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CAKE: ICSC SUGGESTS TOP LINE DICEY

We follow the ICSC U.S. Chain Store Sales Index closely and see the trend quarter-to-date as a red flag for Cheesecake Factory’s top line.

 

The ICSC-Goldman Sachs weekly chain store sales index rose by 1.3% in the latest week through March 3rd.  According to the ICSC, “year‐over‐year sales softened appreciably to a 1.7% pace‐‐its weakest pace since the week ending January 9, 2011 (+1.6%).”  Tellingly for CAKE, the ICSC-Goldman Sachs consumer tracking survey found a “modest pickup in discount store business over the past week, but weaker business at department stores.”  We see Cheesecake Factory’s business as being more closely tied to department store traffic than traffic at discount stores.

 

The two lines in the chart below represent Cheesecake Factory comps and the ICSC Chain Store Sales Index year-over-year change.  The aforementioned ICSC dataset details the weekly change but, clearly, for comparability purposes it is necessary to monitor Cheesecake Factory comps versus the year-over-year move in the ICSC data. The 1Q12 data point for Cheesecake Factory represents current consensus expectation of +2.63% while the ICSC Chain Store Sales Index year-over-year number is the quarter-to-date figure including all weeks through March 3rd.  The correlation for the data represented in this chart for 1Q02 through 4Q11 is 0.8. 

 

CAKE: ICSC SUGGESTS TOP LINE DICEY - cake icsc

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


THE HBM: MCD, ARCO, THI, PFCB, DRI

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Comments from CEO Keith McCullough

 

Can’t say we didn’t say Growth Slowing was in motion…

  1. INDIA – after getting tagged for a -1.6% loss last wk, down both days this week and down -6.8% since topping on Feb 21. With inflation running higher than nominal growth, this is what you get – modern stagflation. That’s why India’s Yield Curve has gone flat.
  2. COMMODITIES – Dollar Up = Deflates The Inflation; but it doesn’t all happen in a day. This should be bullish provided that the USD Index can hold its gains > $79.03 TREND line support – a Romney win tonight in Ohio could do it. What’s good for the USD is good for US Consumption. After snapping my TRADE line of 1735 last wk, Gold testing TREND line of 1691 right now.
  3. GROWTH – Small Caps, Basic Materials, Industrials – they’re all leading indicators inasmuch as Dr Copper and 10yr yields are – they are all telling me my model isn’t broken. The Old Wall’s is. Growth Slowing, globally, occurs b/c A) debt structurally impairs growth and B) inflation slows growth. Not from every time/price and debt levels – just these ones.

1366 is the line to watch now on the SP500.

 

KM

 

 

SUBSECTOR PERFORMANCE

 

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QUICK SERVICE

 

MCD: McDonald’s franchisee Arcos Dorados is set to open no fewer than 50 locations in Brazil during 2012, according to Brazilian media publication, Valor.

 

ARCO: Arcos Dorados said yesterday that Brazil comps were up 6.3% in 4Q.  The short-term outlook is set to be “challenging”, according to management, with weaker currencies likely affecting results this year.

 

THI: Tim Hortons is to buy back up to 1.2mm shares for cancellation.

 

 

CASUAL DINING

 

PFCB: P.F. Chang’s is rated “Buy” by Miller Tabek with a price target of $44.

 

PFCB: P.F. Chang’s was revealed yesterday as a “Long Research Tactical Idea” at Morgan Stanley.

 

DRI: Darden Restaurants was added to Bank of America’s list of favored equities.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

PFCB: P.F. Chang’s outperformed on accelerating volume following yesterday’s upgrades.

 

DIN: Dine Equity underperformed the group on accelerating volume as the company presented at the Raymond James Institutional Investors Conference.

 

THE HBM: MCD, ARCO, THI, PFCB, DRI - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


Le Greek Deluge

This note was originally published at 8am on February 21, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Apres nous, le deluge.”

-Madame de Pompadour

 

Greece Wins 2nd Bailout.” The Top 3 Most Read articles on Bloomberg this morning are about Greece. Great job by the world’s central planners. They have saved us from themselves, again.

 

Now what?

 

Not to be confused with one of the alleged prostitutes from the ex-Keynesian Chief at the IMF, Dominique Strauss-Kahn’s, “sex ring” this morning, Jeanne Antoinette Poisson (Madame de Pompadour) was big player in the French courts of 1740s France. As Chief Mistress to Louis XV, she had intimate edge on everything political that was going to happen next.

