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THE EMPLOYMENT DATA IS BULLISH

Today’s employment data was strong across the board for the restaurant industry. 

 

As the chart below shows, all of the age cohorts we track on a monthly basis avoided year-over-year decline in February.  This is the first time we have seen green all the way across the table since February 2007.  The 20-24 YOA cohort saw a 60 basis point sequential acceleration in year-over-year employment growth which is a positive for QSR companies.  The one sequential slowdown in employment growth came in the 45-54 YOA cohort.  Overall, this employment data is a positive for casual dining, given both the broad-based employment gains and the improvement in the older 55-64 YOA cohort’s outlook. 

 

THE EMPLOYMENT DATA IS BULLISH - Employment by Age

 

 

Hiring trends in the restaurant industry remain strong as of January (this data set lags by one month).  As the chart below illustrates, hiring growth in the full service and limited service dining industries are growing at prerecession levels.  The U.S. Employment Situation Report for February called out the food service industry as a bright spot in the recent employment trends:

 

"In February, employment in leisure and hospitality increased by 44,000, with nearly all of the increase in food services and drinking places (+41,000). Since a recent low in February 2010, food services has added 531,000 jobs."

 

THE EMPLOYMENT DATA IS BULLISH - restaurant employmnet

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


Selling Green: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Consumer (XLY)

 

Buy red, Sell green. Rinse and Repeat.

 

My last communiqué was on Tuesday (“Short Covering Opportunity” on 3/6/11 at 11:29AM EST) and it was harder to buy then than it is for the performance chasing community right here and now. We’re right at levels in the SP500 and the VIX where I think this is an easy call to make.

 

Here are the lines, across my risk management durations, that currently matter to me most: 

  1. Immediate-term TRADE resistance = 1374
  2. Immediate-term TRADE support = 1345
  3. Intermediate-term TREND support = 1283 

With the US Dollar Index breaking out to the upside (above $79.03 TREND support), I am getting more constructive on US Equities – but from a price. On Tuesday my buy/cover line was 1345. It still is today.

 

Enjoy your weekend,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Selling Green: SP500 Levels, Refreshed - SPX


THE HBM: SBUX, GMCR, SONC, MCD, BWLD

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

Unemployment

 

Private payrolls gained by 233k versus expectations of 225k in February.  The unemployment rate stayed at 8.3% but, on the positive side, the labor force participation rate ticked up by 20 basis points to 63.9%.  This was the first uptick since August 2010.  During February, employment in leisure and hospitality increased by 44,000 with nearly all of the increase in food services and drinking places (+41,000).  Since a  recent low in February 2010, food services has added 531,000 jobs.

 

THE HBM: SBUX, GMCR, SONC, MCD, BWLD - lfpr shift

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: SBUX, GMCR, SONC, MCD, BWLD - subsectors

 

 

QUICK SERVICE

 

SBUX: Starbucks’ announcement after the close yesterday, that it is to release a new brewer named Verismo by Starbucks, has been met favorably by investors; the stock is up 3.4% premarket.

 

SBUX: Starbucks was reiterated “Buy” at Deutsche Bank.  The PT was raised to $59 from $53.

 

GMCR: Starbucks’ announcement after the close yesterday, that it is to release a new brewer named Verismo by Starbucks, has been met unfavorably by investors in GMCR; the stock is down -14.4% premarket.  Green Mountain has responded by saying that its Keurig brewer uses low pressure to brew non-espresso coffee and tea, meaning Starbucks may not become a direct competitor to its core business.

 

SONC: Sonic reported 2QFY12 same-store sales at +3.4% (3.5% at franchise drive-ins versus 3.1% for company).

 

MCD: Despite the returns that McDonald’s generated for shareholders in 2011, Jim Skinner, the CEO of MCD, saw his compensation decline by 10% to $8.8m.

 

MCD: McDonald’s was reiterated “Conviction-List Buy” at Goldman Sachs.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

DNKN: Dunkin’ Brands gained 3.5% on accelerating volume. 

 

SONC: Sonic declined -7% on accelerating volume yesterday.  The stock cratered on the sales preannouncement.

 

 

CASUAL DINING

 

BWLD: Buffalo Wild Wings is launching its “More March” multi-platform ad campaign in time for one of the busiest months of the year.

 

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

EAT: Brinker gained +3.4% on accelerating volume yesterday.

