prev

PCAR:Truck Orders Lead Production Changes

Takeaway: $PCAR: Production cuts come from weak orders months ago - no surprise. Trading on production is like driving with the rear-view mirror.

 

Truck Orders Lead Production Changes: 

Trading on production announcements is like driving with the rear-view mirror.

 

“This is evident in strong sales of aftermarket parts and services and excellent performance at PACCAR Financial Services. Industry orders for new trucks in North America have slowed in recent months as customers evaluate the mixed signals of a sluggish economic recovery,” – PCAR CEO Mark Pigott in 9/11/12 press release.

 

  • Orders Lead, Production Lags: PCAR increased the amount of production cuts in 3Q from 10% to 15%-20% vs. 2Q.  That should not be surprising because truck orders have been below build rates for the industry for months.  Production cuts of at least this size are the correct and necessary response.
  • Cuts All Around:  All four Class 8 manufacturers will cut NA production.  Navistar appears to be taking the most aggressive approach to capacity reductions.
  • NA Orders Below Replacement Demand:  Truck earnings are far from peak levels, unlike, say, mining equipment profits.  Buying cyclicals when orders have been weak and production is being cut is likely to work much better than buying them at peak profits when the outlook has never been better. 
  • Fleet Age Increases: Our thesis is that the NA Class 8 fleet will remain elevated and probably age further.  This is what the stock has historically correlated with – not margins or truck sales.  Yes, lower production will result in lower margins and if an investor follows that, they will get the stock wrong.  An aging fleet will drive higher parts revenue and more stable financial services returns.  PCAR specifically referenced those trends in the quote above. 
  • PCAR a Top Idea: Share losses by NAV, greatly reduced pre-buy activity and an aging fleet, in addition to other factors, position PCAR to be a top performer, in our view.  See our August 16th Black Book on truck OEMs for details.

Central Planners With Attitude

CENTRAL PLANNERS WITH ATTITUDE 

 

 

CLIENT TALKING POINTS

 

VISITING THE PAST

Sometimes when you begin to examine the market, you see a pattern or movements that remind you of years past. For instance, back in 2008 when the crisis was in full swing, a lot of people brought up dates like 1987 and 2001. Those were big events where the market took a turn for the worse and made a lot of people feel sick to their stomachs. To us, this market feels somewhat similar to the aforementioned years. It’s toppy. The S&P 500 can’t seem to keep it together above 1438 (we went short SPY at 1437). If you’re still playing the game of saying stocks are up year-to-date, it’s time to cut that out. Even after the crash of ’87 stocks were still up year-to-date despite a -23% down day.

 

 

CENTRAL PLANNERS WITH ATTITUDE

Central planners are popping caffeine pills and getting to work these days. There is no rest for the wicked. Bernanke is busy pushing 0% rates out until 2015 and will probably push them even further should he need to appease market participants even further. The argument is still the same: “Let me drop some QE into this market and you’ll have stocks and commodities rally!” The short-term stock gains don’t seem worth the pain at the pump and grocery store that the rest of America has to face. $150 oil just perpetuates slowing growth and that’s not something anyone wants, is it? 

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                UP

 

U.S. Equities:   Flat

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  DOWN

 

Int'l Currencies: Flat

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

NIKE (NKE)

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.

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

 

PACCAR (PCAR)

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.

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

 

LAS VEGAS SANDS (LVS)

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.

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

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Another nail to the heart of the#EfficientMarketHypothesisfxn.ws/QicZqh. Not that's it's needed.#EMH has been dead for a long time” -@JamesGRickards

 

 

QUOTE OF THE DAY

“A thought is often original, though you have uttered it a hundred times.” –Oliver Wendell Holmes

                       

 

STAT OF THE DAY

$104 million. The payout for a former whistleblower at UBS who altered US authorities to the firm’s tax evasion practices.

 

 

 


THE M3: AMBROSE SO; HIGHEST RWS FINE; MGM COTAI

The Macau Metro Monitor, September 12, 2012

 

 

SJM EXECUTIVE UPBEAT ON GAMING REVENUE DESPITE DIP IN VISITORS Macau Daily News, Macau Daily Times

SJM CEO Ambrose So said, “The new arrangements (relaxation on entry permits by six cities) will bring additional visitors; I think the city can handle 30 million visitors. After 10 days of implementation, we see a slight increase of visitors, which benefits both the mass market and VIP sectors. But we need to see a more long-term trend to see the effects, we can't judge by a few days. It’s hard to find a formula to calculate the [relation between] visitor numbers and the increase in gaming revenues. There may be fewer people coming but they may be spending more. There’s no rush to see the impact of the single-digit growth (in visitor arrivals) forecast. We should get a better picture after one quarter."

