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THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Unemployment

 

Initial jobless claims came in at 393k versus 390k consensus and a revised 391k for the week prior.

 

THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE - initial claims 1123

 

 

Notes below from CEO Keith McCullough

 

Santa needs turkey and beverage.

  1. ASIA – Equities are crashing again after the NOV Chinese PMI print came in at 48 vs 51 and stocks moved back into the -20% peak-to-trough zone for the YTD (HK -2.1% and down -26.7% from YTD high; India down another -2.2% and down -23.3% from YTD high); both Hong Kong (which we’re short) and Singapore reported very elevated inflation readings (+5.8% and +5.4.% y/y)
  2. EUROPEAN STAGFLATION  - this is still my call and it’s not consensus; European consensus is for a recession – Stagflation gets a much lower equity market multiple; on the Stag side of the ledger, Germany and France reported awful Manufacturing PMI #s of 47.9 and 47.6, respectively this morn; Germany has plenty of debt to issue in NOV/DEC and their auction today was not good.
  3. TREASURIES – the Long-Bond and US Dollar is where this November Santa is at! 10yr plummeting to 1.90% this morning and finally immediate-term oversold as the Yield Spread continues to collapse (down another 9bps wk/wk to 164bps wide).

Deutsche Bank and Dexia are the lead dominos in a long list of European banks getting in line for bailout funds.

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE - subsector fbr

 

 

QUICK SERVICE

 

YUM:  Yum! Brands said Tuesday that it will separate its India business from Yum! Restaurants International and create a separate divison, a standalone, called Yum! Restaurants India.   Niren Chaudhary has been promoted to president of the new division.  CEO David Novak said that he is confident that India will turn into “a major growth engine for Yum”.

 

MCD: McDonald’s is testing out a new style, conceived by Paris designer Patrick Norguet, at a store in Villefranche-de-Auragais, according to the LA Times.  The redesign is part of an effort to change the chain’s image in France from teen hangout to family restaurant.

 

THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE - MCD villefranche reimage

 

 

DNKN:  Dunkin’ Donuts is launching a twitter promotion that gives fans the chance to win a Keurig brewer and a box of Dunkin’ Donuts K-Cups.  One winner per hour will be randomly selected from anyone that tweets the hashtag #DDKCUPPACKS and shares how Dunkin’ Donuts K-Cup packs keep them running throughout the holiday season.  The promotion begins at 6AM Friday and ends at 11AM; there will be five winners, total.

 

 

CASUAL DINING

 

CBRL: During Cracker Barrel’s earnings call yesterday morning, management expressed confidence in sales trends which are, according to the company, improving in November from October.  Advertising guidance for the year was unchanged.  The company aims to raise price 2-3% in FY12 and notes that beef, dairy and coffee costs are up sharply.

 

KONA: Kona Grill says that Mark Robinow is no longer Executive Vice President, CFO, and Secretary of the company, effective as of 11/21. In the same press release, Kona Grill announced the authorization of the repurchase of up to $5 million of the company’s outstanding common stock.  We are changing our stance from positive to negative.  Buying back stock is the wrong decision in our view, given the cash position of the company and the need for store growth.

 

CAKE: Cheesecake Factory was maintained “Equalweight” at Barlcays.

 

THE HBM: YUM, MCD, DNKN, CBRL, KONA, CAKE - stocks 1123

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE M3: VISITOR ARRIVALS; CHANGI TRAFFIC; S'PORE CPI; CASINO SALARY

The Macau Metro Monitor, November 23, 2011

 

 

VISITOR ARRIVALS FOR OCTOBER 2011 DSEC

Total visitor arrivals increased by 13.6% YoY to 2,376,643 in October 2011.  Visitors from Mainland China surged by 30.5% YoY to 1,466,545 in October 2011, with the majority coming from Guangdong Province, Fujian Province and Hunan Province.  Mainland visitors traveling to Macau under the Individual Visit Scheme totaled 577,691, up by 20.5%.

 

THE M3: VISITOR ARRIVALS; CHANGI TRAFFIC; S'PORE CPI; CASINO SALARY - VISITOR

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

Singapore Changi Airport passenger traffic was up 8.3% YoY to 3,878,788 in October.  September passenger traffic grew 12.5% YoY.

 

SINGAPORE INFLATION RISE OUTSTRIPS FORECAST WSJ

S'pore CPI increased 5.4% YoY, surpassing economists' forecast of 5.2%.  Core inflation in October was +0.3% MoM and +2.3% YoY.  

 

MACAU MEDIAN SALARY REACHES MOP 10,000 Macau Daily Times

Casino worker average salary has reached MOP 13,500 in Q3.


Santa Mario

This note was originally published at 8am on November 18, 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 should not be waiting any longer.”

