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Abenomics Round II: Risk Is GROSSLY Mispriced | REPLAY PODCAST & SLIDES

Takeaway: We are once again officially bearish on the Japanese yen (FXY) and bullish on large-cap Japanese equities (DXJ).

Yesterday afternoon we held a flash conference call to discuss our revised outlook for Japan and the associated investment implications. Key topics included:

 

  • Where we stand vs. consensus on Abenomics: we think a re-test of ~147 on the USD/JPY cross is a probable occurrence over the intermediate term and we think that equates to roughly 50% upside in the Nikkei 225 from today’s closing price
  • Our intermediate-term outlook for Japanese monetary and fiscal policy: commensurate with this forecast, we think the BoJ will consistently surprise investors with the frequency and scope of further QQE expansion; fiscal policy is extremely supportive over the NTM
  • The elevated risk of a global deflationary spiral: in line with our extremely bearish bias on the Japanese yen, we believe #StrongDollar commodity deflation is set to continue weighing on reported inflation readings globally, underpinning expectations for looser G3 monetary policy, at the margins

 

Consistent with these views, we are once again officially bearish on the Japanese yen (FXY) and bullish on large-cap Japanese equities (DXJ).

 

CLICK HERE to access the replay podcast for today’s call.

 

CLICK HERE to access the associated presentation (~20 slides).

 

As always, please feel free to reach out with any follow-up questions.

 

Have a great evening,

 

DD

 

Darius Dale

Associate: Macro Team


The Athletic Black Book ***NEW TIME

Takeaway: The Athletic Black Book. New Time - Thursday, 12/18 at 1:00pm ET.

The Athletic Black Book ***NEW TIME - 12 15 chart2

 

On Thursday, December 18 at 1:00pm EST, Hedgeye's Retail Team will be hosting a call to review our next Black Book, which will be focused on the Athletic footwear and apparel space.  

 

Specific names include Nike (NKE), Adidas (ADDYY), UnderArmour (UA), Foot Locker (FL), Hibbett (HIBB), Dick's Sporting Goods (DKS), and Finish Line (FINL) - which collectively offer up a good mix of longs and shorts.

 

Call Details

Toll Free Number:

Toll Number:

Password: 13597073

Materials: CLICK HERE

 

 


McCullough: Why You Won't See Me In Barron's Any Time Soon

In this brief excerpt from today’s Institutional Morning Macro Call, Hedgeye CEO Keith McCullough discusses failed forecasts from Barron’s and the only catalyst for the long bond.

 


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Cartoon of the Day: Red October...

Cartoon of the Day: Red October... - Russia cartoon 12.15.2014

"The risk that was developing in Russia has been crystal clear," Hedgeye's Keith McCullough tweeted earlier today. "It's nothing new." On a related note, the Russian stock market crash continues unabated... down another -5.7% #NoWorries right?


FLASHBACK: Hedgeye's Keith McCullough on #Russia Crash $RSX and the 'Worldwide Gong Show'

The Russian circus and its related market and economic implications has been looming large on Hedgeye CEO Keith McCullough's radar screen lately. Here's a quick recap from just two weeks ago in his daily Top-3 things morning look.


Monday Mashup: DRI, BLMN and More

Monday Mashup: DRI, BLMN and More - 1

 

Recent Notes

12/08/14 Monday Mashup: MCD, KKD and More

12/08/14 MCD: Weakest U.S. Comps in Over a Decade

12/08/14 SBUX: Will the Big Bet Pay Off?

12/08/14 Restaurant Sales, Traffic Dip in November

12/09/14 YUM: Hiccup Aids the Bull Case

12/12/14 Knapp Sales Weak, Reiterate Short DRI

 

Events This Week

Tuesday, December 16th

  • BLMN Analyst & Investor Day
  • PLAY Earnings Call 4:30pm EST
  • DRI Earnings Call 5pm EST

 

Chart of the Day

Live Cattle prices are up +20.5% YTD and +22.5% YoY.

