prev

FOMC Decides to Pander, Again

Pandering to the political wind is as consistent a "Trend" at the US Federal Reserve as their call on "expecting inflation to moderate" (which they've been "expecting" since August 2006!).

"Downside risks to economic growth remain" is still the party line. Gee, thanks for that revelation Ben.

There will be more risk to the US economy tomorrow, and the day after that, as a result of this spineless rhetoric.

Sellem' if you havem'.
KM

The Other Side of FX Risk

Before we even see the bulk of FX translation risk play out, organic sales growth is starting to tank. Add this to even greater cost pressure than in the US, and this is not good for Europe.
  • Yes, FX risk is important. In fact as I’ve recently noted, I think that a strengthening dollar will ultimately expose the broken margin structure for many companies in this industry. But let’s not forget the actual organic sales growth outside of the U.S. either. Euro-zone retail sales were down 3.1% in June. As far as I can tell, that’s just about the lowest number since the Euro was born.
  • As I highlighted in greater detail in my 7/25 ‘Trouble Brewing in Europe?’ post, Europe appears to be feeling a disproportionately higher import cost hit on raw materials than the US to higher dependency on China. Keep in mind those companies with significant European exposure. Things can turn… FAST.
This is one scary retail sales chart. Euro-zone retail sales yy change.
Exposure to Europe varies meaningfully by company.

EAT – Brinker Sees Bankruptcy Cycle Continuing

EAT management commented on its conference call today about the current environment as it relates to Bennigan’s recent filing for Chapter 7 bankruptcy protection and the subsequent impact on supply within the industry. They not only recognize bankruptcies to be good for the industry, particularly the bar and grill segment, but they also see more competitors going away.

Bankruptcy is good for the market share leader so Brinker should have the biggest opportunity to capture incremental share as supply comes out of the market. To that point, management stated that it is already seeing an uptick in sales and traffic in those restaurants that are located next to a Bennigan’s that has closed.

Management comments:

“I think bigger than that is the transformation that you’re seeing in the industry, and that it used to be situations like that, companies went from some kind of financial straights to chapter 11, and just never stopped opening their doors, but certainly changes in debtor and possession or debt financing has made it much better for brands like ours as these brands are going away and that’s a positive because that takes supply out of the industry, and I think everybody has been looking for a correction in supply, and I don’t think this is the first. We have seen a lot of restaurants here in Dallas, some at the higher end, some of the lower end go away, and I’m sure if you look around the city you’re in, you’re seeing similar situations. So supply is starting to rationalize itself which a good thing for us in the grill and bar segment and it’s a good thing for restaurants overall especially if you’re well capitalized and have a good balance sheet.”

“There will be a lot more private single mom and pop restaurants going away and will be some more chains going away as well because the cost side is just too onerous right now, and that’s why the things we’re doing in our restaurants this technology hospitality, part of it is trying to figure out how to make the P&L better as well. Part of it is trying to figure out how to make more money and provide faster food experiences and better guest experiences.”

“I think you’re starting to see some of those weaker competitors go away, and they’re going to go away for good. That’s the best news of all. So I think the supply cycle is getting better. I think we’re improving ourselves in the sales cycle of casual dining, but I wouldn’t say that it’s getting ready to take off.”




Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

New York's Hedge Fund "Mafia"

I started talking about this investment theme in November, and I’d be remise to stop talking about it now. I’ve upset plenty of my former colleagues – but that’s ok - I was right. The rationalization of oversupply in the US Hedge Fund Industry is finally in motion.

The good news is that journalists are finally biting on this story and tracking down some pretty horrendous 2008 performance numbers. This makes me less of the “negative guy”, and more like the “right guy”. “Hedgies” really like guys who are right – that’s why we get paid the big bucks, remember?

There is an article by Julie Scuderi at Hedgeco.Net today that walks through the travails of “New York’s top 100 Hedge Funds”. It’s an inside joke amongst sober analysts in the hedge fund community that there is a proverbial “NY Hedge Fund Mafia”, and now you see the liabilities associated with some of their group think. I’ll let you read the article and see how bad some of these performance numbers are. Levering up long is not a hedge fund. Real hedge funds hedge!

This oversupplied industry picture is allowing the strong like Phil Falcone at Harbinger (hockey player from Minnesota’s Iron Range) get stronger. Great job to Mr. Falcone and his team.
KM
  • "Cashmere Mafia"?
Picture: http://www.criticsrant.com/Images/criticsrant_com/TV_Cashmere%20Mafia/hn-cashmere-small.jpg

Free Falling "Fast Money" Chart

On the commodity front, inflation has DEFLATED to the tune of -15% in a month! This chart we put together shows you what happens to people when they “buyem’ high, hoping to sellem’ higher”. I think the pavement hurts…

The short term "Trade" in the CRB is lower. The "Trend" will remain higher, until I see a face plant closing price under 382 for the Index.
KM

Show Me The Love, Ben!

The US Dollar Index is building bullish “Trade” momentum in my models, and needs to follow through here with fundamentally based Bernanke backing.

On July 14th, both the S&P 500 and US Dollar were in dire straits, testing new lows for the year respectively. Since, the US Dollar has rallied +2.8% to 73.82 today, and now it’s making a new 6 week high versus the inflated Euro, which has come in sharply in the past few weeks to 1.55.

Hawkishness will beget further bullishness in this “Trade”. It may depress some Wall Street bankers, but it will impress my savings account. The US Dollar has had as high a positive correlation to the S&P 500 as any macro economic indicator on my screens as of late.

Raise rates, strengthen the US Dollar, and break inflation’s back, Ben.

KM
  • US Dollar Index Chart, Building The Love
chart courtesy of stockcharts.com

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

next