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@HedgeyeRetail #ICR (Updated)

We have updated this note to better accomodate viewing the larger images- there is no change to the content. 

 

@HedgeyeRetail was active on the twittersphere last week down in South Beach with notable commentary out of company presentations, management breakouts and Hedgeye sitdowns. Here’s a youtube of the team on Twitter throughout the course of the conference.

 

Of course, these are teasers for the masses. As Hedgeye clients, you get the full depth of our thought on any and all companies. Please ping us accordingly.

 

In addition to the @HedgeyeRetail Tweets, we have more detailed notes on many of the presentations and breakouts. We’ve also included a link to Brian’s Fast Money appearance on Wednesday afternoon regarding LIZ.

 

"Is LIZ the Best Retail Trade Today:"

 

@HedgeyeRetail #ICR (Updated) - TWEET image 1

@HedgeyeRetail #ICR (Updated) - TWEET image 2

@HedgeyeRetail #ICR (Updated) - TWEET image 3

@HedgeyeRetail #ICR (Updated) - TWEET image 4

@HedgeyeRetail #ICR (Updated) - TWEET image 5

@HedgeyeRetail #ICR (Updated) - TWEET image 6 


WMT: TRADE Update

 


Keith managing risk around one of our high conviction TREND and TAIL longs by selling WMT from the Hedgeye Virtual Portfolio. To put it in his words… “USD down, Oil up, and WMT immediate-term TRADE overbought at a lower-high. McGough remains bullish on WMT's intermediate-term TREND, from a price. KM”


Absolutely no change to our fundamental outlook.

 

WMT: TRADE Update - WMT TTT

 


European Banking Monitor

No Positions in Europe 

 

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor"

 

If you'd like to receive the work of the Financials team or request a trial please email .

 

Euribor-OIS spread The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty. The Euribor-OIS spread tightened by 5 bps to 89 bps.

 

European Banking Monitor - 1 me a

 

 

ECB Liquidity Recourse to the Deposit Facility The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding.  The ECB said banks deposited €501.9 Billion overnight, a new record high. 

 

European Banking Monitor - 1 me b

 

 

European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 39 of the 40 reference entities. The average tightening was -6.7% and the median tightening was -9.9%.

 

European Banking Monitor - 1. me c

 

 

Security Market Program – The ECB's secondary sovereign bond purchasing program bought €3.766 Billion in the week ended 1/12 versus €1.104 Billion in the week ended 1/6 to take the total program to €217.0 Billion.

 

European Banking Monitor - 1. me d

 

Matthew Hedrick

Senior Analyst


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THE HBM: PNRA, CBOU, BAGL, DNKN,TXRH, RRGB, BBRG, RUTH, BJRI, BWLD

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

European Confidence

 

The ZEW Center for European Economic Research in Mannheim said that its index of investor and analyst expectations, which aims to predict economic developments six months in advance, surged to -21.6 from -53.8 in December to mark its second consecutive increase.  “It seems the worst of the euro crisis is over”, said Michael Schroeder, head of ZEW’s financial markets department.

 

 

Comments from CEO Keith McCullough

 

Leading indicators for all 3 of these melt-ups have been crystal clear for 2 weeks:

  1. CHINA – Chinese stocks up +4.2% overnight and I’ll take that on the long side w/ a smile as Chinese GDP beats bombed out expectations w/ a +8.9% y/y Q4 print and, more importantly, a re-acceleration in Industrial Production in DEC to +12.8% y/y vs +12.4% NOV + a big re-accel in Singapore’s Exports to +9% y/y in DEC vs +1.4% NOV
  2. GERMANY – can you say ZEW? Biggest m/m pop in the German confidence reading ever – and ever is a long-time; DAX +1.7% to +7.2% for 2012 YTD! And finally immediate-term TRADE overbought here. Germany has done a great job, all things considered, keeping unemployment low and fiscal conservatism intact.
  3. COPPER – the breakout above my intermediate-term TREND line of $3.45/lb last wk helps bust a huge +3.1% meltup this morning to $3.75/lb; TAIL resistance remains overhead at $3.99, but this move should force capitulation on the short covering side.

The combination of Deflating The Inflation and Growth Slowing at a slower rate works for stocks (2 of our 3 Macro Themes for Q1).

 

SUBSECTOR PERFORMANCE

 

THE HBM: PNRA, CBOU, BAGL, DNKN,TXRH, RRGB, BBRG, RUTH, BJRI, BWLD - subsector fbr

 

 

QUICK SERVICE

 

PNRA: Panera Bread was raised to Overweight at Morgan Stanley.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

  • CBOU: Continuing its strong performance from the ICR conference and lower coffee prices
  • PNRA: We suspect that PNRA continues to benefit from falling wheat prices and strong sales trends. 
  • BAGL: Another beneficiary of lower wheat prices.
  • DNKN: Since DNKN announcement about the new procurement and distribution agreement the stock has outperform the market by 300bps.  If the agreement truly changes the landscape for growth in the “white space” we should expect acceleration in back log of new units.  Additionally, DNKN opened its 500th Chicago location Jan. 14.  According to the press release “the milestone restaurant will feature a new design, with updated colors and coffee buzz words adoring the walls, as well as retro-themed, comfortable seating options.”  The latest Dunkin' Donuts will also include free WiFi and new electronic, interactive video menu boards. The company noted it does not discuss provider information regarding this technology. We would like to know what it cost to build the store and if development costs are increasing faster than sales or vice versa.

