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KNAPP TRACK NUMBERS PICK UP IN DECEMBER

The Knapp Track numbers for December were sequentially stronger than November.

 

Estimated Knapp Track casual dining comparable restaurant sales grew +2.9% in December versus a final accounting period number of 0.6% (versus the prior estimate of 0.2%) in November.  The sequential change from November to December, in terms of the two-year average trend, was +50 bps.

 

Estimated Knapp Track casual dining comparable guest counts were 0.4% in December versus a final accounting period number of -1.6% (versus the prior estimate of -2.2%) in November.  The sequential change from November to December, in terms of the two-year average trend, was +90 bps.

 

While the numbers are impressive, it is important to note that there were weather- and calendar-related issues that impacted the print.  Despite that, we see this improvement in casual dining sales as somewhat expected given the improvement in employment data recently. 

 

Brinker is reporting before the market open tomorrow.  We remain positive on the TRADE (3 weeks or less), TREND (3 months or more) and TAIL (3 years or less) durations.

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE HBM: PNRA, YUM, KNAPP, TXRH

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Comments from CEO Keith McCullough

Paying closer attention to better than expected Global Growth in 2012 is paying off here as European crisis-mongering = rear-view:

  1. TREASURIES – the most important line left in my interconnected Global Macro model = the intermediate-term TREND line of 2.02% for 10yr US Treasury yields. The market closed right at that level on Friday and is holding it again this morning as Treasuries have their worst January start since 2003 (not a Bullish on Growth period you wanted to be short in EM or US Equities).
  2. SPREADS – whether it’s the critical ones to counterparty risk (Euribor/OIS or TED) or the Yield Spread in Treasuries, the message is the same = bullish on the margin. And it’s what happens on the margin that matters to me most. Euribor/OIS down to 82bps wide this morn = 2.5 mth low. Yield Spread (10s minus 2s) +179bps wide; 3 month high (bullish for the Financials).
  3. GOLD – wandering on up into no man’s land here (my intermediate-term TREND resistance = $1684). I have no short position, but I likely will again soon. All of the aforementioned will be very bearish for Gold (Growth + Rising 10yr rates). I need to get the Heli-Ben’s FOMC mtg out of the way Wednesday though…

 

SP500’s refreshed immediate-term range = 1. I still have a bullish bias on Global Equities (buy red on a correction toward 1297).

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: PNRA, YUM, KNAPP, TXRH - subsector fbr

 

 

QUICK SERVICE

 

PNRA: Panera Bread was downgraded to Market Perform from Outperform by Raymond James.

 

YUM: Yum Brands’ Taco Bell is rolling several new menu items including “First Meal” breakfast lineup as well as tests of healthier items to compete with more upscale competitors.

 

 

CASUAL DINING

 

KNAPP: The Knapp Track Casual Dining Index for December came in at +2.9%.  This was the best reading from Knapp this year, and for several years, but the weather impact on last year’s December number means that the “real trend” is lower than where the reading came in for December 2011.

 

TXRH: Texas Roadhouse was downgraded from Outperform to Sector Perform at RBC.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

RT: Ruby Tuesday is up 8.2% over the last week.

 

 

THE HBM: PNRA, YUM, KNAPP, TXRH - stocks

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING

* The Euribor/OIS Spread, our preferred measure of systemic risk in the banking industry, tightened 5 bps last week. This is a strong bullish signal in our model.  A similar trend has emerged in the TED spread, which fell by 3 basis points to 52 bps last week. Upward momentum in the TED spread is now definitively reversing. These trends are strongly positive for banking stocks as they reflate the existing European crisis discount. 

 

* Bank CDS in the US and Europtightened significantly. US moneycenters and large brokers saw declines of 10-15%, while major European institutions saw CDS fall 20% or more. 

 

* European sovereign swaps mostly tightened over last week, except Portugal CDS, which widened 13% to an all-time high.   

 

* The MCDX measure of municipal default risk fell sharply week over week.

 

* The ECB Liquidity Recourse to the Deposit Facility made a cycle low on Wednesday at a much higher level than typical cycle lows before beginning to rise again. 

 

* Quantitative Downside - Our macro quantitative model indicates that on a short term duration (TRADE), there is slightly more downside risk in the XLF (2.1% downside vs. 0.6% upside).

 

 Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 6 of 12 improved / 1 out of 12 worsened / 5 of 12 unchanged

 • Intermediate-term(WoW): Positive / 8 of 12 improved / 2 out of 12 worsened / 2 of 12 unchanged

 • Long-term(WoW): Negative / 0 of 12 improved / 9 out of 12 worsened / 3 of 12 unchanged 

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - Summary 2

 

1. US Financials CDS Monitor – Swaps tightened for 24 of 27 major domestic financial company reference entities last week.   

Tightened the most WoW: AIG, GS, MS

Widened the most WoW: MTG, RDN, AGO

Tightened the most MoM: AIG, BAC, MS

Widened the most/ tightened the least MoM: MTG, RDN, GNW

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - CDS  us

 

2. European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 39 of the 40 reference entities. The average tightening was 9.1% and the median tightening was 16.8%.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - CDS  europe

 

3. European Sovereign CDS – European Sovereign Swaps mostly tightened over last week. French sovereign swaps tightened by 18.0% (-40 bps to 181 ) and Portuguese sovereign swaps widened by 13.4% (150 bps to 1269).

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - Sovereign CDS 1

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - Sovereign CDS 2

 

4. High Yield (YTM) Monitor – High Yield rates fell 7.0 bps last week, ending the week at 8.05 versus 8.12 the prior week.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - HY

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 8 points last week, ending at 1613.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - lli

 

6. TED Spread Monitor – The TED spread fell 2.7 points last week, ending the week at 52 this week versus last week’s print of 54.7.

