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Sell the Fear

Client Talking Points

US DOLLAR

It held! The U.S. Dollar Index TAIL risk line of $79.21 support holds as the Burning Buck v-bottoms off USD/YEN $96.45 TREND support too. Yes, Japanese and U.S. stocks will definitely like that development, especially if SPX recovers its 1663 TREND line. There are 23 handles of immediate-term upside in the S&P 500 if the VIX snaps 18.98. 

VIX

Front month-fear is as much an opportunity on the upside for U.S. Equities now as it was a risk to the downside. If our 18.98 TREND line snaps today (and 1663 SPY holds), this could be one of the many 2013 #EOW (end of world) head-fakes perpetuated by #OldWall’s government access media. Sell the fear.  

DAX

We bought Germany’s stock market back on red yesterday as it tested and held our immediate-term TRADE line of 8508 support. The fact of the matter is that European stocks couldn’t have cared less about US “default” fear-mongering.Our macro team will go through why we like German stocks in our #EuroBulls Macro Theme for Q413 tomorrow.

Asset Allocation

CASH 49% US EQUITIES 16%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

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.

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.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

TREASURIES: 10yr yield holds our #RatesRising @Hedgeye TREND line of 2.58% like a champ @KeithMcCullough

QUOTE OF THE DAY

One of the greatest pains to human nature is the pain of a new idea.
-Walter Bagehot 

STAT OF THE DAY

The Yield Spread (growth signal) is up 8 basis points in the last 48 hours. In other words, there is no default fear there this morning.


October 10, 2013

October 10, 2013 - dtr

 

BULLISH TRENDS

October 10, 2013 - 10yr

October 10, 2013 - spx

October 10, 2013 - dax

October 10, 2013 - nik

October 10, 2013 - VIX

October 10, 2013 - euro

October 10, 2013 - oil

October 10, 2013 - natgas

 

BEARISH TRENDS

October 10, 2013 - yen

October 10, 2013 - gold
October 10, 2013 - copper

 


BLACK BOOK CONFERENCE CALL: SLOTHY GROWTH

Reminder that our slots Black Book conference call will be held at 11:00am today.

 

BLACK BOOK CONFERENCE CALL: SLOTHY GROWTH - gll2

 

TOPICS WILL INCLUDE: 

  • Stocks of the big U.S. gaming supply companies are up 30% to 95% on the year yet big fundamental hurdles have emerged.
  • How will these same stocks fare over the coming months and years in the face of stagnating replacement demand, a dearth of new markets, pricing pressure, and bad demographics?
  • We'll analyze the issues - there are many - and explain who is at risk and for how long.

 

RELEVANT TICKERS:  BYI, IGT, SGMS, WMS, MGAM, ALL.AXKNM

 

CALL DETAILS

 

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 187413#
  • MaterialsCLICK HERE

 

 


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 80.65%
  • SHORT SIGNALS 78.64%

THE M3: PACKAGE TOURS DROP 80%; COD MANILA; HAINAN

THE MACAU METRO MONITOR, OCTOBER 10, 2013

 

 

PACKAGE TOUR DROPPED BY 80% DUE TO NEW TOURISM LAW Macau Daily News

According to some travel agencies, package tour dropped by 80% after the new tourism law took effect, while package tour were all fully booked in September.  Package tour price went up from the previous HK$2,000 - $3,000 to as high as HK$6,000.  However, the new law has seen no impact on tourists visiting under the Individual travel scheme.

 

MANILA TO GET ITS OWN CITY OF DREAMS RESORT Macau Business

The City of Dreams Manila project, set to open in mid-2014, now requires an initial outlay of US$680 million, or US$60 million more than previously announced, said CEO Lawrence Ho. MPEL said Philippine gaming regulation amendments had allowed it to increase the number of gaming tables and machines.

 

City of Dreams Manila is now anticipated to be able to operate up to 365 gaming tables, 1,680 slot machines and 1,680 electronic table games upon opening.  The increased budget was also due to its decision to use its City of Dreams and Crown Towers brands for the property. 

 

FOSUN TO PARTNER CASINO FIRM IN US$1.5 BILLION HAINAN RESORT SCMP 

Chinese conglomerate Fosun International is teaming up with South African hotelier and casino king Sol Kerzner’s company to build a US$1.5 billion resort on China’s holiday island Hainan, a Kerzner official said.  The 62-hectare property, which will feature a water park and luxury 1,300-room hotel, will be located in Hainan’s southern coastal city Sanya.


