THE HBM: MCD, PNRA, DPZ, BWLD - subsector




MCD: McDonald’s was cut to Hold at Argus Research.


PNRA: Panera Bread reported 1Q12 EPS of $1.40 versus consensus of $1.34.  Company comps came in at 7.5% versus consensus 7.4%. 


THE HBM: MCD, PNRA, DPZ, BWLD - pnra pod1


PNRA: Panera Bread was upgraded to Buy at Miller Tabak.


PNRA: Panera Bread was reiterated Overweight at Oppenheimer.


DPZ: Domino’s Pizza was raised to Neutral versus Underperform at BofA.




CMG: Chipotle dropped 3.4% on strong volume as Credit Suisse’s downgrade made news.


YUM: Yum declined 2% on accelerating volume. 





BWLD: Buffalo Wild Wings reported $0.98 versus $0.95 consensus.  Company comps came in at 9.2% versus consensus of 10.9%.  See our note from last night for additional details. 


THE HBM: MCD, PNRA, DPZ, BWLD - bwld pod1


BWLD: Buffalo Wild Wings was upgraded to Buy from Hold at Deutsche Bank.  The price target remains $100.




BWLD: Buffalo Wild Wings declined almost 6% on accelerating volume on earnings which were released at 3 p.m. rather than after the close, as was expected.


EAT: Brinker gained 1% on accelerating volume.





Howard Penney

Managing Director


Rory Green



Yesterday's Pile

This note was originally published at 8am on April 11, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Here yesterday, gone today.”

-Niall Ferguson


Yesterday’s Early Look note about my Pile yielded some very thoughtful replies. I don’t do this enough, but I’d simply like to say thank you - thanks to all of you who take the time to send me your thoughts. I read each and every one of your emails. I learn from you every day.


Going back to the well this morning, here’s what came out of my Pile on last night’s flight to Kansas City, Missouri:

  1. Jeremy Grantham: “Longest Quarterly Letter” (February 2012)
  2. Niall Ferguson: “Western Civilization – Decline or Fall?” (March 2012)

Grantham’s long-term quibble is one we write about a lot – getting quantitatively oriented: “It would certainly help if the general public were better educated, especially in science… it is said that 8 of the 9 senior leaders in China’s government are scientists. At that high a level, of our 535 Congressmen and the President, less than a handful – arguably only 2 or 3 – would pass the test.”


Ferguson’s thoughts preface his latest book. They’re very much in line with Grantham’s when it comes to reminding the American People, Media, and Markets to wake-up to a non-US centric world before history’s lessons really start to rhyme: “The bad news is that its shape is more like an exponentially steepening slope that quite suddenly drops off like a cliff.


Two of the world’s Top Economic Historians warning us that The Fed and Congress have un-qualified opinions and un-checked policies that infect globally interconnected markets, every day. Think about it.


Back to the Global Macro Grind


“Here yesterday, gone today”, whatever happened to that no-volume “bull market” in US Equities?


Instead of calling a trivial 1-factor model like the 50-day Moving Monkey a risk management process, let’s get real with the 21st century here and get quantitative. Multi-factor, Multi-Duration is what we do and using a very simple 3-factor baseline model, here’s what we see in the SP500:


1.   PRICE – since immediate-term TRADE support (1391) snapped, our intermediate-term TREND line (1331) is now in play. Managing your risk within this dynamically evolving range of 1331-1391 is how you should think about gross and net exposure.


2.   VOLUME – there was no volume on the elevator up, and now that it looks like some are taking the window route on the way down, we’re seeing Volume Studies confirm the gravity of the situation. Yesterday’s volume was an animal, up +46% day-over-day! And up +15% versus my composite average of market down days in 2012.


3.   VOLATILITY (VIX) – since immediate-term TRADE (16.24) and TREND (18.76) resistance are now support, US Equity Volatility can continue to put on one heck of a move from here, provided that 18.76 holds. It’s critical to acknowledge that our long-term TAIL zone of 14-15 VIX support held like the rock of Gibraltar, again.


Now if you only look at US Equities through the prism of the SP500, you’re missing part of the point. Looking at the correction in the SP500 versus the Russell2000, you can start to see what index is overweight Apple:

  1. SP500 – stopped going up on April 2nd(1419) and has since corrected -4.3%
  2. Russell2000 – stopped going up on March 26th(846) and has since corrected -7.3%

Unlike the SP500, which is holding its intermediate-term TREND line of 1331 support, the Russell2000 has already broken its TREND line of 795. So, inasmuch as you should be watching 1391 resistance in the SP500 today/tomorrow, watch 795 in the Russell.


Globally Interconnected?


