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MACRO: The Daily Outlook

This insight (THE DAILY OUTLOOK) was published on August 11, 2010.  The Daily Outlook is published every trading morning.  RISK MANAGER SUBSCRIBERS have access to SELECT MACRO content in real-time.

 

 

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TODAY’S S&P 500 SET-UP
As we look at today’s set up for the S&P 500, the range is 39 points or 2.0% (1,099) downside and 1.5% (1,138) upside. Equity futures are trading below fair value - disappointing data out of China and Japan has set the early tone and Europe is broadly lower. Today's focus will be trade and budget data for July.

 

  • ADVANCE/DECLINE LINE: -1400 (-2766)
  • VOLUME: NYSE - 980.83 (+24.14%)
  • SECTOR PERFORMANCE: 3 sectors positive - XLU, XLV and XLP - flight to safety
  • MARKET LEADING/LOOSING STOCKS: Akami +4.86, XL Group +2.68 and ADV Micro (7.95%) and Western Digital (6.12%)

 

EQUITY SENTIMENT:

  • VIX - 22.37 1.04% - The VIX now up for 2 days and bearish for equities.
  • SPX PUT/CALL RATIO - 2.49 up from 2.01 trending up (not seen since March) (low on 07/15/10 of 0.87)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD - 24.87 -0.913 (-3.541%)
  • 3-MONTH T-BILL YIELD .15% Unchanged
  • YIELD CURVE - 2.2974 to 2.2359

 

COMMODITY/GROWTH EXPECTATION:

  • CRB: 272.28 -0.84% (down for the last 4 days)
  • Oil: 79.35 1.51%
  • COPPER: 331.25 -1.24% (currently trading at 327.25 below 332 - BEARISH for growth expectations
  • GOLD: 1,196 -0.32% (trading down for 3 days)

 

 

CURRENCIES:

  • EURO: 1.3117 -0.84%  - (trading down for 3 days)
  • DOLLAR: 80.799 +0.11%) - (trading up for 3 days)

 

 

OVERSEAS MARKETS:

  • ASIA - Asian markets fell after the Fed disappointed saying it would reinvest money from maturing mortgage bonds in government debt.  Japan fell (2.58%) broadly - The strong yen is hurting exporters and a slowdown in the US; worries about the domestic economy also dampened sentiment as core machinery orders came in below forecasts
  • EUROPE - European are trading sharply lower following weakness across Asian and in reaction to the Fed's comments that the US economy is slowing and took new step to aid the economy.
  • EASTERN EUROPE - Trading lower - Russia down another 1.23% and Hungary down 0.84%.
  • LATIN AMERICA - Lower but Peru trading higher for the 2nd day - Argentina down 1%
  • MIDDLE EAST/AFRICA - Mostly lower with Saudi Arabia down 1.46%

 

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MACRO: The Daily Outlook - chart7

 

 


Howard Penney
Managing Director


RRGB: GLANCE AT THE 2Q10 MENU

Here is a look at guidance and key focus points ahead of earnings on Thursday.

 

Following RRGB’s last earnings call on May 20th, I wrote a post titled, “RRGB – A LESSON ON HOW NOT TO RUN A RESTAURANT”.  As the title suggests, I was less-than-impressed by the extraordinary dependence on LTOs and advertising for transaction counts that RRGB had developed.   Below I have re-posted a chart that illustrates this point.  Whether the new menus they introduced in May have driven comps successfully or not remains to be seen.  To me it seems that they have trained the customer to only return with a coupon in hand.

 

RRGB: GLANCE AT THE 2Q10 MENU - rrgb sss1

 

SAME STORE SALES

  • To maintain or sequentially improve two-year average blended same-store sales, Red Robin will need to post +1.1% or better for 2Q10.
  • Per StreetAccount, the Street is expecting a company same-store sales number of 0%, which would imply a 55 bp sequential deceleration in quarterly top line trends. 