Kerzner, which operates the Atlantis casino resort in the Bahamas and Atlantis hotel on Dubai’s artificial Palm Island, says the resort in Sanya will not include a casino.



NKE: I'd Hate to Have to Compete With This Model

Takeaway: NKE's growth algorithm, return profile, widening gap in category dominance, and astounding product pipe are all near impossible to match.

Conclusion: NKE's growth algorithm, return profile, widening gap in category dominance, and astounding product pipe are all near impossible to match. Simply put, it deserves its 20x+ multiple all day. This stock won't make you rich here, but it'll still make you money -- and with a very low risk profile. Here are some of our key takeaways from the company's analyst meeting.

  1. Focus: There were no startling revelations at the Nike analyst meeting (as we expected). But the focus and cohesiveness of the new management team was exceptional.
     
  2. A cliché worth repeating. The company remains maniacal in its quest to innovate. That sounds like a cliché when talking about Nike, because it’s all management from the CEO on down ever talks about.  But in evaluating the product pipeline, it’s abundantly clear that literally no one can compete effectively with Nike without a painful outsized capital outlay.
     
  3. The biggest area that surprised me was with its Women’s product. Apparel, in particular, has taken a major leap forward. Nike has LULU right in its crosshairs. That’s not say Nike will beat LULU (quite frankly, we’re not sure it ever will) – but it’s finally got a formula that could compete. Very important because only 16% of sales are women. Goal in 3-years is 23%.
     
  4. FINALLY. Nike finally discussed a key initiative we’ve been talking about for two years – the ability to manufacture customized product (by color and size) at point of sale.  Think about it – the model for footwear makers over the past 4 decades has been to design product in the US, and then to outsource to Asia – the entire process taking nine months at the earliest.  Now, they’re introducing the capability for a consumer to walk into a store and build their own shoe at a kiosk. They’ve had that capability through NikeID at their own stores for a while. But those orders still go to one of its 700 third-party plants in Asia to be processed. Now the product is being manufactured right there…on the spot. So basically, a consumer could go into the store, build a shoe electronically, then go to Chick-fil-A for a bite to eat, and return an hour later and their shiny new kicks will be waiting.  This is an absolute game changer, and it’s one that no other brands have the scale to compete with.  Sound expensive for Nike? Ask yourself this…what retailer on the planet would not give their left arm to have one of these Nike kiosks/mini-manufacturing hubs in their stores? It’s be a big competitive advantage, and one that we think would lead the Foot Locker’s of the world to lay out the capital needed on their own balance sheet.  Nike only allocated 90 seconds to this at their meeting. It was worthy of a full hour. We think that people will grossly underestimate the importance of this initiative (no one even asked any questions on it).
     
  5. Finally using digital data for commercial purposes: Another bit of food for thought. For years now, Nike has been collecting data through its Nike+ digital initiative, Nike Fuelband, and Nike Training Club (iPhone/Pad app). It appears that the company is finally reverse engineering the data in a way to both create and improve and of course innovate product. It’s almost like how Wal-Mart uses RFID to learn the shopping patterns of its shoppers. Nike is finally harnessing all the data it collects and is turning into commercial opportunity.  
     
  6. Nike is expensive, and it should be. While we wish there was a bit more controversy on the name, the reality is that it is executing so well that it’s tough to poke holes in its growth algorithm and business visibility. CFO Don Blair noted that its goal is to generate returns in the upper quartile of the S&P. That goal to us seems modest. With 9-10% top line growth, 30bp-50bp in gross margin improvement each year as Nike builds its Direct model, better than 25% ROIC, and all the capital it needs ($5bn) to return shareholders – it’s safe to say that not many companies (in the S&P, Dow, or the whole market for that matter) could match Nike’s growth algorithm, category dominance, stability in growth, and return profile. Simply put, it deserves its 20x+ multiple all day. This stock won't make you rich, but It'll make you money -- with a low risk profile.

 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 10, 2013


As we look at today's setup for the S&P 500, the range is 28 points or 0.33% downside to 1651 and 1.36% upside to 1679.                          

