We have long viewed Brinker as our favorite casual dining company and, heading into the core of earnings season, we maintain that view. Our bearish view on casual dining, as a category, is intact, but Brinker remains the most compelling long at a price.


Here are some thoughts pertaining to Brinker:

  • Two casual dining companies have reported 4Q12 earnings thus far, BJRI and RT, reporting company comparable restaurant sales growth of 3% and 0.3%, respectively
  • The bulk of the BJRI stores are located in the Western region of the US, while RT is a East/South East-centric brand.  RT, a poorly managed concept, in our view, managed to eke out positive comps
  • Chili’s could produce 2% same-restaurant sales growth in 2QFY13 versus consensus of 1.6%.  Momentum continues at Chili’s, thanks to kitchen enhancements and remodels.  Channel checks and the early read in the competitive set suggest that the negative tone set on the last earnings call could have been overdone
  • Comparisons remain very difficult for the entire industry until March 2013
  • ICR should offer incremental data points to allow investors a broader idea of how the industry has been performing

EAT: CREAM SHOULD RISE TO THE TOP - chilis vs bjri comps


EAT: CREAM SHOULD RISE TO THE TOP - black box casual dining comps traffic





Howard Penney

Managing Director


Rory Green

Senior Analyst




Reaping The Benefits

Client Talking Points

Moving On Up

The S&P 500 hit a 5-year high yesterday, signaling that #GrowthStabilizing is here to stay. Equities ripped higher all week and the Russell 2000 hit a new all-time high; suffice to say, the market is looking a little overbought here. It’s a time to book gains and take down your exposure to equities. It’s important to follow the risk and the range of whatever you’re trading. Volumes are up in the market and fund flows are up as the institutional crowd becomes awash with new capital to put to work. As far as sectors go, financials (XLF) are leading the charge and are already up +4.6% year-to-date. 

Da Bears

There is a type of trader/investor that exists who is always keen to short everything, all the time and will never take “no” for an answer. This is the Permabear. And the Permabears that have been shorting the market over and over for the last month repeatedly, only to get their head chewed off need to reevaluate their game plan. The economic data that we’ve seen lately has been excellent, indicating that growth is indeed stabilizing, not slowing, and things are getting better. The Permabear is no fan of this but sometimes, you need to go with the flow no matter what your trading style is, rather than go against it.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.


ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.


Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road


“@FXAlgo @NicTrades Sell Side recommendations: 'would you jump off this bridge for us? thanks!!!'” -volatilitysmile


"Ninety-eight percent of the adults in this country are decent, hard-working, honest Americans. It's the other lousy two percent that get all the publicity. But then--we elected them.” -Lily Tomlin


Wells Fargo (WFC) Q412 profit jumps 24% to record high.


TODAY’S S&P 500 SET-UP – January 11, 2013

As we look at today's setup for the S&P 500, the range is 42 points or 1.37% downside to 1452 and 1.49% upside to 1494.    















  • YIELD CURVE: 1.64 from 1.65
  • VIX closed at 13.49 1 day percent change of -2.32%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Import price index, Dec., M/m est. 0.1% (prior -0.9%)
  • 8:30am: Trade balance, Nov., est. -$41.3b (prior -$42.2b)
  • 9:30am: Fed’s Plosser speaks on economic outlook in N.J.
  • 11am: Fed to buy $4.75b-$5.75b in 2017-2018 sector
  • 12pm: Jan. WASDE report
  • 1pm: Monthly budget statement, Dec., est. -$1b (prior -$86b)


    • House, Senate not in session
    • Deadline for FERC to respond to Deutsche Bank’s rejection of $1.6m in penalties
    • CFTC holds closed meeting on enforcement matters, 10am
    • Medicare Payment Advisory Commission meets on long-term care hospital services, competition in Part D, 8:30am
    • ITC Judge Thomas Pender may release findings in patent-infringement case by Dover unit against Analog Devices over microphones in digital devices


