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Gilly in WMT. Tough Fringe Competitor for CRI

Is it me? Or did GIL just say in Q&A that infant category was down meaningfully this year at its biggest customer, but have since made changes and now sales are up dd. Carter’s…are you listening to this??? Same product and same customer. And let's be real, the category is not growing by 30% inside Wal-Mart.


TALES OF THE TAPE: SBUX, PEET, CMG, BWLD

There were several important moves in restaurant stocks yesterday that I’d like to call out.  While the day’s change for the S&P 500 was up 2.16%, restaurant stocks saw plenty of divergence.  Brinker and Starbucks both outperformed the market.  As was pointed out in our sales team’s Best Ideas email this month, EAT and SBUX are two of our favorite names.

 

SBUX:  During its investor conference in New York yesterday, management outlined plans to accelerate international openings (particularly in China), expand CPG globally, and improve multi-daypart sales in their stores.  Chairman, president, and CEO Howard Shultz also suggested that the company would look to make acquisitions “small and large” that are compatible with the company’s growth strategy.

 

PEET: Peet’s was also up on strong volume.  This is a great company that is operationally very strong and is being touted as a possible target for Starbucks given their distribution capabilities. 

 

EAT: Brinker has been outperforming on a one week and thirty-day basis and yesterday proved to be a good day for the stock, finishing up 3.5% on high volume.  My thesis is for sales stabilization and margin gains at Chili’s as we head into 2HFY11 to coincide nicely with the lapping of menu changes that caused sales to decline last year.  Additionally “2 for $20” is to become permanent and Chili’s will be rolling out a new lunch menu focused on gaining traction in a day part that has been challenging for the company.  Please refer to our Blackbook on EAT for a deeper dive on this thesis.

 

CMG:  This stock continues to perform strongly, finishing up on strong volume yesterday despite trading in the red for much of the day.  CMG’s ability to drive strong sales is trumping any underlying concern about the company’s commodity exposure.  

 

BWLD: Buffalo Wild Wings declined sharply yesterday on strong volume.  The companies favorable cost of goods sold outlook should continue for the next quarter or two, on a year-over-year basis. 

 

TALES OF THE TAPE: SBUX, PEET, CMG, BWLD - stocks122

 

Howard Penney

Managing Director


INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK

Initial Claims Rise from YTD Lows - Seasonal Factors Likely to Dominate Through Year-End

The headline initial claims number rose 26k last week to 436k.  Rolling claims fell to 431k, 5.75k lower than the previous week.  Rolling claims hit a new YTD low, but the reported series moved off of the lows significantly. We continue to look for claims to in the 375-400k range before unemployment can meaningfully improve.  Seasonal factors appear to dominate into the year-end, as the third chart below shows. Over the next few weeks, the pattern of the last two years suggests that claims will rise further before falling sharply in the last weeks of the year. 

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - 2

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - 3

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - 4

 

In the table below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - 5

 

Joshua Steiner, CFA

 

Allison Kaptur


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INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK

Initial Claims Rise from YTD Lows - Seasonal Factors Likely to Dominate Through Year-End

The headline initial claims number rose 26k last week to 436k.  Rolling claims fell to 431k, 5.75k lower than the previous week.  Rolling claims hit a new YTD low, but the reported series moved off of the lows significantly. We continue to look for claims to in the 375-400k range before unemployment can meaningfully improve.  Seasonal factors appear to dominate into the year-end, as the third chart below shows. Over the next few weeks, the pattern of the last two years suggests that claims will rise further before falling sharply in the last weeks of the year. 

 

 INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - initial rolling

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - initial raw

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - initial claims

 

Yield Curve Continue to Improve

The following chart shows 2-10 spread by quarter while the chart below that shows the sequential change. After falling sharply for two quarters, the 2-10 spread has stabilized thus far in 4Q, rising 8 bps thus far (average of QTD versus average of 3Q).  Yesterday’s closing value of 243 bps is up from 240 bps last week.

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - 2 10 spread

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - 2 10 spread QoQ

 

The table below shows the stock performance of each Financial subsector over four durations. 

 

INITIAL CLAIMS JUMP 29K (26K AFTER REVISION); SEASONAL FACTORS AT WORK - subsector perf

 

 

 

Joshua Steiner, CFA

 

Allison Kaptur


Another Day At The Carnival

“If I shoot at the sun, I may hit a star.”

