Notable macro data points, news items, and price action pertaining to the restaurant space.






Initial jobless claims came in at 409,000 for the week ended 8/27, a decrease of 12,000 from the week prior at 421,000 (revised).  The four-week rolling average ticked up by 1,750 to 410,250, as the chart below illustrates.


THE HBM: COSI, WEN, SONC, BKC - initial claims





Farm product prices received by farmers rose 1.1% in August. The increase in the overall index is driven by strength in crop and livestock prices; the overall index is 29% higher than a year ago.  The recent flood/drought inflicted damages to domestic crop ensure food price inflation will continue well into 2012.





Food retailers have taken the lantern of performance.   Food processors continue to perform sluggishly.


THE HBM: COSI, WEN, SONC, BKC - subsectors fbr





COSI CEO James Hyatt is leaving “for personal reasons”. 


WEN CEO Roland Smith is stepping down from his role as President and CEO but will serve as a Senior Advisor to the Company during a transition period with newly announced President and CEO Emil Brolick (effective 9/12).


WEN’s new burgers are being rolled out.  A post on describes two new choices of the D.T. Double.  In addition to “The Original”, the newcomers are the “Spicy Chipotle” and the “Garlic Steakhouse”.  The Original D.T Double has American cheese and a “signature sauce”.  The Spicy Chipotle D.T. Double includes pepper jack cheese and fiery chipotle sauce.  The Garlic Steakhouse D.T. Double has Monterey Jack cheese and garlic aioli sauce.  These double cheeseburgers are all priced at $2.99.



SONC continues to underperform on multiple durations and did so yesterday on higher volume studies.  I’m not a believer that hot dogs are going to keep momentum going for ever - but the company continues to introduce new products.  Sonic is adding on to its 100% all-beef hot dog line again this fall, introducing two new hot dogs in the form of the Bacon & Blue Dog and the Kickin’ Coney. Here’s a little more information:  Bacon and Blue Dog: It’s a hot dog made with 100% pure beef, covered in crisp bacon, fresh lettuce, ripe tomato and blue cheese dressing on a poppy seed bun (450 Calories, 27 grams fat, 9 grams sat. fat, 17 grams protein.)  Kickin’ Coney: A hot dog made with 100% pure beef and topped with chili, cheddar cheese, crispy onions and chipotle BBQ sauce (480 calories, 27 grams fat, 11 grams sat fat, 19 grams protein)





BKC has brought to the U.S. the multi-person meal platform it has been offering in Australia. Coupons distributed nationally this week include one for a $6.99 Meal for Two combo and another for a $9.99 Family Bundlecombo.  







New Bennigan’s Franchising Co. chief executive Paul Mangiamele says he’s upbeat on the 80-unit chain’s performance after a successful reboot this summer at Bennigan’s corporate restaurant in Chicago.  Same-store sales increases at the flagship unit are running in the low double digits, said Mangiamele, who took over as chief executive in May. Same-store sales for the rest of the system are in the low single digits. – NRN




THE HBM: COSI, WEN, SONC, BKC - stocks 91



Howard Penney

Managing Director



Rory Green












The Macau Metro Monitor, September 1, 2011




A new monthly Macau GGR record.  August GGR came in at 24.769 MOP BN (24.048 HKD BN, 3.084 USD BN), up 57% YoY.  This is also the highest YoY growth rate to date in 2011.



According to China National Radio, Chinese Premier Wen Jiabao said, "Currently, our country’s economic development is still facing a very complicated domestic and external environment that is unstable and fraught with many uncertain elements... but stabilizing overall price levels remains the priority task of our macroeconomic controls [and] will not change."  Wen remarked that while policymakers have admitted that the official annual inflation target of 4% is unlikely to be met in 2011, China’s economic fundamentals remained strong and could continue to grow at a fast pace.





TODAY’S S&P 500 SET-UP - September 1, 2011


After global equities got pulverized in August and we got another low-volume month end rally out of the way, we’re back to Global Macro fundamentals driving markets this morning. 


GLOBAL GROWTH – what’s scariest about Germany’s crash is that its economy is in much better shape than most of the majors (including the USA); while it’s nice to see everyone in the US claiming to have nailed calling all bottoms in August, that doesn’t change the fact that Q2 US GDP was revised down another -31% in the last month to 0.98% (Germany’s Q2 was +2.8%)


As we look at today’s set up for the S&P 500, the range is 31 points or -1.30% downside to 1203 and 1.24% upside to 1234.


US Equities should be fine as long as 1203 holds (SP500). If/when it doesn’t, I guess they’ll call that risk “on” (its always on) … until the media begs for the next Keynesian experiment (Obama delayed his bag of goodies to next Thursday).






