RTA Live: August 28, 2015




ZOES | Entering the Big Leagues

Zoës Kitchen (ZOES) is on the Hedgeye Restaurants Best Ideas list as a LONG.


Yesterday after the close, ZOES reported impressive 2Q15 numbers. If the street wants to point to one blemish, due to the continued success of the business and stock price appreciation, ZOES had to roll forward a few public company expenses as they are no longer labeled an emerging growth company under the JOBS Act. This is part of entering the big leagues and is more a positive than a negative in our view.


ZOES reported revenue of $54.5mm a 30% increase YoY, narrowly beating consensus estimates of $54.0mm. Comparable restaurant sales increased 5.6% versus consensus estimates of 5.2%. The 5.6% was built up by a +1.3% increase in traffic, a +3.5% increase in product mix and +0.8% increase in price. ZOES had impressive performance all the way down the P&L leading to EPS of $0.05 beating consensus estimates by a penny.


ZOES | Entering the Big Leagues - 8.28.15 SSS chart


ZOES opened seven new company-owned restaurants in the quarter, bringing the total company-owned restaurants to 148, with three franchised locations. Through August, they have opened seven additional restaurants bringing the total to 158.  


Looking forward, management revised their guidance up slightly. Management is now projecting Restaurant sales between $220mm and $224mm up slightly from the previous $218mm to $223mm. Comparable restaurant sales growth is expected to be in the range of 5.0% to 6.0% bringing up the low end of previous guidance between 4.0% to 6.0%.


Listening to this management team talk makes us feel even more confident in the success of this company. They simply get it, the team environment cornered in everyone working toward the same goal together is culminating in great success. This story is nowhere near over and we expect to see continued strong performance from this company.


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw




CHART OF THE DAY: A Scary Immediate-Term Downside Setup

Editor's Note: The following chart and brief excerpt are from this morning's Early Look written by Hedgeye CEO Keith McCullough. It makes a lot of sense to subscribe. Trust us.


 CHART OF THE DAY: A Scary Immediate-Term Downside Setup - z ben 77 08.28.15 chart


...As I look at what I call the downside of the “probable range” in Global Equity markets this morning, for the first time in my career I don’t think I want to be right.


That’s a tough thing for me to write because the goal of the game is to be right. We’ve spent the last 7-8 years trying to evolve the Global Macro risk management #process to the point where many aren’t unprepared for this. Unfortunately, many are.


Rather than depress you with words, let me just show you the numbers my models showed me...


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More Cowbell?

“I gotta have more cowbell.”

-Christopher Walker


As many of you know, every year central-market-planners descend from upon high to the Teton Mountains in Jackson Hole, Wyoming. This is where ideologies associated with being able to bend economic gravity live large. #TaxPayerVaca


Technically speaking, it’s illegal for members of various un-elected and inaccurate forecasting agencies to leak what will ultimately become breaking news (cuts, easing, devaluations, etc.), but I did get an exclusive peak at the after party last night.


Do not forward this to anyone. Here it is: Many thanks to our man on the ground, Will Ferrell, and his version of the Blue Horseshoe Oyster Band for bringing us the catalyst for the next bull market. 

More Cowbell? - Central banker cartoon 03.03.2015


Back to the Global Macro Grind


Not to downplay what appears to be the most ominous setup in my macro model since 2008, I think it’s important to start to analyze this tragedy using some humor. Otherwise, the sadness of the situation could very well overcome me.


And I mean that sincerely. As I look at what I call the downside of the “probable range” in Global Equity markets this morning, for the first time in my career I don’t think I want to be right.


That’s a tough thing for me to write because the goal of the game is to be right. We’ve spent the last 7-8 years trying to evolve the Global Macro risk management #process to the point where many aren’t unprepared for this. Unfortunately, many are.


Rather than depress you with words, let me just show you the numbers my models showed me:


  1. SP500 has immediate-term downside of -8.3% to 1822
  2. Russell 2000 has immediate-term downside of -6.3% to 1080
  3. Germany’s DAX has immediate-term downside of -8.1% to 9506
  4. Japan’s Nikkei has immediate-term downside of -9.5% to 17304
  5. China’s Shanghai Comp has immediate-term downside of -19.3% to 2607


If I keep going, I’ll feel ill. And not for me. I mean for the many who have depended on the Fed, ECB, BOJ (and now Chinese) to bail them out of the idea of economic gravity slowing, deflating, etc.


