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





The CPI for food was 0.2% in June, half the pace seen in each of the previous two months and noticeably weaker than the 0.8% gain in March. Food prices were up 3.7% year-over-year in June, compared with 3.5% in May and the strongest since March 2009.


While YUM’s US business has plenty of problems specific to its businesses, management also pointed out that high gas prices are making the U.S. recovery harder.  Gas prices are down 8% from early May but have rebounded 4% from the low on June 29.


Restaurant stocks have been performing extremely strongly and food processors continue to underperform.






  • SBUX will launch a JV with a Chinese coffee-growing company, the Ai Ni Group, later this year as the two sides signed an MOU Thursday.  Ai Ni Group is a coffee-growing and –processing firm in the southwestern province of Yunnan.
  • MCD has “adjusted” some prices in China after inflation has hit a three-year high.
  • YUM traded higher thanks to extremely strong reported China top-line trends.  Low quality EPS and down margins remain a concern.
  • The coffee concepts declined on accelerating volume.



  • CBRL is almost certainly going to miss the quarter, in our view, as they announced news this morning that they are reducing management and staff positions.  The charge is estimated to be $0.14-$0.17.




Howard Penney

Managing Director


Rory Green



TODAY’S S&P 500 SET-UP - July 15, 2011


Our Q3 Macro Themes call is at 11AM EST today – ping me if you still need the dial in info. Our presentation of European debt maturities might grab your attention.  As we look at today’s set up for the S&P 500, the range is 19 points or -0.75% downside to 1318 and 0.70% upside to 1318.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: -1732 (-2696)  
  • VOLUME: NYSE 925.21 (4.71%)
  • VIX:  20.80 +4.47% YTD PERFORMANCE: +17.18%
  • SPX PUT/CALL RATIO: 2.0 from 1.86 (7.89%)



  • TED SPREAD: 24.47
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.98 from 2.92
  • YIELD CURVE: 2.60 from 2.55



  • 8:30 a.m.: Consumer Price Index, M/m est. (-0.1%), prior 0.2%
  • 8:30 a.m.: Empire Manufacturing, est. 5, prior (-7.79)
  • 9:15 a.m.: Industrial production, est. 0.3%, prior 0.1%
  • 9:15 a.m.: Capacity utilization, est. 76.9%, prior 76.7%
  • 9:55 a.m.: UMich Confidence, est. 72.0, priopr 71.5
  • 1 p.m.: Baker Hughes Rig Count


  • President Barack Obama told congressional leaders to report to him within two days on what debt-limit options members can support after yesterday’s talks
  • Treasury Secretary Timothy Geithner warned there’s no possible extension to time limit to raise debt ceiling as S&P joined Moody’s in reviewing U.S.’s top credit rating



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Pizza Demand in Asia Boosts U.S. Cheese Exports to Record, Kraft’s Costs
  • BHP Agrees to Buy Petrohawk for $12.1 Billion in Cash to Add Natural Gas
  • Crude Heads for First Weekly Decline in Three Weeks on U.S. Debt Concern
  • Gold Falls, Paring Weekly Advance, as Rally to Record Price Spurs Selling
  • Wheat Slides for a Second Day as Importers May Favor Russia Over U.S., EU
  • LME Doubles Minimum Delivery Rates for Warehouses Holding the Most Metal
  • Rice Exports From Vietnam May Beat Target on Bigger Harvests, New Markets
  • Copper May Gain on Reports Predicted to Show Stronger U.S. Manufacturing
  • Sugar Drops as Banking Stress Tests Weigh on Commodities; Cocoa Declines
  • China Is Tightening Rare-Earth Access Even as Sale Quotas Climb, EU Says
  • Glut of Natural Gas Produces Record U.S. Exports to Mexico: Energy Markets
  • Beef Contamination Spreads in Japan as Fukushima Radiation Taints Straw
  • Wheat Exports From Australia Climb as China Boosts Purchases After Drought
  • Oil May Advance Next Week on Speculation About Fed Stimulus, Survey Shows



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: plain ugly TRENDs continue to develop with Italy in crash mode (down -20% since February) and Greece is gone (down -31% since February)


THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: solid is as solid does; China up for the 4th day in 5 (were long $CAF) and the rest of region continues to shape up (Korea, Indonesia)


THE HEDGEYE DAILY OUTLOOK - asia performance 








Howard Penney

Managing Director


The Macau Metro Monitor, July 15, 2011




According to the Urban Redevelopment Authority, Singapore's private-home sales dropped 25% MoM in June to 1182 units (May unit sales had dropped 13% MoM).