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: +901 (+139)  
  • VOLUME: NYSE 1265.13 (+24.13%)
  • VIX:  31.62 -3.86% YTD PERFORMANCE: +78.14%
  • SPX PUT/CALL RATIO: 1.40 from 1.84 +23.60%


  • TED SPREAD: 31.71
  • 3-MONTH T-BILL YIELD: 0.02% +0.01%
  • 10-Year: 2.22 from 2.19    
  • YIELD CURVE: 2.03 from 1.99

MACRO DATA POINTS (Bloomberg Estimates):

  • U.S. auto sales may have failed to rebound in August, running at a 12.1m rate, analysts est., down from 12.5m rate in 1H 2011
  • August retail sales were likely curtailed after Hurricane Irene pushed back-to-school purchases into September. Retail Metrics index est. up 5% vs 3.6% Y/y
  • President Obama agreed to move his speech on economy, jobs to Sept. 8 after House Speaker Boehner protested; note NFL season opener at 8:30 p.m. that day
  • Competitors will not unequivocally benefit if Justice prevents AT&T's takeover of T-Mobile USA - WSJ



  • 8:30 a.m.: Net export sales, commods
  • 8:30 a.m.: Jobless claims, est. 410k, prior 417k
  • 9:45 a.m.: Bloomberg consumer comfort, prior (-47.0)
  • 10 a.m.: Construction spending, est. 0.2%, prior 0.2%
  • 10 a.m.: ISM Manufacturing, est. 48.5, est. 50.9
  • 10:30 a.m.: EIA Natural Gas
  • Noon: Fed’s Duke speaks at Fed conference in Washington



COPPER – after Charlie Evans vowed to debauch the US Dollar, most things inflation ripped for a few days, including Copper – but the ole Doctor failed at its TREND line (4.21/lb) this morn and leads commodities on the downside (-1.4%).


THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Silver Poised for ‘Golden Cross’ Rise to $50: Technical Analysis
  • Baltic Container Jump Dulls Hamburg’s Euro Pain: Freight Markets
  • Copper Drops for First Day in Seven on China Growth Concern
  • Gold Drops for Second Day as Equities Rally Amid Fed Speculation
  • Glencore Proposes $1.2 Billion Takeover of Optimum Coal
  • Oil Advances on Manufacturing Reports; Cushing Supplies Decline
  • Carnivores Will Choose Cheap Pork Over Beef: Chart of the Day
  • Barclays Declines to Comment on Report of Warehouse Purchase
  • Cheap Gas Joins EPA to Prompt Switch From Coal: Energy Markets
  • Aluminum Fee to Japan Cut as Slowing Recovery Curbs Demand
  • Crude Declines in New York on Signs of Slowing Recovery in U.S.
  • Corn, Wheat Drop on Speculation Demand for U.S. Crops May Slow
  • U.S. Mint American Eagle Gold Coin Sales Are Most Since January
  • OPEC Output Climbs to Highest Level Since 2008, Survey Shows
  • China Appeals WTO Ruling on Raw Material Export Controls
  • Joy Global Sees ‘Strong’ Metals, Coal Demand Led by China, India



THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: just a bloody mess; Germany leads to the downside this morn, down -2% (down -19% in AUG) and down -24.7% since May as PMI data falls
  • GREECE: which the manic media was celebrating as rescue me 4 days ago has since dropped 11% in a straight line - long live the Fiat Fools
  • EuroZone Aug final Manufacturing PMI 49.0 vs preliminary 49.7 and prior 50.4

THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: mixed again overnight with China down -0.44% and Philippines up +0.42%; Korea's KOSPI remains bearish/broken as Tech orders..  NVLS told us this last night.

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 80.47%
  • SHORT SIGNALS 78.71%

Random Illusions

This note was originally published at 8am on August 29, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Make it less random to make it feel more random.”

-Steve Jobs


That’s not a quote to explain why Greek stocks can move up +10.2% this morning (after having crashed -48% since February). That’s what Steve Jobs said about getting the “shuffle” feature right for your iPod.


Dan Gardner (author of “Future Babble – Why Expert Predictions Fail and Why We Believe Them Anyway”) used this Apple analogy to hammer home his point about what psychologists call “the illusion of control.”


“People are particularly disinclined to see randomness as the explanation for an outcome when their own actions are involved. Gamblers rolling dice tend to concentrate and throw harder for higher numbers, softer for lower.” (Future Babble, page 75)


This, of course, is ridiculous. But only the ridiculous can explain much of the “expert” storytelling in our profession.


Last week, I kicked off Monday’s Early Look with a note titled “Uncertainty and Non-Linearity” and I had a tremendous amount of feedback from clients (thank you) on the concept of embracing Uncertainty in both our lives and risk management processes. This morning the process has not changed. My positioning has.