-Mario Draghi

 

In one of the more suspicious central planning moves to-date, it appears that the new Italian Chief of Central Planning, Mario Draghi, is working on changing the date of Christmas.

 

Santa, as you can see, is really red. This whole thing about the Nasdaq and US Small Caps being down for 3 consecutive weeks in November (SP500 down -3%) has Bernanke’s central plan for reaching “escape velocity” from the chimney under fire too.

 

If Americans and Europeans change all of the rules and all of the dates, there’s really a lot we can do. You see, this is what these people fundamentally believe – they can save us from, well, just about any problem they perpetuate.

 

The aforementioned quote came from Santa Mario this morning where he started calling out the Germans in Frankfurt. “Where is the implementation of these long standing decisions?” Draghi asked.

 

Q: Qu’est ce qui ce passe avec Le Bazooka pour les banks? demanded Monsieur Sarkozy.

 

A: “If politicians believe the ECB can solve the problem of the Euro’s weakness, then they’re trying to convince themselves of something that won’t happen.” –Angela Merkel

 

Bad German Santa. Bad.

 

Back to the Global Macro Grind

 

Yesterday I covered shorts and bought some of our Hedgeye Best Ideas on the long side (ask sales@Hedgeye.com for the replay of our analyst team’s Best Ideas Call from last Friday), taking my net long position in the Hedgeye Portfolio to one of its most bullish leans in November (12 LONGS, 8 SHORTS).

 

That doesn’t mean I believe in Le Pere Noel or that a few Keynesians by the name of Mario are going to save me on the long side either. It simply means that I am doing what my risk management process allows me to do – Fade Beta.

 

Fading Beta means buying on red and selling on green. It’s not as complicated as figuring out the European catalyst calendar. It’s just math. I base these decisions on a model that I’ve built. I don’t have to ask my boss for permission to act on its signals.

 

The risk management signals aren’t perfect, but they’ve been better than being Bad Beta in November. We’ve booked 13 consecutive gains on the long side of the Hedgeye Portfolio and have gone 17 for 19 in November. Beats believing in Santa too.

 

Like all of you, I’m proud of my team and process when they are working together. I’m not a whiner. I celebrate winning. And hopefully that message is resonating with your process. At the end of the day, this business is all about the score. Winning matters.

 

Where do we go from here?

 

On the bounce, sell on green, again.

 

Why?

 

All low-volume rallies to lower-highs in Asian, European, and US Equities are to be sold until consensus fundamentally starts to come to grips with what the Germans are saying. 

  1. If any European banks are going to be bailed out, German banks get to go first (Deutsche Bank, Commerzbank, etc).
  2. If any French or Italian banker thinks Lagarde or Draghi are getting them a priority pass ahead of German banks, they should think that through again…
  3. If and when all of these Greek, French, Italian, etc banks prove that they can’t raise money (read: secondaries in the public market), they have to tap their sovereign leaders first, then start begging for the EFSF funding. 

Like intermediate-term tops in markets, the deleveraging of balance sheets is a process, not a point. There have been plenty of points in the last 3 to 24 months where pundits have made the call that “this is it – this is the bottom for the banks”, but the process of marking bank stocks and their equity values to market continues to trump all hopes.

 

Hope (and begging for Santa Mario), is not a risk management process. And “printing money”, according to Merkel’s spokesman on the economy this morning, “… at the end of the day means inflation…” and “every German is very much scared about inflation.”

 

As Ben Bernanke anchors on the 1930s (instead of the 1970s Stagflation), the German Zeitgeist is anchoring on the 1920s. Interconnected risk is not managed on one duration to suit the needs of one country’s central banking narrative over another’s. Interconnected risk is multi-duration, multi-factor, and global.

 

If you don’t get that yet, you probably still believe in Santa coming this November too.

 

My immediate-term support and resistance ranges for Gold (bought more yesterday), Oil (Bullish Formation and inflationary), French CAC (Bearish Formation), and the SP500 (Bearish TAIL; Bullish TREND) are now $1722-1778, $98.12-101.96, 3002-3146, and 1212-1239.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Santa Mario - Chart of the Day

 

Santa Mario - Virtual Portfolio


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 23, 2011

 

As we look at today’s set up for the S&P 500, the range is 21 points or -0.93% downside to 1177 and 0.84% upside to 1198. 

 

SECTOR AND GLOBAL PERFORMANCE

 

With the SP500 down for 5 consecutive days and down -5.2% for November (down -7.9% from OCT28 intraday peak of 1290), it should be no surprise to see the deterioration in our S&P Sector Studies. All 9 Sectors are Bearish TRADE; 3 of 9 Bearish TREND; 8 of 9 Bearish TAIL.