  • Best Buy possible holiday sales drop may hurt Schulze buyout bid
  • Trade gap in U.S. probably narrowed as fuel costs declined
  • China’s inflation accelerates as chill boosts food prices
  • Japan’s Abe unveils $116b stimulus package to boost growth
  • American Express to cut 5,400 jobs, take $287m charge
  • Boeing Dreamliner system said to be focus of FAA inquiry
  • Cyprus facing world’s biggest bank bailout as Moody’s cuts 3 steps
  • U.S. mortgage overhaul under way with borrower scrutiny measure
  • Apple CEO Cook says China will overtake U.S. as biggest mkt
  • Bats blaming market rules for mishaps as calls for overhaul grow
  • Kocherlakota says Fed policy not easy enough with low inflation
  • Citigroup joins Goldman in starting electronic bond-trade system
  • Slim’s Sanborns said to seek $1b in share offer
  • Li & Fung sees 2012 operating profit down 40% on U.S. costs
  • Ex-hedge-fund manager Hochfeld pleads guilty to securities fraud
  • Number of Euribor maturities must be halved, EU regulators say
  • MF Global creditors file liquidation plan following settlements
  • Ford plans 2,200 salaried hires in biggest increase since 2001
  • U.S. Retail Sales, China GDP, Goldman: Wk Ahead Jan. 12-19


    • Wells Fargo (WFC) 8am, $0.90 - Preview




COMMODITIES – CRB Commodities Index has reflexive components (Oil and Copper don’t like the China down move because commodity bulls still think long commodity inflation is a demand story – we think it’s a money and physical commodity supply one); Copper down -0.8% here and Gold just failed at $1678 resistance again; we re-shorted Gold on green yest.

  • Brent Oil Set for First Weekly Drop in Three on China Inflation
  • Wheat Trade More Bullish Even as Bear Market Begins: Commodities
  • Copper Falls as Inflation Fuels Concern China May Curb Stimulus
  • Gold Falls as Strengthening Dollar Encourages Investors to Sell
  • Soybeans Slide a Fourth Day as Report Might Ease Supply Concern
  • Indonesia May Cut Palm Oil Tax to Zero to Counter Malaysia
  • Iron Ore at 15-Month High Deters Restocking at China Mills
  • Texas Energy Boom Fuels Best Performance Since ’09: Muni Credit
  • Thai Sugar Output Seen by Macquarie 12% Down on Dry Weather
  • Morgan Stanley Names Tan Head of Asia Commodities in Singapore
  • U.S. LNG Profit Seen Elusive as Price Gap Closes: Energy Markets
  • China May Increase Gold Holdings in Reserves, Researcher Says
  • Chavez’s Food Shortages Bigger Worry Than Venezuela Constitution
  • Rebar Tumbles Most Since November as China’s Inflation Quickens




FX – USD looks to keep making a series of long-term higher-lows as Commodities (CRB Index) makes a series of long-term lower-highs. The Yen, meanwhile, is a flaming ball of fire (Japan introduced a 10.3 TRILLION Yen Keynesian “stimulus” spending package overnight – that’s about $116B in USD, but who is counting anymore).









CHINA – on the #growthstabilizing side they delivered a big Export print for DEC at +14.1% y/y (vs +2.9% last mth), but on the CPI front the number they made up didn’t deflate enough to keep the Shanghai Comp going higher (-1.8% overnight).








The Hedgeye Macro Team




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 80.46%
  • SHORT SIGNALS 78.35%

Sentiment Dogs Bite

“I have a feeling that the bark is worse than its bite.”

-Winston Churchill


That’s what Churchill said about Joseph Stalin in 1944.


For their part, Churchill and Roosevelt never entirely trusted Stalin… they weighed every decision against the possibility that Russia might quit the war, as the Bolsheviks had done in 1917.” (The Last Lion, pg 445).


While I don’t make market calls based on “feeling”, how people feel about markets matters. America’s historical risk management lesson with Russia feels very familiar. Now that the shorts have been squeezed, do I entirely trust being long stocks right now? Of course not.


Back to the Global Macro Grind


The SP500 and Russell2000 finally delivered the Canadian Bacon yesterday, making higher-highs versus their September 2012 and all-time closing highs, respectively.


