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Damned Lies

This note was originally published at 8am on July 30, 2013 for Hedgeye subscribers.

“There are lies, damned lies and statistics."

-Mark Twain

 

I’ve been spending the last few weeks reading up on advanced statistical analysis of hockey.  Based on my initial research, hockey is very much behind the other major sports in the use of statistics to analyze and value players.  Much of professional hockey is still ruled by the old boys club who make player acquisitions based on “gut feel”.

 

To be fair, hockey is a difficult sport to analyze, unlike baseball which has repeatable interactions, such as at bats, that can be counted, hockey is more of a chaotic game.  I asked my good friend Theo Epstein from the Chicago Cubs, an early and successful user of Sabermetrics in baseball, about his thoughts related to the analysis of hockey.  He directed me towards what he called a plus / minus on steroids – Corsi.

 

This statistic was developed by former Buffalo Sabres goaltending coach and measures, or counts, the number of shot attempts on the opposition’s net (including blocked and missed shots) for which the player receives a plus and subtracts it versus the number of shots on his own net.  The theory is that shots are a proxy for possession and over the long run possession leads to goals and a positive goal differential to wins.

 

This stat can then be adjusted according to the relative quality of competition via a statistic called Corsi Rel QoC, which attempts to normalize Corsi for the quality of opponent.  There are also addendums to this stat that look at where a player typically starts on the ice.  For instance, if a player, due to his defensive proficiency is more often started by the coach in face-offs in his own zone, he is likely to have a lower Corsi rating. So, this too needs to be normalized over time and relative to other players.

 

But enough about hockey statistics and back to the global macro grind . . .

 

Yesterday the newest member of our Financials Team, Jonathan Casteleyn, launched on asset management coverage in a very thoughtful 90+ page presentation titled, “Fixing Your Income: The Danger of the Bond Market.”  Akin to all of Hedgeye’s research, this launch presentation was replete with statistics (and hopefully very few damned lies!)  From the macro perspective, Casteleyn raised a number of key points that I wanted to re-emphasize.

 

First, the U.S. bond market has $38 trillion outstanding across munis, treasuries, mortgages, corporate debt, agency debt, money markets and asset backed.  This is up more than 15% over the last five years and has been dually driven by the increase in corporate bonds, up 50% in that period, and treasuries, which are up roughly 100% in five years.  The ratio of stocks to bonds is now at 68/32%, which is one of the highest ratios we’ve ever seen.  Reversion to the mean anyone?

 

Second, 10-year treasury duration is literally at an all-time high of 8.9.  The implication of this is that a 100 basis point move in the 10-year equates to an 8.9% loss in value.  In other words, interest rate risk is literally as high as it has ever been, so any further normalization of rates (remember we remain well below historical levels) has the potential to lead to substantial losses in the bond market.   Given this, broker dealers are reducing trading exposure to interest rate products, which has the potential of exacerbating moves in the fixed income market.  As we highlight in the Chart of the Day, this is already leading to accelerating bond volatility (or as Taleb would say, more fragility).

 

Finally, Casteleyn corroborated our macro team’s bullish view of U.S. equities on likelihood of reversion to the mean on asset flows, as alluded to above.  He also pointed out that current all in yield of the SP500 is 6% (2.0% dividend yield plus 4.1% earnings yield), which compares favorably to the 2.5% yield-to-maturity on 10-year treasuries.   So not only do you get a better yield on equities, but equities typically outperform when the first hike in rates occurs.

 

That was a Cliff’s Notes version, at best, of the presentation yesterday, but if you have institutional research access please email sales@hedgeye.com to receive a copy.  This idea of continued and sustained outflows from fixed income is in the early innings and may have profound implications for asset returns in the coming quarters and years.

 

Speaking of interest rate volatility, the FOMC’s 2-day meeting begins today with a rate decision, or lack thereof, scheduled for Wednesday.  This is to be followed by the ECB on Thursday.  We actually would be lying, or at least have inside information, if we attempted to make a call on what either the ECB or Fed will say, but we can say this with some certainty, the potential for them to create market volatility is a real risk, so keep these events front and center on your risk management monitor this week.

 

Our immediate-term Risk Ranges are now as follows:

 

UST 10yr Yield 2.47-2.66%

SPX 1679-1699

Nikkei 13478-14501

USD 81.46-82.39 
Brent 106.48-108.12

Gold 1257-1354

 

 

I’ll sign off with one of my very favorite statistics quotes from George Bernard Shaw:

 

“Statistics show that of those that contract the habit of eating, very few survive.”