There’s 0% irony that when Small Caps (Russell2000) stopped going up on March 26th, the following occurred:

  1. CRB Commodities Index stopped going up at 326 = down -8% since
  2. Japanese Equities (Nikkei225) stopped going up at 10,255 = down -8% since
  3. US Equity Volatility (VIX) stopped going down at 14.24 = up +43% since

Got an “exponentially steepening slope” (turn the VIX upside down), that “suddenly drops off like a cliff”? Got Apple? Got Global Macro Risk Management?


After cliff diving from the Q1 highs in 2008, 2010, and 2011, how many more times do we have to do this? Do you blame the little guy (Old Wall Street still calls her the “Retail Investor”) for not getting sucked into the Storytelling vortex of another Q1 high?


And if you still doubt that collapse comes suddenly, just think of how post colonial dictatorships of North Africa and the Middle East imploded this year… One minute rulers had legitimacy in the eyes of their people, the next they did not.” (Ferguson)


When it comes to managing what’s left of their own money, The People of America do not appear to be as mathematically inept as either their Congress or Central Planner in Chief. In the long-run, if you break the trust of The People in markets, volumes are dead.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Russell2000, and the SP500 are now $1618-1668, $116.92-123.12, $79.58-80.28, 774-795, and 1347-1391, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Yesterday's Pile - Chart of the Day


Yesterday's Pile - Virtual Portfolio


TODAY’S S&P 500 SET-UP – April 25, 2012

As we look at today’s set up for the S&P 500, the range is 31 points or -0.80% downside to 1361 and 1.46% upside to 1392. 












    • Up from the prior day’s trading of -1440
  • VOLUME: on 4/24 NYSE 752.12
    • Decrease versus prior day’s trading of -4.15%
  • VIX:  as of 4/24 was at 18.10
    • Decrease versus most recent day’s trading of -4.59%
    • Year-to-date decrease of -22.65%
  • SPX PUT/CALL RATIO: as of 04/24 closed at 2.67
    • Up from the day prior at 1.07 



EARNINGS last we checked, the buy-side’s expectations about earnings reflect what stocks do, not what companies do versus lowered y/y earnings expectations. Since you all work on the buy-side, you get it. Sadly, others still don’t. Some stocks have been getting hammered so far here during earnings season. Apple was a legitimate beat vs buy-side worries.


BOND YIELDS – no change in Europe (rising credit risks) or the USA (10yr bond yields at 1.98% couldn’t care less about what 1 company did at the close). Apple is a great company and Growth is Slowing, globally – mutually exclusive points, and both remain obvious.

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.98
    • Up from prior day’s trading of 1.97
  • YIELD CURVE: as of this morning 1.71
    • Unchanged from prior day’s trading 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:00am: MBA Mortgage Applications, week of Apr. 20
  • 8:30am: Durable Goods, Mar., est. -1.7% (prior 2.4%, revised)
  • 8:30am: Durables Ex/Trans, Mar., est. 0.5% (prior 1.8%, revised)
  • 8:30am: Cap Goods Nondef Ex/Air, Mar., est. 1.0% (prior 1.2%)
  • 10:30am:DOE inventories
  • 11:30am: U.S. to sell $35b 5-yr notes
  • 12:30pm: FOMC Rate Decision, est. 0.25% (prior 0.25%)
  • 2:00pm: FOMC releases economic, Fed funds projections
  • 2:15pm: Fed’s Bernanke holds press conference 


  • Supreme Court hears arguments in Obama administration’s challenge to Arizona’s crackdown on illegal immigration, 10am
  • President Obama speaks to students at University of Iowa, 2:20pm
  • House, Senate in session:
    • Senate Agriculture Committee marks up farm bill, 9am
    • House Financial Services subcommittee hears from SEC Chairwoman Mary Schapiro at oversight hearing, 10am
    • Senate Judiciary Committee hears from Homeland Security Secretary Janet Napolitano at an oversight hearing, 10am
    • Senate Banking Committee holds hearing on helping homeowners save money through refinancing, 10am
    • Senate Armed Services subcommittee holds hearing on missile defense,  2:30pm
    • Senate Appropriations subcommittee hears from FCC Chairman Julius Genachowski on expanding broadband access and promoting innovation,  2:30pm 


