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Takeaway: $MCD's problems are not all macro. We will be looking for mgmt to address some company-specific issues before becoming more constructive

In January 2011, we published a Black Book outlining our concerns about McDonald’s direction as a company.  The beverage strategy, in particular, was something we saw as having negative implications for the stock over the intermediate-to-long-term.


At the time, we wrote that the much-vaunted McDonald’s “Plan-to-Win” strategy has always been centered on “better, not bigger.  Instead of building more restaurants, McDonald's increased profitability by squeezing more from its existing store base and from its franchisees. Over the past three years, however, the mantra has seemingly become beverages, not burgers.”


As the company has shifted its focus away from its core business, the restaurants’ have gradually become less operationally efficient.  Additionally, resources are spread more thinly across the company as the menu grows.  The core business, on a relative basis versus peer QSR burger concepts, suffers under this scenario.  While we cannot summarily state it as fact, it is possible that the company’s core business has been declining in the U.S. and, if true, this would support the idea that Five Guys, Shake Shack and other players in the category are taking share from McDonald’s.


As we changed our view, from positive to negative, on McDonald’s on 5/8/12, our conviction was that sales were slowing globally and, in the U.S., there was a dearth of new menu items to “comp the comps” versus the 2011 and 2010 beverage successes.  Almost exactly a year prior, on 5/9/11, we capitulated on our bearish view and accepted that changed facts, at that time, dictated a positive outlook for the company.  What we missed in 2011 was how much of a success beverages could be for a second year running.  In 2012, global growth slowing combined with the lack of new product momentum and an eroded value advantage versus the rest of the restaurant industry has clipped MCD’s wings.


The core tenets of our thesis has remained unchanged, however: the company needs to renew its focus on its core business.  The words of Jim Skinner come to mind.  He said, “We had lost our focus. We had taken our eyes off the fries."


A great article in QSR Magazine, written by former McDonald’s marketing executive Roy Bergold, discusses menu expansion and the impact it has on business and profitability.  In the article, titled, “Addition by Subtraction”, Bergold advocates the simple versus complex strategy and we believe his thoughts are highly salient for McDonald’s investors today.


Clearly, a significant component of MCD’s difficulty is rooted in the macroeconomic environment but there are some self-inflicted wounds, also.  In 2011, we were wary of the shift in focus from burgers to beverages and that is still the case today.  From here, for us to become more constructive on the long side of MCD, we will be looking for management to reverse course and simplify, rather than complicate, the menu so that the company can refocus on its core menu.  We are not expecting any such announcement soon, however, given that it would effectively be a mea culpa on the part of CEO Don Thompson, the man behind McCafé.  


August sales will be released on the 11th and we will have a note out in advance.  Sequentially, we are expecting a better result than July’s, but from there the outlook suggests a difficult top-line environment potentially through February 2013.


MCD: IT’S NOT ALL MACRO - mcd pod1


Howard Penney

Managing Director


Rory Green





Keynesian Mega Party







If you thought the party known as Keynesian central planning was coming to a close, you are sorely mistaken. Pop the champagne bottles, light the cigars and hand out the Quaaludes – we’re due for another round of easing any day now. The Federal Reserve has just seen the August jobs report (which missed expectations) and will have to go back  to printing more money and injecting it into the economy. It may not be pretty but hey, as long as we have drugged up, no volume rallies that push the S&P 500 as high as it can go, we’re groovy, right?




Ask yourself this question and then ponder for a minute what the correct answer is. Is it the US stock market or bond market? Is it German stocks or the EUROSTOXX 50? Is it the S&P 500 or the Russell 2000? Keith highlights some of these questions in this morning’s Early Look and we wonder where exactly the growth is. It’s like that Paula Cole song from the 1990s “Where Have All The Cowboys Gone?” Ask yourself: where has the growth in America gone?






Cash:                  UP


U.S. Equities:   DOWN


Int'l Equities:   DOWN   


Commodities: Flat


Fixed Income:  Flat


Int'l Currencies: Flat  








Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.

