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FNP: Kate in the Spotlight

Takeaway: Kate Spade was unofficially endorsed by the Obama fashionistas at Monday’s Presidential Inauguration.

The Kate Spade brand got a little kicker yesterday in the nation’s capital as Sasha Obama wore a Kate Spade dress and overcoat to President Obama’s second inauguration. While this isn’t exactly a stock moving event, we think it’s a brand validator given that the First Lady is arguably the most trend-setting First Lady since Jackie O fifty years ago. We’ve seen that thus far with brands like J Crew, and the addition of Kate Spade into the mix can’t hurt by any means. Again, this does little to alter our value for FNP today as it is minor in the grand scheme of things, but the underlying strength and value of Kate Spade is core to any investment thesis, and this is a nugget of evidence that it still holds true.

 

 

FNP: Kate in the Spotlight                 - FNP KatePI

 

 


HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING

Takeaway: Don't be confused by the knee-jerk reaction to today's existing home sales number. The inventory number was better, and that's what matters.

Focus on the Inventory Reading

While the media is focused on the headline sales print for December existing home sales declining 1% MoM and coming in below expectations, we're focused on the inventory number, which is down 23% vs. last December and carries with it very strong future pricing implications. 

 

As those who follow our pricing models know, a change of 1 million units in inventory affects future (11 months) HPI prices by 12.1%. As such, this morning's sequential decline in inventory of 0.17 million units equates to an additional 200 bps of upward pricing pressure in the coming year.

 

Similarly, on a month's supply basis, every one month of supply equates to a 4.1% delta over the coming year, so this morning's decline of 0.4 months works out to 164 bps of incremental (i.e. vs. last month's expectation) upward pricing pressure over the coming year. 

 

These are independent models so the fact that they arrive at similar, albeit slightly different, conclusions is important.

 

We're not concerned about the shortfall in the existing home sales number. More recent MBA volume statistics and the most recent pending home sales reports are better, more recent, indicators that show demand remains robust and growing. As a reminder, our thesis revolves around price reflexively driving demand, and that demand, in turn, driving price further.

 

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory 2

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory 3

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - inventory 4

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - sales

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - sales long term

HOUSING: EXISTING HOME INVENTORIES FALL FURTHER - A GOOD THING - median price

 

Joshua Steiner, CFA


European Banking Monitor: Data Remains Supportive For Now

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 .

 

* Sovereign CDS – Sovereign Swaps were mostly wider last week with Japan putting on a major move. Japanese CDS widened by 13 bps last week to 87 bps (a move of 17.8%). Meanwhile, the US also widened by 5 bps to 44 bps. This means the US now trades outside Germany (40 bps). Elsewhere in Europe, swaps were relatively unchanged. 

 

* 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 mostly widened in European Financials last week, though there was nothing especially noteworthy.

 

European Banking Monitor: Data Remains Supportive For Now  - cc. banks

 

Euribor-OIS spread – The Euribor-OIS spread was flat week-over-week at 11 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: Data Remains Supportive For Now  - cc. 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: Data Remains Supportive For Now  - cc. facility


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Crushed By Commodities?

Kimberly-Clark (KMB) is reporting Q4 2012 earnings on January 25 along with Procter & Gamble (PG). We think there’s an interesting setup here for a long PG/short KMB trade. Commodity prices including oil and pulp have moved against the company over the last quarter of 2012, which will put the squeeze on earnings along with strategic marketing expenditures.

 

As for PG, we estimate Q2 EPS of $1.13 versus a guidance range of $1.07 to $1.13. In our experience, we see PG beating estimates and raising guidance, which will drive the stock higher. 

 

Crushed By Commodities? - image008

 

Crushed By Commodities? - image009


Turning Japanese?

Client Talking Points

Pump It To QuadrillYen

The Bank of Japan’s announcement this morning will most likely have the people of Japan cringing for what their future has in store for them. The Yen rallied +1% on the news that the BOJ would target “2% inflation” and would buy assets that range from Scooby Doo action figures to European bonds. In lieu of this, Japanese stocks snapped their immediate-term TRADE support for the first time in months. People who are short the Yen this morning are probably grimacing as they realize their timing couldn’t be worse. Shinzo Abe and Taro Aso have a lot more fun in store for those involved in the Currency Wars. If this story with the Bank of Japan seems familiar, it’s probably because we’ve done the old asset purchase shuffle here in the U.S. a bunch of times. 

America Rules

American’s should be feeling pretty good about what’s going on in our country right now. Our Macro Theme of #GrowthStabilizing is taking hold as the housing market and the labor market show significant improvements. And look at the stock market. Five-year highs in the S&P 500 and brand new highs in the Russell 2000? The retail crowd will certainly smile at that news. Fantastic. Just remember that the markets go up until they don’t. Things can change overnight and we can go right back to the starting line without finishing the race.

Asset Allocation

CASH 55% US EQUITIES 12%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

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.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

"Only 32% Are Aware If Their State Is Establishing A Health Care Exchange... tinyurl.com/33lscbm#healthcare" -@RasmussenPoll

QUOTE OF THE DAY

“I never think of the future - it comes soon enough.” -Albert Einstein

STAT OF THE DAY

Bank of Japan announced Tuesday it would switch to an open-ended commitment to buying assets next year and double its inflation target to 2 percent.


Morning Reads From Our Sector Heads

Note: Each morning we'll post what stories Hedgeye's various sector heads and analysts are reading. 

 

Jay Van Sciver (Industrials):

 

-Building Bridges (PBS)

 

-Delta Airlines 8-K (SEC.gov)

 

Brian McGough (Retail):

 

-Manchester United Announces Strategic Acquisition of BskyB’s One-Third Stake in MUTV (Yahoo!)

 

-Nike, New Balance Fight Over Eliminating Tariffs (Source Journal Online)

 

Rob Campagnino (Consumer Staples):

 

-Loeb shorts Nu Skin (NY Post)


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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