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#Deflation’s Dominoes

Client Talking Points

UST 10YR

The bond market either doesn’t believe Janet Yellen on the DEC hike and/or is signaling that that would flatten the curve and slow growth faster – either way, next support = 2.04% and lower-highs of resistance continue at 2.17%.

CRASHES

Oil, China and Emerging Markets! The Hang Seng is down another -3% overnight taking its crash to -28% (since April). Germany’s DAX is down -24% (since April) and the Russell hasn’t technically crashed yet down -16% from its year-to-date high, so only 4% to go there.

INDIA

India cuts by 50 basis points (instead of 25 expected) citing a “vortex of a global trade slow-down” – that’s scary language for any central bank, and at this stage of the central planning crisis central banks will scare people on reality.

 

**Tune into The Macro Show with special guest Housing & U.S. Macro analyst Christian Drake at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 70% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 7%
FIXED INCOME 23% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald’s clearly continues to be well-liked by our Restaurants research team and is a near perfect fit into our macro team’s current "style factor" preferences. This stock is high cap with a low-beta, coupled with a company turnaround story that is currently well underway. We believe this stock will do well through this tumultuous time in the market.

 

As previously mentioned, the company has all day breakfast starting on October 6. We anticipate this development as not only driving increased visits from existing customers, but also new customers that maybe don’t wake up early enough to get breakfast by 10:30am (or simply just people that enjoy eating breakfast items outside of the morning!)

PENN

As Sector Head Todd Jordan notes, "PENN should benefit from the release of state gaming figures over the next few weeks. Recall that August was weaker than many thought. While we predicted this particular slowdown, our model is showing a sharp September rebound.

 

September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels.  

TLT

Is the U.S. economy still showing signs of a cyclical slowdown? Yes.  If you, like us, remain skeptical on the said policy path from our omnipotent central planners, and you believe growth continues to slow, then we respectfully submit that you sit on your GLD and TLT allocations.

 

3 GDP comps are difficult. And, once the data comes out, we think expectations will be downwardly revised again. In other words, wait for yet another Fed punt on a 2015 hike.

Three for the Road

TWEET OF THE DAY

NEW VIDEO

Is 'Mobile Order & Pay' the Holy Grail for #Starbucks? | $SBUX https://app.hedgeye.com/insights/46584-is-mobile-order-pay-the-holy-grail-for-starbucks-sbux… via @HedgeyeHWP cc @KeithMcCullough

@Hedgeye

QUOTE OF THE DAY

A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort.

Herm Albright

STAT OF THE DAY

Whole Foods is cutting 1,500 jobs (1.6% or workforce).


The Macro Show Replay | September 29, 2015

 


September 29, 2015

September 29, 2015 - Slide1

 

BULLISH TRENDS

September 29, 2015 - Slide2

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BEARISH TRENDS

September 29, 2015 - Slide5

September 29, 2015 - Slide6 

September 29, 2015 - Slide7

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September 29, 2015 - Slide11


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Is Mobile Order & Pay the Holy Grail for Starbucks? | $SBUX

In this Hedgeye TV special presentation, veteran restaurants analyst Howard Penney puts the new Starbucks Mobile Order & Pay app through its paces. His findings, coupled with the results of a consumer survey rating user experience, support his current long-term view on the company.

 

Subscribe to Hedgeye on YouTube for access to our free video content.


SBUX | THE APP IS WORKING | HOW BIG IS BIG?

Starbucks has been a tricky one for us, we tried shorting it back in January of 2015, betting on the food being the demise of the brand, but admittedly the timing was off. Looking ahead, although the food is not driving traffic, we don’t believe that it is tarnishing the brand at this point. The overriding theme driving the SBUX bull case is Mobile Order & Pay.  So with the next big initiative being Mobile Order & Pay, we wanted to test out its impact on traffic, customer throughput and general customer/partner experience.

view our experience with Mobile Order & Pay at Starbucks below

 

The company has specifically set expectation high for the impact of Mobile Order & Pay.  On the 3Q15 earnings call SBUX CEO, Howard Schultz, said “By enabling our customers to order ahead and avoid waiting in line, Mobile Order & Pay is enabling us to capture more on-the-go customer occasions, and the data is clear. In those stores where Mobile Order & Pay has been deployed, lines are shorter, service is faster, and in-store operations are more efficient. The net result is increased traffic, incrementally, that is exceeding expectations, improved throughput, and an elevated Starbucks experience for our customers.”

 

With that statement Mobile Order & Pay appears to be the Holy Grail for SBUX!

 

Our initial indications are that in its early days Mobile Order & Pay is going well for the company.  The following is a survey we conducted, asking 200 Starbucks customers; “How would you rate your experience using the Starbucks Mobile Order & Pay App?” The results were largely positive, with an average rating of 3.5 stars. In addition to the survey we also tested the system with Hedgeye employees, and it probably balanced out to the same rating. Once the app was downloaded and credit card information inserted everyone had a positive experience. When asked whether they would use it again, some people prefer the in-store ordering experience, but the majority said they would use it again.

 

SBUX | THE APP IS WORKING | HOW BIG IS BIG? - CHART 1

 

We asked the store employees (partners) about the app and how it works for them. They had overwhelmingly great reviews on the app giving them more time to produce orders at an even pace. With the more even pace of incoming orders the partners are able to more efficiently produce the drinks and get them out in an orderly fashion.

 

In addition to increasing throughput and efficiency of the store, this app is meant to help drive incremental traffic. In the chart below assuming flat 2-years trends, estimates for Americas traffic,  would accelerate to 5% in 4Q15.  This would be a significant positive for the company and likely make the consolidated traffic number look conservative.  We believe with the new app launched nationwide, consensus estimates may turn out to be slightly conservative.

 

SBUX | THE APP IS WORKING | HOW BIG IS BIG? - CHART 2 replace

SBUX | THE APP IS WORKING | HOW BIG IS BIG? - CHART 3

 

This new app sets up a TREND duration bullish thesis on Starbucks. Long-term (1-3 years) we remain skeptical on the current food being a driver of growth, but at this point it is not tarnishing the Starbucks brand in any way. After our test/survey we are bullish on the company and the stock for the next 2-3 quarter timeframe.

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


Cartoon of the Day: Shaken (and) Stirred

Cartoon of the Day: Shaken (and) Stirred - denial cartoon 09.28.2015

"While the SP500 tried having a rate hike party on last Friday’s open, neither the Russell 2000 nor the Nasdaq were buying into the hype/hope, at all. They looked a lot more like Chinese, German, and Emerging Market stocks – not good. Rate hike or no rate hike? Who cares – stocks are now going down on both," wrote Hedgeye CEO Keith McCullough in today's Early Look.

 

 

 


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