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THE HBM: MCD, SONC, DNKN

THE HEDGEYE BREAKFAST MONITOR


We are hosting a call detailing our short thesis on Buffalo Wild Wings on January 19th at 11am.  Stay tuned for details.  

 

MACRO NOTES

 

Initial Claims

 

Initial jobless claims came in at 372k versus 375k consensus and 387k (revised) the week prior.

 

THE HBM: MCD, SONC, DNKN - claim

 

 

Comments from CEO Keith McCullough

 

Fascinating to watch the Correlation Risk in Global Macro markets start to burn off as consensus keeps focusing on stale indicators:

  1. ASIA – Growth Slowing at a slower rates as a Deflating The Inflation is starting to slow the pace of declines on Asian Equity market down days; India’s Services PMI 54.2 for DEC (vs 53.2 NOV) was a positive surprise and Thailand reporting lower sequential inflation for DEC at 3.5% vs 4.2% in NOV was more of what we are seeing across Asia.
  2. DAX – can I get a live quote/recap of a European Bond Auction? Cmon. That mattered 12 months ago when few were focused on it – now, every time European equities have a downtick my tweet-stream lights up w/ the same known knowns. What isn’t obvious yet is how strong German stocks and bonds act on these down moves. DAX holding 5 range of support is bullish. Period.
  3. EUR/USD – is the Euro getting blasted to a 15 month low because of Unicredit or b/c a Romney win in NH is a big time stabilizer for the USD? Or both? Markets don’t move on a 1-factor model – I think this Presidential debate is going to be USD bullish inasmuch as insolvent European banks blowing up is bearish.

 

EUR/USD immediate-term TRADE oversold at $1.28 so make some gross/net exposure moves on that. Buying more US Equity exposure provided that my TAIL line of 1267 holds. Waiting and watching first.

KM

 

SUBSECTOR PERFORMANCE

 

THE HBM: MCD, SONC, DNKN - subsector fbr

 

 

QUICK SERVICE

 

MCD: McDonald’s Japan same-store sales gained 5% in December and 1% in 2011. 

 

MCD: McDonald’s Hong Kong raising average prices 2.3% this month.

 

SONC: Sonic reported Q1FY12 EPS of $0.09 versus consensus $0.09.  Comps at franchise restaurants came in at +0.2% versus consensus +0.3% and company-owned restaurants’ comps came in at -0.1% versus consensus of +0.8%.

 

THE HBM: MCD, SONC, DNKN - sonc company pod1

 

THE HBM: MCD, SONC, DNKN - sonc franchised pod 1

 

 

DNKN: Dunkin’ Donuts is going to double its store base in 20 years, according to the NY Post.  Where is the backlog?

 

 

THE HBM: MCD, SONC, DNKN - stocks

 

 

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE M3: SINGAPORE OCT VISITATION; NEW YEAR VISITATION

The Macau Metro Monitor, January 5, 2012

 

 

INTERNATIONAL VISITOR ARRIVALS BY REGION/COUNTRY OF RESIDENCE STB

Singapore visitation hit 1,084,189 in October 2011, up 10.9% YoY.  Mainland China visitors rose 44% YoY and accounted for 12% of total visitation.

 

THE M3: SINGAPORE OCT VISITATION; NEW YEAR VISITATION - SPORE

 

NEW YEAR BROUGHT 324,000 TOURISTS Macau Daily Times, Macau Business

A total of 324,394 tourists visited Macau over the New Year holidays, an increase of 8.1% YoY.  The Border Gate remained the busiest checkpoint with 414,000 arrivals (including visitors and residents), followed by the outer harbor ferry terminal with 71,000, and the Taipa temporary ferry terminal with 29,000. 

 



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Natural Remedy

“The market has its own logic and contains its own natural remedy.”

-Nicholas Wapshott

 

That was an excellent paraphrasing of Hayekian thought by Nicholas Wapshott in his recently published “Keynes Hayek.” But who is Hayek and what does Hayekian thought mean?

