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Employment data released this morning by the Bureau of Labor Statistics was mixed for the restaurant industry. Employment by age indicated that employment growth data continue to bode favorably for the quick service sector.  Food service industry hiring growth, however, is showing signs of rolling over.  A second sequential monthly decline in Leisure & Hospitality jobs in May is an important takeaway.


Employment by Age


As the chart below shows, all of the age cohorts we track showed positive growth in employment during the month of May.  Additionally, with the exception of the 25-34 YOA cohort, all of the data points registered sequential acceleration in the rate of employment growth from April to May.  Continuing strength in employment growth for the 20-24 YOA cohort is a positive for QSR.  We have favored quick service over casual dining for some time and, while that view is becoming more consensus, we still have more confidence in our favorite QSR names like JACK and SBUX than we do in our favorite casual dining names with the negative economic headwinds more likely to impact the more discretionary side of the restaurant industry.





Industry Hiring


As implied by the Leisure & Hospitality employment data, which leads the specific food service data by one month, April saw year-over-year employment growth in the limited and full-service restaurant sectors slow sequentially.  The Leisure & Hospitality data for May implies flat-to-slightly up on a sequential basis for employment growth in the food service sector. However, May also saw the Leisure & Hospitality industry lose 9k jobs versus April.  This second successive month of job losses in the industry is a departure from the 20-40k job additions we saw from September through March.  In fact, this is the first time we have seen two consecutive months of job losses in Leisure & Hospitality since January 2010.







Howard Penney

Managing Director


Rory Green




It's Done

This note was originally published at 8am on May 18, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I never see what has been done; I only see what remains to be done.”



I’ll have to differ with Buddha on the first part of that thought this morning. I can definitely see what has been done out there. After a -8.1% swan dive in the SP500 (-10.9% in the Russell) and a +71% rip in the VIX since the perma-bull March top, It’s Done.


Done. As in way oversold in the immediate-term done.


Back to the Global Macro Grind


We understand, fundamentally, why Asian, European, and US stocks have been going down since February-March. We understand, mathematically, why Commodity prices (and the Equities that track them) have been annihilated.

  1. #GrowthSlowing
  2. #DeflatingTheInflation
  3. #BernankeBubbles

Instead of banging your head against the wall trying to trade Facebook this morning, call up those hash tags on Twitter, and you’ll see that we’ve been leading on these topics for at least 3 months.


Way too many people confused Ben Bernanke’s January 25thPolicy To Inflate (commodities and stocks) as growth. Short-term pops in asset price inflation is not growth. It’s precisely that food and energy price inflation that perpetuated Growth Slowing.


If you get the Slope of Growth right, you’ll get a lot of other things right. If you get the slope (sequential direction) of both Growth and the US Dollar right, at the same time, you’re done.


Done as in, done selling high – going to Cash, done.


You can have the best bottom-up “ideas” in the world, but when The Correlation Risk goes to 1.0, that’s when almost everything you are long is done too. Done, as in the bad kind of done.


As of last night’s closing prices, here’s the immediate-term TRADE correlation between the big stuff and the US Dollar Index:

  1. SP500 = -0.98
  2. Euro Stoxx600 Index = -0.99
  3. CRB Commodities Index = -0.94

There is no “de-coupling.” There is no risk management in the broken sources who have led you over these cliffs in Q1 2008, 2010, 2011 … and now, again in 2012, either. “Again!” (Herb Brooks)


How many times do we have to allow our profession’s consensus brain-trust miss plainly obvious forecasts of rain while the macro data was soaking wet?


The short answer is that they are done too. The People don’t trust the Old Wall anymore. And they shouldn’t. It’s going to take a long time before we, as a profession, earn The People’s trust (and inflows into Equities) back.


On a cheerier note, this morning I’ll open with our lowest Cash (64%) and highest Equity (36%) positions in the Hedgeye Asset Allocation Model since January (over the course of the Growth Slowing cycle, we’ve moved from 0% US Equities to 24%, and maintained a 0% allocation to Commodities).


To be crystal clear on duration, I’m playing this for the bounce. When markets are viciously oversold like this on our immediate-term TRADE duration, that’s just what we do. It’s no different than when I was shorting the SP500 in March-April at immediate-term TRADE overbought signals. We aren’t perma anything. Risk works both ways. The risk now is to the upside.


