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BBBY: TRADE Update

Keith is managing the immediate-term TRADE risk around one of our favorite shorts across all three durations covering BBBY in the Hedgeye Virtual Portfolio.


There is no change to our fundamental outlook.


BBBY: TRADE Update - BBBY TTT


Bullish TAIL: SP500 Levels, Refreshed

POSITIONS: Long Consumer Discretionary (XLY), Long Utilities (XLU), Short Russell2000 (IWM)

 

This melt-up scores very differently versus the ones we’d short on strength in 2011. This one is backed by our Fundamental Macro Modeling process (Growth, Inflation, Policy), with all 3 factors working in bullish favor of stocks (bearish for bonds).

 

As Growth Expectations rise, so will multiples people pay for US Equities. Growth Expectations should also pressure Ben Bernanke to be less dovish. Imagine the man ends up talking rate hike by Q3?

 

Don’t choke on your water bottle – no one else thinks he’d do that either – which is why we are thinking about it.

 

Across all 3 of my risk management durations, here are the lines that matter most to me right now: 

  1. Immediate-term TRADE resistance = 1325
  2. Immediate-term TRADE support = 1302
  3. Long-term TAIL support = 1267 

I’ve been saying this since the beginning of the year and I’ll say it again – the US stock market now has a Bullish TAIL.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bullish TAIL: SP500 Levels, Refreshed - SPX


European Banking Monitor

Positions in Europe: Short EUR-USD (FXE)

 

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor"

 

If you'd like to receive the work of the Financials team or request a trial please email .

 

* 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 Europe saw CDS fall 20% or more.  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. And the Securities Market Program bought €2.243 Billion in the week ended 1/20.

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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.

 

European Banking Monitor - 22. OIS

 

 

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.  

 

European Banking Monitor - 222. ECB

 

 

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%.

 

European Banking Monitor - 22. banks

 

 

Securities Market Program – The ECB's secondary sovereign bond purchasing program bought €2.243 Billion in the week ended 1/20 versus €3.766 Billion in the week ended 1/12 to take the total program to €219.0 Billion.

 

European Banking Monitor - 22. smp

 

 

Matthew Hedrick

Senior Analyst


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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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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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