Keith added EAT to the long side of our Real Time Alerts this morning at $32.42.  Brinker is our favorite casual dining name and, despite the many headwinds facing the group, we believe that Chili’s will continue to take share versus its competitors.


We expect Chili’s to produce 2QFY13 same-restaurant sales in the region of 2%.  Kitchen enhancements and remodels at Chili’s continue to aid top-line momentum and lead, in our view, to an upside surprise versus the consensus estimate of 1.5% SRS.  It will be important for results to continue to demonstrate continuing progress on the restaurant operating margin line as the benefits of the remodel program continue to flow through. 


At 7.5x EV/EBITDA, the stock is being valued below the average casual dining stock at 7.7x.  As well as the attractive multiple, we believe that there is modest upside to the Street’s EPS estimate, which is currently at $2.32, to $2.38-2.40.


Brinker’s shares represent the best way to play casual dining on the long side, in our view, particularly if macroeconomic growth continues to stabilize.  However, competitive dynamics, including the impact of Darden’s explicit desire to sacrifice margin to gain traffic should not be ignored.  It's difficult to know how great an impact Darden's "price war" will have on Chili's - particularly Chili's newly remodeled stores - but given the recent declaration from Orlando, we would advise close monitoring of long positions in any casual dining shares.





Quantitative View


Our Macro Team’s quantitative view of the stock is that near-term TRADE resistance and support lie at $33.95 and $32.23, respectively.  Intermediate-term TREND support is at $31.56.


IDEA ALERT: BUYING EAT - brinker levels



Howard Penney

Managing Director


Rory Green

Senior Analyst



Multi-Year High In Real Earnings Growth

Takeaway: Real Earnings Growth Accelerated to a multi-year high in December. The Dollar - Inflation - Real Growth connection remains the one to watch.


The continued burn-off in USD-Equity correlations we saw yesterday with Dollar Up, Stocks Up, & Oil Down remains the bullish factor cocktail we’d like to see persist for us to successfully bridge the inflection gap between #growthstabilzing & real growth accelerating. 


The inverse relationship between USD appreciation and energy and commodity deflation remains pronounced across durations. Similarly, the inverse relationship between real earnings growth & commodity inflation over the last 5 years has been distinct – in addition to inflations’ direct drag on the calculation of real earnings growth, it’s likely that as input costs rise and/or real consumption growth slows, employer’s look towards managing the SWB line as a margin supportive offset. 


Below we show the trend in Real Earnings Growth (updated for this morning’s release) along with a long duration view of the relationship between Commodities Price Growth, the US Dollar, and  Real Earnings Growth (note that commodity prices are inverted in the charts).   The takeaway from the chart series below is really very simple with the data implying: 


USD Higher --> Energy/Commodities lower --> Real Earnings/Real Growth Higher


As simplistic as this Dollar based flow model is, it remains the outstanding, untried policy transmission mechanism most capable of catalyzing sustainable real growth both domestically & globally, in our view. 


The Real Earnings update for December showed Real Weekly Earnings growth accelerating to +0.6% - a new multi-year high and an obvious positive in the wake of the elimination of the 2% payroll tax holiday to start calendar 2013.  The USD remains bullish on TRADE & TAIL durations and, alongside an easy comp setup through mid-year, should support further positive growth in real earnings should the USD bid continue. 


Will legislators & policy makers make a genuine go at sustainable fiscal consolidation domestically, or even just stay out of the way?  Will the phase transition in Japanese monetary policy promised by Taro Aso et al. continue to provide a relative bid to the dollar?  We don’t know either -  but so long as prices continue to confirm and the Dollar Up, Stocks Up dynamic can perpetuate itself, the immediate term game plan on the equities side remains to buy the Dips.    


