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Is China Pinching Global Growth?

WSJ Chief Economics correspondent Jon Hilsenrath and Hedgeye Risk Management CEO Keith McCullough discuss China’s impact on global growth and how it impacts the Fed with Maria Bartiromo on Fox Business' Mornings with Maria.


CBRL: Rolls-up a Nice Quarter

KEY TAKEAWAY

CBRL delivered a top and bottom line beat in 3Q15, reporting $683.7 million in revenue vs consensus $679.8 million, and net income of $35.3 million vs consensus $32.9 million. Comparable SSS of 5.2% also slightly exceeded expectations. Management effectively controlled costs while improving operating margins by 49 basis points (bps) versus 3Q14, and expanding restaurant level margins by 121 bps for the same period. The company has done a nice job spending their money wisely to grow sales and traffic.  The concept has also benefited from lower gas prices.

 

We will be watching closely in the coming quarters to see if this positive momentum continues or begins to slow.  We remain cautious that CBRL can continue the momentum.

 

CBRL: Rolls-up a Nice Quarter - chart 1 replacement

 

Composition of the comp. This was an impressive quarter overall, the fourteenth consecutive quarter of outperformance of the Knapp-Track casual dining index. Although a bulk of the growth in same-store sales came from a +3.4% increase in average check, traffic growth was still greater than average in the industry, which is a positive sign.

 

Same-Store Sales Trends are on their way up. For the last three quarters CBRL has its 2-year same-store sales trends accelerating.  This past quarter, the 2-years trends slowed slightly, although the overall number remains healthy.

 

CBRL: Rolls-up a Nice Quarter - Chart 2

 

CBRL: Rolls-up a Nice Quarter - Chart 3

 

With great performance, comes great expectations.  Going into Q4 and then into FY16 they have tough comps to beat, and although the street isn’t expected knock out quarters like the Q2/Q3 of this year they still want to see low-to-mid single digit same-store sales growth. Although CBRL is not in our starting lineup right now, we will continue to monitor it on the bench and modify our thinking if necessary. 

 

VALUATION

CBRL is currently trading at the higher-end of its historical EV/ NTM EBITDA valuation range.  I believe over time this number will normalize back to a lower more reasonable range.  

 

CBRL: Rolls-up a Nice Quarter - chart 4


Dollar Down, Rates Up?

Client Talking Points

YIELDS

Dollar Down, Rates Up? That is, unless we accept that the only real up moves in U.S. Yields have been prefaced by meltups/scares in European Yields – that happened again, big time, yesterday, with German 10YR going from 0.49% to 0.71%, in a day! The U.S. 10YR has taken those long-term lower-highs and fallen in the face of slowing U.S. economic data – so get ready for that jobs report Friday.

EURO

We’ll see if a whopping 0.3% year-over-year Eurozone “inflation” gets ECB President Mario Draghi to let Bond Yields spike and the Euro to go to $1.15 vs USD this morning, but the signal says I doubt it. The immediate term risk range for the EUR/USD is now 1.08-1.12 and we expect that to hold, for now. 

OIL

Oil loves the Down Dollar part of the equation, so at least we got upping our asset allocation to Commodities right; Oil tapped the top end of our $58.68-61.90 risk range on a big Down Dollar day yesterday, then backed off as the EUR/USD failed at $1.12.

Asset Allocation

CASH 46% US EQUITIES 6%
INTL EQUITIES 10% COMMODITIES 12%
FIXED INCOME 24% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
PENN

We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility. PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. Both properties should well exceed current Street estimates for win per slot and EBITDA. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.

ITB

Housing went 3 for 3 as the Trinity of Fundamental Data Points released in the latest week continued to reflect accelerating rates of improvement across both the New and Existing markets. New Home Sales in April rose +6.8% month-over-month to +517K.  More notably, sales were up a remarkable 26% on a year-over-year basis as NHS re-converged back to the trend in New Home construction. Pending Home Sales rose +3.4% sequentially in April, accelerating to +14% year-over-year with the Index making a new 101-month high.  Pending Home Sales represent signed contract activity and are a historically strong lead indicator of Existing Home Sales.  The MBA’s weekly Mortgage Purchase Application Index re-captured the 200-level, rising +1.2% week-over-week and accelerating +250bps sequentially to +13.1% year-over-year.  

