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Morning Reads on Our Radar Screen

Takeaway: Here's a glimpse at what some of our sector heads are reading

Morning Reads on Our Radar Screen  - Screen Shot 2013 07 31 at 8.57.11 AM




Norwegian Cruise Investors to Sell $600 Million of Shares (via Bloomberg)





FHFA Nominee Mel Watt Won’t Get Vote Until September, Reid Says (via Bloomberg)


BlackRock Starts Retirement Indexes in Retail Asset Push (via Bloomberg)





Facebook Said to Plan to Sell TV-Style Ads for $2.5M Each (via Bloomberg)















HLF Saga Continues

Herbalife has been heavily covered by media and investment research over the past six months but the math suggests that buying the stock here may be a risky proposition. 2Q13 earnings impressed to the upside, but we believe further increases in earnings and/or the implied multiple being assigned by the market are unlikely over the next six months. The chart below illustrates our quantitative view of the stock; the stock is currently near the high end of its immediate-term TRADE range (overbought) with support at $54.59 and $47.64 (intermediate term TREND).  


HLF Saga Continues - hlf levels



Fundamentals Coming Out of the Shadows: In March, the multiple expansion thesis seemed credible and has played out to a degree (chart below). There are some valid concerns being raised by activists in the stock such as the FX rate being used to account for Venezuelan cash balances but, all in all, the company produced impressive results for 2Q.



What we liked:

  • EPS beat by almost 20% supported by better-than-expected revenue growth
  • Total volume points grew by 13.5%
  • $183 million in free cash flow
  • Share buy-back resuming, included in guidance
  • May buy back more than guiding to, given “under-levered” balance sheet


What we didn’t like:

  • Operating income growth of 3% versus sales growth of 18.1% (last Q 26% and 17%, respectively)
  • SG&A margin going to 32.8% of sales from 30.3% in 1Q and 29.7% in 2Q12

HLF Saga Continues - hlf valuation


Rory Green

Senior Analyst

The Next Move in Oil

Client Talking Points


The Nikkei ended the month on a red note as the Yen retraced some of yesterday’s weakness - moving higher vs. the $USD ahead of another fun filled central planning (Bernanke) day in the U.S.  Our TREND lines of support for the USD/YEN and Nikkei are 97.39 and 13,505, respectively.  


The momo might be flagging a bit here with Brent holding red this morning after getting whacked yesterday.  We would like to see Oil breakdown through its TREND line before getting more comfortable with Q313 US Consumption relative to where it was in Q1/Q2.  TREND line support for Brent is still intact at $105.86.


The northward march continues with 10Y treasuries making higher-lows again to 2.62% and the Yield Spread (10s minus 2s) expanding to 231bps wide; #RatesRising and an expanding yield spread is bullish for the Financials (XLF).  We bought back the XLF in our Real Time alerts after it signaled buy again on red yesterday.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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. 


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


@hedgeyeJC @HedgeyeFIG Casteleyn's presentation on Asset Managers yesterday was amazing-changed my view of capital markets in coming yrs $LM

Jay Van Sciver ‏@HedgeyeIndstrls



“I don't think much of a man who is not wiser today than he was yesterday.”

-Abraham Lincoln


Shanghai experiences its hottest July in 140 years, according to figures from the Shanghai Meteorological bureau, Shanghai has seen 24 days with temperatures at or above 35C in July. (BBC)

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Pain's Delusion

This note was originally published at 8am on July 17, 2013 for Hedgeye subscribers.

“The greatest obstacle to pleasure is not pain; it is delusion.”



When I read that in The Swerve (pg 196) I couldn’t stop drawing the analogy between the 14-16th century Vatican and the US Federal Reserve. That might sound a little out there for you this morning, but Bernanke’s fear-mongering dogma is way out there too. Hopefully you can find some balance in between our opposing definitions of economic freedom. I am, if you care, Catholic.


If you stop studying the history of your beliefs, you’ll have issues. At the end of the 4th century, “historian Ammianus Marcellinus complained that Romans had virtually abandoned serious reading.” (pg 93) Getting people to just take the church’s word for it without thinking was a process (no books). “It had taken a thousand years to win the struggle and secure the triumph of pain seeking.” (pg 107)


Mixing politics, religion, and perceived wisdoms – that’s bringing it on thick. But it’s the only way I can remind you that the pattern of changing human beliefs are not new this morning. It’s called education. The delusion that a country needs to be perpetually punished by a weak currency and a 0% return on her hard earned savings is one of the greatest obstacles to free-market pleasures.


Back to the Global Macro Grind


Many are paid to think Bernanke is right. They believe that the US Dollar needs to be beat and whipped whenever it rises from the deadness of it all. Many think bond yields should stay at the 0% bound in perpetuity too. Just don’t forget why – they run Bond funds.


