THE HEDGEYE BREAKFAST MONITOR
SBUX: Starbucks reported a solid quarter after the close but failed to reach expectations. The stock is trading down -1.7% in pre-market trading despite having reported EPS of $0.50 versus consensus of $0.49. U.S. comps came in at 9%, which represented a sequential deceleration in two-year average trends. With coffee costs locked through 1HFY13 (March), the top-line is the key variable from here. Management raised the lower end of the FY12 EPS guidance range by $0.03 to $1.78-$1.82 but consensus is looking for $1.84. Despite the impressive statistics around consumer loyalty, K-Cup pack shipments, and progress in China, the Street’s expectations being ahead of the company is dictating price action this morning.
Comments from CEO Keith McCullough
The #BernankTax will be trending on a Twitter handle near you - that’s what a policy to inflate is:
- The Bernank Tax – Good morning America; you’re still seeing zero on the rate of return on your savings accounts and everything you put in your mouth or car is going up in price – try not to chomp on too many shiny rocks. Copper is up +14% for the YTD! Brent Oil prices are pushing for $112 and US Consumption stocks did not act well either yesterday or on good news (MCD and SBUX eps).
- GERMANY – these guys have to be smiling from ear-to-ear; they effectively gave the world’s Keynesian central planners the bird for 6 months and now the German DAX is up +11.1% YTD, busting a move above my long-term TAIL line of 6503 (DAX). Import Prices in Germany dropped in DEC to 3.9% y/y vs +6.0% NOV, so look for that price pressure to come back in Jan/Feb (BernankTax)
- JAPAN – how’s that 20yr Keynesian experiment treating you? We’ll have an in depth research note out on Japan again today; JGBs and Yens are not acting like we should be ignoring this risk like the Old Wall has – may be a bigger risk than Europe’s sov debt within 6 months. Shorting both Japanese Yen and the Nikkei on green days (FXY and EWJ).
Immediate-term TRADE range for the SP500 is now 1. I’m looking for a GDP miss vs heightened expectations at 830AM.
COSI: Cosi reported company-owned comparable restaurant sales of +0.9%.
YUM: Yum’s Taco Bell is starting a new breakfast menu in 10 western states and will begin to offer the menu in the east of the U.S. in 2013.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
AFCE – up nicely following the preannouncement
KKD – up 8.5% in the past month and 9.8% YTD
CBOU – Hard to fight momentum with this stock in now up 23% YTD
CMG – 2/1 EPS date
WEN – Caught a downgrade this am 2/1 by UBS – good call ahead of the analyst day. We remain negative on TRADE
GMCR – The competition is heating up! Up 10% YTD
BJRI – nothing new
CAKE – surprise move here but should trade in line with the market into the 2/10 EPS
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.
“This book is chiefly addressed to my fellow economists.”
-John Maynard Keynes
This morning’s Early Look is chiefly addressed to anyone looking for an alternative to the Keynesian Economic Dogma that’s failing us. The aforementioned quote is the opening sentence of Keynes’ “General Theory” on economic Storytelling of 1936.
After blowing up his personal accounts by levering himself up on the long side of commodities (rubber, corn, etc.) in the late 1920s, Keynes lost the confidence of not only The People, but of the politicians. The latter constituency is not easy to lose!
The “General Theory” ended up being an alternative for academic economists to opine on versus Marxism. It wasn’t a Global Macro market practitioner’s framework or anything that resembled real-world (or what we call Prices Rule) economics.
That’s why it’s so critical for Ben Bernanke to fear-monger politicians today with threats of the “alternative” scenario. That’s also why he, like Keynes, is losing The People. We can only watch people getting paid at The Great Davos Depression for so long until we figure out we’re the ones paying for the champagne.
Speaking of popping out of bed feeling a little bubbly, this morning I am going to formally start calling Ben Bernanke’s Japanese 2.0 policy The Bernank Tax.
Why am I calling it a tax? Because that’s exactly what it is – whether it’s a tax on the hard earned savings accounts (interest income) of Americans and/or a food/gas tax that a family in India is going to have to incur as a result of debauching the world’s reserve currency – it’s a tax on Global Consumption. Period.
Back to the Global Macro Grind…
The Bernank Tax was also a tax on YTD stock market returns yesterday. As the US Dollar fell, the Old Wall did exactly what Bernanke is daring them to do – bid up Inflation Expectations (Gold, Oil, TIPs, etc.). Stocks opened strong in the morning, then went red by the afternoon as Growth Expectations started to fall.
