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Buying On The Dip

BUYING ON THE DIP

 

 

CLIENT TALKING POINTS

 

BUYING ON THE DIP

We go through a risk management process on a daily basis. We look at the market and make our decisions based on what it has done. Apple (AAPL) was oversold, so we bought Tech (XLK). Utilities (XLU) have been one of the top performers since the Bernanke top, so we bought that as well. And we bought one more asset class that’s correlated to the US dollar - see below for that one.

 

 

GOLDENEYE

We’ll leave James Bond be for now, as we’re more interested in the precious metal itself. We bought gold in the Real-Time Alerts yesterday because the US dollar signaled it was immediate-term TRADE overbought. That means we think the USD is ready to make a move to the downside. Dollar down, gold up. It’s pretty simple. Get the dollar right, you get other things right. The name of the game is correlation.

 

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ASSET ALLOCATION

 

Cash:                DOWN

 

U.S. Equities:   UP

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  DOWN

 

Int'l Currencies: Flat  

 

 

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TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • 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

 

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

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

  

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THREE FOR THE ROAD

 

TWEET OF THE DAY

“these Las Vegas Strip numbers are even worse than the down 1% would indicate. high margin slot revs down 9%. bad for $MGM” -@HedgeyeSnakeye

 

 

QUOTE OF THE DAY

“No one means all he says, and yet very few say all they mean, for words are slippery and thought is viscous.” -Henry Adams

                       

 

STAT OF THE DAY

Greek unemployment rate hits record high of 25.1% in July

 

 

 


WHAT HAPPENED TO THE FAVORABLE CALENDAR?

Takeaway: September is coming in pretty weak almost across the board for domestic gaming despite an extra weekend.

Down a Friday but up a Saturday and Sunday, we would’ve expected a 2-4% calendar boost.  Yet, out of the six states that have released September gaming revenues, only Illinois – yes, Illinois – posted same-store revenue growth.  Pennsylvania managed to eke out total gaming revenue growth but same-store growth in that market was negative.  What’s going on?

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart1

 

Clearly, consumers are stretched but gaming seems to be underperforming other consumer sectors.  We would argue that trends are sequentially getting worse. See chart below.  Adjusted for seasonality, July and August were worse than the trend projected, and September looks like more of the same. 

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart2

 

Clearly there is more going on than just a soft consumer.  Here are some additional factors acutely impacting the gaming sector:

  • New competition and market saturation – We’ve seen same-store revenues suffer hits from new properties, indicative of market saturation.  New casinos in Ohio, PA, and Missouri are probably having an impact
  • Gas prices – We’ve shown statistically that higher gas prices negatively impact regional gaming revenues
  • Higher slot hold have masked lower volumes – Slot hold percentage has been on a consistent uptrend for years.  We think higher “pricing” is unsustainable.  Volumes have been under pressure for years.
  • Younger generations not playing slots – We’ve shown that the average age of the slot player continues to increase among other discouraging demographic trends.  The fact is, the post baby boomer generations are not playing slots.  This is a problem longer-term but may be impacting slot play currently.
  • Gaming is more discretionary than other consumer sectors

September probably needed to be a strong month for most of the regional gaming companies to make their Q3 earnings.  It doesn’t look like it materialized so there is near-term earnings risk.  We will be putting out earnings previews over the next week and we expect to be below consensus for most of the regional gaming companies.


THE M3: MGM HK SUIT

The Macau Metro Monitor, October 11, 2012

 

 

MGM CHINA WINS DEBT SUIT AGAINST HK BUSINESSMAN Macau Business

A Hong Kong court sided with MGM Grand Paradise, a subsidiary of MGM China, in a lawsuit over a gaming debt of HK$9.3 million (US$1.2 million) incurred by Chiu Tak Wah, a director of HK-based Richful International Investment Ltd.  Chiu had received a line of credit of HK$10 million and spent HK$9.3 million gambling but he did not pay back the loan.  When MGM resorted to the Hong Kong courts to get the money back, Chiu appealed, arguing that Macau would be the appropriate forum for the proceeding.  According to the judgment handed out on Monday, judges stressed that the businessman “himself has agreed that the loan agreement may be enforced by the plaintiff in the jurisdiction where his assets may be found.”