 

Regarding the Sheraton opening next Thursday at SCC, So said it was only natural that Sands China’s market share would grow.  “Concern is one thing, but we have our own strategies,” So said, explaining that since the peninsula was more gaming-focused and Cotai was more resort-oriented, there was no direct competition between the two areas.  However, he admitted that SJM would have to “reposition” itself to meet the changes in customers’ expectations and gaming behavior when the company will have its property up and running in Cotai, possibly in three years’ time. 

 

So also thinks that China's 12th Five-Year Plan will bring more diversification to Macau.  “The Hengqin Island will bring an important support for the development of Macau’s non-gaming sectors so that tourists can stay longer,” he remarked.  With the construction of the Guangzhou-Macau train and the Hong Kong-Zhuhai-Macau bridge, he expects Macau to definitively become a center for world tourism. 

 

“We always have interests in parcels seven and eight in Taipa, but Sands is having some legal arrangements with the government now over the land”. He stated that within the gaming sector, “we have great advantages, because we know the market. We have close relationships with the government, we are local. Most tourists are from China, we know their taste. We can reposition ourselves when we build a new property in Cotai.”  However, he denied obtaining any advantages from the Las Vegas Sands’ lawsuit: “The only advantage that we have is not having any lawsuit.”  As to the planned casino in Taipa, he explained, “it will take at least two to three years before SJM's casino is built in Taipa; we're waiting for the details.”  So also sees no urgent need to employ foreign labor, mentioning that SJM has the highest rate of local employees in Macau at 95%.  

 

CASINO REGULATOR PENALIZES RWS WITH HIGHEST SINGLE FINE TO DATE TodayOnline, Reuters

Resorts World Sentosa has been fined S$600,000, the highest single financial penalty imposed to date by the Casino Regulatory Authority (CRA), for partially reimbursing local casino patrons their annual entry levy.  TODAY first reported the CRA's probe against RWS over illegal reimbursements in July.  The CRA said in a statement today it received information from members of the public that they had received complimentary Universal Studios Singapore (USS) tickets when they renewed their annual entry levies.  CRA has referred the matter to the police's white collar crime unit, as the cases involved possible forgery, it said

 

MGM'S COTAI LAND APPLICATION GOING "SMOOTHLY" Macau Business

MGM China co-chairwoman, Pansy Ho, said the company’s application for a piece of land in Cotai continues to go “smoothly”.  Ho added that MGM Cotai will have more non-gaming areas than MGM Macau.  Ho also admitted that, as other Asian jurisdictions legalize gaming or reinforce their bet on the industry, Macau is poised to face more regional competition.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 12, 2012


As we look at today’s set up for the S&P 500, the range is 27 points or -1.02% downside to 1419 and 0.87% upside to 1446. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT: 

  • ADVANCE/DECLINE LINE: on 09/11 NYSE 1030
    • Increase versus the prior day’s trading of -613
  • VOLUME: on 09/11 NYSE 666.98
    • Increase versus prior day’s trading of 8.26%
  • VIX:  as of 09/11 was at 16.41
    • Increase versus most recent day’s trading of 0.80%
    • Year-to-date decrease of -29.87%
  • SPX PUT/CALL RATIO: as of 09/11 closed at 1.64
    • Up  from the day prior at 1.61 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 30.22
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.74%
    • Increase from prior day’s trading of 1.70%
  • YIELD CURVE: as of this morning 1.50
    • Up from prior day’s trading at 1.46 

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications, Sept. 7 (prior -2.50%)
  • 8:30am: Import Price Index M/m, Aug., est. 1.5% (prior -0.6%)
  • 8:30am: WASDE report on corn, soybean, others - Preview
  • 10am: Wholesale Inventories, July, est. 0.3% (prior -0.2%)
  • 10:30am: DoE Inventories
  • 11am: Fed to sell $7-$8b notes due 4/15/2014-11/30/2014
  • 1pm: U.S. to sell $21b 10-yr notes
  • FOMC starts two-day meeting 

GOVERNMENT:

