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Hedgeye names Bob Brooke as Managing Director of New Business Development

 

NEW HAVEN, Conn., Jan. 4, 2011 -- Hedgeye Risk Management, a leading independent provider of real-time investment research and ideas, today announced that financial services veteran Bob Brooke will join the firm as Managing Director of New Business Development.

 

Brooke has more than 20 years of experience in financial markets and investments, in institutional equity sales and trading both domestically and internationally, private wealth management, and proprietary fund management in alternative assets.

 

Brooke has helped grow client rosters and revenues at firms such as Bear Stearns, CS First Boston, RBC Capital Markets, and Bernstein. His reach extended to the international markets of London, Geneva, and Paris as well as domestic territories from the upper Midwest to New York, Philadelphia and Boston. He has experience in analyzing different asset classes, alternative investment vehicles, long/short strategies, hedge funds, large and small-cap disciplines, as well as research into individual companies, their competitors, industries, and market valuations.

 

"Hedgeye is fortunate to have Bob Brooke join our team at this point in our growth," said Keith McCullough, CEO of Hedgeye. "He has a track record of success that extends from the highest level of professional sports to the highest levels of the corporate boardroom.  As the research and brokerage landscape continues to evolve in the coming years, we look forward to having Bob lead our vast new business initiatives."

 

Brooke has a degree in economics from Yale, and an MBA from Harvard Business School. Prior to his career in financial services, Brooke was a member of the US Olympic hockey team and competed in the National Hockey League for the New York Rangers, Minnesota North Stars, and New Jersey Devils.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - January 5, 2011


As we look at today’s set up for the S&P 500, the range is 10 points or -0.72% downside to 1261 and 0.06% upside to 1271.   Equity futures are trading below fair value, tracking losses across Europe equities and a lower close among major Asian indices.

 

MACRO DATA POINTS:

  • 7 a.m.: MBA mortgage applications, Dec. 31
  • 7:30 a.m.: Challenger job cuts, Dec.
  • 8:15 a.m.: ADP employment, Dec., est. 100k vs prev. 93k
  • 10 a.m.: ISM non-manufacturing index, Dec., est. 55.7 vs prev. 55
  • 10:30 a.m.: DOE inventories
  • 11 a.m.: U.S. Fed to purchase $1.5b-$2.5b notes/bonds
  • 11:30 a.m.: U.S. sells 56-day cash management bills
  • 1 p.m.: Kansas City Fed President Thomas Hoenig speaks at Central Exchange in Kansas City

TODAY’S WHAT TO WATCH:

  • Qualcomm may offer $3.5b to purchase Atheros, the NYT reported yesterday
  • New Jersey Supreme Court will hear arguments today on whether the governor unlawfully cut $1b in school aid during a budget crisis
  • Portugal sells EU500m of 6-month bills; avg. yield 3.686%; bid to cover ratio 2.6 vs prev. 2.4
  • Republicans take control of the House today for the first time in four years, with plans to vote on a repeal of the health-care overhaul and to approve $100 billion in spending cuts
  • Concho Resources (CXO) rated new buy at SunTrust Robinson Humphrey
  • Danaher (DHR) rated new outperform at Oppenheimer
  • Fluor (FLR) rated new outperform at Oppenheimer
  • FTI Consulting (FCN) will take 4Q non-cash charge 36c to reflect retirement, write off of certain brand names
  • Hatteras Financial Corp. (HTS) reported offering of 9m shrs
  • MedAssets (MDAS) named Chuck Garner CFO, Neill Hunn unit president
  • Mosaic (MOS) 2Q adj EPS, rev beat estimates
  • Sonic (SONC) 1Q EPS ex-items 10c vs est. 10c.

