TODAY, AUGUST 10, 2011, 11AM EDT


Valued Client,
5-10 minutes prior to the 11 AM EDT start time please dial:

(Toll Free) or (Direct)
Conference Code: 733479#


To submit questions for the Q&A, please email .





 Key topics we will be addressing: 

  • Does the SP500 off over 15% from its YTD highs present a short covering opportunity?
  • Given our outlook for the global economy, what are the key drivers over the intermediate term?
  • Sovereign debt issues and the likelihood of resolution, both in the United States and Europe.
  • Update of Hedgeye's quantitative and fundamental view of key assets classes - e.g. U.S. dollar, oil, gold, treasuries and copper.
  • Hedgeye's top macro and asset allocation ideas. 

Please contact if you have any questions.  



The Hedgeye Macro Team






National Restaurant Count


NPD found U.S. restaurant unit counts declined by 2% between April 1, 2010, and March 31, 2011.  Independent restaurants comprised most of the decline; with 8,650 closures as “chains” restaurant unit counts remained relatively stable.  According to NPD “The decline in independent units is the steepest we’ve seen since NPD began conducting the ‘Spring ReCount’ census in 2001,”


THE HBM: MCD, YUM, DPZ, RRGB, EAT - national restaurant count





Restaurant stocks surges yesterday after underperforming the couple of days prior. Quick service restaurants outperformed the other food, beverage and restaurant categories.


THE HBM: MCD, YUM, DPZ, RRGB, EAT - subsector fbr




  • MCD, YUM, four other companies accepted invitations to take part in discussions with unions on wages for their employees in southern China’s Guangzhou, the city’s Federation of Trade Unions said - Bloomberg
  • MCD Japan plans to accelerate the opening of new stores in response to societal changes, Chairman and President Eikoh Harada said.  Japan’s March 11 earthquake had a significant impact on people’s lifestyles, Harada told reporters today.
  • DPZ Australia, Domino’s Pizza Enterprises LTD, saw its shares gain more than seven per cent after the fast food chain said it expected a 15% profit increase this year.
  • Subway Restaurants was one of the first companies to participate in Google Inc.'s mobile payment platform, Google Wallet. The open-source payment platform, which uses near field communication (NFC) technologies embedded in smartphones, was launched in May.  Subway's mobile marketing campaign is in the process of rolling out to the more than 24,000 stores in the U.S., with the global adoption planned through 2012.



  • EAT and RRGB are releasing earnings tomorrow after the close and we believe both companies will report strong quarters.

THE HBM: MCD, YUM, DPZ, RRGB, EAT - stocks 810



Howard Penney

Managing Director


Rory Green



RL: Q1 Quick Take


RL posted blowout Q1 results of $1.90 vs. Street estimates of $1.44 with strong results across every segment. While we didn’t expect RL to come up short of expectations two quarters in a row, they came in significantly better than expected. RL’s visit to the ‘danger zone’ of our SIGMA was brief with both axis improving as inventories came in up 42% on 32% sales growth and operating margin expanded by 330bps. Given Q1 results, the company’s improved full-year outlook appears conservative, which is no surprise given last quarter’s miss. Estimates are headed higher and so too is the stock. We’ll have more detail on our adjusted numbers and view after the call.  


Here are a few key takeaways from the quarter:


1)      Wholesale Revs: Up 29% reflects a sharp reacceleration in sales on both a 1Yr and 2Yr basis even when backing out the $30mm shift of holiday sales into the quarter, which accounted for 6% growth. The company cited strength across all categories with domestic accessories the key highlight.

2)      Wholesale Profitability: Several factors severely impacted wholesale profitability last quarter including cost of goods inflation, lower Japanese wholesale shipments, and continued investment in new merchandise categories, but ongoing cost inflation and uncertainty over deferred pricing was mitigated by higher volumes. The company isn’t out of the clear yet with variability expected to continue depending on consumer reaction to new pricing in the fall, but certainly a solid indication that margins aren’t deteriorating further.

3)      SG&A Spending: Despite higher investment spending, the company levered SG&A by over 200bps suggesting some cushion in margins for the balance of the year.

4)      Guidance:

  1. Q2: No major surprises here. The company is coming in slightly more conservative on margin (down 300bps) vs. the Street down ~160bps, we are at -190bps, but the leverage in this model is clear and it looks like management is being conservative on the top-line.
  2. FY: Company took revs up in-line with beat, but the change in operating margin guidance (increased 50bps to down 50-100bps from down 150-100bps) was not commensurate with the Q1 beat which improved full year profitability by 75bps. While this implies the company is taking a more conservative stance on the back half, this too appears to be conservative. Management’s guidance implies EPS of $6.15-$6.85, the Street was at $6.32 – numbers are headed higher.

