TODAY’S S&P 500 SET-UP – July 12, 2013
As we look at today's setup for the S&P 500, the range is 47 points or 2.45% downside to 1634 and 0.36% upside to 1681.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
THE MACAU METRO MONITOR, JULY 12, 2013
GRAND WALDO OVERHAUL TO TAKE SIX MONTHS Macau Business
Galaxy has requested government permission to suspend operations at the Grand Waldo hotel and casino for six months. Galaxy bought the controlling stake in the Grand Waldo last month and closed the property on July 1 for renovations.
It appears no major architectural changes will be made to the property and it may reopen in time for Lunar New Year.
Business Daily quotes a gaming industry source as saying that Galaxy Entertainment was “expected” to apply to use the Grand Waldo’s 38 live gaming tables and 148 slot machines at its other properties.
SINGAPORE 2ND QUARTER GDP GROWTH STRONGEST IN OVER TWO YEARS Reuters
According to advance estimates from Singapore's Ministry of Trade and Industry, 2Q GDP grew an annualized and seasonally adjusted 15.2% QoQ, nearly double the 8.3% median forecast of economists polled by Reuters. The quarter-on-quarter expansion in GDP was the strongest since the first three months of 2011. From a year ago, GDP rose 3.7%, improving from the first quarter's 0.2% YoY expansion and beating the median forecast for a 2.0% expansion.
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Despite the significant volatility the company has faced since December 2012, YUM’s long-term growth story remains intact. Yesterday’s earnings release suggests that the fallout from the chicken supply scandal and Avian flu issues are abating.
Though we will wait for further confirmation on the near-term duration, we remain confident that the long-term upside for YUM shares represents an attractive opportunity for investors willing to look past the near-term issues. The talk of the earnings call today quickly transitioned away from the poor results in China and toward the timing of the expected recovery in sales and margins.
The stock traded sideways as expected. YUM reported 2Q13 EPS of $0.56 (-16% YoY) vs. Street consensus of $0.54. During the second quarter, YUM demonstrated impressive COGS and labor controls. The company maintained its guidance for the balance of 2013, including a 4Q turnaround in China same-store sales trends and a mid-single digit decline in 2013 EPS. Importantly, trends in China continue to improve with June same-store sales down only 10% after coming in down 20% in May.
Other 2Q Highlights
The largest short-term risk to the YUM story comes from the built in expectations that China will turn the corner in 4Q13. China’s June sales trend was only down 10%, indicating that sales are beginning to recover and moving in the direction of current expectations. With Pizza Hut’s June same-store sales coming in at 6%, it is clear that the brand continues to build momentum. Although the KFC numbers leave much to be desired, the comps appear to have bottomed out earlier this quarter. Same-store sales have improved over the course of the quarter, moving from down 26% in April to down 13% in June. We believe that China is on track for flat to positive same-store sales trends coming out of 3Q13 and positive trends early in 4Q13.
Rest of the World
The YRI and U.S. segments of the business continue to be solid performers and contribute to YUM’s growth profile.
YUM’s YRI Division reported 1% same-store sales growth, led by 5% same-store sales growth in emerging markets. This performance was somewhat offset by weakness in the developed regions where same-store sales fell 1%.
YUM’s U.S. Division reported 1% same-store sales growth, led by 2% and 3% same-store sales growth at Taco Bell and KFC, respectively. Taco Bell continues to be one of the strongest brands in the QSR segment. The brand was able to increase same-store sales despite facing a 13% comparison from last year. Same-store sales fell 2% at Pizza Hut in the second quarter.
Similar to the rest of the restaurant industry, YUM’s valuation appears stretched. We intend to issue a report card on YUM’s road to recovery as the company continues to report monthly same-store sales trends in China. YUM’s long-term development plans in China remain intact, particularly as the company begins to focus on establishing Pizza Hut locations in lower tier cities. We believe that the Street will soon shift its focus away from the recent negative results in China and will begin to focus on 2014 and the timing of a margin recovery.
This morning we hosted an expert call with George Friedman, renowned author, Founder and Chairman of global intelligence company, Stratfor Enterprises.
George walked through "Stratfor's Top Three Geo-Political Tail Risks" with focused discussion on key risks and current geopolitical dynamics in the U.S., Europe and China. 30 Minutes of QA follow George’s prepared remarks at the 33 minute mark. Replay details below.
