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TALES OF THE TAPE: JACK, PZZA, TXRH, SAFM, TAST, RRGB, RT, DIN, DRI, MRT, DPZ, CMG

Notable news items/price action over the last twenty four hours.

  • JACK reported earnings last night after the close.  EPS came in at $0.61 versus the street at $0.48.  Approximately $0.02 came from a tax benefit. 
  • PZZA gained following its strong results on Tuesday after the close.  Management struck a confident tone on the earnings call yesterday.
  • TXRH held an Analyst/Investor Day in NYC yesterday and outlined aggressive growth and expansion plans.  The company is providing aggressive comp guidance that could be at risk if the company has to take more price than it is currently planning on taking in 2011.
  • SAFM reported weak earnings this morning.  An insightful comment from the press release: “While retail demand for chicken has remained steady, we have continued to see weak food service demand, and we expect this trend will remain until the national unemployment rate improves.  Consumers are simply not dining out as frequently and restaurant traffic has remained under pressure.”
  • TAST reported Q4 EPS of $0.12 versus consensus at $0.19 and announced its intention to split the business into two, separate, publicly traded companies.  Specifically, the company stated in its press release, “The separation of our Hispanic Brand and Burger King restaurant businesses is a natural evolution for Carrols. We believe that the separation will enable each company to better focus on its respective opportunities as well as to pursue its own distinct plan and growth strategy. We also believe that a separation offers the potential for improving shareholder value as each publicly traded company will be better positioned to align its business with its respective shareholders' objectives."
  • RRGB saw one of its holders, Clinton Group, lower its stake to 5.2% from 9.72%.
  • RT, DIN, RRGB, TXRH, and DRI all declined on accelerating volume yesterday. 
  • MRT gained yesterday on strong volume.  The company reports today after the market.
  • DPZ and CMG declined yesterday on accelerating volume.  Both are at risk to commodity exposure.  DPZ is facing a vertical cheese price chart and a difficult 1Q compare versus 1Q2010 and CMG is largely unlocked from a commodity cost perspective.

TALES OF THE TAPE: JACK, PZZA, TXRH, SAFM, TAST, RRGB, RT, DIN, DRI, MRT, DPZ, CMG - stocks 224

 

Howard Penney

Managing Director


THE HEDGEYE DAILY OUTLOOK

Today’s S&P 500 set-up – February 22, 2011

 

Equity markets continued to slide yesterday as uncertainty surrounding events in Libya mounted.  The VIX gained 6.4% and was accompanied by a spike in oil prices.  Asia traded down overnight and Europe is currently trading slightly down across the board.  As we look at today’s set up for the S&P 500, the range is 24 points or -0.11% downside to 1306 and 1.73% upside to 1330.

 

 

MACRO DATA POINTS

  • 08:30 a.m.: Chicago Fed Nat Activity Index, January.  Est. 0.09, prior 0.03
  • 08:30 a.m.: Initial Jobless Claims, February 19th, Est. 405k, prior 410k
  • 08:30 a.m.: Continuing Claims, February 12th, Est. 3880k, prior 3911k
  • 08:30 a.m.: Durable Goods Orders, January, Est. 2.8%, prior -2.5%
  • 08:30 a.m.: Durables Ex Transportation, January, Est. 0.5%, prior 0.5%
  • 08:30 a.m.: Cap Goods Orders Nondef Ex Air, January, Est. -1.0%, prior 1.4%
  • 08:30 a.m.: Cap Goods Ship Nondef Ex Air, January, prior 1.7%
  • 10:00 a.m.: New Home Sales, January, Est. 305k, prior 329k
  • 10:00 a.m.: New Home Sales MoM, January, Est. -7.3%, prior 17.5%
  • 04:30 p.m.: Fed Balance Sheet

 

WHAT TO WATCH

  • GM missed estimates this morning, announcing a profit of $0.31 per share versus consensus EPS of $0.44.
  • Oil is approaching $120 in London on concern Libya’s uprising is reducing shipments from Africa’s third-largest producer
  • Angela Merkel is planning to accelerate cuts in borrowing next year as it complies with a legal requirement to shrink debt.  The EU summit on March 24-25 will be interesting to watch as the debate over interest rates on aid and the plan to control Europe’s debt crisis heats up.
  • U.S. railroads’ fuel-efficiency advantage over trucking companies may expand as they boost investments in technology while trucking companies are forced to invest more in personnel.
  • The Bloomberg “Chart of the Day” shows the combined 12-month earnings forecast for companies in the MSCI Emerging Markets Index and outlines the need for earnings revisions as interest rates rise.  Interest rate risk for emerging market economies has been highlighted repeatedly by the Hedgeye Macro Team over the past several months.
  • TGT reported earnings this morning of $1.45 per share versus consensus of $1.40.  However, included in the $1.45 was a $0.07 tax benefit.