PERFORMANCE: ALL 9 SECTORS BULLISH ON TRADE & TREND

  • One day: Dow +0.18%, S&P (0.13%), Nasdaq (0.38%), Russell 2000 (1.59%)
  • Last Week: Dow +0.03%, S&P +0.07%, Nasdaq (-0.48%), Russell (-0.67%)
  • Month/Quarter/Year-to-date: Dow +0.98%, S&P +1.00%, Nasdaq +1.07%, Russell +0.28%
  • Sector Performance - BEARISH (Only 3 sectors positive) - Energy (0.86%), Consumer Disc (0.55%), Materials (0.67%), Consumer Spls (0.27%), Financials (0.15%), Industrials (0.14%), Tech +0.39%, Healthcare +0.32%, Utilities +0.45  

 EQUITY SENTIMENT: MIXED

  • ADVANCE/DECLINE LINE: -787 (-2556)  
  • VOLUME: NYSE 1090.34 (+2.84%)
  • VIX:  17.38 -2.08% YTD PERFORMANCE: -2.08%
  • SPX PUT/CALL RATIO: 1.50 from 1.41 (-6.40%)  

CREDIT/ECONOMIC MARKET LOOK:

Treasuries were mixed with the belly of the curve outperforming. Some support was said to come from the pricing of corporate deals.

  • TED SPREAD: 17.10 -0.203 (-1.173%)
  • 3-MONTH T-BILL YIELD: 0.14% -0.01%   
  • YIELD CURVE: 2.73 from 2.75

COMMODITY/GROWTH EXPECTATION:  

  • CRB: 327.73 -1.59%
  • Oil: 89.38 -2.37% - trading -0.95% in the AM
  • Oil  extended its biggest drop in seven weeks on signs that snowstorms in the U.S. curbed gasoline demand  
  • COPPER: 436.90 -1.99% - trading -1.01% in the AM
  • Copper fell the most in 2 weeks - stockpiles are swelling
  • GOLD: 1,376.65 -3.06% - trading +0.35% in the AM
  • Gold tumbled the most in six months on speculation that an economic recovery will curb demand

OTHER COMMODITY NEWS:

  • Gold Imports by India May Increase This Year on Rising Investment Demand
  • At Least 40% of LME Copper Shorts in March Held by One Company, Data Show
  • World Food Prices Surge to Record, Passing Levels That Sparked 2008 Riots
  • Rubber Futures Climb to Record on Thai Supply Concerns Amid Strong Demand
  • Palm Oil Slumps After Rising Above Soybean Oil First The Time Since 2007
  • Oil Extends Biggest Drop in Seven Weeks as U.S. Gasoline Demand Slackens
  • Copper Futures in London Decline for a Second Day as Record Deters Buyers
  • Whole Milk Powder Auction Prices Climb to Three-Month High, Fonterra Says
  • China Inflation Concern May Delay Coke, Lead Futures Launch, Analysts Say
  • Oil Price Advance May Put Recovery at Risk, FT Cites IEA's Birol as Saying
  • Steelmaking Coal Price May Exceed $300 on Australian Floods, Daiwa Says
  • Gold Fluctuates After Slump Amid Signs of Economic Recovery, Rising Dollar
  • La Nina Rains May Stretch Into March, Cause Further Flooding in Australia
  • Europe Commodity Day Ahead: Gold Imports by India May Increase This Year

CURRENCIES:

  • EURO: 1.3243 -0.45% - trading -0.54% in the AM
  • DOLLAR: 79.444 +0.40% - trading +0.25% in the AM

EUROPEAN MARKETS:

  • European Markets: FTSE 100: (0.55%); DAX (1.40%); CAC 40: (1.20%)
  • European indices started the day mixed with a bias to the downside as an uptick in the US dollar hit commodity plays and profit taking.
  • Financial stocks were also weighing on sentiment ahead of Portugal's €500M 6-month T-Bill auction.
  • Investors were also looking to see what sort of market appetite there was for core European paper with the German Finance Ministry set to auction EUR5B of the on the run 10yr Bund.
  • Some decent retail numbers from Next helped London to outperform.
  • News that China was willing to buy more Spanish debt had little impact on the Spanish IBEX which was off (1.4%) while mixed Final Services PMI data for Dec offered only modest support.
  • Continuing thin markets were blamed for some of the early volatility
  • Domino's Pizza reports 13-week system sales +17.8% y/y to £132.5M
  • German car manufacturers report US Dec sales, see double digit gains in US during 2010
  • Eurozone Dec Final Services PMI 54.2 vs Prelim 53.7 and prev 55.4
  • Eurozone Nov PPI +4.5% y/y vs cons +4.4% and prior +4.4%
  • Eurozone Oct Industrial orders +14.8% y/y vs cons +17% and prior +13.5%
  • Germany Dec Final Services PMI 59.2 vs Prelim 58.3 and prev 59.2
  • France Dec Final Services PMI 54.9 vs Prelim 54.1 and prev 55.0
  • UK Dec Construction PMI 49.1 vs Prelim 50.9 and prev 51.8