    • House, Senate in session
    • Senate Committee on Homeland Security and Governmental Affairs will hold a hearing on the GSA; Acting Director Dan Tangherlini scheduled to testify on progress since the scandal over its Las Vegas conference
    • EPA, Energy Dept. sponsor conference on improving fuel efficiency of internal combustion engines
    • Acting Chairman Martin Gruenberg delivers opening remarks at FDIC meeting on national survey of “unbanked, under-banked” households, 8:45am
    • Better Markets Inc. releases report on cost of financial crisis, including lost wealth due to unemployment, stock market losses and housing value declines, reduced GDP, government bailouts and economic hardship, 1pm
    • U.S. International Trade Commission holds hearing on economic effects of Trans-Pacific Partnership trade agreement being negotiated in Leesburg, Va., 9am
    • Tim Hughes, general counsel for Space Exploration Technologies and former astronaut Garrett Reisman hold briefing on Space-X and privatization, 1:30pm
    • House Transportation subcommittee reviews FAA efforts to revamp U.S. aviation system with satellite-based tracking of aircraft instead of radar, known as NextGen, 10am
    • Census Bureau announces findings from “Income, Poverty, and Health Insurance Coverage in the United States: 2011” report, which contains official national findings from the Current Population Survey, 10am

WHAT TO WATCH:

  • German court allows European bailout fund to go ahead
  • Apple unveils new version of iPhone today
  • Fed seen likely to announce 3rd round of bond purchases tomorrow
  • GE may sell $2.1b stake in Bank of Ayudhya in Thailand
  • Texas Instrument raises lower end of 3Q EPS view
  • Facebook CEO says co. to address benefits of mobile advertising
  • Spain may not need bailout after ECB’s bond-buying offer
  • Italy sells 1yr bills at lowest rate since March
  • Japan machinery orders in July rise more than forecast
  • Indian industrial output misses estimates as economy falters
  • DoubleLine considers adding stock funds to firm’s investments
  • Visa planning for CEO Saunders’ ‘impending retirement’
  • U.S. holiday sales may rise on first store visit gain since 2007
  • Google to offer fastest U.S. internet service in Kansas City
  • U.K. jobless claims fall most in 2yrs, defying recession

EARNINGS:

    • Dollarama (DOL CN) 7:30am, C$0.64
    • Pall (PLL) 5pm, $0.77

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL - $116 and ramping; this will be Bernanke’s legacy, so we hope he’s comfortable with that. Don’t forget how ridiculous this is at this point; expectations for 0% int rates only went to 2013 in mid Jan; then he jacked Gold/Oil/Stocks on the 2014 move (that was Qe3 on Jan25; commodities peaked in Feb); now he’s going to 2015 and beyond…

  • Zinc Glut Diminishing as China Cuts Most Since ’04: Commodities
  • Brent-WTI Gap Sliding as North Sea Output Jumps: Energy Markets
  • Glencore Nears Xstrata Deal Prize as Qatar Takes Back Seat
  • Gold Jumps to Six-Month High as German Court Allows Bailout Fund
  • Copper Rises a Fourth Day as German Court Approves Bailout Fund
  • Oil Extends Gain After German Court Allows For ESM Ratification
  • Cocoa Falls on Price Gains as Ivorian Rains Return; Sugar Rises
  • Iron Ore Swaps Extend Retreat on Concern About Chinese Demand
  • Wheat Falls in Chicago Trading Before U.S. Crop Report
  • Cooking-Oil Imports by India to Jump as Local Supplies Decline
  • IEA Boosts Oil Demand Forecast, Sees ‘Comfortable’ Supply Levels
  • Coffee Market Doubts Colombia Bumper Crop: Chart of the Day
  • Platinum Holdings Poised for Record on Mining Disruptions
  • Lonmin Strike Talks Fail as South African Mine Unrest Grows
  • India Must End Sugar-Import Duty to Curb Prices, ED&F Man Says
  • Iberdrola to Keep Dividend as Galan Resists Atomic Tax: Energy

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


GERMANY – its amazing, but true – the DAX has now shot the moon, trading well above its March highs; everything is fine now other than the economy. German, French, and Spanish CPI all tracking higher sequentially this morn (AUG numbers) as growth slows.

 

SPAIN – all of economic gravity is not yet lost as both Spain’s IBEX and Italy’s MIB haven’t made higher-highs vs March closing highs of 8591 and 17,133, respectively. Germany says there are conditions to the short squeeze; Spain says they don’t like conditions.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

The Hedgeye Macro Team


Weak Dollar Crowd

This note was originally published at 8am on August 29, 2012 for Hedgeye subscribers.

“The fact that this policy failed spectacularly in 1973 did not deter the weak-dollar crowd.”

-Jim Rickards

 

If my sell-side competition thinks I am going to back down on how Dollar Debauchery has perpetuated the US and Global Economic slowdown via commodity inflation in 2012, they better think again.

