Notable news items and price action from the restaurant space, as well as our fundamental view on select names.




Commodities over the past week have largely gained in price.  Coffee and cheese prices are exceptions, their prices declined -2.7% and -3.2%, respectively.  We will be following up with a more detailed commodity post this morning.


In terms of consumer subsectors, quick service restaurants stood out on the downside yesterday as the high-flying coffee names retraced some of their outperformance.  The beverage space declined sharply also, led by SODA and LBIX.






  • YUM is reporting today after the close.  Consistent with my view of this earnings season’s trends, top line is what matters most.  I expect YUM to be strong on the top-line where it matters most: China.  Inflation in China is starting to impact consumer confidence but the KFC value promotions/day-part expansion is driving double-digit same-store sales.  In the USA, the consensus decline of -1.6% is too meek, in my view.  I believe the number could be down as much of 3 or 4%.  YRI will likely be in line, with same-restaurant sales of 1-to-2%. 
  • CBOU, GMCR, PEET, and SBUX all declined yesterday. CBOU and GMCR declined -6.4% and -5.1%, respectively, on accelerating volume.
  • DNKN’s IPO is expected to price on July 26th.



  • PFCB will be celebrating its 18th anniversary this month by giving away free lettuce wraps between now and July 31 to anyone who “likes” their Facebook page.  The offer of free lettuce wraps is resulting in a strong uptick in traffic to the company’s Facebook page.
  • CBRL is trading ex-dividend and is currently a SHORT in the Hedgeye virtual portfolio.




Howard Penney

Managing Director


Rory Green




The Macau Metro Monitor, July 13, 2011



The Macau Gaming Industry Employees Association, Macau's biggest casino workers union, says the local casino sector needs at least 1,000 more workers as new properties on Cotai are set to open in the coming years.  According to the association’s head, João Bosco Cheang Hong Lok, Macau casinos are already facing manpower shortages. 



China Q2 GDP came in at 9.5% YoY growth, higher than the 9.4% polled by economists. Q2 GDP also accelerated 2.2% sequentially.

Home Tweets

This note was originally published at 8am on July 08, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

"Every strike brings me closer to the next home run."

-Babe Ruth


Someone tweeted that winner’s one-liner from Babe Ruth yesterday while I was scanning my iPad in between meetings in New Jersey and New York. It fired me up. I love a great quote. And I love a great Tweet.


Hitting a Home Tweet out of the park on Twitter is a thing of beauty. Sometimes it’s a tweet that makes you laugh. Sometimes it’s a tweet that makes you cringe. All of the time, tweets are real-time. And that’s where I think Wall Street is going. Real-time, transparency, and accountability. Opacity is dead.


Plenty of people whine about how dysfunctional Wall Street can be. Agreed on the dysfunctional part, but what’s up with the whining? We need to get back to winning in this business. We should embrace the inability of an industry to evolve as a tremendous opportunity for change. And that’s all I have to say about that.


Back to the Global Macro Grind


My notebook is jam packed with data this morning. From China and Copper breaking out on our intermediate-term TREND duration to US Treasury yields sniffing out an immediate-term TRADE breakout of their own, there’s a lot of interconnectedness to consider.

1.   CHINA: Chinese stocks don’t want to go down anymore (they’ve been down for 15 months) and China is going to preemptively print the top-tick in their 2011 inflation (CPI) this weekend. As Johnny-come-latelys on inflation-fear clamor around this, I wanted to be crystal clear that we think Chinese CPI will fall back to 4.5-5% by year-end. Government reported inflation is a lagging indicator.

2.   COPPER: Dr. Copper continues to have my back on the long China position (CAF). If Chinese demand was going to go by the way of Sino Forest’s trees, Copper wouldn’t be breaking out above our intermediate-term TREND line ($4.20/lb) like this. Copper prices are ripping again this morn – up to $4.44/lb and +13% since mid-May. China’s share of the world’s copper consumption = 39%.

3.   BONDS: Finally, the short-end of the bond market (yields) has finally broken out above my immediate-term TRADE line of 0.42% on the 2-year. Can this hold? If the unemployment print is what the market thinks it’s going to be (better), it will. We’ve sold our long-term bond position (TLT) this week and prefer A) being short short-term bonds (SHY) and B) long a US Treasury Flattener (FLAT) provided that the unemployment # is better.


Got real-time synthesis of Global Macro data?

  1. SOUTH KOREA: finally showed a slowdown in the rate of inflation of its PPI (Producer Price Index) at +6.2% year-over-year in June. That inflation growth rate was in-line with May’s report and this is bullish, on the margin, for South Korea’s stock market (EWY).
  2. AUSTRALIA: unemployment remained unchanged month-over-month in June at 4.9% and the Reserve Bank of Australia’s Chief, Glenn Stevens, should be commended for having the spine to raise interest rates for the legions of Australian savers who enjoy a rate-of-return on their fixed income savings accounts and, at the same time, have jobs (La Bernank, take notes).
  3. BRAZIL: Consumer Price Inflation (CPI) for the month of June was up sequentially to +6.71% versus +6.55% in May and this should serve as a stiff reminder that inflation can still slow growth. The Brazilian stock market has been one of the world’s dogs this week and the Bovespa remains at the bottom of the world’s stock market league tables at down -10.2% YTD.

