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Morning Reads on Our Radar Screen

Takeaway: A quick look at stories on Hedgeye's radar screen.

Keith McCullough – CEO

Americans With Best Credit in Decades Drive U.S. Economy (via Bloomberg)

Investors Turn Hong Kong’s Red Taxis Into New Bubble Market (via Bloomberg)

Study Links TV Viewership and Twitter Conversations (via New York Times)

Amazon boss Jeff Bezos buys Washington Post for $250m (via BBC)

 

Morning Reads on Our Radar Screen - earth2

 

Daryl Jones – Macro

Hidden Billionaire Cohen Hauls Fortune in Unmarked Trucks (via Bloomberg)

 

Josh Steiner – Financials

Nationstar Mortgage's 2nd-Quarter Net Surges on Fee Income, Gains (via WSJ)

 

Jonathan Casteleyn – Financials

Jefferson County Investors Seek Plan Vote as Exit Nears (via Bloomberg … JC note: This is why Munis have had outflows...this would be the first principal reduction of a Muni bond since the '30's)

 

Todd Jordan – Gaming

MGM Resorts Profit Beats Estimates as Strip Gambling Rises (via Bloomberg)

 

Matt Hedrick – Macro

HSBC may raise banker pay to overcome bonus cap (via the guardian)

 

Jay Van Sciver – Industrials

Deutsche Post (DHL) outlook improves as Asia strategy pays off (via Reuters)


August 6, 2013

August 6, 2013 - dtr

 

BULLISH TRENDS

August 6, 2013 - 10yr

August 6, 2013 - spx

August 6, 2013 - nik

August 6, 2013 - ftse

August 6, 2013 - dxy

August 6, 2013 - euro

August 6, 2013 - oil

BEARISH TRENDS

August 6, 2013 - VIX

August 6, 2013 - yen

August 6, 2013 - natgas
August 6, 2013 - gold

August 6, 2013 - copper


Stick With Winners, Avoid Losers

Client Talking Points

INDIA

No, India is definitely not the USA. India’s stock market got tagged for another -1.8% loss overnight. It is moving back to down -2.3% year-to-date as the other side of #StrongDollar this year is Red Rupee. A weak currency imports inflation to local economies. We have a name for this. We are calling this the #AsianContagion (one of Hedgeye's three Q3 Macro Themes). Our advice? Buy US stocks instead.

UST 10YR

Well, there you have it. Another week, another up move in Treasury yields following a bullish ISM non-manufacturing print for July. Economic growth ostriches beware. The 10-year is yielding 2.65% and continues to make a series of higher-lows and higher-highs. Yield Spread (10s minus 2s) is +235 basis points this morning. That’s now +84 basis points year-to-date. That is very good signal for the Financials. 

GOLD

The precious metal does not like this whole #RatesRising thing. Yes, Gold is breaking down yet again this morning. It's down -0.9% to $1291 and is still crashing year-to-date at -22.9%. Boom. Stop for a moment and imagine what Gold would do if people actually believed the Fed was objective and data dependent. Stay out of the way of this total train wreck.

Asset Allocation

CASH 35% US EQUITIES 24%
INTL EQUITIES 17% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 24%

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

In the last two days, Washington Post and Boston Globe have been sold. Both at 1/10th of their value of two decades ago. #OldMedia

@HedgeyeDJ

QUOTE OF THE DAY

"I think gold is a great thing to sew in to your garments if you're a Jewish family in Vienna in 1939, but I think civilized people don't buy gold. - Berkshire's Charlie Munger

STAT OF THE DAY

$148,587: The amount of money Yankees slugger Alex Rodriguez will forfeit per game of his MLB suspension for violating league rules prohibiting performance-enhancing drugs. (Wall Street Journal)


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Self-Confidence

This note was originally published at 8am on July 23, 2013 for Hedgeye subscribers.

“The greatest barrier to success is the fear of failure.”

