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Morning Reads from Our Sector Heads

Takeaway: Here are some items that caught our analysts’ attention today.

Consumer Staples sector Rob Campagnino looks at the weighty issue of the soda ban in New York.

http://online.wsj.com/article/SB10001424127887323826704578354543929974394.html

 

 

Our gaming, lodging and leisure team is reading about some management issues potentially affecting one casino.

http://online.wsj.com/article/SB10001424127887324096404578354613754829562.html

 

 

Our energy team is reading about Southern Pacific.

http://shpacific.com/en/news/stp-2013-03-11.pdf


YUM CHINA BETTER THAN FEARED

February comparable sales grew +2% in Yum!’s China division.  Consensus was expecting -8.8%.  This release is spurring optimism that the worst of the fallout from the chicken supply scandal in YUM’s largest market may be in the rear view mirror.

 

 

Sequential Improvement

 

Yum! Brands reported 1Q China comps of -20% versus consensus -24%, including KFC -24% and Pizza Hut -2%.  February was a driver of sales growth with comps growing 2% versus consensus -8.8%, suggesting sequential improvement through the quarter.  A timing shift related to the Chinese New Year had a positive impact in the mid-teens.  KFC comps were flat in February while Pizza Hut comps grew 13%.

 

 

Full-Year View


We stepped back from our bullish stance on the immediate- and intermediate-term durations on February 4th, publishing a note titled, “YUM GUIDE DOWN A GAME CHANGER”, citing a lack of visibility on same-restaurant sales growth.  The long-term growth story has remained intact through all of the volatility.  Yesterday’s release suggests that the fallout from the chicken supply scandal may be abating with time as YUM’s PR machine has gone into overdrive to regain consumer trust.  We will wait for further confirmation on the near-term duration, but this gives us confidence that the long-term upside for YUM shares represents an attractive opportunity for investors willing to look through near-term issues.

 

Our Sum-of-the-Parts valuation that we published late last year, as part of our Black Book titled, “YUM: BEST LARGE CAP OUTLOOK FOR 2013”, suggested a twelve month upside to the 11/29/12 share price of 20% to $89.  While not for the faint of heart, we believe that YUM still represents compelling value over the long-term TAIL duration.

 

Please reply to this email for a copy of this Black Book.

 

 

Quantitative Setup

 

Our CEO, Keith McCullough, sees the stock as breaking out of an important base.  Intermediate-term TREND and long-term TAIL levels of support are at $66.41 and $65.07, respectively. 

 

YUM CHINA BETTER THAN FEARED - LEVELS QUANT YUM

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 12, 2013


As we look at today's setup for the S&P 500, the range is 31 points or 1.43% downside to 1534 and 0.56% upside to 1565.    

                                                                                                                           

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: 1.78 from 1.80
  • VIX  closed at 11.56 1 day percent change of -8.18%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Bus. Optimism, Feb., est. 90.0 (prior 88.9)
  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 10am: JOLTs Job Openings, Jan. (prior 3.617m)
  • 11am: Fed to purchase $1b-$1.5b TIPS due in 2017-2043 sector
  • 11:30am: U.S. to sell 4W bills
  • 1pm: U.S. to sell $32b 3Y notes
  • 4:30pm: API weekly inventories

GOVERNMENT:

    • House, Senate in session
    • Senate Banking Cmte holds hearing on Cordray, White, 10am
    • House Appropriations panel holds oversight hearing on SEC, 3pm
    • House Appropriations panel hears from Food Safety, Inspection Service Admin. Alfred Almanza at oversight hearing, 10am
    • All FCC commissioners testify at Senate Commerce Cmte’s oversight hearing on FCC, 2:30pm
    • National Transportation Safety Board meets to consider 5 Safety Alerts aimed at reducing number of general aviation incidents, 9:30am
    • Washington Day Ahead

WHAT TO WATCH

  • HP says Serious Fraud Office investigating Autonomy
  • SEC nominee White to face conflict questions at hearing
  • Cordray nomination at stalemate amid wait for court ruling
  • Citigroup added to team advising Dell buyout group: WSJ
  • Costco 2Q revenue $24.87b misses est. of $24.95b
  • GM share sale brought Treasury $489.9m in February
  • Roman Catholic Cardinals to begin election of new pope
  • U.S. accuses China of cyber espionage that threatens ties
  • Greece in talks with creditors to cut 150,000 civil servants
  • Yandex founders, investors to sell up to $607m of shares
  • Goldman among banks to get lower fees for Japan Tobacco sale
  • Galaxy Securities said to pick Goldman, JPMorgan for $1.5b IPO
  • Suntech gets 2-mth forbearance on $541m in bonds