TLT

We believe the U.S. economy is past peak in rate-of-change terms and sliding down the slope to an eventual cliff (i.e. recession). That’s our call and we’re sticking to it. Friday’s negative revision takes our full-year estimate for real GDP growth down to +2% (from +2.3% prior). Both the Fed and Street are up at +2.5%, both of which continue to careen down from perpetual expectations of rainbows-and-puppy dogs (i.e. 3-plus percent growth) earlier this year. We reiterate our call to be long of long-duration in its many forms:  TLT, VNQ, EDV, and GLD (gold has historically performed well in down-dollar and down-interest rate environments and we think the June 17th FOMC statement has a high probability of being dovish and dollar-bearish).

Three for the Road

TWEET OF THE DAY

KOSPI down again, -0.7% (down -3% in the last month); India down another -1.2% #GrowthSlowing globally

@KeithMcCullough

QUOTE OF THE DAY

When hungry, eat your rice; when tired, close your eyes. Fools may laugh at me, but wise men will know what I mean.

Lin-Chi

STAT OF THE DAY

According to a  new New York Times-CBS national poll, 84% of people – 80% of Republicans and 90% of Democrats -- believe money has too much influence in American politics.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

**Invite | Avian Flu ― Thought Leader Call with Dr. Thomas Elam

Please join us today, June 3, 2015 at 11:00am EST for a call discussing the Avian Flu (AI) and the effect it is having on the food and restaurant industries with Dr. Thomas Elam.

 

AI has reached epidemic levels and as we have been keeping you updated, we are bringing in a thought leader to speak to the effects AI is having on the food and restaurant industry. 

 

Dr. Thomas Elam, President of FarmEcon LLC will be meeting with us to discuss the topic and provide his insights that have been built up over his 40 year career. Dr. Elam has been recognized for his knowledge on the industry in numerous publications and written in-depth research on the topic. Dr. Elam brings a real business mind to the conversation, having been a professor of both economics and statistics. His education includes a BS degree in Economics with a minor in mathematics from Union University, Jackson, TN (1969), he also earned MS (1971) and PhD (1973) degrees in Agricultural Economics from the University of Tennessee, Knoxville.

 

He retired in 2003 and established a consulting practice, FarmEcon LLC. In November, 2006 Dr. Elam was recognized by Poultry USA magazine as one of the top 20 consultants to the U.S. poultry sector. Since 2003 Dr. Elam has worked on over 300 client projects, made over 100 personal appearances, and authored numerous articles on livestock, poultry and grain outlook.

 

Eggs are an important input for many products besides just table eggs, such as, baked goods, pasta, chocolate, ice cream, cosmetics, etc.

 

There are many companies currently being affected by AI:

 

Positively affected: GIS, K, ADM, CALM


Negatively affected: MCD, PNRA, POST, HRL, TSN, DIN, DNKN, NESN, BDBD


In this call we will discuss what losing 25% of your breaking eggs supply will do to food and restaurant industry supply chains and when it will make an impact on the bottom line.

 

CALL DETAILS:

US Toll Free:

US Toll:

Confirmation Number: 39899343

Materials: CLICK HERE

 


**Invite | Avian Flu ― Thought Leader Call with Dr. Thomas Elam

Please join us today, June 3, 2015 at 11:00am EST for a call discussing the Avian Flu (AI) and the effect it is having on the food and restaurant industries with Dr. Thomas Elam.

 

AI has reached epidemic levels and as we have been keeping you updated, we are bringing in a thought leader to speak to the effects AI is having on the food and restaurant industry. 

 

Dr. Thomas Elam, President of FarmEcon LLC will be meeting with us to discuss the topic and provide his insights that have been built up over his 40 year career. Dr. Elam has been recognized for his knowledge on the industry in numerous publications and written in-depth research on the topic. Dr. Elam brings a real business mind to the conversation, having been a professor of both economics and statistics. His education includes a BS degree in Economics with a minor in mathematics from Union University, Jackson, TN (1969), he also earned MS (1971) and PhD (1973) degrees in Agricultural Economics from the University of Tennessee, Knoxville.

 

He retired in 2003 and established a consulting practice, FarmEcon LLC. In November, 2006 Dr. Elam was recognized by Poultry USA magazine as one of the top 20 consultants to the U.S. poultry sector. Since 2003 Dr. Elam has worked on over 300 client projects, made over 100 personal appearances, and authored numerous articles on livestock, poultry and grain outlook.

Eggs are an important input for many products besides just table eggs, such as, baked goods, pasta, chocolate, ice cream, cosmetics, etc.

 

There are many companies currently being affected by AI:

 

Positively affected: GIS, K, ADM, CALM


Negatively affected: MCD, PNRA, POST, HRL, TSN, DIN, DNKN, NESN, BDBD


In this call we will discuss what losing 25% of your breaking eggs supply will do to food and restaurant industry supply chains and when it will make an impact on the bottom line.

