Two markets could negatively impact the 1st half of 2014 according to our proprietary pricing survey
We’re not done with our current pricing survey but wanted to point out some somewhat disconcerting trends we’re seeing with NCLH. With the Getaway celebration in the rear view, jubilation and excitement may not be the exuded emotions when NCLH reports earnings next Tuesday morning. 4Q should be fine but we’re concerned with first half 2014 demand trends. Starting with the Caribbean, we may be seeing some pricing pressure, finally, with the double digit increase in capacity this year. Based on our proprietary pricing tracker, Norweigan Caribbean pricing has not recovered since we reported on its weakness in mid-January. In fact, the discounting accelerated in the past month for 1H 2014. While 1Q close-in pricing took a steep fall in February, 2Q’s prices were also lower.
While the bulls may focus on Getaway’s premiums over its peers (Sun, Pearl, Epic) in the Miami market which remain quite robust in 2Q and 3Q, that also reflects much lower prices (-20-30% in some cases) for the older ships since Getaway’s pricing actually fell slightly sequentially in February. As we look out to the late fall/winter itineraries, Getaway’s pricing is almost in-line with that of Epic – not exactly bullish.
While the Caribbean is the largest market, the bigger area of concern, in our opinion, is Alaska. Compared with RCL and CCL, Norwegian has the greatest exposure to Alaska in 2014 with 10% of capacity in 2Q and 19% of capacity in 3Q. We continued to see close to double digit pricing declines for Norwegian in the Alaska market in February. The frigid cold weather may have influenced potential cruisers to look at warmer destinations.
Not all is bad. Europe is the lone bright spot. Pricing was up nicely +15-20% YoY in February, continuing the strong pricing trend seen in January. But Europe only accounts for 20% of 2014 capacity, down by 5% points compared with 2013’s.
We think FY 2014 yield growth expectations of 4.25-4.5% is an aggressive target. To achieve this, NCLH will need some help. The good news is that there are still a number of weeks left in wave season. Cost savings could offset some of the expected revenue shortfall but top line will likely be the focus for investors. The midpoint of the 2014 EPS guidance range could fall below Street consensus of $2.29; for Q1, we’re estimating $0.16 (Street: $0.23). Revenues for 1H could be $10-20MM lower than what the Street is expecting.
NCLH looks promising over the long term but dicey here ahead of earnings and into 1H 2014.
The following chart illustrates the initial results of our cruise pricing survey:
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“As teachers, we want to move people.”
That’s such a simple but solid leadership thought from Daniel Pink in the latest #behavioral book I’ve cracked open, To Sell Is Human (pg 39). “The capacity to sell isn’t some unnatural adaptation to the merciless world of commerce. It is part of who we are.”
Pink goes on to make an astute point about the information laden world in which we now live in, suggesting that the most successful companies are going to be “curators and clarifiers” of everything that’s being tweeted, googled, and facebooked at you “… helping to make sense of the blizzard of facts, data, and options…” (pg 56)
While we have plenty of work to do, lots of people to hire, and many improvements to make, that’s pretty much how we see Hedgeye helping you. We aren’t waking up every morning to punch clock. We want to synthesize and analyze every lick of information we can find, and move you to move when consensus won’t.
Back to the Global Macro Grind…
Moving you out of consumer growth stocks and into Commodities, Gold, and Bonds is where we’ve been at now for almost 6 weeks. That didn’t change at yesterday’s low-volume-lower-high for the SP500 either. That’s where we tried to move you more aggressively.
Getting people (including ourselves) to move isn’t easy. We get that. We also get that we need to build your trust in our process so that you understand why we are telling you that we think you should move and when.
