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The Best of This Week From Hedgeye

Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYE TV

McCullough: Russell 2000 Is "Definitive Bubble" 

In this brief excerpt from Friday's Morning Macro Call, Hedgeye CEO Keith McCullough reiterates his opinion that small cap stocks are in a bubble.

 

Semi Stocks Facing Risks?

Hedgeye semiconductor analyst Craig Berger discusses a weak pre-announcement from one company in the sector and looks at growing risks for other names in the chip space.

 

HEDGEYE PODCAST

 London Calling

 We caught up with Hedgeye CEO Keith McCullough in between investor meetings in London. Keith tells us what’s on the minds of those investors.

CARTOON

 Hedgeye + $TLT = LOVE

The Best of This Week From Hedgeye - TLT love 10.7.14

As the 10-year yield drops back below 2.40%, we reiterate our non-consensus, best macro long idea of the year: Long the Long Bond.

 

Beware of #QUAD4

The Best of This Week From Hedgeye - Qaud4 10.9.14

Hedgeye's Macro Team, led by CEO Keith McCullough recently hosted its quarterly Macro Themes conference call in which it detailed the THREE MOST IMPORTANT MACRO TRENDS it has identified for 4Q14 and the associated investment implications. At the top of the list is #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.

CHART

 Deflating #BUBBLES in #QUAD4

The Best of This Week From Hedgeye - COD 10.6.14

 

Exorbitant Privilege (Fed Remittances to the U.S. Treasury)

The Best of This Week From Hedgeye - COD 10.7.17

 

Energy Price Sensitivity (Wildcatters Energy E&P Index)

The Best of This Week From Hedgeye - COD 10.9.14

As you can see in today’s chart, the Thomson Reuters Wildcatter’s Index (small and mid-cap E&Ps) has retreated -33% from its June YTD highs. If you top-ticked that move, it was the same day you shorted oil at the 2014 highs.  

 

POLL OF THE DAY

Oil Prices

With WTI crude oil prices trading around $90/barrel, we wanted to know what’s the likeliest next stop? 


The Week Ahead

The Economic Data calendar for the week of the 13th of October through the 17th of October is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.

 

The Week Ahead - 10.10.14 Week Ahead


Cartoon of the Day: No Bark, No Bite

Cartoon of the Day: No Bark, No Bite - Russell cartoon 10.10.2014

 

Hedgeye CEO Keith McCullough says the Russell 2000 is in a “definitive bubble.” The Russell is indeed a real dog – it trades at 55 times trailing earnings, and is sharply below its all-time bubble peak set on July 7.

 


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.

Estimates Are Heading Higher

Black Box numbers indicate same-store sales increased +2.2% in September, in what was yet another bullish release for the restaurant industry.  This same-store sales gain represents a 10 bps sequential improvement over a strong August.  Traffic declined -0.2%, representing a 30 bps improvement over August.  All told, these are the best monthly, and quarterly, numbers we've seen since 1Q12. 

 

Although we're not insinuating this is the defining turning point in the industry, particularly in regards to casual diners, we'd be remiss not to respect the data.  Easy comparisons in 4Q14 set the industry up for continued momentum heading into what looks to be a strong finish to the year.  Importantly, this recovery is not geographically constrained.  Black Box reported September sales improved in 159 markets, while only declining in 29.  This is the best up/down ratio we have seen since we started tracking the data back in 2011.

 

Estimates Are Heading Higher - chart2

 

Estimates Are Heading Higher - chart3

 

With that being said, we're confident that a vast majority of restaurant companies will have same-store sales estimates revised upward in the coming months.   As it stands, estimates for both 3Q and 4Q appear conservative.  Below, we take a look back at what consensus same-store sales estimates were at the beginning of 3Q and compare them to current estimates.

 

system-wide SAME-STORE SALES ESTIMATES

Estimates Are Heading Higher - 44

 

Estimates Are Heading Higher - 33

 

As you can see, despite three months of sequential improvements in industry sales numbers, the majority of estimates have been revised down since the nascent days of July.  This signals to us that there is currently a disconnect between estimates and reality.  We expect this gap to close over the coming weeks, but all indications suggest we will see a fair amount of upside surprises as earnings season progresses.  We covered our two remaining casual dining shorts (DFRG, EAT) for this reason in a note yesterday.

 

Current estimates across many sub-sectors of the restaurant industry suggest a sequential decelerations in two-year trends in 3Q14, clearly inconsistent with recent data points.  Lower gas prices, lower food away from home prices, increasing disposable income, strong employment trends and improving consumer confidence are all current tailwinds to the industry.  Stocks should rise simultaneously with increasing estimates.  We've been very active on the short side throughout 2014, but believe it is prudent to cover and look for better entry opportunities in a month or two.  We continue to have a healthy short bench that we will begin picking from when we feel the time is right.

 

Sub-Sector Same-Store Sales Estimates

3Q and 4Q numbers must, and will, be revised upward.  Current estimates are too low across nearly all sub-sectors.

 

Estimates Are Heading Higher - 6

Estimates Are Heading Higher - 7

Estimates Are Heading Higher - 8

Estimates Are Heading Higher - 9

Estimates Are Heading Higher - 10

Estimates Are Heading Higher - 11

Estimates Are Heading Higher - 12

 

Call with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


VIDEO | Macau: Doubling Down on Bearish Thesis

In this exclusive interview Todd Jordan gives his insights from Macau.

 

  

David and Todd walk thought their 3 pronged negative thesis on Macau gaming (VIP slowdown as a result of a corruption crackdown, Mass deceleration and mass margin contraction) and the threat of further shrinking Mass margins. Todd highlights specific risks for LVS and MPEL and positives Galaxy.

 



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