Q4 2014 Macro Themes Conference Call: Slowing Growth Ahead

 Q4 2014 Macro Themes Conference Call: Slowing Growth Ahead - HE MT 4Q14


We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Thursday, October 2nd at 1:00pm EDT. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.



  • #Quad4: Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.
  • #EuropeSlowing: Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We belive select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth. 
  • #Bubbles: The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes.  The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.


  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 141367#
  • Materials: CLICK HERE (slides will download approximately one hour prior to the call)

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BLMN: Same As It Ever Was

We are adding BLMN to our Investment Ideas list as a long.


BLMN: Same As It Ever Was - 22


We've been saying for years that multi-concept casual dining companies are structurally flawed, putting them at a disadvantage to their nimbler counterparts.  If history is any indication, Bloomin' Brands will need to sell its non-core assets in order to focus on growing the profitability of the Outback Steakhouse brand.


There have been several multi-branded casual dining companies that have needed to restructure, including Brinker International when it operated eight brands and, more recently, Darden which has already sold Red Lobster and likely has more changes on the way.  Del Frisco's is another, much smaller, company that we suspect is structurally flawed and will face a restructuring in the future as it continues to grow and this becomes more readily apparent.  And then we have Bloomin' Brands,  who's day for restructuring is fast approaching. 


Recall that OSI Restaurant Partners, the former operator of Outback, Carrabba's and Bonefish Grill, struck a deal to be taken private by an investor group comprised of Bain Capital Partners and Catterton Partners back in 2006 in order to focus on longer-term plans.  This portfolio of brands re-emerged onto the public market in 2012 with a new name, but otherwise the same as it ever was -- a broken company.


We're calling for BLMN's board to come to grips with this reality and restructure the company.  The good thing, in our view, is that there is a large, motivated shareholder (Bain) that has four seats on the board.  They own 29% of the company which means they're likely laser focused on creating shareholder value.


In today's investment landscape, it's all a matter of timing.  The board would be crazy not to consider value enhancing alternatives, but when they will do so is unknown.  With that being said, there is a vast amount of investors with significant liquidity currently looking to deploy capital in the restaurant sector.


This is a portfolio of businesses that must be paired down to one (Outback) or two brands.  This should immediately be followed by an aggressive effort to improve margins at the Outback business, which is significantly below its peers.


Bloomin' is suffering from the same issues that former broken companies have successfully remedied -- inefficient capital allocation.  The Outback brand is so much larger than all of the other brands, that the 20th best idea for improving this business is likely more accretive to the bottom line of the overall company than the number one idea for improving any of the smaller brands.


These inefficiencies aren't always clear to outsiders, and we get that, but we guarantee they are clear to brands' Presidents.  Internal capital allocation discussions typically go something like this:


  • Outback senior management: "Why are you focused on the smaller brands when there are so many opportunities at Outback."
  • Fleming's senior management: "All of your focus is on Outback and we're not getting the resources or attention we need to be successful."


Now imagine this discussion revolving around five different brands.  As you'd imagine, internal politics can be a significant drain of energy and significant driver of inefficient capital allocation decisions.


It's easy for senior management to say the smaller brands are not a distraction but, at the end of the day, the overall business is not performing nearly as well as it should be.  The fundamentals are dismal and this could continue to be an issue, but what we see is a company that is vastly undervalued on the public market.  Based on our SOTP analysis, shareholders are essentially getting the Outback business at a discount and Bloomin's four other brands for free!


There is a real opportunity for the company to create significant value by selling off its non-core brands, improving operations at Outback and growing the brand internationally, where it has had tremendous success to-date.


BLMN: Same As It Ever Was - 11


Call or email with questions.


Howard Penney

Managing Director


Fred Masotta


Cartoon of the Day: Hawks & Doves

Takeaway: Extreme dovishness from our central planning overlords won't end well.

Cartoon of the Day: Hawks & Doves - soar like a hawk 09.25.2015

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McCullough: Move Into 'Quad Four' May Mean Market Pain


Hedgeye CEO Keith McCullough discusses the move into Quadrant 4 of Hedgeye's proprietary Growth/Inflation/Policy (GIP) model and what it means for the markets in this excerpt from today's Morning Macro Call for institutional subscribers. Quadrant 4 is where both growth and inflation slow.   


