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Chipotle Shares Have 35% Downside

Takeaway: Our Restaurants analyst Howard Penney remains bearish on Chipotle. He sees an additional 35% downside.

Chipotle Shares Have 35% Downside - nypost chipotle

 

In case you missed it, Hedgeye's Howard Penney captured the essence of the bearish case on Chipotle (CMG) in a recent New York Post article.

 

Since the E. coli outbreak was announced, Chipotle shareholders have taken a significant hit. The stock is down -34% since Penney added it as a Best Idea Short on 11/16/15 ... and over -18% year-to-date.

 

Here's Penney's update from the NY Post story (with data provided via our survey partner CivicScience):

 

"By another measure, the number of diners who say they 'don’t like' Chipotle increased to 24 percent in the second quarter of 2016 — from 18 percent in the fourth quarter of 2015, according to a Civicscience brand survey released on Monday.

 

'There’s going to be a permanent group of people who won’t go back,' said Hedgeye’s Howard Penney. 'And even after three years, when Chipotle may see some improvement, their competition will have improved by then, too. They may have had their run.'"

 

To be clear, Penney has been the bear on CMG for a while now. (For more, click here and here.)

 

Bottom line? Be careful if you're betting on a bottom.

 


INVITE: LAUNCH CALL FOR DEMOGRAPHY SECTOR: BREAKING JOBS NUMBERS, DISTURBING 2015 BIRTHS/DEATHS NEWS

Takeaway: We are hosting a conference call on Thursday, June 16th at 1:00 PM ET to introduce our Demography Sector and review some key topics.

Join us on Thursday, June 16th at 1:00PM ET when Neil Howe will be launching his new Demography Sector and explaining both his method and the range of issues he will cover. Here we will focus (near term) on the jobs slowdown and the surprising 2015 vital statistics release. We will also focus (long term) on population growth, the housing market, productivity growth, and possible outcomes for long-term rates. Questions about Neil's views on how generational changes are shaping the 2016 election year mood are invited. Please contact  for additional information.

 

WATCH THE REPLAY BELOW

 

Call Details

 

Demography is a big word with fuzzy boundaries. Yes, it certainly includes long-term population trends. But it can also include breaking data on anything "people" are doing or feeling. Our Demography Sector will overlap with every other sector. But it will focus less on individual firms than on industries, product themes, sentiment trends, measurable shifts in the popular mood, and inflection changes in the macro numbers.

 

 Key points to be discussed:

  • Neil's background and overall method; range of issues the Sector will cover. 
  • What do the breaking jobs numbers say about the economy: Healthy growth? Impending recession? Hitting the NAIRU wall?  Thoughts on jobs, Brexit, and another Fed hike.
  • Unhealthy trends: Deaths up, births down. A look at the disturbing CDC early report on U.S. vital statistics in 2015.
  • A long-term housing forecast--overall bearish, but with some bullish hot spots. We start with realistic demographic projections... and then add a generational overlay.
  • Reflections on stubborn downward trend in long-term rates: What Mr. Market may be supposing about future growth in prices, population, and productivity. 

We look forward to seeing you.


An Update On The Great Debate: Deflation Vs. Reflation

Takeaway: Next catalyst in the #Reflation vs. #Deflation debate? Fed head Janet Yellen will give an update on the FOMC's latest thinking on Wednesday.

An Update On The Great Debate: Deflation Vs. Reflation - Deflation cartoon 11.10.2015

 

Got #Deflation?

 

That's the latest macro market read through, explaining why equity markets in Australia and Russia puked and the 10yr Treasury yield headed lower. In other words, it was a classic Dollar Up, Rates Down day.

 

Where do we go from here?

 

Is the evolving trend #Deflation or #Reflation? That's the question of the month...

 

On an immediate-term trade basis, yesterday's selloff triggered oversold in a number of shorts in Real-Time Alerts. Here's additional insight via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier today:

 

"U.S. Treasury 10yr yield at 1.57%. Yep. Closing in on 2015 lows but rates are oversold ahead of Yellen’s 4th pivot (hawkish to dovish to hawkish to dovish) in 6 months as #EmploymentSlowing becomes obvious."

 

Take a look at a chart of the tumbling 10yr Treasury yield. (Note: At the start of 2016, the 10yr Treasury yield was 2.25%.)

 

Click to enlarge. 

An Update On The Great Debate: Deflation Vs. Reflation - 10yr yield 6 14

 

Meanwhile in equity markets... 

 

"Dollar Up, Rates Down – that is the #Deflation Risk On – and that’s a big reason for the oversold signal in Global Equities this morning – Reflation sensitive countries (Russia -3%, Australia -2%) and Reflation Risk sector exposures have corrected, hard, from our USD oversold (Energy Overbought) signal last week."

 

 

Next catalyst in the #Reflation vs. #Deflation debate? Fed head Janet Yellen will give an update on the FOMC's latest thinking on Wednesday...

 

It's perverse, but it's reality. The Fed's pivots from hawkish to dovish throughout the year have perpetuated either reflation or deflation. 

 

More to be revealed.


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Iran's Oil Production Is “Confounding Experts and Beating Expectations” – Incorrect

Takeaway: Our energy policy analyst Joe McMonigle made a big, non-consensus call on Iranian oil production. He was right. Credit where credit's due.

