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The BLS released CPI data for the month of February on Tuesday.  Despite a marginal improvement in the Restaurant Value Spread during the month, food away from home continues to be notably more expensive than food at home.  This suggests that cost sensitive consumers are more likely to frequent the grocery store and prepare their own food than they are to visit a restaurant and dine out.


The value spread did, however, narrow sequentially by 30 bps in February to -1.3% as food at home inflation accelerated at a faster rate than food away from home inflation.  Therefore, we’d surmise that eating out did become marginally more attractive over the course of the month.  Overall, we view the release as less bearish, on the margin, for the restaurant industry.


Full-service and limited-service prices grew +2.3% and +2.2% YoY, suggesting that fast casual and QSR restaurants are becoming more attractive, on the margin, than casual dining restaurants to cash-strapped consumers.


Overall, retail grocery sales and  food services sales data continue to support our thesis regarding the negative Restaurant Value Spread, as grocery sales continue to increase on a YoY basis at the expense of food services sales.





The charts below highlight the important sequential food inflation trends.

  • Core CPI growth held flat at +1.6%
  • Food at home CPI growth ticked up 50 bps sequentially to +0.9%
  • Food away from home CPI growth ticked up 20 bps sequentially to +2.2%
  • The Restaurant Value Spread, which measures the difference between food at home and food away from home, narrowed 30 bps sequentially to -1.3%





  • The spread between food at home CPI growth and core CPI growth narrowed by 50 bps sequentially to -0.7%.



  • The spread between food away from home CPI growth and core CPI growth widened by 20 bps sequentially to +0.6%



  • NSA Full-Service CPI growth accelerated 30 bps sequentially to +2.3%
  • NSA Limited-Service CPI growth accelerated 20 bps sequentially to +2.2%




Howard Penney

Managing Director


Fred Masotta


Food: It’s What Rich People Eat!

Whatever you do, don't call it inflation.


Food prices have surged in 2014. The CRB Foodstuffs Index is up +16.5% year-to-date and +4.8% year-over-year. Rapid advances in coffee, beef, cheese and milk have largely fueled the overall basket.

Food: It’s What Rich People Eat! - Eating money

The Big Picture


Commodity prices up year-over-year:

  • Cheese Block
  • Lean Hogs
  • Rough Rice
  • Soybean
  • Live Cattle
  • Milk
  • Natural Gas
  • Coffee

Commodity prices down year-over-year:

  • Wheat
  • Chicken Whole Breast
  • Chicken Wings
  • Gasoline at the Pump
  • Corn
  • Sugar

Food: It’s What Rich People Eat! - chart5

Notable trends:

Coffee prices declined -12.1% over the past week.  However, they have surged +60.2% YTD and remain up +21.5% YoY due to a prolonged drought in Brazil that has hampered national productivity levels.


Pork and Beef prices continue to tick higher, up +3.2% and +1.8%, respectively, over the past week.  They are now up +50.1% and +16.0% YoY, respectively.  Don’t expect much relief anytime soon – pork prices continue to be pressured by low slaughter rates and a tight supply, while the overall impact of the Porcine epidemic diarrhea virus (PEDv) remains unknown.  Beef prices continue to rise amid a decline in cow herd sizes. Operators don’t expect much relief anytime soon as cattle herds take approximately two years to hit the market. 


Cheese Block and Milk prices are now up +49.4% and +37.6% YoY.  Many operators expect, and have expected, these prices to moderate, but we have yet to see any signs of a slowdown.


Wheat prices surged +5.6% over the past week, while Corn declined -0.1%.  Both commodities are down -6.8% and -16.9% YoY and continue to provide some relief for operators.  However, this benefit will continue to deteriorate if wheat stays on its current trajectory.


Chicken and Chicken Wing prices continue to provide relief to operators with notable exposure and menu flexibility.  Both commodities are down -7.3% and -26.6% YoY, respectively.


Gasoline at the Pump is down -4.6% YoY, despite ticking up +0.3% over the past week.  Despite being down on a YoY basis, gasoline prices have been quietly ticking over the past month.  Any sustained increase or decrease in gas prices could have a significant impact on the direction of discretionary spending and the consumer’s willingness to eat out.  While current prices are a bullish data point for the industry, current trends suggest this may soon change.

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Poll of the Day Recap: No Love for the Benjamin

At her debut press conference yesterday, Fed Chair Janet Yellen suggested a rate hike may occur within 6 months of ending the record stimulus program. Her comments drove traders back to the US Dollar, which ripped off its year-to-date lows. That said, it remains well below TREND resistance of $81.14 on the US Dollar Index.


So we asked people in today’s Poll of the Day what they would do: Short the Dollar or buy it?


At the time of this post, 51.3% of respondents said SHORT with 48.7% saying BUY.


As for Hedgeye CEO Keith McCullough, he remains a USD bear. “You either believe the Fed's forecast, or you ride with ours,” says McCullough.


Of the voter comments we received, those who voted BUY said they would sell it at the TREND, that rates are on their way up, and that “the world economy is slowing down, [therefore] USD is bottoming out.” One commenter also wrote, “There'll be bizarre political issues in EZ late this year, more specifically Spain. Big turmoil (perhaps even military turmoil) and/or default.”


Another BUY voter said, “Looking at something like the US Economic Surprises index, US growth has a far better chance of surprising to the upside while EZ growth expectations are already elevated with potential drag on sentiment from the Ukraine crisis (ZEW economic expectations from Monday) and a desire by the ECB to keep the Euro below 1.40. Should see the Euro back towards 1.3480 support”


More to be revealed.



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Cartoon of the Day: Yellen & Screamin'

Takeaway: The Fed’s ongoing policy to trash the dollar remains intact.

Cartoon of the Day: Yellen & Screamin' - Yellen03.20.2014

E-Cig Speaker Series: Where We Are & Where We Are Going

We are looking forward to continuing our Speaker Series on electronic cigarettes with Miguel Martin, President of leading e-cig manufacturer LOGIC, on Thursday, March 27th at 11:00am EDT.


LOGIC, a closely held company, is an industry leader and the #2 national brand in unit and dollar share for C-Stores in the United States, according to Nielsen data.



Mr. Martin will offer his latest insights and expertise to Hedgeye's ongoing research on the electronic cigarette category.




  • Key industry developments and trends
  • What the regulatory outlook looks like in the U.S. and abroad
  • LOGIC’s market share and product offering



Martin began his career at Philip Morris USA and over the course of 18 years served in various sales and marketing roles. He is the former senior Vice President and General Manager of Altria Sales & Distribution, where he led all merchandising and distribution services for Philip Morris USA, U.S. Smokeless Tobacco Co. and John Middleton. He joined LOGIC as President in July 2013.



LOGIC began distribution in 2010, and as of March 2014, is available in more than 50,000 retail outlets in the United States. The privately held company began in Livingston, New Jersey and is now based out of a new headquarters in Pompano Beach, Florida.



  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 951384#
  • Materials:CLICK HERE (materials will be available approximately one hour prior to the start of the call)

Please email  for more information.

A Picture Is Worth 1,000 Words (Or Maybe 100 Points on the S&P 500)

Takeaway: Correlation matters.

A Picture Is Worth 1,000 Words (Or Maybe 100 Points on the S&P 500) - FEDEX CHART


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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.