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THOUGHTS AHEAD OF CCL F4Q

Uncertainty reigns in the Caribbean but what will move the stock tomorrow?

 

 

 

Street already expecting lower guidance

  • Our recent pricing survey indicates continued volatility and discounting – FQ1 will be challenging
  • We expect management to provide guidance below the Street – flat yields – but that is already reflected in investor expectations
  • Indifferent on the stock heading into earnings but any price weakness could be buying opportunity since we believe conservative guidance will ultimately be achieved and potentially exceeded

As we highlighted in our cruise pricing survey conference call* yesterday, Caribbean pricing, particularly for CCL remains volatile.  Given the observed pricing volatility and pre-Wave uncertainty, we believe Carnival may issue conservative FY2014 guidance as part of its FQ4 earnings release tomorrow.  We’re expecting net yield guidance of -1% to +1%, which would suggest a midpoint of around $1.45 EPS, below consensus of $1.57. 

 

With the stock up 14% since our last positive price pivot signal from our survey in mid-October, one could surmise that the Street is optimistic about 2014 earnings.  We don’t think so.  Our conversations with investors indicate that they are already expecting lower guidance.  Certainly investors know that F1Q will be very challenging and the real juice is in Wave season, which hasn’t begun.  The newly minted CEO, Arnold Donald, will want to keep guidance beatable and since buy side expectations are already low, why not take advantage?

 

So what about the stock?  For the stock to move down significantly, we believe 2014 yield guidance would have to be negative, in our view.  On the positive side, the stock could pop on management endorsement of existing consensus or guidance only slightly below.  We’re indifferent on the stock into earnings but maintain that it could be a buying opportunity if investors react negatively.  The reasoning is simple.  We believe management’s guidance will be achieved and likely beat.

 

What kind of operating commentary will management provide?  They should emphasize that there is currently a seasonal lull before Wave season.  We think they will reiterate the long road to recovery for the embattled Carnival brand and are seeing improving signs albeit gradually.  The Caribbean continues to be fiercely competitive, particularly in the mass segment, with additional supply entering the market e.g. Norwegian Getaway (Feb 2014) and Quantum of the Seas (Dec 2014).  In addition, they should be cautiously optimistic on Europe.  Though this winter will be tough due to inclement weather, Europe is looking brighter for the summer itineraries.  Finally, we expect management to sway positively on Alaska. 

 

Here are our current projections for FQ1 and FY 2014:

 

THOUGHTS AHEAD OF CCL F4Q - ccc

 

*Note:  We hosted a conference call yesterday highlighting the results of our proprietary cruise pricing survey.  Please contact your sales contact if you’d like to hear the replay.


[video] Real Conversations: The #Fed, Tapering & the Future


Will Bernanke Burn the Buck?

Client Talking Points

UK

#Boom. Just an awesome unemployment report for the UK. 7.4% in October versus 7.6% last. The Pound understandably loves it. Right now it's re-testing the highs versus the US Dollar as the Bank of England Keynesian Quacks whine about how a #StrongPound “threatens the recovery.” Huh? Please. It's perpetuating it!

INDIA

India's Central Bank Chief Raghuram Rajan says no more rate hikes for now. No surprise here - Indian stocks loved that. The BSE Sensex jumped +1.3% back above our signal breakout line at Hedgeye of 20,754. If Ben Bernanke Burns The Buck (again) buy India. It's good for Emerging Markets.

OIL

Brent Oil is snapping our Hedgeye TAIL risk line of $108.69 again here this morning. That’s a very good thing for consumers (it's a tax cut) because Bernanke is hell bent on reflating the commodity bubble otherwise. Speaking of Ben, stock futures are up ahead of the no-taper expectation; Ben will really throw this thing for a loop if he flips again.

Asset Allocation

CASH 44% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 8%
FIXED INCOME 8% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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.

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

Newsflash: #StrongCurrency perpetuates recoveries @KeithMcCullough

QUOTE OF THE DAY

“Concentrated power is not rendered harmless by the good intentions of those who create it.” - Milton Friedman

STAT OF THE DAY

German business confidence rose to the strongest in 20 months in a signal that the pace of recovery is quickening in Europe’s largest economy.