-Sven Goran Eriksson

 

I was in Kansas City, Missouri then Denver, Colorado yesterday before flying into Aspen last night for the 2013 Fortune Brainstorm Tech Conference (ping me if you are here!). Cabs, planes, and bad coffee - just another busy day in the life of building a business.  

                                                                                                                                                              

But what is it that gives us the confidence in building our own businesses? With all of the politics, fear-mongering, and central planning, why do we care to carry on? In moments of weakness, I admit to asking myself these questions every once in a while. Then something inspires me to rise above all of that. It’s either in your gut, or it is not.

 

There’s a great passage in a novel I just finished (Out Stealing Horses, by Per Peterson) that reminded me of who taught me to be this way (my Dad): “he had so much self-confidence he could take on almost anything and believe he would succeed” (pg 51). But don’t kid yourself; having role models in your life isn’t enough – you have to be the change, and break confidence barriers yourself.

 

Back to the Global Macro Grind

 

How many people have been confident enough to be invested in US growth stocks in 2013? Of the non-consensus bulls you know, how many of them are bullish because of #RatesRising?

 

I won’t hear it at this innovator’s conference in Colorado today, but I hear it a ton in institutional investor meetings - lots of doubt, fear, and concern. The lack of self-confidence out there is born out of a lot of 2008 baggage. I don’t get bogged down by that.

 

Both the SP500 and Russell2000 clocked fresh all-time highs again yesterday of +18.9% and +24%, respectively for 2013 YTD. #StrongDollar and #RatesRising isn’t something to be feared; it’s a pro-growth signal that needs to be understood.

 

By our risk management process scorecard, this morning is almost perfect for US stocks. Here’s the big 3 things to have confidence in:

 

1.   #StrongDollar – after correcting -0.5% last week (Bernanke wasn’t giving anyone anything but things to fear, which is just a shame at this point) and falling again yesterday, today the US Dollar Index holds both our immediate-term TRADE ($82.07) and intermediate-term TREND ($81.53) lines of support

 

2.   #RatesRising – after falling 10 basis points last week to 2.48% (Bernanke policy to have you fear failure), the 10yr yield held our immediate-term TRADE line of 2.45% support yesterday (TREND support underpins that at 2.21%) and is backing up again this morning to 2.51%; higher-lows and higher-highs for bond yields is a bullish growth signal supported by employment gains

 

3.   #CommodityDeflation – with the USD -0.5% last week, Commodities were +1.5% (CRB Index) – that’s not new; the intermediate-term correlation between USD and Commodities = -0.71. Why? That’s simple – the entire base of futures/options buyers in Gold, Oil, Food, etc. is still trying to front-run Bernanke’s “tone” on tapering

 

Like they were in the summer of 2008 (when Bernanke was whispering to the #OldWall that he was going to cut to 0%, too early), Oil prices are once again the biggest threat to US Consumption.  

 

If you want fear, I’ll give you something to fear – it’s called Dollar Devaluation. Just reverse all of the aforementioned 3 things and the USD will weaken, interest rates will fall, and commodity reflation will slow growth.

 

Who wants that? And, moreover, if 95-99% of Americans don’t want that, who stands in the way of tapping Bernanke on the shoulder and telling him to taper?

 

If Reagan or Clinton were in office, they’d be perfectly fine with that. Bush and Obama have been so scared of their own economic shadow that it’s their fears that have manifested into the conflicted power of Bernanke’s Bubbles (Commodities, Gold, Treasuries, etc.).

 

I don’t fear the politicized not liking my advice. I fear that a lot of Americans are going to get blown up by this bond bubble. I also fear that the only fear left, is a fear-mongering anti-growth government policy itself.

 

The greatest barrier to #StrongDollar and #RatesRising is self-evident. It’s time to get this old-boy, crony-whispering, and un-elected policy out of our way. It’s time to let free-market prices clear. The inability to evolve is as very credible threat. Confidence is the answer.

