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Client Talking Points

CHINA

The great deceleration in growth continues.   Alongside a sequential slowdown in industrial profits in June, the Chinese Central Government looks to be passing the growth-slowing buck a bit this morning with the government ordering a “nationwide audit of government debt” down to the local government and village level.  The markets didn’t like the move with Chinese equities adding to double digit YTD losses (-1.7% to -11% YTD).   China remains in a Bearish Formation (bearish TRADE/TREND/TAIL) and we remain out of the way of Chinese stocks. 

OIL

Oil’s advance took a respite last week and remain red this morning despite Saudi Prince Alwaleed’s weekend commentary cautioning against increasing production capacity in the face of flagging demand.  Domestic consumption is the primary beneficiary of down energy prices, but we remain in no man’s land here with Brent holding above it’s $105.86 TREND line of support.  Meanwhile, someone was betting big on a big oil event that didn’t materialize, as net long positioning in CFTC futures and options contracts moved to its highest ever – yes, ever is a long-time.  

UST 10YR

With the Nikkei, China, and S&P futures down, 10yr yields haven’t moved a beep 2.56%.  The bond market has front-run the equity market more times than not over the last 5 years.  Is the long end of the curve sniffing out another upside surprise in the jobs report on Friday? Don’t rule it out. The Initial claims data continues to register accelerating improvement and consensus has been on the wrong side of the strong growth call all year. 

Asset Allocation

CASH 38% US EQUITIES 23%
INTL EQUITIES 14% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 25%

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

Buy Homes, Rent Stocks @KeithMcCullough

QUOTE OF THE DAY

"if BOJ's quantitative easing is seen as financing debt, this could lead to rise in yields" Haruhiko “Captain Obvious” Kuroda

STAT OF THE DAY

Contra-indicator alert.  Net long (Speculative) Positioning in Crude oil is at the highest level ever at 334,094 contracts.