Looking at immediate-term ranges in the LONG positions in the Hedgeye Portfolio, here’s where I stand in terms of immediate-term upside/downside in all 14 of our current positions:

  1. SP500 (SPY) = 1303-1344
  2. Consumer Discretionary (XLY) = $42.29-43.74
  3. US Healthcare (XLV) = $36.32-37.07
  4. Apple (AAPL) = $528-560
  5. China (CAF) = $19.41-20.44
  6. Brazil (EWZ) = 50.77-55.34
  7. Melco (MPEL) = 11.84-13.33
  8. Nike (NKE) = $104.14-107.79
  9. Lifepoint (LPNT) = $34.93-36.66
  10. Hologic (HOLX) = 16.81-17.71
  11. HCA Holdgings (HCA) = $25.21-26.19
  12. Urban Outfitters (URBN) = $25.46-27.26
  13. Liz Claiborne (FNP) = 11.78-13.11
  14. Starbucks (SBUX) = 51.63-56.14

It’s Done. I bought a handful of these positions in the last 2-days. #TimeStamped like any position you have taken. I don’t run from them at the lows. I buy them on red. All the while I’m trying to understand each and every factor of each position with my Research Team so that we can handicap the probability of where prices move within our ranges, across durations.


These ranges are immediate-term TRADE durations. From an intermediate-term (TREND) to long-term (TAIL) perspective, our models generate wider ranges of risk.


Generating good “ideas” is what every good research team in this business should be doing – both long and short. But having great performance on those ideas is highly dependent on getting the timing right. You’ll need a repeatable risk management process for that.


Our Research Team, led by our Director of Research, Daryl Jones, has just published their work on Facebook. If you’d like a copy, please email sales@Hedgeye.com. We won’t have a risk managed view of the stock until it opens and starts giving us price, volume, and volatility data.


Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1521-1628, $106.78-111.52, $80.49-81.84, $1.26-1.28, and 1303-1344, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


It's Done - Chart of the Day


It's Done - Virtual Portfolio



TODAY’S S&P 500 SET-UP – June 1, 2012

As we look at today’s set up for the S&P 500, the range is 21 points or -1.25% downside to 1294 and 0.36% upside to 1315. 












    • Up from the prior day’s trading of -2264
  • VOLUME: on 5/31 NYSE 1327.72
    • Increase versus prior day’s trading of 72.73%
  • VIX:  as of 5/31 was at 24.06
    • Decrease versus most recent day’s trading of -0.33%%
    • Year-to-date increase of 2.82%
  • SPX PUT/CALL RATIO: as of 05/31 closed at 1.74
    • Down from the day prior at 2.35 


#GrowthSlowing – pick your high-frequency data pt this week from the bomb of Pending US Home Sales (-5.5% Apr) to yesterday’s US PMI of 52 (down -7.4% vs last month) to South Korean exports being negative in May (3rd consecutive month of y/y declines) to UK PMI of 45.9 in May (vs 50.5 in April); the concept of “de-coupling” is as dead as Keynes in 2012. 

  • TED SPREAD: as of this morning 40
  • 3-MONTH T-BILL YIELD: as of this morning 0.06%
  • 10-Year: as of this morning 1.53
    • Decrease from prior day’s trading at 1.56
  • YIELD CURVE: as of this morning 1.28
    • Down from prior day’s trading at 1.30 

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Nonfarm Payrolls, May, est. 150k (prior 115k)
  • 8:30am: Unemployment Rate, May, est. 8.1% (prior 8.1%)
  • 8:30am: Avg Hourly Earning (M/m), May, est. 0.2% (prior 0.0%)
  • 8:30am: Avg Weekly Hours, May, est. 34.5 (prior 34.5)
  • 8:30am: Personal Income, Apr., est. 0.3% (prior 0.4%)
  • 8:30am: Personal Spending, Apr., est. 0.3% (prior 0.3%)
  • 8:30am: PCE Core (M/m), Apr., est. 0.2% (prior 0.2%)
  • 8:58am: Markit US PMI (final), May, (prior 53.9)
  • 10am: ISM Manufacturing, May, est. 53.8 (prior 54.8)
  • 10am: ISM Prices Paid, May, est. 57 (prior 61)
  • 10am: Construction Spending (M/m), Apr., est. 0.4% (prior 0.1%)
  • 1pm: Baker Hughes rig count 


