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THE HBM: MCD, SBUX, CBOU, TXRH, BWLD

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Jobless Claims

 

Initial jobless claims dropped to 352k for the week ending January 14th versus 384k consensus and 402k (revised from 399k) the week prior.

 

THE HBM: MCD, SBUX, CBOU, TXRH, BWLD - claims 119

 

 

Comments from CEO Keith McCullough

 

Note: my headlines that matter YTD have less and less to do with Europe – rest of the world matters too:

  1. CHINA – get the slope of the money supply and lending cycle in China right (finally easing instead of tightening), you’ll get a lot of things Chinese Growth right. Shanghai Comp and Hang Seng both up another +1.3% respectively overnight on “news” that China’s top 5 banks are going to ease lending reqs. End of the world thesis = bad YTD.
  2. RATE CYCLE – this is something I talked about a lot in clients meetings in NYC for the last 2-days. This is very bullish for the US Dollar in terms of monetary policy differentials – all of Asia and Latin America are in easing mode after being hawkish while Bernanke should have been (throughout 2010). Brazil just cut by another 50bps; Philippines cut for 1st time since 09 (joining Indonesia, Thailand, Australia, etc). Bullish for Global Equities vs 2011.
  3. COPPER – when the Doctor gives me the signal, I listen. That breakout my model signaled last week > $3.45/lb was as pure as a cold Canadian beer on the 1st of July. Copper up another +1.4% this morning in what should be considered nothing short of a massive squeeze = +11% YTD.

 

The only really bad news in my notebook this morning is Larry Summers being considered to run the World Bank.

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: MCD, SBUX, CBOU, TXRH, BWLD - subsector fbr

 

 

QUICK SERVICE

 

MCD: McDonald’s U.S. December sales were “robust” according to a survey of McDonald’s franchisees carried out by Janney.

 

MCD: McDonald’s has raised prices for some items in China

 

SBUX: Starbucks may open its first store in India in 2H12.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

CBOU: Strong showing at ICR and lower coffee prices helping this company.

 

 

CASUAL DINING

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

TXRH: Shrugging off the downgrade from Tuesday to outperform casual dining.

 

BWLD: Declining on accelerating volume in a strong up tape yesterday.

 

THE HBM: MCD, SBUX, CBOU, TXRH, BWLD - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE M3: SCC OPENING DATE; MACAU STUDIO CITY DEBT; OKADA; CHINESE BANK LENDING

The Macau Metro Monitor, January 19, 2012 

 

 

SANDS COTAI CENTRAL TO OPEN BETWEEN 22 AND 27 MARCH Macau Business

According to HSBC, the 1st phase of Sands Cotai Central will open between March 22 and 27.  LVS expects to open a 2nd casino by 3Q 2012. 

 

MELCO CROWN EYES $2 BLN DEBT FOR NEW PROJECT Reuters

MPEL is looking for raise $2 billion for its Macau Studio City project.  The debt funding will feature a loan-and-bond combo with the loan expected to be for around US$1.25BN and the US dollar bond for the remainder, according to another source.  The borrower is in discussions with banks for the loan financing and is seeking underwritten commitments.

 

Melco's last visit to the loan markets was in May 2011 when it raised US$1.2BN through a dual-tranche financing comprising of an US$800MM term loan and a US$400MM revolver (deal priced all-ins of 208-308bp over LIBOR). The term loan amortizes to 50% and has a two-year grace period. The blended average life is 4.1 years.

 

OKADA SEEKING THREE BOARD SEATS AT WYNN RESORTS Macau Business, Intelligence Macau

Kazuo Okada, has nominated three candidates to Wynn Resorts' board.  According to Intelligence Macau, three current directors are up for reelection at the 2012 shareholders' meeting - Linda Chen (President of Wynn International Marketing and COO of Wynn Macau), Marc Schorr (COO of Wynn Resorts), and John A. Moran.   

 

CHINESE OFFICIALS SAID TO WEIGH EASING CONSTRAINTS ON BANKS BusinessWeek

China is allowing the nation’s five biggest banks to increase 1Q lending and weighing a plan to relax capital requirements as economic growth cools.  The PBoC will let the larger lenders increase new loans by a maximum of about 5% from a year earlier, according to two people at state lenders who have knowledge of the matter.  The banking regulator is delaying implementing the most stringent capital adequacy ratios and may lower risk weightings for loans to small businessmen and companies, four people said separately.