 

CASUAL DINING

 

TXRH: Texas Roadhouse was downgraded to Equal Weight at Morgan Stanley.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

  • RRGB: The stock is gaining despite downward EPS revisions over the past month
  • BBRG: A small cap growth name in a sector where people are looking for growth
  • RUTH: Very strong volume for a name with limited liquidity
  • BJRI: Continues to struggle following the ICR performance
  • BWLD: Despite the whispers of strong top line trends in 4Q, this is our favorite short for 2012. 

THE HBM: PNRA, CBOU, BAGL, DNKN,TXRH, RRGB, BBRG, RUTH, BJRI, BWLD - stocks 117

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN

 

* The Euribor/OIS tightened 5 bps vs last week and the TED spread fell by 3 basis points to 54.7 bps. 

 

* Bank CDS in the US and Europe tightened significantly. 

 

* The MCDX measure of municipal default risk fell sharply week over week.

 

* The ECB Liquidity Recourse to the Deposit Facility continued to climb.  

 

* Even Steven - Our macro quantitative model indicates that on a short term duration (TRADE), there is slightly more downside risk in the XLF (1.6% downside vs. 1.6% upside).

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 5 of 12 improved / 1 out of 12 worsened / 6 of 12 unchanged

 • Intermediate-term(WoW): Positive / 6 of 12 improved / 2 out of 12 worsened / 4 of 12 unchanged

 • Long-term(WoW): Negative / 0 of 12 improved / 9 out of 12 worsened / 3 of 12 unchanged

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - summary 2

 

1. US Financials CDS Monitor – Swaps tightened for 25 of 27 major domestic financial company reference entities last week.   

Tightened the most WoW: AXP, C, RDN

Widened the most/ tightened the least WoW: MMC, JPM, GNW

Tightened the most MoM: AGO, XL, MBI

Tightened the least MoM: MTG, SLM, GNW

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - CDS  us

 

2. European Financials CDS Monitor – Bank swaps were tighter in Europe last week for 39 of the 40 reference entities. The average tightening was -6.7% and the median tightening was -9.9%.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - CDS  europe

 

3. European Sovereign CDS – European Sovereign Swaps mostly tightened over last week. French sovereign swaps tightened by -6.0% (-14 bps to 221 ) and Portuguese sovereign swaps widened by 1.9% (21 bps to 1119).

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - Sovereign CDS 1  2

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - Sovereign CDS 2

 

4. High Yield (YTM) Monitor – High Yield rates fell 8 bps last week, ending the week at 8.12 versus 8.20 the prior week.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - HY

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 8 points last week, ending at 1605.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - LLI

 

6. TED Spread Monitor – The TED spread fell 2.9 points last week, ending the week at 54.7 this week versus last week’s print of 57.6.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - TED spread

 

7. Journal of Commerce Commodity Price Index – The JOC index rose 3.4 points, ending the week at -17 versus -20 the prior week.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - JOC index

 

8. Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty. The Euribor-OIS spread tightened by 5 bps to 89 bps.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - Euribor OIS

 

9. ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  The ECB pays lower rates than the market, so an increase in this metric demonstrates increased perceived counterparty risk and liquidity hoarding.  

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - ECB liquidity facility

 

10. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 14-V1. Last week spreads tightened, ending the week at 142 bps versus 154 bps the prior week.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - MCDX

 

11. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production. Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion. Last week the index fell 294 points, ending the week at 1053 versus 1347 the prior week.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - Baltic Dry

 

12. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread tightened to 164 bps, 6 bps tighter than a week ago.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - 2 10  2

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.6% upside to TRADE resistance and 1.6% downside to TRADE support.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - XLF

 

Margin Debt

We publish NYSE Margin Debt every month when it’s released. 

 

 NYSE Margin debt hit its post-2007 peak in April of this year at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did this past April, that has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May of this year. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. This is important because it means that margin debt, which retraced back to +0.43 standard deviations in September, still has a long way to go. We would need to see it approach -0.5 to -1.0 standard deviations before the trend reversed. There’s plenty of room for short/intermediate term reversals within this broader secular move, as we saw in October and November’s print of +0.78 and +0.55 standard deviations.  But overall, this setup represents a material headwind for the market.  

 

One limitation of this series is that it is reported on a lag.  The chart shows data through November.

 

TUESDAY MORNING RISK MONITOR: GOOD NEWS CONTINUES TO ROLL IN - Margin Debt

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

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


Just Do It

This note was originally published at 8am on January 12, 2012. 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 not the dreamers that are remembered, it’s the doers.”

-Tim Tebow

 

This morning one of our top Global Macro leadership sources (ESPN) reports Tim Tebow is now America’s favorite athlete.