EARNINGS:

    • Stage Stores (SSI) 6am, $1.15
    • FactSet (FDS) 7am, $1.24
    • Empire Co (EMP/A CN) 7:03am, C$1.15
    • Laredo Petroleum Holdings (LPI) 7:26am, $0.10
    • Raven Industries (RAVN) 9am, $0.25
    • Acadia Pharmaceuticals (ACAD) 4:01pm, $(0.09)
    • Dole Food (DOLE) 4:06pm, $(0.02)
    • Investors Real Estate (IRET) 4:30pm, $0.17
    • Kennedy-Wilson Holdings (KW) 4:33pm, $(0.08)
    • PetroBakken Energy (PBN CN) After-mkt C$0.13
    • Black Diamond (BDI CN) After-mkt C$0.31

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Halts Three-Day Advance on Supply; Chinese Refining Declines
  • Gold Sales From Soros Reveal 12-Year Bull Run Decay: Commodities
  • Soybeans Drop on Signs Brazil Is Gaining Market Share From U.S.
  • Gold Futures Advance to Highest This Month on Technical Buying
  • Copper Rises to $7,762 a Ton in London Trading, Erasing Decline
  • Europe Copper Premium Seen Dropping for Second Month by Traders
  • Oil Supplies Climb to Eight-Month High in Survey: Energy Markets
  • Cocoa at 1-Month High as Prices May Have Bottomed; Coffee Slips
  • Gold in India Heading to Lowest Since May: Technical Analysis
  • Ships Reject Unprofitable Cargo to Halt Slump in Rates: Freight
  • Arabica-Coffee Premium Versus Robusta Falls to Lowest Since 2009
  • Europe Gas Carnage Shown by EON Closing 3-Year-Old Plant: Energy
  • Crop Price Ratios Can Foreshadow Crop Planting Decisions
  • Wall Street $100 Million Man Makes Downton Abbey in Vermont Town

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 


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Risk Sees Me

This note was originally published at 8am on February 26, 2013 for Hedgeye subscribers.

“The tiger will see you a hundred times before you see him once.”

-John Vaillant

 

I’ve never been hunted down by a Siberian Tiger, but I’ll take John Vaillant’s word for it on how that might feel. On page 51 of The Tiger, he partly explains how I felt in very short order yesterday. Risk happens fast. Feelings aren’t what you want to be managing in your portfolio.

 

How could you not feel this? At 10AM EST yesterday, the SP500 was at 1524, and the Volatility Index (VIX) was at 13.63. I thought we were going to test the YTD high (1530 SPX) and volatility would continue to collapse. I thought wrong.

 

Actually, if you told me the reason why we were going to have a violent reversal (as in a +39% six-hour energy move in the VIX and the worst US stock market down day since November 7th) was the Italian election, I wouldn’t have changed my position either. I should have.

 

Back to the Global Macro Grind

 

Should have, could have, would have – they are all loser excuses people make, so don’t expect me to make them this morning.

 

We made some good moves yesterday (covered our Yen short at the YTD low, shorted Utilities at the YTD high), but my overall net long position in US Equities was dead wrong. There is no excuse making in my books. The score doesn’t lie; people do.

 

Whether I think Italy should matter doesn’t matter. It’s what the market says matters that matters. So let’s get on with our day and focus on not making more mistakes.

 

As I wrote yesterday, I don’t start with the Research View (it actually improved again yesterday with Strong Dollar taking Oil prices down to a 7wk low), I start with the Risk Management Signals – here they are in the USA, across durations (TRADE, TREND, and TAIL):

  1. SP500 broke immediate-term TRADE support of 1502; remains bullish TREND and TAIL with 1463 TREND support
  2. Russell2000 broke immediate-term TRADE support of 901; remains bullish TREND and TAIL with 869 TREND support
  3. VIX ripped through all lines of resistance and moves to bullish TREND provided that 17.18 holds (watch this closely)
  4. US Dollar Index remains in a Bullish Formation (bullish TRADE, TREND, and TAIL)
  5. CRB Commodities Index remains in a Bearish Formation (bearish TRADE, TREND, and TAIL)
  6. US Treasury 10yr Yield broke immediate-term TRADE support of 1.96%; remains bullish TREND and TAIL with 1.84% TAIL support