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - TED Spread

 

7. Journal of Commerce Commodity Price Index – The JOC index rose 3.0 points, ending the week at -14.04 versus -17.0 the prior week.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - JOC

 

8. 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 tightened by 5 bps to 82 bps.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - Euribor OIS spread 2

 

9. 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 series made a higher low on Wednesday of last week but rose again to end the week at 492 billion euros.  

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - ECB liquidity

 

10. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1. Last week spreads tightened again, ending the week at 134 bps versus 142 bps the prior week. 

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - MCDX 2

 

11. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production. Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion. Last week the index fell 191 points, ending the week at 862, the lowest level in at least four years.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - Baltic Dry

 

12. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread widened to 179 bps, 15 bps wider than a week ago.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - 2 10

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 2.1% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - XLF macro setup

 

Margin Debt

We publish NYSE Margin Debt every month when it’s released. 

 

 NYSE Margin debt hit its post-2007 peak in April of this year at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did this past April, that has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May of this year. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. This is important because it means that margin debt, which retraced back to +0.43 standard deviations in September, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend reversed. There’s plenty of room for short/intermediate term reversals within this broader secular move, as we saw in October and November’s print of +0.78 and +0.55 standard deviations.  But overall, this setup represents a material headwind for the market.  

 

One limitation of this series is that it is reported on a lag.  The chart shows data through November.

 

MONDAY MORNING RISK MONITOR: EURIBOR-OIS FLASHING BULLISH FOR BANKING - Margin Debt

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

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Playing Blind

This note was originally published at 8am on January 18, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“We can be blind to the obvious, and we are also blind to our blindness.”

-Daniel Kahneman

 

That’s one of what I expect to be many solid risk management quotes from the book I am currently reviewing, “Thinking, Fast and Slow” by behavioral psychologist/economist Daniel Kahneman (page 24).

 

Are we blind to the obvious? Are we blind to our own blindness? I think we should probably ask ourselves that question both as individuals and as leaders in our society each and every day.

 

Last night, Daryl Jones, David Bergerson, and I hosted a dinner with 10 Portfolio Managers in mid-town Manhattan. This wasn’t an “idea dinner” like the ones the Old Wall still tries to host where people push their books. This was a legitimate Global Macro debate.

 

Fully loaded with the political discussion (which even if you’re not political actually has to be had – which is sad, I know), after 3 hours I concluded that we are all Playing Blind to what could ultimately happen out there each and every day.

 

Iran, Europe, Qe3? Romney, China, Gold? Growth, Earnings, Levels?

 

It’s all out there. It’s all interconnected. And the only way to even begin to attempt to absorb it all is to have a repeatable risk management process that’s Multi-Factor and Multi-Duration. Embrace Uncertainty.

 

Back to the Global Macro Grind

 

What I didn’t expect this morning was waking up to another central planning rumor.

 

These central planners, like most Keynesians, fundamentally believe that they can temporarily arrest gravity. When their plans don’t work, they just make it a bigger plan.

 

How about a trillion?

 

That’s the IMF “rumor” this morning. Never mind contextualizing what a trillion dollars actually is or that any IMF sponsored trillion dollar package is implicitly backstopped by the United States of America’s tax payers – just think about it some more – think fast and slow - and watch the S&P futures whip around on this while you attempt to remain sane.

 

What are markets doing on that?

 

(hint, they are going up)

 

What do you do with that?

  1. You stay out of the way on the short EUR/USD position until it re-tests $1.31 (immediate-term TRADE resistance)
  2. You stay out of the way on the short German DAX position until it re-tests 6502 (long-term TAIL resistance)
  3. Your stay away from economists at the World Bank (another Washington based beauty) and their estimates

That 3rdpoint is more of a transition sentence to what is a Top 3 Most Read on Bloomberg today (next to Jerry Yang and Carnival Cruise lines): “World Bank Cuts Global Growth Estimates.” Gee, thanks for coming out guys.

 

Talk about the blind leading the blind – after looking for +3-4% US Growth (depending on when you asked them for a US GDP Growth estimate last year), the World Bank is cutting their US Growth estimate from 2.9% to 2.2% this morning.

 

At the same time, we’re taking our US Growth estimates up…

 

Rather than Playing Blind from a Growth and Inflation modeling perspective, we actually have our own models that actually work. They don’t work all of the time. But they worked in calling both turns - in both Growth and Inflation - in both 2008 and 2011.

 

The same models that had us turn bullish (versus consensus expectations) on Growth in early 2009, have us getting bullish, on the margin, on Growth in 2012.

 

Why?

  1. US Dollar Strength = Deflates The Inflation
  2. Deflating The Inflation = higher real (adjusted for inflation) Growth

I’m often blind to my own blindness. But I’m not blind to what our models are telling me. Rather than debate the obvious implied by a broken consensus source code, I’ll just call building a Washington Consensus out for what it is – it’s what group-thinkers do.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now $1630-1660, $110.10-$112.17, $1.26-1.29, $80.24-81.77, and 1287-1300, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Playing Blind - 1. EL EUR

 

Playing Blind - 1. VP Heute


THE M3: BAYFRONT MRT

The Macau Metro Monitor, January 23, 2012

 

 

CASINO MORE ACCESSIBLE WITH NEW BAYFRONT MRT STATION Strait Times

The Bayfront MRT station that opened on Jan 14 has made it more convenient for shoppers and casino patrons to visit Marina Bay Sands.  While retail stores and dining outlets at MBS have registered an increase of 5-30% in business since the MRT opened, more also seem to be visiting the casino.


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