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Devaluing The Dollar

Takeaway: Unless central planners change, the dollar is likely to continue falling further.

Often we discuss how Ben Bernanke and the policies of the Federal Reserve have destroyed the US dollar and driven up food and fuel prices. The correlation risk involving the dollar is strong no doubt, with yesterday’s slide in oil attributed to a move in the dollar and rumors of the Strategic Petroleum Reserves opening up. But just how far has the dollar fallen in the past three months? Take a look at the chart below for your answer:


Devaluing The Dollar - USD 3mo


The correlation between taxi trips and table play on the Strip


  • The correlation between the YoY change in taxi trips and non-baccarat table drop is 0.68 over the past 5 years
  • Since we get taxi and airport data 2-3 weeks before the state releases gaming stats and both are statistically significant variables in explaining gaming volumes, they are major inputs in our monthly projection model
  • August taxi trip data was released today and it was down 1.7%.  We don’t yet have the McCarran airport data but assuming no surprises, gaming revenues could be flat to slightly down with normal hold.


Hedgeye Heads to Houston: Hedgeye Energy Corporate Access Trip

Takeaway: Get an Edge in the Game, Talk to the Leaders

Hedgeye’s Director of Research, Daryl Jones, and Energy analyst, Kevin Kaiser, are traveling to the oil and gas capital of North America, Houston, TX to gain insight on the current energy environment from the leaders of top E&P and oilfield services companies.


Below is the current schedule, please email if you would like to be a part of this expedition or would like additional details.


Hedgeye Heads to Houston: Hedgeye Energy Corporate Access Trip - TX  Sch

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Chinese Rebar Prices Rebound

Takeaway: Chinese rebar may have bounced but it'll be short-lived as it continues to drop in price heading into 2013.

We’ve examined the relationship between Brent crude oil and the price of Chinese rebar as the price of rebar fell nearly 50% over the last year. Though there is a significant bounce in September pricing, we believe it’s nothing but a dead cat bounce and that rebar prices will continue to fall.


The spot rebar price is +7% off the September 7 low, coinciding with the rip in most risk assets after the ECB announced its new bond-buying program.  That makes intuitive sense – Europe is China’s #1 export customer.  China likely has a bunch of steel it can’t get rid of or we’re not getting the entire picture.



Chinese Rebar Prices Rebound - china rebar

Industrial Indicator: NAV Losing Ground

Takeaway: $NAV's heavy discounting may not be sustainable with less efficient operations. An end to discount would help competitors, including $PCAR.


Trucks per Employee: NAV Losing Ground

  • Efficiency: Trucks per employee is an interesting measure of efficiency and capacity utilization.  On that measure, NAV is losing ground while PCAR is gaining.  Absolute numbers are impacted by the high percentage of smaller Class 5-7 vehicles produced by Navistar.
  • NAV Discounting Heavily: NAV’s product and regulatory issues have resulted in reduced market share, even with discounting to maintain sale volumes.  Lower sales rates relative to competitors can create negative feedback in the form of higher costs and increasing losses.  In turn, higher costs make NAV’s discounting more difficult.
  • Unsustainable: Customer perception of product quality and OEM financial stability is important for truck sales, in our view.  Navistar’s problems may not yet be over, particularly if Volvo and Daimler again sue the EPA over revised non-conformance penalties.

Industrial Indicator: NAV Losing Ground - truck per employee



Industrial Indicator: NAV Losing Ground - perf 9 18 12

UNH: Dealing With Rising Costs

Takeaway: The Affordable Care Act is putting pressure on managed care providers like $UNH who will undoubtedly deal with rising costs.


The future of managed care has an increasingly negative undertone in regards to the Affordable Care Act. UnitedHealth Group (UNH) will undoubtedly be affected by the Act and rising costs are cause for concern and have made us increasingly bearish on the stock. We expect cost trend to accelerate into 2013, with limited pricing leverage on either the premium or provider payments side to offset the risks to 2013 guidance.



UNH: Dealing With Rising Costs  - UNH chart1



Hedgeye’s Healthcare team has outlined two major drivers of increasing costs that directly affect UNH heading into the new year:


• Physician Utilization: Physician traffic represents roughly 30% of commercial cost trend for managed care, and we expect utilization to accelerate 2H12 and into 2013.  A physician visit leads the care continuum, so we expect incremental utilization to follow subsequent to a rise in physician utilization.


• Birth recovery: We expect births to recover as early as 4Q12 and into 2013.   Not only do births represent a considerable portion of commercial inpatient volumes (30%) and Medicaid inpatient volume (40%), but pregnancies  add additional physician utilization as pre-natal and post-natal populations carrying significantly higher than than average utilization.



UNH: Dealing With Rising Costs  - UNH chart3