prev

THE HEDGEYE DAILY OUTLOOK

THE HEDGEYE DAILY OUTLOOK

 

TODAY’S S&P 500 SET-UP – December 23, 2011

 

On very lower volume Santa found his way back to getting the SP500 up to +0.6% for December;  US Stocks flat for November/December.  As we look at today’s set up for the S&P 500, the range is 31 points or -2.07% downside to 1228 and 0.40% upside to 1259. 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - hrmsl

 

THE HEDGEYE DAILY OUTLOOK - hrmsp

 

THE HEDGEYE DAILY OUTLOOK - bpgm1

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE:  1540 (+845) 
  • VOLUME: NYSE 774.60 (-6.03%)
  • VIX:  21.16 -1.26% YTD PERFORMANCE: +19.21%
  • SPX PUT/CALL RATIO: 3.06 from2.53 (+21.06%)

 

CREDIT/ECONOMIC MARKET LOOK:

 

  • TED SPREAD: 56.87
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 1.97 from 1.98   
  • YIELD CURVE: 1.69 from 1.70

 

GLOBAL MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am, Durable Goods, Nov., est. 2.2% (prior -0.5% (revised))
  • 8:30am, Personal Income, Nov., est. 0.2% (prior 0.4%)
  • 8:30am, Personal Spending, Nov., est. 0.3% (prior 0.1%)
  • 10:00am, New Home Sales, Nov., est. 315k, up 2.4%, from 307k
  • France Q3 GDP +0.3% q/q vs prior +0.4%
  • France Nov producer prices +0.4% m/m vs consensus +0.1%, prior +0.5%
  • UK Nov mortgage approvals for home purchase 34,738 up +16% y/y and vs 35,196 in Oct

WHAT TO WATCH:

  • House Speaker John Boehner agreed to 2-month extension of payroll tax cut
  • NY Post names assets rumored to be in deal for Yahoo!'s Asian holdings
  • Regulators to extend deadline for comments on Volcker rule - Bloomberg
  • Unified financial market regulation in Canada may be years away - Globe and Mail
  • Motor Thailand expects normal operations to resume in mid-January - The Nation

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

COMMODITIES – both the CRB Index and all of its key components w/ highly inverse correlations to the USD have rallied right back up to where they should be shorted. Short Gold, Oil, Coal – take your pick. I think the Correlation Crash in commodities comes back in a hurry next week.

 

  • Yanzhou Coal Agrees to Buy Gloucester in A$2.1 Billion Deal
  • Fair Trade Proving Anything But to Farmers in $6 Billion Market
  • Copper Traders Most Bullish Since October on Demand: Commodities
  • Sundance Seen Doubling Money on Takeover Betting Today: Real M&A
  • China, India Rate Cuts Seen Faster Than Korea: Chart of the Day
  • India Group Seeks $7.8 Billion State Funding for Afghan Mine
  • Putin’s Oil Wins Record Premium at Europe’s Cost: Energy Markets
  • Oil Heads for Biggest Weekly Gain in Two Months on U.S. Economy
  • Mongolia Spending Glut Risks Bust on Commodity Outlook, IMF Says
  • Stocks in U.S., Europe Gain as 10-Year Treasuries, Oil Advance
  • Gold Advances as Signs of U.S. Recovery Reduce Dollar Demand
  • Barclays Metal Losses May Be Accounted For, Mediobanca Says
  • China May Buy Corn If Price Falls to $5 a Bushel, Yigu Says
  • Oil May Rise on Middle East Geopolitical Tension, Survey Shows
  • Copper Rallies for Fourth Day on Stockpiles, U.S. Jobless Data
  • Soybeans, Corn Drop as Rains May Ease South America’s Dry Spell
  • Palm Oil Set for Biggest Weekly Advance in One Year on Weather
  • Gold Drops as Jobless Claims Slow, Investors Reduce ETF Holdings
  • Yanzhou to Buy Gloucester Coal for A$700 Million, Stake in Unit
  • Gold Rebounds in London as Dollar’s Decline May Support Demand

THE HEDGEYE DAILY OUTLOOK - dcommv

 

CURRENCIES

 

EURO – flat on the week at 1.30 is just not good considering half a TRILLION of leverage lathered onto insolvent banks. King Dollar’s reign is fortified as the US Dollar Index holds all 3 consequential levels of support (TRADE, TREND, TAIL lines in our model), w/ the most immediate-term line of support = $79.54.

