Keith's Macro Notebook 5/4: China | Europe | 10YR Yields


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

Call Invite | General Mills Black Book (GIS) – The GIS (Activist)Playbook for the next 12-18 months.

Takeaway: We have a positive bias to GIS and will be adding it to the Hedgeye Best Ideas list as a LONG.

On Wednesday, May 6th at 11:00am EST we will be hosting a Black Book conference call on General Mills. Dial-in details and associated materials to follow.


We have a positive bias to GIS and will be adding it to the Hedgeye Best Ideas list as a LONG.  The call will be a detail look at the company and what can be done to improve the overall performance of the company.


We break down the 90 page presentation into three key points:



The opportunity to create significant shareholder value from repositioning the company is significant. The recent performance suggests that management may be too stuck in the past to reshape the company in a way that will accelerate top line growth. There have been a number of events over the past few years that suggest the timing is optimal for an activist to come on and re-shape management and the board.



GIS has done a lot of things to stave off an activist attack, but it will all be for nothing if they do not execute on their growth plan. GIS is a great company with strong brands, but its business practices and backward looking are insular. Reshaping the portfolio of brands, CPW and G&A cuts are just some of the ways to create significant shareholder value.



GIS needs to reshape the company to stay as a premier global food company. Alternatively, GIS would make a solid acquisition target, especially for a large consumer snack food company. GIS needs to accelerate its growth and management is struggling to do it internally.  In our view, selling the company would be an ideal scenario for all stakeholders. Or reinvent the company through meaningful acquisitions and divestitures.



We are cognizant of the fact that GIS is trading at a premium valuation and speculation is rampant that the company may be in play.  We agree the company is in play and it's just a matter of time before the intrinsic value of the company is realized. 


The call will last about an hour including time for Q&A.

Call Invite | Thought Leader Roundtable – A detailed look at the Cereal Industry

On May 5th at 11:00am EST we will be hosting a conference call on the Cereal industry with David Sprinkle.  David is the research director at Packaged Facts, which publishes a leading line of syndicated research reports on the U.S. food market.


Topics will include:

  • The future of the both the cold and hot segments
  • The split personality of the segment
  • Pricing trends
  • The ancient grain story
  • Where the category is struggling
  • Where the categories winners are
  • Why the category is important
  • What breakfast categories are growing/emerging

This call be will be followed by a detailed Black Book on General Mills on May 6th at 11:00am EST. 


David Sprinkle is the research director at Packaged Facts, which publishes a leading line of syndicated research reports on the U.S. food market.  He has contributed to publications such as Candy & Snack Today, Gourmet Retailer, Natural Products Insider, Nutraceuticals World, and Progressive Grocer, as well as  presented at industry conferences including Engredia, Fancy Food Show, GOED Exchange, Global Food Forums, Global Forum on the Future of Food, Healthy Beverages Expo, Ingredient MarketPlace, Institute of Food Technologists (IFT), IFT Wellness, International Baking Industry Expo, National Coffee Association, National Confectioners Association, Nutracon, SupplySide West, and World Tea Expo.  Book-length publications through Packaged Facts include Premium Consumers and the New Economy and Americans in 2020.  David has an MBA from Tulane University in New Orleans, where he also taught business communications.


The call will last about an hour including time for Q&A.


Dial-in details and associated materials to follow.

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Monday Mashup

Monday Mashup - 1


Recent Notes

04/27/15 Monday Mashup

04/27/15 PNRA: Thoughts into the Print (1Q15)

04/28/15 DFRG: Short on Strength

04/29/15 PNRA: Unconvincing, But That’s Okay

04/30/15 Casual Dining Shorts?

05/01/15 YUM: Attracting the Attention it Deserves

Events This Week

Monday, May 4

  • MCD Turnaround Plan 11:00am EST
  • BBRG earnings call 4:30pm EST
  • CHUY earnings call 4:30pm EST
  • DENN earnings call 4:30pm EST
  • IRG earnings call 4:30pm EST
  • TXRH earnings call 5:00pm EST

Tuesday, May 5

  • TAST earnings call 8:30am EST
  • BLMN earnings call 9:00am EST
  • NDLS earnings call 4:30pm EST
  • KONA earnings call 5:00pm EST
  • PBPB earnings call 5:00pm EST
  • BBRG annual general meeting
  • DAVE annual general meeting
  • Robert W. Baird Growth Stock Conference: HABT, ZOES, CMG, BWLD, DNKN, IRG, KKD

Wednesday, May 6

  • DAVE earnings call 8:00am EST
  • WEN earnings call 9:00am EST
  • PZZA earnings call 10:00am EST
  • FRSH earnings call 5:00pm EST
  • NDLS annual general meeting
  • Robert W. Bair Growth Stock Conference: CHUY, PBPB

Thursday, May 7

  • BAGR earnings call 4:30pm EST
  • JMBA earnings call 5:00pm EST
  • BWLD annual general meeting


Recent News Flow

Monday, April 27

  • CMG became the first national restaurant company to use only non-GMO ingredients.
  • WEN appointed Kurt Kane to the newly created position of Chief Concept Officer.  Mr. Kane, who most recently served as Global Chief Marketing and Food Innovation Officer at Pizza Hut, will be responsible for all of North America marketing and innovation efforts. 