Iran's Oil Production Is “Confounding Experts and Beating Expectations” – Incorrect - z joem

 

A reality check is in order.

 

NPR ran a segment over the weekend saying Iran’s dramatic return to crude production and exports is “confounding the experts and beating expectations.” Well, not so much. Iran surprised virtually everyone but us. 

 

As you can see below, Hedgeye Potomac Senior Energy Analyst Joe McMonigle predicted this in his January 17 note, “Iran sanctions relief to trigger crude exports sooner and larger than expectations.” In the note, he advised our subscribers to expect 700,000 barrels per day by March. Iran is now at 800,000 barrels per day and growing.

 

Here's what NPR had to say

“When the nuclear deal between Iran and world powers was implemented in January, it was widely believed it would take at least a year for the country’s oil industry to get back up to speed after years of sanctions. But Iran is confounding the experts and beating expectations.”

 

Here's what we wrote back in January

“The same analysts who were surprised at how quickly sanctions got lifted are now underestimating Iran’s production capabilities, or incorrectly believe Iran will move slowly due to low crude prices. Our view is that Iran will increase production by larger amounts and sooner than most observers think. We anticipate that Iran, by itself, has the capability to produce approximately 700,000 barrels a day of additional crude for export by March 2016.”  

 

“As a result of sanctions, Iran reduced production across the board as opposed to shutting down major upstream fields. Therefore, increasing production in the short-term would be almost like pushing a button. Iran could easily reach 700,000 barrels a day by increasing production by a couple hundred barrels a day at its 2,280 producing wells.”

 

*  *  *  *  *

This is a big deal on an important call that we got right. We were virtually alone in making the call.

 

On a related note, our world-class cartoonist captured our contrarian call later that week on January 22 with this cartoon.

 

Iran's Oil Production Is “Confounding Experts and Beating Expectations” – Incorrect - Iran.Saudi.oil cartoon 01.22.2016

 

 


Daily Market Data Dump: Tuesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Tuesday - equity markets 6 14

 

Daily Market Data Dump: Tuesday - sector performance 6 14

 

Daily Market Data Dump: Tuesday - volume 6 14

 

Daily Market Data Dump: Tuesday - rates and spreads 6 14

 

Daily Market Data Dump: Tuesday - currencies 6 14


Good Spot

Client Talking Points

VIX

Inasmuch as it was obvious to sell US Equity Beta in the 12-13 VIX range (it’s been working for almost a year now), 21-22 VIX is a buy/cover signal – again, very immediate-term capitulation for chart chasers who got pinned 45 handles higher in SPY.

USD

Dollar Up, Rates Down – that is the #Deflation Risk On – and that’s a big reason for the oversold signal in Global Equities this morning – Reflation sensitive countries (Russia -3%, Australia -2%) and Reflation Risk sector exposures have corrected, hard, from our USD oversold (Energy Overbought) signal last week.

UST 10YR

1.57% 10yr Yield. Yep. All-time low. Rates are oversold ahead of Yellen’s 4th pivot (hawkish to dovish to hawkish to dovish) in 6 months as #EmploymentSlowing becomes obvious...

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/13/16 66% 0% 0% 6% 18% 10%
6/14/16 64% 2% 0% 6% 19% 9%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
6/13/16 66% 0% 0% 18% 55% 30%
6/14/16 64% 6% 0% 18% 58% 27%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
TLT

No matter what side of the reflation/deflation trade you’re on, the growth in global demand continues to decelerate on a trending basis. The debate is no longer whether or not growth is slowing. The real debate centers on the policy response and the market reaction to that policy response. While that question presents us with “open the envelope” risk, #GrowthSlowing will continue to be the bull catalyst for U.S. Treasuries whatever the policy response as the slow march to zero yields globally goes on. 

GLD

To sum things up, stay away from the guessing game and stick to what is empirically evident. A stronger USD over the longer term is a probable scenario in our book. We expect the Fed, and all central banks for that matter, will try to combat deflation. That said, global currencies all burning at the same time makes a compelling case for GLD, as gold knows no currency. You can sell it in local currency all over the world. Scary but true.

MCD

There have been rumblings in the news that McDonald's (MCD) 2Q comps have slowed due to the temporary replacement of the 2 for $5 value platform for Monopoly. This has clearly been reflected in the stock as of late, as MCD has underperformed the S&P 500 over the last month.

 

Despite this near term headwind, we still strongly believe in the long-term story for MCD and remain confident that once they get their value platform right nationally, they will be just fine. In the short to intermediate term, as we wait for a solidified value platform, this recent underperformance represents a great buying opportunity. We remain LONG MCD.

Three for the Road

TWEET OF THE DAY

US 10-year Treasury yield 1.58% Lowest since 2012 $TLT remains our #1 non-consensus call #winning @KeithMcCullough pic.twitter.com/fdyXW5Lwt5

@Hedgeye

QUOTE OF THE DAY

"Either you run the day, or the day runs you."

-Jim Rohn

STAT OF THE DAY

Aroldis Chapman holds the record for the fastest pitch ever thrown, 105.1 mph.


Early Look

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