 

The central bank also said that 30% of full-year lending should be in 1Q, with the same amount in the second and 20% in each of the final two quarters, the people said.  The risk weighting on personal operating loans given to small businessmen may be cut to 75% from the current 100%, while the ratio on loans to small and micro-sized firms would be lowered to 50% from 75%, according to two people. 

 




Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Perpetually Reverting

“The only thing that’s gone up for the last 12 years is my weight.”

-Keith McCullough

 

Two nights ago Keith and I hosted a dinner for a number of our subscribers at the beautiful Patroon restaurant in midtown Manhattan.   Keith’s quote above was in reference to asset classes generally.  Now, truth be told, Keith and I snuck away to play noon hour hockey earlier this week and he’s actually staying in pretty good shape.  Nonetheless, his analogy was an apt one.  Asset class returns are not perpetual, nor are global macro investment views.

 

On the latter point, the big surprise we heard at the dinner and feedback from our Q1 Themes call last week is the shock that we are getting more constructive on equities and the U.S. economy.  Yes, we are less bearish.  Not raging bulls, per se, but on the margin less bearish.  As a result we’ve upped the equity allocation in our asset allocation model to its highest level since mid-September ’11.  So, what’s driving our more constructive outlook?

 

First, we believe the rally in the U.S. dollar will continue to gain momentum.  The strength in the dollar is likely to be driven by a fiscal outlook in the United States that is improving, on the margin, due to automatic budget cuts via sequestration and the winding down of the Iraq war.  In addition, both political parties have signaled, at least rhetorically, the importance of getting government spending under control, an issue that will be front and center in the 2012 election, and will likely lead to further budget cuts, or the perception of such.

 

The other key tailwind for the U.S. dollar is monetary policy.  Since the financial crisis in 2008, the United States has led the world in accommodative monetary policy.  This is changing and will continue to change.  We believe the Fed is in a box related to its ability to implement additional quantitative easing due to an improving employment and economic growth situation.  Conversely, central banks globally have plenty of room to ease, which naturally narrows the differential between U.S. interest rates and global rates.  The most recent example of this is from China, where this morning reports suggest Chinese officials are weighing plans to relax capital requirements for the major Chinese banks.  Add to this Brazil, which cut interest rates by 50 basis points overnight and the Philippines, which cut rates for the first time since 2009. 

 

The primary benefit of a strong dollar is that it boosts the purchasing power of the U.S. consumer by deflating those commodities that are priced in U.S. dollars and by making global goods cheaper on a relative basis.   This is important when considering the outlook for GDP since 71% of U.S. GDP is driven by consumption.  Conversely, Eurozone government spending is almost 50% of GDP, which makes the outlook for European growth relatively bleak in comparison given the dramatic austerity being implemented in 2012.  (Incidentally, a weak European economy and euro are also positive for the U.S. dollar.)

 

Last year at this time, consensus U.S. GDP estimates for 2011 were at 3.2% and came down steadily all year.  It is likely that full year 2011 U.S. GDP comes in at, or under, 2%, which implies an almost 38% miss by the consensus Wall Street prognosticators.   Call it process or luck, but we started last year with a much more pessimistic view of economic growth.  Thus, for most of last year we were underweight equities and overweight fixed income, with a focus on FLAT and TLT.

 

This year the scenario is basically reversed.  U.S. GDP consensus growth estimates are now just above 2% for 2012.  Our models suggest a reasonable high end range of GDP growth in the U.S. could be 2.8%.  This is almost 40% above the consensus number and an economic scenario in which growth is accelerating versus last year.  Not surprisingly then, we have exited our fixed-income positions and have a much higher allocation to equities, both U.S. and global.

 

Currently, one of our key global equity positions is long Chinese equities via the closed end fund CAF.  As of this morning, the position has already returned more than 15% for us in the Virtual Portfolio.  Are we surprised? Well, perhaps by the rapid price appreciation, but it was a game of expectations in China.  The Chinese bears have been perpetuating an end of the world scenario for China and the Chinese benchmark equity index was down more than -20% last year.  Thus, when economic growth from China came in better than bad a couple of days ago at +8.9%, Chinese equities reacted favorably.  This is not dissimilar to the economic setup we see in the United States.