This morning we’re seeing a sharp contrast between American and Chinese economic policies:

  1. In the USA, people who are long Gold, Bonds, and Crude Oil futures continue to beg for Bernanke to talk down tapering
  2. In China, they’re reminding you that the entire world doesn’t sign off on short-term (reactive) Keynesian policy making

In a strikingly simple statement overnight, China’s Finance Minister said that they “won’t use large scale stimulus.” Markets took their word for it. The Shanghai Composite backed off in a hurry and closed down another 1%.


So who wouldn’t like a statement like that? Who will be in pain if, god forbid, Bernanke isn’t dovish in today’s testimony?


1.   Copper – hopefully you aren’t long that bubble. It took the Chinese “news” (in line with Darius Dale’s view that China wasn’t going to stimulate you) seriously and Copper futures fell over -1% immediately. Don’t forget that when China was spending its brains out on “infrastructure” over 3 years ago, it represented almost 2/3 of incremental global copper demand.


2.   Caterpillar – for the last year (as the Mining Capex Bubble began to pop) its CEO, Doug Oberhelman, has sounded like he should be running for political office in the south of France. He wants bailouts and government stimuli in his Chinese order book, baby! Do you blame him? I do. Hope is not an investment process.


Copper and CAT perma-bulls are just two of the many constituencies who lobby The Ben Bernank to whisper sweet-nothings of dovishness in the ears of the WSJ Hilsy (yes, the Jon Hilsenrath) as the Rest of Us just try our best to front-run it all.


If you don’t think that’s what’s really behind the pain-seeking messaging of the Fed, you are delusional. I have never seen the US government spend so much time talking down the one thing all these central plans were supposed to produce – growth.


And I mean real (inflation adjusted) economic growth. In the USA at least, sustained growth has always been married to 2 major (and coincident) leading pro-growth indicators:


1.       #StrongDollar

2.       #RisingRates


So, if you don’t want to step on anyone at the Fed Vatican’s toes – and if you never want to question any of these money-printing pontiffs publicly, you would have probably been cool with taking The Borgias word for it in the 15th and 16th centuries too.


In other news, the US stock market finally had a down day yesterday. That was its 1st down day in the last 9 as the SP500 and Russell2000 backed off their all-time highs of +18% and +23% YTD, respectively.


Immediate-term TRADE overbought is as overbought does, so we’ll see if we can re-load the long book on a correction to a reasonable line of immediate-term TRADE support (for SPY that’s now 1656).


The #1 thing that will stop me from getting really long again is Bernanke Burning The Buck (toning down tapering expectations). Every one of the aforementioned constituencies disagrees with me on that – but I’m betting 99% of The People in this country would call my #StrongDollar America the pleasure they seek.


Now, if only the US government explained it to them like we do, without all the conflicts of interest…


Our immediate-term Risk Ranges are now:


UST10yr 2.49-2.75%

SPX 1656-1701

Shanghai Comp 1951-2099

USD 82.12-83.61 (bullish)

Brent Oil 107.61-110.13

Copper 3.05-3.19


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Pain's Delusion - COPPER vs CAT


Pain's Delusion - vp 7 17

July 31, 2013

July 31, 2013 - dtr



July 31, 2013 - 10yr

July 31, 2013 - spx

July 31, 2013 - nik

July 31, 2013 - dax

July 31, 2013 - dxy

July 31, 2013 - euro

July 31, 2013 - oil



July 31, 2013 - VIX

July 31, 2013 - yen

July 31, 2013 - natgas
July 31, 2013 - gold

July 31, 2013 - copper


TODAY’S S&P 500 SET-UP – July 31, 2013

As we look at today's setup for the S&P 500, the range is 16 points or 0.18% downside to 1683 and 0.77% upside to 1699.                                  










  • YIELD CURVE: 2.29 from 2.30
  • VIX closed at 13.39 1 day percent change of 0.00%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, July 26 (prior -1.20%)
  • 8:15am: ADP Employment Change, July, est. 180k (prior 188k)
  • 8:30am: Employment Cost Index, 2Q, est. 0.4% (prior 0.5%)
  • 8:30am: GDP Q/q, 2Q, est. 1% (prior 1.8%)
  • 8:30am: Personal consumption, 2Q, est. 1.6% (prior 2.6%)
  • 8:30am: U.S. Treasury quarterly refunding announcement
  • 9am: ISM Milwaukee, July, est. 52 (prior 51.55)
  • 9:45am: Chicago Purchasing Mgr, July, est. 54 (prior 51.6)
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC rate decision
  • 3pm: Fed Aug. schedule for tentative outright Treasury buys


