• run with the bulls

    get your first month

    of hedgeye free


OFS: Energy Expectations

The onshore oilfield services (OFS) industry has weaker fundamentals than the consensus currently believes and valuations are still too high for companies like Baker Hughes (BHI) and Flotek Industries (FTK). Coinciding with our #EarningsSlowing theme, as OFS companies report for Q3, they could guide lower for 2013. Energy Analyst Kevin Kaiser lays out his case:


Nearly every business line that services the North America land oil and natural gas E&P sector is oversupplied due to equipment overbuild and slowing demand.  The industry could face years of excess capacity and weak profit margins.  Capacity utilization for high end drilling rigs and hydraulic fracturing equipment is now in the mid-80’s by our estimates, down from the high-90’s in 4Q11 and 1Q12.



OFS: Energy Expectations  - energyslowing



As you can see in the above chart, revenue growth expectations are lower for 2012 and 2013 compared with 2011. Margin compression and negative top line growth will likely continue for these companies. We’re not ready to get long these stocks yet, even after post-earnings pullbacks. When consensus estimates come down,


Upping forecast to 3-9% growth for September


As expected, average daily table revenues dropped off considerably following Golden Week, but is still up 20% over last year.  We are now projecting YoY GGR growth of 3-9% for the full month of October.  Remember that October of 2011 was a monthly record and up 42% over October 2010.  Hold was also above normal last year.  This is a much more difficult comparison than either November or December so we are expecting sequentially accelerating growth. 




For market share, MPEL, Galaxy, and LVS seem to be enjoying the strongest month relative to trend.  WYNN recovered somewhat but still remains well below trend.  MGM has also lost share.



European Banking Monitor: European Financial Swaps Mostly Tighter

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .


Key Takeaways:


*Sovereign Swaps around the world were largely flat week-over-week with the largest single move coming from Ireland, where swaps tightened 28 bps to 253 bps. Spain and Portugal saw their swaps widen by 4 and 8 bps, respectively, while France and Italy saw their swaps tighten by 4 and 8 bps, respectively.


On OMTs Reporting: The ECB has stated that Aggregate Outright Monetary Transaction holdings and their market values will be published on a weekly basis and the average duration of Outright Monetary Transaction holdings and the breakdown by country will take place on a monthly basis. There is no indication that the OMTs has been initiated to date.



If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





European Financials CDS Monitor – It was a fairly uneventful week for default swap action on European banks. The trend was broadly lower (swaps tightened) with a median improvement of 10 bps WoW, and an average decline of 6 bps. Overall, 28 out of 37 European reference entities we track tightened.


European Banking Monitor: European Financial Swaps Mostly Tighter - 11. banks


Euribor-OIS spread – The Euribor-OIS spread tightened by 1 bp to 12 bps, and continues to make new, multi-year lows. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 


European Banking Monitor: European Financial Swaps Mostly Tighter - 11. euribor


ECB Liquidity Recourse to the Deposit Facility – This series has been generally trending lower since July of this year. The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  


European Banking Monitor: European Financial Swaps Mostly Tighter - 11. facility

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.

Taking Risks







When Felix Baumgartner dove from the edge of space yesterday for the Red Bull Stratos event, he certainly knew the risks involved and how to manage them accordingly. Risk management is a process that can be applied outside of financial markets and Baumgartner’s endeavor is indicative of that. 


Looking at our signals for the various asset classes we cover this morning, we’ll continue to trade things like gold in the $1 range and the S&P 500 between 1. Staying within your parameters is the key to success - be it the market or jumping out of a balloon 24 miles high in the sky.




As we’ve said before: get the US dollar right and you’ll get a lot of other things right. That is the case early this morning as the US dollar made a move to the upside, taking commodity prices down with it. Oil, gold and the euro have all fallen materially and should the dollar have some more chutzpah in it to travel higher, expect more downside for commodities. After all, some commodities took a beating last week with copper down -2.2% and gold down -1.4%. Remember the Bernanke Correlation. The Fed is busy devaluing the dollar and driving up commodity prices. When the Fed is out of bullets and pondering what to do next and if Mitt Romney is elected President, there's a chance we could actually get back to strengthening our currency on a long-term basis.






Cash:                Flat


U.S. Equities:   DOWN


Int'l Equities:   Flat   


Commodities: Flat


Fixed Income:  UP


Int'l Currencies: Flat  








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.

  • 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



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.

  • TAIL:      LONG







“What have we learned? Deadly beast? $222 trillion notional derivatives now held by FDIC insured US banks vs $201 trillion when Lehman failed” -@Convertbond




“Silent gratitude isn't very much use to anyone.” -Gertrude Stein




128,000 feet above earth. The distance Felix Baumgartner jumped from his capsule setting new world records in the Red Bull Stratos event.