 

 

THE HBM: SBUX, GMCR, SONC, MCD, BWLD - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 9, 2012


As we look at today’s set up for the S&P 500, the range is 37 points or -1.53% downside to 1345 and 1.18% upside to 1382. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 1777 (53) 
  • VOLUME: NYSE 716.61 (-10.53%)
  • VIX:  17.95 -5.87% YTD PERFORMANCE: -23.29%
  • SPX PUT/CALL RATIO: 0.98 from 1.74 (-43.68%)

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 39.72
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 2.01 from 2.01
  • YIELD CURVE: 1.70 from 1.71 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Trade Balance, Jan., est. -$49.0b (prior -$48.8b)
  • 8:30am: Nonfarm Payrolls, Feb., est. 210k (prior 243k)
  • 8:30am: Unemployment Rate, Feb., est. 8.3% (prior 8.3%)
  • 8:30am: WASDE corn, soybean, cotton, wheat
  • 10:00am: Wholesale Inventories, Jan., est. 0.6% (prior 1.0%)
  • 1pm: Baker Hughes rig count 

GOVERNMENT:

    • Obama to speak on economy at Rolls-Royce aerospace facility in Richmond, Va. 12:30pm, then fly to Houston for campaign events
    • CFTC meets to consider issuance of proposed rules, 9:30am
    • House meets in pro forma session, 11am 

WHAT TO WATCH:

  • U.S. payrolls may have increased by 210k in Feb. after rising 243k in Jan., economists est.
  • Investors with 95.7% of Greece’s privately held bonds will participate sovereign debt restructuring after govt said it will trigger an option forcing them to take part
  • UPS said to be near deal to buy TNT Express after initial offer of EU4.9b rejected
  • El Paso holds a shareholder vote on $21.1b Kinder Morgan deal
  • Watch video-game makers after NPD reported U.S. video-game sales fell 20% in Feb. to $1.06b
  • Texas Instruments cut 1Q sales, profit forecasts; watch chipmakers, suppliers
  • Molycorp agreed to buy Canada’s Neo Material Technologies for ~C$1.3b ($1.3b) to increase Chinese sales, gain technology
  • Boston Scientific agreed to buy Cameron Health for as much as $1.35b to add a new kind of defibrillator
  • Wal-Mart wins South African lawsuit contesting Massmart takeover
  • London Stock Exchange agreed to buy a majority stake in LCH.Clearnet Group for GBP463m ($613m)
  • NRC deadline for issuing orders on safety improvements developed in year since radiation crisis at Fukushima, Japan
  • No U.S. IPOs expected to price: Bloomberg data
  • SATURDAY: China trade data for February
  • SATURDAY: Kansas Republican presidential caucuses
  • SUNDAY: Daylight savings time: Clocks spring forward in most of U.S. (Europe shifts on March 25) 

EARNINGS:

    • Hibbett Sports (HIBB) 6:30am, $0.56
    • Ferrellgas Partners (FGP) 7am, $0.79
    • Halozyme Therapeutics (HALO) 7:30am, $(0.15)
    • Ann (ANN) 7:35am, $0.09
    • Carnival (CCL) 9:15am, $(0.05) 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Bulls Strengthen as Wagers Reach $131 Billion: Commodities
  • Soybeans Climb to Five-Month High as Brazil Cuts Crop Forecast
  • Oil Rises a Third Day on U.S. Economic Outlook, Greek Debt Swap
  • India to Review Cotton-Export Ban as China Seeks Withdrawal
  • China February Copper Output Rebounds From an 11-Month Low
  • Gold May Rise as Low Interest Rates Boost Demand for the Metal
  • Tocom to Discuss Alliance With CME Next Week, Ezaki Says
  • Copper Traders Probably Added to Wagers That Prices Will Decline
  • Palm Oil Surges to Nine-Month High on Speculation Reserves Fell
  • Rare-Earth Bust Spurs Molycorp’s Biggest Takeover Bet: Real M&A
  • Coffee Falls on Speculation Supplies Will Improve; Cocoa Drops
  • Iran Oil Risk Threatens Peak Profit for Naphtha: Energy Markets
  • Shipping Lines’ Asia-Europe Rate Rise May Fail: Chart of the Day
  • Oil Rises on Greek Debt Swap, U.S. Outlook
  • Copper Gains for Third Day on China Inflation, Industrial Output
  • Rubber Futures Advance as China’s Inflation Eases: Tokyo Mover
  • Chalco to Seek to Raise as Much as 8 Billion Yuan in Share Sale 

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 6

 


ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 



UGLY TRUTH

“That the chance of gain is universally overvalued, we may learn from the universal success of lotteries.”

-Adam Smith, The Wealth of Nations

 

The concept of risk management is, at least for me, a continual learning process.  Strictly speaking, what I do is research but naturally when discussing ideas with teammates here at Hedgeye, risk is always on and something that is always foremost in our thinking. 

 

Confidence in the market has increased over the last 6 months and commentary from financial media outlets of all kinds seems to be increasing in its assuredness that the recovery is finally showing some teeth.   A notion confirmed today by Bank of America CEO, Brian T. Moynihan, as he suggests that the consumer using leverage again to increase spending.  He said “purchases by the bank’s credit and debit-card customers have increased 5%-7% for each of the last five months.”  If consumer are levering up again, it is not a positive!