                                                                                                     

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 2.31
  • VIX closed at 19.6 1 day percent change of -3.64%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Bank of England seen maintaining 0.50% bank rate
  • 7:45am: BoJ’s Kuroda speaks at Council on Foreign Relations
  • 8:30am: Initial Jobless Claims, Oct. 5, est. 310k (prior 308k)
  • 9:45am: Bloomberg Consumer Comfort, Oct. 6 (prior -29.4)
  • 9:45am: Fed’s Bullard speaks on monetary policy in St. Louis
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to purchase $1b-$1.5b TIPS in 2018-2043 sector
  • 12:20pm: ECB’s Draghi speaks in New York
  • 1pm: U.S. to sell $13b 30Y bonds in re-opening
  • 1:45pm: Fed’s Tarullo speaks on regulatory reform in D.C.
  • 2:30pm: Fed’s Williams speaks on economy in Boise, Idaho

GOVERNMENT:

    • Sec. of State John Kerry in Bandar Seri Begawan, Brunei, for U.S.-ASEAN Summit and East Asia Summit; leaves for Malaysia to meet officials, attend Global Entrepreneurship Summit
    • 8am: Treasury Sec. Jack Lew testifies at Senate Finance Committee on debt limit
    • 8:45am: World Bank President Jim Yong Kim holds press briefing
    • 9:30am: IMF M.D. Christine Lagarde speaks to press
    • 10am: Senate Banking, Housing and Urban Affairs Committee holds hearing on consequences of default on financial stability, economic growth, with American Bankers Association CEO Frank Keating, Sifma present Kenneth Bentsen Jr.
    • 1pm: House Natural Resources panel holds hearing on EPA and mining jobs

WHAT TO WATCH:

  • Sept. U.S. same-store sales seen slowing from Aug.
  • Debt-limit prospects gain as both sides open to short-term deal
  • Hong Kong raises haircut on U.S. bills for margin cover
  • Samsung set for $1.4b windfall after Seagate stock sale
  • Microsoft’s board said to work on hiring new CEO this year
  • Jarden’s Franklin close to buying MacDermid to add chemicals
  • Blackstone receives first-round bids for La Quinta: WSJ
  • KKR to pay $1b for industrial-products makers Crosby, Acco
  • Manhattan apartment rents fall for the first time in 2 years
  • ECB agrees to bilateral currency swap agreement with PBOC
  • Telecom Italia is said to value Brazil stake at $12b
  • Libyan PM seized from hotel by revolutionary group in Tripoli

EARNINGS:

    • Angiodynamics (ANGO) 4:01pm, $0.03
    • Bank of the Ozarks (OZRK) 6pm, $0.60
    • Blackhawk Network (HAWK) 9am, $0.05
    • E2Open (EOPN) 4:05pm, $(0.15)
    • iGATE (IGTE) 6:45am, $0.43
    • Lindsay (LNN) 7am, $0.91
    • Marriott Vacations Worldwide (VAC) 8am, $0.39
    • Micron Technology (MU) 4:04pm, $0.23 - Preview
    • Safeway (SWY) Aft-mkt, $0.16 – Preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Brent Crude Rises as Libya Prime Minister Freed From Detention
  • Soybean Reserves Reach Record as Goldman Sees Slump: Commodities
  • Cocoa Reaches 21-Month High on Demand Indications; Robusta Rises
  • Copper Rises on Speculation U.S. Will Avoid Defaulting on Debt
  • Gold Falls as Investors Weigh Prospects for Debt Deal, Tapering
  • Tin Membership Increases at ICDX as Indonesia Targets Benchmark
  • Gold Seen Lower by Morgan Stanley in 2014 as Goldman Says Sell
  • Soybeans Climb on Supply Outlook Before South American Harvests
  • Japan Buys Least Milling Wheat in 3 Months in Regular Tender
  • Refiner Gains in Asia to Rebound as Units Shut: Energy Markets
  • Cold European Winter Could Create Energy Crisis, Cap Gemini Says
  • Costlier CO2 Permits Boost Long-Term EU Gas Demand: Bull Case
  • Apple to Toyota Seen Gaining From Thailand’s Upgrade: Freight
  • Rebar Rises on Bets Chinese Economic Growth to Support Demand

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

 

 

 

 

 

 

 

 

 

 

 

 

 


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