With plenty of asset classes on sale throughout different parts of the week, I was able to put 9% of our 70% Cash position to work by buying Corporate Bonds (LQD), Silver (SLV), and taking up our US Equity exposure from 0% to 3%.


I know, call me a wild and horned up bull.


Here’s how the Hedgeye Asset Allocation Model looks this morning (8 positions):

  1. Cash = 61% (down from 70% last Monday)
  2. Fixed Income = 21% (Corporate Bonds, Long-term Treasuries, and a US Treasury Flattener – LQD, TLT, FLAT)
  3. International Equities = 6% (China and S&P International Dividend ETF – CAF and DWX)
  4. International Currencies = 6% (Canadian Dollar – FXC)
  5. Commodities = 3% (Silver – SLV)
  6. US Equities = 3% (Utilities – XLU)

People always ask me what would get me to change my “market view.” I then have to ask them what market they are asking about. I am a Global Macro man who works with a 40 person team across countries, currencies, commodities, etc, so the answer isn’t as random as where the Dow is going next.


The answer actually gets down to last price. Prices Rule in my multi-factor, multi-duration, Global Macro risk management model. To put that more simply – as prices, volumes, and volatilities change, I do.


A lot of people do not deal with managing risk that way. Some are absolutely certain that God endowed them with a super special ability to think about “valuation” better than you or I can. Some think that markets owe them a “rate of return above the risk free rate.” Some actually don’t put much thought into it at all and just buy all dips.


Across asset classes, here’s what my core 3 factor model (PRICE/VOLUME/VOLATILITY)  said the market was saying week-over-week:

  1. US DOLLAR INDEX = DOWN -0.3% week-over-week and down for the 2nd consecutive week, reminding us that there is no strong US Dollar policy that the Globally Interconnected Marketplace actually believes. If I have written this 100x since 2007, I have written it 1000x - devaluation is not the best path to long-term economic prosperity. It perpetuates short-term inflations.
  2. CANADIAN DOLLAR = UP +2% week-over-week and proving itself where both US Congress and Les Eurocrats can’t (political solidarity). Canada is being led toward a majority that the Globally Interconnected Currency Market can attempt to trust.
  3. EURO = FLAT week-over-week as the Europeans do nothing to change the world’s view that they have no political union that can be believed in. The ever so important vote on the EFSF (European Financial Stability Facility) is up next (late September).
  4. COMMODITIES (CRB Index) = UP another +1.8% week-over-week and holding above both its long-term TAIL and immediate-term TRADE lines of support. This is the Stag in Stagflation that is associated with a debauched US Dollar policy.
  5. OIL = UP +3.8% week-over-week outperforming overall commodity inflation by more than a 2:1 ratio. Getting the stock market up by getting the energy stocks up also gets consumers a nice tax at the pump for Labor Day weekend.
  6. COPPER = UP +2.7% week-over-week to $4.11/lb but not enough to get Dr. Copper back above either its long-term TAIL or immediate-term TRADE lines of resistance (both are converging around $4.17/lb). Copper trading sustainably above $4.21/lb would be one of the key leading indicators that would change my Global Growth Slowing research view.
  7. GOLD = DOWN -3% week-over-week after making all-time weekly closing highs for almost every week of Q3 2011 before that. If you shorted Gold last week, you feel shame this morning. We are long Silver as we think it has less hedge fund risk right here and now than Gold does. Gold and Silver will continue to outperform when real-interest rates are negative.
  8. VOLATILITY (VIX) = DOWN -17% week-over-week and while it’s not conventionally considered an asset class, I don’t see why it shouldn’t be given that the Fed, ECB, and BOJ (Fiat Fools): A) shorten economic cycles and B) amplify market volatility.
  9. US TREASURIES = FLAT on the short end and DOWN on the long end last week as long-term Treasury bonds were immediate-term TRADE overbought in the week prior. Nothing has changed the Treasury Bond Market’s view from an absolute yield pricing perspective. For me to change, I’d need to see greater than 0.28% and 2.49% on 2-year and 10-year yields, respectively.
  10. US TREASURY YIELD SPREAD = UP 13 basis points week-over-week as the long-end of the Treasury curve rallied (10-year went from its YTD low of 2.06% to 2.19% by Friday). We continue to see the intermediate-term TREND of Yield Curve COMPRESSION as one of the most important leading indicators of both US Growth Slowing.

All the while, US stock market bulls had a wonderful week with the SP500 closing up +4.7% (up for its 1stweek in the last 5). But, Prices Rule, and while I moved off of the ZERO bound last week (asset allocation to US Equities = 3%), that certainly doesn’t make me a bull on either an intermediate-term TREND or long-term  TAIL duration. I’d need to see an SP500 close above 1263 for that.