 

With this week’s TREND breakdown (1203), the SP500 itself is back into what we call a Bearish Formation (all 3 risk management durations are bearish). The only sector that’s bullish TREND and TAIL is Utilities (XLU), which is up +7.8% YTD.

 

Financials (-24.3% YTD), Basic Materials (-15.6% YTD), and Industrials (-8.4% YTD) tell you all you need to know about the double edged sword of Growth Slowing and Correlation Risk. We’ve been calling for both.

 

We remain bullish on the US Dollar and ultimately think that will provide a tailwind for US domestic Consumption stocks in both Consumer and Healthcare sectors. These stocks/sectors finding higher-lows will take time. Bottoms are processes, not points.

THE HEDGEYE DAILY OUTLOOK - levels 1123

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - global performance

 


EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -708 (+1449) 
  • VOLUME: NYSE 878.19 (-5.80%)
  • VIX:  +31.97 -2.86% YTD PERFORMANCE: +80.11%
  • SPX PUT/CALL RATIO: 1.66 from 1.81 (-8.70%)

 

CREDIT/ECONOMIC MARKET LOOK:

 

TREASURIES: Growth Slowing? 10yr bonds ripping a move to 1.90%; 30yr 2.87% and Yield Spread collapsing to +164bps wide

  • TED SPREAD: 49.01
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 1.94 from 1.97   
  • YIELD CURVE: 1.71 from 1.67

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, (prior -10.0%)
  • 8:30am: Durable Goods, est. -1.2% (prior -0.8%)
  • 8:30am: Personal income, est. 0.3% (prior 0.1%)
  • 8:30am: Personal spending, est. 0.3% (prior 0.6%)
  • 8:30am: Initial jobless claims, est. 390k, prior 388k
  • 9:45am: Bloomberg Consumer Comfort (prior -50.0)
  • 9:55am: UMich Confidence final, est. 64.5 (prior 64.2)
  • 10:30am: DoE inventories
  • 11am: Kansas City Fed, est. 9, prior 8
  • Noon: EIA natural gas storage
  • 1pm: Baker Hughes rig count

 

WHAT TO WATCH: 

  • Delta, US Airways expected to find out which of their rivals won auctioned landing slots at LaGuardia, Ronald Reagan; watch Southwest, JetBlue
  • Orders for durable goods other than transportation stabilized in Oct. after rising most in 6 months, separate figures may show
  • China passed U.S. to become world’s largest smartphone market by volume in 3Q: Strategy Analytics
  • U.S. markets closed Thursday for Thanksgiving holiday

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Coffee Supply Crunch Spurs Rally After Folgers Cut: Commodities
  • Australia Faces Wheat Export Challenge as Rain Hurts Crop
  • Gold Advances as Global Debt Risk Drives ETP Holdings to Record
  • Golden Agri Forecasts Higher Palm-Oil Output on Expansion
  • Turkey Farmers Lose Out on Thanksgiving Rally as Corn Costs Rise
  • Palm Oil Declines for Third Day on Concern World Growth Slowing
  • South Korea Buys 3,000 Tons of Malaysian Aluminum in Tender
  • Soybeans Decline to 13-Month Low as Supply Prospects Improve
  • Copper Declines on Sign China’s Manufacturing May Contract
  • Oil Drops on Rising U.S. Fuel Supplies, Slowing Economic Growth
  • Sugar Mills Expect India to Allow More Exports Next Month
  • Sugar in China May Extend Decline on MACD: Technical Analysis
  • Diesel Becomes ‘Global Issue’ as Premium Soars: Energy Markets
  • Australia Lower House Passes Mining Tax as Greens Back Bill
  • ‘Absolute Fear’ Saps Commodity Open Interest: Chart of the Day
  • Copper Rises Most in a Week on Signs China’s Demand to Climb
  • Vale Says Galilee Miners Need to Build Joint Rail to Save Costs
  • Copper in London Falls by 0.3% to $7,305, Reversing Gains
  • Cocoa Arrivals From Brazil’s Bahia Advance 11%, Hartmann Says
  • Oil Gains First Day in Four on Iran Sanctions and Egypt Protests
  • Wheat Drops as U.S. Exports Slow on Ample Global Supplies

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

CURRENCIES

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

 

EUROPE: remains no bid - lower-highs on low volume rallies and threats for lower-lows


THE HEDGEYE DAILY OUTLOOK - euro performance

 

 

ASIAN MARKETS

 

ASIA: do up your chinstraps b/c Asian Equities are crashing, again - HK (were short) down another -2.1% (down -26.8% from YTD high)

 

THE HEDGEYE DAILY OUTLOOK - asia performance

 

 

