Employment data released this morning by the Bureau of Labor Statistics were relatively bullish for QSR versus Casual Dining.  However, hiring trends within the greater Leisure & Hospitality industry, show that restaurant hiring may slow more meaningfully in April.


Employment by Age


As the chart below shows, all of the age cohorts we track on a monthly basis, with the exception of the 45-54YOA cohort, continued to gain jobs in April.  Sequential slowdowns in the 45-54 and 55-64 YOA cohorts are not positive for casual dining.  The continuing strength in youth employment trends is encouraging for QSR.  Construction employment has not picked up and will not until there is a recovery in housing.  Career Builder CEO Matthew Ferguson spoke on Bloomberg this morning on the jobs data and said that his company’s surveys are showing that 53% of companies say they’re going to higher more entry-level college graduates this year versus last year.  That number was 40% a couple of years ago, according to Ferguson.




Hiring Trends Within the Restaurants Industry

Hiring trends within the restaurant industry remain strong as of the month of March (the full-service- and casual dining-specific data lags the broader data by one month).  As the chart below illustrates, however, is that employment growth in the broader Leisure & Hospitality space has been rolling over as of the month of April.  The Leisure and Hospitality data is released in line with the general employment data and gives us somewhat of an insight, at least directionally, into how hiring trends in the restaurant industry may look for April.




Consumer Confidence

The unemployment rate is obviously a statistic that has limited meaning for investors or analysts but consumer confidence is certainly impacted by headlines.  As the chart below highlights, the declining Labor Force Participation Rate is helping to keep the headline Unemployment Rate print lower than it otherwise would be.  Should the LFPR begin to rise, that would likely bring the headline Unemployment Rate higher absent a concurrent and substantial uptick in hiring.





Howard Penney

Managing Director


Rory Green


Bearish: SP500 Levels, Refreshed

POSITIONS: Long Healthcare (XLV), Shorting Industrials (XLI) and Basic Materials (XLB)


The process said Embrace Uncertainty at 1391 support into the employment event, so we did. Now the SP500’s immediate-term TRADE line of 1391 support is resistance and there’s plenty of risk to be managed.


Across all 3 of our core risk management durations, here are the lines that matter most: 

  1. Immediate-term TRADE resistance = 1391
  2. Immediate-term TRADE support = 1370
  3. Intermediate-term TREND support = 1359 

With Growth Slowing (absent another central plan that I have no edge on), I see no fundamental or quantitative risk management reason why mean reversion to the TREND zone of 1 doesn’t remain in play.


Remember, it was Qe3 itself on January 25thby Bernanke that provided the catalyst for oil price inflation to slow growth. So we don’t need to be begging for more of that. Deflating The Inflation, from a price (1359), should be better than bad.




Keith R. McCullough
Chief Executive Officer


Bearish: SP500 Levels, Refreshed - SPX

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Contradictory Forces

“Sometimes I am two people. Johnny is the nice one. Cash causes all the trouble. They fight.”
 -Johnny Cash   


Maybe an educated Ivy League man like myself shouldn’t admit it, but I’m a fan of Johnny Cash.    But to be fair, even if he isn’t representative of elite American culture, Cash probably represents the contradictions of American life as much as any entertainer of the 20thcentury.


On one hand, he was certainly well known for his sins and bouts with alcohol.  On the other hand, he was a devout Christian who served his religion in many positive ways.   Perhaps the most positive way was in his willingness to give free concerts inside prisons.  The most famous of which was his performance at Folsom Prison in California from which the namesake song Folsom Prison Blues was produced.


In many ways, the contradictory nature of a personality like Johnny Cash (incidentally that was his birth name) very much represents the nature of the current global economy and, as a derivative, the global equity markets.


In Europe the key upcoming catalysts on the political calendar are the elections.  The European elections also represent the current contradictory nature of popular sentiment in Europe.  France, in particular, typifies this notion.  In France, both the extreme left and the extreme right gained substantial ground in the first round of elections.  Ultimately, though, it does look like the extreme left, the Socialists, will prevail and that Francois Hollande will succeed Nicolas Sarkozy as the next President of France.


The outcome of this election is meaningful and, in particular, will influence relations between Germany and France, two of the key decision makers in the European Union.  As well, make no mistake about it, a shift to the left in Europe will have implications for European growth and equities.  This is a point highlighted in the Chart of the Day today and an issue to keep front and center related to your European exposure.  That is, even as French equities are broken on all of our durations, they are still well above the lows reached in December of 2011.


Even if the results of French elections appear certain to some, the Greek elections appear to be much less certain.   Due to Greek electoral laws, no polls have been published since April 20th, but the most recent information from our contacts on the ground in Europe suggests that a majority between Pasok and New Democracy is increasingly unlikely.  This potentially puts the bailout package at risk and implies that Greek elections may be called again as early as this fall.