With the Financials (XLF) leading the charge on the day (+1.3%) and already up +4.6% for the YTD (the SP500 is +3.2%), those who stayed short this market definitely feel more than a little barking out there – these newfound fund flows to equities are like dogs panting.


To review our recent bullish call on Global Equities, there are 3 big parts:

  1. Global #GrowthStabilizing as Hedge Fund Short Interest was rising (NOV-DEC)
  2. Treasury Bonds and Gold breaking down (NOV-JAN)
  3. Fund Flows shifting from bonds to equities (DEC-JAN)

Since Global Macro markets are reflexive, it’s been nice to see these 3 things happen in order:

  1. US Equity Short Interest peaked (sequentially) in the last week of November at 3.98%
  2. Gold stopped going up at another lower all-time high in the 3rd wk of November ($1753)
  3. Global Equity Fund flows just had one of their biggest weeks since 1992 (see Merrill data this morn)

That, of course, is bearish for Treasury Bonds (we are short TLT) – and why we re-shorted Gold (GLD) on green yesterday (see our #RealTimeAlerts product for intraday signaling if you can stand watching me day-trade).


So, with all of this new “news” becoming rear-view mirror events, you don’t want to be getting piggy here; you want to be booking some gains. Depending on how hot these Financials Earnings Reports are for Q412, you can determine how leisurely you can take your time. Wells Fargo (WFC) reports first this morning and the belly of the money-center banks will be out next week.


Why would you make some sales on green?

  1. Global #GrowthStabilizing won’t last forever (remember, Keynesian economic cycles are short and volatile)
  2. #EarningsSlowing will be more readily apparent in late January to early February (Financials as good as it gets)
  3. It’s just generally cool to sell high after you bought low

That last one-liner might annoy some people, but it was pretty annoying seeing people short every up move for the last month as the economic data was improving too.


It’s one thing to be bearish on government; it’s entirely another to be a perma-bear of all things, all of the time.


In an over-supplied industry (asset management), this is why getting the Behavioral side of the market right matters more than it has ever mattered before. Sentiment is a factor that you fade. But it’s also one of the toughest market factors to quantify.


I’m constantly trying to find new channels and data to quantify sentiment. Currently, my Top 3 Sentiment Checks are:

  1. My research team’s proprietary data
  2. My Institutional Client base (our team collaborates best data with theirs)
  3. My Twitter stream

That last one is the one that fascinates me the most. I have built a “contrarian stream” of market pundits that are getting really good at chiming in, almost like an orchestra, on market direction (intraday). They have been trying to sell every down-move to lower-highs since the Fiscal Cliff low of 1400 SPX in the last week of December. #wrong


More on that later. For now, it’s important to realize that Institutional Short Sellers (Short Interest as a % of the total float for stocks listed in the SP500), just dropped from 3.98% in the last week of November to 3.74% into the 1st week of January. At the same time, the Institutional Investor Bull/Bear Spread just went from +950 basis points wide (wk of Nov19) to +2,770 bps wide this week.


Sentiment is a dog to follow, and it bites.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $110.33-111.48, $3.64-3.75, $79.48-80.11, $1.30-1.32, $87.41-89.10, 1.86-1.96%, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Sentiment Dogs Bite - Chart of the Day


Sentiment Dogs Bite - Virtual Portfolio

Rye and Coke

This note was originally published at 8am on December 28, 2012 for Hedgeye subscribers.

“An intelligent man is sometimes forced to be drunk to spend time with his fools.”

-Ernest Hemingway


In my homeland of the vast plains of Alberta, the drink of choice for many is Rye Whiskey and Coke.  Now normally, I wouldn’t start the Early Look discussing beverages of choices, but given what has been going on in Washington, D.C. over the last few months, what choice do any of us really have but to have a few cocktails to make ourselves feel better? Or, to Hemingway’s point, to enable us to at least suffer this political foolishness.


Now on one hand, I do give President Obama some credit for leaving the golf links early and coming back to work.  In reality, though, does anyone really believe that a last minute meeting tonight with Congressional leaders is going to solve either the fiscal cliff or the coming debt ceiling violation?  Personally, I hate to be consensus on this, but I sure don’t.  Currently InTrade has the probability of the debt ceiling being raised before December 31st, 2012 at 17%.


