Global Growth Continues To Slow

Client Talking Points


Largely misunderstood for the last 18 months, we’ve entered the most painful part of a crash in inflation expectations – the capitulation. The CRB Index made lower-lows down -23% year-to-date yesterday and Oil and Copper have only bounced +0.7% and +0.2%, respectively this morning – this all but ensures the “bottom” in leading indicators is not in.


The Russell 2000 moved back into double-digit correction mode yesterday (-10.1% since July’s all-time #Bubble high) as small cap, leverage, and high beta continue to be some of the worst Style Factors to be long during a #LateCycle slow-down that’s driven by #Deflation expectations.


From Atlanta Fed’s Lockhart’s lips to whoever doesn’t do macro’s ears, after cutting his GDP forecast for Q4 to 1.4% he said the “market” is well prepared for a hike. He clearly wasn’t talking about credit, commodity, currency, EM, small cap, etc. markets. The UST 10YR Yield is right back down to 2.22% as the curve continues to flatten (129 basis points 10YR minus 2YR this morning).


*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

Restaurants Sector Head Howard Penney had no material update on McDonald's (MCD) this week. However, here is what Penney wrote around when we added MCD to Investing Ideas. It's worth reiterating our high conviction in the stock:


"We continue to get more bullish every time we talk to the company, franchisees and/or customers which we have polled via conducting surveys. We are going to be looking at a much different company 1-3 years from now." 


"Urgency has been instilled from the top down by new CEO Steve Easterbrook," according to Penney. "This ship is in gear and headed north. 2015 will be the last time this stock is below $100."


A lot has happened in 13 weeks... not the least of which is that Restoration Hardware (RH) is underperforming not only the market by 16%, but Retail as well (by 7%) – despite RH being more insulated from some of the issues that are clipping earnings today for retailers more broadly.


Over this time period, however, RH meaningfully accelerated square footage growth, launched two new concepts. Some say it’s bad timing. We disagree. RH is our favorite name in the retail space, and we like it across all three durations. Trade, Trend, and Tail.


On went the game of slowing last week with a little central planning un-secretive sauce. Despite the ECB’s move to cut the deposit rate to -0.30%, Draghi didn’t ring the cowbell loud enough. Meanwhile, Friday’s jobs report might have been just enough for Janet to hike rates into a late cycle slowdown. The consensus long USD crowd was crushed on the ECB news. The dollar lost over 2% on Thursday and rates were pushed higher.


If growth is going to continue to slow, with a rate hike on the horizon, a relative fixed income spread play (long TLT, short JNK) is exactly what you want on.

Three for the Road


VIDEO: ‘The Stock Market Looks Fantastic! (Ex-Energy, Ex-Consumers And Ex-Credit)’… via @hedgeye



The wise man should be prepared for everything that does not lie within his control.



A study of 15-year-olds was conducted in 42 countries and found that after G.N.P., the quantity of books in one’s home was the most important predictor of reading performance. The greatest effect was seen in libraries of about 100 books, which resulted in approximately 1.5 extra years of grade-level reading performance.

McCullough: ‘The Stock Market Looks Fantastic! (Ex-Energy, Ex-Consumers And Ex-Credit)’


On The Macro Show this morning, Hedgeye CEO Keith McCullough and Senior Macro analyst Darius Dale talk style factors and Old Wall’s evolving storytelling about the stock market.

Cartoon of the Day: More Potent Than Popeye's Spinach?

Cartoon of the Day: More Potent Than Popeye's Spinach?  - US dollar deflation cartoon 12.07.2015


"#StrongDollar (rate hike catalyst DEC 16th) driven #Deflation Risk definitely matters to most asset classes," Hedgeye CEO Keith McCullough wrote in a note to subscribers earlier today. "After a -3.8% decline last week, Oil is down another -1.1% this morning to $39.53 and the Commodities complex remains in crash mode."

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 80.52%
  • SHORT SIGNALS 78.70%


'Tis the Season…. We hope you can join us at La Biblioteca (622 3rd Avenue at 40th Street – located inside Zengo restaurant) on Wednesday December 9th, from 5-9pm for some holiday cheer!


Please RSVP to Kerrie at  if you can join.


We look forward to seeing you!


The Hedgeye Financials Team



Penney: Why Chipotle Could Fall 25% Or More | $CMG

Takeaway: After surveying the damage, Hedgeye Restaurants analyst Howard Penney thinks Chipotle shares are worth $350 to $400.

Penney: Why Chipotle Could Fall 25% Or More | $CMG - chipotle cartoon


If you are a Chipotle shareholder you probably had a bad weekend. 


After the market closed Friday, Chipotle (CMG) released an 8-K detailing what the company is going to do to fix the issues it faces, including the impact of the E. coli outbreak that spread to stores nationwide. (Click here to read a brief recap of "The Bear Case Against Chipotle")


The expected "E. coli impact" on Chipotle's earnings was staggering:


  1. Comparable restaurant sales to be in a range of -8% to -11%
  2. Diluted earnings per share in the range of $2.45 to $2.85, versus consensus of $4.05
  3. Plus this- "We are also rescinding our previously-announced 2016 outlook for comparable restaurant sales increases. In light of recent sales trends and additional uncertainty related to the E. coli incident, we cannot reasonably estimate 2016 comparable restaurant sales at this time."

CMG shares took another hit today falling 3%. 


It's not done falling either. As Restaurants analyst Howard Penney writes, "We expect the swift decline in same-store sales caught management off guard and they are unprepared to deal with the severity of the problem." 


penney lays out his bearish thesis in the video below:


Why? To be clear, there are still a lot of unanswered questions. Here are a few from Penney's research note sent to institutional subscribers yesterday:

  1. Can the company grow its units at the same rate and deliver on consumer and investor expectations?
  2. What is the long-term damage to the Chipotle brand?
  3. Will the company need to adjust its non-GMO claims?

"The direct impact of a more humble management team will be a company with a lower margin structure and a significantly slower unit growth rate. CMG is just another restaurant company and the management team needs to realize that," he writes.


Bottom Line: Penney thinks the stock is now worth between $350 and $400.



To access Penney's more detailed institutional research note on Chipotle or his team's other research email

Kaiser: Kinder Morgan Shares Are Worth Less Than $10 | $KMI

Editor's Note: Below is an excerpt from a note written last night by Hedgeye Energy analyst Kevin Kaiser to institutional subscribers. For the record, Kinder Morgan (KMI) has fallen another 7.5% today.


"The market has suddenly come to appreciate many of the risks and issues with Kinder Morgan, Inc. (KMI) that we have discussed for more than two years.  KMI was down 30% last week and is now down 60% YTD on heightened concerns surrounding its debt leverage, dividend sustainability, business model, and valuation.  And because KMI is a bellwether in the North American midstream sector, the recent declines of its stock and bond prices are reverberating through its peer group, as evidenced by the Alerian MLP Index falling 11% last week.


While some investors will be tempted to catch the KMI falling knife, we continue to strongly advise against it.  In our view, there is still substantial downside to fair value, which we believe is less than $10/share.


We will host a conference call presentation this Friday, December 11th at 11am EST to discuss the latest KMI developments and give our updated views on KMI’s businesses, financials, and valuation." 


(For more info on how you can access his call send an email to


*Here is the Fox Business interview between Kaiser and Charlie Gasparino on KMI almost 2 years ago.  


Must reads on Kaiser's Kinder Morgan call:

*UPDATE: Since Cramer's buy recommendation last week (see last link above), KMI shares have fallen another 30%.



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