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OZM: One Of The Best

We remain bullish on Och-Ziff Capital Management (OZM) as the stock remains undervalued and offers attractive performance. We’ve said it time and time again: management is competent and knows how to preserve capital while managing risk and generating returns in an environment where the big hedge funds are getting killed. The company returned +0.46% on its Master Fund in November, which is where roughly 70% of the company's assets under management reside. This latest print brings the year-to-date total on the Master Fund to +10.01%, which far surpasses the 2.57% YTD return on the HFRX Global Hedge Fund Index, and is only modestly below the 12.08% year-to-date return on the S&P 500. 

 

With the stock itself up +11.7% over the last three months, we expect OZM will continue to thrive but remain cautious about tax consequences related to the fiscal cliff. With no edge on the outcome of the negotiations, we prefer to sidestep the event risk and re-engage on the long side post the outcome.

 

OZM: One Of The Best - image001


NKE: Special Dividend No Brainer

Takeaway: With heavy insider ownership on top of a fat cash balance, $NKE is an obvious candidate for a special dividend.

We’re two weeks away from Nike’s quarter, and just over three weeks away from the deadline for the swarm of ‘special’ dividends that will fall into the 2012 tax year. There are factors for Nike that are worth considering.

  1. The company has about $3.2bn in cash, or $7ps, waiting to be deployed.
     
  2. There’s another $2bn in FCF over the next 12 months, or $4.40ps. Combined with current holdings, we’ve got net pro-forma cash balance of $5.2bn, or $11.40 per share. That’s 11.75% of NKE’s equity value.
     
  3. Though we still think that Nike is grossly under-levered with only $364mm in debt on a $15.1bn balance sheet, it’s unrealistic to think that it will take its cash to zero due to its sheer conservatism – especially in that it faces the same hurdles the same hurdles as other multi-nationals with repatriating cash with a tax penalty.
     
  4. But it has another characteristic that others do not…and that is the fact that management owns 21% of the stock, with Phil Knight himself owning 18% (with full control of the Board due to super voting rights in Class A/B share structure). Mr. Knight has been a very conservative seller of the stock over time, and sold hardly no shares since the first of several small 10b5-1s in 2005.
     
  5. We could comfortably leave Nike with $2.5bn in cash on the balance sheet over 12 months, leaving $2,000-$3,000 to distribute today. That accounts for around 5-6% of Nike’s current equity value. A $2bn dividend would be a $360mm paycheck for Phil Knight.

We don’t have a crystal ball as to the event or magnitude for NKE, but we see three distinct buckets of companies issuing these dividends. 1) Those that COULD, 2) Those that SHOULD, and 3) Those that THINK that they have the resources to do so, but will be regretting it in a year (like GES). Nike has ample opportunity for reinvestment in the business, but its ROE vs ROIC trend definitely suggests that it SHOULD give some back to shareholders.

 

NKE: Special Dividend No Brainer - 12 5 2012 12 45 53 PM


Hanging In: SP500 Levels, Refreshed

Takeaway: The SP500 continues to trade in a very tight Risk Range.

POSITIONS: Long Consumer Discretionary (XLY), Short Energy (XLE), Utilities (XLU) and Industrials (XLI)

 

Government catalyst ping pong. Fun. The SP500 continues to trade in a very tight Risk Range. After taking a peek below 1404 this morning, the ball popped right back up from under that water. Risk moves fast.

 

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

 

  1. Intermediate-term TREND resistance = 1419
  2. Immediate-term TRADE support = 1404
  3. Long-term TAIL support = 1366

 

In other words, a close below 1404 puts 1366 in play, fast. And a close > 1419 puts the pain trade back on the upside, faster.

 

In the meantime, the best I can do is buy red and sell green.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Hanging In: SP500 Levels, Refreshed - SPX


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.

PODCAST: Consuming The Market

On today’s morning investment call held for subscribers, Hedgeye CEO Keith McCullough discussed his reasons for buying the Consumer Discretionary ETF (XLY) yesterday and what’s happening in the current market environment. We bought the XLY on red and as you know, we don’t buy stocks on green - that’s a no-no. Another strategy is when you buy stocks when volatility is at 17 and sell stocks with volatility at 14. If you did that, you’re probably having a good quarter. Also: the top three sectors we like are consumer discretionary, consumer staples and healthcare. 

 

You can listen to our full morning call in the audio posted below.

 

 


Europe Retail Sales Slow

Retail sales in the Eurozone have been on the decline since 2005. After a bounce in 2009, sales continues to slow and have recently hit lows not seen since the end of 2009. The sharp drop in the last quarter shows that recovery in Europe is clearly far from over. With some countries experiencing 25% unemployment, it makes sense that households aren't spending their money frivolously. 

 

Europe Retail Sales Slow - image016


HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD

Takeaway: Home price appreciation is accelerating. Corelogic's early read on November trends suggests that momentum remains very strong.

*** Tune in for our call this Friday at 11am: "Could Housing's Recovery Go Parabolic in 2013?" ***

Dial in:

Code: 314729# 

 

Home Price Trends Continue to Accelerate

Yesterday's Corelogic home price data release makes adds evidence to the argument that housing's recovery is accelerating. October home prices rose 6.3% YoY, which was a sharp acceleration from September's YoY growth of 5.2%. More to the point, Corelogic has for the last few months provided an early read on the following month. Based on this early read, they estimate that home prices rose 7.1% in November. Moreover, the distressed-excluded home price index is estimated to rise by 7.4% in November. We think it's also worth pointing out that that there was an upward revision of sorts to this October number. One month ago, when Corelogic gave an early read into October pricing, they estimated prices rose by 5.7%. The actual data came in at 6.3%. This month, they're estimating November at 7.1%. 

 

We'll discuss why animal spirits are taking hold in housing on our conference call this Friday. 

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   YoY

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   YoY CL  CS  FHFA

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - CL   Distressed vs non distressed

 

Demand Reinforces Price

Mortgage demand rose +0.1% week-over-week. While +0.1% is nothing to write home about, it is noteworthy in that it is coming off a relatively high base, and marks the fourth consecutive week of positive WoW improvements. In fact, 13 out of the last 16 weeks have been positive.

 

Refinance applications rose 6.0% last week while the average rate on a 30-yr FRM declined 3 bps to 3.40%.  QTD refinance applications are 41% higher than they were in 4Q11.

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Shark

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi ST

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Mortgage Rates

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Shark LT

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi LT

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - YoY

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Purchase QoQ

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Refi QoQ

 

HOUSING: ANIMAL SPIRITS STARTING TO TAKE HOLD - Composite QoQ

 

Joshua Steiner, CFA

 

Robert Belsky


Early Look

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