In the United States, the key upcoming catalyst is the labor report which is out this morning.  It is likely no surprise that Hedgeye is expecting a number that is more bearish than the expected 160,000 additions to non-farm payrolls.  As I wrote in a note yesterday:

  1. Our Financials Team noted this morning that initial claims over the past few weeks have been coming in even worse than they would have suspected, even as last week’s claim, as reported this morning, fell 23K to 365K.                                                                                                                                                                              
  2. The recent Challenger job report appears to support our view that the job market may decelerate.  Specifically, planned job cuts increased by 7.1% from March to April and 11.2% on year-over-year basis.

As always though, trying to front-run government statistics is a fool’s errand; rather, you should just be ready to embrace the uncertainty that will result after the labor report this morning.

To that end, I wanted to highlight a couple of recent additions to the Hedgeye Virtual Portfolio on the global macro front:


1.   Shorted French equities via the etf EWQ on May 1st– Our track record shorting France has been solid over the last two years as we have made money all ten times that we have shorted French equities.  With the upcoming shift to the left in France’s economy, we obviously don’t think this time will be different.


2.   Bought the U.S. healthcare sector via the etf XLV on May 3rd– On a basic level, the U.S. economy obviously looks pretty compelling vis-à-vis Europe, but as well we think there are some interesting potentially positive drivers in the healthcare sector.  To that end, our healthcare team led by Tom Tobin is hosting a call on physician utilization next Friday.  I’d recommend contacting our sales team at to get access to the call.


3.   Bought Brazilian equities via the etf EWZ on May 3rd– Just when everyone thought Hedgeye was bearish on all things emerging markets, we are getting long of Brazil.  A key driver of this position is that we expect commodity prices to decline. As an example Brent oil is bearish on TRADE and TREND durations.  Declining commodity inflation is positive for emerging growth economies like China and Brazil.


One of my favorite Johnny Cash songs is The Highwaymen and in particular this excerpt:


“I was a sailor. I was born upon the tide
And with the sea I did abide.
I sailed a schooner round the Horn to Mexico
I went aloft and furled the mainsail in a blow
And when the yards broke off they said that I got killed
But I am living still.”


As it relates to being a stock market operator staying alive to trade another day is, figuratively, likely some of the best risk management you can heed.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Contradictory Forces - Chart of the Day


Contradictory Forces - Virtual Portfolio

The Best and Worst of Times

This note was originally published at 8am on April 20, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

-Charles Dickens


First of all, sorry for the long quote this morning.  I’m sure after reading some of my more eclectic quotes and missives this week, you are all awaiting Keith’s return with bated breath.  But as I was contemplating the stock market this week and the earnings results that were released, somehow Dickens’ quote from “A Tale of Two Cities” seemed appropriate.


The SP500 opened Monday up near 1,380 and closed yesterday at near 1,378.  So despite the sizeable swings mid-week, the broad equity market has done nothing all week.  It seems Mr. Market, just like the Dickens’ quote, can’t decide:  Is growth slowing? Or is growth accelerating? Is Europe out of the woods? Or is sovereign risk accelerating in Europe?  Is China going to ease more? Or is inflation more of risk than growth in China?


We’ve been somewhat definitive on our views that we believe global growth is slowing sequentially, but the market hasn’t totally come around to accept the Hedgeye views just as of yet.  (I guess we will have to get Keith on CNBC more next week to preach the gospel.)  On the growth front, an interesting data point we recently picked up was that traffic through the Suez Canal was only up 1.2% for the month of February year-over-year basis and has been in steady decline for really the last year.  In the Chart of the Day, we show this trend and have combined it with a couple pictures of Hedgeye friend and former NHLer Jeff Hamilton.  As the pictures show, life as a pro hockey player is sometimes good and sometimes bad as well.


Obviously this is but one data point, but this is literally the worst month of traffic through the Suez Canal since the end of the most recent global recession.  As well, the Suez is far from an insignificant indicator.  It is estimated that in total almost 8% of the world’s sea trade is transported through the Suez Canal.  So, this is a data point worth writing in the notebook.


Just as with the continued angst over the direction of global growth, there remains debate over the direction of Europe from a debt perspective.  Some, like Bank of America, are ready to call a bottom in Europeans debt woes as indicated by B of A’s positive call on European Banks this morning.   The actual sovereign market itself, as manipulated as it is, begs to differ though, as Spanish yields on 10-year government bonds are back above 6.0% this morning.


My brothers up in Canada are even getting into the European mix this morning.  Canadian Finance Minister Jim Flaherty came out publically yesterday to propose that non-European nations should have a collective veto when European nations come to the IMF to ask for aid.  Obviously, Flaherty sees what we see, which is that the likelihood of a Socialist getting elected in France means that “the ask” from Europe could soon get a lot bigger.


