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Asian Contagion? Exactly.

Client Talking Points

UST 10YR

Evidently #RatesRising too fast makes consensus very nervous; especially those poor souls who still remain levered long the slow-growth, yield-chasing asset allocation the Fed had them in. The 10-year Treasury yield is backing off its immediate-term TRADE overbought zone of 2.86-2.91%. So this morning should provide a de-stresser on that front; Utilities (XLU) are already down -5.2% already for the month!

INDONESIA

Boom! Indonesia is down -11% in just three days as the Rupiah hits a 4-year low and #DebtDeflation takes hold. This is how the ball bounces in our #AsianContagion Q3 Macro Theme. It is both interesting and sad to see it playing out in India (Rupee broke 64 vs US Dollar this morning... new lows) and Indonesia, but not at all surprising. We called this.

COPPER

Sneaky 1-month squeeze to watch as the net short position in Copper went away last week (CFTC futures/options contracts). The question now becomes whether copper will be able to overcome the @Hedgeye TREND line of $3.39/lb? Not today. This is an important commodity to watch as a proxy for the entire commodity complex which has reflated this month.

Asset Allocation

CASH 26% US EQUITIES 28%
INTL EQUITIES 24% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

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's #AsianContagion Theme taking hold (when a country’s debt and currency values deflate at an accelerating rate) #Rupiah

@KeithMcCullough

QUOTE OF THE DAY

“I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.” -Jesse Livermore

STAT OF THE DAY

Hubris? Herbalife and J.C. Penney have cost Bill Ackman's Pershing Square an estimated $1 billion or so (The Economist)


No Clear Tracks

This note was originally published at 8am on August 06, 2013 for Hedgeye subscribers.

“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 1674-1714

Nikkei 13644-14898

VIX 11.69-12.97

USD 81.41-82.47

Gold 1289-1311

 

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


August 20, 2013

August 20, 2013 - dtr

 

BULLISH TRENDS

August 20, 2013 - 10yr

August 20, 2013 - spx

August 20, 2013 - nik

August 20, 2013 - dax

August 20, 2013 - dxy

August 20, 2013 - euro

August 20, 2013 - oil

 

BEARISH TRENDS

August 20, 2013 - VIX

August 20, 2013 - yen

August 20, 2013 - natgas
August 20, 2013 - gold

August 20, 2013 - copper

 


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – August 20, 2013


As we look at today's setup for the S&P 500, the range is 34 points or 0.25% downside to 1642 and 1.82% upside to 1676.                 

                                                                                                              

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: 2.49 from 2.53
  • VIX  closed at 15.1 1 day percent change of 5.08%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC retail sales
  • 8:30am: Chicago Fed Natl Activity Index, July (prior -0.13)
  • 8:55am: Redbook weekly retail sales
  • 11am: Fed to purchase $750m-$1b in 2024-2031 sector
  • 11:30am: U.S. to sell 4W bills, $25b 52W bills
  • 4:30pm: API crude, oil product inventories

GOVERNMENT:

    • Northrop Grumman holds media briefing on aircraft unmanned systems and their impact on military, commercial aerospace
    • U.S. Senate Finance Cmte Chairman Max Baucus, House Ways and Means Cmte Chairman Dave Camp make tax tour stop at Intel
    • Coal foe named to FERC latest Obama pick drawing industry ire

WHAT TO WATCH:

  • Kyle Bass said to bet on J.C. Penney comeback w/loan purchase
  • PepsiCo said to be considering offer for India’s Balaji Wafers
  • JPMorgan energy trades probed by DOJ, WSJ reports
  • W&G Investments to submit $2.4b bid for RBS branches
  • Icahn asks court to dismiss lawsuit by Herbalife short-seller
  • Glencore takes $7.7b charge on Xstrata mining assets
  • BHP seeks potash partners after approving $2.6b spend
  • Barnes & Noble distribution spat w/Simon & Schuster resolved
  • Tesla says Model S electric sedan gets top U.S. crash rating
  • EA asks appeals court to delay college athletes’ suit ruling
  • India may delay capital infusion into banks as stocks slump
  • TiVo updates set-top boxes in bid to boost retail sales
  • Zillow follows StreetEasy deal with $411.9m share sale
  • Urban Outfitters 2Q EPS, comp sales beat estimates
  • Ex-Qwest head Nacchio seeks tax refund as prison term ends
  • Weapons for Egypt under review; U.S. public favors aid cutoff

EARNINGS:

    • Analog Devices (ADI) 4pm , $0.54
    • Barnes & Noble (BKS) 8:30am, ($0.67)
    • Best Buy (BBY) 7am, $0.12 - Preview
    • Dick’s Sporting Goods (DKS) 7:30am, $0.74
    • Home Depot (HD) 6am, $1.21 - Preview
    • Intuit (INTU) 4pm , ($0.01)
    • JC Penney (JCP) 7:30am, ($1.07) - Preview
    • La-Z-Boy (LZB) 4:05pm, $0.15
    • Medtronic (MDT) 7:15am, $0.88 - Preview
    • TJX (TJX) 8:33am, $0.63 - Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • U.S. Gold Coin Sales Slump as Prices Rebound on Asian Demand              
  • Soybean Trading Mogul Shao to Double China Imports: Commodities
  • WTI Crude Falls for Second Day as Fed Tapering Speculation Grows
  • Gold Is Little Changed After Rally to Two-Month High on Demand
  • Copper Declines on Concern Reduced Fed Stimulus to Erode Demand
  • Glencore Xstrata Reports $7.7 Billion Writedown as Profit Drops
  • India Seen Defying Rupee Plunge to Import Record Cooking Oil
  • Kenya From Nowhere Plans East Africa’s First Oil Exports: Energy
  • Rebar Falls Following Broad Sell-Off in Commodities, Equities
  • Copper Exchanges Stocks-to-Use Ratio Hits 7-Month Low: BI Chart
  • U.S. Retail Gasoline Drops for 4th Week as Supplies Remain High
  • Palm Oil Drops as Decline in Crude Oil Reduces Biofuel Appeal
  • Real-Life Na’vi Snub Billionaire Agarwal’s Bauxite Mining Plan
  • BHP Seeks Potash Partners After Approving $2.6 Billion Spend

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

 

 

 

 

 

 

 

 

 

 

 

 


INVESTING IDEAS SNEAK PEEK

(Editor's note: What follows below is a brief excerpt from Hedgeye's latest Investing Ideas newsletter which currently features nine top stock ideas from Hedgeye analysts. Each newsletter also features an in-depth look at key macro issues influencing the markets and economy. Click here for additional information.) 

 

SBUX – Restaurants sector head Howard Penney continues to like Starbucks’ growth story.  Penney says SBUX’ strong Q3 earnings report merely highlights the power of what he continues to see as one of the best pure plays in global growth in his sector.  Cyclical factors, such as what appears to be improving coffee pricing, only add to the momentum as SBUX continues to push into new food and beverage segments worldwide, as evidenced by management’s focus on high-profile partnerships such as Danone and Google. 

 

INVESTING IDEAS SNEAK PEEK - sbux

 

Penney sees continued strong growth in China, even in the face of slowing Chinese GDP growth, and would not be spooked by poor compares in other restaurant companies’ China operations.  Penney acknowledges that SBUX is a “top pick” for many analysts.  Would it be counter-intuitive to point out that sometimes consensus is actually right?  Penney wouldn’t trade his high conviction call on SBUX for all the coffee in China.     

 

 

NKE – Nike’s fiscal first quarter draws to a close in just another few weeks. Sales of footwear in the retail channel have been choppy in recent weeks – averaging about 1-2%, though apparel growth has been about 3x what we’re seeing out of footwear, which is a nice offset.

 

INVESTING IDEAS SNEAK PEEK - nke

 

But the big data point we want to watch is Footlocker’s 2Q earnings, which are released on Friday the 23rd of August. The good news is that we think that expectations for Footlocker’s quarter are in check, which is positive because FL’s stock is often a barometer for NKE. After that we think that the near-term calendar lines up well for Nike with its results in late September, and then its analyst meeting in early October.

 

We would not want to bet against the name before then.


CASUAL DINING: IN A HOLE

Takeaway: We remain bearish on the casual dining sector.

This note was originally published August 09, 2013 at 14:58 in Restaurants

On Wednesday, Malcolm Knapp gave us a glimpse of how ugly sales trends were in July when he released his estimates for the month.  Although the numbers released by Black Box yesterday are not as dire, it remains clear that the industry is beginning 3Q13 in a hole and must play catch up in order to make the numbers.

CASUAL DINING: IN A HOLE - burg5 

As a refresher, Knapp reported that July 2013 same-restaurant sales declined -3.8%, while traffic trends declined -5.1% -- both metrics slowed sequentially over a markedly weak June.  Black Box numbers were slightly less gloomy, as same-restaurant sales declined -0.9%, while comparable traffic trends declined -2.2%.

 

 

CASUAL DINING: IN A HOLE - how1

 

CASUAL DINING: IN A HOLE - BBOX TRAFFIC

 

 

Currently, our Casual Dining Index (a compilation of 29 casual dining chains) is estimated to post same-store sales growth of +1.4% in 3Q13, before accelerating to +2.8% growth in 4Q13.  This would indicate, that for the balance of 3Q13, same-store sales need to accelerate by 200-300 bps to make the current estimates.  Knapp noted that while all four weeks in July were negative, each successive week in the month was sequentially better than the prior.

 

We believe a massive acceleration in trends will be difficult to achieve.  According to our Casual Dining Index, average same-store sales growth in 2Q13 was +2.1%, indicating that same-store sales for the period were up +1.7% on a LTM basis, down significantly from its +3.7% peak in 1Q12.

 

 

CASUAL DINING: IN A HOLE - yaaa

 

 

With the casual dining group trading at 23.5x P/E and 8.8x EBITDA (adjusted for CHUY and NDLS), it appears as though the market is expecting a noticeably sizeable acceleration in same-store sales.  While the job market continues to show signs of improvement, at least in the headline numbers, it seems as though the weakness we have seen in July can be partially attributed to a surge in gas prices.

 

 

CASUAL DINING: IN A HOLE - GASOLINE PRICES

 

 

Our top short in the casual dining space remains RRGB.  The company is due to release 2Q13 earnings on August 15h before the open.  We will post on anything incremental after the call.

 

 

 

Howard Penney

Managing Director

HPenney@hedgeye.com

 

 


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