 

  

THE HEDGEYE DAILY OUTLOOK - dcurrv

 

EUROPEAN MARKETS

 

  

THE HEDGEYE DAILY OUTLOOK - bpem1

 

ASIAN MARKETS

 

INDIA – coal in the stocking for most Asian Equity investors this week but a better than bad session overnight (it was the 1st day of the wk that China didn’t go down) with India’s Sensex flashing the negative regional divergence, closing down another -0.52% to -23.2% YTD. Fitch cuts their Asian GDP forecast – thanks for coming out, only about 6 months late. That said, Asian Growth Slowing remains reality.

 

 

THE HEDGEYE DAILY OUTLOOK - bpam1

 

 

MIDDLE EAST (HEADLINES FROM BLOOMBERG)

  • Israel Didn’t Know High-Tech Gear Was Sent to Iran Via Denmark
  • Putin’s Oil Wins Record Premium at Europe’s Cost: Energy Markets
  • Malaysia Sukuk Rally on Jump in Banking Assets: Islamic Finance
  • Baghdad Bombings Kill at Least 57 Amid Shiite-Sunni Tensions
  • Ex-Marine’s Afghan Tour Included Rescuing Dogs Forced to Fight
  • Quiet Iraq Exit Won’t Have a Replay in Afghanistan: Noah Feldman
  • Iraq Oil Output Has Reached a 20-Year High, Shahristani Says
  • Oil to Set Record in 2012 as U.S. Dodges Slump: Energy Markets
  • Iran-Ban Threat Pushes Tanker Hiring to Record: Chart of the Day
  • Coromandel International Gains in Mumbai After Qatar Deal
  • Haaretz: Report: Israeli company sold surveillance equipment to Iran
  • EU Banks’ Retreat Creates Gap for Gulf Borrowers: Arab Credit
  • Dana Gas Slumps to Lowest on Record on Egypt Delay Report
  • Exxon Spars With Iraq Over Lack of Payment

THE HEDGEYE DAILY OUTLOOK - me

 

The Hedgeye Macro Team

Howard Penney

Managing Director



NKE: Buying

 

Keith just added NKE to the Hedgeye virtual portfolio on red. Both top-line and futures came in better than expected and inventories improved on the margin this quarter driving our incremental bullishness on the immediate-term TRADE and intermediate-term TREND in light of our already bullish long-term TAIL call.


The bottom-line is that sales momentum is strong, margins are on the mend, inventory is coming down, the event schedule looks great, capital intensity is moderating, and Nike is showing greater focus in returning capital to shareholders.


The biggest risk here is the ‘can things really get any better’ factor, but the reality is that we don’t have to worry about that for another year – at least.


Consider the following regarding the current TRADE and TREND setup:

  1. futures growth of 13% is more heavily weighted towards the back-end of the 5-month window,
  2. this only partially reflects pricing increases that are in the midst of going into effect. In other words, futures will accelerate simply bc of pricing in 2H (this is one of the very few times in the better part of 15 years that I can recall the company having the confidence to actually guide futures), and
  3. the company is looking at an outstanding event year, with assumption of the NFL license in April, European Football Championship (Euro 2012) , and the Olympics from July 25 to Aug 12.
  4. rest assured, as we do, that these events will simply not come and go, leaving Nike with a tough revenue hurdle in 2013. The company will use each of them to build sustainable businesses to take share long after the games are
    complete. In fact, Charlie Denson noted several times that there are a few ‘surprises’ coming down the pike later this year. This is the same kind of posturing we saw around major launches like Air 180, Free, Lunar and Nike +. Again, these are platforms, not just products.

We remain 15-20% above consensus for the next three years. For additional detail, see our post Q2 note “NKE: Too Good.”

 

NKE: Buying - NKE TTT

 

NKE: Buying - Olympics chart

 

 


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

BWLD: TRADE UPDATE

Buffalo Wild Wings was shorted moments ago in the Hedgeye Virtual Portfolio.  From a fundamental perspective, this is one of our favorite names on the short side.

 

Buffalo Wild Wings’ share price has popped up 14% over the last week after trading below $60.  A sell-side upgrade generated some attention for the stock last week and since then BWLD has strongly outperformed the market.  The stock is currently being awarded an EV/EBITDA NTM multiple of 8.3x by the Street.  Only BJRI and DIN trade with higher multiples in the casual dining space.  The Hedgeye Macro Team’s current theme, “King Dollar”, has played out nicely and a corollary of that has been a strengthening of U.S. consumption.  While our longs have worked nicely under this macro theme, BWLD has worked less effectively over the past week than it had been.  From a quantitative and fundamental perspective, however, we are still bearish on the stock – at these prices, only more so.