Macau's Tourist Price Index rose by 11.43% YoY but decreased by 1.42 QoQ.  The price of hotel accommodation had the most meaningful impact, up 29.82% YoY but down 12.1% QoQ.


Daily Trading Ranges

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.

Fiat Fools

This note was originally published at 8am on July 12, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Any fool can know. The point is to understand.”

-Albert Einstein


To truly embrace the analytical incompetence of central planners tasked with managing globally interconnected risk, one has to accept that these people are Fiat Fools. Sure, any one of them can know what happened yesterday. But can they proactively predict risk?


We introduced the term Fiat Fool during the initial stage of the European Sovereign Debt crisis (2010). To understand what the Fiat Fools are doing to economies and markets alike, all you have to do is pay attention.


Fiat Fools fundamentally believe that they can smooth economic cycles and tone down market volatility. I guess that’s what the IMF’s latest dudette in Chief, Christine Lagarde, was trying to do this morning when she proclaimed her mystery of faith that “some of the Italian numbers are excellent.”


Hedgeye’s long-term conclusion has been that the Fiat Fools do two things:

  1. They shorten economic cycles
  2. They amplify market volatility

That’s it. There is no smoothing and toning. There is no “price stability.” And there most certainly is no “full employment.” So, it’s time for La Bernank to unite with his Keynesian storytellers in Europe and admit who they are, and what they do. Greenspan did.


Not that the Obama Administration wants to be held accountable for perpetuating Keynesian Economic Ideologies, but none of these political people who support Bernanke and Trichet should forget what their idol himself admitted to Henry Waxman (under oath) during the thralls of 2008.


HENRY WAXMAN: “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”


ALAN GREENSPAN: “Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact.”


No. I don’t think reminding professional politicians of context and causality is going to change them this morning. Sadly, these people are more concerned with their own career risk management than that of your markets and economy. So onto the next.


Back to the Global Macro Grind


Here’s our real-time risk management look at Global Equities:

  1. China was down -1.7% overnight to 2754, barely holding onto our immediate-term TRADE line of support = 2730
  2. India’s BSE Sensex dropped -1.8% to 18411, barely holding onto our immediate-term TRADE line of support = 18357
  3. Hong Kong got blasted for a -3.1% drop and remains bearish TRADE and TREND in our model (resistance = 22499)
  4. FTSE in London is breaking its intermediate-term TREND line of 5897
  5. DAX in Germany is breaking its intermediate-term TREND line of 7199
  6. MIB in Italy is crashing, down -22% since its February 2011 high (down another -2% this morning)
  7. IBEX in Spain looks awful (bearish TRADE and TREND)
  8. Greek stocks continue to crash (down -31% since their February 2011 lower long-term high), making lower 2011 lows today
  9. Russian, Norwegian, and Saudi stock markets are all breaking their intermediate-term TREND lines as Oil prices break down
  10. SP500 TREND line support is under attack in pre-open futures trading (Hedgeye’s line in the sand = 1317)

On the Commodity front, Deflating The Inflation remains our call:

  1. CRB Commodities Index (18 components) challenged TREND line resistance (349) last week and failed
  2. WTIC Oil’s TREND line remains at approximately $103/barrel (Goldman is the bull, Hedgeye the bear)
  3. Wheat and Corn prices are down another -2-3% this morning and have both broken TREND line support
  4. Cotton prices are getting slammed this morning (down -4%) and should alleviate some cost pressures out there
  5. Gold looks like a champ (as it usually does when real-interest rates are negative; UST Treasury yields plummeting again)
  6. Copper is the outlier on the bullish side, holding intermediate-term TREND line support of $4.20/lb

Currency and Credit Markets are all over the place:

  1. European Sovereign CDS in Spain and Italy are pushing toward (or above in Spain’s case) the critical Lehman Line of 300bps
  2. Italian Bond yield at Italy’s 12 month debt auction came in a lot higher sequentially versus last (3.67% vs 2.15%)
  3. EUR/USD is getting annihilated after breaking what we’ve called out as critical intermediate-term TREND support ($1.43)
  4. US Dollar Index is making a big bid for a TRADE and TREND breakout – this will continue to Deflate The Inflation
  5. US Treasury yields are all breaking down through TRADE and TREND line support (like they did in May-June)
  6. US Treasury Yield Spread continues to compress; 10-year minus 2-year yields = 250 basis points wide (long FLAT)

All the while, this morning’s high-frequency economic data was what I consider fine. Chinese Money Supply Growth (M2) came in at 15.9% (it’s been proactively cut in HALF by the Chinese since we got bearish on China at the end of 2009). Meanwhile German, French, and British Consumer Price Inflation (CPI) readings for June were benign enough to provoke Europe’s Fiat Fool in Chief to stop raising rates.