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December 18, 2013

December 18, 2013 - Slide1

 

BULLISH TRENDS

December 18, 2013 - Slide2

December 18, 2013 - Slide3

December 18, 2013 - Slide4

December 18, 2013 - Slide5

December 18, 2013 - Slide6

December 18, 2013 - Slide7

December 18, 2013 - Slide8

December 18, 2013 - Slide9

 

BEARISH TRENDS

December 18, 2013 - Slide11

December 18, 2013 - Slide12

 



Kingly Government

“It will be said that we don’t propose to establish Kings.”

-Benjamin Franklin

 

But there is a natural inclination in mankind to Kingly Government. It sometimes relieves them from the Aristocratic domination. They had rather have one tyrant than five hundred.” –Benjamin Franklin (The Liberty Amendments, pg 25)

 

I just love that quote. And how appropriate for a fresh winter’s morning when our central planning overlords are going to speak down to us from upon high. It’s Federal Reserve day, baby! Just like your Founding Fathers planned it.

 

On tapering, our Kingly Government’s leaky-peaky-media-access-group seems a little confused as of late. Between the WSJ’s Hilsenrath and CNBC’s Liesman flip flopping on what the Fed is going to do today, at a bare minimum it makes for great TV, on mute.

 

Back to the Global Macro Grind

 

Did King Bernanke cut these poor peons off? What is up with that by the way? Forcing these dudes to think for themselves during the holiday season is just mean.

 

In all seriousness, trying to front-run the Fed without inside information isn’t easy. Reading the tea leaves on what Mr. Macro Market expects in real-time is the best we can do. If Bernanke tapers today, he’ll certainly shock me. But that’s not new.

 

What is new is US equity market volatility. What’s driving an intermediate-term TREND breakout in front-month stock market volatility (VIX) above our 14.91 signaling line is very simple – monetary policy confusion.

 

And in markets (which trade on expectations, not academic theories), confusion breeds contempt. If you follow the bouncing ball of expectations:

 

1. MONETARY POLICY: what the Fed should have done in SEP (taper) wasn’t done, so confusion rules

2. CURRENCIES: confusion drives Global FX volatility; most markets are keying off what the US Dollar does

3. EQUITIES: since spoos like no-taper (but worry that there should be a taper) they whip around (on no volume)

 

One of our biggest subscribers (he runs $18B in equity assets) nailed it in an email to me yesterday. Effectively, he thinks he knows what to do, but he’s not sure – and he definitely doesn’t like the process of discovery:

 

“I need to take the pulse of the patient everyday and I would really like to take the pulse without a pacemaker attached!”

 

#Pacemakers. That’s what the Fed should get us Canadian catholic boys for Christmas – we can attach them to a Demark dongle on our Bloomberg machines and any time Hilsy or Liesman whispers another flip to their flopping Fed leaks, we get a little jolt.

 

In other news…

 

Economic data in the United Kingdom continues to improve at an accelerating rate. On the heels of a #StrongPound, strengthening purchasing power, and falling consumer prices, the UK unemployment rate just dropped to 7.4% from 7.6%.

 

This, of course, has the former Keynesian kings of the Bank of England all squirreled up.

 

After all, they cannot allow the only thing that perpetuates economic recoveries for sustainable periods of time (#StrongCurrency) to threaten their un-elected political power.

 

Or is that “threatening the recovery”?

 

I couldn’t make this up if I tried, but after one of the best British runs of positive (think rate of change) economic data since the early Thatcher years (oh did she #timespank those British Keynesian boys publicly!), this is the headline in Europe this morning:

 

“BOE WARNS FURTHER POUND APPRECIATION THREATENS THE RECOVERY”

 

All the while, the Swiss reported an awesome confidence reading for DEC (ZEW index 39.4 vs 31.6 in NOV) after the Germans did yesterday (Germany’s ZEW accelerated to 62 in DEC vs 54.6 NOV).

 

Damn that #StrongEuro!

 

How dare economic gravity take hold and the most coincident indicators of economic health (a country’s currency) perpetuate confidence amongst The People?

 

But there is a natural inclination amongst group-thinkers towards “certainty” in economic forecasting and policy making. It sometimes relieves people who are trying to cover their political bottoms because they don’t have to be accountable to the policies themselves.

 

They had rather have one central planning god than a free market.

 

Our immediate-term Risk Ranges are (my Top 12 Daily Macro Risk Ranges are its own product now):

 

VIX 14.30-17.08

USD 79.79-80.44

Pound 1.63-1.65

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Kingly Government - Chart of the Day

 

Kingly Government - Virtual Portfolio


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