 

Short-term career risk management of conflicted politicians vs. Long-term globally interconnected what? Yes, it’s sad and pathetic to watch, even if that means we get a little short-term stock and commodity price inflation to lather us up somewhere in between.

 

My thoughts on what I call Duration Mismatch between long-term wants versus short-term political needs are not new. Never mind 18th century France or Rome in 49BC, this is 2012 baby. If you’re in the game of chasing short-term performance, you’ve just got to believe!

 

Or do you?

 

As our good ole counter-punching friend Friedrich von Hayek once said about Keynes and his throw-away line about “in the long-run, we are all dead”, “I fear that these believers in the principle of après nous le deluge may get what they have bargained for sooner than they wish.” (Keynes Hayek, page 186)

 

Back to the Global Macro Grind

 

While some of the world’s insider trading, tax evading, and prostitution ringing politicians of the Global Bubble in Keynesian Economics may want you to believe that “this time is different”, we still think that a Rising Price of Oil Slows Global Growth.

 

To be crystal clear, we’re not talking any price of oil. We like to talk about the price that’s being set on the margin. There has never been an oil price with a $100 handle per barrel that didn’t slow growth. Never is a long time.

 

Whether you look at Brent or West Texas crude oil, here’s what prices did last week: 

  1. Brent Oil = +2.0% to $119.58
  2. WTIC Oil = +4.6% to $103.24

Now, to be sure, there are a lot of things going on here like correlations, causalities, and Iranians – all at the same time - but the one thing that’s been consistent since Ben Bernanke’s Policy To Inflate (January 25th) are Inflation Expectations Rising

  1. Brent Oil (since January 25, 2011) = +9.1% (from $109.86/barrel)
  2. WTIC Oil (since January 25, 2011) = +7.6% (from $98.33/barrel) 

While it’s not clear to us why Old Wall Street’s economists and strategists have not yet cut their US GDP Growth forecasts for Q1 and Q2 of 2012 due to rising oil prices, it wasn’t clear to us why they didn’t at this time last year either.

 

Not to remind some of these perma-bull growth forecasters about the score, but last year plenty of them said that the price of oil crossing the Consumption Rubicon wasn’t going to matter. In fact, a lot of them said rising oil prices were a function of “accelerating demand.”

 

Oh, ok.

 

Someone might want to tell the Chinese about that…

 

Something (hint: Growth Slowing) is making the Chinese very nervous about this whole Global Money Printing thing. Nervous enough to cut the reserve requirement on banks for the 2nd time in the last few months. There are very few high-frequency economic data points coming out of China and/or Asia in the last week that don’t support this non-Greek headline of growth slowing sequentially.

 

But have no fear, Andrea Mitchell is here. Yes, as in the Maestro on these macro matters, Alan Greenspan’s, wife (and Foreign Affairs correspondent on everything NBC). On Meet The Press this Sunday Andrea called out that she saw “$5 Dollars for Supreme” at the pump.

 

Hoo-wah!

 

“Apres nous, le deluge.” Sadly, maybe then, and only then, our elite central planners won’t have us pay for their taking car service to work.

 

After being long Consumer Discretionary (XLY) stocks for most of December-January (on Strong Dollar = Strong Consumption), I shorted the Sector ETF on Friday. My immediate-term support and resistance ranges for Gold, Brent Oil, WTIC Oil, EUR/USD, and the SP500 are now $$1730-1747, $116.89-120.56, $100.91-105.88, $1.30-1.32, and 1350-1363, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Le Greek Deluge - Chart of the Day

 

Le Greek Deluge - Virtual Portfolio


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%

THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

 

TODAY’S S&P 500 SET-UP – March 6, 2012


As we look at today’s set up for the S&P 500, the range is 10 points or -0.61% downside to 1356 and 0.12% upside to 1366. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - glo

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -586 (-427) 
  • VOLUME: NYSE 702.72 (0.40%)
  • VIX:  18.05 4.40% YTD PERFORMANCE: -22.86%
  • SPX PUT/CALL RATIO: 2.04 from 2.05 (-0.49%)

CREDIT/ECONOMIC MARKET LOOK:


GROWTH – Small Caps, Basic Materials, Industrials – they’re all leading indicators inasmuch as Dr Copper and 10yr yields are – they are all telling us our model isn’t broken. The Old Wall’s is. Growth Slowing, globally, occurs because A) debt structurally impairs growth and B) inflation slows growth. Not from every time/price and debt levels – just these ones. 

