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Manheim Index Under Pressure?

The Manheim Index of Used Car Values rose in October by 1% on a month-over-month basis, an improvement but is still trending negative on a year-over-year basis. As of November 1, new vehicle inventory levels have been below 60 days (on a 12-month rolling basis) for the longest period ever. Low inventory in new auto sales means there’s a strong market there, putting pressure on used car sales.

 

Manheim Index Under Pressure?  - Manheim Index vs SPX normal

 

Why do used car sales matter? Because the Manheim Index historically correlates closely to the S&P 500 and financials (XLF). Pressure on the used car market could be a harbinger for things to come in the broader market.

 

Manheim Index Under Pressure?  - Manheim Index vs XLF normal

 

Manheim Index Under Pressure?  - Manheim Vs SPX normal


TUMI: How Low Can You Go?

Tumi Holdings (TUMI) looks weak right now and with the broader market selling off, it’s tempting to jump in and buy it. It’s important to note that TUMI just fell below its critical level of support at the TREND duration; we don’t see any support until the $17 level, so if you’re able to put temptation aside, you can likely snap up TUMI at a much lower price.

 

TUMI: How Low Can You Go?  - tumi


Buying On Red

Client Talking Points

Buy 'Em

The old adage of “buy on the low, sell on the high” still rings true these days. At Hedgeye, we’re buyers when the market is tanking and people are forced to sell. Basically, you’re in one of two camps: you’re either holding a lot of cash or you’ve got a buy list with names you’re ready to pick up on market weakness. We’re in the latter camp and today, we’ll be looking to pick up a few new names. We have a process and we stick to it. Right now, our signals are suggesting we buy stocks and sell bonds, so we’re going to go forward and do just that.

 

Think back to the 2000 bubble when it popped and everything went from triple digits to single digits in a matter of weeks (or delisted entirely). Those who took out their proverbial wallet and started buying on the low did what was right and generated a profit more than likely. It’s the same thing here, courtesy of post-election cynicism that has investors all riled up.

The Name's Bonds

Skyfall and 007 aside, the recent bullish bias in bonds has been quite obvious over the last several weeks with our Growth Slowing theme building day by day. With the 10-year Treasury only offering a yield of 1.61%, we think bonds are overbought here and the time is nearing to sell ‘em like you mean it. 

Asset Allocation

CASH 55% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
TCB

After a long downward slide, TCB has finally turned the corner. The margin has stabilized after the balance sheet restructuring. Loans are growing thanks to the equipment finance business. Non-interest income is more likely to go up than down going forward, a reversal from the past 18 months. Credit quality has a tailwind from a distressed housing recovery in TCB’s core markets: Minneapolis, Detroit and Chicago. On top of this, the CEO, Bill Cooper, is one of the oldest regional bank CEOs, which raises the probability that the bank will be sold. Expectations are bombed out at this point, so we think it’s time to move from bearish to bullish on TCB.

IGT

There is improving visibility on 20%+ EPS growth with P/E of only 11x with better content leading to market share gains. New orders from Canada and IL should be a catalyst. Additionally, many people in the investment community are out in Las Vegas at the annual slot show (G2E) and should hear upbeat presentations by management.

 

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.

Three for the Road

TWEET OF THE DAY

“Becky is grilling a $JCP analyst right now on Sqwawk. Sad to see people defend a name like this.#Sinking_ship.” -@HedgeyeRetail

QUOTE OF THE DAY

“Ambition is a poor excuse for not having sense enough to be lazy.” -Edgar Bergen

STAT OF THE DAY

JC Penney Q3 Same Store Sales fall 26.1%


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.

NOVEMBER (POST-SANDY) CRUISE PRICING

Some discounting but overall still solid pricing

 

 

Various Caribbean and Europe itineraries saw some discounting in the last month, but that was offset by pricing improvements in other regions.  Costa pricing remains steady in Europe while its venture into Asia has garnered solid pricing.  We see pricing strength in the very close-in Caribbean bookings for CCL’s F4Q.  Overall, F1Q pricing for RCL and CCL continue to exhibit weakness but both companies stressed F1Q will be a difficult quarter due to tough comps pre-Costa Concordia.  The good news for F1Q is that Asia Pacific/South America/Mexico account for ~30% of the total itineraries and those regions have had better pricing.  For early F2Q, pricing trends improved for Alaska, Asia Pacific and Mexico while Europe pricing remained status quo in November.      

 

While the ‘Sandy and Athena’ card could be effectively used by Carnival and Royal Caribbean to mask weak F1Q 2013 guidance, the rest of 2013 remains to be seen until the upcoming Wave Season.  Although there will surely be bumps along the road,  we continue to be encouraged by the pricing stability out of Europe, a relatively low capacity environment and better visibility due to higher booking volumes.

 

Here are some conclusions from our cruise pricing survey completed this week.  The charts below track pricing trends on a relative basis—i.e. prices relative to that seen on the last earnings call (RCL – Oct 25, CCL –Sept 25).

 

 

FQ4 2012

  • Caribbean
    • Pricing was mixed in November.  For the very last-minute bookings, the Carnival brand continues to improve on pricing in spite of Sandy.  RCL brand pricing wasn’t so lucky but given Celebrity’s strength pre-Sandy, the Caribbean may still retain the top spot in yield growth.
  • Europe
    • Most of the Costa itineraries maintained their pricing; discounting in a couple of Spanish itineraries pushed overall pricing a tad lower. 
  • Asia Pacific
    • Not much movement from October to November

 

FQ1 2013

  • Caribbean
    • Royal and Celebrity pricing both slipped in November.  While modestly negative YoY, Carnival’s pricing improved slightly in November.  
  • Europe
    • Cunard pricing dropped as this brand has had trouble maintaining price in the past few months
  • Asia Pacific
    • Royal and Azamara both saw a tick up in November
  • South America
    • Overall positive, as strong Royal brand pricing offset weakness in Celebrity pricing
  • Mexico
    • Carnival brand remains steady, while Holland improved in November.

