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SOME QUICK THOUGHTS ON BRAZIL

Takeaway: While we continue to generally shun EM exposure, patience is poised to provide investors with a good opportunity on the long side in Brazil.

Down -2.5%, the Bovespa Index was hammered yesterday (closed today) on a +50bps rate hike that generally surprised the bulk of consensus expectations of a +25bps hike (per 38 of 57 economists polled by Bloomberg). After the cut, the 1Y OIS market is now pricing in just one more +25bps hike over the NTM, which may come as soon as the JUL 10 meeting.

 

SOME QUICK THOUGHTS ON BRAZIL - 1

 

SOME QUICK THOUGHTS ON BRAZIL - 2

 

This subdued outlook for incremental tightening is in line with our expectations given our views on global inflation dynamics (HERE and HERE) and that the hawkish trend in the leading IGP-M CPI already inflected in MAR with the benchmark IPCA CPI following suit in APR.

 

SOME QUICK THOUGHTS ON BRAZIL - 3

 

As we mentioned a few months ago, BCB was behind the curve with respect to inflation expectations, but their recent hawkishness has their credibility back on track. Moreover, Brazil’s 2H13 GIP outlook looks as robust as any country across Asia or Latin America.

 

SOME QUICK THOUGHTS ON BRAZIL - BRAZIL

 

As we’ve said all along, due to poor policy implementation and commodity deflation, patient international investors were going to get a chance to invest in Brazil on sale. In that vein, the next rate hike is likely to be the final catalyst for getting long the consumption side of the Brazilian economy (BRAQ).

 

All that being said, we don’t think the coast is clear just yet. Specifically, Finance Minister Guido Mantega’s most recent negative jawboning of the BRL (down -4.9% MoM) is still cause for alarm, given that Big Government Intervention in the FX market and in the Brazilian capital account has been one of the primary factors for the demonstrable underperformance of Brazilian equities and the BRL on a TTM basis.

 

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All told, while we continue to generally shun emerging market exposure, a little more patience is poised to provide investors with a good opportunity on the long side in Brazil – particularly those investors that must remain allocated to the EM space.

 

Darius Dale

Senior Analyst


WHY WE LIKE SBUX – DON'T LIKE MCD

Takeaway: We remain positive on SBUX and negative on MCD.

This note was originally published May 29, 2013 at 15:18 in Restaurants

Listening to each of these companies’ respective presentations today at the Sanford Bernstein conference, it was not difficult to understand why we like SBUX and are bearish on MCD.

 

Takeaways from the presentations:

 

MCD

 

We remain bearish on MCD as the stock has underperformed the S&P 500 by 550 basis points since we added it to our Best Ideas list on 4/25. On an absolute basis, the stock has declined -1.09%. We believe the Street’s expectations are still too aggressive, from a sales and earnings growth perspective, and the company needs to make structural changes to its U.S. business as the store has become too complex. Please click here for the materials for our presentation on McDonald’s from 4/25.

  • MCD CEO Don Thompson was cautious in his tone, citing soft economic environment and stagnant IEO industry
  • Comps have outperformed QSR sandwich operators in 16 of 19 weeks this year (we are wary of this statistic as sandwich concepts compete against everyone in food service)
  • Overall tone seemed to convey a message of near-term struggle with bright long-term ahead
  • Mgmt stating, first, that guest counts are important for franchisees was interesting – franchisees want higher margin items on the menu, there is a conflict between corporate and franchisees here in terms of priority
  • Unconvincing response as to what mgmt will do to revive U.S. business in ’13 – the menu is back and marketing is stronger and “more direct” – does not inspire confidence
  • Europe remains a significant problem for McDonald’s

 

WHY WE LIKE SBUX – DON'T LIKE MCD - best ideas mcd large

 

 

SBUX

 

Starbucks’ presentation represented a stark contrast to McDonald’s as the company offered a clear, positive and energized outlook for shareholders. The company’s data-anchored strategy is tailored for specific regions of the world, unlike the more general and now-outdated MCD strategy (three global growth priorities). We continue to view Starbucks as one of the best ways to play the strengthening U.S. economy and consumer.

  • Goals of the company remain as lofty as ever – no constraints being placed on Schultz’ ambition
  • SBUX foundation for growth is solid, primed for accelerated growth over the next 5, 10 years
  • Challenges in Europe are persisting and will persist for “quite some time”
  • Growth being supported by Via, K-Cups, home brewer systems, tea and other categories such as juice
  • Expanding the loyalty card into the grocery aisle and following the rise of mobile internet closely 

Conclusion

 

If you wanted to own a global company with strong growth prospects, sound fundamentals, high exposure to the U.S. recovery and low exposure to Europe’s travails, you would own SBUX and not MCD. We remain positive on SBUX and negative on MCD.

 

WHY WE LIKE SBUX – DON'T LIKE MCD - mcd operating income

 

 

Howard Penney

Managing Director

HPenney@hedgeye.com

862.217.9429

 

Rory Green

Senior Analyst

RGreen@hedgeye.com


TREASURY YIELDS VS. JOBLESS CLAIMS

Takeaway: The rate of improvement in the US labor market accelerated again last week.

As we've mentioned before, we prefer to look at the non-seasonally adjusted (NSA) jobless claims numbers. There’s not a whole lot of distortion there. NSA claims were better by 8.2% vs last year, as compared with the 8.0% improvement in the previous week. To be clear, not only is the labor market improving, but it is doing so at an accelerating rate. 

 

Meanwhile, rolling NSA claims vs. the 10YR still looks good, but has diverged directionally over the last few weeks.  

