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Preannouncement Roadmap Part 1


With both Sales Day and ICR over the next week, we’re likely to see 10-15 preannouncements. Here’s a roadmap as to the companies who have most commonly updated guidance in advance of the event. We’ll be back shortly with our picks and themes headed into the conference.


We’re officially in the “unofficial” earnings season for retailers with both Sales Day and the annual ICR Exchange set to take place over the next several days. History paints an interesting picture (and precedent) of pre-announcements over this two week period. As such, we’ve updated our matrix of companies with a history of pre-announcing at or around the annual pilgrimage to ICR. Those with positive releases are highlighted in green while those with less positive news are highlighted in red. This year should be no different than in years past, where we are likely to see 10-15 companies update guidance in the coming days.

As noted, we’ll be back soon with Part 2 of this analysis, which includes our targeted themes and companies headed into the event.


Preannouncement Roadmap Part 1                                 - ICR Preann Table

Preannouncement Roadmap Part 1                                 - ICR Preann Table 2



Global Growth Update: Asian PMIs Look Better In December

Conclusion: Our models and interpretation of the high-frequency data suggests that: a) Asian economic growth is slowing at a slower rate; and b) the bottom is not completely priced in – yet.


In refreshing our country-specific predictive tracking algorithms (PTAs), we’re seeing a consistent pattern emerge as it relates to the slope of economic growth – specifically that economic growth is likely to bottom in 1Q12 for a host of key countries and economic blocs.


On the margin, being closer to the bottom is a bullish factor for global beta insomuch that having a shortened delta between current rates of economic growth and where those rates are likely to end up in the current global economic cycle is a variant setup to the one we had in JAN ’11 when we made an explicit call for Slowing Global Growth.


Make no mistake about it – global growth is still slowing. What we are trying to say is that: a) the bottom is in sight for a few key countries; and b) slowing at a slower rate can be a bullish factor in that it is a leading indicator for the turn. This is a key upside risk to consider in the context of depressed consensus sentiment surrounding the 2012 economic outlook as well as the positive effect on real-adjusted rates of growth stemming from further strength in King Dollar and a further Deflating of the Inflation in the commodity complex:


Global Growth Update: Asian PMIs Look Better In December - 1


Of course, the latter point continues to hinge on the Bernanke/Dudley/Evans trio remaining on the sidelines and out of the way of the U.S./global economy. Refer to this morning's Early Look for further details.


Turning specifically to Asia, we’re seeing some supportive DEC PMI readings out of Asia, headlined by sequential gains in Chinese, Japanese, and Indian manufacturing to 50.3, 50.2, and 54.2, respectively. These coincident-to-leading figures are supportive of the aforementioned top-down takeaways from our PTA readings. This is in contrast to some important, but lagging, indicators such as Singapore’s recent 4Q11 real GDP release: +3.6% YoY vs. +5.9% prior; -4.9% QoQ SAAR vs. +1.5% prior.


Moreover, while the sample is not fully robust (we’re still waiting for Hong Kong manufacturing, India services, Singapore manufacturing, and Australia services to be released in the next 24-48 hours), the initial read-through from the first batch of DEC PMI data is that Asian economic growth in DEC was better, on the margin, than in NOV.


Global Growth Update: Asian PMIs Look Better In December - 2


Global Growth Update: Asian PMIs Look Better In December - 3


On the heels of this data and ahead of further key data points throughout the week, we’re seeing a few key Asian equity markets break out on our immediate-term TRADE duration – namely China, Hong Kong, and South Korea. We would expect Japan to follow suit, having been closed since 12/30. India remains an outlier, still bearish TRADE and bearish TREND. As the charts below suggest, none of these key Asian equity markets are bullish on our TREND duration, suggesting to us that we’re not out of the woods yet from an intermediate-term downside risk perspective. Keep those lines front and center in your notebooks to gauge for any consequential follow-through in Asia from today’s very green start to the New Year in U.S. equities.


Global Growth Update: Asian PMIs Look Better In December - 4

Global Growth Update: Asian PMIs Look Better In December - 5


Global Growth Update: Asian PMIs Look Better In December - 6


Global Growth Update: Asian PMIs Look Better In December - 7


Global Growth Update: Asian PMIs Look Better In December - 8


All told, our models and interpretation of the high-frequency data suggests that: a) Asian economic growth is slowing at a slower rate; and b) the bottom is not completely priced in – yet. Stay tuned for any breakouts and/or failures at [nearby] consequential levels as determined by our quantitative models. Having enough patience the resist the Old Wall St. urge to identify oneself as bullish or bearish for the year in JAN is likely to prove to be the winning strategy going forward.


Darius Dale

Senior Analyst

Bullish TAIL: SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY)


For the 2nd time in the last 3 months, the SP500 is making a valiant effort to close above my long-term TAIL line of 1268. The last time this happened, I shorted the SPY (October 28th). This time I’m not.


Everything that really matters in our Macro Model occurs on the margin. And, on the margin, the high-frequency data points out of the 3 major regions (Asia, Europe, USA) are more bullish today than they were in October. In December, Asian Growth appears to have slowed at a slower rate; European monthly data was better than toxic; and the USA’s confidence/employment data is being empowered by a Strong Dollar.