As well, you can’t really blame Canada (pun intended) for pushing back on continued carte blanche aid to Europe.  In 1993, Canada’s fiscal house was in terrible order and Standard & Poor’s rightfully downgraded Canada debt.  The Canadians then righted the fiscal ship the hard way by implementing a consumption tax and making tough budget cuts, by some estimates almost 20% across the board.  As Canadian Finance Minister Paul Martin said at the time, “Let there be no doubt about that. We will balance the books.”  There are some other nations that could use some of that Canadian fiscal resolve.  (Incidentally, we like the Loonie on the long side over the long term in part due to this.)


As usual during earnings season, we are going to have a note up on our website later today that discusses our view of the broad energy sector this earnings season.  One quote from the note is worth sharing this morning, which is as follows:


“The macro backdrop for the quarter is muddled – Brent crude averaged $118.70/bbl in the quarter, +13% YoY and +9% QoQ; NYMEX natural gas averaged $2.50/Mcf, -40% YoY and -28% QoQ; rig count growth slowed in North America to +12% YoY (vs. +19% YoY in 4Q11); and worldwide rig count growth slowed to +9% YoY (vs. +15% YoY in 4Q11).  Our proprietary US oil and gas inflation index shows that costs for producers were +8.1% YoY in 1Q12, the lowest level of inflation since 4Q10.”


To say that the energy pictures is currently muddled is definitely the Hedgeye understatement of the week, but the key fact I would point out is that natural gas is down 40% y-o-y and oil is up 13% y-o-y.  Thematically, those companies that use natural gas as an input, like certain industrial and chemical companies, are receiving the input cost boon of a life time. 

Meanwhile, any company that competes with the price of gasoline for the consumer’s wallet is certainly feeling the pinch.


The immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), Euro/USD, and the SP500 are now $1633-1654, $116.71-119.34, $79.25-79.65, $81.12-82.67, $1.30-1.32, and 1356-1395, respectively.


Enjoy the weekend with your families,


Daryl G. Jones

Director of Research


The Best and Worst of Times - Chart of the Day


The Best and Worst of Times - Virtual Portfolio


TODAY’S S&P 500 SET-UP – May 4, 2012

As we look at today’s set up for the S&P 500, the range is 50 points or -1.91% downside to 1365 and 1.68% upside to 1415.   












  • ADVANCE/DECLINE LINE: on 5/03 NYSE -1194
    • Down from the prior day’s trading of -377
  • VOLUME: on 5/03 NYSE 844.17
    • Increase versus prior day’s trading of 8.20%
  • VIX:  as of 5/03 was at 17.56
    • Increase versus most recent day’s trading of 4.03%
    • Year-to-date decrease of -24.96%
  • SPX PUT/CALL RATIO: as of 05/03 closed at 1.57
    • Down from the day prior at 2.69 


  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.08%
  • 10-Year: as of this morning 1.93
    • Unchanged from prior day’s trading
  • YIELD CURVE: as of this morning 1.67
    • Unchanged from prior day’s trading 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Nonfarm Payrolls, Apr., est. 160k (prior 120k)
  • 8:30am: Unemployment Rate, Apr., est. 8.2% (prior 8.2%)
  • 11:25am: Fed’s Williams keynote speech to California Bankers Association convention in Dana Point, CA
  • 11:30am: Fed’s Evans moderates panel on economic stability
  • 1pm: Baker Hughes rig count 


    • President Obama speaks to high school students in Va., 11:50am
    • House, Senate not in session
    • CFTC holds closed meeting on enforcement matters, 10am
    • CFPB Chief of Staff Meredith Fuchs discusses financial crisis at Forum for Sustainable and Responsible Investment, 11:05am
    • Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton are in Beijing, attending U.S.-China Strategic and Economic Dialogue
    • U.S. Intellectual Property Enforcement Coordinator Victor Espinel speaks at Intl. Anti-Counterfeiting Coalition event, 9am
    • Postal Service board of governors meets on finances, 8:30am