 

In the Chart of the Day today we’ve highlighted gold versus the U.S. dollar going back twelve years.  The key take away from the chart is that bull markets in gold have been perpetuated by bear markets in the U.S. dollar.  After gold has gone straight up for the last decade plus, it might not seem to be a contrarian call to suggest there is bubble in gold and it is potentially primed for a potential major correction, but there is major complacency related to gold.  Unfortunately for the gold bugs, nothing goes up forever, not even gold.  But if you don’t believe us, ask India, the world’s largest consumer of gold, who is set to import 54% less gold in Q4 2011 on a year-over-year basis.

 

If there is one truism of investing, it is that prices revert to the mean.  As Jeremy Grantham once said:

 

“I got wiped out personally in 1968, which was the last really crazy, silly stock market before the Internet era….After 1968, I became a great reader of history books. I was shocked and horrified to discover that I had just learned a lesson that was freely available all the way back to the South Sea Bubble.”

 

No asset class goes up, or down, in perpetuity.

 

Our immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, and the SP500 are now $1, $109.02-111.91, $1.26-1.29, $80.31-81.61, 2, and 1, respectively.

 

Keep your head up and your stick on the ice,

 

Daryl G. Jones

Director of Research

 

Perpetually Reverting - Chart of the Day

 

Perpetually Reverting - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP – January 19, 2012


As we look at today’s set up for the S&P 500, the range is 20 points or -1.38% downside to 1290 and 0.15% upside to 1310. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1773 (1092) 
  • VOLUME: NYSE 797.74 (-1.58%)
  • VIX:  20.89 -5.90% YTD PERFORMANCE: -10.73%
  • SPX PUT/CALL RATIO: 1.67 from 1.42 (+17.61%)

 

CREDIT/ECONOMIC MARKET LOOK:


RATE CYCLE – this is something we talked about a lot in clients meetings in NYC for the last 2-days. This is very bullish for the US Dollar in terms of monetary policy differentials – all of Asia and Latin America are in easing mode after being hawkish while Bernanke should have been (throughout 2010). Brazil just cut by another 50bps; Philippines cut for 1st time since 09 (joining Indonesia, Thailand, Australia, etc). Bullish for Global Equities vs 2011.

  • TED SPREAD: 54.09
  • 3-MONTH T-BILL YIELD: 0.03%
  • 10-Year: 1.89 from 1.90
  • YIELD CURVE: 1.67 from 1.67

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: ECB president Draghi press conference with Sultan Bin Nasser al-Suwaidi of United Arab Emirates central bank
  • 8:30am: CPI (M/m), Dec., est. 0.1% (prior 0.0%)
  • 8:30am: Housing Starts, Dec., est. 680k (prior 685k)
  • 8:30am: Building Permits, Dec., est. 680k (prior 685k (revised)
  • 8:30am: Jobless Claims, week Jan. 14, est. 384k (prior 399k)
  • 9:45am: Bloomberg Consumer Comfort, week of Jan. 15
  • 10am: Freddie Mac 30-yr mortgage
  • 10:00am: Philadelphia Fed., Jan., est. 10.3 (prior 6.8 (revised)
  • 10:30am: EIA Natural gas storage
  • 11am: DoE inventories
  • 1:00pm: U.S. to sell $15b 10-Yr TIPS

 

WHAT TO WATCH: 

  • Eastman Kodak filed for bankruptcy protection from creditors, listing assets of $5.1b, debt of $6.8b
  • Bristol-Myers, AstraZeneca failed to win FDA clearance to sell first in new class of experimental diabetes pills as regulators sought more data on medicine’s safety
  • BankUnited said to decide to remain independent as takeover offers fall short of its expectations
  • Greece’s govt. in second day of talks with private creditors on accord that would slash nation’s debt
  • HUD Secretary Shaun Donovan, DoJ official set to meet with state AGs next week to rally support for proposed settlement with banks over foreclosure practices
  • TransCanada’s Keystone pipeline seen moving ahead on alternative route
  • Kinder Morgan said to be considering piece-by-piece sale of El Paso’s oil-exploration business as offers for entire operation due this week: WSJ
  • President Obama said to consider nominating Larry Summers to lead World Bank
  • Hedge funds may sue Greece in European Court of Human Rights to make good on its bond payments: NYT
  • No U.S. IPOs expected to price today

