Germans On Deck

-- For specific questions on anything Europe, please contact me at to set up a call.


No Current Positions in Europe


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed up +1.6% week-over-week vs +0.6% last week. Top performers: Portugal +4.5%; Spain +4.3%; Greece +3.4%; Poland +3.2%; Finland +3.1%; Czech Republic +3.0%; Italy +3.0%. Bottom performers: Romania -1.5%; Cyprus -1.2%; Russia (RTSI) -0.4%; Sweden -0.1%. [Other: France +1.8%; Germany +1.1%; UK +1.0%].
  • FX:  The EUR/USD is down -0.73% week-over-week vs +1.04% last week [-5.14% YTD].  W/W Divergences: NOK/EUR +1.81%; SEK/EUR +1.40%; RUB/EUR +1.21%; TRY/EUR +0.41%; HUF/EUR +0.09%; CHF/EUR +0.07%; DKK/EUR -0.01%; PLN/EUR -0.23%.
  • Sovereign CDS:  Sovereign CDS followed yields, down across the periphery this week. On a week-over-week basis Portugal declined the most, down -85bps to 767bps, followed by Spain -49bps to 513bps, Italy -45bps to 450bps, and Ireland -36bps to 462bps.
  • Fixed Income:  The 10YR yield for sovereigns across the region were mostly down this week. Greece saw the largest decrease week-over-week by -129bps to 24.35%, followed by Portugal at -95bps to 9.99%. Italy and Spain fell -21bps and -12bps to 5.88% and 6.87%, respectively. Germany gained +5bps on the week to close at 1.38%. 

Germans On Deck - ddd. yields


Germans On Deck - ddd. cds   a


Germans On Deck - ddd. cds   b



Germans On Deck


For a positive week of equity performance from Europe (the STOXX Europe 600 was up +1.6%) there was little material evidence of shifting policy or further clues towards programs to limit the region’s sovereign and banking risks.  Interestingly, the market sold off last Thursday as Draghi did not deliver on his “whatever” promise, however seemingly the market was bullish this week on his same comments from the conference call (8/2) in which he said that the ECB “may undertake” non-standard measures, hinting at a reactivation of the SMP to buy bonds on the secondary market and a re-engagement of the EFSF to buy bonds on the primary market. There was still no hint that the SMP has been re-activated. We’ll look to data to be released on Monday for last week’s buying to see if the trend of 21 straight weeks of zero buying from the ECB has been bucked.


We’re also a bit surprised by the market’s move because as it relates to the political risk unfolding (and don’t forget many Eurocrats are on vacation this month), we’d expect more of an impasse as we wait for 12 September and Germany’s Constitutional Court ruling on the constitutionality of the ESM and Fiscal Compact. Interestingly, on Monday the German court was pressed to also rule on the constitutionality of a banking license of the ESM.  Arguably this adds another hitch in the German court signing off on the ESM. If it is not passed Eurocrats are back to square one, which leaves the region further in stitch as the EFSF funding ticks down (and is massively undercapitalized to deal with potential sovereign and banking bailout needs/risks on the horizon). On Thursday an important hurdle was cleared in France’s Constitutional Council ruling that the EU Fiscal Compact did not require changes to the constitution. 


Please note that as of now, even if the German Court passes, there is no specific language governing the scope of the ESM, namely if it has a banking license, as the only clarity on the program is three vague paragraphs issued at the June 28-9 EU Summit meeting. Said shortly, there’s a lot of political runway left in tying up some of the programs expect to suspend economic reality and provide financial assistance to the periphery.


Given this environment, we’ll work to keep you abreast of the most important calendar catalysts that we think large expectations will be built into.


Calendar Catalysts:


12 September - Germany’s Constitutional Court rules on the constitutionality of the ESM and Fiscal Compact.


12 September - Dutch General Election


Late September - According to La Tribune, Moody's will evaluate the consequences of the Eurozone crisis on France's AAA rating by the end of Q3. We think a downgrade to AA is a real probability.


October - Final discussions expected between Troika and Eurozone finance ministers to determine if Greece is eligible for €31B in new aid, including €25B to recapitalize the banking sector.


