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Is a Grave Policy Error Coming Next Month?

We continue to be of the view the Fed’s decision to set the stage for monetary tightening throughout 2015 seems incredibly politicized (i.e. raising rates for the sake of raising rates), rather than "data dependent". The preponderance of the data remains unsupportive, at best, calling into question the Fed’s increasingly likely desire to acquiesce to consensus expectations with a rate hike in September [insert “circular reference warning” here].

 

Click chart to enlarge.

 

Is a Grave Policy Error Coming Next Month? - z1

 

Is a Grave Policy Error Coming Next Month? - z2

 

Is a Grave Policy Error Coming Next Month? - z3

 

Is a Grave Policy Error Coming Next Month? - z4U.S. Economic Summary Table

 

In the face of these confounding dynamics, we will take this opportunity to reiterate our bearish bias on all things reflation (commodities, energy stocks, materials stocks and emerging market capital and currency markets in particular), as well as our bullish bias on Treasury bonds, utility stocks and REITs as yields continue to fall amid declining inflation expectations.

 

Is a Grave Policy Error Coming Next Month? - z5


MCD | Create Your Taste Experience

McDonald’s (MCD) is on the Hedgeye Restaurants Best Ideas list as a LONG.

 

Over the weekend we tried out the Create Your Taste experience at the newly remodeled McDonald’s location in Midtown East on the corner of 58th street and 3rd Ave. Walking into the newly remodeled MCD we were greeted by the brand new self-order kiosks with attentive staff there to assist you. Customers were very interested in using the kiosks, and everyone using them seemed to be having an easy time with it.

 

MCD | Create Your Taste Experience - Create your taste

 

The whole process from creating your own burger to getting your food was simple and seamless. The self-order kiosk is easy to follow, you can order from the entire menu and pay from the kiosk. We decided to build a custom burger, in which you scroll through different screens selecting from a wide variety of cheeses and toppings. I must note however that they were out of a select number of topping items, as they are working out the kinks since just starting the Create Your Taste two weeks ago. After paying you take an electronic GPS enabled disk to your table so that the server can locate you within the restaurant. The ordering process was a pleasant experience and I would say will lead to increased checks as it is very simple to just click on additions rather than staring at the big board at the main register. As you can see from our receipt above, the total came to $10.88 definitely not the average check that a MCD customer is used to.

 

As we ordered we sprung up a conversation with a couple of staff members to get a read on how the staff likes the new system. The two people we talked to had overwhelming positive reviews of how the kiosks increase efficiency in the restaurant, specifically the kitchen, and allow for orders to be entered quicker. When asked specifically about the Create Your Taste, they said they love the concept and haven’t experience any major difficulties with it.

 

It was time to head to our table, we found a comfortable spot upstairs kind of in the corner to test out the GPS location ability on the disk we picked up at the kiosk. The server found us with no problem, total time from payment to food on the table was about 9 minutes, which is right in the middle of their 8-10 minute range. Although they didn’t fill up our drink as they said they would, everything else was presented very well. The food was still warm and everything tasted good.

 

For it being only two weeks into the process we were very impressed by the efficiency and mastery the staff is already displaying. We plan to head back to the same McDonalds location in the next month and check on their progress.

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 


There’s 25% Upside For This Consumer Staples Stock, Says Hedgeye Analyst Howard Penney

Our iconoclast Consumer Staples and Restaurants Sector Head Howard Penney is making another stock call worth paying attention to. Last week, he added Snyder's-Lance, Inc. (LNCE) to his Top Long Idea list. Penney will be presenting his team’s deep-dive, granular Black Book this Wednesday August 19th at 11am ET.

 

A leader in the snacking category, innovation is a key source of growth particularly across ‘better for you’ snacking. Coming off a 3-year investment cycle to upgrade manufacturing capabilities and infrastructure, the company is now ramping its marketing spend to drive greater awareness and is lapping the divestiture of its private label business.

 

Our team sees 25%+ upside in the name.

 

*If you would like access to Penney’s institutional call this Wednesday please email sales@hedgeye.com.

 

There’s 25% Upside For This Consumer Staples Stock, Says Hedgeye Analyst Howard Penney - z s lance


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 80.64%
  • SHORT SIGNALS 78.61%

3 Reasons Why It’s Hard to Be Bullish on the Canadian Dollar

 

On today’s edition of The Macro Show, Hedgeye Director of Research (and native Canadian) Daryl “Big Alberta” Jones discusses three key drivers behind the continued underperformance of the Canadian Dollar.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.