REPLAY: CLICK HERE
*Note: There were no slides associated with this presentation
Takeaway: Look at your dollars while you still got ‘em. “In God We Trust” it says. Not un-elected central planners.
“Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”
What in the world is Ben Bernanke doing?
What is so frightening about what is going on right now is that this un-elected, un-accountable individual has the power to change the entire risk parameters of the economy with an un-qualified market timing opinion that spits in the face of economic data. If you didn’t know that an un-elected central planner could change the entire complexion of risk overnight, now you know.
Look, I get the whole fear-mongering, love for Ben thing. Politicians and bankers who put the country on the brink saved us from themselves in 2008 – or so they claim. Even if you believe that, that was back in 2008-2009. We’re half-way through 2013 for God’s sake.
The last time I saw disgraced Lehman CEO Dick Fuld, he was living large at my golf club. Meanwhile, Tim “Turbo Tax” Geithner just got paid $200,000 to speak at an #OldWall conference. And bankers who are long FICC (Fixed Income, Currencies, Commodities) not to mention Bill Gross, have been begging and pleading with Bernanke for more ultra easy money. Is this the society Ben Franklin and Thomas Jefferson had in mind?
If it’s not self-evident to you by now that markets are going squirrelly on this, your internet connection must be down. Pardon the pun, but in a nutshell:
So here’s the deal: Ben Bernanke is not only going to a) time the economic cycle (even though his growth forecasts have been wrong 58-73% of the time, depending on what year you use), he’s also going to b) time the market cycle.
That’s just great.
Actually, to be balanced, what he’d say he’s attempting to do (which is unprecedented by the way during a recovery) isn’t timing, per se. I think these Keynesian types who have never risk managed a market or run a business in their life call it “smoothing.”
I call that reckless.
Here’s my policy advice: longer-term, Mr. Market is already pricing in #StrongDollar and #RatesRising. So just let it go pal. Let free-market prices and economic cycles clear. Or do what you’re doing and your legacy will be that of someone who kept trying to re-flate bubbles as they were blowing up.
If Bernanke doesn’t take Mr. Market’s advice on this, here’s what is most likely going to happen:
In other words, with Oil prices ripping higher above the key, long-term risk line of $108.11/barrel earlier this morning, Bernanke once again clobbers everyday Americans. This is Washington at its finest: Congress can’t pass basic laws in areas where 90% of Americans agree; Bernanke has been operating on his own for years, but his policy has never been so out of line with the American People as it is today. It doesn’t take a Princeton PhD to recognize that inflation at the gas pump is a massive, and instantaneous, tax hike. Or doesn’t Bernanke remember the impact on consumers when he cut rates too early in the summer of 2008 – and triggered an oil spike to $150 a barrel?
Higher oil prices slow growth – prepare for that, new as of today, compliments of Bernanke.
This is not new territory for this conflicted monetary cat. Remember what he did with his “communication tooling” in September of 2012? He said he would print to infinity and beyond. Commodities, most notably gold, had their last hurrah on that.Then, within 2-3 months, markets were in bedlam, US Consumption growth tanked, and the USA printed a pathetic Q412 GDP number of 0.38%! Just awesome.
It’s especially awesome for the guy who gets paid to run Gold Bond funds. Why don’t we take rips on this volatility roller coaster over and over and over again? Bernanke is on the switch – we’ll have 3 coasters on the same track at the same time; he’s wicked good on timing! Indeed, he creates the timing. It must be awesome, playing God with people’s lives.
Speaking of God, what’s my economic strategy this morning? Prayer.
Seriously, what on God’s good earth (the actual God now, not the un-elected one) am I supposed to recommend you do on this? Lever yourself up with asset classes that are crashing? Fortuitously, we aren’t short anything related to Bernanke’s banker boy bonuses (FICC – Fixed Income, Currencies, Commodities). And we’re not short anything PIMCO yet either, so maybe I’ll just sell everything and take the rest of the summer off.
I’m getting really tired of all this un-American central planning anyway. We’ve had a great year, and there’s no way I’m letting whoever this guy thinks he is make me give it all back.
Americans, look at your dollars while you still got ‘em. “In God We Trust” it says. Not un-elected central planners.
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