 

The risk here, clearly, is that the market is attracting those that are trying to chase performance and not what the consensus believes, which is “we have turned the corner.”  When thinking through what the reality of our position is, it’s important to always consider two things.  First, recall how your counterpart gets paid.  Second, it’s paramount to remind oneself that good luck is not a given.  Unfortunately, we humans generally believe ourselves to be, individually, held above the rest in the pecking order of fortune.  This trait, as Smith puts it, is “an ancient evil remarked by the philosophers and moralists of all ages”.  For a contrite buyer of a market top, or the people whose money he or she loses, that is certainly an apt description and something we can all relate to in one way or another.

 

Looking back on this week it reminds me that there is something to learn every day in this business.  Writing this morning piece is something that is forcing  me to do something publically that I have tried to do privately at the end of each week, which is assess the week and any lessons that can be taken from it.

 

Sitting here after the first four days of the week, my macro question is “what is driving this market?” 

 

On Monday, the S&P had its biggest one-day decline of 2012, -1.54%, on the notion that the bailout plan for Greece was going to unravel (a credit event related to Greece looks to be on the cards today).  On Wednesday, the improving jobs picture – at least according to the ADP Employment report – helped the market move higher by +0.69%.  Yesterday, the market rallied another 1% as private debt holders agreed to convert 85% of Greece’s debt to new securities in the “biggest sovereign debt restructuring in history”. 

 

Ever is a long time and Greece certainly matters, if only because of the possible repercussions in broader Europe in the event of a disorderly default.  However, the S&P500 being bid up yesterday despite claims disappointing was interesting.

 

It is impossible for anyone, least of all myself, to state with certainty why market prices moved in any direction on a given day, but the Wall Street Journal’s report that the Federal Reserve may engage in “sterilized QE” which will please all of the people (inflation hawks and doves) all of the time.  Surely, that rumor of Fed intervention abounds anytime the equity market shows any weakness belies the supposed confidence that investors feel in being long this market. 

 

The Hedgeye Financials team has conducted some tremendous research into the initial claims data that is usually so important for market sentiment; much of the recent upsurge in equity prices is attributed to improving employment conditions as shown by the trend in claims.   

 

One would think, then, that a disappointing initial claim print yesterday – albeit one week’s data point – may have had more of an impact on a market that has gained so handsomely in recent months. The “Ghost of Lehman” (as the financials team has called it) distortion in the claims dataset, which has been a headwind and is set to turn into a headwind gradually in the summer months, may have helped boost equity prices over the last six months; the question at this point is whether or not a series of disappointing jobs numbers will lead to a commensurate retracement in the S&P.

 

That question is perverse to read and it feels perverse to write.  Surely deterioration in the underlying fundamentals, especially the all important jobs picture, should lead to a sell off.  The S&P is up 8.6% year-to-date and up 102% from the March2009 low.  Still, with the QE is the go-to strategy the instant any “concerns” creep into the market, will a pause in the jobs picture have any impact on equity prices at all? 

 

What’s increasingly difficult to discover at this point is truth.  The truth is not always beautiful, as Lao Tzu wrote.  In the case of our financial “markets”, the truth would likely be downright ugly.  Maybe a truth, as Jack Nicholson might say, that we couldn’t handle.  My aim is not to vilify actors in or prescribe solutions for the ills facing our economy.  As a equity analyst, looking back on this past week and thinking about the pending jobs report, my conclusion is that the rumors of intervention by central banks is deterring people from truth and thus market prices might not reflect reality.

 

Even in vain, the quest for truth must be sustained.  Yesterday was cheering on inflation - Dollar down, Euro up, oil up, gold up, and XLI and XLB were the best performers.  It’s the type of move that has corroborated many of the points that our Macro team has argued recently.  First, inflation slows consumption.  McDonald’s – one of the most macroeconomic-immune companies of the past four years – mentioned inflation as an issue for its business in its press release yesterday.  Second, at this point investors need to embrace uncertainty and stay nimble.  With the VIX at 17, there is plenty of complacency in the market that “we have turned the corner” and not reflecting increased inflation.

 

If good news is good and bad news is QE, surely the only way is up!  Looking at a simple chart of short term interest rates versus the S&P shows that the frequency and amplitude of stock market cycles has increased coincident with the implementation of easy money policies.  The lack of truth in financial markets is rendering trust impossible and that is illustrated clearly in the volatility of the past few years.  As buyers up here, it is worth asking whether or not we are overvaluing the chance of gain.

 

Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $123.98-126.89, $79.02-80.12, and 1, respectively.

 

Function in Disaster; Finish in Style

 

Howard Penney 

 

UGLY TRUTH - EL Chart 3.9

 

UGLY TRUTH - vp 3 9


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