  • TAIL:      LONG            



Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TAIL:      LONG



LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TAIL:      NEUTRAL







“#EaseToPlease was just officially green-lighted ~ #QE3” -@TheKillir




“There are three kinds of lies: lies, damned lies, and statistics.” – Benjamin Disraeli




Unemployment fell from 8.3% to 8.1% for August.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here

Takeaway: $CAT is a deep cyclical and the cycle appears to be turning against the company. $CAT seems unprepared for the turn. We'd avoid long side.

CAT’s Deep Cycle Dive - Why Not to Own CAT Here




Caterpillar is a company we would love to love.  It competes well in a number of very good industries, meeting the second criteria in our investment process.  It has great products and a well-established dealer network.  The stock is trading well off its highs.  Unfortunately, it is also a deep cyclical. The resources investment cycle appears to be turning against CAT from a very, very high peak.  An upswing in construction equipment appears some years away.  CAT has a unionized workforce and other significant fixed costs.  Importantly, CAT does not seem prepared for the resources investment cycle to move against them.  If anything, management has directed the company towards further resources exposure.  Finally, the current valuation does not reflect these risks, in our view.  Investors stuck on the long side in CAT could be in for a long period of volatile underperformance.


End-markets Near Peaks and Appear to be Heading Lower

  • Resources: Mining companies like Vale and BHP are CAT’s largest customers.  Resources capital investment appears set to decline.  Coal prices have been very weak in relevant markets and mining capital spending is coming off of bubble-like levels.  Resources investment has been the key driver of CAT’s growth over the last five years.
  • Construction: The bulge in construction equipment purchases from 2004-2007 should not see a replacement cycle until the second half of this decade.
  • Power: Oil & gas capital investment, a significant market for CAT, is expected to see growth slow to a stand-still by year-end.


CAT Appears Unprepared for Weakening End-Market Growth

  • Increasing Exposure: CAT has made significant acquisitions in mining equipment, a business with end-markets near a cyclical peak, in our view.
  • Working Capital & Capacity:  CAT’s inventories are excessive and the company’s efforts to add capacity have been misplaced, in our opinion.
  • Challenging Problems: Excess inventory and misdirected capital investment are not problems that are resolved quickly.


Cyclically Adjusted Valuation Lower Than Share Price

  • Further Downside Risk: We see CAT’s fair value in the $50-$70 range.
  • Not Reconciled: CAT is still well-liked, with about 60% Buy ratings.  It is broadly owned and is frequently miscategorized as a construction equipment company.
  • Not a Growth Business: CAT serves mature, GDP-type markets that have been growing faster than GDP for some time.  That is a red flag.



When we launched Industrials coverage at Hedgeye, we noted that CAT was exposed to resources related equipment and that resources investment was extremely elevated.  CAT, Komatsu and other mining exposed names were a place we would avoid on the long side, even though those businesses generally had strong franchises.  We have received a number of questions on that view, many of them quite good.   Below, we expand our discussion of why CAT is a name to avoid on the long side.  We focus on the impact of more recent data on end market exposures, though there are many additional matters, both positive and negative, that could be addressed at CAT.


CAT is less exposed to construction equipment than many investors believe, in our view.  The outperformance in the shares has been driven by what we see as a bubble in resources investment.  CAT has dramatically outperformed the Industrials sector over a period in which key construction markets have fallen significantly.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 1


Following the acquisition of Bucyrus and moves into other commodity exposed product lines, Resource Industries has become CAT’s largest and most profitable business.  The construction equipment business is smaller and lower margin.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 2


End Market Exposures: Resource Industries


“And if you look at our company inside, you would see a higher concentration in mining than construction.  And it just so happens that much of the growth over the past five years for us has been mining.” - Michael DeWalt 8/11/12


Dominant Exposures:  Coal, iron ore and copper make up 70%-75% of CAT’s largest division, Resource Industries.


Coal is Roughly a Third of Resource Industries; Coal Capital Investment Prospects Look Poor


US Coal:  CAT has said that about 30% of equipment sales in its Resource Industries segment are tied to coal mining, with about half of that in the United States.  Low natural gas prices have resulted in what is likely to be a sustained slowdown in US coal capital spending.  While this outlook may not be surprising, what may be is that declines in coal capital investment have not happened yet.  Consensus estimates suggest that capital spending reductions will bite this quarter and next.



CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 3


Ex-US Coal: Since about 2/3s of global coal consumption is in Asia, it is probably fair to assume that a good portion of the ~$5 billion in resources revenue from that region is coal related.  China is the dominant Asian coal consumer.  Recent declines in coal prices in China may slow capital investment in this industry.  Note that these are very large and very recent declines.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 4


Steam Coal, Too


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 5


Finally, Europe is a declining market for coal.  


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 6


Mining: The Major Resource Industries Exposure

Long-term, mining is a sub-GDP growth industry that goes through investment cycles.  Below, we chart CAT’s long-term performance to resources investment.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 7


Mining Investment Slowing: The view that mining capital expenditures are under pressure is no longer a forecast.  This spending is well over half of Resource Industries, by our estimates, and is dominated by copper and iron ore.  Recent capital investment cuts by BHP and Fortescue suggest that this part of CAT’s Resource Industries segment is likely to weaken.  The decline in mining capital investment has a long way to go, in our view.  We have published the graph below on mining capital expenditures, which seems pretty self-explanatory.   The most important concept to take away from this chart is that mining capacity could continue to expand even if this graph were cut in half.  It is capital investment above depreciation, not just capital investment.  This is a graph approximating growth capital spending.  We expect 2012 to be the peak in spending, with spending levels noticeably lower by 2014.  Our macro team shares a similar outlook (https://app.hedgeye.com/feed_items/22937).


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 8


Chinese Metal Demand:  We have previously noted the decline in construction related Chinese metal prices.  Below, we present the chart of real Chinese rebar prices, which has fallen significantly in August and is currently below its financial crisis lows.  Vale and BHP have both spent significantly on iron ore capacity.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 9


Oil Sands:  Some have suggested that Oil Sands are a major driver for CAT.  Finning, a public CAT dealer, has given some useful insights into the Canadian oil sands equipment market.  By our estimates, it looks like Canadian Oil Sands will represent at most a few percentage points of total CAT sales on the equipment side.  Although capital spending by these companies is expected to ramp in 2H 2012, growth in this smaller end market is likely to be overwhelmed by weakness in coal and metal/mineral markets.


Cancellations:  CAT has shifted its tone to “modest cancellations” when describing mining-related orders, but it seems clear to us that cancellation activity will increase.  It would be reasonable for miners to first push out orders the contractually allowed 6 months rather than canceling the order immediately and negotiating terms on the typical 5% deposit.  Moving into year-end, we may see increased cancellation activity.  CAT’s stock may not react well to increased cancellations.


End Market Exposures: Power Systems


CAT’s Power Systems segment contains a number of different businesses, from locomotives and generator sets to fracking equipment and industrial turbines.  Locomotives, certain gen sets and turbine applications are also related to mining and coal capital investment.  However, one of the division’s key exposures is oil and gas extraction and transportation/compression. 


Oil & Gas: While the dynamics of oil and gas investment seems more robust than mining investment, it also appears to be slowing.   Below, we present a chart showing capital spending growth for large energy companies, including consensus estimates through year end.  By 4Q 2012, current estimates for these companies show no growth in year-over-year capital investment.  While those estimates may change depending on commodity prices and other factors, it does not suggest that there will be enough energy investment growth to offset the slowdown in other markets.   Our firm’s long-term view is bearish on oil prices (see work by our energy analyst Kevin Kaiser) and the weak capital investment outlook suggests that this exposure could become its own problem area for CAT.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 10


Pre-Buy Boosting Current Results? There is the potential that Tier IV emissions regulations, which impact different engines at different times until 2015, are causing higher than normal sales for Caterpillar.  For example, Toro has noted some Tier IV driven activity in its commercial products.  The Gen Set compliance deadline is for model year 2015.  Certain other CAT product lines will need to comply by 2013 and 2014.  It is very hard to determine the aggregate impact, but it is worth noting.  We are hosting a conference call this Wednesday, September 12, with an EPA emissions regulations expert where we will explore the impact of Tier IV and other regulations.