TODAY’S S&P 500 SET-UP – October 15, 2012

As we look at today’s set up for the S&P 500, the range is 26 points or -0.67% downside to 1419 and 1.15% upside to 1445. 













  • ADVANCE/DECLINE LINE: on 10/12 NYSE -830
    • Decrease versus the prior day’s trading of 909
  • VOLUME: on 10/12 NYSE 624.50
    • Decrease versus prior day’s trading of -3.43%
  • VIX:  as of 10/12 was at 16.14
    • Increase versus most recent day’s trading of 3.53%
    • Year-to-date decrease of -31.03%
  • SPX PUT/CALL RATIO: as of 10/12 closed at 2.13
    • Up from the day prior at 1.72


BONDS – US Treasuries don’t care much for the up EuroStoxx, up SP Futures thing; 10yr yield hasn’t budged a beep this morning after falling back to 1.66% from 1.74% last week. Lower-highs US stocks as bonds make higher-lows. #GrowthSlowing, globally.

  • TED SPREAD: as of this morning 23.25
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.67%
    • Increase from prior day’s trading of 1.66%
  • YIELD CURVE: as of this morning 1.41
    • Up from prior day’s trading at 1.40

MACRO DATA POINTS (Bloomberg Estimates)

  • 8am: Fed’s Lacker at NABE in New York
  • 8:30am: Empire Manufacturing, Oct., est. -4.8 (prior -10.41)
  • 8:30am: Advance Retail Sales, Sept., est. 0.8% (prior 0.9%)
  • 8:30am: Retail Sales Ex-Autos, Sept., est. 0.6% (prior 0.8%)
  • 10am: Business Inventories, Aug., est. 0.5% (prior 0.8%)
  • 11am: Fed to buy $4.25b-$5.25b notes due 10/31/2018-8/15/2020
  • 11:30am: U.S. to sell $32b 3-month bills, $28b 6-month bills
  • 12:45pm: Fed’s Dudley in Virginia on economy
  • 1:10pm: Fed’s Bullard in St. Louis on economy
  • 8:30pm: Fed’s Williams in San Francisco on economy


    • House, Senate not in session
    • Congressional candidates, political action committees file quarterly report to Federal Election Commission, as will Romney Victory, the joint fundraising committee for GOP nominee Mitt Romney, Republican National Committee, state parties
    • U.S. Chamber of Commerce unveils International Index of Energy Security Risk on global markets, 9am


  • Softbank agreed to pay $20.1b to buy a 70% stake in Sprint
  • U.S. retail sales probably rose in Sept. for a 3rd month
  • Greece’s 10-yr yield falls to lowest since debt restructuring
  • China’s exports, money supply grew more than est. in Sept.
  • Japan said to plan $2.5b Renesas bid as early as Nov.
  • Bank of Israel Governor Stanley Fischer said the world is “awfully close” to a recession
  • “Taken 2” top movie for 2nd weekend with sales of $22.5m
  • Douglas Holding receives $1.9b bid from Advent-controlled companies
  • Apple appeals Tokyo court ruling on Samsung patent case
  • Lifetech Scientific Investor sells 19% stake for HK361m
  • Credit card monthly charge-offs, delinquencies to be released
  • Verizon begins defense of $9.5b trial on Idearc spinoff
  • Nike, RadioShack, Anheuser-Busch Stand by Armstrong: FT


    • Citigroup (C) 8am, $0.97 - Preview
    • Gannett (GCI) 8:30am, $0.53
    • Charles Schwab (SCHW) 8:45am, $0.17
    • Packaging Corp. of America (PKG) 5pm, $0.56
    • Valmont Industries (VMI) 5:30pm, $2.05
    • Brown & Brown (BRO) After-mkt, $0.35


  • Oil Trades Near Four-Day Low Amid Global Economic Growth Concern
  • Bullish Wagers Drop to Eight-Week Low Before Rally: Commodities
  • Copper Erases Decline as Buyers in Europe Take Advantage of Drop
  • European Naphtha Cargoes Shipped to Asia Set to Rise in October
  • Gold Declines With Commodities; Silver Falls to a One-Month Low
  • Soybeans Drop Below $15 for First Time Since July as Crops Slide
  • Cocoa Falls Before U.S., Europe Processing Data; Sugar Retreats
  • LME’s O’Hegarty Says a Lot of Regulation Happening in ‘Hurry’
  • U.S. Plunge in Gas Drilling Means $1 Billion Lost Profit: Energy
  • China Boosts Soybean Imports as Reduced Supplies Spur Purchases
  • Qatar Is Favorable to Glencore-Xstrata Deal, Prime Minister Says
  • Potash Inventory Up 50% in Brazil, 33% in India Through August
  • Silver to Extend Drop Before Rally Resumes: Technical Analysis
  • Tropical Storm Rafael Nears Hurricane Strength in Atlantic
  • LME’s Martin Abbott Expects Record Trading Volume This Year











GERMANY – snapped TRADE line support of 7316 last wk and is struggling to get back above that this  morn despite the no-volume rally in European Equities to start the wk; EuroStoxx600 was -1.7% last wk and we’ve seen these Monday rallies in Europe fade in recent weeks, so watching levels here will be important.