-P.T. Barnum

 

Yesterday we held our quarterly company meeting in New Haven, Connecticut.  After Keith gave the opening remarks, we spent the next five hours having various leaders from within the firm talk about their business units.  This was an opportunity for us to reflect on what went right and wrong in 2010, what we need to do in 2011 to continue to take market share, and to share best practices amongst colleagues.  As I engaged with my teammates yesterday and watched their passion, one thought struck me repeatedly -- capitalism is alive and well in America.

 

Ironically, while going through the daily macro grind this morning, I happened upon a quote from another Connecticut capitalist, P.T. Barnum.   Now, admittedly, P.T. wasn’t in the securities or research business, he was in the carnival business.  Specifically, he started “P.T. Barnum’s Grand Travelling Museum, Menagerie, Caravan & Hippodrome”, which would eventually be coined as the “Greatest Show on Earth”.  Barnum’s circus eventually became so successful that he purchased his own train to transport it in the late 1880s.

 

While we don’t have any Tom Thumb like characters walking through our offices in New Haven (who Barnum billed as the smallest person to walk alone), we do enjoy moments of levity at work as we look out at the Global Macro Three-Ring Circus every morning. 

 

In the Geopolitical Ring this morning, we have Secretary of State Hilary Clinton.  Just when it seemed that the news flow could get no worse for the Obama administration following the mercy crushing of the Democrats in the midterms (losing 63 seats in the House), we have one of the leaders of global transparency, WikiLeaks founder Julian Assange, taking aim at the State Department. 

 

The most egregious foreign affairs circus act appears to have been spying at United Nations ordered by Secretary Clinton.  According to a news report:

 

“Secretary of State Hillary Rodham Clinton ordered State Department employees to gather private information from high-ranking officials, including the United Nations Secretary-General Ban Ki-Moon, Security Council members’ ambassadors (including our allies, France and Britain, as well as China and Russia), prominent African military and political leaders and top UN directors.”

 

Obviously, this is not exactly helpful as the United States tries to rally support to contain North Korea.

 

In the Inflation Ring this morning, we have China front and center again.  According to reports, China’s gold imports jumped almost 5x year-over-year in just the first 10 months of 2010.  Since the Chinese central bank has to approve all gold imports, this is a direct signal as to their thoughts on inflation and the direction of the U.S. dollar.  Like many commodities, even those with a less practical use like gold, China continues to be the key driver of incremental demand.  Chinese investment gold demand is expected to reach 150 tons this year, up from 105 last year and 3 to 4 tons 10 years ago. 

 

The fact that the Chinese are hoarding gold as a hedge against inflation should be no surprise given some recent inflationary data points out of China. The most noteworthy of which was October CPI, which was at a two year high of 4.4% year-over-year.  Inflation and subsequent tightening of monetary policy in China continue to be the key factors that drive our view that global growth will slow into the first half of 2011.

 

Finally, in the Sovereign Debt Ring, the PIIGS continue to be the main act in Europe.  This morning Spain auctioned 2.5 billion Euros in notes with an average yield of 3.7% and a bid to cover of 2.3x.  While the Spanish IBEX is up 2% on this news, the act of adding more debt to the Spanish balance sheet is far from a reason to celebrate.  In fact, as of November 30th the spread of Spain’s 10-year debt over comparable German bunds climbed to an all time high.

 

Most pertinent, of course, are the long term and structural unemployment issues in Spain.  Yesterday, our European Analyst Matt Hedrick wrote a note to our subscribers that highlighted Spain’s unemployment rate of 20.7%.  No, that was not a typo, a full fifth of Spain’s employable adults are out of work.  The second highest unemployment rate in the Eurozone is Ireland, which is currently at 13.5%.  While the equity markets are giving Spain a golf clap this morning, to think the structural economic issues in Spain have gone away are laughable at best.

 

While P.T. Barnum passed away well over a century ago, his famous quote, “there’s a sucker born every minute”, continues to have relevance today . . . especially for those folks who are buying Spanish government bonds today.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Managing Director

 

Another Day At The Carnival - 1spread


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - December 2, 2010

As we look at today’s set up for the S&P 500, the range is 13 points or -0.75% downside to 1197 and 0.33% upside to 1210.  Equity futures are trading back above fair value after the Dow on Wednesday posted its 6th largest points and percentage gain this year as strong data seen at home, China and in Europe encouraged increased risk.  Today's focus will center on the ECB meeting where there is growing expectations the ECB will unveil new or additional measures to prevent contagion within the eurozone sovereign debt markets.  Weekly jobless claims and Nov retail chain store sales are also scheduled for release.