Mid October - There’s a possibility of a German Sovereign credit rating downgrade, especially should France be reduced by a notch beforehand.


29 & 31 October - Spain’s debt maturity schedule scares as the Treasury is bumping up against sovereign debt maturities of €20.27 of debt maturing on two days.



Call Outs:


Greece - S&P cuts outlook from Stable to Negative. Sees Greece likely to need additional EU/IMF funding in 2012.


UK - The Bank of England slashed its outlook for British economic growth to 0% for this year, as Eurozone "storm clouds" cast a long shadow and scars from the world's financial crisis appear deeper than previously thought.

  • On Stimulus:  Governor Mervyn King said there was no urgent need to print more money
  • On Rate Cut:  King said there’s even less of a case to cut interest rates  
  • CPI Forecasts:  at ~1.7% in 2 years time, ~1.8% in 3 years time
  • GDP Forecasts:  slashes 2012 growth forecasts to 0% and +1.9% in 2013 (vs May forecast of ~+0.8% and ~+2%, respectively). King warned that the economy would grow at sub-par speed for at least the next three years




We remain highly sensitive around our trading ranges of $1.20 to $1.23. We reiterate that below $1.20 we see no material levels of support.


Germans On Deck - ddd. eur



Data Dump:


---We saw another week of weak data from Europe. In the charts below we highlight bombed out industrial production figures, and note that even the perceived economic stalwart of Germany has slid substantially as shown in the German Factory Orders chart.


Germans On Deck - ddd. industrial prod


Eurozone Sentix Investor Confidence -30.3 AUG vs -29.6% JUL


Germany Factory Orders -7.8% JUN Y/Y (exp. -7.0%) vs -5.3% MAY   [-1.7% JUN M/M (exp. -0.8%) vs 0.7% MAY]


Germans On Deck - ddd. factory orders


Germany Exports -1.5% JUN M/M (exp. -1.3%) vs 4.2% MAY

Germany Imports -3.0% JUN M/M (exp. -2.0%) vs 6.2% MAY

Germany Industrial Production -0.3% JUN Y/Y vs -0.3% MAY

Germany CPI FINAL 1.9% JUL Y/Y (vs prev estimate of 2.0%)


France Industrial Production -2.3% JUN Y/Y (exp. -1.8%) vs -3.7% MAY

France Manufacturing Production -2.6% JUN Y/Y (exp. -2.1%) vs -4.6% MAY

Bank of France Business Sentiment 90 JUL vs 91 JUN


UK Halifax House Price -0.6% JUL Y/Y (inline) vs -0.5% JUN   [-0.6% JUL M/M (exp. -0.5%) vs 0.8%]

UK New Car Registrations 9.3% JUL Y/Y vs 3.5% JUN

UK Industrial Production -4.3% JUN Y/Y (exp. -5.3%) vs -1.8% MAY

UK Manufacturing Production -4.3% JUN Y/Y (exp. -5.7) vs -1.8% MAY

UK PPI Input 1.3% JUL M/M (exp. 1.3%) vs -2.9% JUN   [-2.4% JUL Y/Y (exp. -1.5%) vs -3.0% JUN]

UK PPI Output 0.0% JUL M/M (exp. 0.0%) vs -0.6% JUN   [1.7% JUL Y/Y (exp. 2.0%) vs 2.0% JUN]


Italy Q2 GDP Preliminary -0.7% Q/Q (exp. -0.8%) vs -0.8% in Q1   [-2.5% Y/Y (exp. -2.5%) vs -1.4% in Q1]

Italy Industrial Production -8.2% JUN Y/Y vs -6.6% MAY

Italy CPI FINAL 3.6% JUL Y/Y (prev. est. 3.7%)