 

Our immediate-term Risk Ranges are now:

 

UST 10yr 2.45-2.70%

SPX 1681-1705

VIX 11.57-14.16

USD 82.07-83.46

Brent Oil 107.11-109.08

Gold 1239-1347

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Self-Confidence - Chart of the Day

 

Self-Confidence - Virtual Portfolio



No Clear Tracks

“The notion that I was travelling down a clear track would be wrong.”

-Robert Oppenheimer

 

Today in 1945, the US dropped the bomb on Hiroshima. At least 130,000 were killed and 90% of the city was eviscerated. To say that this weighed heavily on the conscience of the “father” of the atomic bomb would be the understatement of my writing career.

 

The aforementioned quote comes from Chapter 2 (“His Separate Prison”, page 29) of a book I have long waited to crack open: American Prometheus - The Triumph and Tragedy of Robert Oppenheimer.

 

When it comes to both markets and my life, the notion that I know where things are going isn’t the truth. The reality is that people and circumstances change inasmuch as markets do. Sometimes it happens fast; sometimes it’s slow. Yes, there are patterns of behavior that provide probabilities of direction. But there is no clear path. I’m learning to embrace that uncertainty.

 

Back to the Global Macro Grind

 

Einstein said that “the only reason for time is so that everything doesn’t happen at once.” And I like that. For the past 8 months we’ve seen a very simple US market pattern develop:

  1. US economic #GrowthAccelerates
  2. US interest #RatesRising challenge the Fed to taper
  3. Gold Bonds fall, Growth Stocks rise

Now that 1st bullet is the one that provokes the most bitterness from bears. I still don’t think they can believe that A) it’s August and B) both the employment and economic data (NSA rolling jobless claims hit another YTD low last wk) continue to improve.

 

On top of last Thursday’s #GrowthAccelerating July ISM print of 55.4 (vs 51.9 in June), here’s what the bitterness of it all looked like in the only economic data point that mattered yesterday:

  1. ISM non-Manufacturing (i.e. the highest % of the US economy) = 56.0 in JUL vs 52.2 in JUN
  2. New Orders (within the ISM report) = 57.7 JUL vs 50.8 JUN
  3. “Business Activity” (within the same report) = 60.4! JUL vs 51.7 JUN

Sorry #GrowthSlowing fans, that wasn’t what you were looking for.

 

It wasn’t what I was looking for either! I thought there was a developing probability that the higher-frequency (weekly and monthly) US economic data points could slow sequentially here in Q313 vs Q213. Evidently, I thought wrong.

 

It’s ok to say you are wrong. It’s ok to say you made a mistake. Heck, it’s even ok to say you are sorry once in a while too (this morning’s marriage tips are brought to you by your Broda).

 

The bottom line is that in literally every “Style Factor” we score, #GrowthAccelerating is winning, big time, YTD:

  1. Top25% EPS Growth Stocks (in the SP500) = +7.3% m/m and +26.8% YTD
  2. Low Dividend Yield (growth) Stocks = +6.7% m/m and +28.8% YTD
  3. High Short Interest Stocks (high multiple, high beta too) = +6.9% m/m and +25.4% YTD

Yes, despite the Russell 2000 (another US growth investor proxy) pinning yet another closing all-time high yesterday at 1063 (+25.2% YTD), all 3 of those Style Factors are still beating the Russell!

 

#awesome

 

But what is awesome? “inspiring an overwhelming feeling of” (Dictionary.com):

  1. Reverence
  2. Admiration
  3. Or Fear?

It’s a great word because, whether we want to admit it or not, we are all human and there are a lot of feelings that start to overwhelm us during phase changes in both markets and our lives.

 

From a macro market perspective, fear itself is now re-testing its YTD low (Gold and VIX are down -23% and -35%). Growth investors admire that. But they shouldn’t straight-line this as the new normal. Nothing is normal. Everything is always changing.

 

Our immediate-term Risk Ranges are now as follows:

 

UST 10yr 2.56-2.72%

SPX 1

Nikkei 138

VIX 11.69-12.97

USD 81.41-82.47

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

No Clear Tracks - Chart of the Day

 

No Clear Tracks - Virtual Portfolio


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