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Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?)

Takeaway: The German 10yr Bund yield went negative and hit new all-time lows at -0.0047% on global #GrowthSlowing fears.

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - bond yields

 

Big news in bond markets today.

 

The 10yr German Bund yield went negative, hitting an all-time low, as investors flocked to sovereign bonds on global #GrowthSlowing fears. Take a look at the long-term chart of the yield on the German 10yr over the last 26 years.

 

A truly amazing rally.

 

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - german bund long term

 

The graphs below show the yield curves for select sovereign bonds today (green line) versus where they were at the beginning of the year (yellow line). As you can see, there's been a massive rally in long bonds around the world. 

 

GERMAN 10YR:

12/31/15: 0.627%

Today: -0.0047%

 

Click images to enlarge.

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - bund 6 14

 

JAPANESE 10YR:

12/31/15: 0.260%

Today: -0.169%

 

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - jpy 6 14

 

SWISS 10YR:

12/31/15: -0.091%

Today: -0.519%

 

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - swiss 6 14

 

U.S. 10YR:

12/31/15: 2.270%

Today: 1.6053%

 

Less Than Zero: German 10-Year Yields Go Negative (#GrowthSlowing Anyone?) - ust 6 14


Stock Report: Dunkin Brands (DNKN)

Takeaway: We added DNKN to Investing Ideas on the short side on 6/06.

Stock Report: Dunkin Brands (DNKN) - dunkin table 

THE HEDGEYE EDGE

 

Slowing Top Line: 

 

Since peaking in 4Q12, Dunkin Brands' 2-year same-store sales trends have slowed by over 350 basis points to 1.7% in 1Q16. Adjusting for the weather benefit in 1Q16, 2-year sales trends are likely flat. The self-inflicted issues (more on that below) coupled with the increasingly competitive environment, suggest that it’s unlikely that DNKN can regain momentum anytime soon. We believe that major internal changes are needed to fix the brand beyond the ones already announced.

 

Slowing top line is also indicated by our proprietary Donut Tracker modelIt continues to trend downward, making DNKN’s positive performance in 1Q16 look like a one quarter phenomenon supported by price, and is not indicative of stability or strength.

 

Click to enlarge

Stock Report: Dunkin Brands (DNKN) - donut tracker

 

INTERMEDIATE TERM (TREND)

 

Overcomplicating The Menu Is Bad For Operations: 

 

DNKN currently faces an issue many operators have faced => menu overload. Over the last four years, the company has shifted away from its core competency and significantly increased the number of menu items. In addition, Dunkin’s barbell menu strategy (value versus premium products) is adding complexity to the menu, slowing down service times and increasing costs in the supply chain. The number of Dunkin’ menu items is up over 43% since 2010 and up 19% YoY in 2015.

 

LONG TERM (TAIL)

 

Slowing Unit Growth And Uses of Cash:

 

The slowing sales trends poses a longer-term risk to the company => slowing unit growth. In addition, the further the brand gets from the core markets in New England, the more expensive it is to build stores. The combination of slowing sales trends and lower new unit volume increases the likelihood that the company slows unit expansion. Finally, the company’s ability to pay out significant amounts of cash to shareholders is also at risk.

ONE-YEAR TRAILING CHART

Stock Report: Dunkin Brands (DNKN) - dunkin chart


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.

 


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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.


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

 

 


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