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August 3, 2015

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BULLISH TRENDS

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BEARISH TRENDS

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Welcome to August

Client Talking Points

VIX/VOLUME

Sub 12 in the front-month VIX has been a clean cut sell signal for U.S. Equities post every rally to lower-highs in 2015. What was most interesting about last week’s month-end markup was Friday’s total U.S. Equity volume -13% and -21% vs. the 1 month and 1 year averages.

OIL

After a -2.6% #Deflation move last week, WTI drops another -1.5% this morning to $46.40, taking its 1-month crash to -26%. We have no idea how consensus is complacent about this after being too complacent on last year’s initial crash (Russia’s Ruble and stock market continue to crash too).  

UST 10YR

With both Global Growth & Inflation Slowing what does consensus chase (other than charts)? The Long Bond. Yep. AFTER the non-consensus 1 month move from 2.54% to 2.19%, CFTC futures/options net position moves back to net LONG +58,783 contracts.

 

**The Macro Show - CLICK HERE to watch today's edition at 8:30AM ET, with Hedgeye CEO Keith McCullough.

Asset Allocation

CASH 50% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 23% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
HOLX

HOLX’s earnings release were as good as we expected, and in some spots, much better than our optimistic view. Given the move in the price, we did begin to do some work on Hologic’s Diagnostic segment. We touched base with a lab Director who currently does his testing on Hologic/Gen-Probe’s Panther system. During the call management made some positive comments about uptake of the systems and rising utilization per box. Our contact suggested the benefit from the Affordable Care Act was substantial  over the last 12 months, pushing volume up to a mid-teens growth rate, but that trends were flattening. But on the positive side Qiagen continues to cede share with an out of date test and the alternatives are primarily Roche and Hologic, but not Cepheid’s system. The bottom line is that we may be too conservative with our estimates for Diagnostics, which we’ve been assuming treads water from here.  However, we’re starting to think there is some incremental acceleration that’s possible, which would be welcome news indeed. 

PENN

After attending PENN’s analyst day at the Plainridge Casino in Massachusetts our Gaming, Lodging & Leisure Team struggled to find any negative takeaways. The property opened very strong in late June, and the strength continued in July. We are now raising our win per day per slot assumption to $500 from $400. Terrific highway access, a lower gaming tax rate and garage parking provide a competitive advantage in what seems to be a deeper market than the consensus view. Our 2015 and 2016 estimates are materially above the Street for EBITDA and EPS. Most importantly, we think PENN should generate an ROI of 28% on Plainridge, much higher than the Street anticipates.

TLT

As largely expected a sequential acceleration in GDP from Q1 to Q2 on a seasonally adjusted annual basis pulled forward the market’s expectation for a rate hike which = USD strength. The USD finished positive on the week (+0.50% on Thursday’s print alone).

  • U.S. GDP reported Thursday for Q2 came in at +2.3% on a Q/Q seasonally-adjusted annual rate and the market took it as a positive print à rate hike expectations pulled forward.
  •  Remember that 1) Consensus focuses on this SAAR number and 2) The GDP acceleration came off of an awful Q1 print (Q1 revised to a measly +0.60% for Q1 vs. initially reported -0.20%)
  • On a Y/Y basis (crazy Hedgeye speak) GDP for Q2 actually decelerated to +2.3% YY vs. 2.9% prior
  • With very difficult base effects in our model for 2H 2015 GDP we expect Q2 data (especially the GDP print) to provide support for the USD
  • Our expectation for Y/Y GDP in Q3/Q4 are +1.6% Y/Y (+1.4% Q/Q SAAR) and +1.5% Y/Y (+1.7% Q/Q SAAR) respectively; These prints (Q3 will come in October) will stoke a relatively more dovish FED for a short time (USD headwind) but until then we’ll ride the Q2 data train.  

Three for the Road

TWEET OF THE DAY

VIDEO: Demographics Expert Neil Howe Returns for Rapid-Fire Discussion on Election, Housing, and More https://app.hedgeye.com/insights/45589-demographics-expert-neil-howe-returns-for-rapid-fire-discussion-on-ele… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

The price of greatness is responsibility.

Winston Churchill

STAT OF THE DAY

Ronda Rousey knocked-out her opponent Bethe Correia in 34 seconds in a UFC match Saturday.


The Macro Show Replay | August 3, 2015

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

7/30/15 BLMN | ANOTHER BACK HALF MISS?

7/30/15 PNRA | THE EVOLUTION CONTINUES

7/29/15 BWLD | COVERING THE SHORT

7/27/15 MCD | THE GAME CHANGER | ALL DAY BREAKFAST (ADB) SURVEY RESULTS

7/24/15 MCD | RIGHT ON TRACK

 

RECENT NEWS FLOW

Friday, July 31

RUTH | Delivered a nice quarter on Friday, with SSS growth of 4.2% versus consensus estimates of 3.3%, built by a traffic increase of 0.7% and an increase in average check of 3.5% (click here for press release, or here for news article)

 

Thursday, July 30

FRGI | Reported 2Q15 results, SSS increased 4.3% at Pollo Tropical versus consensus estimates of 5.1% and 5.6% at Taco Cabana versus consensus estimates of 4.4% (click here for press release, or here for news article)

 

Wednesday, July 29

WEN | Testing antibiotic-free chicken in certain markets (click here for article)

JMBA | Provided an update on refranchising efforts, expects to be 90% franchised organization by the end of 2015 (click here for article)

PNRA | Reported strong 2Q15 results, and an even better outlook for the next 12-18 months, refer to our earnings summary here for more detail

 

Tuesday, July 28

Minimum wage increases continuing to spread across the country (click here for article)

 

Monday, July 27

DRI | Names Todd Burrowes, former RT COO, as president of LongHorn Steakhouse (click here for article)

PLKI | Focusing on value, bringing back Rip’n Chick’n for only $3.99 (click here for article)

 

SECTOR PERFORMANCE

Casual dining and quick service stocks, in aggregate, outperformed the XLY last week. The XLY was up 1.7%, top performers from casual dining were BWLD and FRGI posting an increase of 13.6% and 13.1%, respectively, while SHAK and PNRA led the quick service pack, up 18.6% and 9.7%, respectively.

Monday Mashup - CHART 3

Monday Mashup - CHART 4

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLY remains bullish on a TRADE and TREND duration.

Monday Mashup - CHART 2

 

CASUAL DINING RESTAURANTS

Monday Mashup - CHART 5

Monday Mashup - CHART 6

 

QUICK SERVICE RESTAURANTS

Monday Mashup - CHART 7

Monday Mashup - CHART 8


Demographics Expert Neil Howe Returns for Rapid-Fire Discussion on Election, Housing, and More

In a special two-part edition of Hedgeye's Real Conversations, Hedgeye CEO Keith McCullough welcomes back demographer, author, and historian Neil Howe to discuss politics, central planning, and millennials.

 

Armed with his unrivaled expertise on demographics, Neil breaks down how the 2016 Republican field stacks up to the current Democratic candidates and what the upcoming election will look like compared to 2008.

 

 

In Part 2, Neil discusses what the Federal Reserve will likely do versus what it should do, what massive corporate earnings might actually represent, and the sector that is responsible for positive GDP growth in the U.S.


The Week Ahead

The Economic Data calendar for the week of the 3rd of August through the 7th of August is full of critical releases and events.  Here is a snapshot of some of the headline numbers that we will be focused on.

CLICK IMAGE TO ENLARGE.

The Week Ahead - ZZZZ 07.31.15 Week Ahead

 


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