  • FOMC issues rate decision at 12:30pm, followed later by Bernanke press conference at 2:15pm
  • Britain unexpectedly enters first double-dip recession since 1970s as U.K. economy shrunk in 1Q
  • U.S. durable goods ex-transportation probably gained, economists est., on rising demand for cars, auto supplies
  • Amgen agreed to buy closely held Mustafa Nevzat for almost $700m
  • Watson Pharmaceuticals may announce buying Actavis for ~EU4.5b
  • Cattle futures rebounded as Japan and Taiwan said they wouldn’t alter import controls on U.S. beef
  • China Auto Rental postponed what would have been the second U.S. IPO this yr by Chinese company
  • Republican presidential candidate Mitt Romney swept five primaries, including Pennsylvania, N.Y.
  • Global earnings: Credit Suisse unexpectedly posted profit, China Unicom 1Q profit missed est.
  • Apple 2Q profit beat est., helped by Chinese iPhone demand; watch U.S. suppliers including TriQuint Semi, Cirrus Logic, Broadcom 


    • Cenovus Energy (CVE CN) 6am, C$0.54
    • Encana (ECA CN) 6 a.m., $0.03
    • WR Grace & Co (GRA) 6 a.m., $0.81
    • Host Hotels & Resorts (HST) 6 a.m., $(0.13)
    • Thermo Fisher Scientific (TMO) 6 a.m., $1.11
    • Wellpoint (WLP) 6 a.m., $2.29
    • TE Connectivity (TEL) 6 a.m., $0.66
    • Praxair (PX) 6:01 a.m., $1.36
    • Wyndham Worldwide (WYN) 6:30 a.m., $0.55
    • Eli Lilly & Co (LLY) 6:30 a.m., $0.78
    • AutoNation (AN) 6:45 a.m., $0.53
    • General Dynamics (GD) 7 a.m., $1.69
    • Harley-Davidson (HOG) 7 a.m., $0.71
    • Lorillard (LO) 7 a.m., $2.00
    • Motorola Solutions (MSI) 7 a.m., $0.54
    • NASDAQ OMX Group (NDAQ) 7 a.m., $0.63
    • Northrop Grumman (NOC) 7 a.m., $1.59
    • National Oilwell Varco (NOV) 7 a.m., $1.40
    • Rockwell Automation (ROK) 7 a.m., $1.27
    • Sprint Nextel (S) 7 a.m., $(0.41)
    • Tupperware Brands (TUP) 7 a.m., $0.96
    • Nielsen Holdings NV (NLSN) 7 a.m., $0.27
    • Corning (GLW) 7 a.m., $0.28
    • MeadWestvaco (MWV) 7:05 a.m., $0.24
    • Boeing (BA) 7:30 a.m., C$0.93
    • Caterpillar (CAT) 7:30 a.m., $2.13
    • Delta Air Lines (DAL) 7:30 a.m., $(0.04)
    • Hess (HES) 7:30 a.m., $1.54
    • Molex (MOLX) 7:30 a.m., $0.34
    • Owens Corning (OC) 7:30 a.m., $0.30
    • Southern (SO) 7:30 a.m., $0.45
    • NextEra Energy (NEE) 7:31 a.m., $0.97
    • Dr Pepper Snapple Group (DPS) 8 a.m., $0.48
    • US Airways Group (LCC) 8 a.m., $(0.23)
    • Bell Aliant (BA CN) 8:08 a.m., $0.41
    • Avery Dennison (AVY) 8:30 a.m., $0.44
    • Akamai Technologies (AKAM) 4 p.m., $0.38
    • Las Vegas Sands (LVS) 4 p.m., $0.60
    • Varian Medical Systems (VAR) 4 p.m., $0.96
    • Williams Cos (WMB) 4 p.m., $0.36
    • Crown Castle International (CCI) 4:01 p.m., $0.18
    • LSI (LSI) 4:01 p.m., $0.14
    • AvalonBay Communities (AVB) 4:01 p.m., $1.24
    • Williams Partners (WPZ) 4:01 p.m., $0.89
    • Tractor Supply Co (TSCO) 4:01 p.m., $0.52
    • Owens-Illinois (OI) 4:02 p.m., $0.67
    • Equinix (EQIX) 4:02 p.m., $0.53
    • Fidelity National Financial (FNF) 4:04 p.m., $0.25
    • Arch Capital Group Ltd (ACGL) 4:05 p.m., $0.71
    • Citrix Systems (CTXS) 4:05 p.m., $0.51
    • Everest Re Group Ltd (RE) 4:05 p.m., $3.45
    • Cadence Design Systems (CDNS) 4:05 p.m., $0.15
    • Raymond James Financial (RJF) 4:08 p.m., $0.57
    • Assurant (AIZ) 4:15 p.m., $1.43
    • Equity Residential (EQR) 4:15 p.m. $0.62
    • Xilinx (XLNX) 4:20 p.m. $0.41
    • Duke Realty (DRE) 4:29 p.m. $(0.06)
    • Cliffs Natural Resources (CLF) 4:31 p.m. $1.12
    • Range Resources (RRC) 5:10 p.m. $0.13
    • Gold (G CN) 5:15 p.m. $0.54
    • O’Reilly Automotive (ORLY) 6:30 p.m. $1.04
    • SL Green Realty (SLG) 6:40 p.m. $0.06
    • Lundin Mining (LUN CN) Post-Mkt $1.05
    • Cabot Oil & Gas (COG) Post-Mkt $0.89    