Tuesday, April 28

  • JMBA announced the sale of 21 stores to existing franchise partners as its refranchising effort continues to accelerate well ahead of schedule.  JMBA is on track to close Phase II of its refranchising efforts by the end of the calendar year, with the ultimate goal of moving the franchise to company model to 90/10%.

Wednesday, April 29

  • BOBE announced the pending closure of 20 underperforming restaurants over the next 12 months.  The company estimates net proceeds will range between $15-17 million and estimate the sale will result in a $2.5-3.5 million annual improvement in operating income.  It will incur $4.7-5.2 million of pre-tax charges related to the sale primarily during 4QF15, approximately $2.1 million of which is expected to be non-cash.
  • PZZA announced a quarterly dividend of $0.14 payable on May 22, 2015 to shareholders of record on May 11, 2015.

Thursday, April 30

  • DIN appointed Darren Rebelez as president of IHOP.  Mr. Rebelez most recently served as COO of 7-Eleven.
  • WEN is teaming up with Honest Tea to bring certified organic green tea to its restaurants nationwide.

Friday, May 1

  • CMG upgraded to outperform at BMO Capital with a $760 PT.
  • YUM Third Point announces a significant stake in YUM.
  • PBPB promoted Julie Younglove-Webb to Senior VP of Operations.  Ms. Younglove-Webb joined Potbelly back in 2008 as a General Manager and most recently served as Central Zone Vice President, a role in which she oversaw 250 shops.
  • PZZA announced that Mr. Philip Guariscio did not stand for re-election to the Company’s Board of Directors at the 2015 Annual Meeting given he had reached the age of retirement.



Monday Mashup - 2


Sector Performance

The SPX (-0.44%) outperformed the XLY (-1.65%) last week.  Casual dining stocks, in aggregate, underperformed the XLY, while quick service stocks outperformed.

Monday Mashup - 3

Monday Mashup - 4


Quantitative Setup

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

Monday Mashup - 5


Casual Dining Restaurants

Monday Mashup - 6

Monday Mashup - 7

Quick Service Restaurants

Monday Mashup - 8

Monday Mashup - 9

Character Breakfast

This note was originally published at 8am on April 20, 2015 for Hedgeye subscribers.

“Character is inspired; it is not imparted.”

-Laura & Malcolm Gauld


While I didn’t subject my son to a “character breakfast” with Cinderella @Disney last week, I think he built some in realizing that his little sister was less scared than he was on Space Mountain.


After a neck wrenching week of family fun on the rides, it’s good to be back in my un-buckled seat this morning! I hope you’ve had some quality time away from the screens with your family this Spring break too.


The aforementioned quote comes from a good parenting book I read last week called The Biggest Job We’ll Ever Have. It’s an especially relevant book for those of you who are into self-reflection and improvement – we can all build character by doing, every day.


Back to the Global Macro Grind


I don’t unplug from markets very often, but when I do… I like it when they don’t do a whole heck of a lot that surprises me. I left you suggesting that I think the Fed gets easier at their April meeting. I’ll come back to you this morning reiterating the same thing.


Character Breakfast - Yellen dove 09.17.2014


Amongst other things, a more dovish Fed does a few big things to macro markets – and they are not the same things:


  1. Down Dollar – that’s a counter-TREND move for Commodities and their linked-securities
  2. Down Rates – that’s a continuation of a bullish TREND for Bonds


Breaking that down in week-over-week, in rate of change terms:


  1. US Dollar Index dropped -1.9% last wk to +7.9% YTD
  2. UST 10yr Yield dropped another -3 basis points last wk to 1.87% (-31 basis pts YTD)


In Correlation Risk terms, what that translated into was:


  1. Euro (EUR/USD) counter-TREND bounce of +1.9% wk-over-wk (but still -10.7% YTD)
  2. CRB Commodities Index and Oil (WTI) +3.1% and +8.6%, respectively, on the week


US and European Equities did not enjoy inflation expectations bouncing:


  1. SP500 and Dow Jones Industrial Index were both -1.3% on the week to +1.1% and 0.0% YTD, respectively
  2. EuroStoxx600 and the DAX corrected -2.2% and -5.5% to +17.9% and +19.2% YTD, respectively


Net, net, net, both the TREND move in super-sized asset allocations to US Fixed Income continued to beat US Equities YTD, while a big league counter-TREND move in USD driven Correlation Risks frustrated #Deflation bears who didn’t dynamically reset esposures.


