Penney: Why Chipotle Could Easily Fall Another 25% | $CMG


In this brief excerpt from The Macro Show, Hedgeye Managing Director and Restaurants analyst Howard Penney offers an update on where he stands with respect to shares of Chipotle and why they could fall much further from here.



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CHART OF THE DAY: The Huge Risk in Tomorrow's Jobs Report

Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe. 


"... While the probability of another #GrowthSlowing Non-Farm Payroll (NFP) print remains as high as it’s been since we started making the call that the US Labor Cycle peaked in Q1 of this year (see Chart of the Day with the DEC 2015 NFP top circled in red), what if the perma bulls paint it as “good”? This is where the fiction of “good” can become very bad for macro markets." 


CHART OF THE DAY: The Huge Risk in Tomorrow's Jobs Report - 11.05.15 EL chart



A Live Possibility!

“Truth is stranger than fiction, but it is because fiction is obliged to stick to possibilities. Truth isn't.”

-Mark Twain


The New York Federal Reserve’s Bill Dudley rocked the 2yr US Treasury Yield to the upside yesterday by suggesting that there is a “live possibility” that the Fed raises rates in December.


He provided the same caveat that Janet Yellen has guided markets to all year long. That, of course, is that America’s inaccurate forecasters at the Federal Reserve are “data dependent.”


That damn data, I tell you. If the US government simply didn’t report the data the Fed would have raised rates when they said they would (June). Instead, as markets discounted US GDP getting cut to 1.5% in Q3, the truth set accurate forecasters free.

A Live Possibility! - Fed lady cartoon 06.25.2016

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Back to the Global Macro Grind


Ah, the possibilities of “green shoots” though – they remain. As does the effervescent hope that by year end stocks can’t go down because the Fed is back on hold.


Wait a minute – aren’t those conflicting possibilities?


Not to get caught up in the actual details or get in the way of any fictional story that may or may not be supported by one’s “company surveys”, our #process doesn’t leave room for cherry-picking data like our competitors do.


As my main man Darius Dale outlined in a note to Institutional Investors last night titled “Global Growth Has Not Bottomed”, we run a predictive tracking algorithm on every relevant data point from every relevant economy in the world.


The goal of this modern-day (math) macro #process is threefold:


  1. To contextualize sequential deltas (in data) as either ACCELERATING or DECELLERATING
  2. To contextualize immediate-term data within its intermediate-term TREND (accelerating or decelerating)
  3. To determine if the absolute value of the most recent data point (s) is at/near a probable mean reversion level


This is the precise process that called for US growth to accelerate coming out of the 2009 and 2012 lows inasmuch as it called for it to slow from the 2007-2008 and 2014-2015 #LateCycle highs. Our model is better than the Old Wall’s. And we don’t apologize for that.


As opposed to trying to write his own history, Ben Bernanke should have had the courage to act and apologize to Janet Yellen for not raising rates when US growth was accelerating in 2013.


Bernanke could have raised rates 4-6x by the time we hit US employment and consumption cycle highs of Q1 2015.


But he didn’t. And now, going on 78 months into a rate-of-change-slowing US economic expansion, Janet has the “live possibility” of making an even bigger mistake than not hiking into an acceleration – she could tighten into a slowdown!


Unless tomorrow’s jobs report flashes something > 317,000, there’s not a hope on this side of centrally planned hell that the TREND in the US Labor Cycle goes from DECELERATING to accelerating.


While the probability of another #GrowthSlowing Non-Farm Payroll (NFP) print remains as high as it’s been since we started making the call that the US Labor Cycle peaked in Q1 of this year (see Chart of the Day with the DEC 2015 NFP top circled in red), what if the perma bulls paint it as “good”?


This is where the fiction of “good” can become very bad for macro markets. But, if you were looking at what happened in FICC (Fixed Income, Currencies, Commodities) yesterday instead of staring at Dow Bro 18,000’s possibility, you already know that.