Get the slope of Growth and Inflation Expectations right, and you’ll get a lot of other things right.
What’s going to make this really interesting is that The Bernank Tax is going to become a hot potato for President Obama now in the General Election. Provided that Romney figures out the marketing message, what is Obama going to say if/when the US stock market starts going down on US Dollar down days?
That’s not part of the Keynesian playbook, fyi. But it’s measurable – in real-time. And maybe that’s why Obama is making the best decision I have ever seen him make from an economic leadership perspective – getting rid of his fiscal Dollar Debaucherer in Chief, Timmy Geithner.
Now I know that you know that my Storytelling on this matter is getting pretty tasty. This is my counterpunch to one of my investment mentors, Warren Buffett, and his “my poor Secretary should pay lower Taxes” thing. Where’s the fair-share in him only paying her $60k, by the way?
As is the case with all non-fiction Storytelling, here are the inverse correlations, across durations, between what the US Stock Market (SP500) has done versus the US Dollar Index (USD) in the last 3 years:
- 3-year = -0.68%
- 1-year = -0.22%
- 4-month = +0.44%
That sneaky little Mucker got them didn’t he!
Huh? What the math is telling you here (and yes we get these are correlations, but we also get that the longer-term causality of cheap money only amplifies my point) is that for the last 3 years, the Fed’s go-to move of debasing the US Dollar worked (dollar down = stocks up).
But a funny little thing started happening on the way to the Hedgeye forum in the last 4 months… Since the thralls of September 2011, as the US Dollar started to stabilize/strengthen (from a 40-year low), so did the US Employment, Confidence, and Consumption picture (also from 40 year-lows).
If you haven’t heard this story from a Paul Samuelson and/or any of the Keynesians who are still brave enough to parade their charlatan textbooks around an Ivy League campus yet, I can give you 50 million copies (textbook revenues) of reasons why.
Never mind the rest of the debate – this point about The Bernank Tax on the citizenry is very simple to understand. If you want to tighten your duration inside of the last 4 months on this, have at it. Here are more inverse correlations between SP500 and USD:
- 30-day = +0.04
- 60-day = +0.31
- 90-day = +0.23
Yep. Instead of US stocks going up on dollar down days, they’re starting to go up on dollar up days. Makes sense. While, in the long-run, we may all be dead - in between now and then, we all have to pay for things with real dollars to live.
The Bernank Tax doesn’t yet cap what Charles Ketterring called the one thing no one has ever been able to tax, “thinking.”
My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, and the SP500 are now $1, $110.57-112.41, $1.29-1.32, $78.91-80.26, and 1, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – January 27, 2012
As we look at today’s set up for the S&P 500, the range is 23 points or -0.64% downside to 1310 and 1.11% upside to 1333.
SECTOR AND GLOBAL PERFORMANCE
- ADVANCE/DECLINE LINE: -61 (-1622)
- VOLUME: NYSE 866.56 (4.35%)
- VIX: 18.57 1.42% YTD PERFORMANCE: -20.64%
- SPX PUT/CALL RATIO: 2.03 from 1.87 (8.56%)
CREDIT/ECONOMIC MARKET LOOK:
The Bernank Tax – Good morning America; you’re still seeing zero on the rate of return on your savings accounts and everything you put in your mouth or car is going up in price – try not to chomp on too many shiny rocks. Copper is up +14% for the YTD! Brent Oil prices are pushing for $112 and US Consumption stocks did not act well either yesterday or on good news (MCD and SBUX eps).
- TED SPREAD: 50.73
- 3-MONTH T-BILL YIELD: 0.04%
- 10-Year: 1.95 from 1.93
- YIELD CURVE: 1.74 from 1.72
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30am: GDP (Q/q) (Annualized), est. 3.0% (prior 1.8%)
- 8:30am: GDP Price Index, 4Q A, est. 1.9% (prior 2.6%)
- 8:30am: Core PCE (Q/q), 4Q A, est. 0.9 (prior 2.1%)
- 8:30am: Personal Consump, 4Q A, est. 2.4% (prior 1.7%)
- 9:55am: U.Mich, Jan. F, est. 74.0 (prior 74)
- 10am: Fed’s Dudley to speak on regional economy in NY
- 1pm: Baker Hughes Rig Count
- President Obama, VP Biden to address House Democratic Caucus annual retreat in Cambridge, Md.