 

Stats don’t lie, my friends.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Statistician

 

Damned Lies  - Chartoftheday

Damned Lies  - Virtual Portfolio

 

 

 


August 13, 2013

August 13, 2013 - dtr

 

BULLISH TRENDS

August 13, 2013 - 10yr

August 13, 2013 - spx

August 13, 2013 - nik

August 13, 2013 - dax

August 13, 2013 - dxy

August 13, 2013 - euro

August 13, 2013 - oil

 

BEARISH TRENDS

August 13, 2013 - VIX

August 13, 2013 - yen

August 13, 2013 - natgas
August 13, 2013 - gold

August 13, 2013 - copper


THE M3: CHANGE IN SJM GAMING CONTRACT

THE MACAU METRO MONITOR, AUGUST 13, 2013

 

 

REVAMP FOR SJM GAMING CONTRACT; KEEPS HARBOUR DREDGING Macau Business

SJM will have its gaming concession revised but the company will still be in charge of dredging the harbour and get the associated tax break, worth about MOP806 million (US$100 million) last year.  Secretary Tam will review the contract’s provisions on dredging and the location of SJM’s casinos.


Dredging work will be transferred to SJM from parent company Sociedade de Turismo e Diversões de Macau SA, director Ambrose So said.  The Gaming Inspection and Coordination Bureau said SJM would keep its tax break: a discount of 1% point on the urban development, tourism promotion and social security levy, now 2.4% of gross gaming revenue.


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – August 13, 2013


As we look at today's setup for the S&P 500, the range is 34 points or 0.56% downside to 1680 and 1.45% upside to 1714.                                   

                                                                                            

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.35 from 2.32
  • VIX closed at 12.81 1 day percent change of -4.47%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: NFIB Small Bus. Optim, July, est. 94.5 (prior 93.5)
  • 7:45am: ICSC retail sales
  • 8:30am: Import Price Index, July, est. 0.8% (prior -0.2%)
  • 8:30am: Retail Sales Advance M/m, July, est. 0.3% (pr 0.4%)
  • 8:30am: Retail Sales Ex-Auto M/m, July, est. 0.4% (pr 0.0%)
  • 8:55am: Redbook weekly retail sales
  • 10am: Business Inventories, June, est. 0.2% (prior 0.1%)
  • 11am: Fed to purchase $1b-$1.5b TIPS in 2018-2043 sector
  • 11:30am: U.S. to sell 4W bills, 21-day cash mgmt bills
  • 12:45pm: Fed’s Lockhart speaks on economy in Atlanta
  • 4:30pm: API crude, oil product inventories

GOVERNMENT:

    • U.S. Senate primary elections in N.J.; Newark Mayor Cory Booker is considered leading candidate
    • American Institute of Certified Public Accountants holds National Governmental Accounting and Auditing Update, w/ remarks from GAO Director Jim Dalkin, 9:05am

WHAT TO WATCH:

  • Apple said to ready thinner iPad model for release this yr
  • Soros said to support J.C. Penney CEO in Ackman feud
  • Goldman subpoenaed by CFTC on waits at aluminum warehouses
  • Facebook to buy Mobile Tech for speech recognition
  • London Whale resurfaces to help U.S. with JPMorgan trading probe
  • Blackstone said to purchase GE U.S. apartments for $2.7b
  • U.S. watchdog to propose greater disclosure in auditor reports
  • Sina 3Q rev. view, 2Q adj. EPS, 2Q non-GAAP rev. beat ests.
  • German Aug. ZEW current situation, expectations beat ests.
  • U.K. inflation slows from 14-mo. high on airfares, clothes
  • Li & Fung profit misses ests. on weaker U.S. retail demand
  • Amazon, Microsoft may be interested in buying Blackberry: NYPost

EARNINGS:

    • Argonaut Gold (AR CN) 7:30am, $0.08
    • Brocade Communications Systems (BRCD) 4:04pm, $0.12
    • Cree (CREE) 4pm, $0.38
    • CST Brands (CST) Bef-mkt, $0.65
    • Flowers Foods (FLO) 6:30am, $0.23
    • Jack Henry & Associates (JKHY) 4:05pm, $0.51
    • JDS Uniphase (JDSU) 4:05pm, $0.13
    • Millennial Media (MM) 4:01pm, ($0.01)
    • Myriad Genetics (MYGN) 4:05pm, $0.44
    • SeaWorld Entertainment (SEAS) 4:01pm, $0.41
    • Taylor Morrison Home (TMHC) 4:01pm, $0.32
    • Valspar (VAL) 7:30am, $1.09