Spain Industrial Output NSA -6.9% JUN Y/Y vs -5.7% MAY

Spain Housing Transactions -11.4% JUN Y/Y vs -11.6% MAY

Portugal Industrial Sales -3.2% JUN Y/Y vs -1.1% MAY

Portugal CPI 2.8% JUL Y/Y vs 2.7% JUN

Portugal Construction Works Index 55.4 JUN vs 59.3 MAY


Switzerland Unemployment Rate 2.9% JUL vs 2.9% JUN

Switzerland CPI -0.8% JUL Y/Y vs -1.2% JUN


Netherlands Industrial Production -2.4% JUN Y/Y vs 0.0% MAY

Netherlands CPI 2.6% JUL Y/Y vs 2.5% JUN

Austria Wholesale Price Index 1.2% JUL Y/Y vs 0.2% JUN


Norway Industrial Production 7.7% JUN Y/Y vs 13% MAY

Norway CPI including oil -0.6% JUL Y/Y vs -0.2% JUN

Finland Industrial Production -1.0% JUN Y/Y vs -1.4% MAY

Denmark CPI 2.1% JUL Y/Y vs 2.2% JUN


Ireland CPI 2.0% JUL Y/Y vs 1.9% JUN

Ireland Consumer Confidence 67.7 JUL vs 62.3 JUN

Ireland Industrial Production 9.2% JUN Y/Y vs 4.6% MAY


Greece CPI 1.3% JUL Y/Y vs 1.3% JUN

Greece Unemployment Rate 23.1% MAY vs 22.5% APR


Czech Republic Unemployment Rate 8.3% JUL vs 8.1% JUN

Czech Republic CPI 3.1% JUL Y/Y vs 3.5% JUN

Hungary Industrial Production 0.6% JUN Y/Y vs 2.4% MAY

Bulgaria Industrial Production 1.5% JUN Y/Y vs 0.4% MAY

Latvia Q2 GDP Preliminary 1.0% Q/Q vs 1.0% in Q1   [5.1% Y/Y vs 6.8% in Q1]


Turkey Industrial Production NSA 2.7% JUN Y/Y vs 5.9% MAY



Interest Rate Decisions:


(8/9) Serbia Repo Rate HIKED 25bps to 10.50%



The Week Ahead:


Monday Jul. Germany Wholesale Price Index; UK Jul. RICS House Price Balance; Italy Jun. General Government Debt; 2Q Greece GDP - Advance


Tuesday – Aug. Eurozone ZEW Survey Economic Sentiment; Jun. Eurozone Industrial Production; 2Q Eurozone GDP – Advance; Aug. Germany ZEW Survey Current Situation and Economic Sentiment; 2Q Germany GDP – Preliminary; Jul. UK CPI, RPI; Jun. UK ONS House Price; Jul. France Consumer Price Index; 2Q France Gross Domestic Product – Preliminary, Non-Farm Payrolls, Wages; Jul. Spain Consumer Price Index - Final


Wednesday – UK BoE Minutes; Jul. UK Claimant Count Rate, Jobless Claims Change; Jun. UK Average Weekly Earnings, ILO Unemployment Rate,

Employment Change


Thursday – Jul. Eurozone CPI; Jul. UK Retail Sales; Jun. Spain Trade Balance


Friday – Jun. Eurozone Current Account, Trade Balance; Jul. Germany Producer Prices


Matthew Hedrick

Senior Analyst

Industrial Indicator: Mining Equipment - Chinese Real Rebar Prices Break 2009 Lows

Real Chinese Rebar Prices Below 2009 Lows

  • Weak Construction: Falling Chinese rebar prices are a reasonably real-time indication that construction activity in China may be slowing.
  • Negative for Mining Investment: Mining investment has been very robust (we’ve called it a bubble).  Chinese demand for materials has been central to global mining investment. 
  • Mining Equipment:  If fixed asset investment slows, equipment producers like CAT could see demand for resources-related equipment evaporate.
  • Exposure to Developed Market Construction Rebound:  It is difficult to find capital equipment exposure to cyclically depressed developed market construction activity without getting exposure to slowing developing market construction markets.  We think that the Commercial Truck OEMs provide an effective and less risky way to increase portfolio exposure to developed market construction.  We are presenting our Black Book on Commercial Trucking August 16th at 11AM.

