Summary Notes: Energy Drink Conference Call with Dr. Kennedy

Yesterday we hosted an expert conference call titled "Are Energy Drinks Harmful?" with Dr. Deborah Kennedy, a pediatric nutrition and expert on energy drinks.  The call was very comprehensive and well received by our clients. If you missed the it, here are links to the podcast replay and presentation. We encourage you to take the time (one hour in length including a Q&A session) to listen to the call, and have included a summary of the call below. 


Note: We will be putting out a subsequent post with our outlook on the energy drink space, in particular on Monster (MNST), and giving consideration to key take-aways from Dr. Kennedy’s presentation on the industry. 


-Matt Hedrick




What are Energy Drinks?

  • There is no legal definition, manufacturers came up with term. FDA has not defined parameters of what may be in an energy drink.
  • What can be added?  Depends if labeled as a Beverage or a Supplement.

Summary Notes: Energy Drink Conference Call with Dr. Kennedy - zz. bev chart

  • Under the beverage label (note: all the major energy drink makers are considered a beverage, whereas only energy shots are a supplement) caffeine is considered GRAS (Generally Regarded as Safe); and under the supplement label there’s no limits to caffeine content.  Therefore, manufacturers can put as much caffeine in the product as they choose and the onus is on them to determine the product’s safety.
  • For ingredients other than caffeine, if a supplement: onus is on manufacturer to decide. If a beverage, need preapproval of ingredients or need to contain GRAS elements.
  • Under the Food and Drug Cosmetic Act, neither a supplement nor a beverage is legally required to list the caffeine content on its products.
  • When caffeine passed as a GRAS ingredient, there was a recognition of the need to put limits on the caffeine content in drinks, and the FDA decided to limit the amount of caffeine in soda to 71 mg  in a can of soda (12oz.). No limits have since been put on energy drinks.
  • For Beverage, what you put in the product has to be on the ingredient list, but because caffeine is not considered a nutrient by the FDA (it is considered a food and drug), caffeine does not have to be on the nutrient fact panel.
  • If Beverage, can buy with food stamps. If Beverage, do not need to report if anyone dies from consumption of the product, however deaths must be reported if labeled a supplement.
  • Energy drinks have been around since 1901 but only in significant quantities since 2007
  • Red Bull came to the U.S .in 1997 – major forerunner in energy drink industry, then Rockstar (2001), Monster (2002); and 5-Hour Energy Shots (2004).
  • 66% of energy drink consumers are between the age of 13-35 (65% of consumers are male)
  • Sales of energy drinks have surpassed that of fruit and sports in U.S.

About Caffeine?

  • Known to increase heart rate, blood pressure, speech rate, and motor activity
  • Concern for children: unclear what impact caffeine can have on neurological and cardiovascular systems
  • U.S. Avg person gets 250-300mg of caffeine per day. Moderate consumption = 1-2 cups of  coffee a day (approx. 260mg caffeine). Heavy consumption = 5 cups a day (~ 500mg).
  • Teens should limit to under 100mg/day.  < 13 years of age = none to less than 50mg/day.
  • Ability to handle caffeine varies from persons to person, including how liver metabolizes caffeine, and tolerance.  Children and elderly are at greater risk for adverse events, and males are more susceptible than females for adverse events.

How much Caffeine in Energy Drinks?

  • Avg 80mg/8oz., but serving sizes vary and caffeine range is wide across offerings
  • Compared to Coffee?  How much caffeine is in coffee depends on how strong coffee is brewed. Generic Brewed Coffee 95 -200mg per 8oz.  (for reference: 12oz. Coca Cola = 30-35mg)
  • Believes that media has convinced consumers that all they need to pay attention to is the amount of caffeine. (Comparing Starbucks coffee to energy drinks is false advertising. Apples to oranges. In energy drinks you can have other substances besides caffeine, that may not be counted that contribute to the total level of caffeine.

