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Strong Dollar = Weak Putin

Yes - oil prices like Putin.


Strong Dollar = Weak Putin - poo99


Brent Oil broke its immediate-term momentum line of $115.11 last week. But it held our TREND support line and bounced right where it should have.


Higher oil prices remain the biggest risk to global consumption growth. There’s only one real way for President Obama to fight Vladimir Putin on this – weapons of mass US currency appreciation.


In other words, America needs #StrongDollar.


Strong Dollar = Weak Putin - drake1

(Editor's note: This brief excerpt is from Hedgeye's morning research. For more information about our products please click here.)

Jobless Claims +10YR UST

Remember. The only leading indicator that fits the 10-year yield like a glove is the Non Seasonally Adjusted rolling Jobless Claims series.




Jobless Claims +10YR UST - pow1


Irrespective of today’s data, the Trend in claims has been one of accelerating improvement and both the market and 10Y bond yields continue to track the labor market strength higher.  


Jobless Claims +10YR UST - pow2


TODAY’s DATA:  Pretty from far, far from….(bad)


Superficially, both the seasonally-adjusted (292K) and non-seasonally adjusted claims (229K) data this morning were outstanding, with the respective series hitting new 7 and 13 year lows. 


The headline strength was belied by the fact that both the labor day holiday and computer upgrades in two states, which apparently limited a fully tally in those states, served to artificially lower the reported figures.    


The simple takeaway is that given this week’s data caveat, we’re inclined to just stick with broader trend.  Last week’s claims data reflected the strongest rate of YoY improvement YTD and a new multi-year cycle low in the absolute figures. For perspective, even if NSA claims had been 38K higher and SA claims +42K higher than what was reported this week, we’d still be flat with last week’s rate of improvement in the 4-week rolling average.  


Irrespective of today’s data, the Trend in claims has been one of accelerating improvement and both the market and 10Y bond yields continue to track the labor market strength higher.  







SEASONALITY:  Its impacts have been pervasive, are we breaking the cycle in 2013?


Rather than debate the vagaries of today’s claims release, given that we’re now at the inflection point for seasonality, we thought it worthwhile to recap how seasonality has manifest in markets prices and investor psychology over the last four years.


To Review:  As we’ve highlighted repeatedly over the last number of years, strong and quantifiable seasonal adjustments have had a meaningful impact on the temporal trend in reported economic & employment data over the last four years.  In short, the shock in the employment series in late 2008 – early 2009 which occurred alongside the peak acceleration in job loss during the Great Recession was captured, not as a bona fide shock, but as a seasonal factor.   


The net effect of this statistical distortion is that seasonal adjustments act as a tailwind from September – February, then reverse to a headwind over the March-August period. So, as we now move through September, seasonality will again transition to a data tailwind through 1Q14. 


Below we (re)highlight how the reported macro data, equity market performance, investor sentiment and analyst estimates have all followed a similar annual, temporal pattern.  With the Fed expected to pull back on easing in 3Q (whereas incremental easing had been implemented in 3Q in prior years) and the seasonal distortion having a diminishing impact in each successive year, it would be unsurprising to see some different or more muted iteration of the recurrent cycle in 2013-14 go 'round. 


However, from a strategy perspective, and regardless of the monetary policy shift, the pattern is still worth remembering/being cognizant of as seasonality will again build as a support to the reported domestic macro numbers over the coming months. 



Source: Hedgeye Financials





INITIAL CLAIMS:  'TIS THE SEASON - US Economic Surprise Index Seasonality


INITIAL CLAIMS:  'TIS THE SEASON - SPX NTM Revenue Revision Spread Seasonality




Christian B. Drake

Senior Analyst

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

[VIDEO] McCullough: Punish Putin In Pocketbook



Hedgeye CEO Keith McCullough says a stronger dollar and lower oil price are weapons President Obama could use against Russian President Vladimir Putin, leading to the US dealing from a position of strength.


"You look at Putin and he's pushing us around. The No. 1 weapon that we have as a country that neither [former President George W.] Bush or Obama has used is called a weapon of mass currency appreciation, the dollar," McCullough told Newsmax TV in an exclusive interview. 

"Putin doesn't exist, [former Venezuelan President Hugo] Chavez... wouldn't have existed, neither do these Middle Eastern overlords that capitalize on oil, if a weak dollar doesn't exist."

LINN Energy Updates (LINE, LNCO, BRY)

A busy two days for LINN Energy (LINE, LNCO).  Below are some details and comments around the recent headlines.


On the 9/11/13 press release:


Quoted in full: “[LINN, LinnCo, and Berry] announced today that LINN Energy and LinnCo recently received comments related to the Amended Registration Statement on Form S-4 filed on August 9, 2013 in connection with the proposed merger transaction, and are working diligently to file an Amended Form S-4. Furthermore, LINN Energy, LinnCo and Berry Petroleum have agreed to set the record dates for their respective unitholder, shareholder and stockholder meetings as of September 30, 2013.”