End Market Exposures: Construction Industries


Construction equipment sales in developed markets are currently depressed.  Expectations for a rebound are a reason we frequently hear that people own CAT shares.  However, we note two reasons why this optimism is likely misplaced.


Emerging Markets:  China is the largest market for construction equipment globally.  The declines in equipment sales in China are well-known.   The prospects for a developed market rebound are held back by large government deficits that may keep infrastructure spending weak.


Construction Equipment Generally Last 10-15 Years:  The bubble in construction equipment purchases from 2004 to 2007 will probably not need to be replaced until the second half of this decade.  Utilization of construction equipment has been lower during the financial crisis, which may actually push out that replacement cycle.  There is little reason to expect an up cycle in new construction equipment in the next few years. 


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 11

(Source: Caterpillar Company Presentation)


URI Fleet Utilization:  Because of difficulty in finding construction equipment utilization data, many analysts present the United Rentals fleet utilization data.  URI is a sophisticated operator that manages fleet utilization, selling excess equipment and buying when utilization is too high.  As a result, URI utilization is not a useful indicator.



CAT Not Prepared for Slowdown


CAT has been acquiring mining-related companies, adding capacity, and building inventories.  With resource capital investment apparently reversing, changing course will take a long time and be very costly.  Wait for impairment charges.


Acquisitions:  CAT has been on a commodity related buying spree in the last couple of years.  Bucyrus was purchased for about $9 billion – a company (with most of the same businesses) that had an enterprise value of less than a billion dollars in 2004.  In our view, that is buying into the mining bubble – aftermarket sales or not.   ERA Mining is another near billion-dollar commitment.  These acquisitions do not suggest that CAT takes the risk of a decline in mining capital investment seriously.


Inventories:  CAT has excessive inventories, which they have acknowledged.  They have said it is mostly in China, which seems odd since they have also said that sales in China are only 3% of the total.  This may take a while to resolve or may involve charges/discounting.  Mining equipment is more inventory intensive, which further demonstrates the shift in mix toward resources equipment.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 12



Capacity Additions:  CAT has added significant capacity in the past few years and continues to do so, perhaps driven by the memories of pre-financial crisis bottlenecks.  A capital equipment manufacturer should generally remove capacity as the cycle turns.  For example, mining truck capacity at CAT’s Decatur plant doubled since 2010.  Capacity continues to be added in China, where CAT probably has half the revenues that it expected when it committed to those capacity addition projects.  A few plants are still under construction in China.  While the many expansions in the US have probably made production more flexible, the costs of these expansions have been significant and the demand may not materialize. 


Backlogs Dropping:  We have noted declining backlogs before, but it bears repeating, that CAT “beat” last quarter by drawing down backlogs.  Historically, backlogs are one of the best correlates for CAT’s relative performance.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 13


Aftermarket & Service:  Mining and Utilization Key

CAT does not pin down traditional aftermarket parts revenue, but groups it together with a number of other businesses, including financial services.  This is unhelpful. That said, it might represent around a quarter of sales after Bucyrus, which was very parts intensive.


Aftermarket parts sales are not always recurring.  Small changes in utilization can lead to big changes in aftermarket parts revenue.  When commodity prices are high and equipment is being used around the clock, the revenue stream is healthy.  However, when equipment can be idled, maintenance may improve and unused equipment can provide parts.  Recent commodity price declines may well presage lower utilization.  We have recently heard of coal miners in the US redeploying and parting out idled equipment to save money.


“Another area that we've been very active in is on our capital. We've lowered our capital spending, tried to match it up with the lower volumes. We're trying to match up our maintenance capital with the lower volumes. With the idling of some coal mines, we've actually redeployed some of our idle equipment to productive mines, saving us probably $30 million to $40 million of capital a year over the next several years, so we think we've done a good job” -  John Eaves, Arch Coal 9/6/2012



Disconfirming Evidence

There is the behavioral bias to overly scrutinize disconfirming evidence, which we want to avoid.  Highlighting disconfirming evidence can be helpful.


