Positive Notes For US Banks

With many US large cap financials reporting earnings last week, reactions were essentially mixed for those participating in the stock market. However, the credit markets were delighted with earnings seeing them as a positive across the board. Credit default swaps tightened across the entire US financials complex, meaning that investors are less concerned with counterparty risk associated with the big banks like Citigroup (C), Goldman Sachs (GS) and Bank of America (BAC).



Positive Notes For US Banks  - BAC CDS



The positive notes in the credit market extended outside the US to Europe as well. The idea here is that financials have an embedded discount around counterparty risk and that investors in the stock market will soon play catch up to their peers in the credit market. In the intermediate-term side of things, be sure to keep an eye on the banks.


Priced In? SP500 Levels, Refreshed

Takeaway: To be, or not to be, priced in – remains the question.

POSITIONS: Short Industrials (XLI)


To be, or not to be, priced in – remains the question.


I don’t think the economy (#GrowthSlowing in Q1/Q2 or #EarningsSlowing here in Q3/Q4) has been priced into the stock market all year. But that’s just me. Some people think the Fed has had nothing to do with the stock market not being the economy. Right.


Finally, the storytelling is hitting a fork in the road. The economy is colliding with both sectors and stocks (one at a time), and now we’re hearing the pundits who missed calling growth and earnings slowing to begin with say “it’s priced in.” Right, right.


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


  1. Immediate-term TRADE resistance = 1442
  2. Intermediate-term TREND support = 1419


In other words, if and when fundamentals matter (they did Friday), there’s no reason why we shouldn’t test my 1419 line. Will that be this week, next, or in November? I don’t know. But the probability of that occurring is rising, not falling.


While some may forget the corporate margin cycle topping in Q3 of 2007, few will forget the SP500 was down -4.4% in November of 2007.  When the stock market was up “double digits YTD” in October 2007, a few things apparently weren’t priced in.


Keep your head on a swivel out there. Risk happens fast.




Keith R. McCullough
Chief Executive Officer


Priced In? SP500 Levels, Refreshed - SPX

VFC: Exhausted Revisions

V.F. Corporation (VFC) put up a decent quarter, beating on the EPS line but missing top-line due to weakness in Europe and a slowdown in The North Face brand. While the company’s SIGMA looks good, EPS revisions are exhausted and trending negatively for the company. If you're unfamiliar with VFC, they own a portfolio of popular brands including Timberland, The North Face, Nautica and Seven For All Mankind.



VFC: Exhausted Revisions - 10 22 2012 9 44 39 AM



After a five-year streak of upwards revisions of an average of 5-6% for FY12 on the print, VFC guided roughly in-line for the second quarter in a row. EPS have been the main factor where bears have gotten this stock wrong.  With increased spending to support growth, and continued challenges in key businesses, it’s tough to bank on real EPS upside aside from better FX rates. That’s not exactly a multiple enhancer.


We like VFC, but would begin to lighten our load here and use discretion when getting involved with the name. 

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

Healthcare: Analyzing The Data

Looking at our custom HRM Indices, you can see the relative performance for the S&P 500 versus Medicare Exposure and Domestic Revenue. It appears that consensus moves lower for 2012 and 2013 were too aggressive and explain the bounce off the June lows as you can see in the chart.


A few other important themes worth noting here include:

  • Results are coming in weaker across companies particularly those with exposure to Europe.
  • Regarding our Physician Utilization theme, and a 2H12 recovery, the theme appears delayed but intact, the important point to keep in mind is that Q3 reports reflect softness we saw across our datasets through the summer.
  • Medicare outperformance remains, but has been the biggest relative loser over the last few weeks, coinciding with Romney’s election odds rising.
  • Healthcare has been a relative outperformer into broader market declines, but the current set up is neutral.
  • Beat-Miss:  2Q12 was the ugliest quarter in aggregate for reported topline growth vs. consensus since 1Q09 for both Healthcare and SPX constituent companies. The beat-miss ratio for 3Q12 is currently running ~40%/60% for the broader market.  Given the significant & expedited drawdown in estimates post 2Q12, missing or barely beating conservative & already deflated estimates is not a particularly bullish growth signal.

Healthcare: Analyzing The Data  - image003


Healthcare: Analyzing The Data  - image009


Healthcare: Analyzing The Data  - XLV

Strength In Specialty Athletics

October-to-date sales are acclerating in the specialty athletics department. Strength in sales and strong results means we are taking up our numbers for Foot Locker (FL) and Finish Line (FINL).


Concerns over slowing growth in the athletic specialty channel as reflected by weekly footwear figures has been overstated in recent weeks. The latest read on monthly sales by channel confirm that the Athletic Specialty channel significantly outperformed our expectations.


Strength In Specialty Athletics  - image002


Strength In Specialty Athletics  - image001

PEYTO: Bullish On E&P

Peyto Exploration & Development (PEY.TO) remains one of our top North American E&P ideas. Hedgeye Energy Analyst Kevin Kaiser reiterated his bullish stance on the stock this morning, noting that the company has many positives going for it, including: 


-Growing NatGas production and reserves at the lows of the commodity price cycle


-The company has some of the most efficient capital spending among North American E&P and will employ its largest ever budgets for 2012 and 2013 to take advantage of this opportunity


-Deep inventory of drilling locations is underestimated/underappreciated


2013 looks to be a good year for Peyto with its large, capital efficient budget leading to explosive production and cash flow per share growth. We have been bullish since May 2012 and continue to remain bullish into the back half of 2012 and beyond.


PEYTO: Bullish On E&P  - p2

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.