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EZPW: End Of The Golden Age

Pawn shops like EZ CORP (EZPW) are particularly sensitive to the price of gold. Think about how many people come in to pawn or sell gold jewelry or scrap it for cash. With the price of gold sinking week-after-week as the great commodity bubble deflates, pawns are getting hit. But it’s not just the price of gold that’s causing headaches for EZPW, it’s gold volumes. Since Q312, gold volumes have fallen off a cliff and have yet to recover. It’s a problem that will materially affect earnings going forward hence our short position on EZPW in our Real-Time Alerts. Another company that will bare the brunt of the decline in volumes is Cash America (CSH).

 

EZPW: End Of The Golden Age - EZPW GOLD VS VOL S

 

EZPW: End Of The Golden Age - ez slide


Go Forth And Conquer

Client Talking Points

Managing Risk

As the transition from #GrowthSlowing to #GrowthStabilizing continues, commodities will keep deflating in price as the number of total CFTC net long contracts declines along with the price of gold, silver and other assets. This whole #GrowthStabilizing thing is good for America, but isn’t very welcome by those who are long gold and/or Treasuries. Corn is getting clobbered, along with wheat, soybeans and other commodities now that investors are realizing you can’t just pump out more rounds of quantitative easing to artificially inflate prices. Keep an eye on gold, as it snapped our long-term TAIL risk line of $1671 last week and has fallen considerably in price since then. Same goes for the CRB Commodities Index, which remains in a bearish formation.

Dollar Holler

The US dollar has been up for 9 of the past 13 weeks, which certainly doesn’t help commodity bulls. A strong dollar helps strengthen America, so those of you who are trading the commodity deflation cycle, hats off. Our range for the EUR/USD at the moment remains at $1.31-1.33. 

Asset Allocation

CASH 55% US EQUITIES 21%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
NKE

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

“The 12 Days Of Trading" On the 1st day of trading the markets gave to me, a spike from high frequency' bit.ly/Y6WqQO” -@bclund

QUOTE OF THE DAY

“Whenever you find that you are on the side of the majority, it is time to reform.” -Mark Twain

STAT OF THE DAY

London Stock Exchange to pay $482 million for a 60% stake in LCH.Clearnet.


European Banking Monitor: More Green than Red This Week

Takeaway: Bank swaps continue their march lower.

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:

 

* European Bank: Broad-based improvement in Europe on the week, inline with Asia and USA.

 

* Euribor-OIS: Had been quietly moving higher, seems to have stabilized in the 11-13 bps range, and is signaling an ongoing stabilization in the interbank risk market.

  

* 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.

 

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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

 

(o)

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European Financials CDS Monitor – Swaps tightened broadly in Europe last week as 35 of the 37 reference entities we track showed improvement. French, German, Italian, and Spanish bank swaps all showed decent WoW improvement. 

 

European Banking Monitor: More Green than Red This Week  - 55. banks

 

Euribor-OIS spread – The Euribor-OIS spread tightened by less than 1 bp to 12 bps. 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: More Green than Red This Week  - 55. euribor

 

ECB Liquidity Recourse to the Deposit Facility – 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: More Green than Red This Week  - 55. facility


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IDEA ALERT: SHORTING EZPW

Takeaway: We added EZPW to our list of real time positions on the short side. The December and March comps will be tough.

Gold continues to look terrible based on our Macro Team's outlook. This is a problem for gold-sensitive pawn lenders like EZ Corp. While the company's transparency around the issue has improved, its sensitivity to the problem remains. 

 

In the first chart below we look at the relationship between the year-over-year change in gold prices and the year-over-year change in earnings contribution from gold-related scrap sales. The second chart shows the dynamic on a longer-term basis. Note the tougher comps in their fiscal first and second quarters (the December and March quarters).

 

Interestingly, while gold prices were the initial catalyst, it's clearly now gold volumes that are the real problem. Note the widening divergence in recent quarters. This is attributable to rapidly decelerating volume dynamics. While we're a bit surprised by how rapid the decline in volume has been relative to the theories put forward to explain it, we continue to assume that it's a problem that isn't going away.

 

The other company facing a similar dilemma is Cash America (CSH).