 


Our Favorite Global Equity Market (Update)

Editor's Note: This is a brief excerpt from our morning research. Click here for more info on how you can become a subscriber and stay ahead a step ahead of consensus.

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Our Favorite Global Equity Market (Update) - z tok

The Nikkei rallied +0.5% overnight (after holding @Hedgeye support) on the strength of a better-than-expected 2Q GDP report. The headline figure came in 20bps above consensus expectations of a -1.8% QoQ annualized decline, while the YoY rate of change accelerated to +0.7% from an upwardly revised -0.8% in 1Q.

 

Japan remains our favorite international equity allocation. It continues to outperform, down -0.9% WoW versus:

 

  • -3.1% drop for the EuroStoxx 600 Index,
  • -5.1% plunge in the DAX, a -4.2% fall in the CAC,
  • -2.9% drop in the FTSE 100,
  • -2.9% drop in the Hang Seng and
  • -2.1% decline in the KOSPI.

 

Japan continues to outperform international peers from a fundamental perspective as well: underlying dividend growth in 2Q was up +16.8% in Japan vs. only +10% and +8.6% in the U.S. and Europe, respectively.

 

Our Favorite Global Equity Market (Update) - z japan dd


EUR, Japan and Inflation

Client Talking Points

EUR

Expect weakness in the EUR/USD ahead of the indecision on the Spanish Parliament (tomorrow) and German and Dutch Parliaments (Wednesday) voting on Greece’s 3rd bailout package. Germany is pressing hard to get the IMF on board to cover the liability. We maintain that both ECB head Mario Draghi and German Chancellor Angela Merkel are incentivized to maintain a weak euro.

JAPAN

The Nikkei rallied +0.5% overnight on the strength of a better-than-expected 2Q GDP report. The headline figure came in 20bps above consensus expectations of a -1.8% QoQ annualized decline, while the YoY rate of change accelerated to +0.7% from an upwardly revised -0.8% in 1Q. Japan remains our favorite international equity allocation and continues to outperform, down -0.9% WoW vs. a -3.1% drop for the EuroStoxx 600 Index, a -5.1% plunge in the DAX, a -4.2% fall in the CAC, a -2.9% drop in the FTSE 100, a -2.9% drop in the Hang Seng and a -2.1% decline in the KOSPI. Japan continues to outperform international peers from a fundamental perspective as well: underlying dividend growth in 2Q was up +16.8% in Japan vs. only +10% and +8.6% in the U.S. and Europe, respectively.

INFLATION EXPECTATIONS

Everything leveraged to inflation expectations continues to underperform. The U.S. dollar finished down over 1%, and not even inversely correlated commodities could catch a bid ex. Gold and Silver. The CRB finished down -0.2% on the week (-9.8%) to finish below its 2009 crisis lows. And by the way, 5YR forward break-evens have made a series of lower lows from the June reflation trade, head-fake high.  

Asset Allocation

CASH 58% US EQUITIES 4%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
MCD

"We are very bullish on McDonald’s," says Restaurants Sector Head Howard Penney. "We like where this company is going. We like the new CEO and the changes they’re making."

 

Penney notes that there are a lot of things going on inside the company which we can’t see that are extremely meaningful to where this company will be in 12-18 months.

 

"I’ve said this a dozen times recently, but 2015 will be the last year McDonald’s trades at an average price below $100," he says. 

PENN

"As we predicted, regional gaming revenues surged in July which gives us confidence in our Q3 EPS estimate of $0.23, which is $0.04 above the Street," writes Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan. "We continue to like Penn National Gaming here due to stable regional gaming trends, better than expected quarterly and annual earnings, and the Plainridge and Jamul contribution to PENN’s two-year growth story."

TLT

The set-up for the September FOMC meeting is as follows:

  1. The Fed runs the risk of tightening into a late-cycle slowdown which could ultimately flatten the yield curve (BULLISH for TLT, EDV, VNQ).
  2. Slower growth and deflationary headwinds are acknowledged and the can is kicked on a rate hike which should also be good for bonds. Until growth inflects positively, you’ll see TLT in our investment conclusions as the yield curve is the best proxy for forward looking growth expectations. 

Three for the Road

TWEET OF THE DAY

JAPAN: our fav Intl Equity market closes +0.5% on the session after holding @Hedgeye support

@KeithMcCullough

QUOTE OF THE DAY

If passion drives you, let reason hold the reins.

Benjamin Franklin

STAT OF THE DAY

Michael Jordan has made $536.6 million from sponsorships from 2000 to 2012. According to Jordan, the vast majority of it came from Nike.


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