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Monday Mashup: CAKE, PNRA and More

Monday Mashup: CAKE, PNRA and More - 1


Recent Notes

02/02/15 Monday Mashup: WEN, CMG, DNKN, YUM, BWLD

02/03/15 WEN: Middling Q, But that’s Not the Story Here

02/03/15 WEN Leveraged Recap Puts Pressure on Yum

02/04/15 CMG: Look Past the Near Term Noise

02/05/15 YUM: In Need of a Nudge

02/06/15 January Sales & Traffic Strongest in Six Years


Events This Week

Monday, February 9th

  • MCD January 2015 Sales and Revenue Release

Tuesday, February 10th

  • GTIM earnings call 11:00am EST

Wednesday, February 11th

  • CAKE earnings call 5:00pm EST

Thursday, February 12th

  • PNRA earnings call 8:30am EST

Friday, February 13th

  • RRGB earnings call 10:00am EST
  • JACK Annual General Meeting


Chart of the Day

Monday Mashup: CAKE, PNRA and More - 2


Recent News Flow

This Morning

  • BWLD was downgraded to hold at Miller Tabak with a $193 PT.

Monday, February 2nd

  • LOCO announced the addition of Baja Shrimp as a seasonal menu option available through the spring.  The new menu items include: Shrimp Mango Tacos, Shrimp Verde Enchiladas, Shrimp & Chicken Avocado Bowl, and Avocado Shrimp Salad.
  • PZZA announced it is bringing back a fan favorite, the Bacon Cheeseburger Pizza, available through March 15th.

Tuesday, February 3rd

  • BJRI announced the opening of its newest restaurant in Nanuet, New York.  The 8,000 square ft. restaurant seats approximately 250 guests.

Wednesday, February 4th

  • RUTH announced the opening of its newest restaurant in St. Petersburg, Florida. 

Thursday, February 5th

  • WEN was upgraded to positive at Susquehanna with a $13 PT.
  • KKD announced the termination of its tax asset plan and stock transfer restrictions.
  • EAT declared a quarterly dividend of $0.28 per share, payable on March 26, 2015 to shareholders as of March 6th, 2015.
  • EAT announced the election of Elaine L. Boltz to its Board of Directors.  Boltz is a Senior Vice President at TJX Companies and has previously held positions with The Boston Consulting Group, ANN Inc., and Chico’s FAS, Inc.

Friday, February 6th

  • DNKN entered into a $400 million accelerated share repurchase program with Goldman, Sachs & Co.  On February 10th, the company will pay Goldman $400 million in cash and will receive ~6,950,000 of the company’s common stock.


Sector Performance

The XLY (+4.2%) outperformed the SPX (+3.0%) last week.  Both casual dining and quick service stocks, in aggregate, underperformed the XLY.

Monday Mashup: CAKE, PNRA and More - 3


Monday Mashup: CAKE, PNRA and More - 4


Quantitative Setup

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

Monday Mashup: CAKE, PNRA and More - 5

Casual Dining Restaurants

Monday Mashup: CAKE, PNRA and More - 6

Monday Mashup: CAKE, PNRA and More - 7


Quick Service Restaurants

Monday Mashup: CAKE, PNRA and More - 8

Monday Mashup: CAKE, PNRA and More - 9


Takeaway: Today we show why we think investors should be actively managing interest rate risk on much shorter durations for at least the next ~6-8wks.


Long Ideas/Overweight Recommendations

  1. Utilities Select Sector SPDR Fund (XLU)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. SPDR Gold Shares (GLD)
  4. Consumer Staples Select Sector SPDR Fund (XLP)
  5. iShares U.S. Home Construction ETF (ITB)
  1. LONG BENCH: PowerShares DB U.S. Dollar Index Bullish Fund (UUP), Vanguard REIT ETF (VNQ), Vanguard Extended Duration Treasury ETF (EDV), Healthcare Select Sector SPDR Fund (XLV)

Short Ideas/Underweight Recommendations

  1. iPath S&P GSCI Crude Oil Total Return ETN (OIL)
  1. SPDR Barclays High Yield Bond ETF (JNK)
  2. SPDR S&P Regional Banking ETF (KRE)
  3. Industrial Select Sector SPDR Fund (XLI)
  4. iShares MSCI Emerging Markets ETF (EEM)
  1. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)



Revisiting Our #Quad414 Theme Because the January Jobs Report Told Us To: Obviously the JAN employment report was really good – not just relative to consensus expectations, but due to massive positive revisions in the NOV and DEC payrolls growth numbers and a +30bps bump in wage growth to +2.2% YoY (CLICK HERE for our full synopsis). 




The headline Nonfarm Payrolls growth figure slowed to +257k MoM from an upwardly-revised +329k in DEC. One month does not a TREND make, however, and we all know payrolls growth north of +300k is generally unsustainable. A growth rate of +257k is solid (i.e. in the 87th percentile of all readings over the trailing 10yrs) and speaks volumes to the pace of economic growth that my ultimately be reported in Q1.




This we know: the Q1 GDP comp is very easy and growth in both aggregate nominal income and average real incomes are accelerating on both a sequential and trending basis.










This we also know: we haven’t received a lot of meaningful economic data for the first quarter yet, but of the data points we have received, all are showing either continued sequential and/or trending accelerations (consumer confidence, employment) OR inflection/stabilization from a trend of deceleration (Markit PMI, ISM PMI).








It’s still very much early innings as far reported Q1 data is concerned, but growth bulls have to like what they’ve seen thus far for the month of January. It’s been a while…


As far as the key risk we outlined in our #Quad414 theme is concerned: will one-day bearish TRADES in fixed income and bond-like equities start to TREND – assuming that Friday’s market reaction was no aberration?


