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THE HBM: CBOU, MCD, DNKN, MSSR

Notable price action and news items from the restaurant space as well as macro callouts pertaining to the space.

 

MACRO

 

Consumer

 

Initial jobless claims came in at 400k for the week ended July 30.  The number was below the Bloomberg survey estimate but remains higher than needed to reduce the unemployment rate.   The Bloomberg Consumer Comfort Index will be released later this morning.

 

Subsectors

 

Quick Service outperformed the other food, beverage, and restaurant categories on the back of a strong pre-earnings move from CBOU and a bounce in COSI which has been getting run into the ground recently.  The only down stop was DNKN, which declined -4.2%.

 

THE HBM: CBOU, MCD, DNKN, MSSR - subsectors fbr

 

 

QUICK SERVICE

  • CBOU coffee announced 2Q earnings of $0.13 ex-items versus $0.09 expectations.  The stock was up almost 10% yesterday. Who knew what when?
  • MCD was upgraded to Overweight from Neutral at Piper Jaffray. 
  • DNKN declined yesterday after an earnings release which, to us, left more questions than answers.

 

CASUAL DINING

  • MSSR declined -1.7% on accelerating volume ahead of its earnings call today.  DIN bounced back, up 7.2%, after a sharp sell off on Monday and Tuesday.

THE HBM: CBOU, MCD, DNKN, MSSR - stocks 84

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED

Initial Claims Flat; Expect Volatility in Coming Weeks

Initial claims came in at 400k last week, 2k higher than the reported number the prior week (but 1k lower than the revised print).  Last week, we noted that significant volatility is typical at this point in the year due to manufacturing layoffs.  Because the annual furloughs shift slightly in timing, the seasonal adjustment model doesn't do a good job of correcting for the effect.  Accordingly, we expect a degree of snap-back in initial claims in the next 1-2 weeks.  

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - rolling

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - raw

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - NSA

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - seasonality

 

QE, initial claims, and the S&P are all tightly related, as the following two charts demonstrate.  This suggests that further improvement in initial claims will be difficult in the absence of QE. 

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - s p

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - fed

 

2-10 Spread Flattening Pressures Margins

The 2-10 spread has flattened dramatically in the last week, putting pressure on bank margins.  This week's level of 229 bps is 26 bps tighter than a week ago.  Banks have been increasing positioned for rising rates, as we noted in a report earlier this summer, which amplifies margin pressure. 

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - spreads

 

INITIAL CLAIMS CLOSE TO FLAT; 2-10 SPREAD GETS SQUEEZED - spreads QoQ

 

Joshua Steiner, CFA

 

Allison Kaptur

 

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - August 3, 2011

 

This morning the USD breaking out above its intermediate-term TREND line; the most important global macro factor affecting everything that ticks right now.  As we look at today’s set up for the S&P 500, the range is 61 points or -1.61% downside to 1240 and 3.23% upside to 1301.

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels 84

 

THE HEDGEYE DAILY OUTLOOK - global performance

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: +445 (+2195)  
  • VOLUME: NYSE 1352.06 (+7.98%)
  • VIX:  23.28 -5.69% YTD PERFORMANCE: +31.72%
  • SPX PUT/CALL RATIO: 1.52 from 2.10 (-27.82%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 25.81
  • 3-MONTH T-BILL YIELD: 0.02% -0.04%
  • 10-Year: 2.64 from 2.66    
  • YIELD CURVE: 2.31 from 2.33

MACRO DATA POINTS:

  • 8:30 a.m.: Jobless Claims, est. 405k, prior 398k
  • 8:30 a.m.: Bloomberg Consumer Comfort, est. (-47.5), prior (-46.8)
  • 10 a.m.: Freddie Mac weekly mortgage data
  • 10:30 a.m.: EIA natural gas
  • 11:30 a.m.: U.S. to sell $20b 10-day cash-mgmt bills

WHAT TO WATCH:

  • Japan sold yen to intervene in currency markets, acting unilaterally, Finance Minister Noda said
  • Health Management Associates disclosed late yesterday had received subpoenas from Dept. of Health and Human Services: WSJ
  • European Commission must decide by today whether to open in- depth investigation of ramifications from Deutsche Boerse’s buyout of NYSE Euronext
  • Kraft Foods announces intent to create two independent publicly traded companies

COMMODITY/GROWTH EXPECTATION

 