Our communication process continues to evolve, but the best way for us to move you is:
- Get up at the top of the risk management morning and write you this strategy note every day
- Update you on the top trending Macro Themes that we don’t think are yet consensus
- Dynamically update (real-time) both our asset allocation and long/short position shifts
In terms of asset allocation shifts, you see that in the Early Look every day – the big ones in the last 2 months have been:
- Raising Commodities from 0% for most of last year to 15% this morning
- Raising Fixed Income from 0% for most of last year to 15% this morning
- Cutting our US Equity exposure from our top allocation for all of 2013 to 0% this morning
Yep. I’m un-elected too don’t forget. When I want to move you, I can cut to 0% too!
And that’s really the point. We get that each and every person reading this note has different risk tolerances and investment durations. But you don’t pay us to boil the ocean on every single thing for every single person. I think we’re more like your Big Macro weather insurance policy. When we want you to get out of something, we mean it.
On the long/short signaling shifts, the only way for me to show everyone what I really think and when is via #RealTimeAlerts:
- In the last 3-days (on the way up in stocks), I went from 4 LONGS, 6 SHORTS to 4 LONGS, 10 SHORTS
- Of the 4 LONGS, I sold equities like WWW and replaced them with bonds (yesterday bought BND)
- Of the 10 SHORTS, I re-shorted most of the names we covered when the SP500 was on its YTD lows
As you all know, I don’t always nail it in terms of my net positioning and long/short security selection. But that’s not the point about giving you 100% transparency in terms of what we do and when. The point is to help you A) understand why we are moving and B) hold us accountable to the timing of every move we make.
Back to the macro market, the most important things in my notebook this morning are as follows:
- US Dollar Index continues to breakdown, testing its YTD lows, confirming its bearish @Hedgeye TREND
- US 10yr Treasury Yield of 2.74% failed to overcome @Hedgeye 2.80% TREND resistance
- SP500 has immediate-term TRADE downside to 1728
- VIX has immediate-term TRADE upside to 20.41
- Yen continues to signal a bullish developing TREND vs USD (very bearish for the Nikkei, -10.8% YTD)
- CRB Commodities Index outperformed SP500 again yesterday, +0.5% to a fresh YTD high of +4.3%
In other words, if the both the research and risk management signals are:
- Bullish on Commodity #InflationAccelerating (our Top Macro Theme for Q114)
- Bearish on rate of change in US Consumption Growth
- Bearish on US currency and bond yields
Then why wouldn’t I try to keep moving you out of consumer growth equities and into commodities and bonds? Always right? No. Simple and solid. Yes. That’s what the insurance policy on your long-term investments should be.
Our immediate-term Macro Risk Ranges are now:
UST 10yr Yield 2.59-2.80%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
TODAY’S S&P 500 SET-UP – February 13, 2014
As we look at today's setup for the S&P 500, the range is 108 points or 5.02% downside to 1728 and 0.92% upside to 1836.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.43 from 2.39
- VIX closed at 14.3 1 day percent change of -1.45%
MACRO DATA POINTS (Bloomberg Estimates):
- 8:30am: Retail Sales Advance m/m, Jan., est. 0.0% (pr 0.2%)
- 8:30am: Initial Jobless Claims, Feb. 8, est. 330k (pr 331k)
- 8:45am: Bloomberg Feb. U.S. Economic Survey
- 9:45am: Bloomberg Consumer Comfort, Feb. 9 (prior -33.1)
- 10am: Business Inventories, Dec., est, 0.4% (prior 0.4%)