We don’t know for sure but our Real-Time Alerts signals on Friday would suggest which answer we think is most probable from these prices:


  • 2/6 @ 9:42am: Real-Time Alert: Macro Buy Signal: Munis (MUB)
  • 2/6 @ 10:40am: Real-Time Alert: Steiner Sell Signal: Bank of America (BAC)
  • 2/6 @ 3:24pm: Real-Time Alert: Macro Buy Signal: Utilities (XLU)
  • 2/6 @ 3:29pm: Real-Time Alert: Macro Sell Signal: Long Bond Bears (TBT)


In the interest of remaining transparent and accountable, it’s worth noting that we positioned for a Treasury bond rally into the Jobs Report as well, so we’re wrong on that for a day:


  • 2/5 @ 9:43am: Real-Time Alert: Macro Overbought Signal: US Dollar (UUP)
  • 2/5 @ 10:00am: Real-Time Alert: Macro Buy Signal: Utilities (XLU)
  • 2/5 @ 10:23am: Real-Time Alert: Steiner Sell Signal: Bank of America (BAC)
  • 2/5 @ 3:48pm: Real-Time Alert: Macro Buy Signal: Long Term Bonds (EDV)


All told, to the extent our #Quad414 theme continues to play out as planned, it’s much harder for an investor to justify a buy-and-hold strategy in TLT, EDV, MUB, ZROZ, VNQ, XLU, XLP and XLV here. As such, we think investors should be actively managing interest rate risk on much shorter durations for at least the next ~6-8 weeks.


***CLICK HERE to download the full TACRM presentation.***



Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.


The Hedgeye Macro Playbook (2/5)


#Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.


Rainbows & Puppy Dogs | January Employment (2/6)


Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.


HOUSING: Purchase Apps | Easings & Accelerations (2/4)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.                

European Banking Monitor: Greece Diverges From the Rest of Europe

Takeaway: A good jobs report lifts the U.S., while investor concerns over Greece are isolated to Greece.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 




Key Takeaway:

Last week saw two notable events on the Macro risk front: 1) The ongoing game of bailout-chicken being played by Greece and the EU and 2) the labor market report on Friday. The favorable U.S. jobs report lifted domestic markets, as, apparently, good news has become good again.  On the other hand, with the announcement that the ECB will stop accepting Greek bonds as collateral, spreads on EFG Eurobank Ergasias blew out by +626 bps.  Interestingly, investors still perceive Greek risk as isolated to that country; European swaps at the median tightened by -2.6%.


European Financial CDS - Swaps mostly tightened in Europe last week.  The big news for the week was that the ECB will stop accepting Greek bonds as collateral.  Given that announcement, EFG Eugobank Ergasias swaps widened by a massive +626 bps.


European Banking Monitor: Greece Diverges From the Rest of Europe - chart1 financials CDS


Sovereign CDS – Sovereign swaps were little changed on the week with the largest moves coming from Portugal (-4 bps to 180 ) and Spain (+7 bps to 94).  


European Banking Monitor: Greece Diverges From the Rest of Europe - chart2 sovereign CDS


European Banking Monitor: Greece Diverges From the Rest of Europe - chart3 sovereign CDS


European Banking Monitor: Greece Diverges From the Rest of Europe - chart4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 10 bps.


European Banking Monitor: Greece Diverges From the Rest of Europe - chart5 euribor OIS spread



Matthew Hedrick 



Ben Ryan





Commodities Weekly Sentiment Tracker

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 “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 SOYBEANS, COTTON, and COPPER markets experienced the most BULLISH relative positioning changes week-over-week
  • The ORANGE JUICE, SUGAR, and WHEAT markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment


2.       Spot – Second Month Spread: Measures the market expectation for forward looking prices in the near-term.

  • The RBOB GASOLINE, LEAN HOGS, and CORN markets are positioned for HIGHER PRICES near-term
  • The LIVE CATTLE, ULSD HEATING OIL, and SUGAR markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month spread


3.       Spot – 1 Year Spread: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The NATURAL GAS, WTI CRUDE OIL, and BRENT CRUDE OIL markets are positioned for HIGHER PRICES in 1-year  
  • The LIVE CATTLE, COCOA, and COPPER markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1yr spread


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.

Commodities Weekly Sentiment Tracker - char4 open interest


Ben Ryan


February 9, 2015

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Will The Macro Mean Revert Back to TREND?

Client Talking Points


The main reason for the whip around, counter-TREND, moves in macro last week was the USD whipping around – down hard mid-week, then up on the jobs report = -0.1% on the week! The USD is down this morning as the Yen couldn’t hold its Friday losses and the Euro’s risk range has tightened up (on the low-end) to 1.12-1.15.


Stocks in Europe don’t like Euro up and Greece down – Greek stocks failed @Hedgeye resistance for the umpteenth time last week and are -4.6% this morning to -7.2% year-to-date; German stocks -1.9% having their biggest down day since Mario Draghi’s central planning week – does he have another one pending?


It was a terrible day for our rates call on Friday, but we’ve seen plenty of rate hike head-fakes in the last year, and we’ve been paid to buy long-duration bonds on every one of them. Less terrible to see the USt 10YR drop 7 basis points this morning to 1.89%, down from 2.17% where it started 2015, and still bearish TREND yield signal.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road


OIL: +0.4% to $51.91 w/ a wicked wide risk range of $42.89-54.02



When you catch a glimpse of your potential, that’s when passion is born.

 -Zig Ziglar


51% of millennials believe they will receive no benefits from Social Security, and 39% think they will get benefits at reduced levels (according to a Pew Research Center survey of 1,821 young men and women 18 to 33 years old in February 2014).

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