 

The poll, calculated monthly, had the Denver Broncos quarterback ranked atop the list for the month of December. In the last 18 years of the ESPN Sports Poll only 11 different athletes (Michael Jordan, Tiger Woods, etc.) have been No. 1.” (ESPN.com)

 

I can already hear the mumbling from the weenie bins  - ‘there goes that knucklehead hockey player talking about winners again’…

 

Yep – and I love it.

 

Back to the Global Macro Grind

 

When it comes to playing at the highest level of Global Macro Risk Management, you really have to do it each and every day. Global Markets wait for no one.

 

We were on a Hedgeye Morning Call in mid-December and our Financials guru, Josh Steiner, said ‘look Keith, people are just exhausted out there.’ On a call in late December, our Gaming Ace, Todd Jordan, said ‘no one is picking up the phones – it’s dead.’

 

And I love that too.

 

If you want to drive absolute returns, consistently, in up and/or down markets, dealing with emotions, losses, and exhaustion is part of this profession. You have to suck up its adversity, absorb it, and turn it into something positive. The alternative to not playing this game confidently is deer-in-headlights.

 

When I watch Europe trade this morning, that’s exactly what I see. I see a lot of people reacting to what was 2011’s playbook. I see journalists claiming authority on what to do with European positions into and out of bond auctions. And I see one mother of a short squeeze in almost everything that was going down in November.

 

This Game of Risk is globally interconnected. You can’t anchor on 1 fear-factor and react. You have to work your tail off to proactively prepare for where the game is going next.

 

“Hard work beats talent when talent doesn’t work hard.”

-poster above Tebow’s bed growing up in Jacksonville, Florida

 

What’s going on in Global Macro markets across our Multi-factor, Multi-duration, model this morning?

 

USA

  1. US Dollar Index remains King (up +11.5% since the end of QE2)
  2. US Equities remain in a Bullish Formation (bullish TRADE, TREND, and TAIL)
  3. SP500’s immediate-term TRADE range moves to 1277-1299 (so buy red closer to 1277, sell green closer to 1299)
  4. US Equity Volatility (VIX) is breaking down into a Bearish Formation (bearish TRADE, TREND, TAIL)
  5. Strong/Stable US Dollar = Lower Volatility (30-day inverse correlation between USD and VIX = -0.77%!)
  6. US Equity Volume Studies are starting to shift to the bullish side (up volume days on up moves)
  7. US Treasuries not yet confirming a breakout in US Growth expectations (10yr under my TREND line of 2.03%)
  8. US Yield Spread (10yr yields minus 2s) = 170 bps wide = 6 basis points wider than where it started 2012
  9. The 3-day range (lead indicator for VIX) in my model is only 44 points wide = very trade-able market vs OCT-NOV
  10. All 9 Sectors in our S&P Sector ETF model are bullish from an immediate-term TRADE perspective
  11. 7 of 9 Sectors in our S&P Sector ETF model are bullish from an intermediate-term TREND perspective
  12. 2 of 9 Sectors in our S&P Sectors ETF model are bearish from a long-term TAIL perspective (Financials and Basic Materials)

REST OF WORLD

  1. Chinese Equities = +3.5% for 2012 YTD and breaking out > immediate-term TRADE line support (Shanghai Composite)
  2. Chinese Consumer Inflation (CPI) falls to a 15-month low this morning at 4.1% = Deflating The Inflation
  3. Hang Seng (Hong Kong) = +3.6% YTD = bullish TREND
  4. Japan’s Nikkei is flashing a very negative divergence at down -0.8% for 2012 YTD = bearish TREND
  5. South Korean unemployment unchanged m/m at 3.1% for DEC and the KOSPI was up +1% overnight = bullish TREND
  6. India down -0.6% last night to 16,077 on the Sensex = bearish TREND
  7. Germany’s DAX is powering forward again this morning to +5.6% YTD = bullish TREND
  8. France’s CAC is up +1% this morning and has moved to bullish on our immediate-term TRADE duration
  9. Italian and Spanish stocks are getting squeezed after lower bond yields (vs last auction)
  10. Russia, Norway, Hungary – all markets that got spanked in 2011 = up and frustrating shorts
  11. Dr Copper breaking out > $3.45/lb TREND line support (this was new as of yesterday) = bearish TAIL up at $3.99/lb
  12. Gold is up +0.7% this morning and is trading in between a rock (TREND resistance = $1682) and TRADE support = $1633

That’s about ½ of what’s already hand-written in my notebook, every day, before 6AM.

 

What do we do with all of it? We hold ourselves accountable to every play we make, time-stamping every position, so that you can trust that the summary of all our hard work has conclusions that we have the convictions to act on.

 

Sometimes (like now in Europe), we have no positions. Sometimes we have many. But all of the time, we want to try to make this Tebow Time at Hedgeye Risk Management.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, and the SP500 are now $1633-1663, $111.89-115.99, $1.26-1.28, $80.64-81.73, 2235-2292, and 1277-1299, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Just Do It - Chart of the Day

 

Just Do It - Virtual Portfolio


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