 

I’m going to make a concerted effort to educate our audience throughout the US Presidential Election on the answers to those very simple questions. Keynesian Dogma is pervasive in our Western education. It has also brought Japanese, European, and US governments to their knees in the last 10 years…

 

Good news: the young people in American who are allowed to Re-think, Re-work, and Re-build this country get that. That’s why you’re seeing a groundswell of a “young” vote for Ron Paul. It may not be as big as Obama’s was – but it’s based on the same American principle of progress – change.

 

To be crystal clear, this doesn’t mean I am some brainwashed disciple of Hayekian economics. It simply means that I have been educated in its alternative and have concluded (like Milton Friedman and Margaret Thatcher did) that it doesn’t work.

 

After the Keynesian experiments of the late 1920s and early 1970s ultimately failed in America, Hayekian thought became a very popular alternatives in both 1931 and 1974.

 

Ultimately, this is why Hayek won (shared) the Nobel Prize in Economics in 1974 and why Milton Friedman went on to become so popular in the 1970s and 1980s (Friedman won the Nobel in 1976).

 

Timing Matters.

 

Hayek: “When I was a young man, only the very old men believed in the free market system. When I was in my middle ages, I myself and nobody else believe in it. And now I have the pleasure of having lived long enough to see that the young people believe in it again.” (Keynes Hayek, pg 258)

 

This time, will not be different.

 

Back to the Global Macro Grind

 

What I have enjoyed most about this stabilization of both volatility (VIX) and US stock market performance in the last few weeks is that it has been driven by the Top Natural Remedy for a country and her economy – the strength and stabilization of her currency.

 

With the US Dollar Index up +0.6% on the day yesterday (up +9.5% since Bernanke signaled the end of Quantitative Easing), the SP500 held flat and Consumer Discretionary stocks (we’re long XLY) closed up +0.8% on the day.

 

Strong Dollar = Strong Consumption. Period.

 

As a reminder, my solution to this mess is to get both the fiscal and monetary central planners out of the way. Big Government Spending (fiscal) will come down via The People’s vote and Easy Money Policy (monetary) that starves conservative US Savers of their hard earned fixed income will come under fire for what it’s been – a short-term policy to inflate.

 

Strong Dollar = Deflates The Inflation. Period.

 

That’s a functional reality in the Post-Keynesian economy, primarily because it’s globally interconnected. Most liquid commodity markets trade/settle on some underpinning of a US Dollar. It’s still the world’s reserve currency.

 

More Good News: the Correlation Risk born out of Congress and Bernanke devaluing the US Dollar to all-time lows twice (2008 and 2011) is NOT perpetual. In other words, get big fiscal and monetary “stimulus” plans out of the way and the correlations in the big stuff that matters start to burn off.

 

What does that mean in English? Let’s use numbers…

 

After having 80-90% inverse correlations to the US Dollar throughout the May-November period of 2011 (Dollar UP = Everything DOWN), here are the latest immediate-term TRADE correlations as of last night:

  1. Gold = -0.93
  2. Copper = -0.69
  3. CRB Commodities Index = -0.69
  4. EuroStoxx Index = -0.57
  5. US Equity Volatility = -0.57
  6. SP500 = -0.02

In other words, the Natural Remedy that convinces the world that we are no longer implicitly trying to devalue our currency lends credibility to the US Dollar and a lower valuations for competing currencies like the Euro and Gold.

 

Additionally, as the US Dollar stabilizes and strengthens:

  1. Commodity Inflation continues to deflate
  2. US Stock Market Volatility starts to fall!
  3. US Stocks that aren’t levered to easy money and/or debt go u

Keynesian Quacks can quibble with me about this all they want – but they’re most likely to do it behind closed doors. Like Keynes vs. Hayek in 1931 or Arthur Burns (Fed Chief) vs. Friedman in 1976, these people are very afraid of the debate – as they should be.