Dangers and What Experts are Saying

  • Retailers are not prohibited legally from selling energy drinks to kids.
  • Case of adverse affects are being reported: With Red Bull, shortness of breath, anxiety, chest pain, heart attack, convulsions, mental impairment. With Monster, 4 heart attacks, 5 deaths, chest pain, tremor, anxiety, psychotic disorder.
  • Dr. Kennedy questions how we can live in a society where such products that cause these adverse affects are not pulled off the shelf. Suggests if this were an OTC drug, with similar results to consumers, that drug would be pulled off the market immediately.
  • Of the 5,448 U.S. caffeine overdoses reported in 2007, 46% occurred in those younger than 19 years.
  • Dr. Kennedy hopes energy drinks are put behind the counter.
  • American Academy of Pediatrics says energy drinks should not be consumed or sold to kids.

Dr. Kennedy Predictions

  • Dr. Kenned believes manufacturers will never give up the teen and tween market, but will give up the market <12.
  • Energy drink makers say they are not marketing to this demographic (kids), but believes the events at which the manufacturers market is tells a completely opposite story.
  • Thinks the FDA will look at the idea of calling caffeine GRAS (Generally Recognized as Safe) and will provide more regulation in terms of amounts allowed.
  • Thinks like cigarette companies, who got caught marketing to kids, and later confess to it, energy drink manufacturers will run a similar course.

Q&A Highlights

Q) What ingredient recommendations have been made or given to the energy drink makers from doctors and/or the FDA?

A) Nothing yet. A doctor can say whatever he or she wants but the manufacturers are not listening. Now some Senators are involved and they’re asking the energy drink manufacturers to playing nice and stop marketing to kids, but until the FDA comes down on limits to caffeine levels nothing will change.


Q) Do you foresee that the FDA could pass a standard for caffeine in drinks?

A) Yes, although technically it gets complicated because of molecular differences across caffeine types.  So it will take awhile to get to any standard. 


Q) With respect to the cross over between age regulations for energy drinks and coffee, would you promote that a 16 year old walking into a Starbucks can’t order a grande redeye coffee drink, or needs to show identification to purchase it?

A) For a teen there needs to be a warning label on anything over 100mg of caffeine. Similar to calorie counts on food menus, the consumers need to have information so that they can make a reasonable choice. The consumer should know which beverages are over 100mg of caffeine and could potentially cause toxicity. Not looking to card minors, rather given teens the ability to make their own choices.


Q) Would you like to see the energy drink makers come up with one size of energy drink with one level of caffeine?

A) I would like to see what happened to soda. Those companies are set to a certain standard so that you know exactly what you’re buying. So yes, I agree the same should be the standard for energy drinks.   


Takeaway: In the note below, we debate the merits of the long-term bull case for China. We’re not impressed, but we’re not "not impressed" either.



  1. We continue to think it’s appropriate for investors to stop shorting or selling down their exposure(s) to China.
  2. Moreover, we think China’s long-term economic outlook has indeed improved on the margin (i.e. it has gotten “less bad” recently).
  3. We’re not yet outright bullish on China, however. A trifecta of headwinds may result in negative surprises during the fourth quarter and more clarity is needed on the policy front with respect to the longer-term outlook.



My how fast things change in today’s policy-driven markets. A week ago, we were as bearish as anyone on China’s long-term economic outlook and both our top-down and bottom-up quantitative signals supported that view.


Fast forward one day from then to last Friday’s color on the Shanghai Free Trade Zone (FTZ) and the subsequent closing of the insider-dominated Shanghai Composite Index above its TREND line and, just like that, our choice to get out of the way on the short side is looking like an increasingly appropriate risk-managed decision (the index is up +5.4% WTD vs. a regional median delta of +2.6%).


Not to be all sales-y in a research note, but I personally think one of the main things that differentiates our Global Macro research product from the industry norm is the consistent demonstration of mental flexibility at potential inflection points like this (see: orchestrating a 180-degree turn to being bullish on US equities in DEC ’12 despite having US equity-bearish 4Q12 Macro Themes titled, “#EarningsSlowing and #KeynesianCliff).