KOSPI – continued to struggle overnight, down another –0.4% and at 1925 is now decisively below our 1976 TRADE line of resistance; like Tech (XLK), which is down -3.5% in the last mth, this is a new growth scare for what was working.










The Hedgeye Macro Team






Insanely Great

This note was originally published at 8am on October 01, 2012 for Hedgeye subscribers.

“This country is insanely great.”

-Steve Jobs


That’s what Steve Jobs told President Obama at a fundraising dinner in California in February of 2011. He went on to add that what he was worried about “is that we don’t talk enough about solutions.”


I disagree with Jobs on the 2nd part of that statement. America’s academic and political elite talk plenty about solutions. What worries me is that they’re always talking about government solutions.


Jobs’ aforementioned quote comes at the end of the Introduction in The 4% Solution where James Glassman writes “that government needs to get out of the way of enterprise for growth to take off.” I like that. What I don’t like is that the rest of the book goes on and on about more ways the government can help.


Back to the Global Macro Grind


To review last week’s US Economic data: Big Government Intervention continues to A) shorten economic cycles and B) amplify market volatility. The stock market isn’t the economy.


If you think the stock market is the economy, we’ll that didn’t look very healthy last week either. It was the biggest down week for stocks since June and, since Bernanke’s most recent Policy To Inflate top, US stocks are down for 8 of the last 10 days.


Why? Economic Gravity can’t be “smoothed” away by government solutions:

  1. US GDP Growth for Q2 of 2012 was reported last week 69.27% lower than where it was 6 months ago
  2. Chicago’s Purchasing Managers Index (PMI) report for SEP dropped -6.2% mth-over-mth in SEP to 49.7
  3. Within the PMI report, New Orders and Employment dropped from 54.8 and 57.1, to 47.4 and 52, respectively

Whether you want to talk to me about Q2 or the last month of Q3, from a US growth perspective, that’s just nasty. On the inflation front, the news wasn’t much better. Prices Paid (within the same PMI report for September) ripped higher from 57 to 63.2!


Repeat after me: Policies To Inflate Slow Growth. Period.


Plenty a Keynesian academic advisor to Obama will continue to hide from that 1970s like conclusion, until they can’t. Maybe that’s why Romney is finally distancing himself from Harvard Keynesian Economist (and advisor) Greg Mankiw this morning.


The #2 Most Read story on the Economy tab of Bloomberg.com this morning: “Romney Bashing Bernanke Rejects Mankiw’s Monetary Views.” That doesn’t mean Romney is going to be President. It just means he just found a way to land a punch.


Back to the US Economic Data. Here’s how US GDP Growth fell -69.27% in the last 6 months:

  1. Headline quarterly GDP fell from 4.10% in Q411 to 1.26% in Q212
  2. Consumer Goods fell from 1.29% in Q411 to 0.08% in Q212
  3. Fixed Investment fell from 1.19% in Q411 to 0.56% in Q212
  4. Inventories fell from +2.53% in Q411 to down -0.46% in Q212
  5. Exports minus Imports didn’t do a darn thing to move the needle

The Obama/Bernanke money printing theory suggests that if A) you devalue your currency, B) you’ll see “exports” rise. Whereas, in the real world, when you print money A) input + consumer costs rise, and B) real-inflation-adjusted growth slows.


Adjusting for inflation is annoying to government guys who take car service to work because they don’t have to pay for gas or that pastry spread awaiting them at their next Washington meeting. That must be why the aforementioned Real GDP print only implies a +1.52% “Deflator.”


What’s shocking (and sad) is that the US Government’s “Deflator” (the number they subtract from the nominal, inflated, growth in order to print the “real” number) has been marked down by more than 27% since Q4 of 2011 AS PRICES INFLATED!


If Housing was really “back”, shouldn’t we be seeing that in the rental component of US Government reported “inflation”? How about Prices Paid rising +11% in last month’s PMI report alone? Or how about oil prices +30% off the YTD lows, +160% since 2009?


Nope. On the margin, Bernanke sees none of it impacting consumption or costs. No inflation. Touchdown Seahawks!


In a country that used to be considered Insanely Great, I don’t have to wonder how America’s next innovator likes them Apples. We can do a lot better than lying to people. Progress starts with telling people the truth. It’s only from there that we can move forward.


My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1770-1783, $110.61-112.98, $79.41-80.31, $1.27-1.29, 1.59-1.70%, and 1432-1451, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Insanely Great - Chart of the Day


Insanely Great - Virtual Portfolio

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.