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Monday Mashup

Monday Mashup - CHARt 1

 

RECENT NOTES

8/21/15 WWAV | DON’T PANIC, BUY MORE…HAIN | PANIC, SHORT MORE

8/21/15 UNFI | GOING AGAINST THE GRAIN

8/20/15 LNCE | Black Book Presentation Replay

8/11/15 LNCE | GOING IN LONG

8/10/15 LWAY | Sitting on a Gold Mine with no Tools

 

RECENT NEWS FLOW

Friday, August 21

LWAY | Ramps up production at newly refurbished facility in Wisconsin (click here for article)

 

Thursday, August 20

SYY | Elects Nelson Peltz and Josh Frank to Board of Directors (click here for article)

MKC | Completes acquisition of Stubb’s (click here for article)

MDLZ | Ardent Mills acquires Mondelez Canadian flour milling facility (click here for article)

 

Wednesday, August 19

KO | Pays roughly $90mm for 30% stake in Suja, as the fresh juice craze continues (click here for article)

 

Tuesday, August 18

HSY | Announced pricing of $300mm 1.6% notes due 2018 and $300mm 3.2% notes due 2025 (click here for article)

CAG | Darren Serrao, Campbell veteran moving to ConAgra to newly created position, Chief Growth Officer (click here for article)

 

SECTOR PERFORMANCE

Food and organic stocks that we follow outperformed the XLP last week. The XLP was down -4.9% last week, the top performer from our list was United Natural Foods (UNFI) posting an increase of +7.8%. Worst performing company on our list was once again Amira Natural Foods (ANFI), which was down -55.2%.

Monday Mashup - CHARt 2

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is bearish on a TRADE and TREND duration.

Monday Mashup - CHART 3

 

Food and Organic Companies

Monday Mashup - CHART 4

Monday Mashup - CHART 5

 

Consolidated Consumer Staples Valuation

The stocks we follow in the consumer staples sector faired okay compared to the rest of the market last week. Valuations remain near two standard deviations above the five year average EV/EBITDA multiple. We are most likely in store for further correction in the space.

 

Monday Mashup - CHART 6

 

Keith’s Three Morning Bullets

  1. CRASH – not an inappropriate word to use given that on the 3-month duration alone, Oil (-37%), China (-31%) Emerging Markets (-26%), and Long-term Sov Bond Yields have crashed. This is a literal crashing of both US and Global growth expectations – we’re still at ½ of consensus forecasts
  2. HIKE? – oh definitely – they should hike. “It’s just 25 basis points, Keith” – yep. Have at it. Let’s see what happens. This risk of being too tight during both the cyclical and secular slowdown was only obvious to those who had the bearish growth and inflation views. Jackson Hole = Thursday
  3. VIX – the main challenge with modeling accurate risk management levels right now is that volatility is undergoing a major Phase Transition across durations – hard to explain in 140 characters or less but very easy to see the series of higher-highs going back 2yrs

 

 


Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

8/17/15 MCD | Create Your Taste Experience

8/11/15 SHAK | PLANTING FLAGS

8/10/15 July Restaurant Sales and Employment Trends

8/7/15 BOJA | BO’S DILEMMA

 

RECENT NEWS FLOW

Friday, August 21

MCD | Signed agreement to franchise 20 restaurants in remote Russian locations (click here for article)

Burgers | Casual dining restaurants boosting lunch sales with burgers (click here for article)

 

Thursday, August 20

MCD | Another survey supports the expansion of All Day Breakfast (click here for article)

 

Wednesday, August 19

QSR | Burger King is expanding delivery service in India, marking the fifth country that BK offers the service (click here for article)

 

Tuesday, August 18

YUM | Micky Pant named new Yum China CEO (click here for article)

NYC Restaurant Wage Hikes | Quick service restaurant owners in New York have filed objections to the proposal to raise minimum wage to $15 per hour (click here for article)

 

Monday, August 17

DFRG | Opened new Double Eagle steak house in Orlando, FL (click here for article)

SBUX | Expanded evening program with beer and wine (click here for article)

DRI | Named Bill Lenehan as CEO of proposed REIT, currently a member of the Darden board (click here for article)

 

SECTOR PERFORMANCE

Casual dining and quick service stocks, in aggregate, outperformed the XLY last week. The XLY was down -5.1%, top performers from casual dining were BBRG and RUTH posting an increase of 2.7% and 2.3%, respectively, while ARCO and GMCR led the quick service pack up 12.0% and 4.2%, respectively.

Monday Mashup - CHART 2

Monday Mashup - CHART 3

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLY looks bearish from a TRADE and TREND perspective, TRADE support is 72.91.

Monday Mashup - CHART 4

 

CASUAL DINING RESTAURANTS

Monday Mashup - CHART 5

Monday Mashup - CHART 6

 

QUICK SERVICE RESTAURANTS

Monday Mashup - CHART 7

Monday Mashup - CHART 8

 

Keith’s Three Morning Bullets

  1. CRASH – not an inappropriate word to use given that on the 3-month duration alone, Oil (-37%), China (-31%) Emerging Markets (-26%), and Long-term Sov Bond Yields have crashed. This is a literal crashing of both US and Global growth expectations – we’re still at ½ of consensus forecasts
  2. HIKE? – oh definitely – they should hike. “It’s just 25 basis points, Keith” – yep. Have at it. Let’s see what happens. This risk of being too tight during both the cyclical and secular slowdown was only obvious to those who had the bearish growth and inflation views. Jackson Hole = Thursday
  3. VIX – the main challenge with modeling accurate risk management levels right now is that volatility is undergoing a major Phase Transition across durations – hard to explain in 140 characters or less but very easy to see the series of higher-highs going back 2yrs