Chinese Property Prices:  We have seen recent improvements in Chinese property prices.  This represents a significant disconfirming data point to the bearish thesis outlined above.    That said, here is why we would be cautious on calling a turn in the Chinese housing market (our Macro team can give additional detail and color here).

  • Price increases have been very small (~20bps) 
  • Generally, only new homes are in the data
  • The data looks at average prices instead of median prices
  • The data runs counter to the stated intention of policy officials
  • Residential construction spending is only about half the size of nonresidential spending

Hedgeye hosted a conference call with global macro expert Jim Rickards last week.  He made the point that any party official with the clout to get economic stimulus implemented is probably using that clout to position themselves for the power transition.  The likely result is political stagnation.  It is our sense that CAT management expects stimulus later this year and that they may well be disappointed.


CAT Order Activity:  CAT’s order activity improved in July, particularly in Asia/Pacific.  This bears watching, but we do not think that the data represent a change in direction.  Falling Chinese rebar prices and spending cuts by mining companies like BHP and Fortescue should provide a more forward looking indicator than these order metrics.  However, if the monthly retail sales data continues to improve, we would reevaluate our view.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 14


Asia Pacific data for July was strong, but the data is noisy.  


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 15


Backlogs & Manufacturing Efficiency May Help:  CAT has pointed out that, in addition to increasing capacity, recent capital expenditures have improved the flexibility of their plants.  We do not doubt that this is true, but we still expect reduced utilization to rub against high fixed costs.  The company also has a healthy backlog, but the order backlog may drop if end markets weaken.  Backlogs are usually a major driver of the stock.  Cancellations, as noted above, are likely to follow order delays.  It is hard to extract significant cancellation penalties out of large customers, in our view.


Valuation:  Getting There…

Fair Value:  We currently see CAT’s fair value in the $50 – $70 range, below the present share price.  We use a scenario-based DCF approach and there is significant ambiguity with respect to the company’s cyclical exposures.  This ambiguity leads to a relatively wide valuation range.


Sentiment: CAT is better liked than most of the Industrials sector.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 16


P/E Low?: Importantly, P/Es do not work in highly cyclical stocks.  In fact, a low P/E is frequently a sell signal and a high P/E a buy signal.  To the extent that resources related capital investment declines, we would expect to see relative underperformance and multiple expansion.


CAT’s Deep Cycle Dive: Why Not to Own CAT Here - 17



Conclusion:  We see clear evidence of a down swing in resource capital spending.  We do not see CAT bracing for a change of direction in their key end markets.  Until very recently, we have actually seen them acquiring more rope.  At present levels, we do not think that the market has fully priced in the risks.  Perhaps most importantly, well-informed players like BHP and Fortescue are signaling that they see less opportunity for mining investment.  Investors that stay in CAT are ignoring that signal.





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The Macau Metro Monitor, September 7, 2012




MPEL and Philippine partners SM Investments Corp and Belle Corp have yet to formally close the deal on a joint venture to develop a casino in Manila.  MPEL announced on July 5 that it had entered into a memorandum of agreement with Belle and added that a final agreement between both parties would be finalised within the next two months.  The deadline has expired on Wednesday.


According to GamblingCompliance, negotiations are still going on.  “There are still some more or less routine things that have to be worked out pertaining to permits and similar things with the Philippine authorities. We don’t anticipate any problems as those things can take some time,” Manuel Gana, executive vice president and CFO of Belle Corp, told GamblingCompliance yesterday.

Staying Flexible

This note was originally published at 8am on August 24, 2012 for Hedgeye subscribers.

"I know a lot of people have very strong and definite plans that they've worked out on all kinds of things, but we're subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible."

- Henry Singleton


I have to admit, I didn’t know who Henry Singleton was when I first read the quote above – I just really liked the quote.  Then I read a little bit about Mr. Singleton and I really liked him too.  He was what I would call a great American.


Singleton graduated from the Naval Academy in 1940 and went to work as an electrical engineer.  As the United States upped its involvement in World War II, Singleton was eventually sent to Europe as a member of the Office of Strategic Services, which was the forerunner to the CIA.