The issue currently in Washington is that Democrats and Republicans don’t agree with each other.  Ok, that’s not really a new issue, but heading into the deadline of December 31st neither side is acting like they want to work together and get a deal done.  This excerpt from a news article quoting House Minority Whip Steny Hoyer about sums up how divisive things are in the nation’s capital:


“In a sign of just how charged and hyperbolic this year-end debate has become, House Minority Whip Steny H. Hoyer, D-Md., used an unfortunately timed comparison that likened Republicans trying to use the debt limit for leverage on spending cuts to people threatening to shoot their own children.


It is somewhat like taking your child hostage and saying to somebody else, ‘I’m going to shoot my child unless you do what I want done.’ You don’t want to shoot your child,” Hoyer said at a press conference following a brief 10-minute pro forma session for the House.”


Obviously the timing of this quip was bad on many levels, but the reality is that this is obviously no way to set the table for some sort of grand bargain in today’s meeting with President Obama and the Congressional leadership.


So unfortunately heading into 2013, I hate to report but it is likely that politicians and policy continue to inform much of our investment decision making.  That is not to say that everything is negative of course.  In fact, in the Chart of the Day today I’ve borrowed a chart from our Financials Sector Head on the recently released Case-Schiller Housing Price Index. As the chart shows, the last five months (ending with October 2012) have seen consistent year-over-year national home price increases.  In the last couple of Early Looks I’ve been beating this like a dead horse, but this is a real positive for the U.S. economy and consumer.


Unfortunately, a home price recovery will only get us so far as yesterday’s consumer confidence number tells us.   This reading for December came in at 65.1 versus the 70.0 that was expected and the 71.5 reading in November.  So it seems that the uncertainty relating to the fiscal outlook in the United States has likely had an impact, as expected, on consumer confidence.


Given that, the looming Longshoreman strike that looks likely to occur could not be happening at a more inopportune time.  This looming strike will impact 14 major East Coast and Gulf Coast ports. In aggregate, these ports move more than 100 million tones of goods every year, which is about 40% of the nation’s containerized cargo.  So even a shut down of a few days is likely to have a meaningful effect on the economy.


In cheerier news, it is starting to look like the bottoming process in China is taking place.  In terms of commodities, both rebar and iron ore have had very strong quarters of price appreciation.  On the back of this, the Shanghai composite was up more than 1% over night to close at its highest level since the summer.  Once again, this plays into our theme of global growth stabilizing.


In lieu of regularly scheduled macro call this morning, we are going to have our Financials, Industrials and Consumer Staples Sector Heads join the morning call and discuss their top ideas and themes heading into 2013 (if you are not subscribing to receive the morning call service, email for details on how to gain access).  Since I’m the Director of Research at Hedgeye, I’ll take some liberty and highlight what I think are each sector’s top idea long ideas. In my view, they are as follows:


1.   Financials – TCF Financial (ticker: TCB) is a play on housing which is improving, is growing both loans and deposits at a healthy clip, and has a CEO who is older than average which may make it ripe for a takeout.  On a reasonable multiple of price-to-tangible-book, we think the stock has 25% upside over the next twelve months.


2.   Industrials – Paccar (ticker: PCAR) has been one of our key names since launching Industrials coverage earlier this year.  A key tenet of the thesis is struggles at key competitor Navistar, which were reaffirmed to us this week (over the last year Navistar’s class 8 market share has been cut in half).


3.   Consumer Staples – Archer Daniels Midland (ticker: ADM) is a name that we highlighted in our Consumers Staples launch a few weeks back.  High corn price negatively impacted ADM in 2012, but an increase in corn plantings in 2013 should be a beneficial tailwind to ADM.  At just around 1.0x price-to-tangible-book, ADM is trading at a serious discount to its 1.2 average on this metric.


On a closing note, please enjoy the New Year with your friends and loved ones.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1636-1671, $109.42-111.48, $3.51-3.61, $79.21-79.99, $1.31-1.33, 1.70-1.78%, and 1408-1430, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Rye and Coke - Chart of the Day


Rye and Coke - Virtual Portfolio

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.