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REMINDER: EMERGING MARKETS FLASH CALL TODAY AT 11:30AM EST

Today at 11:30am EDT, please join the Hedgeye Macro Team for a ~15min conference call titled “Paddling Upstream?: Navigating #EmergingOutflows”. On the call, Senior Analyst Darius Dale will host a live Q&A session regarding recent developments in EM financial markets and our outlook for those asset classes and the economies that underpin them.

 

CLICK HERE to download the accompanying 80-slide presentation; we look forward to fielding any follow-up questions you might have on today’s call. Please see below for the dial-in details.

 


THESIS:

 

  • We think a protracted tightening of global credit conditions driven by sustained USD appreciation and a back-up in US interest rates will weigh on growth in EM fixed investment via an inflection(s) in portfolio and FDI flows. That same tightening will also weigh on growth in EM consumption via an inflection in purchasing power as overvalued EM currencies continue to mean revert lower.
  • Moreover, we think global asset allocators in developed markets are simply running out of places to direct marginal investment flows and growth assets priced in a strengthening USD are one of the few places that remain attractive on a go-forward basis. The resurgence of European capital markets and a resumption of JPY-induced Japanese equity reflation also supports a continuation of the DM vs. EM bifurcation that we have seen accelerate in 2013. Thus, our #EmergingOutflows thesis should continue to play out in spades.
  • Lastly, we think the impact on China’s secular economic slowdown will weigh heavily upon EM economic growth, as China’s credit-fueled fixed assets investment bubble has been a primary driver of marginal demand for many/most of the larger emerging market economies’ exports. In particular, the policy-induced unwind of said bubble should sustainably slow export and FDI growth across key commodity-producing countries.

 

OUR PREVIOUS DEEP DIVES ON THIS TOPIC:  

 

  • CONFERENCE CALL & PRESENTATION: Q2 2013 MACRO THEMES (4/16): #EmergingOutflows: Consistent with our call for continued U.S. dollar strength and commodity deflation, we think the very early innings of the next round of emerging market crises is upon us. Sustained USD appreciation exposes EMEs to a variety of economic risks that asset allocators have not had to appropriately discount for over a decade.
  • CONFERENCE CALL & PRESENTATION: EMERGING MARKET CRISES: INDENTIFYING, CONTEXTUALIZING AND NAVIGATING KEY RISKS IN THE NEXT CYCLE (4/23): We currently see a pervasive level of risk across the emerging market space at the country level and have quantified which countries are most vulnerable. As such, we find it prudent for investors to reduce their allocations to emerging market equity and currency risk in favor of US equity and US dollar exposure. #StrongDollar and commodity price deflation have been and should continue to be key catalysts for EM underperformance.
  • EXPERT CONFERENCE CALL & PRESENTATION: WILL CHINA BREAK? (4/29): We co-hosted a conference call with our Industrials Team, led by Managing Director Jay Van Sciver, featuring Carl Walter, co-author of Red Capitalism: The Fragile Financial Foundations of China's Extraordinary Rise (2012). The Party’s use of state owned banks to drive economic growth through fixed asset investment has left the financial system loaded with bad assets. The bad assets mirror bad investments in the real economy. They also can limit the ability of Chinese banks to make new loans.
  • CONFERENCE CALL & PRESENTATION: ARE YOU SHORT CHINA [AND OTHER EMERGING MARKETS] YET? (6/12): We think the outlook for Chinese credit growth is structurally impaired. Moreover, we anticipate that growth in non-performing loans will accelerate sustainably over the long term. Lastly, we believe that net interest margins across the Chinese banking industry face immense regulatory headwinds that may ultimately have dire consequences for China’s fixed assets investment bubble.
  • CONFERENCE CALL & PRESENTATION: Q3 2013 MACRO THEMES (7/15): #AsianContagion: China sneezes and the rest of Asia catches the flu. #RisingRates and #StrongDollar continue to perpetuate #EmergingOutflows across the developing Asia region while a likely resurgence of positive sentiment surrounding the Abenomics agenda and continued yen weakness should help Japanese equities continue to outperform the region.

 

DIAL-IN DETAILS: 

 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 125514#
  • Materials: CLICK HERE

  

CONTACT 

For questions regarding this call or to schedule a 1x1 discussion with Darius directly, please email

 

Best regards,

 

The Hedgeye Macro Team


ISLE 2Q 2013 CONFERENCE CALL NOTES

Regional markets still struggling

 

 

"Our operating results continue to be impacted by the soft regional gaming trends and several of our properties were impacted by flooding and spring storms that occurred in the Midwest during May and June...Partially offsetting the softness were Pompano, Black Hawk, and Lake Charles which all experienced year over year increases in net revenue and combined adjusted EBITDA flow through of 60%. In Cape Girardeau we continue to refine our business model in order to ramp up the property....The increased adjusted EBITDA is a reflection of improved operating efficiencies and improved promotional spending.