Accordingly, Mr. Market doesn’t care that we’ve done months of bottom-up research on the structural headwinds facing China’s financial sector and its fixed assets investment-driven economy (most recently rehashed on slides 8, 62-72 and 77-78 in our AUG 30 EM chartbook). If it’s priced in, it’s priced in.


To that point, we turn to the latest Bloomberg Global Poll data (released today), which is based upon the responses from a random sample of 900 subscribers to the Bloomberg Professional Service (over 300k clients worldwide):


  • Q: Which of the following do you think poses the biggest risk to the world economy in 2013?: Chosen by 32% of respondents, “a slowing Chinese economy” was identified as the #1 risk… this compares to 31% in the previous survey (MAY ’13);
  • Q: What is your view of the economy in China?: 39% of respondents viewed the Chinese economy as “deteriorating” vs. 42% for “stable”, 17% for “improving” and 2% for “have no idea”… this compares to 44%, 45%, 9% and 2%, respectively, in the previous survey;
  • Q: Which market will offer investors the best opportunities over the next year?: 14% of respondents selected China… this compares to 13% in the previous survey; and
  • Q: Which market will offer investors the worst opportunities over the next year?: 23% of respondents selected China vs. 27% in the previous survey.  


On balance, it’s clear the consensus attitude towards the Chinese economy and its financial markets has improved marginally QoQ. While it’s natural to want to be contrarian and fade this delta, we’d argue that after three straight years of slowing economic growth and three straight years of rancid-to-subpar equity market performance (-14.3% in 2010, -21.7% in 2011 and +3.2% in 2012), it’s more appropriate to extrapolate these results as positive on the margin.



Looking at China objectively from here, we have to lend the appropriate amount of credence to Premier Li’s most recent guidance (key highlights from his commentary at the Davos Economic Forum):


  • Li referenced the positive sequential deltas in China’s AUG growth numbers when saying, “China has entered a stage of fast expansion with its commitment to reforms growing stronger.”
  • “Beijing will be encouraging foreign companies to make investments and start businesses in China by creating a more investment-friendly environment, intensifying intellectual property rights protection and providing an environment that encourages fair play.”
  • “Now the new season of the Chinese economic miracle, one with better quality and higher efficiency, is unveiled, and I guarantee you even more exciting stories to come.”


As an aside, it’s good risk management practice to lend credence to anything that comes out of the “horse’s mouth” that is the Politburo Standing Committee (PSC); Chinese officials almost always do what they said they were going to do. From our JUN 26 Early Look titled, “Uncertain China”:


“We’ve become a broken record on this, but it’s critical to remember that China’s present day economic woes are actually a function of very deliberate macroprudential policies. While highly unlikely, at any given time, Chinese officials can reverse course and keep the credit bubble inflating longer than any of us short-sellers can remain solvent.”


We’re not going to make up a bunch of BS reasons why China’s economic reforms are going to specifically boost the Chinese economy; the whole, “reform ABC will contribute XYZ percentage points to GDP growth” is so sell-side/IMF. Rather, we’ll call it like we see it: no one outside of the PSC knows exactly what specific policies China will implement and at what pace.


All we really know at the current juncture is that the market clearly thinks the Shanghai FTZ and it’s “innovative tax policies” (per Premier Li… the latest rumors call for a -1,000bps corporate tax cut to 15%), interest rate and capital account liberalization and pro-foreign business reforms will be enough to help offset the structural liquidity headwinds to Chinese credit growth that are currently being predicated by deteriorating current account dynamics and a likely explosion of nonperforming assets (reported or evergreened) across the banking sector – at the margin at least!


At the end of the day, buying China here is akin to buying a tiny piece of a bombed-out stock in the thralls of its bull-bear debate. If it doesn’t work, you keep it on a tight leash and sell it; if it starts to work, you buy more and update the fundamental story as you go along.