MIDDLE EAST

  • Arab World’s Former ‘Club of Tyrants’ Turns Against Syria
  • Gingrich Immigration Plan Derided as ‘Amnesty’ in Debate
  • Egypt Army Pledges Transition as Protesters Gather in Cairo
  • Australian Banks Ready First Sukuk on Tax Vote: Islamic Finance
  • Egypt Dollar Bonds Tumble as Tantawi Promises a ‘Step Backward’
  • Qatar Said to Hire 6 Banks for Meetings With Bond Investors
  • Saudi May Struggle to Boost Small Business Lending: Arab Credit
  • Oil Gains First Day in Four on Iran Sanctions and Egypt Protests
  • Iraq’s Lafarge-Run Cement Plant Plans to Triple Production
  • Dubai’s Al Wasl May Close as Stocks Retreat to 2004 Low
  • Iraq Has Told Exxon It’s in Breach of Laws, Shahristani Says
  • Oil Abundance in Canada Provokes Anxiety Over Fossil Fuel Lust
  • U.S. Targets Iran Oil, Bank in Bid to Halt Nuclear Program
  • Saipem, Petrofac ‘Well Positioned’ if Saudi E&P Cut: JPMorgan
  • ADIB Prices $500 Million Sukuk at 245 Basis Points Above Midswap
  • Abu Dhabi’s Masdar Cuts Jobs, Keeps Renewable Energy Goals
  • Abu Dhabi Index Heads for Lowest Since 2009 on Global Growth

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director


WEEKLY COMMODITY CHARTBOOK

Most of the commodities that we monitor for the purpose of following trends important to the restaurant and food industries took a dive over the last week.

 

STOCK THOUGHTS

 

Beef – WEN, JACK, CMG, TXRH

 

The supply and demand setup for beef remains bullish.  Prices decreased over the last week but, given the likelihood that the U.S. herd size will be far smaller in 2012 than at the outset of 2011, elevated prices are likely to continue.  Today, JACK management said that the company expects beef prices to be up 9 or 10% in 2012.

 

Data released by the USDA yesterday showed that cold storage supplies of beef were down 3% month-over-month in October and down slightly year-over-year.  Corn is declining but winter feed stocks are depleted enough already that farmers are reducing herd sizes into year-end which will tighten supplies for 2012. There is also a seasonal uptick in the slaughter of cows in the last weeks of the year that is worth taking into account.

 

Concerns over Europe’s economic prospects and economic growth estimates for the U.S. being cut are weighing on beef prices but emerging market demand remains strong.  Tyson Foods reported disappointing 4Q earnings yesterday and, during the earnings call, President and CEO Donald Smith said that demand was flat overall during the quarter.  On a global basis, however, TSN sees demand for proteins growing but anticipates a shift in food service from beef to chicken, given the continuing high price inflation beef is bringing to restaurant companies’ P&Ls.

 

 

Chicken – BWLD

 

Chicken wing prices were one of the few items to increase in price over the last week.  Tyson said yesterday that the company expects food service companies to focus more on chicken in 2012 which is a bullish sign for wing prices.  Our view for some time has been that 1Q will prove to be very difficult for Buffalo Wild Wings as high wing prices pressure margins and the company does not have the option of preserving margins while driving sales through promotion, as it did in 3Q.

 

 

Grains – WEN, TXRH, CMG, PNRA, PZZA, DPZ

 

Another decline in grain prices is bullish for the restaurant industry.  Feed costs for protein producers such as SAFM and TSN remain high at current prices but the trajectory is unmistakably downward.  Investors are, in general, losing interest in commodities as open interest for commodities, tracked by the S&P GSCI Index, has declined 14% since February as debt and deficit concerns weigh on the EU and US.  US exports of wheat fell for a second straight day today as speculation mounts that demand will decline for supplies from the US as competing exporters such as Russia boost production. 

 

WEEKLY COMMODITY CHARTBOOK - commod 1122

 

 

CORRELATION TABLE

 

WEEKLY COMMODITY CHARTBOOK - commod correl 1122

 

 

CHARTS

 

Coffee

 

WEEKLY COMMODITY CHARTBOOK - coffee 1122

 

 

Corn

 

WEEKLY COMMODITY CHARTBOOK - corn 1122

 

 

Wheat

 

WEEKLY COMMODITY CHARTBOOK - wheat 1122

 

 

Beef

 

WEEKLY COMMODITY CHARTBOOK - beef 1122

 

 

Chicken – Whole Breast

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast 1122

 

 

Chicken Wings

 

WEEKLY COMMODITY CHARTBOOK - chicken wings 1122

 

 

Cheese

 

WEEKLY COMMODITY CHARTBOOK - cheese 1122

 

 

Milk

 

WEEKLY COMMODITY CHARTBOOK - milk 1122

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst



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