Takeaway: Labor weakens a bit, on the margin.

Converging Toward Zero

After a very strong print last week, the labor data took a small step back this week with the rate of change slowing on both a 1-week and 4-week rolling basis. As we've stated often, it's important to remember that initial jobless claims reach a frictional level that they're unlikely to drop much below. This is not dissimilar from the unemployment hitting its frictional bottom at around 4%, i.e. "full employment". As such, as the level of initial claims approach that frictional bottom (~300k), one should expect the rate of change to converge toward zero. The question is, is there a conspicuous trend-line deviation in that rate of change?


With that being said, the data had recently been running at a fairly steady rate of ~10% improvement year-over-year. That is to say, claims are lower by 10% this year vs. last. This week saw claims better by around 6.5%, which is a deceleration vs the recent trend, but not out of line with the converging trend towards zero.


Bottom line: labor's still improving, but at a slowing rate.


The Data

Prior to revision, initial jobless claims rose 13k to 293k from 280k WoW, as the prior week's number was revised up by 1k to 281k.


The headline (unrevised) number shows claims were higher by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -1.25k WoW to 298.5k.


The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -6.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.3%
























Yield Spreads

The 2-10 spread rose 8 basis points WoW to 205 bps. 3Q14TD, the 2-10 spread is averaging 199 bps, which is lower by -21 bps relative to 2Q14.






Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT


Hedgeye Raises More Than $56,000 for Bridgeport Youth Program in Inaugural Charity Golf Tournament

Independent Financial Research Firm Raises Money for Bridgeport Caribe Youth Leaders (BCYL)




STAMFORD, Conn – September 25, 2014 – Hedgeye Risk Management, today announced that it has raised over $56,000 to support Bridgeport Caribe Youth Leaders (BCYL) a 501(c)(3) youth organization in Bridgeport, CT committed to engaging young people in athletic, educational and community programs. The money was raised via Hedgeye Cares 1st Annual Charity Golf Challenge, which was held September 16th at the Great River Golf Course in Milford, CT.


In its inaugural year, the Hedgeye tournament attracted 91 golfers. It included a full day of lunch, golf, dinner and a silent auction later in the evening. The Lincoln Motor Company was the event’s Platinum Sponsor and offered participants test drives in their newest models. Other major Sponsors included Bloomberg, Salesforce, MBIA Foundation and Firefly Space Systems.


“I am deeply grateful to [Hedgeye CEO] Keith McCullough and the entire Hedgeye Cares team for their generous support to the Bridgeport Caribe Youth Leaders.  Their contribution will help us to continue to provide Bridgeport youth; the environment, resources and inspiration that foster leadership skills and values.  I admire Hedgeye’s commitment to the community and BCYL and look forward to a long lasting relationship together,” said BCYL President John Torres.


Hedgeye Raises More Than $56,000 for Bridgeport Youth Program in Inaugural Charity Golf Tournament - Keith McCullough John Torres


Some of the silent auction items donated included a Martha’s Vineyard vacation, a signed jersey and hockey stick from New York Ranger forward Martin St. Louis and a round of golf at the exclusive Sebonack Golf Club in Southhampton.


”We’ve been enormously blessed and are just trying to give a little something back to our community here in Connecticut. John Torres and his team at Caribe are working tirelessly to give kids in Bridgeport the tools they need to become tomorrow’s leaders and success stories,” said Hedgeye CEO Keith McCullough.


Click below to watch video highlights.



Hedgeye Risk Management is an independent investment research and media firm. Focused exclusively on generating and delivering actionable investment ideas in a proven buy-side process, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts, all with buy-side experience, covering Macro, Financials, Energy, Technology, Healthcare, Retail, Gaming, Lodging & Leisure (GLL), Restaurants, Industrials, Semiconductors, Consumer Staples, Internet & Media.


CONTACT: Dan Holland


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