 RL: Q1 Quick Take - RL S 8 11


Casey Flavin


Anniversary Day

This note was originally published at 8am on August 05, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“He who will not economize will have to agonize.”



I lost over three hundred dollars of my net wealth yesterday. Happy Anniversary Laura.


Actually, if you back into the valuation of my largest holding (Hedgeye)… assume a 3-month Treasury discount rate of 0.00% (this morning you almost have to pay the government to hold your money)… and infer that our team’s analytical competence added some value to our clients’ risk management process this week… I think I made back my three hundred bucks.


Like a lot of things manic media and the Wall Street/Washington they cover, their concept of CASH can be amusing. I personally invested approximately 1/3 of my CASH in this company during the thralls of 2008. I considered that a relatively “high conviction” idea.


But when Wall Street talks about CASH, bankers and brokers are usually talking about your money. There is a gargantuan marketing machine that stands behind this basic compensation mechanism – they need other people’s money to make money.


People are always asking me “what’s your best long term idea”? Away from Hedgeye, I think CASH is the best weapon for self defense in the modern Fiat Fool world in which we live. CASH saves you on a day like yesterday (worst day for US Equities since 2008). CASH also provides you the opportunity to make long (or short-term) investments when your competition is not allowed to make them.


Back to the Global Macro Grind


Before the price of Silver collapsed intraday, I raised another 12% CASH in the Hedgeye Asset Allocation Model. That takes my CASH position to 67%. I sold my 6% allocations to the US Dollar and Silver (total = 12%) at 10:27AM and 11:06AM, respectively. At the time, they were both up on the day. I was pleased.


Now a lot of people (and I mean a lot) told me I “couldn’t” go to 96% CASH in Q3 of 2008. Less people will tell me I can’t go to 67% CASH in 2011. Why? Most likely because I just did.


The idea here this morning isn’t to take a victory lap (although these things do occur for winning teams). The idea is the same idea I have been pounding on since 2008. Our industry needs new ideas, new risk management processes, and new blood. Re-think. Re-work. Evolve. Old Wall Street knows that. They are Too Big To Change as fast as Hedgeye has changed – Old Wall Street knows that too.


Today’s Hedgeye Asset Allocation is as follows:

  1. CASH = 67%
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener – TLT and FLAT)
  3. International Equities = 9% (China and S&P International Dividend ETF – CAF and DWX)
  4. International Currencies = 6% (Canadian Dollar – FXC)
  5. Commodities = 0%
  6. US Equities = 0%

Again, this is an asset allocation product, not a hedge fund or a book of long/short ideas (that’s the Hedgeye Portfolio – different product). When I think about this product, I think about Laura, Jack, and Callie. That’s who I work for when preserving our assets.


I also work for them to grow our assets. But another funny thing about Wall Street is that some people think you should be in “growth” mode every day.


In some asset classes, some of the time, sure – great idea. Most of the time, in most asset classes, that’s a really bad idea. Markets that are being manipulated by central planners do not owe us anything.


Globally interconnected markets care about a lot of things at the same time. Right now, they are anchoring on the #1 risk that no one was talking about in mainstream media yesterday: Fiat Fools trying to convince the Institutional Investing Community to chase yield.


Chasing yield is all good and fine until the music stops. Remember what the buy-side bus tour operator, Citigroup’s, retired storyteller (the artist formerly known as Chuck Prince) told the Financial Times on July 10, 2007:


“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing…”


Today is August 5, 2011. It’s our 5thWedding Anniversary and I, for one, feel like the luckiest man in the world today. I married a beautiful, loving, and thoughtful woman. I have healthy children. I have a happy firm.


And I still have my cash.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1633-1671, $86.52-91.95, and 1165-1256, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Anniversary Day - Chart of the Day


Anniversary Day - Virtual Portfolio

Market Memory

“Memory is a process, albeit a faulty one.”

-Jane Leavy


That quote comes from the Preface of Jane Leavy’s recent Bestseller “The Last Boy – Mickey Mantle and The End of America’s Childhood.” I just started reading it last night and it helped me reconcile some of the conflicting thoughts in my head.


