Takeaway: You also have a bullish catalyst (for both stocks and bonds) on Wednesday. If Yellen is dovish, that is…
POSITION: 12 LONGS, 4 SHORTS
Now that the Russell 2000 is back down to -1.3% YTD, people will sell. Sadly, that is what the momentum chasers do. But don’t be sad. Be glad. And capitalize on it.
Across our core risk management durations, here are the lines that matter to me most:
- Intermediate-term TREND resistance = 1181
- Immediate-term TRADE support = 1149
- Long-term TAIL support = 1124
In other words, if all you’ve done all year long is fade the Russell (both ways – buy low, sell high) and bought sub 1124, and sold > 1181, you like my jokes.
You also have a bullish catalyst (for both stocks and bonds) on Wednesday. If Yellen is dovish, that is…
Keep moving out there – risk does.
Keith R. McCullough
Chief Executive Officer
The table below lists our Investment Ideas as well as our Bench -- a list of potential ideas we are watching closely. We intend to update this table regularly and will provide detail on any material changes.
- We removed short BNNY from our Investment Ideas list after the GIS bid.
- Our short call on SBUX was featured in Barron's this weekend in a column titled "The Problem With Starbucks."
- We are hosting a Best Idea call this Thursday, September 18, 2014 at 11am EST to run through our short thesis on SBUX and field questions.
09/08/14 Monday Mashup: BLMN, PLKI and More
09/11/14 New Best Idea: Short SBUX
Events This Week
Monday, September 15th
- YUM Investor & Analyst Conference Day 1
Tuesday, September 16th
- YUM Investor & Analyst Conference Day 2
Wednesday, September 17th
- DNKN Investor & Analyst Day
- CBRL earnings call 11:00am EST
Chart of the Day
Coffee prices are up +52.5% YTD and +39.5% YoY.
Recent News Flow
Monday, September 8th
- BAGL appointed Frank G. Paci as President and Chief Executive Officer. Interim CEO Michael Arthur will continue to serve on the company's Board of Directors. Mr. Paci most recently served as President and CEO at McAlister's Deli and has held prior roles at The Pantry, Pizza Hut and Burger King.
- RRGB announced it will open its newest restaurant in New York state (Horseheads, NY) on September 22nd.
Tuesday, September 9th
- DIN introduced its new "Waffullicious Waffles" which will be available for a limited time.
- MCD reported disappointing August comps as global same-store sales fell -3.7%, led by -4% and -14.3% declines in the U.S. and APMEA regions, respectively.
- BJRI increased its existing unsecured revolving line of credit to $150 million from $75 million and announced the opening of its newest restaurant in Denton, TX.
- KKD announced a greater Maryland and Washington DC area development agreement with Monument Restaurant VII for the development of 20 new Krispy Kreme shops over the next several years.
Wednesday, September 10th
- YUM increased its quarterly dividend by 10.8% to $0.41.
Friday, September 12th
- DRI Starboard released its transformation plan for Darden Restaurants in a 294 page slide deck. If enacted, the activist believes its plan could unlock $19-38/sh in value. This excludes the potential value that could be unlocked through an Olive Garden turnaround.
- SBUX 6.2 million share block trade was priced at $75.15 through BoA.
- LOCO celebrated the grand opening of its newest restaurant in Sacramento, CA.
The SPX (-1.1%) outperformed the XLY (-1.3%) last week. In aggregate, casual dining and quick service stocks outperformed the SPX.
XLY Quantitative Setup
From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.
Casual Dining Restaurants
Quick Service Restaurants
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Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.
1. CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “large speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.
The Cotton, Live Cattle, Lean Hogs markets experienced the most BULLISH relative positioning change in the CRB Index week-over-week.
- Sentiment in the cotton market is joining the rally (+6.9% last week and +12% over the last month)
- The CFTC Commitments of traders report released last Friday reflected the largest relative positioning change of any commodity in the CRB (remember the data reveals market positioning through last Tuesday rather than a snapshot at week-end)
- Timing: Australia, which is the seventh largest cotton producer, cut production estimates for 2014-15 by -29% from its most recent June estimate. The news broke during the day last Tuesday which may explain the change in sentiment by the close of the session.
- The lean hogs and live cattle markets have shown a significant divergence over the last month (Lean Hogs -7.3% vs. live cattle +4.4%). Spot-1Yr basis shown below outlines the bearish expectation for both markets moving forward
The Sugar, Copper, Soybeans, and Natural Gas markets experienced the most BEARISH relative positioning change in the CRB week-over-week:
- Sugar: Bullish sentiment in the sugar market was cut by -2/3rds week-over-week despite the huge divergence in the price spread between spot prices and contracts expiring in 1-year which are trading +28% higher.
- Natural Gas: Market -9.3% shorter week over week and -8%/-23%/-37%vs. 1/3/6-month averages
- Increase in Stockpiles: reached an 11-year low in March of this year
- EIA data through last week shows 2.8 trillion cubic feet of stockpiles vs. ~800K at March Lows
- Increase in Stockpiles: reached an 11-year low in March of this year
2. Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.
- The Sugar, Corn, Wheat, and Coffee markets are positioned for HIGHER PRICES near-term
- The Lean Hogs, Cotton, and Gasoline markets are positioned for LOWER PRICES near-term
3. Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.