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Soybeans Extend Biggest Gain in 13 Months on U.S. Crop Outlook
  • Iron Ore Gluts Seen Through 2017 on Record Supply: Commodities
  • U.S. Regulator Subpoenas Banks Over Long Queues at Warehouses
  • WTI Rises a Second Day on U.S. Supply Forecast, Mideast Unrest
  • Copper Heads for Highest Close Since June Amid Rebound Signals
  • Gold Trades Below Highest Price in Almost 3 Weeks; Silver Gains
  • Sugar Rises to Six-Week High on Brazil Cold Scare; Cocoa Falls
  • India Increases Gold Tax for Third Time This Year to Cut Deficit
  • Freeport’s Grasberg Mine May Reach Full Production by Month-End
  • Crude Supply Falls Sixth Week in Seven in Survey: Energy Markets
  • North Dakota Oil Boom Seen Adding Costs to Ease Rail Safety Risk
  • Freeport Expects Grasberg Reach Full Output Capacity End of Aug.
  • India May Import More Iran Oil Within UN Rules, Chidambaram Says
  • China Copper Production Plummets, Imports Increase: BI Chart

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

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

 

 

 

 

 

 

 

 

 

 

 

 


CHART DU JOUR: FEWER GAMBLERS

  • Regional operators only recently began commenting on the decline of casino visitors but the trend has been evident since 2H 2012.
  • In Q2 2013, mature gaming markets admissions declined 7% YoY
  • Indiana casino visitors, in particular, have been hit hard by the opening of the Ohio market. Ohio, meanwhile, has performed below expectations.
  • This trend highlights the secular weakness of an aging demographic with few inroads made in penetrating younger generations.

CHART DU JOUR: FEWER GAMBLERS - rrr 


HBI: Tough to Bet Against

Takeaway: We don't like the base business one bit. But HBI is sandbagging on acquisition accretion. That's tough to bet against, for now.

This note was originally published July 30, 2013 at 18:21 in Retail

Conclusion: We think that HBI has some fiercely opposing investment characteristics right now. It’s got abysmal top line growth and tougher margin compares shaping up on one end, but low expectations for the addition of the (sandbagged) MFB acquisition on the other. In the end, while we don’t think HBI is comfortably investable here, we think that the stock falls into the ‘unshortable’ category for the next year (at least at this price).  

HBI: Tough to Bet Against - hanes

 

DETAILS

On one hand, the company is ‘growth challenged’. Let’s face it…HBI is buying Maidenform because it has to.  Since it anniversaried the Gear For Sports acquisition in 2Q11, HBI’s top line growth has averaged zero percent. Yeah, there’s perhaps a 1% hit from exiting the screenprinting business, but 1% growth in aggregate is hardly anything to get too excited about. Our biggest beef is that International and Direct-to-Consumer are both smaller today than they were two years ago. FX has been a factor, we’ll give ‘em that (though it hasn’t stopped others over this time period). But DTC, which should be the low hanging fruit for any company that owns its own brand – especially one that manufacturers vertically – simply can’t seem to grow. Ironically, the MFB acquisition will not improve the proportion of Int’l or DTC, it simply fills out a different part of HBI’s bra business in US mass channels and department stores.

 

On the positive side, the reality on Maidenform is that a) HBI got it for a steal, b) management lowballed on accretion as they simply add it to HBI’s model, c) there’s easy margin upside as HBI unravels failed MFB programs put in place over the past two years, and d) there further upside as HBI fills out its excess capacity with MFB business (i.e. transitions MFB to an insourced model from an outsourced model).  They guided to $0.15-$0.20 per share from MFB. Seriously? If we simply add on MFB’s net income after borrowing costs from last year – which was abysmal, by the way (worst in 8-years) we get to $0.25-$0.30 in accretion. When all is said and done, we think the accretion numbers will be at least 2x guidance in year 1, and could be closer to a buck versus management’s $0.60 guidance three years out.

 

The bottom line is that it does not matter one iota that sales are punk. We might start to see some positive benefit from HBI’s organic marketing initiatives in 2H – but that gives them maybe a point or two in growth.  The big upside begins in another two quarters when HBI gets 15% sales growth alone just from adding MFB. Along the way, cash flow looks good, and the company looks on track to pay down the debt associated with the deal just over a year after it closes. Organically, we’re not fans of this story by any stretch (challenged top line and cotton-led gross margin benefit coming to a close). But the reality is that the market won’t look at the ‘organic growth and margin characteristics’, it will look at reported numbers, and lowballed expectations.  As a merged entity, this one will be tough to bet against.


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