 

We have discussed our short thesis at length: wing prices are heading higher in a hurry and this will greatly dilute the effectiveness of any promotional approach the company might take to driving comps, a strategy that worked well in 3Q.  Margins are likely to take a leg down and, while King Dollar is likely helpful for comps, we are pessimistic about the prospects of the company taking further price in the hyper-competitive discounting environment that exists in casual dining today.  At the same time, dropping price in 4Q and (especially) 1Q12 is a completely different proposition than doing so in 3Q11 when wing prices were down year-over-year.  1Q12 is the litmus test of this fundamental thesis; we expect wing prices to be up 50-60% year-over-year. 

 

This company has growth and that is part of the reason why it is being awarded a (relatively) rich multiple but we believe it is worth noting the G&A associated with that growth since much of it is focused in new markets.  On the 2Q11 earnings call, management had this to say:

 

“We underestimated in two areas for the second quarter: the one is the amount of money that we were putting into recruiting training managers, staffing, regional managers in these new markets on both coasts, where we don't have an infrastructure to do any of the training locally. So, a lot of travel expenses related to that that we – I just could not have fully captured in my estimate for the second quarter.”

 

From a quantitative perspective, the TRADE line of resistance is at $69.19, as illustrated by the chart below.

 

BWLD: TRADE UPDATE - bwld levels

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


Trade Update: Shorting France (EWQ)

Positions in Europe: Short France (EWQ)


Keith shorted France via the etf EWQ in the Hedgeye Virtual Portfolio today getting a better re-entry price. The CAC40 is in a bearish formation, broken across its immediate term TRADE, intermediate term TREND, and long term TAIL lines (see chart below). 

 

Trade Update: Shorting France (EWQ) - 1. CAC Heut

 

We remain bearish on France over the intermediate term due to:

  • Pending downgrade of France’s AAA Sovereign Credit rating
  • Public debt rising through the 90% (as a % of GDP) next year
  • Slowing growth (below the government’s 1% 2012 projection) and sticky inflation alongside Austerity’s Bite  = Stagflation
  • Banking risk, including any difficulties for its major banks (BNP, Credit Agricole, SocGen) to raise capital to the 9% Core Tier 1 ratio, and sovereign risk as France is the largest holder of Italian public debt and private debt, according to BIS
  • EFSF and IMF are undercapitalized to materially aid any potential sovereign and banking bailout needs of France
  • High unemployment rate of 9.8% (versus 7% in Germany); 22.8% among the French youth
  • Smaller export profile (versus Germany), so there’s less benefit to grow via exports 

This morning Josh Steiner of our Financials teamed passed along a very interesting chart that shows the correlation between Citi (C) and EWQ.  The correlation is 0.88! In a note yesterday, Josh said: “Fundamentally, we continue to dislike Citi. We expect Citi to have significant margin pressure in the coming quarters.  Moreover, as European investors are still largely unable to short European financials, they continue to flock to Citi on the short side as their go-to substitute.  We see little changing in this regard.”

 

We’ll continue to monitor this rather notable correlation.

 

Trade Update: Shorting France (EWQ) - 1. Steiner Chart

 

Matthew Hedrick

Senior Analyst


JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS

Initial Claims Continue Their Winning Ways

The headline initial claims number fell 2k WoW to 364k (down 4k after a 2k upward revision to last week’s data).  Rolling claims fell 8k to 380k. On a non-seasonally-adjusted basis, reported claims fell 17k WoW to 418k. Claims are currently at a level that is consistent with a reduction in the unemployment level: generally anything in the 375-400k level has been consistent with falling unemployment.

 

It strikes us that claims have exhibited similar tendencies for the past few years. Starting around week 36 of the year, rolling claims begin improving and continue that improvement through year-end. While we don't have a great explanation for why that is, considering the data is seasonally adjusted, it does seem to be a recurring trend. Also important is the fact that in the first 1-2 months of the new year, claims seem to go the wrong way, or least have done so in the past few years.

 

We'd also highlight the sizeable divergence that has emerged between claims and the S&P. Historically these divergences have not lasted. Right now the divergence is suggesting that either claims back up to ~445k or the S&P 500 puts on a move to ~1375. Last time a comparable divergence emerged it was in the Fall. The mean reversion instrument at that time was the market, as claims showed resilience, and, ultimately, improvement.   

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - Rolling

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - Raw

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - NSA chart

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - s p 07 10

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - Fed and Claims

 

2-10 Spread

The 2-10 spread widened 3 bps versus last week to 170 bps as of yesterday.  The ten-year bond yield increased 6 bps to 197 bps.

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - 2 10

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - 2 10 qoq

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

JOBLESS CLAIMS HAVE 1-2 MORE WEEKS OF GOOD PRINTS  - subsector perf

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser 


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.

next