Looking at a three-month chart of the S&P 500 (SPY) versus the SPDR Gold Trust ETF (GLD), we can see that the US stock market has outperformed gold quite a bit with gold declining -9.2% and the S&P 500 gaining +7.54% during the time period.
Hedgeye CEO Keith McCullough appeared on CNBC this afternoon to discuss his bullish thesis on the stock market. It comes down to three simple themes: a strong dollar to help drive consumption, low volatility and a rotation out of gold and Treasuries and into equities.
Last week, Hedgeye Consumer Staples Sector Head Rob Campagnino attended the 2013 Consumer Analyst Group of NY (CAGNY) Conference. His Twitter feed (@HedgeyeStaples) was quite active with takeaways from the conference; here's his review:
Each year, 25-30 of the largest and most recognizable names in consumer staples – from cigarettes to eyeliner and from beer to hand sanitizer, attempts to lay out its objectives for the coming year for over 600 analysts and portfolio managers. We have been a regular attendee for many years now and we wanted to offer our views coming out of CAGNY 2013.
To be frank, we would characterize CAGNY 2013 as largely uneventful and in some cases downright boring – no preannouncements or big strategic announcements (HNZ supplied that the week before). We didn’t hear much that changed our thinking relative to how we came into the year or how we left Q1 earnings season. Briefly, the key themes running through the presentations were:
Where did our thinking change?
We won’t rehash the presentations, but as a quick summary:
CPB – less likely to want to short as core potentially stabilizes
KRFT – one of our favorite presentations, would be a buyer lower – upside to low $50s
HSH – again, one of our favorite presentations, more constructive
BG – doing more work here on the long side after an awful quarter, good long-term theme
PG – less impressed with potential progress on top-line, but cost-savings likely preserve EPS
CLX – can’t abide by the multiple, but with good visibility on margins and innovation, tougher short
MDLZ – feels earlier, but risk/reward profile strikes us as very favorable over longer duration
NWL – we liked the story going in, presentation reinforced our belief that the stock can continue to rerate.
KO – interesting commentary on incremental bottler consolidation. Does Iberia represent a new potential acquirer for German assets?
Bottom line, sometimes a boring consistency is a good thing, and the consistent nature of the staples sector was what was on display at CAGNY.
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Housing, labor markets, commodity deflation and a strengthening US dollar have kept us bullish on consumption over the last month. We expect consumption, which is a driver of growth in the economy, to continue to improve going forward as home prices rise while existing inventory falls and commodity prices fall lower.
Last week’s housing data was decidedly positive as existing home inventory declined 24.7% on a year-over-year basis to 1.74 million units and sits around 50% below the 2007 peak. The National Association of Realtors (NAR) reported that median home prices rose 12.2% year-over-year in January, marking the 13th consecutive month of acceleration. We’re of the belief that rising prices will continue to drive demand which should drive further pricing gains.
As for the US dollar, a stronger US dollar drives down commodity prices which drives consumption as more consumers head out to the grocery store and gas station and see a material change in price when shopping. The only remaining economic headwind that we still face is oil prices, which have shifted downward over the last two days but are up again this morning. When gas prices drop significantly and oil prices come down, we will really see consumption take off in a meaningful way.
Macau seems to have bounced back last week following a disappointing 1st half of the month. This past week posted average daily table revenues of $1.107 billion, up 43% over last year. Our guess is that hold played at least some role but we have no confirmation of that. We are upping our full month projection to HK$25.0-25.5 billion, up 6-8% YoY. While that growth rate is probably disappointing given the favorable calendar shift of Chinese New Year (CNY) into February this year, on the margin, it’s better than the flattish growth expected just one week ago.
Market shares have normalized somewhat with Wynn falling back to Earth and MPEL rebounding from low hold. With limited rooms MPEL also seemed to have spread some of its VIP and Direct Play business beyond just the CNY period. Consistent with a trend we foresee for the entire year, Sands China’s share continues to climb.
Hedgeye Risk Management invites you to join us Wednesday, February 27th at 1:00pm EST for our Best Ideas Launch Part 2. This call will be a follow-up to the introductory call of our dynamic Best Ideas Product which was held on February 11th. The new dynamic Best Ideas Product will track, update and notify clients of important changes and additions to the Hedgeye Best Ideas list.
On the call we will highlight our highest conviction calls across Macro, Financials, Industrials and Energy, offering at least two high conviction and differentiated investment ideas from each vertical over an intermediate term duration.
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Materials and dial-in information will be distributed the morning of the call. If you have any further questions please email .
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