps that’s why foreign investors sold $13.5 billion in U.S. corporate bonds in June (the highest amount since January 2010), and another $4.1 billion in U.S. corporate stocks (the most since July 2008). All the while, Capital continues to pour into places like China, SE Asia, and Brazil. Just recently, ICBC Credit Suisse Asset Management Co. raised 14 billion yuan ($2.1 billion) to set up China’s largest bond fund. Expect this trend to play out over the long term as the world continues to diversify away from dollars within their FX reserves and as global investors chase yield away from a slow-growth U.S. economy.


Darius Dale



China's Selling Treasuries… Again - 3


BWLD is one the few restaurant companies that will have commodity pricing that will benefit margins thanks to lower year-over-year wing prices.  In spite of this, I remain concerned about the brand and where it is positioned with the consumer.  The concept continues to underperform other “younger” concepts that are of the same size and competing in a more differentiated part of the restaurant industry.


For certain “growth” restaurant companies, the Hedgeye “sustainability” trends are important metrics to measure how a company is using its cash flow.  With no funded debt and trading at 6.3x EV/EBITDA, BWLD has some attractive attributes.  As always, there is more to the story.        




The 20% EPS growth guidance for FY10 seems achievable.  The street’s $2.07 EPS estimate implies 22% growth and I am currently modeling $2.11 per share, or about 25% growth.  My estimate assumes 13% unit growth and two-year average comp trends that are fairly even with 2Q10 trends.   I am also assuming that restaurant-level margin growth will be positive in the back half of the year as favorable YOY cost of sales (driven largely by significantly lower wing prices) will be enough to offset the expected higher operating  and advertising costs.


I think it will be more difficult for the company to achieve 20% EPS growth in full-year 2011.  I am currently modeling 15% growth, and that assumes only a modest uptick in two-year average same-store sales trends and nearly 14% unit growth (management said it would provide more details about its plans for unit growth in FY11 on its 3Q10 earnings release date).  That being said, based on our restaurant sigma chart, it looks as though the company has a good chance of remaining in the “Nirvana” quadrant (positive same-store sales growth and positive restaurant-level margin growth) for the next several quarters if comp trends hold steady (but that is obviously a big if).  BWLD needs positive comp growth to offset the growth-related costs inherent in its P&L and comps trends definitely improved more than I was expecting during the second quarter.  It will be important to see if BWLD can maintain this top-line momentum.


Despite slowing top-line growth, the company’s FY10 capital spending is expected to increase 15% to 22% to $85 to $90 million.  Assuming the company again targets 13%-15% unit growth in FY11 (on top of the expected 13% increase in FY10) and an increased number of remodels, this number will likely move higher.  Based on my estimates, capex growth should outpace total sales growth by nearly 3% in 2010 and nearly 5% in 2011.  At the same time, net CFFO (after capex)/net income should move lower.  These two metrics are typically red flags that the company’s current growth strategy is not sustainable.  For now though, EBIT margins appear to be moving in the right direction.  And, during 2Q10, AWS growth outpaced same-store sales growth for the first time in three quarters, which implies improved new unit volumes; though the company’s decision to close a handful of low volume units also helped AWS during the quarter.


I consider return on incremental invested capital to be the best metric to look at when considering the sustainability of a company’s unit growth plans.  After declining in 2009, returns look to be recovering in 2010 to about 30%, which is impressive.  Based on my current estimates, I would expect returns, however, to fall off again in 2011 to a low double-digit range.  Although this still implies positive returns for 2011, I have found that the absolute direction of the trend in returns is the more important indicator of future trends.


BWLD – MIXED SIGNALS - bwld sigma


Howard Penney

Managing Director


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