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THE HEDGEYE BREAKFAST MONITOR

MACRO NOTES

European Confidence

The ZEW Center for European Economic Research in Mannheim said that its index of investor and analyst expectations, which aims to predict economic developments six months in advance, surged to -21.6 from -53.8 in December to mark its second consecutive increase.  “It seems the worst of the euro crisis is over”, said Michael Schroeder, head of ZEW’s financial markets department.

 

Comments from CEO Keith McCullough

Leading indicators for all 3 of these melt-ups have been crystal clear for 2 weeks:

  1. CHINA – Chinese stocks up +4.2% overnight and I’ll take that on the long side w/ a smile as Chinese GDP beats bombed out expectations w/ a +8.9% y/y Q4 print and, more importantly, a re-acceleration in Industrial Production in DEC to +12.8% y/y vs +12.4% NOV + a big re-accel in Singapore’s Exports to +9% y/y in DEC vs +1.4% NOV
  2. GERMANY – can you say ZEW? Biggest m/m pop in the German confidence reading ever – and ever is a long-time; DAX +1.7% to +7.2% for 2012 YTD! And finally immediate-term TRADE overbought here. Germany has done a great job, all things considered, keeping unemployment low and fiscal conservatism intact.
  3. COPPER – the breakout above my intermediate-term TREND line of $3.45/lb last wk helps bust a huge +3.1% meltup this morning to $3.75/lb; TAIL resistance remains overhead at $3.99, but this move should force capitulation on the short covering side.

The combination of Deflating The Inflation and Growth Slowing at a slower rate works for stocks (2 of our 3 Macro Themes for Q1).

SUBSECTOR PERFORMANCE

THE HBM: PNRA, CBOU, BAGL, DNKN,TXRH, RRGB, BBRG, RUTH, BJRI, BWLD - subsector fbr

 

QUICK SERVICE

PNRA: Panera Bread was raised to Overweight at Morgan Stanley.

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

  • CBOU: Continuing its strong performance from the ICR conference and lower coffee prices
  • PNRA: We suspect that PNRA continues to benefit from falling wheat prices and strong sales trends. 
  • BAGL: Another beneficiary of lower wheat prices.
  • DNKN: Since DNKN announcement about the new procurement and distribution agreement the stock has outperform the market by 300bps.  If the agreement truly changes the landscape for growth in the “white space” we should expect acceleration in back log of new units.  Additionally, DNKN opened its 500th Chicago location Jan. 14.  According to the press release “the milestone restaurant will feature a new design, with updated colors and coffee buzz words adoring the walls, as well as retro-themed, comfortable seating options.”  The latest Dunkin' Donuts will also include free WiFi and new electronic, interactive video menu boards. The company noted it does not discuss provider information regarding this technology. We would like to know what it cost to build the store and if development costs are increasing faster than sales or vice versa.

 

CASUAL DINING

TXRH: Texas Roadhouse was downgraded to Equal Weight at Morgan Stanley.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

  • RRGB: The stock is gaining despite downward EPS revisions over the past month
  • BBRG: A small cap growth name in a sector where people are looking for growth
  • RUTH: Very strong volume for a name with limited liquidity
  • BJRI: Continues to struggle following the ICR performance
  • BWLD: Despite the whispers of strong top line trends in 4Q, this is our favorite short for 2012. 

THE HBM: PNRA, CBOU, BAGL, DNKN,TXRH, RRGB, BBRG, RUTH, BJRI, BWLD - stocks 117

Howard Penney

Managing Director

Rory Green

Analyst