Industrial Indicator: Mining Equipment - Chinese Real Rebar Prices Break 2009 Lows - real steal rebar2



UPCOMING EVENT:  On August 16th at 11:00AM we will be hosting a call on the launch of our Trucking OEM Black Book that will discuss Navistar, PACCAR, Cummins and other key names in the space.


 Industrial Indicator: Mining Equipment - Chinese Real Rebar Prices Break 2009 Lows - perf 81012

Idea Alert: JCP - Street Cred Dead

Keith shorted JCP again today on the short squeeze around what what was a quarter that can be characterized as none other than Horrendous.

We won't bother with the full financial review. Comps down -22%, down 33% and a ($0.67) loss pretty much sims that up.

But that's the past. We invest for the future. One thing that matters in investing for the future is believing in who is running the ship. We initially figured that Johnson's Apple halo would have lasted 18-24 months. But about 5-minutes into his commentary today, his credibility stood up, ran out the door, and got hit by a bus.

Last quarter, his level of arrogance around communicating the message was bothersome. He spoke to the Street like we were toddlers, or at least retail novices. He glossed over the bad, and played up whatever positive statistic he could find. A JV mistake for a new CEO.

We #timestamped our view in the Twittersphere this morning that the key thing we were looking for today from RJ was humility, and a realistic view as to how he portrayed what challenges lie ahead.

In the first 2 minutes, he started off great by highlighting 2 mistakes he's made. Pricing and marketing. But then he fowled it up by saying -- in a very firm tone -- "In January we laid out a four-year plan to transform the company. We said this will be a really tough year. I don't think that message got through. Your expectation is much higher than ours."

Really Ron? You sent through a pretty definitive message when you said the following...

Feb 24th Q4 earnings call: "We will meet or exceed $1.59 in EPS in 2012. Our GAAP earnings guidance is unchanged from the analyst meeting ($1.59 GAAP; $2.16 non-GAAP)"


May 15th Q1 earnings call: "We want to make the right business decision, and therefore we're going to remove our GAAP guidance, but stand by our non-GAAP guidance ($2.16 a share), which really is the earnings power of the company going forward." But the catch is that they did not let us know what the restructuring charges were. So there was no way we could really tell if they were on track.

Aug 10 Q2 earnings call: "We've made the decision to pull our guidance."

Also, can you explain why you sold your stock just before that last earnings release? You have better information than everybody else, and you bailed. Someone was on the other end of that trade. Ever think of that?

This is an execution story. Execution requires trust. Trust needs to be earned, not gifted. This team has zero. And what's sad is that it was all very avoidable. Simply be up-front and honest with your shareholders, and you generally will be ok. But a bad reputation will take a long time to recover from.


Idea Alert: JCP - Street Cred Dead - JCP YoutTube


Idea Alert: JCP - Street Cred Dead - jcp ttt






CONCLUSION: New data points, including negative revisions to the official growth forecasts out of Singapore and Hong Kong, affirm our bearish conviction on the slope of global growth with respect the intermediate-term TREND duration. Applying a longer-term lens, would argue that the incessant policy responses out of the global central planning cartel over the last ~5yrs have set us up for broadly weak economic fundamentals for the foreseeable future.


This week, Singapore and Hong Kong each cut the upper limit of their respective 2012 GDP forecasts by -50bps and -100bps, respectively. Singaporean officials now see Real GDP growth coming at +1.5-2.5% for 2012 and officials in Hong Kong anticipate domestic economic growth in the +1-2% range for the full year. We continue to trumpet the heightened sensitivity of Hong Kong and Singapore to the global economic cycle and view these countries as the best barometers for global growth out there: 

  • At 211% and 223% of GDP, respectively, Singapore and Hong Kong are far and away the most export-oriented countries in Asia – far more levered to global demand than other noteworthy exporters (China: 29.6%; South Korea: 52.4%; Japan: 15.2%; Thailand: 71.3%; and Taiwan: 58.9%);
  • The ratio of Singapore and Hong Kong’s share of world exports to their individual shares of world GDP are 7.1x and 7.5x, respectively – besting the next closest economy in Asia (Malaysia) on this metric by at least 3.7 turns; and
  • Singapore and Hong Kong are home to the world’s second and third-busiest container ports, handling 28,431,100 and 23,669,242 TEUs, respectively, per the latest yearly data from the American Association of Port Authorities. 