"While customer feedback regarding the property (Nemacolin) has been extremely positive, initial results have not met our expectations.  Many local customers have told us they are having difficulty accepting the mandatory purchase requirement, which they view as an admission charge, that doesn't exist at other casinos in the region. We are exploring alternatives to make access to the casino more appealing and least disruptive to customers as possible. In addition we are making operating changes to match the level of customer demand."

 

-Virginia McDowell, President and Chief Executive Officer

 

CONF CALL

  • Continue to reduce operating expenses at corporate office
  • Excluding one-time items FY2014, there would have been a penny of income
  • Because of valuation allowance, going forward in FY2014, tax provision will be $1.4MM/Quarter regardless of P&L
  • FQ1:  $169MM debt on revolver; $1.050 BN notes; $3MM - other debt
  • Leverage: 6.6x; borrowing capacity is $95MM

Q & A

  • Consumer trends:  similar to competitors' comments, they see a decline in trips but spend per visit was higher by $4.  Retail revenue and lower-end customers have been weak as well. Consistent trends across different markets. Revenues have been consistent.
  • Cape:  slower ramp due to pressure from lower end and retail (most profitable customers). Thus, they need to build on rated databases. Would need a couple of years to fully ramp on the property.
  • Philly license:  $25MM LoC mgmt fee - if project is elected, the fee may be returned or put into capital structure. Timing - fall 2013 or later
  • Vicksburg/Jackson road construction will be completed by the end of September
  • Focus on deleveraging the company
  • Lake Charles market impact from Fertitta purchase:  nothing will change 
  • Rhythm City casino sale:  moving forward on schedule; need to finalize with non-profit partner
  • Interest coverage: 2.2x
  • Good correlation between customer habits and stock market
  • Competitive environment:  a couple of markets (mainly new markets) have seen heightened promotions
  • $2MM annual cost savings:  3/4 of the savings have been in place (not fully recognized in Q1)
  • Pompano:  targeted marketing strategies benefited the property more than the removal of slots at internet cafes
  • FL legislature:  Disney actively involved
  • Additional Cedar Rapids license?  No demand for that market, says ISLE.  Waterloo will not be significantly impacted.
  • Lumiere:  ISLE did take a look at it
  • Maintenance capital on slot equipment:  pretty constant
  • NJ i-gaming:  federal solution would be best; NV and NJ pairing up. ISLE cannot pursue i-gaming license in NV

Short Bearish Consensus

Client Talking Points

USD

The #StrongDollar is loving the continued strength in US economic data. Witness the August ISM beating big with an impressive New Orders print of 62.3. Boom. That looks very 2003 breakout-ish. It's something to noodle over as bearish consensus loathes the idea. It's the 4th up week in a row for US Dollar. The Yen is down in the face of that. Cue a +3.5% two-day move for the Nikkei to start September. Nikkei is now up +36.5% year-to-date. Correlation matters.

10YR UST

The 10-year Treasury punched the 2.90% line again yesterday. Economic surprises continue to fight the Fed’s dogma. It's at 2.87% this morning as we continue to see a healthy back-and-fill to another higher-low. We remain short the long-bond (TLT) and Junk (JNK) on our Top Q313 Global Macro Themes of #RatesRising and #DebtDeflation. Rinse and repeat.

COPPER

The Doctor definitely does not like this whole commodity bubble revival hope dance. It's fading fast (again) after yesterday’s bounce. Our Hedgeye TREND resistance of $3.39/lb remains firmly intact. Incidentally, our trend resistance for Gold is $1483. FYI, we’ve been just day trading the emotional side of that commodity.

Asset Allocation

CASH 28% US EQUITIES 25%
INTL EQUITIES 23% 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

Its time for @BarackObama to use weapons of mass currency appreciation against Putin's Oil @KeithMcCullough

QUOTE OF THE DAY

"America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves." -Abraham Lincoln

STAT OF THE DAY

The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

New Best Idea: Short Kinder Morgan

After extensive research and analysis, we have come to the conclusion that the nation’s largest combined energy infrastructure company and oil producer  – Kinder Morgan – is a house of cards, completely misunderstood and mispriced.

 

We will release a full report with our thesis and supporting evidence on Tuesday morning, 9/10/2013, to all Hedgeye Energy clients.  At 11am EST that morning, we will host a brief call for clients to hit on the highlights of the report, and take Q&A.

 

Key topics that we will hit on:

  •  “Like a toll road” – except for that E&P segment that generates +20% of KMP’s segment DCF.
  • Cut “Sustaining CapEx” to the bone…  How does Kinder Morgan do it?
  • How “Certain” are KMP’s “Certain Items”?
  • KMP’s investor presentation “returns” vs. actual returns to the KMP unitholder.
  • Dissecting the complex corporate structure: KMI, KMP, KMR, and EPB.
  • The absurdity of the Incentive Distribution Right (IDR) and the incentives it really creates.
  • $78 BILLION of combined market cap sitting on top of $1.6 BILLION of tangible equity?  A complete valuation analysis.