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Rio Tinto First-Half Profit Trails Estimates as Costs Increase
  • Shipping Stuck in Recession on Expanding Glut: Chart of the Day
  • Macarthur Lures Bidders as Peabody Rouses China: Real M&A
  • Commodities to Rally, Buy Gold, JPMorgan Tells Investors
  • Natural Gas Spread at 11-Year Low on Record Heat: Energy Markets
  • Cargill Turkey Salmonella Link Spurs Second-Biggest U.S. Recall
  • Newcrest Says 10 Die in Helicopter Crash in Indonesia
  • Oil Trades Near 5-Week Low as Economy Concern Counters Stimulus
  • Gold Near Record as Declining Currencies Increase Haven Demand
  • Copper Premiums in China Drop to Four-Month Low on Demand
  • Malaysia Export Growth Accelerates as Commodities Shipments Gain
  • Coleman’s Merchant Commodity Fund Said to Decline 4.9% in July
  • Copper Gains From Three-Week Low as BHP Strike Caps Second Wee
  • Rogers May Boost Agriculture Investment on Food Shortages
  • Rio warns on commodities outlook
  • Escondida Workers to Weigh Offer at Strike-Hit Chilean Mine

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • EUROPE: Italy is crashing, FYI (down -28% since FEB) and Russia (the only tape that was not broken) finally breaks Hedgeye TREND line support

THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

  • ASIA: ex-China (up +23bps overnight), Asian equity markets flashing negative divergences vs yesterdays hopeful US equity close; KOSPI breaks hard

 

 THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

Howard Penney

Managing Director


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Old Slate

This note was originally published at 8am on August 01, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We’re not just going to start with a clean slate, we’re going to throw the old slate away.”

-Vince Lombardi (1959)

 

That was one of the first iconic leadership quotes to come out of Vince Lombardi’s mouth when he moved his family to Green Bay, Wisconsin in 1959 (page 207 of “When Pride Still Mattered”, by David Maraniss).

 

As all great leaders across history have proven, results matter more than rhetoric. But, when you can combine both, you have the holy grail of life’s opportunities – to “be the change you want to see in this world” (Gandhi).

 

Barack Obama and Johnny Boehner are not Gandhi. Neither are they Lombardi. These two gentlemen would have a tough time leading me to the men’s room at a Yale Hockey game without forming a committee. And, sadly, after we get this morning’s stock market rally out of the way, we’re all going to be stuck with their same Old Slate.

 

This isn’t to say that this gong show of a Debt Ceiling Debate isn’t going to help America start with a clean slate. First though, we need to throw away the old one! That will take time. Change is a process; not a point.

 

Back to the Global Macro Grind

 

With the most anticipated headline since ‘sun rising in the East’ behind us, the question for Risk Managers now isn’t about the mechanics of the debt “deal” (it will be back end loaded and will not move the dial until all of these politicians are gone) – it’s about Global Growth and Earnings Expectations – both are still too high.

 

Here’s how the globally interconnected market is reacting to the “news” that Washington does career risk management:

  1. STOCKS – Asia rallied across the board to lower-highs and remains the best looking region of the 3 majors (Asia/Europe/USA); European Equities are up marginally on low volume and basically still look awful; US Equities have immediate-term downside support at 1286, but a wall of intermediate-term TREND resistance up at 1319 on the SP500.
  2. TREASURY BONDS – We’ve been on the other side of the PIMCO “credit risk” trade (El-Erian) and focused more on the two things that have really provided a bid for bonds since April – US Growth Slowing and Inflation Expectations coming down. We saw new highs in 10 and 30-year UST bonds on Friday into the “news.” Now Treasuries are immediate-term TRADE overbought.
  3. EUR/USD – This is the one strike price that should continue to whip around in the next 48 hours as we finally put this debt deal dog to bed. Watch $1.43 as your TREND line that inflates/deflates everything else (across asset classes). The global market’s Correlation Risk moves off that.

From the Eurocrats to the Fiat Fools of the Keynesian Kingdom in America, do any of these people realize the causal relationship between debt and growth?

 

Republicans and Democrats, Reid my Boehner on this:

 

DEBT STRUCTURALLY IMPAIRS GROWTH.

 

That’s it. So keep it simple stupid. The only thing that you are really doing to global markets and economies are:

  1. Shortening economic cycles
  2. Amplifying market volatility

How short was the last “bullish” economic cycle? You tell me (if you are a Washington/Wall Street person you will have a different answer to this question than Main Street, fyi). The only thing worse than Friday’s Q2 US GDP report of 1.3% is the thought that the government’s made-up number could be off by 81%! (Q1’s was restated at 0.36% versus 1.92% prior!!!)

 

I think that’s the first time I have used 3 exclamation points in an Early Look. Re-read that fact about reported US GDP. Maybe I should have used six!!!!!!

 

Either these Republicans and/or Democrats figure out how to throw out this Old Slate of failed economic policy, or The People are going to throw all of them out. That’s the change I can believe in.