As for the Fiat Fools having anything in the area code of a modern day real-time risk management process, you can bet your Madoff that they don’t have one. Nor do they have any experience managing any of the aforementioned globally interconnected risk where it matters – on the tape.


My immediate-term support and resistance ranged for Gold, Oil, and the SP500 are now $1527-1558, $92.96-96.74, and 1297-1328, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fiat Fools - Chart of the Day


Fiat Fools - Virtual Portfolio

Measuring Time

“Observe due measure, for right timing is in all things the most important factor.”



On Monday I titled my Early Look “Timing Matters.” It still does.


If you are proactively prepared to play this game, you will capitalize on opportunities while your competition freaks out. Yesterday was a good example of that. If you were watching La Bernank back-pedal on QG3 (Quantitative Guessing III) real-time, you knew exactly what to do. Buy US Dollars, Short Euros, and cut your gross (and/or net) exposure to US and European Equities.


Or at least that’s what I did.


No, that’s not being overly “confident.” It’s called seeing the play develop and capitalizing on it. I’m not sure if it’s this industry’s very low expectations of sell side research or whether it’s just easier to universally accept mediocrity in “not being able to time markets”, but whatever it is, I like it. Championship teams have championship processes. They make calls when calls need to be made.


That’s just modern day risk management with a Global Macro overlay. Measuring political timing, as Canadian Prime Minister Elliott Trudeau once said, “is the essential ingredient of politics.”


Timmy Geithner’s message on timing yesterday was that there is “no way to give Congress more time.” Really Timmy? Thanks – we appreciate the fear-mongering about a debt position you’ve spent 47% of your born life helping create.


Assuming America’s political panderers abide by Geithner’s timing signal, you can bet your Madoff that this weekend sees an acute level of Congressional respect paid toward their own career risk management.


Rather than waking up to these embarrassingly timed notes out of Moody’s and S&P on US credit risk, what if you wake up on Monday to the thundering Squirrel taking a victory lap on a debt-ceiling compromise?


Perversely, that could be bad for stocks – in the very immediate-term. Why? Because that’s both US Dollar and US Treasury Bond bullish! In the long-run, that’s what America needs – a strong US Dollar, as opposed to a debauched one; a confident leadership-line drawn in the sand, as opposed to a politically obfuscated one; and a progressive American resolve, as opposed to a backward looking one.


Back to the Global Macro Grind

  1. I am long the US Dollar (UUP)
  2. I am short the Euro (FXE)
  3. I am Canadian

If you can’t have any fun with this game, don’t play it. Or at least we recommend not playing it against us. Hedgeye likes to stir the pot. And in case you missed our notes earlier this week on China – Big Alberta and his Chinese Cowboys in the Haven have brought out the mandarin ladle.


Despite La Bernank sending US stocks lower for the 4th day in the last 5, Chinese stocks closed up another 0.35% last night (they were UP for the 4th day out of the last 5). Good timing.


Meanwhile, European stocks are sucking on a Europig’s nipple this morning hoping that the rest of the real-time risk managing world doesn’t realize that the European Bank “Stress Test” Part Deux isn’t a joke. Hope, and “stress testing” banks using their 2010 numbers, is not a risk management process.


In terms of European positioning:

  1. I sold my Sweden (EWD) yesterday because we don’t like/trust their banks’ exposures
  2. I am long Germany (EWG), and I’m worried about it
  3. I am short Italy (EWI), and I like it

Conan O’Brian said that “early on, they were timing my contract with an egg timer.” And that sounds just about right in terms of the shortest of short-term durations that we’re talking about when we consider these Eurocrat and Congress market catalysts…


But, when Measuring Time in macro market moves, you have to be Duration Agnostic. Market catalysts can be short and/or long term in nature. Mr Macro Market doesn’t particularly care about our individual investment styles or durations.


I’ll walk through how we Measure Time with our all-star Global Macro team of analysts on a conference call at 11AM EST this morning. This is our Q3 Macro Themes call, and we’re right fired up to grind through it and get to the best part of the game – your Q&A session. Please send an email to our Sales Deck () if you need call-in info.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $94.68-97.34, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Measuring Time - 222. USD EL


Measuring Time - Virtual Portfolio

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