  • Cattle Futures Rebound as Japan, EU Unmoved by U.S. Mad Cow
  • GDF Suez Says Force Majeure Ended at Three French LNG Terminals
  • Power Shortage Hurts Chile $100 Billion Copper Push: Commodities
  • Mad Cow Case May Pose Little Threat to U.S. Feed Crop Demand
  • U.K. Gas Snaps Two-Day Decline as Imports Slow, Exports Rise
  • Copper Advances as Company Earnings Lift Equities, Commodities
  • Soybeans Climb to Three-Year High as Freeze Cuts Argentina Crop
  • Sugar Climbs as Demand Increases Before Ramadan; Cocoa Advances
  • Gold May Decline as Investors Hold Off Buying Before Fed Report
  • Commodity Trade Finance Lending Fell 15% at Most, ABN Amro Says
  • Mad Cow Disease Remains Rare Since Discovery in U.K.: Factsheet
  • Barrick Gold Joins Global War for Talent: Corporate Canada
  • Vale to Redesign Giant Ore Ships to Protect Crews From Pirates
  • German Shipping Funds Die as Investors See Losses Rise: Freight
  • Cattle Rebounds After Plunging on Mad Cow
  • Mad Cow in California Shows Need for More Tests, Groups Say
  • Japan Has No Plan to Suspend U.S. Beef Imports ‘At the Moment’ 
















INDIA  most fascinating factors we woke up to this morning were big Asian Stock markets closing down on the day (India, KOSPI, Hang Seng) despite the US Futures fanfare. India’s rating outlook was cut by S&P because it should have been – they are a net importer of $118 oil, running a big deficit, with GDP slowing. UK missed GDP as well this morning = stagflation.










The Hedgeye Macro Team

Wide Acceptance

“Wide acceptance of an idea is not proof of its validity.”

-Dan Brown (The Lost Symbol)


I continue to be fascinated by the groupthink that permeates our profession. You’d think that after all that we have been through in the last 5 years, that would have changed as the facts have. Nope.


I’m not talking about Apple. I don’t have the “edge” on that stock that the 58 sell-siders who follow it purport to have. Legitimate “edge” on a stock like that would probably raise one’s risk to wind up wearing an orange jump suit anyway.


I’m talking about the Wide Acceptances we’ve seen in 2012. From Europe is “fine now” (right before Spain started to crash, again) to “Dow 15,000” (cover of Barrons in February right as Global Growth started slowing, again). Fascinating. As a Risk Manager, you shouldn’t be tasked with chasing returns. You should be tasked with disproving every widely accepted thesis impacting your P&L.


Back to the Global Macro Grind


One of the most widely accepted one-liners from the media and sell-side this week has been some version of a Most Read (Bloomberg) headline this morning: “US Stocks Rise Amid Better Than Forecasted Earnings.”


That, of course, is nonsense. Generally speaking, stocks have been falling during this earnings season. Sure, some stocks have risen on better than expected results, but some have been getting tattooed on inline to worse results versus buy-side expectations.


The key to what I just wrote is “buy-side expectations.”


For as long as I’ve been on the buy-side of this game (since 2000), I can’t remember a time when the game wasn’t gaming the game of buy-side expectations.


The sell-side consensus that pundits refer to on “beating expectations” is just a backboard that buy-side pros play against. Consider AAPL expectations: you get multiple sell-side firms slap $1000 price targets on AAPL into March quarter end; the buy-side proceeds to sell stock into that for a -12% AAPL drawdown from April 9th-24th; and presto, the stock is up +9% on an “earnings beat.”


Obviously if AAPL wasn’t going to “beat” the sell-side’s actuall earnings expectations, the US stock market would be crashing this morning. So, we averted one of those. Nice.


Another way to think about a Wide Acceptance of an event or Storytelling line of consensus from the sell-side (the media has no choice but to use them as their research “source”) is to use that event as an opportunity to Fade Beta.


What does Fade Beta mean?