All that being said, however, we are NOT telling you to run out and buy China here. Rather, we’re merely acknowledging the merits of what we view as the most credible intermediate-to-long term bull case (i.e. the rough opposite of our former bearish thesis).


Additionally, we continue to believe that SEP will mark the top in this latest cyclical uptrend in China’s monthly economic growth statistics (CLICK HERE for the analysis supporting this conclusion).


Inclusive of this short-cycle peak in Chinese economic growth, the Chinese economy as a whole looks poised to take a trip to Quad #3 on our GIP model in the fourth quarter amid a likely uptick in inflation after aggressive credit growth in the YTD (Total Social Financing is up +24.4% YoY through AUG).




All things being equal, that would make it difficult for Chinese stocks to perform well through the balance of the next few months – unless, of course, the insiders are looking through a sequential deterioration in corporate operating conditions in the fourth quarter to a long-term economic outlook that appears increasingly “less bad” on the margin.


Looking to the next potentially bearish catalyst, the insiders might eventually join us in looking towards NOV’s Third Plenary Session as a potential catalyst for the PSC to take down the country’s 2014 GDP growth target. As a refresher, the 2013 target is equal to +7.5% with a “floor” of +7%; will the 2014 target be revised lower to +7% with a “floor” of +6.5%?


We would not be surprised if that turned out to be the case; in fact, we expect them to keep walking Chinese growth expectations down the natural stair steps afforded by the law of large numbers – especially given their desire to rebalance the economy towards consumption in lieu of fixed assets investment and the aforementioned debt-induced headwinds to high growth rates from here.


Lastly, the Ministry of Housing and Urban-Rural Development (MOHURD) might blindside investors any month by tightening the screws on the Chinese property market(s) via additional curbs, more aggressive enforcement and/or an outright nationwide [punitive] property tax trial. Most recently, they were beginning to investigate local authorities on their potentially lax implementation of the existing nationwide curbs to housing transitions and mortgage lending.  


DEBATING THE BULL CASE FOR CHINA - China Real Estate Climate Index


One of the things we’ll monitor to determine whether or not it’s an appropriate time to buy or if more confirmation is needed is whether or not the insider-driven Shanghai Composite Index closes above its late-MAY highs; that lower-high came just before the JUN liquidity crunch and subsequent consensus debate about China’s financial sector risks (i.e. the same risks we called out in our Hedgeye Macro Emerging Market Crisis Risk Index back on APR 23).


Specifically, a close above that level would be akin to receiving a second quantitative “thumbs-up” in our playbook (the first being the recent TREND line breakout).




Best of luck out there risk managing the world’s second-largest economy!


Darius Dale

Senior Analyst


As we mentioned earlier this week, MCD is facing a number of issues within their control, including operational complexities, a lack of truly innovative ideas, and an unhappy franchisee base.  Outside of their control, competitors such as SONC are stepping their game up.  SONC along with other regional and super-regional QSR brands are finding innovative ways to not only drive sales now, but to continue to drive them in the future. 


SONC released its initial estimate for system-wide sales in 4Q13 today, reporting +5.9% growth in the quarter.  The company continues emphasize “21st Century Engagement” and it is this mentality that has them well positioned for the future.  Management has integrated the three most important communication platforms (television, social, and mobile) into one network, called Sonic ICE (Sonic Integrated Customer Engagement).  Sonic ICE is an integrated network driven by the data cloud that connects social platforms and communications to the company’s digital POPS (point of personalized service) platform, which is the main platform that drives the consumer experience.


The POPS unit will be installed in SONC’s drive-in stations and communicates with the consumer in three ways:

  1. Suggestive selling
  2. Offering the consumer personalized rewards based on their behavior
  3. Other brand engagement ways and content ways that they can engage the customer

With this system in place, SONC will be able to connect with the user individually, drive consumer demand toward specific items and, ultimately, drive profitability.  This is a system that franchisees are excited about and one that will enhance the customer experience.  The company will also be launching a new mobile platform in October.