Across all 3 durations in our risk management model, here are the lines that matter most: 

  1. TAIL support = 1268
  2. TRADE support = 1258
  3. TREND support = 1213 

To be clear, this Bullish Formation (bullish TRADE/TREND/TAIL) can turn bearish (on a drop back below 1258) as fast as it turned bullish. But until that happens, the market’s last price is the right price to manage your risk around.


If it doesn’t happen, I’ll keep sending emails titled Bullish TAIL.




Keith R. McCullough
Chief Executive Officer


Bullish TAIL: SP500 Levels, Refreshed - SPX

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European Banking Monitor

Positions in Europe: Short France (EWQ)


Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor"


If you'd like to receive the work of the Financials team or request a trial please email .


We’d note that the TED spread declined by one basis point (57.1 bps) vs. last week's value of 58.1 bps, however we're hesitant to read much into this as it is essentially unchanged and reflected a quiet week. Euribor/OIS showed similar trends with that metric coming in at 97.4 bps this week vs. 97.3 bps last week.


The most current data from the ECB’s SMP shows €19 MM in secondary sovereign bond buying in the week ended 12/23, the smallest amount in nearly five months since the ECB resumed buying in early August. In the week ended 12/16, the ECB bought €3.361B.  We continue to maintain that while the SMP and the extension of the LTROs should be additive to capital market gains, we don’t see the programs carrying sustained gains over the intermediate term for European capital markets.  Italian 10YR yields, which reached 6.95% today, are but one indicator of this opinion. 


Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone.  The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk.  The Euribor-OIS spread widened by less than 1 bp to 97 bps.


European Banking Monitor - 1. OIS



ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding.   The Liquidity Recourse hit a new all time high on Tuesday but has since fallen.


European Banking Monitor - 1. ECB 2



European Financials CDS Monitor – Bank swaps were wider in Europe last week for 30 of the 40 reference entities.  The average widening was 0.4% and the median widening was 1.4%.


European Banking Monitor - 1. banks 3



Security Market Program – The ECB's secondary sovereign bond purchasing program bought €19 MM in the week ended 12/23 vs €3.361 Billion in the week prior to take the total program to €211.0 Billion.  No data has been released for the week ended 12/30.  


European Banking Monitor - 1. SMP 4



Matthew Hedrick

Senior Analyst




Welcome In 2012 With Hedgeye Happy Hour

Join us in welcoming another winning NEW YEAR on January 12th from 6:00 to 9:00 PM. The celebration will take place at the Sake & Shochu Lounge at Zengo Restaurant, located on 622 Third Avenue at 40th Street, New York NY.


For furthers questions and RSVPs please contact us at .


Best Wishes,

The Hedgeye Macro Team






Comments from CEO Keith McCullough


Squeeze me, please me – its 2012, here we go!

  1. SQUEEZE – in both Asian and European Equity squeezage (yesterday + today) there actually was some economic data supporting it; China (which I bought on last day of 2011) printed a 50.3 on its PMI for DEC and Germany’s unemployment rate dropped in DEC to 6.8% vs 6.9% last month, with both economies proving you don’t need Keynesian fear-mongering to generate a solid employment base.
  2. EUR/USD – get the US Dollar’s daily direction right and you’ll get most things beta right; that’s not a perpetual correlation, but it certainly still matters this morning. Euro’s new TRADE range = 1.28-1.31, so we’re dead cat bouncing this thing right back up to the top end of the range and Gold (which has a stunning -0.91% inverse cor to USD right now) pops for a +1.5% gain (covered our GLD short at $1538/oz)
  3. COMMODITIES – as important to watch as European equities as they test their TAIL lines of resistance in early 2012 will be Copper and Oil testing their TAIL lines of resistance of $111.61 (brent) and $3.99/lb, respectively.


Don’t be stuck bullish or bearish in 2012. Be right.


Game on.







THE HBM: SBUX, CMG, YUM, JACK, MSSR - subsector fbr





SBUX: Starbucks is raising prices by an average of roughly 1% in the U.S. Northeast and Sunbelt regions today.  Major cities being affected include New York, Boston, Washington DC, Atlanta, Dallas and Albuquerque. Spokesman Jim Olson said that the hike is coming as a result of “balancing the cost of doing business with competitive dynamics in the markets”.  Starbucks expects high prices for coffee, milk and fuel to cut into profits this year. 


CMG: Chipotle Mexican Grill was raised to “Buy” at Deutsche Bank.  The twelve month price target is $390 per share.


YUM: The Malay Chamber of Commerce Malaysia said it is prepared to outbid CVC Capital Partners Ltd. for control of the nations KFC franchise operator as it seeks to keep the business in local hands.


JACK: Jack In The Box was raised to Top Pick versus Outperform at RBC.





MSSR: Landry’s announced today the successful completion of its tender offer for all of the outstanding shares of common stock of McCormick & Schmick’s Seafood Restaurants at a price of $8.75 per share.  Landry’s now owns, together with its affiliates, roughly 88% of the outstanding shares of MSSR.





Howard Penney

Managing Director


Rory Green