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Takeaway: Some quick Macro Eye-Candy to close out a Dramamine Thursday.

The U.S. has been the relative outperformer on the global Macro fundamental front and we highlighted the ongoing strength in the high frequency labor data this morning (HERE) but no month/quarter/year-end markup for domestic manufacturing as the data continued to slow into December.


The Markit Composite PMI slowed in December alongside sequential slowing in both the manufacturing and services components.  While holding above the expansion demarcation line of 50 for a 14th month,  New Orders in December dropped to the lowest reading since October 2012 while the headline reading retreated for a 6th consecutive month, slipping to the lowest level since October of last year. 




Alongside a reversal in here-to favorable seasonals and a deceleration in domestic mfg and export demand, we expect the reported ISM/IP data to follow the Markit reading lower in the coming months. 






Looking globally – and despite the whipsaw action in markets – the trend towards disinflation and decelerating growth remains predominate as the negative growth and inflation estimate revisions continue to roll-in. 




Oversold market bounce but with cross-asset class volatility ramping, the VVIX (VIX of the VIX) in breakout mode and the currency war race-to-the-bottom in full re-crescendo, being long of Dramamine futures…or its more liquid little brother, the long-bong (TLT)…remains our favored macro position into year-end.  




Have a good night,



Christian B. Drake




Takeaway: SBUX continues to be a Best Idea short.

Disappointing Guidance

Today, DNKN announced that it expects Dunkin’ Donuts U.S. full-year same-store sales growth to be approximately +1.4% in 2014, below the current +1.8% consensus estimate.  This guidance implies that 4Q same-store sales are running in the +0.5-0.8% range, well below the current +2.2% consensus estimate.  In 2015, the company expects to deliver full-year same-store sales growth of +1-3% in the U.S and adjusted EPS of $1.88-1.91 (current consensus estimate is $2.02).


Management broadly alluded to a couple of headwinds its business is facing: “Dunkin' Donuts' 2014 U.S. comparable store sales and transactions remained positive, although not as positive as we hoped because of continued pressure on the consumer and decelerating sales of packaged coffee in our restaurants. We expect these trends to continue into next year.”


Is Starbucks Immune?

The obvious question that arises from this press release and aforementioned guidance is whether or not Starbucks is seeing similar pressure.  Many people will roll their eyes at this notion as “the brands have different consumer bases,” but the fact of the matter is, the correlation between Dunkin’ Donuts and Starbucks same-store sales is a respectable 0.75 since the beginning of calendar 2011.  Call us crazy, but it isn’t clear that Starbucks is immune to some of the softness Dunkin’ is facing.




DNKN DEBACLE & PARALLELS TO SBUX - 12 18 2014 1 38 06 PM


What’s Really Wrong with Dunkin’?

DNKN sales trends have been decelerating for quite some time now.  In fact, two-year trends would suggest comps have been steadily decelerating for the past three years.  It is now abundantly clear that 2014 has been a real pain for the company and management constantly cites a difficult macro environment as the reason for the slowdown.  Intense competition in the QSR segment could be partially to blame, but it certainly doesn’t tell the whole story.  This rationale has also been extremely inconsistent with the improving jobs outlook, consumer confidence, and declining gasoline prices.


Menu Proliferation Can’t Be Helping

Pulling back the curtain on the menu complexity at Dunkin’ reveals a much bigger problem for the company than the current competitive environment.  Similar to MCD and (dare we say) SBUX, DNKN’s sales trends have decelerated as menu proliferation has accelerated.  As we outlined in our Starbucks deck back in September, concepts that see a significant increase in menu items tend to see a coincident deceleration in comps (and vice versa).  Ask McDonald’s how well menu expansion has gone for them!









Needless to say, today’s DNKN news certainly makes us feel more comfortable with our SBUX short.  Expectations are elevated after the recent Starbucks analyst meeting that the concept will see an acceleration in traffic trends during the holiday period.  At 26x forward P/E and 14x forward EV/EBITDA, this isn’t something were willing to bank on and, so far, the news flow around the holiday season has favored the short side of the trade.


Howard Penney

Managing Director


Fred Masotta



Yesterday we erroneously published a comment as part of our Leisure Letter, that read in part “MGM may have difficulty fulfilling its debt obligations and staying compliant with its covenants in 2016.”  This is a misstatement of our position.  In fact, we believe that MGM should not have difficulty fulfilling its debt obligations, and that it should be able to remain compliant with its covenants in 2016.  We regret any confusion this may have caused.  Please feel free to contact us for further clarification.





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Cartoon of the Day: The Real Fed Policy

Cartoon of the Day: The Real Fed Policy - FED cartoon 12.18.2014

Market euphoria is in full force following yesterday's Fed meeting.

Jobless Claims: Watching the Energy States for Signs of Labor Market Deterioration

Takeaway: This week we take a look at energy state jobless claims trends and their relative exposure to the collapse in crude.

Below is the detailed breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 



Oil has been in the news recently in case you haven't noticed. It will be important to watch state level initial jobless claims going forward. Why? Energy-heavy states are at risk of higher job loss due to the collapse in crude oil prices.


With that in mind, we're going to start posting occasional updates on how these states are faring from a labor market standpoint.


Our Energy Sector Head, Kevin Kaiser, sent a note out internally a while back flagging an article that showed state level labor market concentrations tethered to energy. The key chart from that note is shown below. The big energy states in the US (in alphabetical order) are Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia and Wyoming. For those interested in the article, it can be found here.


Jobless Claims: Watching the Energy States for Signs of Labor Market Deterioration - States with Energy Concentration



A lot of people don't realize that the Labor Dept publishes state-level initial jobless claims data on a weekly basis, but on a one-week lag. Here's a look at the trend in these energy-heavy states based on the most recent week of data.


There's some good news and some potentially bad news. The good news is that if you look at the rate of change in week-over-week NSA initial claims in these energy heavy states, it averages 1.88%. That compares with the national average of 1.90%. This is good. It suggests that, for now, energy states are not diverging from the national trends.


The potentially bad news, however, is that if you look at the chart above, you'll notice that some of these energy states are more exposed to Oil & Gas Operations (Alaska, as an example). Alaska actually saw the highest w/w change in claims of the energy states. That said, the other state that saw claims rise faster than the national average was West Virginia, which has a comparatively small oil-based labor market relative to a large coal-mining labor market. It's also worth repeating that one week of data isn't enough to draw any firm conclusions.


As we move forward, we'll build out this dataset to see if more concrete conclusions can be drawn, but for now we thought we'd start with an opening salvo at what is one of the big potential black swans for an otherwise strong domestic labor market.  


Jobless Claims: Watching the Energy States for Signs of Labor Market Deterioration - energy bar chart


The Data

Prior to revision, initial jobless claims fell 5k to 289k from 294k WoW, as the prior week's number was revised up by 1k to 295k.


The headline (unrevised) number shows claims were lower by 6k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -0.75k

WoW to 298.75k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -12.9% lower YoY, which is a sequential improvement versus the previous week's YoY change of -8.1%


Jobless Claims: Watching the Energy States for Signs of Labor Market Deterioration - 2 normal  1


Jobless Claims: Watching the Energy States for Signs of Labor Market Deterioration - 3




Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT

PODCAST | Oversupply of Underperformance: How Epic Short-Term Performance Pressure Affects Markets


In the Q&A portion of today’s Morning Macro Call, Hedgeye CEO Keith McCullough discusses performance pressure on asset managers,  volatility in the Russell 2000,  and whether recent market activity compares to what occurred in the late-90’s.


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