- The Sugar, Corn , Wheat, and Coffee markets are positioned for HIGHER PRICES in 1-year
- The Lean Hogs, Live Cattle, and Cotton markets are positioned for LOWER PRICES in 1-year
4. Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.
Tickers: LVS, MGM, MAR
- Sept 15-19: CLSA Investor Forum (MGM, Genting S'pore, WYNN, LVS, SJM, Bloomberry,
- Sept 16: Trump Plaza closes
- Sept 16: FCH investor meetings in Canada
- Sept 17: Massachusetts Gaming Commission: Boston Decision by Wednesday
- Sept 17: PENN at Credit Suisse Small & Mid Cap Conference
- Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept
- Sept 18: Imperial Capital Global Opportunities Conference
- BYD, PENN, GLPI
- Sept 18: WYN & VAC at MKM Entertainment, Leisure Conference
880:HK SJM – (Macau Business) Employees of SJM have threatened to go on strike during the golden week of holidays beginning on October 1. The secretary-general of the trade union Forefront of Macao Gaming, Cloee Chao, said the workers would strike if their employer and the government failed to sit down with them to discuss their demand for better pay and benefits. This past Saturday, hundreds of SJM employees marched from Sintra Square to the company’s Grand Lisboa and Hotel Lisboa casinos to demonstrate their dissatisfaction with their pay and opportunities for promotion.
Takeaway: SJM facing increased labor actions which may disrupt the vital Golden Week holiday - Labor woes is becoming another negative headline for Macau stocks.
GENM:MK – BB Entertainment Ltd, a unit of Genting Malaysia Bhd, is paying US$24.6 million to RAV Bahamas Ltd for 16.2 acres (6.6 hectares) of land adjacent to Resorts World Bimini on the Bimini Islands, Bahamas. BB Entertainment owns and operates the casino in the property.
Takeaway: If you can't build a casino in South Florida, build it 50 miles due east of Miami in a lower tax jurisdiction -- the official opening of the first phase of the new Port at ResortsWorld Bimini occurs on Thursday, September 18th with Bahamas Prime Minister, the Rt. Hon. Perry Christie and Executive Chairman of Genting Group, Tan Sri KT Lim attending.
LVS & 1928:HK – (GGRAsia) International ad agency Saatchi and Saatchi announced it was appointed by Macau-based casino operator Sands China Ltd to serve as the firm’s creative agency for the mainland China, Hong Kong and Macau markets. One of Saatchi and Saatchi’s main tasks will be to help promote the US$2.7 billion Parisian Macao casino resort.
Takeaway: The retention of a strong marketing and advertising firm to help drive gaming and non-gaming visits to the Macau and Cotai.
MAR – announced the appointment of Toni Stoeckl to Vice President of Lifestyle Brands including global responsibility for Renaissance Hotels, AC Hotels by Marriott and Moxy Hotels. Mr. Stoeckl previously served as vice president for the Renaissance Hotels brand. In his newly expanded role, his leadership will drive, define and execute global brand strategies and signature programming for more than 225 hotels around the world.
Takeaway: Efforts to appeal to a younger generation of traveler and hotel guest.
MAR – encourages guests to tip to housekeepers as part of new tipping initiative called "The Envelope Please"
Takeaway: A blatant push for guests to pay more…and avoid potential labor relations issues with housekeepers.
Connecticut-based Starwood Capital Group, is part of a group that purchased Jim Korroch’s SpringHill Suites by Marriott and his Residence Inn by Marriott, both of which are at the Plazzio development at 13th and Greenwich. Also included in the deal is the Hampton Inn & Suites at Regency Lakes at 21st and Greenwich and the Hilton Garden Inn Wichita at Bradley Fair. The total value of the four asset portfolio was greater than $50 million.
Takeaway: It would seem private equity is moving into second and third tier markets in an attempt to achieve higher returns than might be achieved in core, first tier markets.
Typhoon Kalmaegi – Typhoon Kalmaegi, known as Typhoon Luis in the Philippines, zipped west across the northern part of Luzon, the northern of the three largest islands in the Philippines, on Sunday. Kalmaegi will then approach southern China's Leizhou Peninsula and Hainan Island Tuesday morning as a category 1 equivalent typhoon and northern Vietnam by Tuesday evening local time, bringing the potential for flooding and some wind damage. The center will stay south of Hong Kong. However, at least some outer rain bands and tropical storm-force gusts appear possible in Hong Kong during that time.
Takeaway: The immediate Hong Kong and Macau areas are expected to experience a typhoon Signal 8 by midnight local time, up from current singal number 3 and could result in a modest impact to Macau gaming due to rough seas impacting ferry traffic.
- Retail sales +5.5% in July, mainly due to strong vehicle sales. Ex auto, sales fell 0.4%.
- Excluding executive condominiums (ECs), developers sold 432 new units in August, down from the 509 units sold in July, data from the Urban Redevelopment Authority showed
- Aug Industrial production +6.9% year-over-year vs +8.7% consensus and +9.0% in July, the slowest increase since 2008
- Aug Retail sales +11.9% year-over-year vs +12.1% consensus and +12.2% in July
Takeaway: Disappointing 3Q data from two Asian tigers
Hedgeye remains negative on consumer spending and believes in more inflation. Following a great call on rising housing prices, the Hedgeye
Macro/Financials team is turning decidedly less positive.
Takeaway: We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.