If you open your mind, you can always learn something from someone. Even if that’s learning what not to do. Mr. Macro Market teaches us something each and every market day. Yesterday it taught me that career risk management is as relevant as risk management itself.


At 2:45PM yesterday, the SP500 was testing the 1101 level, making a credible threat to move into what we call the crash zone (down -20% from its YTD peak of 1364 on April 29, 2011). Seventy five minutes later, the SP500 closed the day at 1172 – up 6.4% in 75 minutes of trading! La Bernank calls this le “price stability.”


That wasn’t a bounce. That wasn’t an intraday rally. That was career risk management buttons being pushed (BUY), in size, at the 1100 line – at the intraday and YTD low. Remember, the art of money management is having money to manage.


Market bottoms are processes, not points. And the entire construct of American finance (a large construct) is finally engaging, emotionally, in the process of jogging their 2008 Market Memory.


Many a perma-bull would have you believe yesterday’s intraday rally was based on the “yield differential between stocks and bonds.” Others continue to tell you that stocks went up because they are “cheap.” Right.


To borrow a much more reasonable explanation of what the market does and when, here’s Jane Leavy’s (using America’s treasured pastime as a metaphor for how Americans remember things they are supposed to love): “…like the sweater in my office, Mickey Mantle is a blend of memory and distortion, fact and fiction, repetition and exaggeration.”


Back to this morning’s Global Macro Grind


As levered long hedge funds deal with their 2011 performance problems in America (they’re down more than mutual funds who don’t use leverage), the rest of the world, shockingly, didn’t cease to exist yesterday.


Across countries, currencies, and commodities, there’s a lot going on this morning:


1.   ASIA – China’s most trusted economic advisor (Singapore) CUT its export forecast for 2011 last night. That’s a big deal as it’s a pseudo honest representation about what Asia really should be thinking when considering all of the money printing by Fiat Fools. Deficits, Debt, and Zero Percent Interest Rate Policies STRUCTURALLY DEPRESS ECONOMIC GROWTH (Princeton Economics Department, take notes).


Singapore’s stock market sold off on that “news” closing down a full -1.9% overnight and really put a large wet Kleenex on what the buy-and-hope crowd in America was looking for this morning - a follow through on yesterday’s bull charge, with a big overnight session in Asia, and big UP futures to story-tell about. Didn’t happen.


2.   EUROPE – Evidently, arresting a US stock market crash into yesterday’s close didn’t stop gravity. Economic growth in Europe continues to slow and that’s why German stocks have crashed alongside all of the Europig nations. In bear markets (all of European Equities are in one, fyi), I learn a lot more from the complexion of the bounces than I do the selloffs.


Anyone with a calculator knows that Greece, Italy, and Spain have crashed. But do people realize that German stocks are crashing? Inclusive of this morning’s low-volume +1.6% “bounce” in Germany’s DAX Index, the market is still down -20% from its May 2011 peak. That’s a problem. Germany’s TAIL is broken.


3.   USA – Our cerebral Director of Research, Daryl Jones, wrote an outstanding note yesterday titled “Is There Cheap Valuation Blood In The Water” (if you’d like the note email ) and without recapping the entire historical data series, here’s the bottom line on US stocks: they aren’t expensive anymore; they aren’t cheap either – they are perfectly priced for storytelling.


For the sake of a bear’s storytelling purposes, let’s assume the duration of the countless marketing machines out there who are still pitching Jeremy Siegel’s “Stocks For The Long Run” – and let’s use the longest of long-runs. At a closing price of 1172, the SP500 continues to make LOWER long-term LOWS, down -25.1% versus their long-term peak (2007) and down -14.0% from their LOWER-HIGHS established in April of 2011.


Now if we want to throw away our Market Memory for another second and assume the Keynesian Textbook position that ‘low bond yields means buy stocks’, we humbly submit that you still need to get the timing right.


With 2-year US Treasury Yields hitting all-time lows today at 0.17% (all-time is still a very long time) and 10-year yields collapsing toward their all-time lows established in 2008, again, we humbly submit that buying a stock because “it’s cheap” in 2008 should inspire bad memories about what’s left of your 401k. Fictionally “cheap” can get cheaper and repeating the same mistakes gets people run over.


My immediate-term ranges of support and resistance for Gold (bullish), Oil (bearish), and the SP500 (bearish) are now $1, $78.58-89.97, and 1114-1231, respectively. Our Global Macro team will host a conference call at 11AM EST to go through what to do next.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Market Memory - Chart of the Day


Market Memory - Virtual Portfolio

the macro show

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.