prev

Oil Sentiment Perspective

While no major change has occured in our key oil sentiment indicator, bullish sentiment is still correcting off its third spike in two years. On the downside, we’ve seen $80/bbl hold. Who knows when we’ll be able to break that? From a long-term perspective, it appears that hedge funds are still very bullish on crude oil. Between 1995 and 2000 the average net length was +15k contracts; between 2000 and 2010 it was +61k contracts; and the market has not been net short crude oil since 2003. 

 

Oil Sentiment Perspective  - oilsentiment


CAT: 9X Peak Earnings Is Not “Cheap”

Takeaway: 2012 now appears the "peak" of the EPS cycle for $CAT. At >9x peak EPS, this deep cyclical isn't cheap. 2013 EPS likely to head much lower.

CAT: 9X Peak Earnings Is Not “Cheap”

 

  • Revisions Negative:  This morning, we are seeing lots of revisions downward for CAT’s 2013 EPS.  Even though the company did not explicitly provide 2013 guidance for EPS, the commentary about mix and other trends suggest 2013 EPS will decline from 2012 record levels.  Flat sales and declining margins vs. 2012 imply lower 2013 EPS. 
  • How Much Lower?:  If the book-to-bill ratio of 0.69 in the quarter is any guide, 2013 EPS will head quite a bit lower than 2012.  That leaves 2012 as the “peak” in this cycle.
  • Peak EPS & Peak Multiple:  We dislike “peak multiple” valuation frameworks for a number of reasons (a multiple is just an inflexible implied DCF with all of the assumptions hidden, for one), but we would point out that deep cyclicals like CAT are unlikely to be seen as cheap at 9x peak EPS. 
  • Downhill:  In general, owning a deep cyclical right after “peak” earnings is unlikely to work out well. 
  • Orders Surprisingly Weak:  We found the weakness in CAT’s orders surprising yesterday – and we were very bearish on orders going in.  In retrospect, the significant declines in order activity probably drove CAT management to lay out their ultra-bearish scenarios at the MineExpo Analyst day.   Orders would have to rebound nearly 50% from the 3Q 2012 run rate for CAT just to hit its 2013 sales guidance, in our view. 
  • Better Industrials Longs:  We like many things about CAT the company: great products, good markets, good people etc.  The stock, however, seems a very bad long.  Many better Industrials are out there - see our Truck OEM Black Book on PCAR and our upcoming Novemeber 5th Black Book on Express & Courier Services for our take on better long ideas.

CAT: 9X Peak Earnings Is Not “Cheap” - btb

 

 

 

Jay Van Sciver, CFA

Managing Director


HEDGEYE RISK MANAGEMENT
120 Wooster St.

New York, NY 10012


 


Chinese Rebar Decline Continues

We like to compare the price of Brent Crude oil to Chinese steel rebar. Since the beginnning of 2012, there’s just been a massive drop in the price of both rebar and oil. And while oil got a legitimate bounce off the $90 level in June, rebar continued to head lower. Recently, there’s been a bounce in both rebar and Brent Crude, but we think it’s irrelevant as infrastructure spending is still on the decline. China isn't going to go on a building spree anytime soon.

 

Correlation does not equal causation, though this chart argues for Brent in the $70-80/bbl range. Something to think about. Rebar will have to climb higher and oil will have to head lower in order for these two to correlate closely again.

 

Chinese Rebar Decline Continues  - rebar


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

THE M3: S'PORE CPI

The Macau Metro Monitor, October 23, 2012

 

 

SINGAPORE INFLATION RISES TO 4.7% IN SEPTEMBER Channel News Asia

Inflation in Singapore accelerated in September, driven by higher transport and housing costs.  Data from the Department of Statistics showed that the consumer price index (CPI) for all items rose to 4.7% in September, from 3.9% in August.  A joint statement issued by the Monetary Authority of Singapore and the Trade and Industry Ministry said: "This pick-up had been anticipated in the August inflation report and was largely attributed to the surge in COE premiums in August." 

 


 

 



Singapore: Letting It Fall

Singapore is due for a down quarter on a year-over-year basis in terms of gross gaming revenue. Gross Lettings (paid and comped room nights) in Singapore were down almost 5% year-over-year quarter-to-date through August. Since gross gaming revenue and gross lettings track each other closely, you can guess that the GGR number will be ugly. 

 

Genting Singapore probably lost volume to Marina Bay Sands (owned by LVS). We think Q3 EBITA for Marina Bay Sands will be flat. Looking at the chart, it doesn't look good for Singapore for September or October if the trend keeps up.

 

Singapore: Letting It Fall - image001


The Fed Can't Fix It

THE FED CAN’T FIX IT

 

CLIENT TALKING POINTS

 

THE FED CAN’T FIX IT

The Federal Reserve is apparently capable of “fixing” the economy through quantitative easing. It can also “fix” the market through mortgage buybacks and through statements broadcast on TV that make traders go bananas. One thing the Fed can’t do, however, is smooth the corporate EPS cycle. Earnings season is proving to be a cautionary tale as large cap and mega cap companies report misses or offer lower guidance for 2013. You’ve been warned; the Fed won’t be able to skew this one. 

 

SLOWDOWN TAKING HOLD

Permabulls better start getting with the program and realizing the market doesn’t go straight up like a rocketship. GDP is down, earnings are awful and stocks are still expensive. To those who think stocks are still cheap, you should remember that “cheap” gets “cheaper.” And that’s what’s going to happen as we head lower into November. The election will no doubt act as an important catalyst for moving the market, but until then...

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                DOWN

 

U.S. Equities:   UP

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  Flat

 

Int'l Currencies: Flat  

 

 

_______________________________________________________

 

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

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“Obama bails out giants, erects barriers to entry, hands goodies to corporate friends. Media points to corp. profits as proof he's capitalist” -@TPCarney

 

 

QUOTE OF THE DAY

“You are not superior just because you see the world in an odious light.” -Vicomte de Chateaubriand

                       

 

STAT OF THE DAY

Hedge funds were up +1.04% for the month of September according to the Dow Jones-Credit Suisse Hedge fund Index.


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next