EARNINGS:

    • Huntington Bancshares (HBAN) 5:55 a.m., $0.14
    • BB&T (BBT) 6 a.m., $0.53
    • Knight Capital Group (KCG) 6 a.m., $0.25
    • UnitedHealth Group (UNH) 6 a.m., $1.04
    • BlackRock (BLK) 6:30 a.m., $2.98
    • Southwest Airlines Co (LUV) 6:50 a.m., $0.08
    • Bank of America (BAC) 7 a.m., $0.13
    • Johnson Controls (JCI) 7 a.m., $0.62
    • Morgan Stanley (MS) 7:15 a.m., $(0.57)
    • Rockwell Collins (COL) 7:30 a.m., $0.84
    • Fairchild Semiconductor (FCS) 7:30 a.m., $0.16
    • Freeport-McMoRan Copper & Gold (FCX) 8 a.m., $0.61
    • Union Pacific (UNP) 8 a.m., $1.82
    • PPG Industries (PPG) 8:11 a.m., $1.27
    • Progressive /The (PGR) 8:27 a.m., $0.35
    • Cubist Pharmaceuticals (CBST) 4 p.m., $0.33
    • Flextronics (FLEX) 4:01 p.m., $0.20
    • Google (GOOG) 4:02 p.m., $10.49
    • Capital One Financial (COF) 4:05 p.m., $1.55
    • Intel (INTC) 4:05 p.m., $0.61
    • Intuitive Surgical (ISRG) 4:05 p.m., $3.34
    • People’s United Financial (PBCT) 4:05 p.m., $0.19
    • American Express Co (AXP) 4:06 p.m., $0.99
    • International Business Machines (IBM) 4:06 p.m., $4.62
    • Microsoft (MSFT) 4:06 p.m., $0.76
    • Associated Banc-corp (ASBC) 4:10 p.m., $0.23
    • Skyworks Solutions (SWKS) 4:30 p.m., $0.50

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

COPPER – when the Doctor gives us the signal, we listen. That breakout my model signaled last week > $3.45/lb was as pure as a cold Canadian beer on the 1st of July. Copper up another +1.4% this morning in what should be considered nothing short of a massive squeeze = +11% YTD.

  • Sugar Traders Bet Biggest Glut in Five Years Ending: Commodities
  • Oil Gains in New York on Shrinking Stockpiles, Iranian Risks
  • Copper Climbs on Speculation China May Relax Curbs on Credit
  • Thai Rice Production Seen Climbing to Record After Floods
  • Gold Advances to a 1-Month High as Euro Rallies, Demand Gains
  • Corn Advances on ‘Irreversible’ Damage to Crops in Argentina
  • Cocoa Gains as West Africa Supply May Start to Slow; Sugar Rises
  • U.S. May Expand Corn Output to Offset Argentina Loss, FAO Says
  • Palm Oil Imports by Pakistan May Plunge on Truckers’ Strike
  • Super Bowl Chicken Wings Flying to Record High: Chart of the Day
  • Shell Venture Spurs Cosan’s Investment-Grade Bid: Brazil Credit
  • Oil Grab in Falkland Islands Seen Tripling U.K. Reserves: Energy
  • Cholera Risk Means Mounting Costs for Hapag-Lloyd, Torm: Freight
  • COMMODITIES DAYBOOK: Crude Rises on Shrinking Supply, Iran Risk
  • Food Demand to Stay ‘Strong’ Amid Global Slowdown, Viterra Says
  • Palm Oil Prices to Be ‘Firm’ in 2012 on Crude Oil, Soybeans
  • Aluminum May Extend Rally to $2,295 Per Ton: Technical Analysis

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


CHINA – get the slope of the money supply and lending cycle in China right (finally easing instead of tightening), you’ll get a lot of things Chinese Growth right. Shanghai Comp and Hang Seng both up another +1.3% respectively overnight on “news” that China’s top 5 banks are going to ease lending reqs. End of the world thesis = bad YTD.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team


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

THE HEDGEYE BREAKFAST MENU


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


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