  1. US Dollar ramped > 98 on the US Dollar Index
  2. Euro (vs. USD) got smoked down to $1.08
  3. CRB Commodities Index deflated -1.7% on the day, resuming its crash


And that, my friends, remains the live possibility you need to be very much prepared for – the possibility that, 7 years after the US driven financial crisis, that the Fed becomes the catalyst that perpetuates the next global one.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.28%

SPX 2029-2116
USD 97.21-98.24
EUR/USD 1.08-1.10
Oil (WTI) 42.96-48.23


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


A Live Possibility! - 11.05.15 EL chart

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The Macro Show Replay | November 5, 2015


Tighten? It’s A “Live Possibility”

Client Talking Points


We’ve only seen 8 alleged “breakout rallies” in rates the last 10 months (and every one of them has been quashed by that damn “data” that the Fed continues to say they are dependent on) – the U.S. labor cycle peaked in FEB and should slow well into the middle of next year.


Apparently the “reflation” bulls who are suggesting global demand has “bottomed” aren’t looking at the entire commodity complex. The CRB Index was down -1.7% yesterday, an indication which ensures the #Deflation Risk remains. Copper appears to be a Red Shoot this morning down another -2% to $2.27/lb.


Emerging crashes continue via #StrongDollar – no worries on that front – raise rates into a slow-down and you’ll see plenty more of this. India and Australia are down another -1.1% and -0.9% overnight, respectively vs. the Nikkei (which enjoys Strong Dollar, Down Yen) +1.0%.


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

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Last week was a big week for McDonald’s (MCD), as they reached the inflection point we were predicting. Post earnings, the next catalyst for the stock is going to be the November 10th analyst meeting.


The meeting will be an opportunity for management to shed more light on the progress of all day breakfast, additional G&A cuts and the potential of doing a REIT. Our Restaurants team remains bullish on the name, and they look forward to giving you some material updates after the meeting.


Restoration Hardware (RH) shares gained 5.8% this past week. The margin story here is explosive. Margins were sitting below 10% on Friday, and we think they will be above 16% in 3 years. The key reason is that expense leverage on these new properties is like nothing we’ve ever seen (i.e. RH pays only 10% more for square footage that’s 300% larger).


In addition, the company does not have to proportionately grow its sourcing organization with the growth in its store base OR its category expansion.


Our estimate is that the company will add $3 billion in sales over 3-years and climb to $11 in EPS. The earnings growth and cash flow characteristics to get to that kind of number would support a 30+ multiple. In the end, we’re getting to a stock in excess of $300.


Our forecasts for domestic economic growth continue to be more accurate than the consensus. We anticipate economic growth will get a lot worse from here. That is why you want to own long-term bonds (TLT, EDV).

  • Real GDP growth slowed to 1.5% on a quarter-over-quarter seasonally adjusted basis. That was actually right at the top end of our range going into it (remember that the mainstream Q/Q annualized number is unpredictable)
  • On the Y/Y numbers, growth decelerated for a 2nd straight quarter to 2.0% from +2.7%
  • Consumption growth was a huge contributor to the number vs. the manufacturing side of the economy which continues to slow. However, take a look at the important chart below. We’re already past peak consumption growth. Consumption growth was positive on an absolute basis but remained rate of change negative with Q3 representing the 2nd quarter of deceleration off of the Q1 2015 peak
  • Both residential and nonresidential Investment decelerated sequentially and inventories contributed almost -1.5% bps to the headline number
  • Personal Income decelerated to +0.1% for Sep vs. +0.3% in August. The expectation was for a +0.2% print
  • Personal spending decelerated to +0.1% from +0.4%. The expectation was also for +0.2% print.
  • Core PCE printed flat at +1.3% Y/Y for Sep. vs. Aug. on a Y/Y basis. That number missed expectations for a +1.4% print

Three for the Road


The Stock Market Is Out of Breadth and Overstretched… via @hedgeye



Try not to become a man of success but a man of value.

Albert Einstein


According to Volkswagen, the estimated cost of the economic risks inherent in the Volkswagen recall and diesel emissions scandal is roughly $2.19 billion.

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