It means that if the market is up or down (beta), allegedly, on a widely accepted idea that has no proof of validity you either:

  1. Buy on red
  2. Sell on green 

I know. That’s some really complex stuff…


Here’s an example of how a Global Macro investor considers Fading Beta today. Start with simple questions: 

  1. Does Apple’s beat mean Growth is no longer Slowing, globally?
  2. Will Apple’s quarter inspire Ben Bernanke to move to iQe4 at his 215PM FOMC speech?
  3. What are Global Macro market prices telling us about questions 1 and 2 in real-time? 

The beauty of our process is that A) we built it ourselves B) it’s repeatable and C) there are specific answers to question #3: 

  1. Hong Kong, South Korea, and India’s stock markets all closed DOWN by the end of the session = #GrowthSlowing
  2. Hong Kong’s Export report for March came in at a startling -6.8% y/y = leading indicator for Global Growth
  3. Singapore’s Export report for March came in at a almost-as-startling -4.3% y/y = nasty
  4. Chinese stocks closed up +0.75% and we think they really work during a Deflating The Inflation (ie no iQe4 from Bernanke)
  5. UK GDP missed and moves back into the official “recession” zone of -0.2% for Q1 = #GrowthSlowing
  6. UK stocks (FTSE) have reversed their early morning Apple gains, barely up on the day
  7. Spanish stocks (IBEX) lead the short-term squeeze rally in Europe (after crashing, again) = low quality signal for bulls
  8. German Stocks (DAX) are up, but need to recover and sustain intermediate-term TREND support of 6688 to be bullish
  9. European bond yields don’t seem to care, at all, about iStuff
  10. Latin American debt, currency, and interest rate risk continues to accelerate in Mexico, Argentina, and Venezuela
  11. Oil prices are pushing higher = the #1 factor in our model for continued #GrowthSlowing, globally
  12. Copper is up small (+0.6%) and remains in a Bearish Formation (bearish across all 3 risk management durations)
  13. Gold is down, again, implying to me that the answer to Question #2 is a no today (Gold goes up when Bernanke devalues)
  14. Treasuries couldn’t care less about the US Equity Futures move; 10yr yields remain in a Bearish Formation at 1.98%
  15. US Treasury Yield Spread (10yr minus 2yr) remains 17bps below where it was when Growth Slowing wasn’t consensus 

Sure, I picked all of the factors that are bearish signals, on the margin, relative to widely accepted storytelling that suggests otherwise. That’s the point. That’s what I do. I don’t change what I do based on what other people are forced to do.


In other news, Donald Trump is going after Scottish Parliament in Edinburgh today for proposing to fire up a wind farm near the ole Don’s latest golf course project. Wide Acceptance from The Scottish People to Mr. Trump’s self-interested whining is not expected.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index and the SP500 are now $1, $118.51-121.60, $79.01-79.46, and 1, respectively.


Best of luck out there today,



Keith R. McCullough

Chief Executive Officer




Wide Acceptance - 1



Wide Acceptance - 2


I was wrong on the stock yesterday but believe that higher estimates will soon be reflected in the stock.



If I was a criminal and privy to inside information that BYD was going to beat the Q1 EBITDA estimate by $7.5m (a 6% beat) and provide in-line Q2 guidance, I’d be poor right now.  BYD closed down 4% yesterday and I would’ve thought up at least 4%. 


The only negative I can see in the quarter was in the LV Locals market.  Even that region would’ve beaten our EBITDA estimate with normal hold.  The problem is the Street was too high, which we knew, since they tend to overreact to the Nevada gaming figures which are gross, not net.  However, our estimates for the other regions and Borgata were so much higher, and ended up being correct, that we thought the good far outweighed the bad relative to consensus.  I guess we underestimated the Street’s disdain for BYD and their ability to so narrowly focus their investment thesis on the one negative.  However, I don’t think the Street can continue to hold back a stock for very long against the fundamental tailwind of higher earnings.


BYD’s commentary about Borgata should’ve pleased a sell-side overly concerned with Revel’s impact on Borgata.  Don’t get me wrong, Borgata will take its lumps and it’s difficult to disprove the bear story with only a few weeks of data.  However, due to demand patterns, we expect the property to beat estimates for the next two quarters before finally succumbing to the slack visitation in the seasonally slow Q4.  We will cross that bridge when we get to it. 


In terms of guidance, it was pretty much what we expected.  Since they resumed providing guidance a few quarters ago, management has developed a pattern of setting a low bar that is easily beatable – strategy followed by IGT, HOT, and others.  Once again, the low bar didn’t exactly jive with their positive forward commentary.  We thought the Street would’ve figured that out by now.  On the Q4 earnings call, they low balled Q1 which seemed obvious at the time.  Indeed, Q1 actual was much better.  We expect the same for Q2.

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