 

GUIDANCE

  •  Comparable restaurant sales of flat to +1%
  • Expecting revenue of $872 million to $880 million and EPS of $1.10 to $1.30.  1% change in comparable restaurant sales is approximately $0.21 in earnings per diluted share.  
  • Expecting deflation in our commodities for a large portion of basket: between -0.5% and -1% for 2010
  • Expecting some offset due to G&A savings.  Expecting 16.5 to $17 million per quarter for the remainder of the year
  • RRGB expects the average cash investment for new company restaurant development in 2010 to be ~$1.9 million per restaurant (less than the ~$2.5 million per restaurant of three years ago)
  • Four new company-owned restaurants are currently under construction.  12 to 13 openings expected during 2010 – remaining 8 to 9 scheduled for 2H10
  • Franchisees are expected to open between 3 and 4 restaurants this year
  • Continuing to expand our third party gift cards placement during the first quarter growing to about 8,000 retail locations, up from 7,400 at the end of 2009
  • Goal is to achieve 10,000 third party retailer locations for gift cards by the end of 2010.
  • 2010 effective tax rate is expected to be ~17%
  • 2010 CapEx is expected to be ~35 million to $40 million, which will be funded entirely out of operating cash flow
  • Debt payments of $18.7 million required by the term loan portion of the existing credit facility will be made from free cash flow after CapEx in 2010
  • Remaining free cash flow will be used to make payments on revolving credit facility

 

Howard Penney

Managing Director


SIGN OF THE TIMES - YOUNG PEOPLE ARE EATING OUT LESS

The NPD Group has reported that America’s twentysomethings are “more likely to say their food choices at main meals are motivated by cravings, cost control and minimal preparation time.” 

 

This means that they are more likely than other age cohorts to use frozen entrees or other food items that are portable and do not require preparation.  The research, released by NPD, suggests that young adults were once the heaviest restaurant users but have retrenched drastically over the past couple of years. 

 

Cost concern is driving this; unemployment is significantly higher among those under thirty than it is among the general population.  Unemployment among younger cohorts is an issue that has been mentioned by a number of quick-service companies over the past few quarters and clearly research indicates that the problem is not abating. 

 

Maybe PFCBs timing for frozen entrée’s in the supermarket is perfect!

 

SIGN OF THE TIMES - YOUNG PEOPLE ARE EATING OUT LESS - pfcb


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Bear Market Macro: SP500 Levels, Refreshed...

“It happened just as I figured.  The traders hammered the stocks in which they figured would uncover the most stops, and sure enough, prices slid off.”
-Jesse Livermore, Reminiscences of a Stock Operator


 
No matter where the bulls go now, here we are. The Pain Trade is finally to the downside as a lot of players in this game are caught off-sides. This morning’s release of the II Bull/Bear Survey tells you most of what you need to know from a sentiment perspective. Bears dropped from 33% last week to 27.5% this week and that, my risk management friends, is not Bearish Enough.

In the US stock market, the inverse correlation to watch most closely here is SPY/VIX. We have been talking about this 22-23 support zone for the VIX and our Bear Market Macro line of resistance for the SP500 (1144) in meetings from Boston to Chicago and back again through NYC yesterday. As of 130PM EST, both have once again confirmed our bearish intermediate term stance on US Equities.
 
All that said, the SP500 is immediate term oversold anywhere south of the 1093 line and we’d be covering some shorts and buying some longs here for the immediate term snap back TRADE to 1111. This isn’t a time to freak out and sell everything. Do that when the VIX is at 23 again.

 

Bear Market Macro: SP500 Levels, Refreshed...  - image001


KM


Bear Market Macro: SP500 Levels, Refreshed...

“It happened just as I figured.  The traders hammered the stocks in which they figured would uncover the most stops, and sure enough, prices slid off.”

-Jesse Livermore, Reminiscences of a Stock Operator

 

No matter where the bulls go now, here we are. The Pain Trade is finally to the downside as a lot of players in this game are caught off-sides. This morning’s release of the II Bull/Bear Survey tells you most of what you need to know from a sentiment perspective. Bears dropped from 33% last week to 27.5% this week and that, my risk management friends, is not Bearish Enough.

 

In the US stock market, the inverse correlation to watch most closely here is SPY/VIX. We have been talking about this 22-23 support zone for the VIX and our Bear Market Macro line of resistance for the SP500 (1144) in meetings from Boston to Chicago and back again through NYC yesterday. As of 130PM EST, both have once again confirmed our bearish intermediate term stance on US Equities.

 

All that said, the SP500 is immediate term oversold anywhere south of the 1093 line and we’d be covering some shorts and buying some longs here for the immediate term snap back TRADE to 1111. This isn’t a time to freak out and sell everything. Do that when the VIX is at 23 again.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bear Market Macro: SP500 Levels, Refreshed... - 1


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