The fact that both countries independently revised down the upper band of their 2012 GDP forecast this week (even as the SPX raced to another long-term lower-high) is telling. Data points like these continue to affirm our bearish conviction on the slope of global growth with respect the intermediate-term TREND duration. China’s JUL Export/Import numbers (released overnight) also lend credence to this view.   

  • JUL Exports: +1% YoY from +11.3%
    • JUL Exports to US: +0.6% YoY from +10.6%; lowest since NOV ‘09
    • JUL Exports to EU: -16.2% YoY from -1.1%; lowest since SEP ‘09
    • JUL Imports: +4.7% YoY from +6.3%
    • Key Takeaways: China’s bombed-out Export growth numbers – particularly those to the US and Europe – portend negatively for the slope of end-consumer demand growth across those regions over the next few months. Furthermore, China’s slowing Import growth continues to remind people that China, itself, remains a drag on the slope of global economic growth and demand for raw materials. 

Applying a longer-term lens, we continue to side with 219 years of data afforded by the renowned analysis of Reinhart and Rogoff to conclude that we should expect slower rates of world economic growth going forward. We would argue that the incessant policy responses out of the global central planning cartel over the last ~5yrs have set us up for broadly weak economic fundamentals for the foreseeable future. Across the globe, various markets and economies have, unfortunately, not been allowed to clear, leading to a broad-based misallocation of capital and resources. Much akin to a company with bad CapEx management, the “management teams” of the world economy (i.e. our central planners) have broadly set the stage for subpar performance on the top line by encumbering us with sovereign debt loads well beyond critical thresholds and perpetual monetary Policies To Inflate.








As always, we encourage disagreement and debate – having such an intelligent collection of clients has certainly made us jocks much smarter over the years. Feel free to ping us if you’d like to discuss any of our existing theses.


Have a great weekend,


Darius Dale

Senior Analyst

Trucks: What’s Next For The Global Truck OEM Industry?

Next Thursday, August 16th at 11am EST, the Hedgeye Industrials Team, led by Jay Van Sciver will be hosting a conference call discussing opportunities in shares of Truck OEMs.  The presentation will review Truck markets globally, with a look at Brazil, Europe and the U.S.  The dial-in information and materials will be circulated prior to the call. 




Suppliers/Related: CMI, ACW, CVGI, RUSHA  



Topics Will Include

  • The Cycle: A long-term look at Truck equipment cycles - what is changing and what is not.  Regulation, fleet age, OEM product trends and aftermarket growth will position the industry differently over the next several years.  It is not just about fleet age driving truck sales.  
  • Industry Structure: The trucking industry has a supportive industry structure, leaving the industry better able to weather variations in demand.  We look at several key ways that this already strong industry structure is improving. 
  • Valuation, Sentiment & Company Specific: The U.S. based truck OEMs are out of favor at the moment, with valuations at highly attractive levels.  We present our ideas on the best way to play this attractive industry and some key areas we would avoid.


About Jay Van Sciver

Jay has covered the Industrials sector for over a decade, providing buy-side research for long-only, long/short hedge fund, and proprietary trading strategies. He was a Co-Founder and Partner at Bishop & Carroll Capital Management, where he focused on Industrials, Materials and Consumer Durables. Previously he was a Managing Director at LaBranche, which seeded Bishop & Carroll, and an Industrials and Materials Sector Analyst at Brown Brothers Harriman. Jay graduated from Yale with a B.S. in Chemistry.  




Hedgeye Risk Management is a leading independent provider of real-time investment research. Focused exclusively on generating and delivering actionable investment ideas, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts - united around a vision of independent, uncompromised real-time investment research as a service.




Please contact if you have any questions.


The Economic Data calendar for the week of the 13th of August through the 17th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


THE WEEK AHEAD - weekahead

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%