 

CALL DETAILS:

US Toll Free:

US Toll:

Confirmation Number: 39899343

Materials: CLICK HERE

 


Stirring The Masses

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

“The men who have changed the world never succeeded by winning over the powerful, but by stirring the masses.”

-Napoleon Bonaparte

 

Like all of us, Napoleon obviously had his issues. Unlike most of us, he changed part of the world at a time when it needed changing.

 

In 1799, France was littered with a political elite (The “Directory”) that plundered its People with a Policy To Inflate. Most British historians of the Napoleonic era missed that part. That’s because they were writing from their own aristocratic perspective.

 

Ah, the historical perspective. If you want to stir the masses in America like JFK or Reagan did (or like Thatcher did in the UK), promote the truth about a #StrongCurrency. It ensures the purchasing power of the many, at the expense of the political few.

 

Back to the Global Macro Grind

Stirring The Masses - Draghi 09.04.2014

 

If only because the Eurocrats were Burning Euros yesterday, it was a great day for Americans who don’t get paid by the edifice of asset price inflation. On a US Dollar +1.1% day (EUR/USD was -1.5% at one point):

 

  1. The CRB Commodities Index (19 commodities) deflated -1.9%
  2. Oil (WTI) got tagged for a -3.7% loss on the day
  3. Coffee and Corn dropped -2.3% and -1.6% in price, respectively

 

I’m not sure what part of the world you grew up in, but I can tell you that crushing a long-term inflation expectations bubble in food and gas prices would go over quite well in my Canadian stomping grounds.

 

It wouldn’t go over particularly well in parts of Texas or Alberta, however:

 

  1. Oil & Gas Stocks (XOP) led losers at -2.9% on the day
  2. Energy Stocks at large (XLE) weren’t far behind at -1.4% (in a flat US equity market)
  3. Oh, and Russian stocks (RSX) dropped -2.3% too

 

Futhermore, I can’t for the life of me find the part in the Federal Reserve Act of 1913 that states that un-elected-US-linear-economists shall be tasked with upholding levered Energy Junk Bonds and/or “international earnings” from SP500 cohort companies…

 

In other words, never did so many do so well yesterday, at the expense of the few.

 

Sadly, this too shall probably pass as the Federal Reserve boxes itself in a corner at this stage of what we have been calling #LateCycle in the US economy – and that’s devalue the Dollar as both US consumption and labor cycles slow.

 

As a reminder, here are your immediate-term Macro Calendar Catalysts for a resumed Down Dollar correction:

 

  1. May 29th – ugly headline Q1 2015 GDP report will keep political pressure on the Fed to push out the dots
  2. June 5th – watch out for the cycle on the labor front; especially if we get the 2nd bad jobs report in the last 3
  3. June 17th – Fed Day in America (FOMC meeting); sleep in until 9AM and just buy everything

 

If the European, Japanese, and Chinese central planners don’t come out and devalue, daily, that is…

 

Looking for immediate-term risk management levels on that?

 

  1. US Dollar Index immediate-term TRADE overbought at 96.02 with no support to 92.82
  2. EUR/USD immediate-term TRADE oversold at $1.10 with no resistance to $1.14
  3. CRB Index immediate-term TRADE oversold at 224 with no resistance to 234
  4. Oil (WTI) immediate-term TRADE oversold at $56.14 with no resistance to $61.37
  5. Gold immediate-term TRADE oversold at $1200 with no resistance to $1239

 

That’s just the immediate-term though – and if you’re paid to not risk manage that duration (or take advantage of the opportunities it presents), no worries – you probably aren’t reading this anyway.  

 

From a long-term TAIL risk perspective, the onus is definitely on the Europeans (and Japanese) to prove that they aren’t who we think they are – some version of what Napoleon crushed over 200 years ago.

 

But, other than Warren, who in this business is really allowed to stir the masses with long-term leadership views and skip over everything that could happen until June 17th? I’m not. So, for now, I’ll take our asset allocation to Commodities to its YTD high of 10%.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are as follows:

 

UST 10yr Yield 1.97-2.32% (bearish)

SPX 2105-2140 (bullish)
RUT 1220-1262 (bullish)
DAX 11593-11898 (bullish)
VIX 11.91-14.98 (bullish)
USD 92.82-95.92 (neutral)
EUR/USD 1.10-1.14 (neutral)
YEN 118.91-120.99 (bearish)
Oil (WTI) 56.14-61.37 (bullish)

Natural Gas 2.79-3.11 (bullish)

Gold 1200-1239 (bullish)
Copper 2.78-2.91 (neutral)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Stirring The Masses - Chart of the Day


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