But, but – GDP was +3.7% yesterday. Yep. In sequential (SAAR) terms vs. a sequential bomb of Q1 GDP. But the real bomb is going to be the Federal Reserve raising interest rates into a potential Q3 GDP print of 0.1%.


That’s right, 0.1%. We always model a high and a low range estimate in the Hedgeye Predictive Tracking Algorithm Model for any country’s GDP. And after updating the model for yesterday’s real-time data, here are those two scenarios:


A)     HIGH: Q3 2015 GDP (E) 1.5%

B)      LOW: Q3 2015 GDP (E) 0.1%


While we don’t think you should look at any country’s economic growth in Q/Q SAAR terms (year-over-year rate of change is a much more accurate representation of the cycle’s reality), you actually have to because both non-macro people and the media do.


My greatest fear is that the Fed doesn’t yet look at it the way we (and many of our Institutional Clients) do. My fear looks just like the SP500 did at its 1867 close on Tuesday. Imagine the Fed was raising rates into that?


And trust me, I get it. For God’s sake I’d write about why the Fed should have been raising rates during our #GrowthAccelerating call of 2013 just about every other Early Look. I also drove the #StrongDollar, Strong America thesis. But I also get that:


A)     The Fed missed their window to raise rates

B)      The modern day Fed has NEVER tightened into a slowdown

C)      No one knows how low equity markets can go in that scenario


Reminder: my scenario includes:


  1. The Street LOW forecasts on Q3 GDP (we’ve had them all year)
  2. An expectation of pervasive #Deflationary forces
  3. Downside to Q3/Q4 revenue and earnings expectations


So I don’t expect to see consensus and/or the Fed to see what I see this morning.


I look at the models we have built to proactively predict the #LateCycle slowdowns of 2007 and 2015. They look at whatever they are looking at. And every strategist who has had growth and inflation wrong in 2015 is looking for more cowbell.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.19%

VIX 20.56-44.64
Oil (WTI) 37.55-43.74

Gold 1105-1168


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


More Cowbell? - z ben 77 08.28.15 chart

The Macro Show Replay | August 28, 2015



Client Talking Points


So far, the Eurocrats have not delivered enough #cowbell at Jackson Hole and the EUR/USD has stopped going down on that +0.3% – ECB executive board member Benoit Coeure’s comments were half baked and ECB Vice President Vitor Constancio is there to speak for Mario Draghi – market expectations matter here… Constancio is not Draghi!


When we say ominous, we’re saying what our model sees, which is -7% of immediate-term downside in an index as what we call the “probable range.” European data this morning continues to be what it’s been, slowing – Spain’s CPI back in the red at -0.4% from +0.1% #Deflation.

S&P 500

First time we made SPY SHORT one of our Top 3 Macro Themes was July of this year (we were bullish on it in 2013) and the volatility signal here makes us actually feel like we don’t want to be right – there’s -8% of immediate-term downside in our probable range to 1822.


**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

One of the ways that McDonald's is going to take market share back is through one of the most popular items on its menu—the Egg McMuffin. "I honestly believe that if there is a silver bullet, it’s all day breakfast for McDonald’s," says Restaurants Sector Head Howard Penney. "And I do believe they’re going down that road and they will do it."


Penney adds that we’ll probably know more about that at the November analyst meeting and what the breakfast potential will be. There’s obviously a lot of things that go around MCD doing breakfast (e.g. shrinking other parts of the menu, etc).


"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," writes Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan. 


It was a very good week for those sitting behind the long-bond coming out of the FOMC minutes release on Wednesday. During a tumultuous 5-day stretch in which the S&P 500 fell over -5%, subscribers who followed our recommendation on TLT were sheltered from the market storm and gained almost +2%. Moreover, during the past month, TLT has gained +5.7% versus a -6.8% loss for the S&P 500 (a 1,200 basis point difference). In other words, it has paid handsomely to buck the consensus tide.

Three for the Road


Process (4min VIDEO): How We Do Asset Allocation… via @hedgeye



In the land of the blind, the one-eyed man is king.

-Desiderius Erasmus Roterodamus


The percentage of recent college graduates in jobs that don’t require their degree rose from 34% in 2001 to 44% in 2012.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.