“For humans, inventing stories that make the world sensible and orderly is as natural as breathing. That capacity serves us well, for the most part, but when we are faced with something that isn’t sensible and orderly, it’s a problem” (Future Babble, page 81). That’s why I’ll stick with my own storytelling that both accepts Uncertainty and that the market’s last price makes perfect sense.


My immediate-term TRADE ranges of support and resistance for Gold, Oil, and the SP500 are now $1809-1902, $81.35-88.58, and 1154-1191, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Random Illusions - Chart of the Day


Random Illusions - Virtual Portfolio

Nature's Manipulations

“Willful blindness of the non-linear core nature, has led to the attempts to manipulate the markets certainly by government.”

-Martin A. Armstrong


It is the nature of a man who is in the business of being bullish to be bullish. It is in the nature of a woman who is in the business of being bearish to be bearish. Human Nature’s Manipulations of market storytelling is what it is. People push their own book.


Over the last 3 years I have been accused of being both a raging Republican and a Yale campus Democrat. In 2009 I was, allegedly, a “reckless” bull. In 2011, I am, allegedly, a Perma- Bear. All the while, across 1,377 positions that I have taken since founding Hedgeye in 2008, my long versus short positions are close to dead even (660 LONGS, 677 SHORTS). Time stamps matter.


Perma-Process? Perma-Risk Manager? Perma-Mullet? Who knows. What I do know is that if I am not more right than I am wrong on the big stuff, we don’t get paid. Despite Perma-Bulls claiming they nailed it in August, both the US and Global Equity markets got decimated.


Across our Global Macro model’s Global Equity market league tables, here was the score for August 2011:

  1. Greece = down -23.9%
  2. Germany = down -19.2%
  3. Italy = down -15.6%
  4. Russia = down -13.4%
  5. Austria = down -12.7%
  6. South Korea = down -11.9%
  7. France = down -11.3%
  8. Argentina = down -10.7%
  9. Sweden = down -10.6%
  10. Taiwan = down -10.4%

So, I guess, the US stock market bulls who were expecting 3-4% US GDP growth and SP500 returns of 15-20% in 2011 were a little off in August, but they weren’t crashing like everything else (SP500 and Russell 2000 down -6.1% and -8.7% for AUG, respectively).


That must be bullish. And I must have been too bearish.


Heck, just look at how high US stocks bounced “off the lows” in August. That’s just gotta be bullish, no? Without any economic data to back it (US consumer confidence hitting 1970s type lows; housing/mortgage demand at 14 year lows, global stock markets getting smoked, etc), the bears must be too bearish. Right? Ah to be a connoisseur of consensus…


While the answer to who called the August bottom AND actually called the April top remains unclear, what remains crystal clear is that people who are in the business of being bullish bought stocks into August month end.


In the Hedgeye Chart of The Day, Darius Dale, illuminates the simple reality of institutionalized career risk management:


LAST 6 DAYS OF THE MONTH (in the SP500):

  1. APRIL = +2.0%
  2. MAT = +2.1%
  3. JUNE = +2.6%
  4. JULY = -3.8%
  5. AUG = +4.9%


  1. MAY = -1.3%
  2. JUNE = -4.9%
  3. JULY = +1.8%
  4. AUG = -13.4%
  5. SEP = ?

Now, if you want to roll the Bernanke Bones on this, maybe this time will be different. After all, that’s what the Keynesians and Fiat Fools have been telling us all along. But if it’s not, the US stock market could have a big problem in September. That +4.9% month-end markup into August end was the most aggressive yet and, as you can see, the higher they mark’em up, the harder they fall.


Arresting economic gravity is difficult. But Obama is scheduled to release his new bag of goodies next Thursday and, all the while, Charlie Evans can pop in from the Chicago Fed for another US Dollar Debauchery interview (not that his being paid by The Commodity Inflation or sitting on the Chicago Metropolis board with CBOT and UBS execs is a conflict of interest versus the Fed’s “independence” or anything like that).


So sit back and enjoy some price volatility in September as the Fed keeps cranking on full employment and “price stability”! We really need these guys to do a lot more of what didn’t work with QG2. Nature and the non-linear interconnectedness of Global Macro markets be damned.


Today’s risk/reward in the SP500 is dead even. I have 1203 and 1234 as immediate-term TRADE support and resistance. After moving off of my 0% asset allocation to US Equities last Friday (bought Utilities and were up +3.3% on that already) we’re long XLU (Utilities) and short Financials (XLF). Where could I be wrong? All over the place I guess. My every morning starts and ends with Uncertainty.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $85.98-89.72, and 1, respectively.


Best of luck out there in September,



Keith R. McCullough
Chief Executive Officer


Nature's Manipulations - Chart of the Day


Nature's Manipulations - Virtual Portfolio


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