    • President Obama meets w/ House, Senate Democrats
    • Biggest U.S. equity exchange operators, trade group plan to ask SEC to delay final phase of market-wide program aimed at curbing sudden stock swings that takes effect Aug. 1
    • 9:30am: Senate Environment and Public Works Cmte hearing on toxic chemical threats
    • 10am: Senate Judiciary Cmte hearing on Foreign Intelligence Surveillance Act programs
    • 12:30pm: House Budget Cmte hearing on poverty
    • 2pm: Joint Economic Cmte hearing on tax laws, eco growth
    • 2:30pm: Senate Finance Cmte hearing on principles for energy tax changes
    • 2:30pm: Senate Commerce, Science and Transportation Cmte hearing on energy drinks, concerns about marketing to youth
    • Senate confirms 5 to U.S. Labor Board, averting shutdown


  • Ebbing finl-mkt risk gives Fed option to delay tapering
  • Alexion said to enlist Goldman to advise amid Roche overture
  • Bill Ackman to unveil $2b investment, WSJ says
  • Cubist buys Trius, Optimer to expand stable of antibiotics
  • Intuit settles antitrust suit on pact to not hire from rivals
  • U.S. economy probably grew at slower pace in 2Q
  • HP says ex-SEC general counsel advising on Autonomy deal probe
  • Amgen boosts yr EPS view; Phase 2 AMG-747 study terminated
  • KKR said to consider bidding for Hutchison’s ParknShop
  • Las Vegas Sands loses bid to vacate $101.6m trial verdict
  • Honda maintains forecast after profit misses ests.
  • Schneider Electric to buy Invensys for GBP3.4b cash, shrs
  • Blackstone said to buy 7 Australian offices from GE Capital
  • UBS to pay $60m fine to settle SEC mortgage-bond probe: WSJ
  • BlackRock starts retirement indexes in push for retail assets
  • German retail sales drop in sign of slow recovery
  • Euro-area July consumer prices up 1.6% Y/y; est. 1.6%
  • Toyota said to prepare to raise output target above 10m
  • China leadership pledges steady growth w/ eco reforms
  • EADS to adopt Airbus name, reflecting dominance of unit