 

As the facts change, America does. Lead, follow, or get out of our way.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, VIX, and the SP500 are now $1, $111.61-113.37, $1.28-1.30, 20.35-24.11, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Natural Remedy - Chart of the Day

 

Natural Remedy - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP – January 5, 2012

 

Fascinating to watch the Correlation Risk in Global Macro markets start to burn off as consensus keeps focusing on stale indicators - KM

 

As we look at today’s set up for the S&P 500, the range is 16 points or -0.81% downside to 1267 and 0.45% upside to 1283. 

 

SECTOR AND GLOBAL PERFORMANCE

 

Bullish is as bullish does – yesterday was a reminder of that as the SP500 rallied from her intraday lows and successfully closed > my long-term TAIL of support (1267) for the 2ndday in a row. Three days in a row and a close above the Oct 29th closing-high of 1285 would confirm this very short-term price move as credible. Volume has not confirmed it yet. Volatility has.

 

What I liked most about yesterday’s action was that US Dollar UP = Consumer Discretionary UP. This remains my core long-term thesis – without a Strong/Stable Dollar, the purchasing power of the 71% (US Consumption as a % of GDP) gets taxed.

 

From a TRADE and TREND perspective, 9/9 Sectors are bullish TRADE and 7/9 TREND (with Financials and Basic Materials remaining the 2/9 bearish on intermediate-term TREND – and I think that confirms pending strength in USD too).

 

I’m long 2/9 Sectors: Consumer Discretionary (XLY) and Utilities (XLU). No SPY or S&P Sector Shorts - KM

 

THE HEDGEYE DAILY OUTLOOK - hrmsl

 

THE HEDGEYE DAILY OUTLOOK - hrmsp

 

THE HEDGEYE DAILY OUTLOOK - bpgm1

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE:  -75 (-1734) 
  • VOLUME: NYSE 759.44 (-11%)
  • VIX:  22.22 -3.27% YTD PERFORMANCE: -5.04%
  • SPX PUT/CALL RATIO: 1.99 from 1.88 (+6%) 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 57.23
  • 3-MONTH T-BILL YIELD: 0.02%
  • 10-Year: 2.00 from 1.97   
  • YIELD CURVE: 1.75 from 1.70

GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • Eurozone Oct industrial orders sa y/y +1.6% vs consensus +3.3% prior +1.6%; Eurozone Oct industrial orders sa m/m +1.8% vs consensus +2.4% prior revised to (7.8%) from (6.4%)
  • Eurozone Nov producer prices index y/y +5.3% vs consensus +5.2% prior +5.5%; Eurozone Nov producer prices index m/m +0.2% vs consensus +0.1% prior +0.1%
  • UK Dec services PMI 54.0 vs consensus 51.5 and prior 52.1
  • France Dec Consumer Confidence Index at 80 vs November reading of 80 – INSEE
  • 7:30am: Challenger Job Cuts (prior -12.8%)
  • 8:15am: ADP Employment, est. 178k (prior 206k)
  • 8:30am: Jobless Claims, Dec. 31, est. 375k (prior 381k)
  • 9:45am: Bloomberg Consumer Comfort, est. -46.0 (prior -47.5)
  • 10:00am: ISM Non-Manufacturing, est. 53 (prior 52)
  • 10:30am, EIA natural gas storage change, Dec. 30
  • 11am: DoE inventories, Dec. 30

WHAT TO WATCH:

  • TechCrunch reports that rumors about Microsoft (MSFT) buying Nokia's smartphone division have been revived
  • Kraft Foods and SodaStream enter strategic co-branding deal
  • US congress looking into quality of credit-ratings companies' views on MF Global (MFGLQ) - WSJ
  • Greek Prime Minister says country could default in March - BBC
  • France sells 10-year bonds at 3.29% yield vs 3.18% on Dec. 1. Sells 30-year bonds at 3.97% yield vs 3.94% Dec. France sold EU7.96b of total debt today with borrowing costs rising.
  • President Obama announces results of Defense Strategic Review in speech at Pentagon
  • SEC holds closed meeting on enforcement matters, 2pm

