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Repeat After Me: Deflation Is Not Transitory

Takeaway: Deflation is real and it's pervasive.

Let’s be crystal clear about what happened last week. Our omnipotent central planners at the Federal Reserve tightened into a slowdown and perpetuated #deflation in doing so.

 

Essentially, by trying to “demonstrate strength” by raising interest rates into a slowdown revealed the #1 weakness of the macro market last week. It’s called #Deflation.

 

Here’s what that looks like in the real world:

 

Repeat After Me: Deflation Is Not Transitory - oil update

 

Oil is down almost 2% this morning to $34.04 after deflating another -3% last week. Make no mistake,  #Deflation is not “transitory.” On the contrary, it’s been pervasive. And since the U.S. is in an industrial recession right now, it’s finding its way into revs/earnings for 1H 2016.

 

More to be revealed.

 


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

 


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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.

 


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


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