    • Humana (HUM) 6am, $2.47 - Preview
    • ADT (ADT) 6am, $0.43
    • Huntsman (HUN) 6am, $0.39
    • Athabasca Oil (ATH CN) 6am, C($0.04)
    • CGI Group (GIB/A CN) 6:30am, C$0.58
    • NiSource (NI) 6:30am, $0.23
    • Regency Centers (REG) 6:30am, $0.64
    • Energen (EGN) 6:30am, $0.61
    • SPX (SPW) 6:30am, $0.65
    • Ingredion (INGR) 6:35am, $1.17
    • Intact Financial (IFC CN) 6:55am, C$0.75
    • Comcast (CMCSA) 7am, $0.63 - Preview
    • American Tower (AMT) 7am, $0.90
    • Delphi Automotive (DLPH) 7am, $1.14
    • Wisconsin Energy (WEC) 7am, $0.47
    • RioCan REIT (REI-U CN) 7am, C$0.40
    • Garmin (GRMN) 7am, $0.65
    • Burger King Worldwide (BKW) 7am, $0.19
    • Booz Allen Hamilton (BAH) 7am, $0.40
    • Jones Group (JNY) 7am, ($0.12)
    • AllianceBernstein (AB) 7:02am, $0.38
    • Southern (SO) 7:30am, $0.68
    • Exelon (EXC) 7:30am, $0.54
    • Hess (HES) 7:30am, $1.40
    • Invesco (IVZ) 7:30am, $0.51
    • Hyatt Hotels (H) 7:30am, $0.30
    • Energizer (ENR) 7:30am, $1.31
    • Hospira (HSP) 7:30am, $0.51
    • Level 3 Communications (LVLT) 7:30am, ($0.09)
    • Heartland Payment Systems (HPY) 7:30am, $0.58
    • SodaStream International (SODA) 7:30am, $0.66
    • Sherritt International (S CN) 7:42am, C$0.12
    • Mastercard (MA) 8am, $6.29
    • Phillips 66 (PSX) 8am, $1.81
    • AGL Resources (GAS) 8am, $0.27
    • Hudson City Bancorp (HCBK) 8am, $0.10
    • Hercules Offshore (HERO) 8am, $0.05
    • PG&E (PCG) 8:03am, $0.73
    • AGCO (AGCO) 8:15am, $1.81 - Preview
    • Allergan (AGN) 9am, $1.20
    • Great-West Lifeco (GWO CN) 10:24am, C$0.54 - Preview
    • New Gold (NGD CN) Bef-mkt, $0.05 - Preview
    • Williams (WMB) 4pm, $0.14
    • Bruker (BRKR) 4pm, $0.14
    • WebMD Health (WBMD) 4pm, $0.06
    • CBS (CBS) 4:01pm, $0.72 - Preview
    • Williams Partners (WPZ) 4:01pm, $0.37
    • Pioneer Natural Resources (PXD) 4:01pm, $1.11
    • Amdocs (DOX) 4:01pm, $0.73
    • Open Text (OTC CN) 4:01pm, $1.41
    • CBL & Associates Properties (CBL) 4:01pm, $0.53
    • Trinity Industries (TRN) 4:01pm, $0.95
    • Bloomin’ Brands (BLMN) 4:01pm, $0.23
    • DreamWorks Animation SKG (DWA) 4:01pm, $0.20
    • Whole Foods Market (WFM) 4:02pm, $0.37 - Preview
    • ServiceNow (NOW) 4:02pm, ($0.05)
    • Shutterfly (SFLY) 4:02pm, ($0.16)
    • Thoratec (THOR) 4:02pm, $0.43
    • MetLife (MET) 4:03pm, $1.33
    • Yelp (YELP) 4:03pm, ($0.04)
    • Allstate (ALL) 4:05pm, $0.98
    • Lam Research (LRCX) 4:05pm, $0.71
    • Pharmacyclics (PCYC) 4:05pm, ($0.04)
    • QEP Resources (QEP) 4:05pm, $0.35
    • Seattle Genetics (SGEN) 4:05pm, ($0.21)
    • Questar (STR) 4:05pm, $0.22
    • Atmel (ATML) 4:05pm, $0.06
    • SunPower (SPWR) 4:05pm, $0.11 - Preview
    • Rovi (ROVI) 4:05pm, $0.46
    • PHH (PHH) 4:05pm, $0.37
    • Ruckus Wireless (RKUS) 4:05pm, $0.03
    • Ashford Hospitality Trust (AHT) 4:05pm, $0.60
    • Atwood Oceanics (ATW) 4:09pm, $1.34
    • Lincoln National (LNC) 4:10pm, $1.15
    • Western Gas Equity Partners (WGP) 4:10pm, $0.13
    • Western Gas Partners (WES) 4:13pm, $0.38
    • Microchip Technology (MCHP) 4:15pm, $0.54
    • Concur Technologies (CNQR) 4:15pm, $0.37
    • Trulia (TRLA) 4:17pm, $0.03
    • Yamana Gold (YRI CN) 4:23pm, $0.11 - Preview
    • Essex Property Trust (ESS) 4:27pm, $1.85
    • Marriott International (MAR) 4:30pm, $0.57
    • Charles River Laboratories (CRL) 4:30pm, $0.71
    • Eagle Rock Energy Partners (EROC) 4:30pm, $0.05
    • Murphy Oil (MUR) 4:31pm, $1.54
    • First Quantum Minerals (FM CN) 5pm, $0.21
    • Kinross Gold (K CN) 5pm, $0.06 - Preview
    • DDR (DDR) 5pm, $0.27
    • Ctrip.com International (CTRP) 5pm, $0.30
    • Axiall (AXLL) 5pm, $1.18
    • Vanguard Natural Resources (VNR) 5:15pm, $0.33
    • NXP Semiconductor (NXPI) 8pm, $0.66
    • Suncor Energy (SU CN) 10pm, C$0.63 - Preview
    • US Silica (SLCA) Aft-mkt, $0.40


  • ANZ Opens 50 Ton Gold Vault in Singapore as Asian Demand Climbs
  • Potash’s $20 Billion Market Transformed by Uralkali: Commodities
  • Wheat Climbs on Signs Lower Prices Fueled Demand From Importers
  • Commodity-Linked Structured Note Sales Slump to Nine-Year Low
  • Gold Extends Biggest Monthly Gain Since January 2012 Before Fed
  • WTI Set for Best Month Since August Before U.S. Oil Supply Data
  • Rebar Advances for Second Month as China Pledges Steady Growth
  • Palm Oil Climbs to One-Week High as Weak Ringgit Boosts Exports
  • Potash Group Surviving Demise of Russian Rival: Corporate Canada
  • Glencore Takes Lead in Metals Storage as Goldman, JPMorgan Cut
  • Oil Contango Hazard for Bulls Seen in WTI Prices: Energy Markets
  • Shell to Chevron Move Offshore as Nigerian Risks Mount: Energy
  • LME Zinc Stocks at 10-Month Low Amid Supply Deficit: BI Chart
  • Corn Seen Sliding Below $4.50 on Bear Flag: Technical Analysis


























The Hedgeye Macro Team












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