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Alcoa Earnings Estimates Plunge After Aluminum Drop: Commodities
  • Oil Trades Near 8-Week High as Iran Threat Counters Europe Debt
  • Gold May Advance on Demand From Asia as Gartman Turns Bullish
  • China Seen Boosting Oil Imports on Capacity Gain: Energy Markets
  • U.K. Warns Iran Over ‘Illegal’ Threat to Close Strait of Hormuz
  • U.S. Container Trade Rebounding at Fastest Pace Since May
  • Schweppes Losing Australia Summer Sales in Fizz Shortage: Retail
  • Rio Declares Force Majeure on Two Canada Aluminum Smelters
  • Base Metals to Rally in 2012, Credit Suisse’s Deverell Says
  • Mosaic CEO Says Phosphate Has Bottomed Ahead of Spring Planting
  • Cattle Top Gold as Safest Commodity Return by Volatility Measure
  • Copper Advances After Biggest Drop in Three Weeks Spurs Buying
  • Soybeans May Climb to Near $13 on Fibonacci: Technical Analysis
  • Stocks Erase Early Drop as 10-Year Treasury Yield Touches 2%
  • Five Rare Earths Crucial for Clean Energy Seen in Short Supply
  • Harita Said to Plan Singapore IPO of Nickel Mining Division
  • Commodities Had Net Outflows of $11.4 Billion, Citigroup Says
  • EU Moves Closer to Iran Oil Ban as Greece Lifts Objections
  • Cotton Harvest in India Seen Missing Estimate on Lower Yield

THE HEDGEYE DAILY OUTLOOK - dcommv

 

CURRENCIES

 

EUR/USD – is the Euro getting blasted to a 15 month low because of Unicredit or b/c a Romney win in NH is a big time stabilizer for the USD? Or both? Markets don’t move on a 1-factor model – I think this Presidential debate is going to be USD bullish inasmuch as insolvent European banks blowing up is bearish.

 

THE HEDGEYE DAILY OUTLOOK - dcurrv

 

EUROPEAN MARKETS

 

DAX – can I get a live quote/recap of a European Bond Auction? Cmon. That mattered 12 months ago when few were focused on it – now, every time European equities have a downtick my tweet-stream lights up w/ the same known knowns. What isn’t obvious yet is how strong German stocks and bonds act on these down moves. DAX holding 5 range of support is bullish. Period.

 

THE HEDGEYE DAILY OUTLOOK - bpem1

 

ASIAN MARKETS

 

ASIA – Growth Slowing at a slower rates as a Deflating The Inflation is starting to slow the pace of declines on Asian Equity market down days; India’s Services PMI 54.2 for DEC (vs 53.2 NOV) was a positive surprise and Thailand reporting lower sequential inflation for DEC at 3.5% vs 4.2% in NOV was more of what we are seeing across Asia.

 

THE HEDGEYE DAILY OUTLOOK - bpam1


MIDDLE EAST (HEADLINES FROM BLOOMBERG)

  • Oil Trades Near 8-Week High as Iran Threat Counters Europe Debt
  • Iran Central Bank Moves to Rescue Rial as Allies Tighten Net
  • U.K. Warns Iran Over ‘Illegal’ Threat to Close Strait of Hormuz
  • Dana Board Considered Updates on Project Financing, Mol Stake
  • Hard-line U.S. Policy Tips Iran Toward Belligerence: Vali Nasr
  • Dana Gas $1 Billion Sukuk Yield Rises to Record on Debt Risk
  • Land Bill Boosts Indonesia Debt Rating Outlook: Islamic Finance
  • JX Energy in Talks With Saudi Arabia to Replace Iran’s Crude
  • BAE to Get $780 Million Cash Boost From Saudi Order, UBS Says
  • Monti Says Any Iran Sanctions Must Allow Repayment of Eni Debt
  • Iran to Reduce Record Oil Premiums for Asia After Saudi Decrease
  • EU Moves Closer to Iran Oil Ban as Greece Lifts Objections
  • Al Futtaim HC Securities to Shut U.A.E. Brokerage Operations
  • Oil Price Would Skyrocket if Iran Closed the Strait of Hormuz
  • Iran Oil Ban by EU May Send Brent Crude to $125, SocGen Says
  • RTS Futures Rise as Oil Gains on Iran Dispute: Russia Overnight
  • Oil Falls in New York as Europe Crisis Counters Iran Concern
  • Gold Rises to Two-Week High as European, Iranian Tensions Mount