 

Monday Mashup: DRI, BLMN and More - 2

 

Recent News Flow

This Morning

  • BOBE announced CEO Steve Davis has stepped down by mutual agreement with the board, effective immediately.  The board has established an interim office of the chief executive (CFO Mark Hood, BEF President Mike Townsley) to provide ongoing leadership and oversight while they search for a new CEO.
  • DRI was upgraded to market perform from underperform at Telsey Advisory Group with a $54 PT.
  • COSI announced completion of its previously announced right offering.  Cosi anticipates issuing 13.3 million common share for gross proceeds of $20 million.

Monday, December 8th

  • JMBA announced it has engaged Peak Franchise Capital to lead its refranchising efforts.  The company plans to refranchise up to 114 stores during 1H15, while simultaneously focusing on future growth initiatives as well as cost cuts.  Management believes it will achieve its target of at least 80%+ franchise-to-company owned stores in the next twelve months.
  • PLKI announced that Central Michigan will square off against Western Kentucky in the inaugural Popeyes Bahama Bowl.  The game, which will be played on December 24th at Thomas A. Robinson National Stadium in Nassau, will be nationally televised in the US on ESPN and will be broadcast on ESPN radio.  During the game, Popeyes will unveil its newest LTO.
  • BWLD launched the Million Dollar Bowl Pick'Em Challenge which will run through December 19th.  Guests are encouraged to visit the GameBreak gaming platform in restaurants, or on their mobile device/desktop, to pick winners of all 39 college football bowl games.  If a guest accurately predicts all 39 winners, they could win $1,000,000.
  • EAT announced Scarlett May has been named Senior VP, General Counsel, and Secretary of the company.  May most recently served as Senior VP, Chief Legal Officer, and Secretary for Ruby Tuesday.

Tuesday, December 9th

  • CAKE announced the opening of its two newest restaurants in Bay Shore, NY and Fort Worth, TX.  The restaurant in Bay Shore has an approximately 8,100 square-foot dining room that accommodates 210 guests, while the restaurant in Fort Worth has an approximately 8,700 square-foot dining room that accommodates 230 guests.
  • THI shareholders approved the transaction with BKW.  Upon close of the transaction, shares of Restaurant Brands International will trade on the NYSE and TSE under the symbol QSR.
  • YUM guided FY14 EPS growth in mid-single-digits versus prior guidance of 6-10%. It also guided to FY15 EPS growth of at least 10%, well below the 17% the street had been projecting.

Wednesday, December 10th

  • EAT was downgraded to hold from buy at Miller Tabak with a $59 PT.
  • COSI extended its rights offering deadline to December 12th.
  • MCD announced it will trim its menu by eight items in January and will cut the options for EVMs from the current 16 to 11.

Thursday, December 11th

  • GMCR announced it has renewed its partnership with Caribou Coffee through a new 10-yr agreement for the "manufacturing, marketing, distribution, and sale of Caribou Coffee in Keurig pack formats."  The companies will also begin offering Caribou Coffee in carafe formats for the Keurig 2.0 brewing system and Keurig Bolt carafe brewing system.
  • YUM dealReporter commented that 3G Capital could be considering a Yum! Brands takeover.
  • LOCO announced a new credit facility, closing on a new five-year $200 million senior secured credit facility that will replace its existing $205 million credit facility.  Upon completion of the refranchising, the company will have approximately $165 million of total debt outstanding.

Friday, December 12th

  • QSR Restaurant Brands International announced the successful completion of the Tim Hortons and Burger King transaction.
 

Sector Performance

The XLY (-2.1%) outperformed the SPX (-3.5%) last week.  In aggregate, casual dining stocks outperformed while quick service stocks underperformed the XLY.

 

Monday Mashup: DRI, BLMN and More - 3

 

Monday Mashup: DRI, BLMN and More - 4

 

XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.

 

Monday Mashup: DRI, BLMN and More - 5

 

Casual Dining Restaurants

Monday Mashup: DRI, BLMN and More - 6

Monday Mashup: DRI, BLMN and More - 7

 

Quick Service Restaurants

Monday Mashup: DRI, BLMN and More - 8

Monday Mashup: DRI, BLMN and More - 9

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


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