  • Aeropostale (ARO) 3Q sales below est. 
  • Collective Brands (PSS) 3Q EPS, Rev beat est.
  • Finisar (FNSR) sees 3Q adj EPS above est.
  • Jo-Ann Stores (JAS) 4Q gross margin improvement less than 3Q, sees costs increasing
  • Krispy Kreme Doughnuts (KKD) boosted year adj. op. income forecast
  • Merck (MRK)’s Proscar for treatment of enlarged-prostate
  • failed to win the support of a U.S. advisory panel for use in
  • preventing prostate cancer
  • Regal Cinemas (RGC) boosted qtr div to 21c from 18c; declares $1.40 special div
  • Semtech (SMTC) Sees 4Q rev. below est.
  • Sequenom (SQNM) Plans secondary offering
  • Valeant Pharmaceuticals (VRX) receives CRL from FDA on NDA for ezoga

 PERFORMANCE

  • One day: Dow +2.27%, S&P +2.16%, Nasdaq +2.05%, Russell 2000 +2.22%
  • Month-to-date: Dow +2.27%, S&P +2.16%, Nasdaq +2.05%, Russell +2.22%;
  • Quarter-to-date: Dow +4.34%, S&P +5.68%, Nasdaq +7.63%, Russell +9.91%;
  • Year-to-date: Dow +7.94%, S&P +8.16%, Nasdaq +12.35%, Russell +18.83%
  • Sector Performance: Utilities +1.17%, Consumer Spls +1.62%, Healthcare +1.92%, Consumer Disc +2.13%, Financials +2.02%, Tech +2.13%, Industrials +2.58%, Materials +2.73%, Energy +2.97%

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1686 (+2650)  
  • VOLUME: NYSE - 1118.61 (-27.18%)
  • VIX: 21.36 -9.26% - YTD PERFORMANCE: -1.48%
  • SPX PUT/CALL RATIO: 1.67 from 2.12 -21.38%  

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 14.62 -0.101 (-0.689%)
  • 3-MONTH T-BILL YIELD: 0.16% -0.01%  
  • YIELD CURVE: 2.44 from 2.36

COMMODITY/GROWTH EXPECTATION:

  • CRB: 308.91 +2.49%
  • Oil: 86.75 +3.14% - NEUTRAL
  • COPPER: 394.75 +3.19% - BEARISH
  • GOLD: 1,390.83 +0.17% - BEARISH

CURRENCIES:

  • EURO: 1.3129 +0.70% - NEUTRAL
  • DOLLAR: 80.713 -0.59%  - BULLISH

OVERSEAS MARKETS:

 

EUROPEAN MARKETS:

  • European markets opened higher and pared gains before advancing to currently trade at session highs.
  • Continuing expectation that the ECB will introduce more measures to mitigate concerns over the EuroZone's debt crisis buoyed sentiment.
  • The ECB benchmark interest rate decision is due at 7:45ET, with no change to the 1% rate expected. Spains relatively successful 3-yr bond auction, though the yield was much higher vs last auction, provided additional support.
  • 15 of 18 sectors trade higher led by banks, autos and insurers. The leading decliner is healthcare.
  • France Q3 ILO unemployment rate 9.7% vs prior 9.7%
  • UK Nov Construction PMI 51.8 vs con 51 and prior 51.6
  • EuroZone Q3 GDP and Oct PPI due at 5ET

ASIAN MARKTES:

  • Nikkei +1.8%; Hang Seng +0.9%; Shanghai Composite +0.7%
  • Asian markets followed Wall Street up to post decent rises today.
  • Miners lifted Australia on higher resource prices, though the market drifted off its highs when disappointing October retail sales data was released.
  • Japan rose on a weaker yen and Wall Street’s gain, with electricity & gas and air transport being the only sectors to decline.
  • Hong Kong rose on bargain hunting.
  • Large caps advanced modestly as China rose, though it lost some gains in the afternoon.
  • Japan Q3 corporate capex +5.0%. Q3 corporate sales +6.5% y/y. Q3 corporate pretax profits +54.1% y/y. November monetary base +7.6% y/y. Australia October seasonally adjusted retail sales (1.1%) vs survey +0.5%. October trade surplus A$2.63B vs survey A$2B.  

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER



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