    • Senate not in session, House meets at 9am
    • Former Fla. Gov. Jeb Bush testifies at House Budget hearing
    • House Financial Svcs. panel holds hearing on cyber threats to capital markets, corporate accounts, 9:30am


  • Payrolls in U.S. probably picked up from smallest gain in 6m
  • Toyota, Honda may post biggest rises in monthly auto sales
  • Euro-area unemployment reaches record 11% led by Spain, Italy
  • China manufacturing expands at weakest pace since Dec.
  • Disney names ex-Warner executive as film operation chairman
  • Wal-Mart holds its annual meeting today
  • ASCO conference this weekend; watch for data on J&J’s Zytiga
  • Goldman CEO Blankfein to be witness at Gupta’s trial, U.S. says
  • BP to pursue sale of $20b stake in Russian producer TNK-BP
  • Thomas H. Lee Partners said to be in lead to buy Party City
  • Acer, Toshiba said to unveil Windows 8 tablets to challenge IPad
  • German note yield drops below zero for first time
  • Liberty tells regulators it wants control of Sirius XM radio
  • Google loses court case to dismiss claims over digital books
  • Bernanke, China Inflation, Diamond Jubilee: Week Ahead June 2-9 


    • No major earnings reports scheduled for today 



Bernanke’s Bubbles – this remains our short Commodities (long Dollar) call for Q2; oil is capitulating to immediate-term TRADE oversold this morning ($84.68 WTIC), but oil is also crashing (down -23% from the Feb high). There are plenty of large exposures to Oil, Gold, etc in the asset management community to be very aware of here. 

  • Mittal’s Price Squeezed in $960 Billion Steelmaking: Commodities
  • Brent Oil Falls Below $100 a Barrel for First Time Since October
  • Gold Falls in London as Stronger Dollar Curbs Investor Demand
  • Copper Falls Amid Signs European Crisis Is Hurting Economies
  • Commodities Drop to Lowest Level Since October on China, Europe
  • Copper Bears Rise to Eight-Month High as Hedge Funds Bet on Drop
  • Commodity Revenues at Top Banks Decline as Volatility Drops
  • BP to Pursue Sale of TNK-BP Shares as Billionaire Partners Bid
  • China’s Lead-Battery Exports May Fall as Output Capacity Cut
  • Palm Oil Slumps to Five-Month Low as Chinese Demand Set to Fall
  • LME Said to Get Assurance From Bidders on Keeping U.K. Base
  • Barry Callebaut Says Cocoa Bean Processing May Decline in Europe
  • Corn Futures to Extend Slump to 20-Month Low: Technical Analysis
  • Commodities Extend Fall on China Slowdown
  • China May Resume Nuclear Plant Approvals as Cabinet Passes Plan
  • Rubber Falls to Six-Month Low as China’s Output Decelerates
  • Thailand, Indonesia Agree Steps Needed to Halt Rubber Decline 















CHINA – we sold our China long position last month because our research was signaling an immediate-term acceleration in China’s growth slowing pattern; this morning’s PMI of 50.4 (vs 53.3 in April) confirms that – all of Asia was weak (has been since Feb/Mar), and consensus is now forced to agree.










The Hedgeye Macro Team

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Loss Aversion

“The concept of loss aversion is certainly the most significant contribution of psychology to behavioral economics.”

-Daniel Kahneman


If you got the US Dollar and Growth Slowing right, you got a lot of other things right in the month of May. With the US Dollar Index +5.5% for the month, mostly everything stocks and commodities deflated, big time. We call that Deflating The Inflation.


Gains on the short side were bountiful, but how do you deal with the losses? What institutional pressures, if any, do you feel? If you are no longer institutionalized, do institutional performance pressures affect how your positions move?


No matter where you go in this profession, these are behavioral questions that an over-supplied industry still needs to answer. It may not be what every strategist is allowed to write about, but it’s what all of our clients talk to me about. As Kahneman astutely summarizes in Chapter 28 of Thinking, Fast and Slow, “Still, threats are privileged above opportunities, as they should be.”


Back to the Global Macro Grind


Just because you need a certain return on your invested capital doesn’t mean Mr. Market owes you one. If I can tell you at 14-15 VIX that Growth Slowing is your research call (VIX YTD low = 14.26 on March 26th), that’s a huge opportunity to manage your risk.


