Central banker credibility is slowly waning.
Hedgeye Restaurants analyst Howard Penney highlights three key points from Starbucks’ lackluster earnings report. Earlier this month, Penney advised our subscribers to short the stock.
Despite the recent rally, we're holding the line on our short Junk Bonds (JNK) call. Here's analysis and a chart via our Macro team from a note sent to subscribers earlier this morning:
"Junk bonds have rallied +3% in the YTD, inclusive of a +6% squeeze over the past 3M alone. Option adjusted spreads continue to narrow dramatically, compressing -30bps in the past week alone to 586bps wide. This is down from a peak of 839bps on February 11th.
Is the trough of the domestic credit cycle in the rear-view mirror, leaving us holding the bag on a stale thesis? Not at all. Our work has shown that once the horse leaves the barn on the domestic credit cycle, there is no recovery until HY spreads are north of 1,000bps and corporations have sufficiently delivered their balance sheets – neither of which has occurred."
Click on the chart below to enlarge. Note: We think we're headed for a nice, big red dot (a.k.a. a blowout in high-yield credit spreads).
According to Standard & Poor's, there were 5 more corporate defaults this week, bringing the grand total to 51 year-to-date. FYI, that's the most since 2009.
There you have it...
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With the U.K. divided over whether to stay or leave the European Union, Hedgeye Senior Macro analyst Darius Dale discussed the potential impact on the pound, equities and consumer/business confidence on The Macro Show this morning.
Takeaway: More good news for McDonald's investors.
Editor's Note: Lovin' it... Veteran Hedgeye Restaurants analyst Howard Penney's bullish, non-consensus call on McDonald's continues to pay off for those who listened. See WSJ story today, McDonald’s Profit Climbs, Showing Turnaround Is Sustainable. Shares of MCD are up over 21% since his article was published on Fortune. The stock is up 27% since it was added to Investing Ideas on August 11, 2015 versus 0.36% for the S&P 500.
The fast-food chain’s stock will likely pop next year, thanks to its real estate holdings and its ‘All-Day Breakfast’ menu.
Last week, McDonald’s shares jumped 1.5%, amid speculation that the fast-food giant might spin-off its massive real-estate holdings. That looks increasingly likely under the activist-like new CEO, Steve Easterbrook. It’s another welcome development and a broader sign that McDonald’s is finally turning the corner. Our prediction: This year will be the last time McDonald’s stock sees a price below $100.
Let’s be clear. A lot has changed at McDonald’s in the past year. Within the first two months of becoming CEO earlier this year, Easterbrook announced $300 million in cost cutting measures, a move that includes refranchising 3,500 stores of its 36,290 stores globally and shutting down an additional 700. McDonald’s MCD -0.35% will soon use technology, such as self-ordering kiosks, to change the customer experience while rejiggering its menu, dropping some, adding others and improving its existing products. In October, for instance, McDonald’s announced that it would take “All-Day Breakfast” nationwide. Meanwhile...
Takeaway: The latest read through on U.S. and Euro-area economies isn't good and confirms both economies remain mired in this slow growth environment.
Here's analysis from our Macro team in a note sent to subscribers this morning:
"Eurozone April preliminary PMIs were released this morning... drum roll... both the Manufacturing and Composite (Manufacturing + Services) fell month-over-month, in-line with our theme of #EuropeSlowing. Eurozone Manufacturing recorded 51.3 vs. 51.6 prior and the Composite fell to 53.0 vs. 53.1. Services rose 10bps to 53.2. Meanwhile, coming late to the party, the ECB released the results of the Q2 2016 survey of professional forecasters, which sees the inflation forecast revised down by 0.4% to 0.3% for 2016 and growth at 1.5% in 2016 vs. a prior estimate of 1.7%."
Meanwhile, in the U.S., more souring economic data. According to Markit, its survey of U.S. Manufacturing PMI fell to its lowest level in six-and-a-half years:
Here's analysis from Markit:
"US factories reported their worst month for just over six-and-a-half years in April, dashing hopes that first quarter weakness will prove temporary... With prior months’ survey data pointing to annualized GDP growth of just 0.7% in the first quarter, the deteriorating performance of manufacturing suggests that growth could weaken closer towards stagnation in the second quarter."
Then there's China. Earlier this week, we noted that the PBoC would enact more "prudent" monetary policy even as China's economy continues to slow.
Add all of this to the laundry list of dour economic news we've seen of late.
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