Early Look

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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 11, 2012


As we look at today’s set up for the S&P 500, the range is 19 points or -0.25% downside to 1429 and 1.08% upside to 1448. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 10/10 NYSE -737
    • Increase versus the prior day’s trading of -1639
  • VOLUME: on 10/10 NYSE 590.82
    • Decrease versus prior day’s trading of -3.54%
  • VIX:  as of 10/10 was at 16.29
    • Decrease versus most recent day’s trading of -0.49%
    • Year-to-date decrease of -30.38%
  • SPX PUT/CALL RATIO: as of 10/10 closed at 1.67
    • Down from the day prior at 2.35

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 24.62
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.69%
    • Increase from prior day’s trading of 1.67%
  • YIELD CURVE: as of this morning 1.43
    • Up from prior day’s trading at 1.41

MACRO DATA POINTS (Bloomberg Estimates)

  • 8:30am: Import Price Index M/m, Sept., est. 0.7%
  • 8:30am: Trade Deficit, Aug. est. -$44b (prior -$42b)
  • 8:30am: Initial Jobless Claims, Oct. 6  est. 370k
  • 8:30am: WASDE crop statistics
  • 9:45am: Bloomberg Consumer Comfort, Oct. 7 (prior -36.9)
  • 10am: Bloomberg U.S. Economic Survey for Oct.
  • 10am: Fed’s Stein speaks on monetary policy in Washington
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 11am: DoE energy inventory statistics
  • 11am: Fed to buy $750m-$1.25b notes due 1/15/2019-2/15/2042
  • 11am: U.S. announces plans for 30-yr TIPS auction
  • 11:15am: Fed’s Raskin speaks on gender equality panel in France
  • 12:30pm: Fed’s Plosser speaks on economy in Pennsylvania
  • 1pm: U.S. to sell $13b 30-yr bonds in reopening
  • 2pm: Tentative release time for budget statement for end of fiscal 2012
  • 6pm: Fed’s Bullard meets with reporters in St. Louis

 GOVERNMENT:

    • SEC holds a closed meeting in enforcement matters, 2pm
    • U.S.-China Economic and Security Review Commission begin two-day  meeting to prepare 2012 annual report to Congress. Agenda includes: trade and economic relationship, 9am
    • Commerce Dept., International Trade Administration meet to discuss environmental technologies trade policies, 9am
    • Former Treasury Secretary Lawrence Summers speaks at Center for American Progress, 1:30pm
    • Energy and Cleantech Conference, with speakers including Green Mountain Energy Co. CEO James Steffes, 9:30am
    • NASA conference call w/ Curiosity updates, 2pm

WHAT TO WATCH:

  • Spain debt is downgraded to one level above junk by S&P
  • U.S. trade gap probably widened in Aug. on higher crude prices
  • Korea joins Brazil cutting interest rates as global economic growth slows
  • AIA to buy ING’s Malaysian insurance unit for $1.73b cash
  • Japan machinery orders slide 3.3% as economy risks shrinking
  • Treasuries hold gains before U.S. trade data, 30y debt auction
  • JPMorgan CFO Braunstein said to weigh return to investment bank
  • United Tech unit says orders for new turbo-fan engine may double
  • Hewlett-Packard overtaken by Lenovo as world’s top PC maker
  • Chamber, 2 oil trade groups sue SEC over foreign payment rule
  • Apollo’s Realogy IPO raises $1.08b pricing at top end
  • Telsa gets $10m California grant for electric SUV project
  • Goldman doesn’t need more deposit funding: COO Cohn

EARNINGS:

    • Fastenal (FAST) 7am, $0.37 - Preview
    • Safeway (SWY) 9am, $0.43 - Preview
    • Novagold (NG CN) Before-mkt, C$(0.06)
    • JB Hunt Transportation Services (JBHT) 4pm, $0.66
    • Bank of the Ozarks (OZRK) 6pm, $0.55

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

GOLD – bought it yesterday as the USD (up on Romney mo and Europe slow) is immediate-term TRADE overbought; any let down in USD strength gets the momentum trade back into commodities and stocks. Correlations are surreal. Risk range in Gold is now 1.

  • Oil Rises as Mideast Tensions Outweigh Forecast of Rising Supply
  • Lead Tops Metal Returns as Shortages Set to Emerge: Commodities
  • Bakries Offer to End Rothschild Bumi Dispute by Acquiring Assets
  • Gold Gains on Renewed Europe Debt Concern After Spain Downgrade
  • Copper Advances as Brazil and South Korea Cut Interest Rates
  • Soybeans May Climb 10% on Rising Trendline: Technical Analysis
  • Robusta Coffee Extends Rally Before Options Expiry; Sugar Drops
  • Record Gas Switching Cuts Glut as Mizuho Sees $4: Energy Markets
  • Iron-Ore Swaps Extend Decline as Chinese Buying Seen Weakening
  • Food Industry Vulnerable to Future Corn, Rice Supply Disruptions
  • Aluminum Stockpiles in Japan Expand to 8-Month High in September
  • Commodity Head and Shoulders Means 13% Drop: Technical Analysis
  • Disputed Islands With 45 Years of Oil Split China, Japan: Energy
  • Soybeans Climb on Signs Demand Is Building as U.S. Supply Gains