 

PERFORMANCE:

 

We have 3 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow -0.88%, S&P -0.61%, Nasdaq -1.21%, Russell 2000 -1.64%
  • Month-to-date: Dow +1.80%, S&P +1.65%, Nasdaq +0.85%, Russell +2.36%
  • Quarter/Year-to-date: Dow +4.56%, S&P +3.96%, Nasdaq +2.64%, Russell +2.04%
  • Sector Performance: - Materials -0.74%, Energy +2.03%, Consumer Spls -0.24%, Healthcare -0.96%, Utilities -0.22%, Industrials -1.75%, Tech -1.18%, Consumer Disc -1.46%, Financials -0.44%

 

EQUITY SENTIMENT

  • ADVANCE/DECLINE LINE: -909 (-2378)
  • VOLUME: 1330.38 (+1.0%)
  • VIX: 22.13 (+6.4%)
  • SPX PUT/CALL RATIO: 1.34 from 2.40 (-4.4%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 19.08 from 18.98
  • 3-MONTH T-BILL YIELD: 0.11% from 0.13%
  • 10-YEAR: 3.43% from 3.49%

 

COMMODITY/GROWTH EXPECTATIONS:

  • CRB: 348.5 +1.13%; YTD: +4.56%
  • Oil: 100.60 +2.55%; YTD: +9.09%
  • Copper: 431.55 0.56%; YTD: -2.79%
  • Gold: 1416 0.31%; YTD: +0.31%

 

COMMODITY HEADLINES:

  • Oil Surges to $119 on Libya Crisis; Goldman Sees ‘Upside Risk’
  • Platinum to Stabilize at ‘Comfortable’ $1,800, Anglo Says
  • Food-Price Threat Worsened by Government Mistrust of Business, Olam Says
  • Wheat Resumes Plunge as African Unrest Drives Away Speculators
  • Gold Fluctuates Near Seven-Week High on Libya, Inflation Concern
  • Food Inflation Quickens, Adding Pressure on Government Before India Budget
  • Surging Prices From Singapore to Vietnam Herald Higher Rates, Currencies
  • Oil Rises on Libya Disruption; Goldman Sachs Sees ‘Upside Risk’
  • Palm Oil Output in Malaysia to Gain in 2011, Yusof Predicts
  • Wheat, Corn Advance as Demand for U.S. Supplies May Increase

 

CURRENCIES

  • EURO: 1.3764 -0.16%
  • DOLLAR: 77.131 -0.36%

 

EUROPEAN MARKETS

  • FTSE 100: (0.36%); DAX: (1.20%); CAC 40: (0.22%)
  • Zapatero Extends Lead Over Socrates in Debt Race: Euro Credit
  • Europe Economic Confidence Reaches Highest Since Late 2007 on German Boom
  • Allianz Raises Dividend After Fourth-Quarter Profit Gains, Target Exceeded
  • Swiss Franc, Yen Climb as Deepening Libya Violence Spurs Demand for Safety
  • Barclays, After Victory, May Face Writedown of Lehman Assets

 

ASIAN MARKETS

  • Nikkei (1.19%); Hang Seng (1.34%); Shanghai Composite +0.56%
  • Deutsche Bank Gets Six-Month Trading Ban in South Korea
  • Surging Prices From Singapore to Vietnam Herald Higher Rates, Currencies
  • Lu Pledges to Clean Up Alibaba After Scandal Led to Ouster of Predecessor
  • India's Sensex Falls Most Since November 2009 on Inflation, Oil Concerns

THE HEDGEYE DAILY OUTLOOK - levels and trends 224

 

Howard Penney

Managing Director


INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008

Initial Claims

The headline initial claims number fell 19k WoW to 391k (22k after a 3k upward revision to last week’s data).  Rolling claims fell 16.5k to 402k, the lowest print since 2008. On a non-seasonally-adjusted basis, reported claims fell 38k WoW.  NSA claims in 2011 to date have been less volatile than typical. 

 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve.  That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9%, it's 11%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11% actual rate as opposed to the 9% reported rate.

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 1

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 2

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 3 

 

One of our astute clients pointed out the relationship between the S&P and initial claims shown below.  We show the two series in the following chart, with initial claims inverted on the left axis.

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 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 JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 5

 

Joshua Steiner, CFA

 

Allison Kaptur


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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.

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008

Initial Claims

The headline initial claims number fell 19k WoW to 391k (22k after a 3k upward revision to last week’s data).  Rolling claims fell 16.5k to 402k, the lowest print since 2008. On a non-seasonally-adjusted basis, reported claims fell 38k WoW.  NSA claims in 2011 to date have been less volatile than typical. 

 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve.  That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9%, it's 11%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11% actual rate as opposed to the 9% reported rate.

 

 INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - rolling

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - raw

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - nsa

 

One of our astute clients pointed out the relationship between the S&P and initial claims shown below.  We show the two series in the following chart, with initial claims inverted on the left axis.

