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Monday Mashup

Monday Mashup - CHARt 1

 

RECENT NOTES

12/21/15 DRI | GREAT QUARTER, DON’T EXPECT ANOTHER ONE SOON

12/17/15 AN OPEN LETTER TO THE CEO OF CHIPOTLE FROM HIS PEER GROUP

12/16/15 DRI | ONE LAST GOOD QUARTER

12/11/15 YUM | INVESTOR DAY IN REVIEW

12/9/15 CMG | WHO WILL BENEFIT FROM THEIR STRUGGLES? (ZOES, PNRA, QDOBA, CHUY, MCD)

 

SECTOR PERFORMANCE

Casual Dining and Quick Service stocks that we follow outperformed the XLY, last week, which was down -0.9%. Top performers on a relative basis from casual dining were DRI and KONA posting increases of +9.1% and +6.8%, respectively, while NDLS and JMBA led the quick service group this week up +3.9% and +3.6%, respectively.

Monday Mashup - CHART 2

Monday Mashup - CHART 3

 

XLY VERSUS THE MARKET

Monday Mashup - CHART 4

 

CASUAL DINING RESTAURANTS

Monday Mashup - CHART 5

Monday Mashup - CHART 6

Monday Mashup - CHART 7

 

QUICK SERVICE RESTAURANTS

Monday Mashup - CHART 8

Monday Mashup - CHART 9

Monday Mashup - CHART 10

 

Keith’s Three Morning Bullets

The Fed tightened into a slow-down last week and perpetuated #deflation in doing so…

 

  1. VIX – with the SP500 -3.6% for DEC, front-month VIX is back up at 20.70 – more importantly, it’s risk range is now 17.84-24.83 and this breakout on our TREND duration has been brutal for High Beta as a Style Factor, which was down another -2% last wk
  2. SPAIN – down hard in a generally up tape for European Equities this morning – post the Spanish election the IBEX is -2% (-7.5% in the last month) while the 10yr Yield for Spain is +11bps to 1.80%; I still think Draghi wants to snap Euro $1.05 vs. USD
  3. OIL – down another -0.6% this morning to $34.49 after deflating another -3% last week - #Deflation is not “transitory”, it’s been pervasive and since the US is in an industrial recession right now, it’s finding its way into revs/earnings for 1H 2016

 

SPX immediate-term risk range = 1; UST 10yr Yield 2.12-2.32%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


The Macro Show Replay | December 21, 2015

 


INVITE (NEM) | HAPPY ASSUMPTIONS VS. SAD REALITIES

As a follow-up to the the launch of the Hedgeye Materials vertical, please join us TOMORROW (Tuesday, December 22, 2015 at 11AM EST) for a review of the bear case on Newmont Mining.

 

INVITE (NEM) | HAPPY ASSUMPTIONS VS. SAD REALITIES - Marketing Image

 

Overview

 

NEM is typically perceived as a ‘premium’ gold miner, but, for one, we aren’t sure there really is such a thing.  Long-term, NEM has been a secular underperformer; we expect that underperformance to continue.  NEM may struggle with comparatively high costs in a declining gold price environment.  We are not convinced that NEM’s 2015 cost reductions reflect the underlying production economics and expect the shares to be further derated by the market in 2016.

 

 

Highlights

  • Assumption vs. Reality:  A look at key assumptions behind NEM’s costs and those of competitors
  • Charges Coming:  NEM may need to again adjust asset values lower, potentially with broader implications
  • Likely Value Trap:  Cyclicals in a downswing typically look cheap as conditions deteriorate
  • No Gold Cure:  With mine production likely to exceed estimates and gold continuing to move out of favor with investors, we expect gold prices to decline in most major currencies.

 

Dial-in information will be distributed in the reminder email for this call. Please email sales@hedgeye.com for more information on joining.

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

December 21, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.32 2.12 2.19
SPX
S&P 500
1,995 2,048 2,005
RUT
Russell 2000
1,104 1,157 1,121
COMPQ
NASDAQ Composite
4,879 5,042 4,923
NIKK
Nikkei 225 Index
18,503 19,618 18,986
DAX
German DAX Composite
10,192 10,871 10,608
VIX
Volatility Index
17.84 24.83 20.70
DXY
U.S. Dollar Index
97.68 99.41 98.73
EURUSD
Euro
1.06 1.10 1.08
USDJPY
Japanese Yen
120.35 123.15 121.25
WTIC
Light Crude Oil Spot Price
34.24 37.98 35.83
NATGAS
Natural Gas Spot Price
1.66 1.98 1.76
GOLD
Gold Spot Price
1,049 1,082 1,065
COPPER
Copper Spot Price
2.03 2.13 2.11
AAPL
Apple Inc.
105 112 106
AMZN
Amazon.com Inc.
641 685 664
GOOGL
Alphabet Inc.
745 780 756
NFLX
Netflix
113 122 118
KMI
Kinder Morgan Inc.
13.84 17.37 15.14
DIS
Walt Disney Company, Inc.
105 112 107

 

 


CHART OF THE DAY: New Bullish Narrative = Fed Hikes Into Downturn?