Notwithstanding that it’s been glaringly obvious that all of Asia and Europe have been slowing since February-March (the data doesn’t lie; perma-bull economists do), here’s what the US Growth Slowing data looked like:

  1. US GDP: Q1 slows to 1.88% (versus 2.97% in Q4)
  2. US Fixed Investment Growth: Q1 slows to 0.61% (versus 0.78% in Q4)
  3. US Final Retail Sales Growth: Q1 accelerates to 1.67% (versus 1.16% in Q4)

Accelerates? Oh, right – we have to take the inflation from the gas pumps, groceries, etc. out of the Final Retail Sales acceleration. That’s called the GDP Deflator. That matters, primarily because you have to subtract the Deflator from US GDP:

  1. Q4 2011 US GDP Deflator = 0.84%
  2. Q1 2012 US GDP Deflator = 1.65%

In other words, inflation (using the Government’s conflicted calculation of it) doubled, sequentially, in Q1 versus Q4, and that’s why real growth (inflation adjusted) slowed.


This is why we are so focused on getting the US Dollar right. Get that right and you’ll get growth’s slope right. Gas is priced in Dollars. Therefore, when Ben Bernanke arbitrarily opted to devalue the US Dollar on January 25th, 2012, oil, gold, etc. ripped to their final February crescendos … and that, in turn, slowed real (inflation adjusted) US Consumption Growth.


It also freaked out fixed investments made by people like me who run small to medium sized businesses in this country. Growth Slowing is what Soros would call reflexive. It feeds on itself, erodes confidence, and slows the pace of hiring.


It also slows the pace of asset price appreciation. Stocks, Commodities, and Bonds are leading indicators – they get it:

  1. US Stocks = SP500 was down -6.2% in May and the Russell 2000 is down -10% since peaking on March 26th
  2. Commodities (CRB Index, 19 commodities) = down -16.2% since topping in late February
  3. Bonds (US Treasuries) = 10-year bond yields are down -35.9% from their March 2012 lower long-term high

I don’t need to take a “survey” or ask a company like CAT’s CFO for a look on Growth Slowing. Been there, tried doing both – it doesn’t work. Markets are a lot smarter than both of those qualitative narratives. These are lessons we all should have learned and incorporated into our risk management and research process since 2008.


Where do we go from here?


I don’t know.


I Embrace Uncertainty each and every risk management morning. I take the economic data as issued. And I work with my team on probability weighting what the new price (markets) and fundamental (economic) data means in our models.


Today’s data was not good. China’s PMI (50.4 in May vs 53.3 in April) showed a re-acceleration of Growth Slowing on the downside. South Korea printed its 3rd consecutive y/y decline in Exports (another May number) and in the US, yesterday’s PMI print for May of 52 (a 7.4% decline versus April), was nasty. So are June 1 declines in stock and commodity market prices.


No one likes losing. I think it was Billy Beane in Moneyball who said “I hate losing more than I like winning.” And when it comes to dealing with Loss Aversion, I think your clients probably think about it that way too.


My immediate-term support and resistance ranges for Gold, Oil (WTIC), US Dollar, EUR/USD, and the SP500 are now $1, $84.92-90.14, $82.24-83.51, $1.22-1.25, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Loss Aversion - Chart of the Day


Loss Aversion - Virtual Portfolio


The Macau Metro Monitor, June 1, 2012




Macau gross gaming revenues rose 7.3% YoY to MOP26.078 billion (HKD 25.32 billion, USD 3.26 billion). 



Sands China Ltd withdrew its judicial appeal to get parcels 7 and 8 on Cotai.  On December 2010, the Macau government rejected a land concession application by Sands China for Cotai lots 7 and 8.  On January 2011, the company filed a judicial appeal with the Court of Second Instance.


In its 2011 annual report, the company said that it would record a charge for all or some portion of the US$101.1 million in capitalized construction costs as of December 31, 2011 should the company not get the land rights or receive a full reimbursement of its capitalized investment in the project.


Sands China CEO Ed Tracy said in a statement Friday the company is focused on opening the next phase of Sands Cotai Central this fall and "accelerating" the development of Parcel 3, "bringing it to the market as quickly as possible."



According to China Real Estate Index System (CREIS), average housing prices in 100 major Chinese cities fell by a slower pace MoM in May, slipping 0.31% from April to 8,684 Yuan $ a square meter.  April prices fell 0.34% MoM.  It was the first instance of a narrower decline, after four months of accelerating losses.  On a YoY basis, May fell 1.53%, compared with April's -0.71%.  

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