Then, if I dig inside that 1st factor (SP500) and break it into Sector Style Exposures (dividing the pie into 9 S&P Sectors):

  1. 5 of 9 Sectors are still in Bullish Formations: Healthcare, Financials, Industrials, Utilities, and Consume Staples
  2. 2 of 9 are bearish on both TRADE and TREND durations: Basic Materials and Tech (AAPL = 14.9% of the Tech ETF)
  3. We bought Financials (XLF) into the close yesterday and shorted Utilities (XLU) on the open – both on signals

So, net net net – not a lot has changed here from a Research View perspective. The only S&P Sector that is down YTD is the one we’d expect to be down (Basic Materials), as we expect to see a Strong Dollar perpetuate A) commodity deflation and B) consumption #GrowthStabilizing.

 

However, that doesn’t mean the Risk Management Signals are going to let us out of The Tiger’s grasp right here and now. Immediate-term TRADE breakdowns force people to make decisions on intermediate-term TREND positioning. And that’s what we need to do next.

 

Looking at Global Macro risk more broadly, across Global Equity markets:

  1. Japan was down -2.26% last night (after being up +2.4% the day prior) and remains in a Bullish Formation (no TRADE breakdown)
  2. China’s Shanghai Composite was down -1.4% (broke TRADE support of 2321, but held TREND support of 2209)
  3. South Korea’s KOSPI was only down -0.47% overnight and is holding last week’s bullish TRADE/TREND breakout
  4. Brazil’s Bovespa remains bearish TRADE and TREND (that’s not new, and largely because of the Commodity exposure)
  5. Germany’s DAX broke TRADE support of 7670 again this morning; remains bullish TREND and TAIL with TREND support of 7528
  6. Italy’s MIB Index is a bloody mess, down -4.5% this morning and back into a Bearish Formation

So, do we give up on the Research View? Or do we acknowledge that short-term (TRADE) durations breakdown, breakout, and whip around - always stressing our ability to navigate the markets intermediate-term TRENDs?

 

Italy and France are dysfunctional economies being managed by a socialist #PoliticalClass (not new news – this is the 62nd Italian government since WWII). Brazil is going down for the reasons we think are bullish for the #1 research factor in our model (commodity deflation is a global tax cut for consumers).

 

Risk Sees my position. It sees yours too. It’s never “off.” It’s always on, and whether it was a SP500 price of 1524 (10AM EST) or 1487 (4PM EST), evidently it goes both ways, fast. I’ll be doing a lot of waiting and watching for the next few days, to make sure yesterday’s 6hr move wasn’t an emotional head-fake.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST10yr Yield, and the SP500 are now $1549-1612, $112.61-116.38, $80.72-81.98, 91.65-94.41, 1.84-1.96%, and 1479-1502, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Risk Sees Me - Chart of the Day

 

Risk Sees Me - Virtual Portfolio


THE M3: JACOBS; GAMING WAGES

The Macau Metro Monitor, March 12, 2013

 

 

EX-SANDS OFFICIAL ALLEGES IMPROPRIETY WSJ

According to filings, Steve Jacobs alleges that Sheldon Adelson became "enraged" with the then-head of Macau's government, Chief Executive Edmund Ho, because of decisions made by Ho regarding condos that Sands was trying to sell in Macau.  The filing calls Adelson's alleged order a "threat" against Ho, but it doesn't specify how Jacobs was supposed to threaten the official.

 

Jacobs says Adelson ordered him to tell Ho that he was indebted to Adelson for settling a lawsuit to protect Ho.  Jacobs says Adelson's instructions were to remind Ho that "Adelson had settled a lawsuit paying $40 million" to help Ho "and that he [Ho] owed Adelson."  Jacobs said he refused to carry out the order, which he considered "improper," and reported it to the company's then-general counsel and to Chief Operating Officer Mike Leven.

 

Adelson said in his statement that he holds Ho "in the highest regard."

 

SURVEY ON MANPOWER NEEDS AND WAGES - GAMING INDUSTRY FOR THE 4TH QUARTER 2012 DSEC

At the end of 4Q, the Gaming Sector had 54,835 employees, up by 9.2% YoY.  In December 2012, average earnings (excluding bonuses and allowances) of full-time employees reached MOP18,040, up by 7.9% YoY. Job vacancies totaled 2,144 at the end of 4Q 2012, down by 130 YoY.

 




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.

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