ASIAN MARKTES:

  • Asian Markets: Nikkei (0.17%); Hang Seng +0.38%; Shanghai Composite (0.49%)
  • Asian markets were mixed today, with resource stocks down on lower commodity prices.
  • Taiwan the biggest looser down 1.68%, with Acer falling 4% after saying snowstorms in Europe will cause it to miss Q4 guidance.
  • Hong Kong recouped early losses as some banks rebounded from a report that China might tighten some reserve requirements.
  • China Eastern Airlines jumped early, but then lost almost all of its gain; saying it expects its 2010 net profit to be ten times that of 2009.
  • Commodity stocks fell, but coking coal producers outperformed again on worries about the floods in Australia.
  • Property stocks rallied on expectations the market will support higher prices.
  • South Korea was -0.12%, with Tech and Financials down on profit-taking.
  • Japan fell -0.17% - Steelmakers were hurt by an expected rise in coal prices due to floods in Australia. Megabanks fell on profit-taking.
  • Mining stocks took Australia to a loss of 0.58%. Qantas lost early gains and finished 1% lower despite confirming it plans to resume A380 flights to Los Angeles by January 17th.
  • Japan December monetary base +7% y/y to ¥104.02T. 

THE HEDGEYE DAILY OUTLOOK - setup


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The Next Move in the Baltic Dry Index Will Be Telling

Conclusion:  While exogenous factors have driven the BDI index lower, the next move should be driven by growth, either an acceleration or deceleration, with the BDI likely being a leading indicator. So, keep your Hedgeyes on it.

 

We recently noted this, but wanted to highlight the point again.  The Baltic Dry Index is down to an 18-month low.  In fact, it most recently dropped 4.5% to 1693, taking out the July 2010 low.  The largest BDI vessels, Capesize, led the way declining more than 6%.

 

As we wrote this summer, the Baltic Dry Index is very a relevant global macro data point.  As was recently written in Slate, “Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.”  Further, “Because it provides an assessment of the price of moving the major raw materials by sea, it provides both a rare window into the highly opaque and diffuse shipping market and an accurate barometer of the volume of global trade -- devoid of political and other agenda concerns."

 

We actually looked at the correlation between the Baltic Dry Index and global growth on an annual basis going back to 1993 and didn’t find a strong correlation between the two.  This is primarily because while growth and demand for goods clearly and logically will lead to increased demand for shipping, there are other factors that drive the price of shipping contracts.  Specifically, the two key factors that drive the price of shipping contracts: the supply and demand of ships. 

 

The supply factor is obviously driven by the building of new ships (and likely to some extent the availability of financing and reasonable terms).  Currently, oversupply is an issue.  In fact, last year the supply of ships grew 17%, while demand grew only 11%.  This is widely known news though, and has likely been discounted into rates for the past couple of quarters.

 

Conversely, the demand side of the equation is driven by the economic activity and general demand for dry bulk goods.   Currently, there is an exogenous shock occurring on the demand side of the equation due to massive flooding in Australia.  According to news reports, floods covering areas the size of France and Germany in Australia have damaged crops and led to a shutdown of mines.  Due to the exogenous events, many Australia miners have implemented force majeure and cancelled contracts.  As a result, there are 66 dry-bulk carriers idle near Brisbane.  This too is widely disseminated news and likely priced into rates.

 

Clearly, with these exogenous events leading to a more than 45% decline in the BDI index, if global growth is going to accelerate in 2011, or even occur at high rates, we should see a pickup in the BDI. Keep your Hedgeyes on it.

 

Daryl G. Jones

Managing Director

 

The Next Move in the Baltic Dry Index Will Be Telling - bdi 1


It's Officially Unofficial Earnings Season

We’re officially in the “unofficial” earnings season for retailers with both Sales Day and the annual ICR Exchange set to take place over the next several days. History paints an interesting picture (and precedent) of pre-announcements over this two week period. As such, we’ve updated our matrix of companies with a history of pre-announcing at or around the annual pilgrimage to ICR. Those with positive releases are highlighted in green while those with less positive news are highlighted in red. This year should be no different than in years past, where we are likely to see 10-15 companies update guidance in the coming days. If history tells us anything, PVH seems as sure as any to report “unofficial” results early next week.

