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Q3 2014 Macro Themes Conference Call: U.S. Consumer Beware

Q3 2014 Macro Themes Conference Call: U.S. Consumer Beware - HE MT 3Q14


Hedgeye's Macro Team will be hosting our highly-anticipated Quarterly Macro Themes conference call tomorrow, July 11th at 11:00am EDT. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and related investment opportunities.



  • #Q3Slowing:  Against a backdrop of harder growth and easier inflation compares in 3Q14, the conflation of rising inflation, static nominal wage growth, and an ongoing deceleration in housing should drive a sequential deceleration in domestic economic growth. Growth sentiment, meanwhile, has been improving with 3Q GDP estimates rising as consensus again back-end shifts misguided 1H estimates. We expect that optimism to be marked to [a more dour] reality as we progress through 3Q.  
  • #DollarDevaluation: Given that the Fed's 2H14 and full-year growth forecasts are still too optimistic, the outlook for an easier Fed and future dollar devaluation looks probable. The negative correlations between the dollar and commodity prices should tighten further as the Fed surprises consensus by getting more dovish. 
  • #VolatilityAsymmetry: Across global financial markets, measures of volatility are at historically-depressed levels. While low levels of volatility aren't necessarily a timely harbinger of financial market calamity in and of themselves, other signals - such as the economic cycle rolling over and pervasive complacency among investors and corporations - would seem to suggest we are well into the latter innings of this bull market.



Attendance on this call is limited. Please note if you are not a current subscriber to our Macro research there will be a fee associated with this call. Ping for more information.

PBPB: Staying Short

We added PBPB to the Hedgeye Best Ideas list on 11/19/2013 at $28.15/share.  Since this time, 2014 EPS estimates have been revised down from $0.39 to $0.18 and the stock has acted accordingly (down ~60%).  We remain short PBPB and continue to have concerns with the company’s aggressive growth strategy, particularly in the face of fundamentals that suggest the chain shouldn’t be growing at all.

Potbelly preannounced disappointing 2Q14 results yesterday, including revenues of $83.6m ($86.7m est.) and adjusted EPS of $0.06 ($0.12m est.).  In addition, same-store sales declined -1.6%, 240 bps below consensus estimates, and traffic declined for a sixth consecutive quarter.  Management guided down full-year adjusted EPS to the $0.18-$0.21 range ($0.34 est.) and full-year same-store sales to flat to negative low-single digits (+0.8% est.). 


Back in November, when we made our original short call, we wrote:


“At the heart of it, Potbelly is a single daypart, low margin, low return sub shop with declining traffic and little competitive advantage over its most basic competitors.”


Though this seemed harsh at the time, the company’s results as a public company have given us little reason to retract these words.


Management provided few details, but did note that they are maintaining their guidance for 40-48 new unit openings in 2014 – a foolhardy decision, in our view.  This range implies 12-15% unit growth for the full-year when, in fact, the chain hasn’t justified any form of expansion.  It is likely that we will continue to dislike the company until management pulls their foot off the accelerator.  PBPB currently trades at 50.05x P/E (FY14), a multiple that typically reflects a strong growth company.  Considering declining same-store sales, traffic, margins and a questionable growth strategy, we continue to view the stock as unattractive.


As it stands, we believe FY15 estimates are too aggressive and will be revised down over the coming weeks.  At that time, we will reassess our positioning.


PBPB will hold its 2Q14 earnings call on Tuesday, August 5th, 2014 at 5:00pm EST.


Research Recap:

Investment Ideas: Shorts (04/16/2014)

PBPB Lays an Egg (02/19/2014)

PBPB: Not Worth of the Multiple

Potbelly (PBPB): The Latest Restaurant IPO


 PBPB: Staying Short - chart1


Howard Penney

Managing Director


Fred Masotta


Cartoon of the Day: What's In A Name?



Cartoon of the Day: What's In A Name? - Gold Bond cartoon 07.10.2014


In this case, it’s  two long ideas for investors. 


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.

Russell 2000: Levels Refreshed

Position: 11 Longs, 6 Shorts


Back on 7/1, with the index overbought and the setup for pro-growth exposure at the beginning of July beginning to look a lot like it did back in March, we issued a fresh Sell Signal at 1208 on the Russell. (Selling: Russell Levels, Refreshed)     


After a big drop Monday, the Russell tested its Intermediate-Term TREND line for two sessions before breaking through on the open.  


Looking across both sectors and asset classes, prices are telling a cohesive, slow-growth story:  


  • Bonds bid; yield-spread compression
  • Gold +1% (+1.7% on the week)
  • Consumer Discretionary (-0.6%)
  • Utilities (+0.8%)


REITs and Gold Miners outperforming vs. consumption driven sectors (consumer retail getting crushed) as our cyclical bearish call on U.S. consumption growth continues to unfold in sector divergences.


Tomorrow in our Q3 Macro Themes call (ping for access) we’ll outline our bearish thesis on the U.S. consumer into in the back half of the year. We continue to like Gold, Treasuries, and defensive sectors (XLU, REITs, XLE) in the face of further #Dollar Devaluation crushing already thin consumer margins. #Q3Slowing will be our first theme in the deck on tomorrow’s call.


Our core risk management levels on the RTY, with their respective durations, are as follows: 

  1. Intermediate-Term TREND Resistance = 1173
  2. Immediate-Term TRADE Oversold = 1154  

In other words, after an expedited -4% slide from the 1208 overbought signal, we got most of the correction we we’re looking for.  From here, we’ll remain better sellers of consumer centric, small-cap growth style factors on strength. 


Russell 2000: Levels Refreshed - Russell Levels 07.10.14

VIDEO: McCullough Explains His Caution to Fox Business' Maria Bartiromo

Hedgeye Risk Management CEO Keith McCullough sat down with Fox Business’ Maria Bartiromo for the hour on “Opening Bell” this morning and explained why he’s cautious on the markets, his concerns about stagflation, and why he continues to like gold.

Join Our Expert E-Cig "Speaker Series" - Are Vaporizers Stealing Share from Big Tobacco?

We look forward to continuing our Speaker Series on e-cigarettes and e-vapor with John J. Wiesehan, Jr., CEO of the Charlotte based company, Ballantyne Brands, LLC. The conference call will be held on Wednesday, July 16th at 11:00am EDT.


Ballantyne Brands is a leading private manufacturer with the third largest market share in the U.S. (xAOC channel) with such e-cig brands as Mistic and Neo and personal vaporizer Haus.




Is the consumer switching to an alternative vaping product, and why?  Mr. Wiesehan, Jr. will offer his latest insights and expertise to Hedgeye's ongoing research on the e-cigarette/e-vapor category.




  • Industry developments and trends
  • How the FDA's proposed regulations stands to impact the industry
  • Ballantyne Brands product offering versus Big Tobacco's
  • What does future technology look like







John J. Wiesehan, Jr. is currently the CEO of Ballantyne Brands, LLC. A graduate of Lindenwood University in Saint Charles, Missouri, John spent time at General Electric as the Worldwide Operations Manager. From General Electric, he moved to Woods Industries as Vice President in the Sales and Marketing sector.  In October 2012, John joined Ballantyne Brands, LLC located in North Carolina and became CEO.




  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 544867#
  • Materials: CLICK HERE (Slides will download one hour prior to the start of the call)


For more information please email

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