 

The Weak Dollar Crowd’s case for “strong exports” and an “up market” (on no volume or fund flows) is weakening. The Strong Dollar, Strong America solution I introduced in December 2011 (when I was bullish on US growth and stocks) is strengthening.

 

Make no mistake, I am at war with the Keynesians – it’s what Jim Rickards has coined the Currency War, “The Making of The Next Global Crisis.” Jim will be doing a conference call with our Global Macro Team today at 11AM EST (email sales@Hedgeye.com for access).

 

Back to the Global Macro Grind

 

With a Navajo chant, shots were fired from New Haven on August 16th, 2012. That’s when we said sell stocks and buy bonds. If the Weak Dollar Crowd bought stocks at 1426 SPX and sold bonds with the 10yr US Treasury yield at 1.89%, they should feel shame.

 

But they don’t. In fact, some of these strategists and economists from the Old Wall are shameless. That’s not being rude – that’s the truth. How else should I describe their March 2012 consensus US and Global GDP estimates being off by 45-70%?

 

Oh, but “stocks are up” for the YTD, so you don’t have to get anything fundamental right about growth or how money printing infects it to take a half-baked victory lap in this business at short-term tops, right?

 

That’s ending folks. The People don’t trust broken sources. Market volumes speak louder than their words.

 

Got data to support the Weak Dollar Crowd weakening?

  1. GROWTH: this morning you’ll get Q2 2012 US GDP growth reported down at least 60% from where it was in Q4 2011 (4.10%)
  2. INFLATION: real-time inflation that drives down real (inflation adjusted) Consumption Growth is ripping, sequentially, in August
  3. CONFIDENCE: yesterday’s US Consumer Confidence number for August was down -8% month-over-month vs July’s 65.9 reading

That’s right “stocks are up” fans, the US stock market is up over +2% for August… and the American People don’t care. That’s because of the math – when Growth Slows and Inflation Accelerates, real consumers get squeezed.

 

Pardon? What happened? Why didn’t people forget about needing to be up +13% (from here in the SP500) to get their 401k super stock market allocations back to break-even? Didn’t they make a 100% equity allocation to the AAPL ETF?

 

This isn’t funny anymore. Neither were the 1970s.

 

In the 1970s you had a less politicized version of Ben Bernanke (Fed Chief Arthur Burns, who didn’t do the TV and print thing) work towards Dollar Debauchery and Debt Monetization under both a Republican and Democrat boss (Nixon and Carter).

 

Today, it’s worse – and not because Bernanke did the same for Bush/Obama – more so because the Europeans have their own currency this time and are trying to do precisely what the Japanese did.

 

Overlay those conflicted and compromised political policy “plans” driving the Dollar, Yen, and Euro with what #BailoutBeggars are asking the Chinese to do next (“PRINT LOTS OF MONEY” – Paul Krugman to Japan 1997), and the weakness of the weak is looking weaker.

 

It’s not different this time. Currency Wars have always been global. Rickards will expand on that with us today.

 

In other news this morning:

  1. Chinese stocks fell another -1% last night, right back down to their YTD lows (-16.5% since May)
  2. Indian and Indonesian stocks both snapped their immediate-term TRADE lines of support, down -0.6% and -1.4%, respectively
  3. EuroStoxx50 finally broke its immediate-term TRADE (squeeze) line of 2466
  4. Germany’s DAX and Spain’s IBEX sliced through their respective TRADE lines of 7016 and 7416 as well
  5. Russian stocks lead decliners, down -1% this morning (down -19% from the March #GrowthSlowing top), with Oil down
  6. Spain’s 5yr CDS just peeked its head back over the 500 line (1st time since August 13th)
  7. Gold failed at its long-term TAIL risk line of 1679 resistance, again, and continues to make lower-highs
  8. 10yr US Treasury Yields have effectively collapsed (-14% in less than 2wks) back down to 1.62%
  9. US Treasury Yield Spread (10yr – 2yr) is down 18bps since our call on August 16th to buy bonds (that’s a lot)
  10. Draghi wrote an Op-Ed about something I can’t understand

This globally interconnected gong show of central planning rumors still looks Too Big To Bail to me. Weak (failed) policy makers are looking weaker. Strong real-time risk management processes are getting stronger.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar Index, EUR/USD, 10yr UST yield, and the SP500 are now $1648-1679, $111.54-113.98, $81.11-81.96, $1.24-1.26, 1.58-1.65%, and 1402-1419, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Weak Dollar Crowd - Chart of the Day

 

Weak Dollar Crowd - Virtual Portfolio



Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

next