  • We consider yesterday’s reaction to this press release (LINE +13%, LNCO +12%) an over-reaction.  The market took a press release with little information to be quite positive. 
  • The fact that LINN “received comments” from the SEC is not surprising or informative.  We also know nothing as to the extent or content of those comments. 
  • The fact that LINN will file another amended S-4 is not necessarily a good thing.  Many believed that the 8/9/13 S-4/A was the last one.
  • Setting the record date to 9/30/13 only means that this is the last day to be “on record” as a shareholder of BRY, LINE, or LNCO to participate in a vote.  Even if LINN files the amended S-4 in the next few days, the SEC could take 3 – 4 weeks to make it effective, with a vote taking place 3 – 4 weeks later.  We believe it will be difficult to get a vote done before the October 31st “End Date.”  However, we do believe that both LINN and BRY are strongly committed to getting a deal done, and will extend the “End Date,” if the merger cannot be completed by October 31st.  In our view, it is a matter of where the share prices are when it's time to do the deal, not whether or not BRY is still interested.  As far as we know, BRY is still interested.
  • The real risk to a LINN position (long or short) in the near-term is the outcome of the ongoing SEC informal inquiry.  We have no insight or opinion on what the SEC will or will not do.  We call this "open the envelope" risk.  The outcome of the SEC inquiry will drive the share prices of LINE/LNCO, which will drive the viability of the merger.  If we assume that BRY needs $47/share to get a “yes” vote from shareholders, LNCO needs to get to $37.60 (+17%) for the 1.25x exchange ratio to hold.  LINN could also improve the deal terms considerably (up to a ~1.95x ratio) before erasing all DCF accretion.  On a FCF/share basis, the deal is dilutive even at 1.25x.
  • As we explained in our note on 7/18/13, “Tying Two Rocks Together - The LINN/BRY Merger,” we don’t believe that the BRY merger is a long-term positive for LINN, though getting the deal done would likely drive the share price higher in the near-term as investors would regain confidence in this growth strategy.  We believe that the outcome of the merger - which relies upon the outcome of the SEC inquiry -  is uncertain and difficult to handicap.

On the 9/12/13 asset acquisition:


Deal is positive for LINN.  LINN announced a $525MM acquisition in the Permian Basin this morning.  It is expected to close in 4Q13.  It will be financed with a committed term loan (LIBOR + 2.5%).  We estimate that this deal will be ~$0.13/unit (4.3%) accretive to DCF in year one, however our estimates rely upon pretty loose guidance/information from the Company.


We estimate that LINN acquired the asset for 6 – 7x NTM open EBITDA.  LINN bulls will likely be glad to see the Company getting back to its bread-and-butter, acquisitions.  The press release curiously leaves out some important information, such as current production, % PUDs, and future capital needs. The deal will close in 4Q13, so we will get one more quarter of LINN’s organic numbers.  No information provided wrt hedging the new volumes.  And we note that LINN no longer uses the term “distributable cash flow,” but “cash available for distribution.”  Interesting, but no telling what that means…

  • Production is expected to be 4,800 boe/d over the NTM, 63% oil, and from the Clearfork formation.  The Clearfork is a shallow interval in the Permian and is generally targeted with conventional, vertical wells, though some operators are testing its Hz potential, like FANG.  In our view, it is odd to give NTM production guidance but not current production guidance.  LINN paid $109k/boe/d on NTM production, but the actual acquisition multiple could be higher if LINN plans on investing capital to grow into that number.
  • Proved reserves = 30 MMboe (~70% oil).  Importantly, a PD/PUD split was not disclosed.  If we assume 35% of acquired reserves are PUDs and a future development cost (FDC) of $20/boe, that gives us $210MM of undiscounted, FDC.  The acquisition multiples in the case would be $27/PD boe and $24.50/proved boe (including undiscounted FDC). 
  • 6,250 net acres.  124 producing wells (50 acres/well).  Additional drilling opportunities = 300 proved “low-risk, infill drilling locations.”
  • It’s difficult to know what LINN really paid here, as the press release leaves out important details such as current production, % of PUDs, and the amount of capital that LINN is to invest over the NTM to hit the 4,800 boe/d guidance.  We estimate that the asset will generate ~$89MM of open EBITDA over the NTM using LINN’s guidance and our own assumptions, putting the headline number at 5.9x EBITDA.  But if LINN is to spend any capital to generate that EBITDA (it likely is), the multiple could be closer to 6.5x – 7.0x.  Regardless, LINN trades at ~10.0x open EBITDA, and this is an accretive deal.

Kevin Kaiser

Senior Analyst

Morning Reads on Our Radar Screen

Takeaway: A quick look at some stories on our radar screen.

Keith McCullough – CEO

A Plea for Caution From Russia (KM note: It’s time for Obama to shut Putin up with currencies of mass appreciation aka #StrongDollar > via New York Times)

Jobless claims drop below 300,000 (via Marketwatch)

Li Says China Rebound Not Yet on Solid Foundation (via Bloomberg)

China Statistics Chief Says No Tolerance for Fake Data (via Bloomberg)

Colombia arrests woman 'with cocaine' in pregnancy bump (via BBC)


Morning Reads on Our Radar Screen - poo9


Todd Jordan – Hotels & Gaming

Hilton Worldwide Files for $1.25B I.P.O. (via DealB%k)


Howard Penney – Restaurants

Review: Mighty Wings from McDonald’s (via GrubGrade)

Dunkin' Donuts to Enter UK Market (via WSJ)

Inheriting the Family Apron (via New York Times)


Josh Steiner – Financials

U.S. Bank mortgage chief sees tough conditions ahead for industry (via StarTribune)

Umpqua Agrees to Buy Sterling Financial for $2 Billion (via Bloomberg)


Jonathan Casteleyn – Financials

Blackstone’s Hilton Files for $1.25 Billion IPO in U.S. (via Bloomberg)


Kevin Kaiser – Energy

The Best 9/11 Survival Story You've Probably Never Read (via Esquire)

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