  • U.S. payrolls may have risen 160k in April as jobless rate remained 8.2%, according to economist ests.
  • Warren Buffett’s Berkshire Hathaway reports first-quarter earnings after the close of trading
  • Facebook said to meet today with its underwriters in New York to discuss planned IPO
  • Goldman Sachs, an AMR bondholder, said to be among creditors being lobbied by US Airways to back possible takeover bid
  • Yahoo! will review educational record of CEO Scott Thompson after investor Third Point, fighting for representation on company board, highlighted inaccuracy in his credentials
  • Wal-Mart’s board sued by California pension fund over mishandling of allegations co. bribed Mexican officials
  • Goldman Sachs said to plan starting electronic trading system for corporate bonds this month as bank adapts to regulatory changes, competition
  • RBS says it will pay back the last of its emergency aid from the U.K. government
  • Las Vegas Sands’s Singapore unit, Marina Bay Sands, said to have attracted Sumitomo Mitsui Banking, and about 10 other lenders to its S$4.6b loan to refinance debt
  • Data breach at Global Payments that may have exposed accounts to fraud may have affected at least 7m card accounts, exceeding earlier estimates: WSJ
  • CME Group requested and received 90-day extension for implementing margin changes for members announced May 2; rule will be enforced on Aug. 5
  • Juror in Oracle’s copyright-infringement trial against Google asked judge for guidance about not being able to reach unanimous verdict, raising possibility panel is deadlocked
  • BofA said to have held talks with lawyers for more than 1,000 former Merrill Lynch brokers, may lead to settlement costing hundreds of millions of dollars: WSJ
  • U.S. Air Force plans to restart competition on biggest defense contract, valued at as much as $6.9b, announced April 16 following protests from a dozen losing bidders
  • U.S. officials Hillary Clinton and Tim Geithner meet with Chinese leaders in Beijing
  • French Election, Chinese Trade, Buffett: Week Ahead May 5-12 


    • AES (AES) 6am, $0.27
    • AON (AON) 6:30am, $0.83
    • Buckeye Partners (BPL) 6:30am, $0.74
    • Spectra Energy (SE) 6:30am, $0.52
    • Sirona Dental Systems (SIRO) 6:30am, $0.69
    • PPL (PPL) 6:58am, $0.69
    • Brookfield Office Properties (BPO CN) 7am, $0.25
    • Church & Dwight Co (CHD) 7am, $0.61
    • Duke Energy (DUK) 7am, $0.36
    • ITT (ITT) 7am, $0.32
    • Pepco Holdings (POM) 7am, $0.24
    • Telephone & Data Systems (TDS) 7:02am, $0.36
    • Estee Lauder (EL) 7:30am, $0.34
    • Ameren (AEE) 7:54am, $0.24
    • Clear Channel Outdoor Holdings (CCO) 8am, $(0.08)
    • Exelon (EXC) 8am, $0.79
    • Madison Square Garden Co (MSG) 8am, $0.18
    • Spectra Energy Partners (SEP) 8am, $0.47
    • United States Cellular (USM) 8:01am, $0.43
    • Berkshire Hathaway (BRK/A) 5:15pm, $1,780  



OIL – we’ve been signaling this highly correlated immediate-term relationship between the US Dollar Index and oil prices for the last few weeks and our intermediate-term TREND lines for Brent ($119.17) and WTIC ($103.94) breaking have proven to be catalytic. Oil moves to bearish TRADE and TREND. That’s very new; bullish, on the margin, for US Consumption Growth. 

  • Soy Traders Most Bullish in Seven Weeks on Drought: Commodities
  • Oil Falls to 3-Week Low Before U.S. Jobs Data, Europe Elections
  • Gold Falls in London on Speculation Jobs Data Will Curb Demand
  • LME’s Abbott Predicts Multiple Takeover Offers as Deadline Looms
  • Copper Seen Falling on Concern About Strength of U.S. Employment
  • Soybeans Gain, Trimming Weekly Loss, as U.S. Export Sales Climb
  • Sugar Gains as Lower Prices Seen Spurring Demand; Coffee Rises
  • Copper Dominant Holding Is ‘Adding Fuel to Fire,’ Galena Says
  • Iran May Lose 9.5% of Oil Contracts as Asian Buyers Cut Imports
  • United Energy in Talks to Buy Canadian Producer for $1 Billion
  • India’s Quest for Coal Stalls as Red Tape Kills Mining Takeovers
  • CME Gets 90-Day Extension to Implement Member Margin Changes
  • Barclays Capital Commodities Head Roger Jones Said to Quit Bank
  • Soybean Traders Most Bullish Since March
  • Rice Prices Seen Under ‘Pressure’ on Ample Supply, FAO Says
  • Hedge-Fund Millionaire Diggle Targets $150 Million for Farm Fund
  • Coal at 18-Month Low Seen Lacking China Boost: Energy Markets










RUSSIA – the problem, of course, is that whats good for the US Dollar and the American Consumer is actually quite bad in the very short term for stock markets levered to Commodities (including, to a degree, the SP500 and Russell2000). Russia’s RTSI is the poster child of Petro-Dollar equity beta. Dollar stops going down and Russian stocks -13% since mid March.






CHINA – both the American and Chinese people have one very big thing in common – we like down oil prices. Chinese stocks (which we are long) love Deflating The Inflation. Shanghai Composite up for 3 consecutive days (w/ SP500 down 3 of last 4) to +11.5% YTD. There’s always a bull market somewhere!










The Hedgeye Macro Team


Early Look

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