Short the Fear

Client Talking Points

S&P500

Fact: Fear is not getting paid. S&P 500 still ripping higher up +18.7% year-to-date. Russell 2000 absolutely en fuego up basically +24% year-to-date. Key point is S&P 500 has been down only two of the last fourteen days. Yesterday's tiny -0.2% "Mini-Me" correction came on the lowest volume day in the last fourteen. Overall volume trending very weak in July; but the two down days had lower volume than all of the up days. Incidentally, today is the 10th consecutive day where all 9 sectors in our Hedgeye S&P model are bullish on both our TRADE and TREND durations. Don't short any sectors. Immediate-term risk range on S&P 500 is 1684-1702.

COMMODITIES

Both the Bubonic Plague (Gold) and Oil are backing off this morning as the US Dollar stops going down. For the record, we bought back our long USD position yesterday; we still like that versus short Yen. Not to rain on the Gold Bug Parade, but the precious metal is down 20% year-to-date. Our immediate-term risk range (in our Daily Trading Range product) for Gold is $1249-1349. The immediate-term risk range on Oil (Brent) is $107.21-109.14. 

Asset Allocation

CASH 42% US EQUITIES 21%
INTL EQUITIES 11% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 26%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

MPEL

Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road

TWEET OF THE DAY

Hedgeye only gets paid for being right - no banking, broker dealering, or insider trading - just research

@KeithMcCullough

QUOTE OF THE DAY

Huh? Caterpillar CEO Olberhelman on CNBC this morning: "3 to 5 to 10 years down the road mining activity will come back."

STAT OF THE DAY

China's manufacturing weakened by more than estimated in July, according to a preliminary survey of purchasing managers that casts further doubt on the government’s ability to meet its annual economic growth target. The reading of 47.7 for an index released today by HSBC Holdings Plc and Markit Economics, if confirmed in the final report Aug. 1, would be the lowest in 11 months. Readings below 50 indicate contraction. (Bloomberg)


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