If you look at the Correlation Risk (USD vs. everything Commodities) on a 1-month basis, it’s been significant, even though the USD hasn’t corrected much on a percentage basis. Here are the 1-month moves:


  1. US Dollar Index -2.2%
  2. EUR/USD +2.0%
  3. CRB Commodities Index +7.1%
  4. Gold +4.8%
  5. Copper +6.1%
  6. Oil (WTI) +24.1%


Yep, that’s right. You can tell yourself all the stories you want about supply/demand in Oil related markets, but the reality is that the #1 driver of macro inflation expectations remains an easier Fed. Those expectations turned on a dime on that last lousy US jobs report.


What’s next?  The point I was trying to make before I left for vacation was pretty simple: “Some of my very short-term views are at odds with my longer-term ones – and others (rates) are aligned.” (apologies for quoting myself)


In other words, you’re one better jobs report away from both the USD and rates bouncing again. But, there’s this thing called the Fed meeting (April 29th) and a weak headline Q1 GDP report (reported on the same day), before the April jobs report (May 8th).


Yeah, inflation expectations bounce when the Dollar goes down and dovish central planning expectations go up. You already know that. So sending me a chart of something like break-evens bouncing reflects that people who manage risk in real-time get that too.


US 5-year break-evens bounced (just like everything Commodities did) +9 basis points last week to 1.7% and look a lot like Oil does on a 1-month basis (+32 bps is a big bounce!). But if you look at the TREND, they’re still down -25 basis points year-over-year.


My sense is that not everyone nailed all of these moves. If success was imparted on your portfolios, well done. This hasn’t been easy. Trying to risk manage all of these calendar catalysts, inflation/deflation expectations, etc. (across multiple durations) builds character.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-1.95%

SPX 2066-2093
DAX 11709-12133
USD 97.01-98.74
EUR/USD 1.05-1.08
Oil (WTI) 49.05-57.69


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Character Breakfast - 04.20.15 chart

China, Europe and Global Bond Yields

Client Talking Points


Terrible economic data from China leads to the stock market moving higher; China now has a 6% handle on GDP and its PMI for APR (HSBC print) hit a new low of 48.9 (vs. 49.6 last). The Shanghai Composite is up another +0.9% to +38.6% year-to-date.


Forget the average at best economic data, a Down Euro is what European Equities crave – German PMI still blah at 52.1; French PMI terrible at 48.0; Spanish PMI beats (again); DAX +0.9%, Denmark +1.2%, Austria +1.1% as the Euro vs USD risk range widens to its widest in a year at $1.05-1.13.


After a monster move (in % terms) last week, Global Bond Yields are still sticky here this morning – German and Swiss 10YR Yields +1 beep each to 0.37% and -0.01%, respectively – Spain’s 10YR +7 basis points to 1.45% and USA’s = 2.11% with a very wide risk range of 1.86-2.12% ahead of Friday’s jobs report.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We view ZOES as a very strong long-term investment. Part of what we like about Zoe’s is its strong new unit economics.  Not only does Zoe’s have strong restaurant level margins, but also has best-in-class build out costs and cash-on-cash returns.  In addition, we believe Zoe’s new units are exceeding management’s targets, driven by higher than expected year three average unit volumes. While it may be difficult for some investors to swallow Zoe’s valuation, we believe it represents one of the best early stage restaurant growth chains trading on the public market.  


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. Builder performance was choppy in the latest week alongside beta volatility and investor attempts to square the net impact to housing from rising rates and ongoing improvement in housing fundamentals. As it stands currently, rates remain a tailwind to affordability relative to last year and would require a significant, expedited increase to have a material negative impact on housing activity in the immediate/intermediate term. Elsewhere across Housing Macro, the fundamental data continued to roll in strong.


Insomuch as the April Jobs Report may prove to be a bearish catalyst for Treasury bonds, slowing growth data over the next two quarters should prove decidedly bullish. Fighting buy-side consensus on the long side of Treasury bonds been a great call thus far so we’d be booking gains and taking down our gross exposure to this asset class on the next immediate-term pop. Ultimately, we think our #LowerForLonger theme prevails, but volatility is likely to pick up in the interim.

Three for the Road


REPLAY: Fed Day Analysis @HedgeyeTV




We become what we think about.

Earl Nightingale


The top 10 most popular Instagram accounts are all owned by women.

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