WEN's stock up 4.5% today, and 54% over the past three months, is an indication of better times to come.  The bottom line — McDonald's direct competitors are getting stronger and its very apparent that MCD has fallen significantly behind the competition on new product innovation and putting technology in place that can drive incremental traffic. 







Howard Penney

Managing Director


investing ideas

Risk Managed Long Term Investing for Pros

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.

Strong Dollar = Weak Putin

Yes - oil prices like Putin.


Strong Dollar = Weak Putin - poo99


Brent Oil broke its immediate-term momentum line of $115.11 last week. But it held our TREND support line and bounced right where it should have.


Higher oil prices remain the biggest risk to global consumption growth. There’s only one real way for President Obama to fight Vladimir Putin on this – weapons of mass US currency appreciation.


In other words, America needs #StrongDollar.


Strong Dollar = Weak Putin - drake1

(Editor's note: This brief excerpt is from Hedgeye's morning research. For more information about our products please click here.)

Jobless Claims +10YR UST

Remember. The only leading indicator that fits the 10-year yield like a glove is the Non Seasonally Adjusted rolling Jobless Claims series.




Jobless Claims +10YR UST - pow1


Irrespective of today’s data, the Trend in claims has been one of accelerating improvement and both the market and 10Y bond yields continue to track the labor market strength higher.  


Jobless Claims +10YR UST - pow2


TODAY’s DATA:  Pretty from far, far from….(bad)


Superficially, both the seasonally-adjusted (292K) and non-seasonally adjusted claims (229K) data this morning were outstanding, with the respective series hitting new 7 and 13 year lows. 


The headline strength was belied by the fact that both the labor day holiday and computer upgrades in two states, which apparently limited a fully tally in those states, served to artificially lower the reported figures.    


The simple takeaway is that given this week’s data caveat, we’re inclined to just stick with broader trend.  Last week’s claims data reflected the strongest rate of YoY improvement YTD and a new multi-year cycle low in the absolute figures. For perspective, even if NSA claims had been 38K higher and SA claims +42K higher than what was reported this week, we’d still be flat with last week’s rate of improvement in the 4-week rolling average.  


Irrespective of today’s data, the Trend in claims has been one of accelerating improvement and both the market and 10Y bond yields continue to track the labor market strength higher.  







SEASONALITY:  Its impacts have been pervasive, are we breaking the cycle in 2013?


Rather than debate the vagaries of today’s claims release, given that we’re now at the inflection point for seasonality, we thought it worthwhile to recap how seasonality has manifest in markets prices and investor psychology over the last four years.


To Review:  As we’ve highlighted repeatedly over the last number of years, strong and quantifiable seasonal adjustments have had a meaningful impact on the temporal trend in reported economic & employment data over the last four years.  In short, the shock in the employment series in late 2008 – early 2009 which occurred alongside the peak acceleration in job loss during the Great Recession was captured, not as a bona fide shock, but as a seasonal factor.   


The net effect of this statistical distortion is that seasonal adjustments act as a tailwind from September – February, then reverse to a headwind over the March-August period. So, as we now move through September, seasonality will again transition to a data tailwind through 1Q14. 


Below we (re)highlight how the reported macro data, equity market performance, investor sentiment and analyst estimates have all followed a similar annual, temporal pattern.  With the Fed expected to pull back on easing in 3Q (whereas incremental easing had been implemented in 3Q in prior years) and the seasonal distortion having a diminishing impact in each successive year, it would be unsurprising to see some different or more muted iteration of the recurrent cycle in 2013-14 go 'round. 


However, from a strategy perspective, and regardless of the monetary policy shift, the pattern is still worth remembering/being cognizant of as seasonality will again build as a support to the reported domestic macro numbers over the coming months. 



Source: Hedgeye Financials





INITIAL CLAIMS:  'TIS THE SEASON - US Economic Surprise Index Seasonality


INITIAL CLAIMS:  'TIS THE SEASON - SPX NTM Revenue Revision Spread Seasonality




Christian B. Drake

Senior Analyst

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.