- 10am: Freddie Mac mortgage rates
- 10:30am: EIA natural-gas storage change
- POSTPONED:Fed Chairman Janet Yellen’s testimony before the Senate Banking Cmte
- POSTPONED: Senate Health, Education and Labor Cmte hearing on proposals to raise minimum wage
WHAT TO WATCH:
- Comcast said to agree to buy Time Warner Cable for about $44b
- Charter said unlikely to match Comcast’s Time Warner Cable bid
- U.S. to shut Washington offices as snowstorm hits Northeast
- POSTPONED: Fed Chair Yellen’s testimony to Senate Banking Cmte
- Royal Mail, Asos, Inter Pipeline, Seiko Epson join MSCI World
- China said to target export growth at slower pace than 2013
- Volcker Rule bankers’ lawsuit dropped as regulations revised
- Merck & Co.’s sale of consumer unit may top $10b, WSJ reports
- Buffett in talks to exit stake in former Washington Post owner
- Apple adds Macs assembled in Texas by Flextronics in U.S. push
- Lenovo projects end to Motorola losses With China phone plan
- ITC to review Avago decision in Mellanox patent case
- BNP Paribas profit drops on $1.1b U.S. legal provision
- Lloyds posts fourth consecutive loss on costs of redress
- Nestle forecasts sales growth in 2014 near low end of target
- Rolls-Royce falls after forecasting unchanged profit growth
- Oil inventories fell most since 1999 on demand in IEA estimate
- China January auto sales miss estimates as economy slows
- China Trust assets surge to $1.8 trillion amid default risks
- Storm causes havoc on U.K. rail as flooding forecast to worsen
- Amtrust Financial Services (AFSI) 7am, $0.78
- Apache (APA) 8am, $1.80 - Preview
- Avon Products (AVP) 7:01am, $0.30
- Barrick Gold (ABX CN) 6:30am, $0.41 - Preview
- Bombardier (BBD/B CN) 6am, $0.11 - Preview
- BorgWarner (BWA) 8am, $0.71
- Bunge (BG) 6:30am, $2.12
- Burger King Worldwide (BKW) 7am, $0.23
- Calpine (CPN) 6am, ($0.09)
- Canadian Tire (CTC/A CN) 7:46am, $2.26
- Cenovus Energy (CVE CN) 6am, $0.33
- Diebold (DBD) 8am, $0.58
- Discovery Communications (DISCA) 7am, $0.90
- Encana (ECA CN) 6am, $0.18 - Preview
- EQT (EQT) 7am, $0.68
- Generac Holdings (GNRC) 5:59am, $0.90
- GNC Holdings (GNC) 8am, $0.64
- Goldcorp (G CN) 8am, $0.23 - Preview
- Goodyear Tire & Rubber (GT) 7:30am, $0.63
- Great-West Lifeco (GWO CN) 12:44pm, $0.61 - Preview
- International Flavors & Fragrances (IFF) 7am, $0.91
- Jarden (JAH) 6:50am, $1.30
- Louisiana-Pacific (LPX) 8am, $0.05
- Manulife Financial (MFC CN) 6am, $0.43 - Preview
- Molson Coors Brewing Co (TAP) 7:30am, $0.72
- Nielsen Holdings NV (NLSN) 7am, $0.71
- PBF Energy (PBF) 7am, $0.56 - Preview
- PepsiCo (PEP) 7am, $1.00 - Preview
- Precision Drilling (PD CN) 6am, $0.17
- Realty Income (O) 9:15am, $0.21
- RioCan Real Estate Investment (REI-U CN) 7am,
- Sonoco Products Co (SON) 7:30am, $0.58
- Starwood Hotels & Resorts (HOT) 6am, $0.70
- Teck Resources (TCK/B CN) 5am, $0.43 - Preview
- TELUS (T CN) 8:30am, $0.48 - Preview
- Vantiv (VNTV) 7am, $0.44
- WhiteWave Foods (WWAV) 6am, $0.20 - Preview
- Agilent Technologies (A) 4:05pm, $0.66
- Allison Transmission Holdings (ALSN) 4:01pm, $0.37
- American International Group (AIG) 4pm, $0.97
- Brocade Communications Systems (BRCD) 4pm, $0.20
- Cliffs Natural Resources (CLF) 4:22pm, $0.79
- Cloud Peak Energy (CLD) 4:10pm, $0.23
- Ingram Micro (IM) 4:05pm, $0.79
- Key Energy Services (KEG) 6:18pm, ($0.06)
- Kraft Foods Group (KRFT) 4pm, $0.61 - Preview
- Liberty Global PLC (LBTYA) 5:40pm, $0.25
- Regal Entertainment Group (RGC) 4pm, $0.25
- Trulia (TRLA) 4:05pm, $0.07 - Preview
- Weight Watchers International (WTW) 4:05pm, $0.61
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- Oil Inventories Fell Most Since 1999 on Demand in IEA Estimate
