Takeaway: The SP500 is still bullish because it continues to signal a series of higher-lows (1824 support) and higher-highs (1850 resistance).
POSITION: 10 LONGS, 5 SHORTS @Hedgeye
While its fascinating to watch the same pundits who tried calling a market top for all of 2013 do the same in 2014, calling tops is not a process. It’s a marketing gig. We do levels, risk ranges, and research instead.
Across our core risk management durations here are the levels that matter to me most:
- Immediate-term TRADE resistance = 1850
- Immediate-term TRADE support = 1824
- Intermediate-term TREND support = 1762
In other words, the SP500 is still bullish because it continues to signal a series of higher-lows (1824 support) and higher-highs (1850 resistance vs. the all-time closing high of 1848 on DEC 31).
With mean reversion support -4% lower (1762), that’s not to say that buying-the-damn-bubble #BTDB on down days is for the faint of heart. It’s just a friendly reminder that it continues to pay the bills if you buyem right.
Win the day,
Chief Executive Officer
Takeaway: We reiterate our Best Idea shorts: BLMN, PNRA, PBPB, MCD.
No real surprises here. Industry data points are continuing to confirm our bearish stance on casual dining.
Last night, Malcolm Knapp released his Knapp Track sales results for December, estimating that same-restaurant sales and guest counts declined -3.8% and -5.2%, respectively, versus December 2012.
On a two-year average basis, the results imply a sequential change of -235 bps and -360 bps for same-restaurant sales and guest counts, respectively.
Knapp noted that only one of four weeks in December had positive comparable sales, while all four weeks had negative comparable guest counts. Poor weather conditions negatively impacted the month, particularly in the first week which was also the worst week of the month.
According to prior accounting period data and these December estimates, we estimate that comparable restaurant sales and comparable guest counts declined -0.7% and -2.5%, respectively, during the fourth quarter.
We will release more data when Black Box Intelligence reports, including what companies have seen their same-restaurant sales estimates revised over the course of December.
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Client Talking Points
Got beta on that Correlation Risk? The Yen is down -0.3% and the Nikkei is up +1.9%. Yup, that’s the game you are in right now; so play it until these correlations burn off. This massive net short position in the Yen notwithstanding (currently -143,000 contracts), the risk range for USD/YEN is actually tightening. That’s bullish for the Yen, on the margin. We continue to watch this closely.
Stocks in Vienna lead European gainers up +1% this morning to +4.3% year-to-date. The reason I call that out is because that’s one of the top 2014 global equity performers. It's still early, but we will explain why parts of Europe should continue to follow Germany’s lead on tomorrow’s Q1 Global Macro Themes call.
Oil is up +0.2% this morning, but it's still bearish from a long-term TAIL risk perspective ($109.39 is a wall of resistance). All the while, Natural Gas (up another +1.1% this morning) continues to diverge bullishly. We will be writing more about Oil verss Natty (and shale) in the coming weeks.
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Top Long Ideas
Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL. So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.
We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.
WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.
Three for the Road
QUOTE OF THE DAY
"Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won't come in." -Isaac Asimov
STAT OF THE DAY
Unseasonally cold weather in the U.S. has led to at least 21 deaths and resulted in freezing temperatures in all 50 states on Tuesday, according to reports.
Following up on a blockbuster Q3, pricing and volume of hotel transactions were strong again in Q4. Positive for HOT.
Upper upscale (UUP) & Luxury Transaction Trends for Q4 2013
- Q4 2013 worldwide hotel transactions (UUP & Luxury brands) volume was a little more than $3 billion, roughly the same as last year’s quarter and below the monster $5 billion seen in Q3.
- The number of US luxury/UUP hotel transactions (where price was disclosed) was 17 in Q4 2013 - flat sequentially and 8 more than in Q4 2012.
- The number of non-US luxury/UUP hotel transactions (where price was disclosed) was 8 in Q4 2013 – flat sequentially and 5 more than in Q4 2012.
- Relative to a two-year trailing average, US average price per key (APPK) in the UUP segment fell 42% to $155k due to HST’s bargain purchase of Times Square Marriott Marquis.
- Luxury APPK was strong particularly overseas where there were several +$million APPK deals
- Bought Times Square Marriott Marquis at $10K APPK
- Sold Dallas Addison Marriott Quorum for $101K APPK
- Sold Philadelphia Marriott Downtown for $217K APPK
- Sold Courtyard Paris La Defense West – Colombes for $165K APPK
- Sold Portland Marriott Downtown Waterfront for $175K APPK
- Sold Renaissance Chicago Downtown for $251K APPK
- Sold Hyatt Key West Resort and Spa for $644K APPK
- Sold Westin San Fran Airport/ Aloft San Fran Airport for $193K APPK
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