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

 

"... Finally, since some of the perma bulls are now saying that everything they missed is “priced in”, here’s what sentiment looks like from a net positioning perspective (CFTC non-commercial futures and options):

  1. SP500 (Index + Emini) net SHORT position just closed at its LOWEST level in 3 months (-55,366 net short contracts)
  2. US Dollar net LONG position just came in at its LOWEST level this month (+36,858 net long contracts)"

 

CHART OF THE DAY: New Bullish Narrative = Fed Hikes Into Downturn? - 12 21 15Chart of the Day


Experiment or Demonstration?

“With us flying is not an experiment; it is a demonstration.”

-Wilbur Wright

 

Chapter 9 of what I think is one of the best non-fiction books of the year, The Wright Brothers, by David McCullough, is called “The Crash.” What I like most about this amazing story of American innovation is the obsession and objectivity of the #process:

 

“People think I am foolish because I do not like men to do the least important work on the machine. They say I crawl under the machine when the men could do the thing well enough. I do it partly because it gives me opportunity to see if anything in the neighborhood is out of order.”

-Wilbur Wright (pg 195)

 

As we move into the final weeks of 2015, it’s still very obvious that the Federal Reserve’s grand experiment has generated forecasts that are very much out of order. Both market prices and their commensurate volatilities demonstrated that again during last week’s “rate hike.”

Experiment or Demonstration? - Fed forecast cartoon 11.13.2015

 

Back to the Global Macro Grind

 

Trying to “demonstrate strength” by raising interest rates into a slow-down revealed the #1 weakness of the macro market last week. It’s called #Deflation. No, it’s not “transitory.” It’s been pervasive.

 

Here’s how that looked in #StrongDollar terms:

 

  1. US Dollar Index +1.2% on the week to +9.3% YTD
  2. Canadian Dollar -1.3% on the week to -16.6% YTD
  3. Brazilian Real -2.7% on the week to -33.4% YTD
  4. CRB Commodities Index -1.5% on the week to -25.1% YTD
  5. Oil (WTI) -3.0% on the week to -42.4% YTD
  6. Copper -0.4% on the week to -25.5% YTD

 

And that’s just a small but impactful snapshot of what is happening underneath the hood of the Global Macro market’s machine. Whether you’re a Brazilian farmer or a Canadian miner, you get it. Yep. That’s “ex-Energy.”

 

If you have friends who still aren’t yet aware of modern day macro and how experimental central-plannings impact Foreign Currencies, Commodities, and Credit markets, please send them a Hedgeye Macro subscription for Christmas!

 

With the SP500 dropping -3.3% in the 2 days following the Fed’s experiment, this is what happened from an Equity Sector Style perspective:

 

  1. Basic Material Stocks (XLB) -3.8% on the week
  2. Energy Stocks (XLE) -2.8% on the week
  3. Utilities (XLU) +1.7% on the week

 

Yep. Same signal. When the USD ramps and rates fall, Utilities rally and #Deflation (Energy and Basic Materials) continues.

 

This macro reality continues to get priced into the non-Energy Style Factors of the US stock market:

 

  1. HIGH BETA stocks dropped another -2.0% last week to -15.3% YTD
  2. SMALL CAP stocks deflated another -1.5% last week to -15.9% YTD
  3. HIGH DEBT stocks dropped another -0.7% last week to -13.8% YTD

*mean performance of Top Quartile vs. Bottom Quartile (SP500)

 

And from a Sales and Earnings perspective (SP500 companies):

 

  1. SALES: bottom 25% Sales Growers fell another -1.4% last week to -15.5% YTD
  2. EARNINGS: bottom 25% Earnings Growers deflated another -1.0% to -15.7% YTD

 

That’s why stock pickers finally agree that #GrowthSlowing is as good a macro call as #Deflation has been. In a slowing growth environment, companies that are growing are getting more expensive. Meanwhile “cheap” companies that miss numbers continue to get cheaper.

 

Finally, since some of the perma bulls are now saying that everything they missed is “priced in”, here’s what sentiment looks like from a net positioning perspective (CFTC non-commercial futures and options):

 

  1. SP500 (Index + Emini) net SHORT position just closed at its LOWEST level in 3 months (-55,366 net short contracts)
  2. US Dollar net LONG position just came in at its LOWEST level this month (+36,858 net long contracts)

 

To put both of those positions in context, the 3-month average net SHORT position in SP500 is -160,851 and the 3-month average net LONG position in US Dollars is +41,879.

 

Maybe that’s why Mr. Market demonstrated that the Long USD and Short SPY position didn’t crash last week. The Fed’s credibility did.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.12-2.32%

SPX 1
RUT 1104--1157

VIX 17.84-24.83
USD 97.68-99.41
Oil (WTI) 34.24-37.98

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Experiment or Demonstration? - 12 21 15Chart of the Day


Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

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