 

IDEA ALERT: SHORTING EZPW - EZPW GOLD VS VOL S

 

IDEA ALERT: SHORTING EZPW - ez slide

 

Over the past few weeks, gold prices have moved lower, closing yesterday at $1,646/oz. For reference, the current gold price is 8.4% lower than the most recent high of $1,797/oz on 10/4/2012. This is a negative development for the payday and pawn lenders.

 

IDEA ALERT: SHORTING EZPW - EZPW Macro

 

IDEA ALERT: SHORTING EZPW - Gold Price Headwind Tailwind

 

Joshua Steiner, CFA

 

Robert Belsky


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 24, 2012


As we look at today's setup for the S&P 500, the range is 31 points or 0.78% downside to 1419 and 1.39% upside to 1450.       

                                                                                                                                                        

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.51 from 1.50
  • VIX closed at 17.84 1 day percent change of 0.96%
  • BONDS – 10yr UST Yield ticks up 1 basis pt to 1.77% this morning (instead of ticking down w/ US Equity futures); the breakout line for UST yields = 1.70% TREND (now support) and we’ll go with the bond market signal on growth all day long vs whatever stocks are doing.

MACRO DATA POINTS (Bloomberg Estimates):

  • 11:30am: U.S. Treasury to sell $32b 3-mo. bills, $28b 6-mo.

GOVERNMENT:

    • Federal offices closed for Christmas holiday
    • President Obama on vacation in Hawaii, attended service yday for U.S. Sen. Daniel Inouye
    • Hagel would be challenging nomination for Defense, Graham says

WHAT TO WATCH

  • Holiday shoppers hit malls amid concerns of slowing economy
  • Online U.S. holiday spending up 16%, Comscore says
  • Groupon made failed bid for online luxury retailer Achica, Telegraph says
  • ‘Hobbit’ top N.A. movie again with $37m in ticket sales
  • U.S. gasoline falls to lowest in year in Lundberg survey
  • U.S. equity exchanges, bond markets have reduced hours today
  • Leveraged loan issuance in U.S. this year hit highest mark since 2007
  • Sony said in talks with state-run fund to sell battery unit
  • Verizon says hacker didn’t release customers’ data: Forbes
  • Pimco’s Bill Gross sees probability of U.S. going over fiscal cliff of >50%
  • Regions Financial probed by SEC, others on loans: WSJ
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Transports, Real Estate
  • Canada Weekly Agendas: Energy, Mining
  • Week Ahead: Fiscal Cliff, U.S. Home Sales, 2013: Dec. 24-Jan. 5
  • NOTE: No U.S. Daybook tomorrow due to Christmas holiday

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

OIL – continue to see selling right where it matters on both Brent and WTIC (both continue to fail at my TRADE and TREND lines of resistance); this is ultimately bullish for consumers, globally.

  • Brent Crude Declines a Third Day Amid U.S. Budget Talk Impasse
  • Bullish Wagers Drop to Six-Month Low on U.S. Budget: Commodities
  • Copper Gains in London as Hedge Funds Boost Bets on China Demand
  • German Day-Ahead Power Price Turns Negative Before Holiday
  • Sugar Falls on Signs of Oversupply in Brazil, India; Cocoa Drops
  • EU Carbon Permits Fall as Volumes Shrink Before Public Holidays
  • Palm Oil Advances to Four-Week High on China Demand Speculation
  • Wheat Futures Gain on Russia Frost, U.S. Seen More Competitive
  • SEC Puts Off Decision on Blackrock’s Copper ETF to February
  • Hedge Funds Boost Oil Bets Most in Four Months: Energy Markets
  • Asia Naphtha Crack Gains; PetroChina Buys Jet Fuel: Oil Products
  • Kazakh Wealth Fund Said to Weigh Acquisition of Kazzinc Stake
  • Tiberius Says Active Commodity Fund Gained 2.4% in November
  • Aluminum Canceled Warrants Are at Record High on London Exchange

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


ASIA – on the top-line, Taiwan printed its best Industrial Production growth number in 9 months (+5.9% NOV vs 4.8% OCT) and from a cost of goods/living perspective Singapore reported inflation (CPI) at a 2yr low (3.6% y/y NOV vs 4.0% OCT).  #bullish.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 



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