 

My immediate-term support and resistance ranges for Gold (sold ours last week), Oil (no position), and the SP500 (no position) are now $1609-1633, $95.96-100.49, and 1286-1316, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Old Slate - Chart of the Day

 

Old Slate - Virtual Portfolio



Old Men

“By 1918 everyone under the age of forty was in a bad temper with his elder…there was among the young, a curious hatred of “old men”.  The dominance of “old men” was held to be responsible for every evil known to humanity”

-George Orwell

 

The easiest path for an individual to take when faced with a suboptimal set of circumstances is to shift the blame, or burden, to another party.  For anyone that has been part of a team, be it a sports team or any group of people striving towards an individual goal, what sets a good team apart from a bad team is that the individuals therein do not shirk from responsibility or duty – they seek it and thrive as a result. 

 

Lately Keith has been constantly highlighting the (wit and) wisdom one of the great American winners of recent times – Vince Lombardi.  During a time of political and economic turmoil, the philosophies of leaders like Lombardi are far more likely to lead us out of the situation we face than those currently holding court in Washington D.C. 

 

“Old men” being hated in 1918 sounds quite similar to “old men” being hated in 2011.  The hatred of 2011, in my imagination, is not aimed solely at men of a certain age – I hope to become an old man one day – rather, it is aimed at men, typically old, that are stuck in old methodologies that have failed time and again. 

 

Rather than stopping, rethinking, reworking, and evolving, “old men” in 2011 simply press replay all the while expecting a new outcome.  Political and economic dogma is what is drawing ire among voters and market participants. 

 

Yesterday rumors that the most recent of the “old men” to head up the Federal Reserve in this country, Ben Bernanke, will start a fresh round of stimulus may have prevented the longest slump in performance of the Dow average since 1978; the Dow had fallen for eight consecutive days on the back of growing concern that the U.S. economy may slow further and that the $1.07 trillion in lost market value from American equities over the eight-day slump could begin to negatively impact consumer spending. 

 

History shows that “Old Men” in the financial industry have generally been put out to pasture by fresher, more original and adaptive players.   It is Hedgeye’s view that dogma and opacity will be exposed, real-time, in the finance world of tomorrow.  Whether it is via Twitter or another medium, the hatred of “Old Men”, and the conventions of their era, is driving the debate into the open.  In the research world, that is where Hedgeye is positioning itself.

 

The hedge fund industry is also changing.  It always has.  The book “More Money Than God”, by Sebastian Mallaby chronicles the history of a small group of people that shaped the hedge fund industry.  From the creator of “hedged” funds, Alfred Winslow Jones, to George Soros, the professional longevity of each character was largely defined by his ability to stop and rethink.  Jones did not adapt and so his protégés abandoned his firm upon realizing that the fund’s successes were down to them and not Jones. 

 

Soros, having studied the philosophy of Karl Popper at LSE in the middle of the twentieth century, held firm the belief that humans simply cannot know the truth.  He then developed this own idea of how markets work, building off the thoughts of Popper, called the Theory of Reflexivity.  The development of this theory enabled Soros to retire as a hedge fund manager with his abilities as an investor almost never questioned, nor deemed out of date, by his peers.  In terms of managing money, specifically, Soros may now be a man of a certain age but he never allowed himself to be one of the “Old Men”.

 

What’s clear at this point is that the bad team of “Old Men” in Washington is spending the majority of its time apportioning blame and jostling for media limelight.  The signs of Americans’ hatred for these “Old Men” are everywhere to see: consumer confidence, the stock market, 45.75 million people on food stamps (no double-dip for these folks, just one long downturn).  The number of people receiving food stamps increased 12%, year-over-year, in May 2011.  Alabama is the state that saw the largest increase at 120%.

 

Our troubles are causing the “Old Men” abroad to respond because it is starting to hurt other economies too.  Japan is following Switzerland in intervening in the currency markets as the currencies’ “safe haven” status could hurt their respective economies.   Europe is constantly on edge, fearful of contagion, and ready at a moment’s notice to extend further bailouts to periphery nations.

 

Blaming “Old Men” won’t fix any problems in the financial system, nor will it fix any problems in Washington D.C.  Leaders stepping forward to enact change for the better have to have the courage to do so. 

 

That is what Hedgeye is attempting to do in our small part of the world and our clients, critics, and supporters help us sustain our efforts.  Globally, governments are being overrun by dogmatic “Old Men” eager to get, and stay, in office. 

 

Irrespective of the performance of the S&P 500, the fortunes of Main Street America have not been improved over the past two years; some new ideas are needed.

 

Function in disaster; finish in style

 

Howard Penney

Managing Director

 

Old Men - foodstamps may 2011

 

Old Men - Virtual Portfolio


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