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Chart: Brent Crude and the US Dollar Index

Takeaway: Brent crude prices move in the opposite direction of the US Dollar Index.

Below is a chart created by Hedgeye energy analyst Kevin Kaiser -- it shows the relationship between Brent oil prices and the US Dollar Index over  ten-year period. As you can see, Brent crude prices move essentially in the opposite direction of the US Dollar Index.  

 

That means that if the US Dollar strengthens, oil prices are likely to go lower. It's a very telling chart, and is consistent with Keith's adage: "If you get the US Dollar right, you get a lot of other things right."

 

Chart: Brent Crude and the US Dollar Index - brent


Slowing Slots

Takeaway: High-margin slot machines are contributing a lower percentage of total gaming revenue, which is a worrying trend for the gaming industry.

Revenue from high-margin slot machines as a percentage of total gaming revenue has been declining since April 2009 on the Las Vegas strip. This is worrying given the higher margins of slots versus table games.

 

Additionally, the younger generation - post baby-boomers - aren't playing slots, suggesting that this overall trend will continue. MGM is particularly vulnerable to the decline in the contribution of slot machine revenues.

 

Here's a chart that shows this trend over the past few years.

 

Slowing Slots - gaming


BKW: Bearish on the King

Takeaway: Hedgeye's restaurant sector team likes Burger King Worldwide ($BKW) on the short side.

Hedgeye's restaurant sector team is bearish on the stock of Burger King Worldwide ($BKW) on all three TRADE, TREND and TAIL durations. Our analysts cite the following reasons:

  • The company simply might be too big to fix. It has been dogged with a number of issues for the past decade, and our analyst remain skeptical that those issues have been resolved conclusively.
  • There appears to be little cash flow for the franchisee to reinvest in his/her own business.
  • Probable higher beef prices over the next few years due to supply issues.
  • Obamacare could add financial strain.
  • McDonald's ($MCD)  is aggressively protecting its market share.

 

Here's our quantitative setup (see chart below) on BKW on a TRADE duration.

 

BKW: Bearish on the King - bkw

 


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.

Buyem! SP500 Levels, Refreshed

Takeaway: If you can’t buyem here, you’re not as bullish as you thought you could be.

POSITIONS: Long Consumer Discretionary (XLY) and Apple (AAPL)

 

Our process hasn’t changed; prices have. This meltdown in Bernanke Oil Inflation Expectations is very good for US Consumption (i.e. the 71%).

 

Admittedly, I’m making this call for the month and quarter-end bounce from oversold lows (this is the 7th down day in the last 8 for the SP500). As we’ve just witnessed, however, 25-45 handle moves in the SP500 matter.

 

Across our core risk management durations, here are the lines that matter to me most here:

 

  1. Immediate-term TRADE resistance = 1458
  2. Immediate-term TRADE support = 1430
  3. Intermediate-term TREND support = 1419

 

That 1458 TRADE break signal we have you earlier in the week mattered as much as this 1 support zone does. If you can’t buyem here, you’re not as bullish as you thought you could be.


KM

 

Keith R. McCullough
Chief Executive Officer

 

Buyem! SP500 Levels, Refreshed - 1


Staples: Coming Unglued?

Takeaway: There is severe risk in Staples ($SPLS) “change everything” move.

Hedgeye's retail sector team says that Staples (SPLS) vast and sweeping restructuring plan, which the giant retailer unveiled earlier this week, looks incredibly risky. 

 

SPLS says it will do the following:

  • Integrate its online and retail offering
  • Increase investment in its online business
  • Reorganize its operations
  • Implement senior leadership changes
  • Start a multi-year cost savings plan
  • Restructure international operations 

Our team says that tackling one of the above items looks risky, but the fact that the company wants to do all of the items above means there is little chance that the company's plans will work - at least not with some more severe pain before it sees any relief.

 

For example, let's look at Staples' online business (see chart below). Online's contribution to the company's overall growth has slowed from 8% per year to only 2% per year in the last two years. Additionally, online sales topped out at 42% of overall sales each of the last two years. If the company spends now on its online operations, it means it will benefit two years from now, not today. 

 

Staples: Coming Unglued?  - spls


FED CREDIBILITY

CLIENT TALKING POINTS

 

 

BERNANKE EFFECT: With every quantitative easing, we have been met with a shorter, steeper, asset price rally, but a faster correction. What we’re experiencing these past two weeks is no exception, and it doesn’t inspire price stability and employment. Financials (XLF) and Commodities (CRB) down 4.2% and 4.3%, respectively, since what will be remembered as a historic morning-after in US economic history on September 14, the last time Fed Chairman Bernanke announced quantitative easing.

 

GET THE US DOLLAR RIGHT…

When you get the US Dollar right, you get a lot of other things right. That’s the story of the last seven trading sessions – stocks are down six of the last seven sessions as the US Dollar  bounces straight up  off its TAIL support line of $78.11 on the US Dollar Index. Right here the USD is immediate-term TRADE overbought while the Euro at 1.28 is immediate-term TRADE oversold.

 

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                  Down

 

U.S. Equities:   Up

 

Int'l Equities:   Up 

 

Commodities: Flat

 

Fixed Income:  Down

 

Int'l Currencies:Down  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

WENDY’S COMPANY (WEN)

Our conversations with Wendy’s franchisees indicate that sales have been trending sequentially higher in 3Q versus 2Q. We believe the company is about to announce the end of the company’s Sisyphean breakfast initiative after a prolonged “testing” phase. Given the capital demands on the company over the next few years as it invests to upgrade its asset base, shifting capital from the distraction that has been breakfast is a positive. The tail is less certain as it will take years for the system to rejuvenate the asset base and push out the older franchisees that don’t want to make the necessary investments to bring the asset base in line with contemporary industry standards..

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

 

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

“Plenty of mixed messages out there - your job is to balance them and remain sane” -@KeithMcCullough

 

QUOTE OF THE DAY

“If you put the federal government in charge of the Sahara desert, in 5 years there’d be a shortage of sand.” -Milton Friedman

  

STAT OF THE DAY

$16 million, the amount of money that separates the NFL owners and referees from reaching a conclusion to their standoff

 


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