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


SPAIN – finally getting an immediate-term TRADE oversold signal on the IBEX here this morn at 7609 on a very newsy Spanish downgrade; all this means is that they ask for the bailout sooner; sadly, that’s a bullish short-term catalyst, so just keep that in mind as EUR/USD holds $1.28 TRADE support.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


KOSPI – down another -0.8% overnight and broken on our TRADE duration isn’t new news this morning – it’s a leading indicator; South Korea cutting rates by another 25bps to 2.75% and the market not going up is new; you can have 10,000 global easings but, at a pt, the earnings cycle trumps the funny money – just like Q407-Q308.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 

 

 

 

 


Barking Buyem!

This note was originally published at 8am on September 27, 2012 for Hedgeye subscribers.

“A dog is not considered a good dog because he is a good barker.”

-Buddha

 

There are a lot of things I love about Eastern culture. One of them is the deep simplicity of their quotes. If I need to channel my inner-Buddha this morning to make a buy call, so be it.

 

Back to the Global Macro Grind

 

So, after a 41 handle (-2.8%) drop in the SP500 from the Bernanke “Buy Everything” top, US stocks have been down for 7 out of the last 8 days. I heard more crickets than I heard bulls yesterday. Weird.

 

Sometimes I like to bark. And sometimes that means my cage gets kicked by my central planning overlords too. But that’s ok. I’m just that dog in your life that never goes away. I have big teeth. And when I say “Buyem!” (with a smile), I kind of look like a little bull too.

 

“Buyem!”

 

That’s what my intraday note at 11:18AM EST was titled yesterday. In addition to the list of 7 long ideas I listed in yesterday’s Early Look note, we made the following moves:

  1. Covered Gold (GLD) at immediate-term TRADE oversold
  2. Bought Taiwan (EWT) at immediate-term TRADE oversold
  3. Covered Discover Financial (DFS) at immediate-term TRADE oversold
  4. Bought Consumer Discretionary (XLY) at immediate-term TRADE oversold
  5. Covered Burger King (BKW) at immediate-term TRADE oversold

In other words, when I start barking buy/cover or sell/short, it’s always based on the same repeatable process. Infrequently do I get all of my Global Macro signals at the same time as I get my bottom-up (single stock) signals. But when I do, that’s when I lean long or short. The process works both ways.

 

This is where I can get a lot better at this game, and I will. With more reps, mistakes, and successes, I’ve learned the game by playing it. Sure, some of my lovers out there will say “he does it with a paper portfolio”, and that’s fine. I hear them barking too. But I highly doubt they’d have the guts to show the entire world every move they’ve made for the last 5 years anyway.

 

From the day that I started this company, I’ve believed in one very simple set of Canadian-American principles: Transparency, Accountability, and Trust. I care less about the tone of my barking than I do the results. This game can be loud and it can get messy. Anyone who wants me to hold some high level of Ivy League gravitas wants me to be someone I am not.

 

Back to the why…

  1. Immediate-term TRADE oversold is as oversold does
  2. Immediate-term TRADE overbought in both Bonds (UST) and the Buck (USD), complimented that equity oversold signal
  3. Immediate-term TRADE overbought at VIX 17.37 was another critical intraday risk management signal

US Equity Volatility’s (VIX) inverse correlation to the SP500 is as relevant (some of the time) as SPY versus USD is. Never mind the pooch metaphors, those signals were yelling at me yesterday.

 

With my Correlation Risk signal in hand, I then looked forward at my Global Macro Calendar Catalyst playbook, which had the following bullish catalysts:

  1. Q2 US GDP report (this morning) will only add fuel to the Bernanke Bailout fire
  2. Both month and quarter-end markups for Q3 2012 are in play in between today and Monday
  3. China’s Golden Week (and 18th Party Congress) is pending for the next 2 weeks

That last one only matters in terms of the manic media’s perma-perpetuating of rumors about China “stimulus.” All it takes is for Chinese stocks to stop going down and they’ll say it’s because something big is coming. The Shanghai Composite got just that overnight, having one of its biggest bounces (off the lows) in weeks (+2.6%).

 

We have 12 LONGS and 3 SHORTS for this morning’s open. It’s probably fair to stop calling me a bear now – just call me a dog. You can pet and feed me with bullish data points. I won’t bite.

 

My immediate-term risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, 10yr UST Yield, and the SP500 are now $1756-1769, $106.41-111.44, $79.22-79.98, $1.28-1.30, 1.62-1.71%, and 1430-1455, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Barking Buyem! - Chart of the Day

 

Barking Buyem! - Virtual Portfolio



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