All the while the more newsy headlines about Pig Paper in Europe and the Audacity of Hope (Obama) on the US Employment front remain center stage. This shouldn’t be a conceptual surprise to anyone. Both American and Western European stock markets are effectively whipping people around like any Fiat Fool Bingo machine should. You can either manage risk around these trading ranges, or you can’t.


On the aroma of Le Papier de Pepe La Pew in Europe:

  1. SPAIN: issued another 1.5B Euros in 2016 vintage Eurocrat Bonds this morning at a yield of 4.87% versus 4.54% at the last auction. Higher-bond yields are not a surprise, but that doesn’t mean they aren’t bad.
  2. ITALY: bond yields on Italian 10-year paper are shooting up to 9-year highs this morning (up +10 basis points day-over-day at 5.27%) and one might argue that old Silvio and the boys have a bigger pending problem than hot-tub extra-curriculars revealed. Stay tuned.
  3. GREECE: oh, yes. They still have people there and they are quite bitter about the formation of their sovereign bond market’s chart resembling the back side of a giraffe’s behind – high and stinky.

Stinky paper is as stinky does, and I guess Einstein would agree that being long the stuff with less stench this morning is simply a matter of relativity. Earlier in the week (when stocks were for sale) I moved my asset allocation to Global Equities to a YTD high (27%) and cut my allocation to Fixed Income from 33% to 18%. I’m not sure if I hit any Home Tweets this week; but I didn’t strike out either.


My immediate-term support and resistance ranges for Oil, China’s Shanghai Composite, and the SP500 are now $95.21-100.07, 2726-2859, and 1316-1371, respectively.


Have a great weekend and best of luck out there today,



Keith R. McCullough
Chief Executive Officer

Home Tweets - Chart of the Day

Home Tweets - Virtual Portfolio

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China Bulls

“Emerging markets today are not what the developed markets were in their infancy.”

-Rama Bijapurkar


That’s a very simple, but often misunderstood, Global Macro investment point from a book I have recently cited about India’s Macro Consumer market: “We Are Like That Only”, by Rama Bijapurkar (2007).


Simple is as simple does - and this morning those who are still storytelling about China’s pending collapse are going to learn that lesson the hard way. China’s Q2 GDP report was outstanding.


Hedgeye isn’t a perma-bull on China. I personally don’t aspire to be perma-anything other than permanently managing risk. Risk lives and breathes through a vacuum of expectations. After seeing its stock market down -14.3% in 2010, expectations for Chinese stocks are low and short interest is high.


Before I get into what the short sellers of China have wrong, let’s rattle off what the bulls have right in this morning’s GDP report:

  1. China Q2 GDP beat our already bullish expectation of 8-9%, coming in at +9.5% (we care about buy-side expectations)
  2. Fixed Asset Investment growth in Q2 was up +25.6% year-over-year; that’s big – China can print government spending too
  3. June data reports (Retail Sales and Industrial Production growth) were big sequential accelerations versus May 

Now, back to the short sellers…


On two critical leading indicators, Mr. Macro Market has warned the shorts that Chinese growth was not going to be the train wreck that US unemployment has become:

  1. Chinese stocks (Shanghai Composite Index) are up +6.6% since bottoming on June 20th, 2011
  2. Copper prices (highly correlated to Chinese demand) are up +12.5% since bottoming in mid-May

Hedgeye bought China (CAF) on June 16th.


Bottoms are processes, not points – we get that. Whether or not we bottom-ticked buying China isn’t the point. The point is that managing risk on a globally interconnected basis works both ways. Being Too Bearish at bottoms can carry a short seller out.


As a credibility check, we were long Chinese Equities in 2009 and short them in 2010. It’s actually amusing to get emails (from some of the same people who were accusing me of being “too bearish” on China in Q1 of 2010) insinuating that now I’m “too bullish!”


Thankfully, that’s the institutionalized business that we are paid to manage expectations in – a business where career risk management often trumps risk managed research – a business where plenty chase the rabbit, rather than being the rabbit.


