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Flu Season In Full Swing

We’ll be keeping a close eye on healthcare stocks over the next few weeks as the worst flu season in years sweeps across the United States. In addition to New York City declaring a flu epidemic, the mayor of Boston has also declared a flu emergency this week. The media is reporting that there is a widespread shortage of vaccine. More importantly, flu is a meaningful aspect of hospital admissions, particularly for the Medicare popular; Hedgeye Healthcare Sector Head Tom Tobin notes that the flu could represent an uptick in Medical Loss Ratios (MLRs) for Medicare Advantage Plans.

 

Flu Season In Full Swing - Hospital ER vs. Adjusted Admissions normal

 

Flu Season In Full Swing - Hospital ER vs. Flu 4Q12 normal


OZM: Sticking To Our Guns

Och-Ziff Capital Management remains one of our top long ideas in the alternative asset management space. Tailwinds from QE3 combined with solid operational performance are a key driver for the stock. Management continues to impress with solid returns for 2012 with the OZM Master Fund (70% of AUM) up 11.18% for the year. While fund flows were negative for December by approximately $450 million, they were positive for the full-year at $300 million. We expect 2013 to offer strong inflows of capital for OZM in addition to strong performance numbers. We sold OZM this morning in our Real-Time Alerts but continue to like the stock - we're just managing the risk and the range.

 

OZM: Sticking To Our Guns  - image028


EAT: CREAM SHOULD RISE TO THE TOP

We have long viewed Brinker as our favorite casual dining company and, heading into the core of earnings season, we maintain that view. Our bearish view on casual dining, as a category, is intact, but Brinker remains the most compelling long at a price.

 

Here are some thoughts pertaining to Brinker:

  • Two casual dining companies have reported 4Q12 earnings thus far, BJRI and RT, reporting company comparable restaurant sales growth of 3% and 0.3%, respectively
  • The bulk of the BJRI stores are located in the Western region of the US, while RT is a East/South East-centric brand.  RT, a poorly managed concept, in our view, managed to eke out positive comps
  • Chili’s could produce 2% same-restaurant sales growth in 2QFY13 versus consensus of 1.6%.  Momentum continues at Chili’s, thanks to kitchen enhancements and remodels.  Channel checks and the early read in the competitive set suggest that the negative tone set on the last earnings call could have been overdone
  • Comparisons remain very difficult for the entire industry until March 2013
  • ICR should offer incremental data points to allow investors a broader idea of how the industry has been performing

EAT: CREAM SHOULD RISE TO THE TOP - chilis vs bjri comps

 

EAT: CREAM SHOULD RISE TO THE TOP - black box casual dining comps traffic

 

EAT: CREAM SHOULD RISE TO THE TOP - chili s pod1

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 

 

 


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Client Talking Points

Moving On Up

The S&P 500 hit a 5-year high yesterday, signaling that #GrowthStabilizing is here to stay. Equities ripped higher all week and the Russell 2000 hit a new all-time high; suffice to say, the market is looking a little overbought here. It’s a time to book gains and take down your exposure to equities. It’s important to follow the risk and the range of whatever you’re trading. Volumes are up in the market and fund flows are up as the institutional crowd becomes awash with new capital to put to work. As far as sectors go, financials (XLF) are leading the charge and are already up +4.6% year-to-date. 

Da Bears

There is a type of trader/investor that exists who is always keen to short everything, all the time and will never take “no” for an answer. This is the Permabear. And the Permabears that have been shorting the market over and over for the last month repeatedly, only to get their head chewed off need to reevaluate their game plan. The economic data that we’ve seen lately has been excellent, indicating that growth is indeed stabilizing, not slowing, and things are getting better. The Permabear is no fan of this but sometimes, you need to go with the flow no matter what your trading style is, rather than go against it.

Asset Allocation

CASH 46% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

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

“@FXAlgo @NicTrades Sell Side recommendations: 'would you jump off this bridge for us? thanks!!!'” -volatilitysmile

QUOTE OF THE DAY

"Ninety-eight percent of the adults in this country are decent, hard-working, honest Americans. It's the other lousy two percent that get all the publicity. But then--we elected them.” -Lily Tomlin

STAT OF THE DAY

Wells Fargo (WFC) Q412 profit jumps 24% to record high.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 11, 2013


As we look at today's setup for the S&P 500, the range is 42 points or 1.37% downside to 1452 and 1.49% upside to 1494.    