 


The Macro Show Replay | August 24, 2015

 


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August 24, 2015

August 24, 2015 - Slide1

 

BULLISH TRENDS

August 24, 2015 - Slide2

 

 

BEARISH TRENDS

August 24, 2015 - Slide3

August 24, 2015 - Slide4

August 24, 2015 - Slide5

August 24, 2015 - Slide6

August 24, 2015 - Slide7

August 24, 2015 - Slide8

August 24, 2015 - Slide9

August 24, 2015 - Slide10


CHART OF THE DAY: The Mother of all Demographic Secular Slowings

Editor's Note: The following chart and excerpt are from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe. 

*  *  *  *  *  *  *

...And the last two cycle tops didn’t have this mother of all demographic secular slowings (which actually makes it different, for the worse – see Chart of The Day for the demographic tail wagging this global demand dog).

 

CHART OF THE DAY: The Mother of all Demographic Secular Slowings - z ben 08.24.15 chart


Fireball!

“Mr. Worldwide to infinity, you know the roof on fire”

-Pitbull

 

Since this morning isn’t going to be fun for anyone but Long Bond bulls (TLT), I thought I’d start my morning with a McCullough Clan household favorite and try to change the mood up a little:

 

“We gon’ boogie oogie oogie, jiggle, wiggle and dance”

 

My 19 month-old girl can cut a rug to #Fireball like you wouldn’t believe (she calls it “Ball, ball”). And if you didn’t know that the roof of global growth expectations is on fire, you haven’t been reading my rants for the past 3 months. Markets are crashing.

Fireball! - Bubble bear cartoon 09.26.2014

**Keith is LIVE on The Macro Show at 9am ET this morning. Click here for access.

 

Back to the Global Macro Grind

 

Crash? Yep. In big macro stuff, this slow-moving train wreck of willfully blind US and global growth expectations has been very obvious. You should not be surprised, whatsoever, by the following this morning:

 

  1. Oil crashing (down another -3% this morning, -38% in the last 3 months)
  2. China crashing (down another -8.5% overnight, -31% in the last 3 months)
  3. Emerging Markets crashing (-21.3% on MSCI and -23.4% LATAM in the last 3 months)

 

Oh, and Bond Yields (on the long-end of the curve) have crashed (again) in the last 3 months too. From 2.54% on the 10yr UST Yield to 2.01% this morning as inflation expectations crash (5yr UST Break-Even collapses to 1.14%, -52bps in 3 months).

 

But the Fed should definitely raise rates, eh? “It’s just 25 basis points, Keith.” Yep. I know. Have at it … and let me know how that goes for everything that’s rate sensitive now that … you know, everything else is like “the roof on fire”!

 

#Fireball!

 

I sincerely don’t mean to make fun of the situation market’s are in. But I do. I haven’t heard this many “it’s different this time” narratives since the 2000 and 2007 cycle tops.

 

And the last two cycle tops didn’t have this mother of all demographic secular slowings (which actually makes it different, for the worse – see Chart of The Day for the demographic tail wagging this global demand dog).

 

Oil, Chiner, EM – yep. You get that. But who gets #EuropeSlowing? Last week alone, here was the European Equity score:

 

  1. Euro Stoxx 600 Index -6.5% and -11.4% in the last 3 months (plus what it’s down this morning)
  2. Germany’s DAX down another -7.8% last week and -14.7% in the last 3 months
  3. Russian Stocks (RTSI) down another -8.7% last wk and -27.2% in the last 3 months

 

Germany and Russia slowing, at the same time? Probably just another glitch in a chart or something. “Don’t pay so much attention to the data” in Europe, ok? The secular (demographic) headwinds there are even stronger than USA’s.

 

Back to the US story, ex-long-Energy (XLE -8.4% wk-over-wk and -21.1% in the last 3 months) here’s what Style Factors in the SP500 got crushed the most last week:

 

  1. High Beta Stocks -7.8% on the week and -15.6% in the last 3 months
  2. Top 25% Sales Growth Stocks -6.4% on the week and -8.2% in the last 3 months
  3. Top 25% EPS Growth Stocks -6.4% on the week and -8.7% in the last 3 months

 

In other words, with the SP500 -5.8% last week and -7.6% in the last 3 months, the aforementioned “Growth” Style Factors underperformed the market’s beta… and the question remains whether or not being long “growth” starts to look like being long “value” (i.e. #Deflation Risk) has for the next 3 months?

 

As a reminder, the base effect (comparative period, year-over-year) for US GDP growth gets tougher in the 2nd half of 2015 vs. the 1st half. That means, if you held all other risks equal, the probability is higher that growth slows in Q3 and Q4 than Q2. That’s one of the biggest reasons why our US GDP forecast is ½ that of our top macro research competitor for Q3.

 

Not that “the data” or being right matters, but what happens if we continue to be right on growth and inflation AND the Fed decides to “tighten because it’s time”? While I’m praying they don’t make that policy mistake, anything can happen – and if they do, “we gon’ drink drinks and take shots until we fall out, like the roof on fire.” #Fireball

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.01-2.14%

SPX 1
VIX 20.80-31.51
EUR/USD 1.11-1.15
Oil (WTI) 39.01-41.93

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fireball! - z ben 08.24.15 chart


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