Sometimes the rabbit gets eaten. We get that too. But Wall Street is smart enough to know that the weaponry of these 3 factors working in one direction is something that they need to manage career risk around:

  1. Bullish data
  2. Rising stock prices
  3. High short interest

Bullish data and the prices that support it are crystal clear for everyone to see this morning (China was up +1.5% on the “news”). What you can’t see are the shorts squirming. So here are a few more things to consider on that score:

  1. Short interest in Chinese stocks has almost doubled since the beginning of January 2011 (4.8% versus 2.9% of total shares)
  2. At $961M YTD, outflows in the FXI (China ETF) were the highest of ANY COUNTRY ETF in the 140 countries in XTF Inc’s database
  3. Moody’s (the ultimate lagging indicator) put China “bank debt concerns” on their radar on July 5th

Now those 3 factors aren’t exactly contrarian indicators of a “fresh new best idea” someone wants to present on the short side at the Ira Sohn conference (although someone did). Maybe they should be bucking up for some insurance research and read Hedgeye.


On Friday, our Macro Team will be making our 2ndslide presentation on being China Bulls with our launch of the Q3 Hedgeye Macro Themes. We’re calling one of our Q3 Themes “Chinese Cowboys.”


Giddy up.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $94.11-99.79, and 1, respectively. Manage your risk around the ranges.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


China Bulls - Chart of the Day


China Bulls - Virtual Portfolio


TODAY’S S&P 500 SET-UP - July 13, 2011


Managing risk in a European vacuum won't work - the world is much bigger than that. China, Copper, and UST yields matter.  As we look at today’s set up for the S&P 500, the range is 29 points or -0.96% downside to 1301 and 1.25% upside to 1330.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -482 (+1686)  
  • VOLUME: NYSE 924.46 (+11.46%)
  • VIX:  19.87 +8.05 YTD PERFORMANCE: +11.97%
  • SPX PUT/CALL RATIO: 2.24 from 2.88 (-22.28%)



  • TED SPREAD: 22.36
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.92 from 2.94
  • YIELD CURVE: 2.55 from 2.57



  • MBA mortgage applications index fell 5.1% week ended July 8; Refis down 6.2%, 4th declining week; Purchases declined 2.6%; rose last week; Avg. 30-yr fixed rate 4.55% vs prior week’s 4.69%, biggest drop in 3 months
  • 8:30 a.m.: Import price index M/m, est. (0.6%), prior 0.2%
  • 9:10 a.m.: Fed’s Rosengren speaks on economic outlook
  • 10 a.m.: Bernanke speaks to House on semi-annual economic outlook
  • 10:30 a.m.: DoE inventories
  • 11:30 a.m.: U.S. to sell $5b 14-day cash management bills
  • 1 p.m.: U.S. to sell $21b in 10-yr notes reopening
  • 1:20 p.m.: Fed’s Fisher speaks on economy in Dallas
  • 2 p.m.: Monthly budget statement


  • U.K. coalition govt. will today side with Labour Party in calling on News Corp. to withdraw bid for control of BSkyB; Rupert Murdoch now facing at least six investigations
  • Senate Republican leader Mitch McConnell proposed yesterday granting President Obama unilateral power to raise debt ceiling as “last-choice option” to avoid default
  • Secretary of State Clinton meets with Russian Foreign Minister Sergei Lavrov in Washington
  • Irish PM says it is time for Europe to respond comprehensively to debt crisis adding that there is no point having a leaders' meeting on Friday that doesn't come up with a conclusive solution. Ireland's problem is with Europe he said
  • Bullish sentiment increases to 44.1% from 40.9% in the latest US Investor's Intelligence poll; Bearish sentiment decreases to 22.6% from 24.9%




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Seven-Month Wait for Aluminum From Detroit Drives LME to Review Warehouses
  • Corn Imports by China Seen Doubling to Cool Fastest Inflation Since 2008
  • Copper Gains for a Second Day as Chinese Economic Growth Exceeds Estimates
  • Gold Climbs, Nears Record as Europe’s Sovereign-Debt Crisis Fuels Demand
  • Oil Trades Near Highest in Three Days in New York on China Economic Growth
  • Corn Drops as Shortage Concern Ebbs; Rice Reaches Highest Price Since 2008
  • Gold Investment in India Seen Extending Advance to Record as Incomes Surge
  • Coffee Rises on Concern Vietnamese Supplies May Be Limited; Cocoa Gains
  • Copper, Aluminum Production in China Gain to Records in June, Bureau Says
  • Aluminum’s Two-Year Advance Is ‘Intact’ Above $2,300: Technical Analysis
  • Gecamines’ Undisclosed Sale of Congo Copper Mines May Threaten Share Offer
  • Fuel-Oil Loss in Asia Set to Double as Supply Surge Looms: Energy Markets
  • Sri Lanka Seeking to Catch Singapore With Help From China: Freight Markets



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: important recovery by the DAX- TREND line support (7136) -see if it holds; Italy was immediate-term TRADE oversold yesterday; here's the bounce


THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: outstanding GDP print by the Chinese at +9.5% (beats our number and we are the bulls); China up +1.5% on news > 2732 TRADE breakout line



THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director

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 80.46%
  • SHORT SIGNALS 78.35%