 

Bottom line: If we do get a correction in the coming weeks, we'd view it as a buying opportunity as the underlying health of both the labor and housing markets continue to show accelerating rates of improvement.

 

TREASURY YIELDS VS. JOBLESS CLAIMS - 10Y vs NSA claims 053013


investing ideas

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Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Morning Reads From Our Sector Heads

Takeaway: A quick look at what we're reading this morning.

Keith McCullough - CEO

Treasuries Head for Steepest Loss in Three Years on Fed (via Bloomberg)

Shirakawa Gets Bonus as Kuroda Tackles Deflation (via Bloomberg)

U.K. Home Prices Rise Most in 18 Months (via Bloomberg)

 

Kevin Kaiser – Energy

OPEC Shifts Its Oil Trade Map After Shale (via Reuters)

 

Daryl Jones - Macro

German Companies Sip From Pool of Spain’s Young Joblesss (via CNBC)

Taking It Apart: The US LNG Export Fight (via Platts)

 

Rob Campagnino - Consumer Staples

China's Food Play Extends Its Reach, Already Mighty (via (New York Times)

 

Josh Steiner - Financials

Sallie Mae to Split Into Two Companies as Remondi Named CEO (via Bloomberg)

Citi CEO Corbat: Legal Costs to 'Stay Elevated for a While' (via WSJ)


INITIAL CLAIMS: JOB LOSSES SLOW AT AN ACCELERATING RATE

Takeaway: The labor market is showing very strong momentum for 5 of the last 6 weeks, providing an ongoing credit and loan tailwind to the sector.

Labor Market: Very Solid Momentum

The rate of improvement in the labor market accelerated again last week. NSA claims were better by 8.2% vs last year, as compared with the 8.0% improvement in the previous week. The SA data, meanwhile, showed deterioration of 10k WoW. The divergence is attributable to the faulty seasonality adjustment dynamic we often highlight. To be clear, not only is the labor market improving, but it is doing so at an accelerating rate. We've hypothesized that a possible contributing factor to this is relatively low-paying service sectors like restaurants and hotels reducing hours to fall under the 30-hour "Obamacare" cap and hiring additional part-time or temp workers to compensate for the shortfall. 

 

In the past three years, the seasonal adjustment factor headwind dynamic has more than offset the underlying rate of improvement in the labor market, causing the appearance of a stagnating/deteriorating labor market from March through August (see first chart below). This has been a primary factor in the Spring to Fall selloff in 2010, 2011 and 2012. Thus far, 2013 is bucking that trend on the labor front, and we're seeing the obvious follow through from Financials with the XLF continuing to act well. We are now significantly beyond the starting point of correction in any of the previous three years. 

 

To reiterate, if we do get a correction in the coming weeks, we'd view it as a buying opportunity as the underlying health of both the labor and housing markets continue to show accelerating rates of improvement.

 

The Data

Prior to revision, initial jobless claims rose 14k to 354k from 340k WoW, as the prior week's number was revised up by 4k to 344k. The headline (unrevised) number shows claims were higher by 10k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 6.75k WoW to 347.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.1% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.4%

 

INITIAL CLAIMS: JOB LOSSES SLOW AT AN ACCELERATING RATE - 1

 

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INITIAL CLAIMS: JOB LOSSES SLOW AT AN ACCELERATING RATE - 14

 

Yield Spreads

The 2-10 spread rose 13.7 basis points WoW to 182 bps. 2Q13TD, the 2-10 spread is averaging 158 bps, which is lower by -10 bps relative to 1Q13.

 

INITIAL CLAIMS: JOB LOSSES SLOW AT AN ACCELERATING RATE - 15

 

<chart16>

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Best Ideas in Healthcare - 2Q13 Healthcare Themes Call Today

Best Ideas in Healthcare - 2Q13 Healthcare Themes Call Today  - healthcarethemesDial2 05.30.13

 

Please join the Hedgeye Healthcare Team, led by Tom Tobin, today at 11:00am EDT for a discussion on the current Healthcare Themes and the best ways to play these scenarios. 

   

 

CALL DETAILS

  • Date: Today, May 30th at 11:00am EDT
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 326981#
  • Materials: CLICK HERE 

 

Below is an overview of the themes and ideas that will be reviewed in depth on the call. 

 

Physician Utilization Accelerating

  • We will look at the macro factors that matter, our forecast, and how we track our progress.
  • We will also discuss some perceived headwinds such as High Deductible Health Plan and Cost Shifting which seem far less important than is widely perceived.
  • Best Long Ideas: HOLX, HCA, MD
  • Best Short Idea: UNH

Baby Bust 

  • Is the largest maternity decline in 40 Years Over?
  • We'll review our expectation for a 2013 recovery.
  • Maternity is a significant driver of hospital inpatient and outpatient visits.
  • Pregnant women and newborns have a higher than average frequency of physician visits.
  • Best Long Ideas: MD, HCA
  • Best Short Idea: UNH

Affordable Care Act Accretion

  • The ACA is expected to increase the number of insured people in the U.S. by 15M in 2014, leading 95% of all Americans to be carrying health insurance longer term.  Is this a  reasonable expectation?
  • What changes can we expect to medical consumption?  The newly insured will be young, and in specific categories, we can identify products and services which may increase significantly beginning in 2014.
  • We'll also look at some of the headwinds that may derail what appear to be optimistic consensus outlook.
  • Best Long Ideas: HOLX, HCA

 

Please email for further details or if you are having trouble accessing the presentation.

 

 


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