- 8am: Quinnipiac University releases results of poll of likely voters in Florida’s Republican primary on Jan. 31
- 10am: Labor Dept. releases annual data on U.S. union membership
- House meets in pro forma session, Senate in session
WHAT TO WATCH:
- U.S. economy probably expanded in 4Q by 3%, fastest pace of 2011, as consumer spending picked up and companies rebuilt stockpiles, economists est.
- Former U.S. Treasury Secretary Larry Summers said in interview in Davos the recovery in the U.S. economy is underway, though it is not yet at “escape velocity.”
- Omnicare PharMerica bid unlikely to get U.S. approval, NY Post says
- FDA decision possible today on Amylin/Alkermes’s diabetes drug Bydureon
- More than 70% of investors said attack on Iran’s nuclear facilities would create only a short-term disruption in oil markets: Bloomberg Global Poll
- World Economic Forum
- Newell Rubbermaid (NWL) 6:30 a.m., $0.38
- Altria Group (MO) 6:58 a.m., $0.49
- Alliance Holdings GP (AHGP) 7 a.m., $0.83
- AO Smith (AOS) 7 a.m., $0.64
- Alliance Resource Partners (ARLP) 7 a.m., $1.78
- DR Horton (DHI) 7 a.m., $0.05
- Ford Motor (F) 7 a.m., $0.25
- Honeywell International (HON) 7 a.m., $1.04
- IDEXX Laboratories (IDXX) 7 a.m., $0.63
- Legg Mason (LM) 7 a.m., $0.25
- Procter & Gamble (PG) 7 a.m., $1.08
- Dominion Resources (D) 7:30 a.m., $0.64
- NextEra Energy (NEE) 7:31 a.m., $0.91
- T Rowe Price Group (TROW) 7:32 a.m., $0.69
- Moog (MOG/A) 8 a.m., $0.74
- Chevron (CVX) 8:30 a.m., $2.85
- NuStar GP Holdings LLC (NSH) 8:43 a.m., $0.31
- NuStar Energy (NS) 8:45 a.m., $0.31
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Gold Bulls Ascendant Amid Biggest Rally Since 1980: Commodities
- Copper Advances as Stockpile Orders Jump to Eight-Year High
- Crude Heads for Weekly Gain; Total Sees $100 Support for Brent
- Cocoa Extends Gains in London After Stockpiles Drop; Sugar Rises
- Rubber Drops, Paring Weekly Gain, as Data Raise Growth Concern
- Gold May Rise in London as Low Interest Rates Support Demand
- Commodities Open Interest Dropped Most in Three Years in 2011
- Rusal May Cut Aluminum Output 6% in Next 18 Months, CEO Says
- Rubber Seen Driven by China Demand Recovery, StanChart Says
- Indonesia’s Kharisma Sells 4,500 Tons of Palm Oil (Table)
- Cattle Herd Drop to 1958 Low Boosting Cost for McDonald’s, Tyson
- Palm Oil Seen Declining 5.2% by February: Technical Analysis
- Copper to Stall as Record Prices Spur Mining: Chart of the Day
- Commodities Daybook: Oil Heads for First Weekly Gain in Three
- Corn Heads for Biggest Weekly Gain in Five; Soybeans Advance
- Palm Oil Posts Weekly Decline on Concern Over Malaysia Exports
GERMANY – these guys have to be smiling from ear-to-ear; they effectively gave the world’s Keynesian central planners the bird for 6 months and now the German DAX is up +11.1% YTD, busting a move above my long-term TAIL line of 6503 (DAX). Import Prices in Germany dropped in DEC to 3.9% y/y vs +6.0% NOV, so look for that price pressure to come back in Jan/Feb (BernankTax).
JAPAN – how’s that 20yr Keynesian experiment treating you? We’ll have an in depth research note out on Japan again today; JGBs and Yens are not acting like we should be ignoring this risk like the Old Wall has – may be a bigger risk than Europe’s sovereign debt within 6 months. Shorting both Japanese Yen and the Nikkei on green days (FXY and EWJ).
The Hedgeye Macro Team
The Macau Metro Monitor, January 27, 2012
MORE JUNKETS IN VIP MARKET Macau Business, SCMP
The number of junket operators reached an all-time high of 219 in 2011, up 13% YoY. The last peak in junket operators was in 2007, when there were 186 registered junkets. With 34 casinos in the SAR, there is an average of six licensed junkets for every casino.
By contrast, industry estimates of the number of unlicensed junkets working in Macau under the umbrella of those who are officially registered range widely, from several thousand to more than 10,000.
get free cartoon of the day!
Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox
By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.