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MACRO

MBA MORTGAGE APPLICATIONS SURVEY – With the yield on the 10-year U.S. government bond is hovering around 1.87%, the yields are translating to lower mortgage interest rates for refinancing and purchasing homes. The contract rate for 30-year fixed-rate conforming mortgages finished at 4.06%, down 5 basis points from its week ago level, and down 2 basis points from four weeks ago.  The mortgage applications composite index surged 23.1% in the week ending January 13, 2012, with big gains in both the purchase and refinance indices.

THE HBM: GMCR, PNRA, SONC, BAGL, DPZ, KKD, MCD, CAKE, RUTH, BJRI, BWLD - mba mortgage apps

ICSC SALES TRENDS - ICSC Research anticipates January comparable-store sales will grow by 2% to 3% for the month compared with a hefty 4.7% pace in January 2011.  For last week, the ICSC chain store sales index remained weak, with sales reduced by warm weather, but supported bygift car redemption.  The index gained only 0.1% following the prior week’s record 5.4% decline. Year-over-year growth also recovered only a small portion of its decline, rising from 2.8% to 3%.

MACRO COMMENTS FROM OUR CEO - Top 3 (most read) story on Bloomberg this morn is the World Bank cutting its US and Global GDP estimates – thanks for coming out guys:

  1. GROWTH – I hosted a dinner w/ 10 PMs at Patroon last night and it was clear that the most contrarian call I have right now is the opposite of the call I was making at the same dinner 12 months ago – I think US Growth estimates/expectations are too low for 2012. World Bank cutting US growth to 2.2% for 2012 (down from 3%) when  they should be raising estimates from 1.5% > 2.2%.
  2. GERMANY – both German Bunds and German stocks are flat out ripping at this pt of 2012. With the DAX now up +8.2% already for the YTD and 3.4B in 2yr notes coming in at 0.17%, the yield on Bunds is now lower than USTs and return on DAX for YTD higher than the SP500. A move > 6502 in the DAX (its long-term TAIL) could make this move a much bigger one. Germany likes a lower Euro.
  3. SENTIMENT – plenty are still frozen by this melt-up. Being net short is a train wreck position for 2012 YTD and being really long everything that’s really working means you had to buy it when it was getting clocked NOV/DEC. Beta chasing remains reality in the career risk mgt exercise; VIX 22.20 is a bearish TREND; and the II Sentiment survey is leaning too bullish at 2000 bps wide.

Something for everyone out there, which is why I think this US stock market’s range remains very trade-able w/ a bullish bias provided that my long-term TAIL of 1267 holds.

SUB-SECTOR PERFORMANCE


THE HBM: GMCR, PNRA, SONC, BAGL, DPZ, KKD, MCD, CAKE, RUTH, BJRI, BWLD - subsector fbr

QUICK SERVICE


NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

GMCR – got a big boost from some positive comments and scanner data

PNRA – I suspect PNRA continues to benefit from falling wheat prices and strong sales trends

SONC – After three long, painful years SONC might be bottoming.  I spent a lot of time at ICR trying to find out what the catalyst could be and walked away empty handed.  The set up for the long side is looking better, with valuation and sentiment both positive. The overriding negative is the strength of McDonalds and its current sales trends.

BAGL – New breakfast items or is it that wheat is in a bearish formation?

DPZ – After being up 90% over the past year its was going to be hard for DPZ to say enough yesterday to keep the momentum going. 

KKD – Despite yesterdays performance KKD has outperformed the S&P 500 by 360bps YTD.

OTHER QSR NEWS

MUSINGS FROM THE RESTAURANT FINANCE MONITOR – Where Do Fast Casual Customers Come From?  “During his presentation at the ICR XChange investors' conference last week, Smashburger CEO Dave Prokupek discussed the results of a survey the burger chain did of its customers—specifically, where they would have gone had they not gone to Smashburger. The results were revealing.  A few of Smashburger's customers, 17 percent, said they would have gone to a fast-food restaurant, while 32 percent said they would have gone to a casual-dining concept. This proves that casual dining chains are indeed more likely to lose customers to a fast-casual restaurant. More interesting was this: more than half, 51 percent, said they would have gone to another fast-casual restaurant, such as a burrito chain or a bakery-cafe concept.”

MCD has increased the price of some products in China by 0.50 to 2 yuan starting Jan. 12

 

FULL SERVICE

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

CAKE – The ICSC sales trends remain weak and CAKE has a 0.8 positive correlation to that data set.

RUTH – continues very strong volume for a name with limited liquidity

For the second day in a row these two names are highlighted on the down side.  So far in 2012 BWLD and BJRI and the two worst performing stocks in the FSR space.

BJRI – Continues to struggle following the ICR performance

BWLD – Despite the whispers of strong top line trends in 4Q, this is out favorite short for 2012

OTHER FSR NEWS

DIN - A lawsuit challenging Applebee’s tip credit policies for servers and bartenders will go to trial later this year after the U.S. Supreme Court on Tuesday declined to hear an attempt to stop the case.  The Supreme Court’s move leaves intact a lower court’s ruling that will allow the Applebee’s tip-credit case to proceed to trial in September - NRN

THE HBM: GMCR, PNRA, SONC, BAGL, DPZ, KKD, MCD, CAKE, RUTH, BJRI, BWLD - stocks

Howard Penney

Managing Director

            

Rory Green

Analyst