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REPLAY: U.S. Economy Update Call: What Is Priced In?

This morning Keith McCullough and the Hedgeye Macro team hosted a flash call updating their view on the U.S. economy, discussing what is priced into assets after the recent sell-off and how to be positioned for the continued manifestation of  #InflationAccelerating and #GrowthDivergences

 

The presentation and replay information can be accessed via the links below:

 

PRESENTATION >> HERE

REPLAY >> HERE

 

KEY TOPICS DISCUSSED

  • #GrowthDivergences:  Since our 1Q14 Macro Investment Themes call on 1/9/14, the incremental fundamental data has continued to reflect a deceleration in the slope of domestic growth.  We survey the latest income, housing, manufacturing and consumption data and the implications for equity and asset class positioning. 
  • #InflationAccelerating:  Long inflation expectations and #GrowthSlowing has been the positioning playbook YTD with the CRB commodities index accelerating, Utilities and Healthcare leading sector performance and low short interest, low beta, and large cap style factors driving relative equity out-performance. We discuss whether to remain long this trend.  

 

- Hedgeye Macro        


PENN 4Q 2013 YOUTUBE

In preparation for PENN FQ4 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

SSS

  • On a same store sales basis, where the gaming industry in terms of our view looks no different than what you're seeing from a retail sales perspective. It's sluggish and it's troubling.

CANNIBALIZATION

  • We do have two cannibalization events next year. One is the opening of the Horseshoe Casino in Baltimore that will cannibalize our Charles Town facility. And then we have a few of the race tracks that are opening in Ohio will cannibalize predominantly the Lawrenceburg facility. But to a smaller extent, they'll take some of the growth out of the Columbus facility also, one of those being our facility opened in Dayton.
  • The cannibalization should largely be over after next year. I think we only have one other known event, which is probably a 2016 event, best case.

HOLLYWOOD ST. LOUIS RENOVATION

  • We've been going through a rebranding process. We'll be about $670 million of total purchase price into this facility after the rebranding is done. The facility will be completed just before Christmas, so it will be open for the all-important New Year's week late this year.
  • We are putting about $60 million into it. About $35 million of that is on the construction side, and the rest of it is in systems to replace the slot system, replace the general ledger. I think they've got about $7 million of it went to IT. The rest of it went to slot machines to bring the floor up to speed. We usually run on about a 7, 7.5 year cycle in floor replacement, and it was behind that, so we kind of wanted to get it into our spectrum of comfortable.

MAHONING VALLEY AND DAYTON 

  • Total project cost of these is a little bit over $500 million, Penn is responsible for about basically $320 million. A portion of that will be paid in 2014, with the remainder paid in some payments over the next nine years to the State of Ohio. There's a license fee, which is $50 million per facility. $25 million of that is due in 2014, $25 million is due a year after that. And then there's relocation fees of $75 million per facility. $15 million is paid at open, and then about just under $20 million paid per year for the nine years after that.

ZIA PARK

  • The Zia Park Hotel is going to open late in 2014

JAMUL INDIAN VILLAGE

  • Started construction on Hollywood Casino Jamul, projected to open in late 2015, is expected to include a three-story gaming and entertainment facility of approximately 200,000 square feet, featuring over 1,700 slot machines, 50 live table games including poker, multiple restaurants, bars and lounges and an enclosed below grade parking structure with over 1,900 spaces.
  • It's a 30% of net income management contract.

[podcast] Keith's Macro Notebook 2/5: JAPAN RUSSIA COMMODITIES

Takeaway: Hedgeye CEO Keith McCullough reviews the Top-3 things in his macro notebook this morning.

">Click here to listen

[podcast] Keith's Macro Notebook 2/5: JAPAN RUSSIA COMMODITIES - h78


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Q&A With Keith: The Biggest Risk to the Bear Case

Takeaway: Hedgeye CEO Keith McCullough pulls no punches in response to two questions posed on this morning's conference call.

Click here to listen.

Q&A With Keith: The Biggest Risk to the Bear Case - bear attack bear spray

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What's Working (and What's Not)

Client Talking Points

COMMODITIES

The CRB Index (19 commodities) was up another +1% yesterday to +2.5% year-to-date versus the S&P 500 which is down -5% YTD and Consumer Discretionary (XLY) -7.5% YTD. Incidentally, this northeast weather isn’t going to slow this trend either. We will be hosting a call on why this morning at 11AM EST. Ping sales@hedgeye.com for access.

GOLD

Gold registered another buy-signal on red yesterday in #RealTimeAlerts. That's the 6th buy signal in my model since November when commodities bottomed. What Gold needs to really breakout is already in motion, a 10-year bond yield confirming a bullish to bearish TREND reversal.

YEN

The Yen is also signaling a potential bearish to bullish reversal on my intermediate-term TREND duration (breadown line for US Dollar versus Yen is $102.23). How many people are positioned for that? Seriously? The Japanese retail dudes who were short Yen, long Mothers #nope.

Asset Allocation

CASH 54% US EQUITIES 4%
INTL EQUITIES 4% COMMODITIES 14%
FIXED INCOME 8% INTL CURRENCIES 16%

Top Long Ideas

Company Ticker Sector Duration
JPM

JPMorgan shares are currently trading with the most implied upside to fair value in our fair value model for money-center, super-regional and regional bank stocks. By our estimates, JPM shares have upside of 33% based on our regression of EVA (economic value added) – which looks at the spread between return on capital and cost of capital – and the current multiple to tangible book value. Over time, we have found that sizeable discounts and premiums mean revert toward fair value giving JPMorgan an embedded tailwind in 2014.

FXB

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.

DRI

Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road

TWEET OF THE DAY

JAPAN: is that all they got? +1.2% Nikkei to -13% YTD as the government buys ETFs? @KeithMcCullough

QUOTE OF THE DAY

"Most of the shadows of this life are caused by our standing in our own sunshine." - Ralph Waldo Emerson

STAT OF THE DAY

At its peak in January, the S&P 500 had rallied 173 percent from its 2009 bottom, a bull market that was almost a year older than the average since World War II. (Bloomberg)


Call Today at 11:00am - U.S. Economic Update: What Is Priced In?

Call Today at 11:00am - U.S. Economic Update: What Is Priced In? - usclient

 

We will be hosting a flash call updating our U.S. Economic Thesis today at 11:00am EST.

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 944389#
  • MaterialsCLICK HERE (slides will be available approximately one hour prior to the call time)

We'll provide an update to our 1Q14 Macro Investment Themes of #GrowthDivergences and #InflationAccelerating, while highlighting the current quantitative setup for domestic equities, bonds, and the $USD. We will review how to be positioned for slowing growth and rising inflation as well as host a live Q&A Session at the end of the call.

KEY TOPICS WILL INCLUDE

  • #GrowthDivergences:  Since our call on 1/9/14, the incremental fundamental data has continued to reflect a deceleration in the slope of domestic growth.  We'll survey the latest income, housing, manufacturing and consumption data and the implications for equity and asset class positioning. 
  • #InflationAccelerating:  Long inflation expectations and #GrowthSlowing has been the positioning playbook YTD with the CRB commodities index accelerating, Utilities and Healthcare leading sector performance and low short interest, low Beta, and large Cap style factors driving relative equity out-performance. We'll discuss whether to remain long this trend.     

 

Please email for details.


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