 

It's Officially Unofficial Earnings Season - icr pre announcements

 

Eric Levine

Director


Staring at The Sun

This note was originally published at 8am on January 04, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“It's best not to stare at the sun during an eclipse.” 

-Jeff Goldblum

 

As a younger man who came to America in the mid 1990’s wearing Canadian cutoff jean shorts, I enjoyed sunning myself. As I age, I try not to do that as much; especially during an eclipse.

 

Today the world will see the first partial eclipse of 2011. Africans and Europeans will witness it at sunrise. Russians and Chinese will get their eclipse at sunset.

 

No matter where you are in this world this morning, there it is – a new year, new investment opportunities, and new risks. If you are staring at a market price that’s already gone straight up in 2011, our best recommendation is to heed Jurrasic Park’s Jeff Goldblum’s risk management advice – don’t stare at it – it’s going to be a long race.

 

As market prices around the world race higher this morning, the sun is shining on the bulls. While I’m certainly not basking like Countrywide CEO Tan-gelo Mozilo did back in the day (my SPY short position is currently -3.80% against me), I’m as happy as the next clam who is long anything. Market prices that go lunar ahead of an eclipse are cool that way. Everybody gets paid.

 

In yesterday’s Early Look, I walked through our Hedgeye Asset Allocation Model. This morning I’ll focus on the Hedgeye Virtual Portfolio. They are 2 separate risk management products and I call them “virtual” because instead of running money, I run my mouth.

 

Currently the Hedgeye Portfolio is in what I consider a neutral position. We have 12 LONGS and 12 SHORTS.

 

As of last night’s close, our biggest un-realized winners and losers are:

  1. Top Winner: LONG Starbucks (SBUX) = +188.63%
  2. Top Loser: SHORT American Express (AXP) = -4.81%

Not unlike anyone who runs real money in this business, all of the positions I take in the Hedgeye Portfolio are marked-to-market every second of every day. Unlike most of the conflicted and compromised broker ratings and market pundits out there, we are accountable to every position we take.

 

Yesterday, I made the following risk management moves in the Hedgeye Portfolio:

  1. Shorted Tech (XLK) on the Facebook “news” as it was immediate-term TRADE overbought
  2. Shorted Industrials (XLI) after the sector closed up +25.5% in 2010 and was also immediate-term TRADE overbought
  3. Bought US Treasury Curve Flattener (FLAT) as the yield spread continues to make what we call lower-highs at 274bps wide
  4. Sold Suncor (SU) as the stock and commodity prices were hitting new highs (it too was immediate-term TRADE overbought)
  5. Shorted Bank of America (BAC) on the “settlement news” after our Financials Sector Head, Josh Steiner, made a call on it

Booking gains and/or searching for new absolute return ideas on the long and short side is what risk managers do. Some people buy-and-hold. Some people day-trade. The market doesn’t really care what your style is – like an eclipse, it’s going to do what it is going to do.

 

While you may need to be staring directly into the sun right now to be willfully blind to Global Inflation Accelerating, you don’t need an eclipse to generate inflation when market prices are inflating. Post daisy dukes ditching at Yale, I paid my own room and board to learn that’s what happens when prices go up.

 

On the topic of inflation, while it will be interesting to read the Fed’s Minutes later on this afternoon, the rest of the world has already agreed with us that a +10% monthly spike in the 19 component CRB Commodities Index since the beginning of December to new highs of 333 yesterday is indeed inflationary.

 

In fact, in the last 24 hours these are the 2 words that the Brazilians and South Koreans used to describe inflations:

  1. Brazil = “plague”
  2. South Korea = “war”

We think they are serious. So is staring at the sun.

 

In addition to being long German Equities (EWG), US Healthcare(XLV), Oil (OIL), Sugar (SGG), and Treasury Inflation Protection (TIP), I remain bullish on American and Chinese Cash (UUP and CYB). I’m bearish on US Treasury bonds (SHY) and bearish on Gold (GLD) – those are 2 of the 12 positions in the Hedgeye Portfolio that were working for us yesterday. There’s always risk to be managed somewhere.

 

My immediate term support and resistance levels for the SP500 are now 1259 and 1273, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Staring at The Sun - sun


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