Christian B. Drake

Senior Analyst 



Multi-Year High In Real Earnings Growth - USD vs CRB


Multi-Year High In Real Earnings Growth - Real Weekly Earnings


Multi-Year High In Real Earnings Growth - Inflation vs Real Earnings


Multi-Year High In Real Earnings Growth - Gas Price vs Real Earnings



Apple Picking

Takeaway: Here’s a look at our recent trading signals around Apple stock. $AAPL

Below is an excerpt of a note published to our institutional clients earlier this morning. It provides insight into how we trade Apple stock.


We bought Apple (AAPL) at immediate-term TRADE oversold yesterday.


That doesn’t mean we love Apple (AAPL) long-term here (see chart). It just means what it means – we are at war with consensus and our quantitative process was signaling immediate-term exhaustion on the sell side of a stock that we risk manage like an ETF.


Before I get AAPL geniuses in a heat about that, here are the last 3 big signals our process has delivered:


1.       June 1, 2012 at $571.86 = BUY  

2.       September 28, 2012 at $677.74 = SELL

3.       December 17,2012 at $502.50 = BUY


No research. Just math, and some behavioral context.


How many people in our profession thought/think that it’s their own unique, non-inside info, qualitative research edge that made them “smart” being long AAPL? I don’t know. All I know is that a lot of hedge funds have gone away for doing the inside info thing, and a lot more research-only funds that don’t have a quantitative risk management overlay get mad at me.


That’s progress.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Bullish Formation: SP500 Levels, Refreshed

Takeaway: The Risk Range is tight – if 1466 breaks, first line of support is 1456.



This is what Bullish Formations do, they frustrate people inasmuch as bearish ones do.


They get overbought and they get oversold. This one was overbought, then corrected (briefly), and isn’t as overbought as it was.


Overbought doesn’t always happen at the same price. Time, Volume, and Volatility signals all matter – so does the catalyst calendar. It’s a lot, but managing beta risk isn’t for rookies either.


Across our core risk management durations, here are the lines that matter to me most:


  1. Immediate-term TRADE overbought = 1478
  2. Immediate-term TRADE support = 1466
  3. Intermediate-term TREND support = 1421


In other words, the Risk Range is tight – and I like it tight, because that makes our job easier before it becomes more difficult again (it will). If 1466 breaks, first line of support is 1456.




Keith R. McCullough
Chief Executive Officer


Bullish Formation: SP500 Levels, Refreshed  - SPX

JPM: A Solid Quarter

JP Morgan (JPM) released its Q4 2012 earnings this morning and overall, the numbers were solid. The company earned $1.39 vs. expectations for $1.20. We estimate core earnings were closer to $1.16, which adjusts for all of JPM's itemized one-time items as well as its reserve release. Net interest margin (NIM) fell three basis points but was in-line with estimates and much better than its peers such as Wells Fargo (WFC).


Though the stock currently trades near the high end of its range over the last few years, it’s still trading a 16% discount to fair value of $53.89. There’s room for upside with JPM’s stock, even after an impressive quarter.


JPM: A Solid Quarter - tbvps jpm

Moving With The Markets

Client Talking Points

Cover Up And Buy

Our Q1 2013 Global Macro Themes call was yesterday and we’re pleased that our subscribers and Twitter followers enjoyed what we had to say. Our three themes - #GrowthStabilizing, #HousingsHammer and #QuadrillYen - are all key pieces of solving the global macro puzzle. With the market moving up, we covered our Metals (XME) and Phillip Morris (PM) shorts and bought Apple (AAPL) and Singapore (EWS). The Apple trade is one we really like. The media twirls itself into such a frenzy over newsflow that it fails to see the bigger picture. We bought on red and like Apple in the range of $492 to $518 a share. 

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.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


“Goldman really cut comp big time in 4Q. It was just 21% of revenue, about half of what the firm usually pays people. $GS” -@LaurenLaCapra


“All things are difficult before they are easy.” -Dr. Thomas Fuller


U.S. consumer price index remain unchanged in December, unadjusted CPI index at 229.601

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 80.43%
  • SHORT SIGNALS 78.35%