‘The Question’

The purpose of “The Question” is to get to the bottom of key issues of investment significance, and to call out those companies that are particular standouts (+ and -).

With Obama looking increasingly likely to take the election, he has been very outspoken about passing the Employee Free Choice Act, which would eliminate the secret ballot making it much easier to unionize. This in turn would result in higher wages and benefits.
Food and labor costs represent 60-70% of the cost of running a restaurant. I have no idea where Obama stands on food costs or if any of his policies will cause an increase in the cost of food. Labor costs represent 30%+/- of that total. Over the past three years, the industry has faced significant labor inflation and thus lower margins. Unfortunately, there is not much the industry can do. In this environment you can’t raise prices and you can’t cut labor or you will lose customers. The restaurant industry is one of the largest employers in the United States. Given the current environment, if Obama’s policies accelerate labor inflation, it will only cause more companies to go bankrupt and increase unemployment. How does anybody prepare for that scenario?

This is the question I threw out to some key executives within the restaurant industry. I have included a couple of the more interesting responses:

-The key will be whether or not the Republicans can hold 40 seats in the Senate. 40 seats will allow them to filibuster any bill proposed by the Democrats including the Employee Free Choice Act which if passed, will neither be free nor a choice (Please sign this card Mr. Penney…and we know where you live!). If the Republicans can’t hold a 40 seat minority, the first target will be Wal-Mart followed by Target, Home Depot, Lowe’s etc. Restaurants will be further down the list starting with McDonald’s and Burger King. Eventually, they will get to casual dining. However, it may be a tougher sell for restaurants with a primarily young and transitory workforce. Just like healthcare (which we offer from day one and most of our employees decline), I suspect restaurant industry workers see their jobs as less of a career and more of a stepping stone to bigger and better opportunities and thus may not find value in unionizing.

-Although I believe it would be tough to unionize pizza delivery drivers, we have actually seen sporadic attempts to do so. We believe the Employee Free Choice Act would make it easier to do so, and we strongly oppose it. With a democratic presidency and congress, we are sure to pass it.





Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more