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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

LIVING ON A PRAYER

CLIENT TALKING POINTS

GET A JOB (REPORT)

Friday’s jobs report was basically a can of hope for market participants that were, to quote Jon Bon Jovi, “living on a prayer.” In an election year, this was basically “good enough” for most people to buy. This, despite unemployment rising to 8.3%, revised non-farm payrolls down to 64,000 vs 80,000 prior (for June), and a birth/death adjustment (for July) of +52,000 jobs – the highest on record since July 2000. You can only keep “killing it” for so long, remember. Especially when considering…

REMEMBER THE VIX?

We certainly do, and right now, it’s hovering at 15. You aren’t going to have rallies like Friday’s going on all the time with the VIX at this level. Every time people start buying between 14-15, in the last 5 years, they get killed. It’s just a matter of fact at this point. Never mind the lack of inflows into US equities on the buyside. A short squeeze is fun for the bulls until it’s not.

INFLATION EXPECTATION

The commodity players have to love the recent melt up in commodities; corn and gold are really something these days. Net long contracts (read: bets on agriculture) were up +3% week-over-week at a new high of 884,477 contracts. There is the inherent correlation risk between the US Dollar and stock and commodity prices. Again, it is an election year and an overinflated market looks good for the incumbent. Bernanke and Geithner definitely have your back on this one.

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ASSET ALLOCATION

 Cash:                  UP                    U.S. Equities:    DOWN

 Int'l Equities:   Flat                      Commodities:    Flat

 Fixed Income:  Flat         Int'l Currencies: DOWN

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TOP LONG IDEAS

JACK IN THE BOX (JACK)

This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

FIFTH & PACIFIC COMPANIES (FNP)

The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

LIFEPOINT HOSPITALS (LPNT)

We continue to expect outpatient utilization to pick up in 2H12 alongside stabilization in acuity with ortho and cardiac/ICD volumes supporting both pricing and inpatient admissions growth. Births should serve as a tailwind into year-end, recent and prospective acquisitions offer some upside to 2012/13 numbers and the in place repo offers some earnings flexibility. With European and Asian growth slowing, we like targeted domestic revenue exposure as well.

  • TRADE:  NEUTRAL
  • TREND:  LONG
  • TAIL:      LONG

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THREE FOR THE ROAD

TWEET OF THE DAY

“$BBY gets best bailout” -@Commodity_Bull

QUOTE OF THE DAY

“Study without desire spoils the memory, and it retains nothing that it takes in.” – Leonardo da Vinci

STAT OF THE DAY

The Bank of Portugal said on its website on Monday that cumulative borrowing at the end of last month stood at 56.8 billion euros ($70.22 billion) – down 6% for July. An all-time record of 60.5 billion euros was set in June.