After serving his country, Singleton returned to the U.S. to get a graduate degree in electrical engineering from MIT.  He would then make his way out to California where he and a former Naval Academy roommate, with the backing of legendary venture capital investor Arthur Rock, would start  Teledyne, a company that had decades of success before being acquired by Allegheny Steel.  None other than Warren Buffett once said:


“Henry Singleton of Teledyne has the best operating and capital deployment record in American business.”


Lofty praise, indeed.


One of Singleton’s keys to success was his willingness to be flexible.  Nothing could be more accurate for those of us that actively invest in the stock market.  The ability to change your mind and change your exposures on new information is a critical to succeeding as a money manager.


Yesterday, I did a brief interview on National Public Radio.  The key question they wanted answered was why August was so quiet and whether that meant things were getting better. Now perhaps I’m being a little inflexible, but my response was that they shouldn’t confuse absence of news with good news.  In fact, as we look forward there are a number of major events that we need to manage risk around, such as:

  1. The U.S. Election – As we’ve noted, this race is basically a dead heat with Romney likely doing a bit better than many polls indicate based on higher voter engagement for Republicans.  We are confident in saying, especially with the addition of Paul Ryan to the ticket, that the economic policy outcomes will be very different under a President Obama or President Romney.
  2. The U.S. Debt Ceiling – Do you remember this little critter last summer that led to a dramatic sell off in risk assets and a literal shutdown in Washington D.C.? Well, it’s going to become an issue again very soon.  According to analysis from our healthcare team, the U.S. Treasury will issue $592 billion in debt through year end, which will put them in breach of the debt ceiling of $16.4 billion sometime before 2013.
  3. Fiscal Cliff – It’s funny how we are hearing less and less about the fiscal cliff these days, since the issue hasn’t gone away.  In 2013, we have the toxic short term growth combination of higher taxes and lower government spending coming our way (less government spending will be good in the long run, of course).  Reasonably this could be a 2% plus headwind to economic growth next year.  The non-partisan CBO actually has 2013 growth pegged at an anemic +0.5% in 2013.
  4. Japanese Debt Ceiling Debate – Just because Japan is in a different time zone, doesn’t mean it doesn’t exist.  Currently,   legislation to enable the Japanese government to sell debt to finance 40% of the federal budget is stuck in the upper house as the opposition party is attempting to force Prime Minister Nodo to fix an election date.  Japan’s government could run out of money by October if this legislation is not passed. 
  5. Chinese Growth – I highlighted the Chinese flash PMIs yesterday that showed inventories building and sales declining heading.  In the Chart of the Day, we show Chinese steel prices that illustrate much the same story economically.  Rebar, in particular, is required for large scale construction and to the extent prices are declining it bodes poorly for economic activity and suggests the upcoming quarters will be replete with negative economic data.
  6. European Debt – The Eurocrats are on vacation so the news flow has been minimal and, on the margin, that’s been positive.  That said, nothing has been solved and we will likely see more “solutions” and “summits” in the coming months.  In fact, news out this morning has the German finance minister stating they will be preparing for a scenario in which Greece leaves the Eurozone.

It’s Friday, so I do want to leave you on a more cheery note heading into the weekend, so I decided to leave out my 7th potential catalyst, which would have been the potential for an Israeli strike on Iran this fall.  Certainly, oil is signaling something along these lines lately.


On a much more cheery note, my colleague Jay Van Sciver, our Industrials Sector Head, will be joining our client call this morning to discuss his sectors and one of his favorite names, PACCAR.  Van Sciver has a differentiated view on the upcoming trucking cycle, which is likely to lead to fewer truck sales and more parts sales.  Get this, truck OEMs, such as PACCAR, actually make more money selling parts.  If you can’t join us for the call this morning, ping sales@hedgeye.com and get on a call with Van Sciver.  His long call on PACCAR is almost as compelling as is short case on United Airlines.


Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are 1627-1671, 113.96-116.21, 81.28-82.13, 1.23-1.25, 1.62-1.75% and 1398-1410.


Enjoy the weekend!


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Staying Flexible - Chart of the Day


Staying Flexible - Virtual Portfolio

Early Look

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