                                                                                                                           

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: 1.64 from 1.65
  • VIX closed at 13.49 1 day percent change of -2.32%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Import price index, Dec., M/m est. 0.1% (prior -0.9%)
  • 8:30am: Trade balance, Nov., est. -$41.3b (prior -$42.2b)
  • 9:30am: Fed’s Plosser speaks on economic outlook in N.J.
  • 11am: Fed to buy $4.75b-$5.75b in 2017-2018 sector
  • 12pm: Jan. WASDE report
  • 1pm: Monthly budget statement, Dec., est. -$1b (prior -$86b)

GOVERNMENT:

    • House, Senate not in session
    • Deadline for FERC to respond to Deutsche Bank’s rejection of $1.6m in penalties
    • CFTC holds closed meeting on enforcement matters, 10am
    • Medicare Payment Advisory Commission meets on long-term care hospital services, competition in Part D, 8:30am
    • ITC Judge Thomas Pender may release findings in patent-infringement case by Dover unit against Analog Devices over microphones in digital devices

WHAT TO WATCH

  • Best Buy possible holiday sales drop may hurt Schulze buyout bid
  • Trade gap in U.S. probably narrowed as fuel costs declined
  • China’s inflation accelerates as chill boosts food prices
  • Japan’s Abe unveils $116b stimulus package to boost growth
  • American Express to cut 5,400 jobs, take $287m charge
  • Boeing Dreamliner system said to be focus of FAA inquiry
  • Cyprus facing world’s biggest bank bailout as Moody’s cuts 3 steps
  • U.S. mortgage overhaul under way with borrower scrutiny measure
  • Apple CEO Cook says China will overtake U.S. as biggest mkt
  • Bats blaming market rules for mishaps as calls for overhaul grow
  • Kocherlakota says Fed policy not easy enough with low inflation
  • Citigroup joins Goldman in starting electronic bond-trade system
  • Slim’s Sanborns said to seek $1b in share offer
  • Li & Fung sees 2012 operating profit down 40% on U.S. costs
  • Ex-hedge-fund manager Hochfeld pleads guilty to securities fraud
  • Number of Euribor maturities must be halved, EU regulators say
  • MF Global creditors file liquidation plan following settlements
  • Ford plans 2,200 salaried hires in biggest increase since 2001
  • U.S. Retail Sales, China GDP, Goldman: Wk Ahead Jan. 12-19

EARNINGS:

    • Wells Fargo (WFC) 8am, $0.90 - Preview

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

COMMODITIES – CRB Commodities Index has reflexive components (Oil and Copper don’t like the China down move because commodity bulls still think long commodity inflation is a demand story – we think it’s a money and physical commodity supply one); Copper down -0.8% here and Gold just failed at $1678 resistance again; we re-shorted Gold on green yest.

  • Brent Oil Set for First Weekly Drop in Three on China Inflation
  • Wheat Trade More Bullish Even as Bear Market Begins: Commodities
  • Copper Falls as Inflation Fuels Concern China May Curb Stimulus
  • Gold Falls as Strengthening Dollar Encourages Investors to Sell
  • Soybeans Slide a Fourth Day as Report Might Ease Supply Concern
  • Indonesia May Cut Palm Oil Tax to Zero to Counter Malaysia
  • Iron Ore at 15-Month High Deters Restocking at China Mills
  • Texas Energy Boom Fuels Best Performance Since ’09: Muni Credit
  • Thai Sugar Output Seen by Macquarie 12% Down on Dry Weather
  • Morgan Stanley Names Tan Head of Asia Commodities in Singapore
  • U.S. LNG Profit Seen Elusive as Price Gap Closes: Energy Markets
  • China May Increase Gold Holdings in Reserves, Researcher Says
  • Chavez’s Food Shortages Bigger Worry Than Venezuela Constitution
  • Rebar Tumbles Most Since November as China’s Inflation Quickens

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


FX – USD looks to keep making a series of long-term higher-lows as Commodities (CRB Index) makes a series of long-term lower-highs. The Yen, meanwhile, is a flaming ball of fire (Japan introduced a 10.3 TRILLION Yen Keynesian “stimulus” spending package overnight – that’s about $116B in USD, but who is counting anymore).

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


CHINA – on the #growthstabilizing side they delivered a big Export print for DEC at +14.1% y/y (vs +2.9% last mth), but on the CPI front the number they made up didn’t deflate enough to keep the Shanghai Comp going higher (-1.8% overnight).

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 



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