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.



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


Learn more about Hedgeye.

#PROCESS: Summarizing our Current View

"If I see an ending, I can work backwards"

- Arthur Miller



Keith outlined the thought process behind our view of yesterday’s Fed announcement and the how/why of our subsequent positioning in this morning’s strategy note (Early Look: Fade The Fed's Forecast). 


Below we summarily recapitulate that thought process in the context of both our research and risk management views.   



#PROCESS: Summarizing our Current View - Fed Forecast CoD


1Q14 Macro View Redux:  We became incrementally more bearish on growth at the beginning of 1Q alongside the breakdown in the $USD and 10Y Yields the breakout in the VIX. 


From a positioning perspective, we increased our cash allocation and shifted away from pro-growth consumer leverage towards slower-growth (bonds, gold, slower growth equities, inflation hedge commodities) exposure.


The subsequent and significant deceleration in the preponderance of fundamental macro data served to confirm the price signals. 


Recall, we love the pro-growth, factor constellation of #StrongDollar + #RatesRising that characterized most of 2013,  


A return to the Dollar Up/Rates Up/Stocks Up regime, confirmed by both the price and research signals, would certainly shift our intermediate term growth outlook upward but the data doesn't support that shift in view here (yet). 



#PROCESS: Summarizing our Current View - Inflation CoDl


THE RISK MANAGEMENT:   Inclusive of yesterday’s price action, the $USD and 10Y Yields remain broken Trend while the VIX and Gold remain bullish on a Trend basis.   


In the context of our view of the Risk Management Signal as a leading indicator of fundamentals, from a quantitative perspective, we’d need to see the following occur for us to get back behind the growth trade 

  1. US Dollar Index breaks out > $81.14 TREND resistance
  2. US 10yr Yield breaks out > 2.81% TREND resistance
  3. Gold snaps $1278 TREND support


#PROCESS: Summarizing our Current View -  USD


#PROCESS: Summarizing our Current View - Gold


#PROCESS: Summarizing our Current View - 10Y

THE FUNDAMENTAL:  The fundamental data decelerated materially in 1Q14.  We saw some multi-decade/record sequential drops in various ISM sub-indices (for example) and while the weather did have some impact, we’d argue the slope of growth was negative vs 2H13 levels even if you discount for the weather distortion. 


Indeed, it’s likely we get a post-weather distortion bounce in the reported data over the next couple months – the question, however, will be whether we can recover to a positive slope of growth from a trend perspective. 


Growth math, after all, is geometric – you have to go up more than you went down on a percentage basis to get back to breakeven.


In the context of the summary table below, we expect the “latest data” column to improve from the homogenous sea of “Worse” that existed in February to a more heterogenous mix of “Better”/”Worse” as we comp exaggerated Jan/Feb declines.   


From a fundamental perspective, we’ll be looking for the TREND data  (3M/6M/TTM Ave) to reflect a re-acceleration.  


#PROCESS: Summarizing our Current View - Eco Summary 031914



THE COMPS In short, the comp setup gets progressively tougher for two more quarters as Growth Comps get increasingly difficult while inflation comps ease into 3Q14. 


At the least, progressively harder top line comparisons alongside increasingly harder margin comparisons is a comp dynamic to be wary of on the long side – particularly when both the quant and fundamental data aren’t yet confirming the pro-growth call.   


#PROCESS: Summarizing our Current View - UNITED STATES


THE PLAN IS THE PLAN WILL CHANGE:  The above highlights the summary output of our integrated research-risk management process post the hawkish lean out of Yellen et al. 


The process isn’t perfect, but it’s dynamic, quantified and repeatable and its happened to work a good deal more than not over the last 6 years.  


Of course, the process also dictates we change our view/positioning alongside the collective change in the price signals and fundamental data.  The above outlines the primary metrics and levels we’ll be using to manage our exposure from here.


Fascinating and frustrating, but definitely not boring.  


Current Positioning:  15 Longs, 5 Shorts 



Christian B. Drake




Takeaway: We continue to favor DRI, YUM, KKD and JACK on the long side and CAKE, BLMN, PNRA and PBPB on the short side.

The Big Picture

Food prices have surged in 2014, with the CRB Foodstuffs Index up +16.5% YTD and +4.8% YoY.  While rapid advances in coffee, beef, cheese and milk have largely fueled the overall basket, all of the commodities we track are in the green YTD.


Commodity prices up YoY:

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

Commodity prices down YoY:

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


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.  The two largest players in the coffee space, SBUX and DNKN, are essentially hedged for all of FY14, but we believe this increase has negatively affected sentiment within the space and could be a headwind in FY15.  Takeaway – bearish for SBUX, DNKN, GMCR, KKD and THI.


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 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.  Takeaway – bearish for TXRH, RRGB, BLMN, CMG, MCD, JACK, SONC, WEN and others with notable exposure.


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.  CME cheese block prices remain close to a decade high.  We’ll continue to monitor these trends closely, as we have identified them as one of several critical factors in our short CAKE thesis.  Takeaway – bearish for CAKE, DPZ, PZZA, TXRH, BLMN, SBUX, DNKN and others with notable exposure.


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.  Takeaway – has been bullish for everyone in Q1, but the trajectory has been decidedly bearish, on the margin, over the past month.


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.  Takeaway – bullish for YUM, PLKI, BWLD and others with notable exposure.


Gasoline at the Pump is down -4.6% YoY, despite ticking up +0.3% over the past week.  Takeaway – 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.



















Howard Penney

Managing Director


Fred Masotta


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