  • TED SPREAD: 41.36
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 1.97 from 2.01
  • YIELD CURVE: 1.68 from 1.72 

MACRO DATA POINTS (Bloomberg Estimates):

  • No major U.S. economic releases scheduled
  • 7:30am/8:55am: ICSC/Redbook weekly retail sales
  • 11:30am: U.S. to sell 4-week bills, $26b 52-week bills
  • Noon: DOE short-term outlook
  • 4:30pm: API inventories

  GOVERNMENT:

  • President Obama to hold news conference, 1:15pm
  • Obama meets with members of Business Roundtable to discuss jobs, economy, 7:10pm
  • Super Tuesday primary vote
  • House, Senate in session:
    • Senate Finance Committee holds hearing on tax overhaul options, 10am
    • House Appropriations subcommittee hears from SEC Chairwoman Mary Schapiro on its budget request, 10am
    • House Appropriations subcommittee hears from HHS Secretary Kathleen Sebelius on the agency’s budget, 2pm     

WHAT TO WATCH:

  • Super Tuesday primary day, with contests in states including Ohio, Tennessee, Georgia
  • Europe’s economy contracted 0.3% in 4Q as investment declined the most since 2009 and exports, consumer spending dropped
  • Private investors that have so far declared their participation in Greece’s debt restructuring hold ~20% of the bonds involved in a swap required for an international bailout
  • Google, Motorola Mobility must give Android data to Apple as part of patent lawsuit, judge ruled yday
  • AIG may have more flexibility to buy back its stock from the U.S. govt. after divesting holdings of AIA: Bernstein
  • Macau gaming revenue may grow at low double-digit pace in 2012, down from 42% in 2011: Macao Daily
  • Automakers prepare for deepening slump in European car mkt
  • Paulson’s Advantage Plus fund fell 1.5% in Feb., paring 2012 gain
  • Tornadoes that slammed 5 states last wk may generate as much as $2b in claims costs for insurers: Eqecat 

EARNINGS:

    • Bridgepoint Education (BPI) 7am, $0.38
    • Kronos Worldwide (KRO) 7am, $0.47
    • Bank of Nova Scotia (BNS CN) 7:28am, C$1.15
    • Dick’s Sporting Goods (DKS) 7:30am, $0.88
    • United Natural Foods (UNFI) 7:30am, $0.44
    • Vail Resorts (MTN) 8am, $1.38
    • Evertz Technologies (ET CN) 4 p.m., C$0.24
    • Linamar (LNR CN) 4 p.m., C$0.41
    • Pandora Media (P) 4:02 p.m., $(0.02)
    • Mako Surgical (MAKO) 4:05 p.m., $(0.14)
    • Provident Energy Ltd (PVE CN) 4:43 p.m., C$0.21
    • Paramount Resources Ltd (POU CN) Post-mkt, C$(0.25) 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


COMMODITIES – Dollar Up = Deflates The Inflation; but it doesn’t all happen in a day. This should be bullish provided that the USD Index can hold its gains > $79.03 TREND line support – a Romney win tonight in Ohio could do it. What’s good for the USD is good for US Consumption. After snapping our TRADE line of 1735 last week, Gold testing TREND line of 1691 right now. 

  • Mitsui Seeks Copper With Record $17 Billion Cash: Commodities
  • Oil Declines on Growth Concern as Euro-Region Economy Contracts
  • Global Wheat Harvests Seen Declining From Record on Lower Yield
  • Copper Heads for Biggest Drop in 3 Weeks as Economies Contract
  • Gold Falls to 6-Week Low as Stronger Dollar Cuts Investor Demand
  • India’s Cotton-Export Ban Should Be Lifted, Minister Says
  • Sugar Falls as Surplus May Soon Become Available; Coffee Slides
  • India May Boost Iron Ore Exports to China After Freight Rate Cut
  • Gasoline Supply Drop Seen as Pump Prices Rise: Energy Markets
  • Billionaires Buy Gasoline Ships as Fuel Cargoes Expand: Freight
  • Silver Calls at Highest Since 2010 on Economic Recovery: Options
  • Google Runs Computers on Wind Power While Betting on Sun: Energy
  • Saudi Aramco Projects May Face Higher Loan Costs: Arab Credit
  • Cows Use More Corn Than Cars as Fuel Need Slows: BGOV Barometer
  • Wheat Falls Most in Two Weeks on ‘Significant’ U.S. Rainfall
  • China Won’t Import ‘Large Amounts’ of Corn on Stockpiles 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 4