 

FQ2 2013

  • Caribbean
    • RCL brand pricing was unchanged, while Carnival brand pricing was slightly lower.
  • Europe
    • RCL:  Mixed—Prices were raised for the RCL brand while lowered for Celebrity.  The changes, however, are not material.  Celebrity pricing continues to be better than Royal on a YoY basis.
    • CCL:  not much price change on Costa. 
  • Alaska
    • RCL:  Celebrity is lower but trend is improving.
    • CCL:  Mixed—Holland prices are lower YoY but the trend is improving while Princess prices are higher YoY but the trend is declining.
  • Asia Pacific
    • RCL:  While only a handful of itineraries, the trend has been positive.
    • CCL:  Princess is treading along while Costa is nicely higher.
  • South America
    • Fairly stable pricing
  • Mexico
    • Strong pricing in the Carnival brand

NOVEMBER (POST-SANDY) CRUISE PRICING - cc1

 

NOVEMBER (POST-SANDY) CRUISE PRICING - cc2

 

NOVEMBER (POST-SANDY) CRUISE PRICING - cc3

 

NOVEMBER (POST-SANDY) CRUISE PRICING - cc4

 

NOVEMBER (POST-SANDY) CRUISE PRICING - cc5

 

NOVEMBER (POST-SANDY) CRUISE PRICING - cc6



Buy The Flush

“Buying is a profound pleasure.”

-Simone de Beauvoir

 

You want to buy when people are forced to sell.

 

If you proactively prepare for these manic market moments: A) you have cash and B) your buy list is locked and loaded. While your shopping list may not be as long as it was 2 months ago, that’s ok. I’m picky about what I buy too.

 

Back to the Global Macro Grind

 

In New Haven, CT, rain, wind, or snow, this is what we call The Flush. That’s when you “break” a couple of the moving monkey lines (50 and 200 day simple moving averages) and you get to capitalize on your competition’s emotional selling mistakes.

 

I’m not saying “buy everything.” Neither am I saying everything is fixed. I am simply saying that everything in markets has a time and price. From a purely quantitative perspective, this morning’s Macro Grind is signaling the best time to sell bonds and buy stocks in 2 months.

 

Why?

  1. BONDS – US Treasuries (10yr immediate-term TRADE oversold at 1.60% yield) and German Bunds are overbought
  2. CURRENCIES – The Euro (EUR/USD) is immediate-term TRADE oversold at $1.27 (still bearish TREND)
  3. STOCKS – The SP500 is holding my long-term TAIL risk line of 1364 support

*Note: I don’t use the moving monkey other than for entertainment purposes.

 

Also note that the main reason for the word “buy” being in the title of my note is not “China has bottomed.” As we have said, multiple times, China’s bottom will be a process, not a point. The Shanghai Composite was just down for the 5th day in a row (down -16% since growth slowing began, globally, in March). Peculiar looking bottom to me.

 

As a Chaos Theorist who uses Bayesian conditional probability theory in my decision making process, it’s also critical to note that if we snap my 1364 TAIL risk line today (and close there), I reserve my Canadian and US Constitutional right to change my mind.

 

But, for now – let’s not stress out about that. We don’t have to. We didn’t buy the Bernanke Top (September 14th). Neither do we have to be up +32% (from here) to get back to break-even buying AAPL at its all-time high.

 

We’ve earned the opportunity to be patient (picky) here, and take our time.

 

Top 3 Long Ideas?

 

1.   International Game Tech (IGT) – Always start with what’s working. In a growth and #EarningsSlowing market like this, you should pay more for the growth that you can find. Visibility matters. Todd Jordan said IGT delivered the bacon last night, beating handily on both the top and bottom line, so buy more (email for Jordan’s note)

 

2.   Starbucks (SBUX) – Back to the old well works for me, big time – especially now that one of America’s top capitalist innovators (CEO Howard Schultz) looks forward to selling you his Verisimo machine domestically for holiday, and continues to have one of the most visible expansion plans, globally, of a legal drug. Coffee price deflation is a big margin kicker too.

 

3.   Federal Express (FDX) -  As the world bakes a potential recession into the expectations cake, you want to be buying high-quality (non-mining capex bubble) cyclicals that have already guided down. Especially with our short Oil call working, the margin of safety buying FDX improves (email for Van Sciver’s slide deck presentation)

 

You’ll also note that my Top 3 Long Ideas are US Equities. That could change if German, Dutch, or Taiwanese Equities flash my immediate-term TRADE oversold signal. They have not yet. The Post Election Flush, is very American.

 

Whoever bought US stocks at the YTD top needs to be up, a minimum +7.5% (from here), to get back to that September 14th break-even. With the Russell2000 down -8.3% over the same 2 months, you’d have to be up +9% to get back to break-even there. With real money, timing matters. Return of your money is geometric.

 

This is why we are so focused on earning your respect as the top risk management source you have in your inbox every morning. Buying is a pleasure. We get it. But someone also needs to tell you when to sell. Put another way, as one of my best investors reminded me in NYC yesterday, “Keith, your job isn’t to make me rich – it’s to keep me rich.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, UST 10yr Yield, IGT, SBUX, FDX, and the SP500 are now $1, $105.22-108.44, $80.41-81.12, $1.27-1.29, 1.60-1.72%, $12.69-13.73, $49.27-54.21, $89.21-91.98, and 1, respectively.

 

Enjoy the weekend and best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buy The Flush - Chart of the Day

 

Buy The Flush - Virtual Portfolio


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