THE HEDGEYE DAILY OUTLOOK - me

 

The Hedgeye Macro Team

Howard Penney

Managing Director

 


WEEKLY COMMODITY CHARTBOOK

Commodities, in general, went higher over the last week as economic concerns eased.  Weaker-than-expected post-holiday demand for beef led cattle prices lower but corn, chicken wings, and coffee all gained.

 

 

STOCK THOUGHTS

 

Commodity costs are front-and-center for the restaurant space in 2012, particularly 1H12, with some companies expected to see abatement in inflationary pressures while for others it is only beginning.  Below, we take you through some of our thoughts by commodity.

 

Chicken Wings – BWLD

 

When we first turned negative on Buffalo Wild Wings in October, it was largely due to what we saw as looming margin compression due to chicken wing price inflation coming back into the picture in 4Q11 or 1Q12 at the very latest.  Our timing was not spot on; BWLD took advantage of its last quarter of favorable wing prices to lower price and increase traffic, all-the-while experiencing only a minimal impact on margins.  In October, our view was also predicated on wing prices estimates for 4Q11 and 1Q12 of $1.20 and $1.40, respectively.  Now, with wing prices at $1.60 and processors still looking to cut production in the face of growing demand for chicken within the food service industry, those estimates seem like they could be conservative. 

 

We expect a revision to management’s previous guidance of only “modest” inflation heading into 2012” on the next earnings call (likely 2/8/12).  The company’s comparable-store sales growth has depended less on price and more on traffic, along with the rest of the industry, in recent quarters.  The company will likely not be able to sustain traffic trends and maintain margins in the first quarter of 2012. 

 

 

Beef – WEN, TXRH, JACK, CMG

 

Beef prices declined week-over-week as demand for beef after the holiday period was softer than excepted.  Consumer demand is a key driver of beef prices at this juncture with much of the supply concerns having been priced in over the last six months.  Changing emerging market diets and fading BSE-related restrictions on U.S. beef are bullish tailwinds over the longer-term.  For the first half of 2012, at least, beef should remain a headwind for WEN, TXRH, JACK, and CMG.  This is especially true for WEN as beef represents 20% the company’s spend.

 

 

Coffee – SBUX, DNKN, GMCR, PEET, THI, CBOU

 

Coffee costs are down slightly year-over-year but, despite significant price declines in the fourth quarter of 2011, climate- and market-related fears are keeping prices supported.  The euro-zone crisis will be a key driver from a market perspective, while weather in Latin America will also be monitored closely by coffee speculators.  Reports from Brazil are suggesting that there will be no significant increase in the size of the planted area in 2012 but that growers are investing in “improving yields”.

 

SBUX and DNKN are trading well today as DNKN was upgraded from Sell to Hold at Goldman Sachs because the stock price is reaching the analyst’s Price Target.  We remain unconvinced by the company’s business plan, particularly as it relates to growth and the ability of the company to grow its backlog on schedule, and retain our bearish view on the stock. 

 

WEEKLY COMMODITY CHARTBOOK - commod

 

 

CORRELATION TABLE

 

WEEKLY COMMODITY CHARTBOOK - correl

 

 

CHARTS

 

Coffee

 

WEEKLY COMMODITY CHARTBOOK - coffee

 

 

Corn

 

WEEKLY COMMODITY CHARTBOOK - corn

 

 

Wheat

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

 

Beef

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

 

Chicken – Whole Breast

 

WEEKLY COMMODITY CHARTBOOK - chicken whole breast

 

 

Chicken Wings

 

WEEKLY COMMODITY CHARTBOOK - chicken wing

 

 

Cheese

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

 

Milk

 

WEEKLY COMMODITY CHARTBOOK - milk

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 


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 80.28%
  • SHORT SIGNALS 78.51%
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