CLICK HERE to access the associated slides.
Client Talking Points
The #BeliefSystem (of central-market-planning) continues to break-down as the BOJ is now rumored to “hold off next week due to unstable bond markets” – wow – weren’t negative yields supposed to save equities from the profit cycle? The Yen remains bullish TREND and the Nikkei which is down -0.8% overnight remains bearish TREND.
Chase the wabbit – U.S. equity futures whipping around on what Oil does and that isn’t going to do anything for the economy obviously (volatility = bad). The immediate-term risk range for WTI is 30.65-38.18 so the way we would deal with this is fade Oil related beta moves at the top end of that range.
No matter what oil does, our favorite S&P Sector remains Utilities (XLU) which ramped another +1.0% yesterday to immediate-term TRADE overbought at +10.5% year-to-date as our favorite Sector to be short remains Financials (XLF) which led “ex-Energy” losers yesterday -1.6% to -8.1% year-to-date.
*Tune into The Macro Show with Gaming, Lodging & Leisure Sector Head Todd Jordan live in the studio at 9:00AM ET - CLICK HERE.
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Top Long Ideas
If you were long energy over utilities last week, nice trade! We'd remind you that Utilities (XLU) are outperforming the S&P 500 by +10% year-to-date. And that’s with the bounce. By contrast, Energy (XLE) was up 6.5% on the week but is up only 1% year-to-date.
General Mills (GIS) faces some headwinds across their portfolio, and although the 1H of FY16 was a challenge, the company has robust merchandising and consumer plans in the 2H that should improve results.
GIS has embarked on a mission to drive their top 450 SKUs, which represent 75-85% of their volume. Calling it their ‘Power 450’, surprisingly these 450 SKUs aren’t even in all retail locations and formats, broadening the distribution footprint of these top SKUs is priority number one for GIS’s sales team. The organization is also looking at the bottom 450, representing 1-2% of volume and making critical decisions on what products can be discontinued.
We continue to believe GIS is one of the best positioned consumer packaged foods companies due to its strong brands and best-in-class people and organization.
We can’t emphasize enough the bigger picture from both a data and top-down market signaling perspective. To contextualize the relief rallies and short squeezes in asset classes and instruments that are counter to our more longer-term view. Here’s what how we think the macro environment plays out from here:
Once the policy catalysts are out of the way in the next few weeks, our expectation is a return to outperformance in growth slowing asset classes (TLT and XLU). If you’re in for the TAIL and the TREND call, focus on the data, not the desperate attempts of central planners to arrest economic gravity. A brief reminder: ECB chief Mario Draghi will attempt to walk on water today.
Three for the Road
TWEET OF THE DAY
An Update On Howard Penney's SHORT #ShakeShack Call | $SHAK https://app.hedgeye.com/insights/49610-hedgeye-s-howard-penney-nails-shake-shack-short-call-again-shak… @KeithMcCullough
QUOTE OF THE DAY
It's kind of fun to do the impossible.
STAT OF THE DAY
Today in 1796, Napoleon married his 1st wife, Josephine.
Takeaway: Shares tumbled as much as 11% today, after management offered unexpectedly light guidance.
Shake Shack shareholders are getting punished today. Shares of the burger chain fell as much as 11% after company guidance disappointed rosy expectations.
Hedgeye Restaurants analyst Howard Penney has been the bear on Shake Shack (SHAK). In May 2015, Penney told anchors on BloombergTV that SHAK shares were "egregiously overpriced" and had 60% to 70% downside.
Since then, SHAK shares have fallen -43%. Penney has been consistently bearish on the stock saying "Shake Shack Is One of the Most Overvalued Stocks Out There."
The bottom line ... from Penney's original short call on the company, is that "the SHAK growth story (business model) is predicated on the view that what works well in NYC will work well in the rest of the world." However, outside Manhattan, the average restaurant's margins are slimmer because brand awareness isn’t as strong. Penney concluded:
"The bottom line is that, for us, there is a very good probability that SHAK begins opening up some new units that fall short of the Street’s expectations.”
That's what happened today.
For an update on Penney's latest think on SHAK, see the excerpt from the institutional research note below.
To read Penney's entire Shake Shack research note ping email@example.com.
Takeaway: What to watch on the election 2016 campaign trail.
Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.
There are 150 delegates at stake tonight -- MI, MS, ID, and HI. Donald Trump is leading in MI with 59 delegates at stake, but John Kasich and Ted Cruz are both on his heels. If Trump pulls off a double-digit win in MI and takes MS as well, then the weakness in his numbers from the past weekend's primaries, currently being touted by the establishment press, will feel like an aberration.
If the race is closer than expected, then the toll from two poor debate performances, millions of dollars in attack ads, and opposition from most of the Republican establishment may be taking root, and could make the winner-take-all primaries much closer than the pundits are predicting.
The Republican establishment has long detested Cruz, but his lead over Marco Rubio is persuading some that he is best-positioned to block Trump. We're hearing whispers that a number of Rubio supporters are quietly preparing to jump to Cruz's ship, while additional reports claim "multiple" senators will endorse Cruz later this week. Still, Rubio's camp insists that once they win Florida, the map favors them after March 15th... leaving Rubio no incentive to get out.
WHOSE SIDE ARE YOU ON?
Since Super Tuesday a loose anti-Trump coalition has spent over $10 million on ads targeting the Republican frontrunner -- an effort to impede Trump's popularity in delegate-rich states like FL and IL. While these ads are ubiquitous in those states and others, they fail to guide voters towards another candidate, and Trump's core supporters will blindly follow him into November.
If Trump cleans up on March 15th then the anti-Trump movement may be short-lived. The real damage will take its toll in the general election -- with the Dems' gift that keeps on giving from the Dean of the Establishment Mitt Romney and other Republican leaders providing great substance to the anti-Trump storyline.
In this brief excerpt from The Macro Show earlier today, Hedgeye Retail analyst Alec Richards discusses earnings in the sector and why "every single company, with the exception of three, have guided down" this quarter.
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The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.
LONG SIGNALS 80.43%
SHORT SIGNALS 78.37%