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - s p with claims

 

Yield Curve Continues to Widen

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 42 bps wider than 4Q.  The current level of 274 bps is slightly tighter than last week (278 bps).

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - spreads

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - spreads QoQ

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - subsector perf

 

 

 

Joshua Steiner, CFA

 

Allison Kaptur


CHART OF THE DAY: Almighty Central Planning Works Both Ways

 

 

CHART OF THE DAY: Almighty Central Planning Works Both Ways -  chart


Mr. Money Man

“If history is any guide, this scenario will develop not gradually but abruptly.”

-Barry Eichengreen, (“Exorbitant Privilege” page 165)

 

Evidently a lot of investors didn’t prepare their portfolios for The Inflation. Some reconciled this mother of all inflation shocks in food prices as “supply and demand” imbalances. Some said everything was going to be fine because The Ber-nank said so. Some even said $4-5 at the pump is fine.

 

We’ve said that as Global inflation Accelerates, Global Growth Decelerates. This might be a little easier to see when you have a $100 handle on the price of oil per barrel. Inflation is both a policy and a consumption tax. Global inflation is also priced in US Dollars.

 

Sadly, with stock markets around the world getting rocked this week, the US Dollar continues to be debauched. There was a time when America’s independent price stabilizer (Paul Volcker) treated the US Dollar with respect. Today, our Almighty Central Planners are willing to watch the Buck Burn.

 

The math doesn’t lie here folks; professional US politicians do. For the week-to-date, here’s your US Dollar/Commodity Inflation score:

  1. US Dollar Index DOWN -0.33% for the week-to-date (down for 7 out of the last 9 weeks)
  2. CRB Commodities Index UP +1.7% to 347 (making a series of fresh weekly closing highs all the while)

Sure, there’s a nut-job out there in Libya, but there’s also a very blunt instrument that can take his grandstanding on “fighting to the last drop of blood” away – a STRONG US DOLLAR policy.

 

Most American stock market fans definitely don’t want the short-term tough love associated with that. If anything, the perma-bulls are already cheering The Ber-nank on to implement Quantitative Guessing III (QG3) as a weapon against Gaddafi’s self-destruction.

 

The reality is that if The Ber-nank and Timmy Geithner woke up this morning and unilaterally raised interest rates and took a whack out of this Disaster Deficit, the US Dollar would strengthen and the price of oil would drop in a straight line.

 

This, of course, isn’t going to happen. Instead we are fostering a finger pointing and unaccountable political leadership class that continues to frustrate Americans to the core.

 

While Timmy Geithner was self-aggrandizing himself yesterday with his banking cronies from Dollar Destruction Inc., someone asked him what he thought about the price of oil’s impact on the US economy – and I couldn’t make this up if I tried, but he said that the economy that he helped put into crisis (before he helped saved us all from it) “can handle it.”

 

The Twitter-sphere lit up like a Christmas tree after Timmy said that – and The Rest of The World erupted in laughter. He must have been joking, but Bloomberg reporter Rich Miller didn’t seem to think so - and I couldn’t make this one up if I tried either – as Miller recapped the Geithner Groupthink session yesterday with this morning’s Bloomberg headline:

 

“GEITHNER BUTT OF JOKES NO MORE AS OBAMA’S MONEY MAN NOW ON TOP”

 

On top of what? The Disaster Deficit, The Burning Buck, or the resume pile to go join the Pandit Bandit at Citigroup? The manic media pandering to the political winds of Washington, DC access is both frightening and sad. Arianna Huffington, nice sale!

 

Don’t worry, I can answer the Wall Street question on, “how do you make money on this”? I laid this out in Friday morning’s Early Look note titled “Hawkish Winds” and my Global Macro positioning in being bullish on The Inflation remains the same:

  1. LONG - Dollar denominated food and energy Inflation
  2. LONG - Currencies of countries with hawkish central banks
  3. LONG - Financials in socialized countries that have made banks too big to fail
  4. SHORT - Sovereign Bonds of countries with deficit and currency devaluation central planners
  5. SHORT - Currencies of countries with dovish central banks
  6. SHORT - Emerging Markets

As for managing around the implied mean-reversion risks associated with the institutional investment community in America chasing the “flows” rather than the Global Macro fundamentals, my strategy on US Equities is this – trade them like the Price Volatility Casino that your central bankers sponsor.

 

After all, as Timmy reminded his fans at the “Bloomberg Breakfast” in Washington, DC yesterday, “central bankers have a lot of experience in managing these things”!

 

Indeed they do Mr. “Money Man”, indeed.

 

My immediate term support and resistance levels for the SP500 are 1306 and 1330, respectively. If 1306 in the SP500 doesn’t hold on a closing basis, I think this -3% correction in US stocks starts to resemble a February 2008 like crack. That wasn’t a good crack.

 

Best of luck out there,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Mr. Money Man - oo1

 

Mr. Money Man - oo2


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