We are convinced that the Kinder Morgan complex will eventually collapse.  In our view, it is not a matter of if, it is a matter of when.   We look forward to presenting our work, and the debate that is sure to follow.

 

Kevin Kaiser

Senior Analyst

 

***All Hedgeye Energy clients will receive the report and conference call dial-in information early Tuesday morning.  If you are not already a client and are interested in our work, please email .***

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 4, 2013


As we look at today's setup for the S&P 500, the range is 28 points or 0.60% downside to 1630 and 1.11% upside to 1658.                             

                                                                                                  

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: 2.44 from 2.44
  • VIX  closed at 16.61 1 day percent change of -2.35%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Aug. 30 (prior -2.5%)
  • 7:45am: ICSC/Goldman Sachs weekly retail sales
  • 8:30am: Trade Balance, July, est. -$38.7b (prior -$34.2b)
  • 8:55am: Johnson Redbook weekly retail sales
  • 9:45am: ISM New York, Aug. (prior 67.8)
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 11:30am: U.S. to sell 4W bills
  • 12:30pm: Fed’s Williams to speak on monetary policy
  • 2pm: Federal Reserve releases beige book
  • 8pm: Fed’s Kocherlakota speaks at town hall forum

GOVERNMENT:

    • President Obama meets with Swedish Prime Minister Fredrik Reinfeldt in Stockholm
    • Noon: House Foreign Affairs Cmte hears from Sec. of State John Kerry, Sec. of Defense Chuck Hagel, Joint Chiefs Chairman Gen. Martin Dempsey on Obama’s response to Syria conflict
    • Noon: Former President Bill Clinton speaks on health care policy, Affordable Care Act
    • 1:30pm: Vice President Biden swears Thomas Perez in as 26th Labor Secretary

WHAT TO WATCH:

  • Aug. Auto Sales: Fleet sales now are profit-maker
  • LinkedIn plans $1b share sale, may use proceeds for M&A
  • Senate panel to vote on approving limited U.S. strikes on Syria
  • Putin demands proof of Assad attack to back strikes on Syria
  • Sprint seeks early U.S. airwaves auction as rivals urge delays
  • BofA sees $750m pretax gain from China Construction stake
  • Burkle demands sale of Morgans Hotel after CEO quits
  • Bear Stearns wins dismissal of Bank of America’s CDO lawsuit
  • Best Buy loses flat panel price-fixing trial against Toshiba
  • Euro-area exports drive economic rebound after record recession
  • Australia 2Q GDP beats ests., unexpectedly accelerates
  • U.K. services growth accelerates to fastest pace since 2006
  • Billionaire Packer buys 9.4% of Zillow as U.S. housing rises
  • KKR, Permira selling ProSiebenSat.1 stake worth $1b

EARNINGS:

    • Bazaarvoice (BV) 4:05pm, $(0.07)
    • Ciena (CIEN) 7am, $0.16
    • Dollar General (DG) 7am, $0.74
    • Francesca’s (FRAN) 4:01pm, $0.35
    • Greif (GEF) 4:16pm, $0.91
    • Navistar Intl (NAV) Bef-mkt, $(1.30) - Preview
    • SAIC (SAI) 4:05pm, $0.21
    • Verint Systems (VRNT) 4:05pm, $0.52

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Copper Slumps Most in Five Weeks on Concern Stimulus Will Slow
  • Rio to BHP Invest $244 Billion as Glasenberg Warns: Commodities
  • Soybeans Decline in Chicago Following Biggest Advance in a Week
  • WTI Crude Futures Decline as U.S. Weighs Intervention in Syria
  • Iron Ore Shipments From Port Hedland Increase as China Buys More
  • Gold Drops on Speculation Fed Will Slow Stimulus; Silver Falls
  • Baltic Dry Index Rises to 21-Month High on Iron Ore, Grains
  • Nickel Pig Iron Production in China Seen Jumping as Costs Tumble
  • Robusta Falls as Vietnam Harvest May Start Early; Sugar Declines
  • Indian Banks, Traders May Resume Gold Imports Immediately
  • Platinum 200-Day Moving Trend Shows 11% Jump: Technical Analysis
  • West Australian Grain-Crop Estimate Raised by CBH After Rain
  • Crude Supplies Drop in Survey on Driving Demand: Energy Markets
  • Natural Gas Extends Gains on Concern Storms May Curb U.S. Output

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

 

 

 

 

 

 

 

 

 

 

 

 


September 4, 2013

September 4, 2013 - DTR

 

BULLISH TRENDS

September 4, 2013 - 10yr

September 4, 2013 - spx

September 4, 2013 - nik

September 4, 2013 - dxy

September 4, 2013 - euro

September 4, 2013 - oil

September 4, 2013 - natgas

 

BEARISH TRENDS

September 4, 2013 - eem

September 4, 2013 - VIX

September 4, 2013 - yen
September 4, 2013 - gold

September 4, 2013 - copper


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