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 

ASIAN MARKETS


INDIA – after getting tagged for a -1.6% loss last week, down both days this week and down -6.8% since topping on Feb 21. With inflation running higher than nominal growth, this is what you get – modern stagflation. That’s why India’s Yield Curve has gone flat.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 

 

 

 

 




Risk Managing Non-Events

“The human mind does not deal well with non-events.”

-Daniel Kahneman

 

When you are me, analytical life can get lonely. Every single major Growth Slowing call I have made since 2007 has been met with doubt, denial, and disdain. But growth still slowed.

 

Whether I’m out for a run, on a plane, or in the shower, I’m constantly trying to re-think better ways to communicate our process. What is it that we do? How do we model our assumptions? What are the risk management signals?

 

Ultimately, I’ve come to the conclusion that I can always do better, but I can’t make it any more simple than stating it each and every day before it occurs. I’ll call this Risk Managing Non-Events.

 

Back to the Global Macro Grind

 

What is a Non-Event? You can ask Dan Kahneman for his definition – mine is that Non-Events are constantly occurring and tipping the slopes and probabilities of events becoming obvious.

 

Got tipping points? Consider the following Growth Slowing Signals in our globally interconnected Macro Model from the last month:

  1. Basic Materials Stocks (XLB) stopped going up on February 3rd, 2011 (now down -3.1% from YTD top)
  2. India’s Stock Market (INP) stopped going up on February 21st, 2011 (now down -6.8% from YTD top)
  3. Small Cap Stocks (IWM) stopped going up on February 23rd, 2011 (now down -3.1% from YTD top)

Those are obviously just leading indicators from big, liquid, stock markets. All the while, Copper, 10-year US Treasury yields, and Global Yield Spreads continued to flag what they started flagging immediately after the Ben Bernanke’s January 25thPolicy To Inflate to 2014 – Growth Expectations started falling as Inflation Expectations started spiking.

 

Overlay immediate-term leading indicators (real-time market prices, yields, and spreads) with our long-term Fundamental Research View that:

 

A)     Debt (when crossing 90% of GDP) structurally impairs long-term growth (Reinhart & Rogoff data supports this view)

B)     Inflation, from a certain time/price level, slows real (inflation adjusted) growth

 

All the while, have a Keynesian economist promise you that they can centrally plan just the right amount of “inflation” for just the right amount of employment and economic growth.

 

And you have yourself an “event” (versus consensus expectations) in the making…

 

Non-events are the proverbial grains of sand falling on the pyramid of risk that is our globally interconnected Macro Model. One by one, price by price, data point by data point, they fall onto the sand-pile of expectations.  

 

Then, one day… week… or month, they become “events.”

 

If the deep simplicity of Chaos Theory is this obvious, how do we almighty chosen ones from the Ivy League routinely get this wrong?

 

“A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs, that have changed.” –Daniel Kahneman (Thinking, Fast and Slow – page 202)

 

That’s why we have to humble ourselves and Embrace Uncertainty. The idea that going to Yale immunizes my mind from being human under pressure is as ridiculous as Bernanke not seeing inflation at $120 oil.

 

There may have been a day in this business, without internet connections or Twitter, that you could have legitimately had an information edge on a company and its implied valuation. A lot has changed since then. Today, my 4-year old son can pull up cash flow multiples with two clicks on Yahoo finance (provided that I give him the ticker!).

 

Risk Managing Non-Events is the next frontier of finance. Yes, it’s a lot harder to do than proclaiming our mystery of faith on the “right” earnings “multiple” for the SP500. That’s why we do it every morning. Risk never sleeps.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $121.12-123.98, $79.03-79.74, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Risk Managing Non-Events - Chart of the Day

 

Risk Managing Non-Events - Virtual Portfolio


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.

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