- Rice Exports From India Rising to Record as Iran Boosts Reserves
- WTI Crude Declines From Four-Month High as Gains Seen Excessive
- Gold Falls in New York After Gains Seen Encouraging Metal Sales
- Copper Drops as China Said to Target Slower Growth in Exports
- Rubber Falls a 2nd Day as Stronger Yen, Falling Oil Cut Appeal
- Soybeans Rise as Supply May Tighten Before South America Harvest
- Shree Renuka to Buy More Indian Raw Sugar as Exports Subsidized
- New Smelter Pipeline Threatens Any End to Aluminum Overcapacity
- Washington Offices to Close as Winter Storm Approaches Northeast
- Barrick Gold Earnings Trail Estimates as Production Declines
- U.K. Farmers Contend With Floods as Wheat to Pasture Submerged
- Coal Burns Bright as Utilities Switch From Gas: Carbon & Climate
- Palm Rises to Highest This Year on Exports Amid Brazil Dryness
The Hedgeye Macro Team
This note was originally published at 8am on January 30, 2014 for Hedgeye subscribers.
“Emotions are short lived.”
Whereas “a mood is slower, more like a long-term attitude, a background and slow-burning emotion which slants our view of the world” (The Hour Between Dog and Wolf, pg 107).
I don’t know about you, but up until a few weeks ago, my view of the being long stocks was pretty damn bullish. That’s a good thing, because the US and many European stock markets kept hitting all-time highs. Now they aren’t.
And while there was definitely some emotion associated with fear (VIX) ripping +45.8% last week, I’m not so sure consensus is yet in the mood to sell every bounce. Too many bear scars from 2013, and the mood of those stock market bears doesn’t matter on the margin here anyway. It’s the mood of the bears who turned bullish too late that I think matters most.
Back to the Global Macro Grind…
When my man Nouriel Roubini went bullish in December, that definitely got my attention. Then the #OldWall (sell-side economists and strategists) rolled out their bullish US growth and SP500 targets for 2014, and a credible contrarian bear case for US stocks began.
As I pointed out in yesterday’s rant, while he may call the Barron’s Roundtable, god doesn’t call me with a super-secret market multiple for the SP500. There isn’t one. That said, #history fans will note that the stock market’s multiple:
A) Goes UP with #InflationSlowing and Consumption #GrowthAccelerating
B) Goes DOWN with #InflationAccelerating and Consumption #GrowthSlowing
The lowest multiples in post WWII US stock market #history go to the dogmatic Republican/Democrat Keynesian presidential duos of:
Both duos had bearish US Dollar TRENDs because:
- FISCAL POLICY = spend, spend, spend
- MONETARY POLICY = print, print, print
And, with the Purchasing Power of The People burning (US Dollar DOWN) and #InflationAccelerating, the SP500 traded at 7-11x EPS. Seven times earnings? Yep. Ole Jimmy Carter was a beauty.
I’m not saying the SP500 is going to 7-11x earnings. I’m saying that the probability of the SP500 seeing multiple compression from 16x (instead of consensus multiple expansion) goes up as A) inflation accelerates and B) growth slows.
Consensus multiple Expansion? Yep, here’s where my friends wash out on this (after having a mean estimate of 1528 for the SP500 for 2013 – nice call):
- #OldWall mean estimate for 2014 year-end = 1946
- Abby Joseph Cohen = 2088 target for 2014
- Tom Lee = 2075 target for 2014
Then you have the funny guy at Morgan Stanley who had the SP500 target of 1434 in 2013 (Adam Parker) who takes himself very seriously with his 2,014 SP500 target for, uh, 2014. It’s a good thing the sell-side has learned from 2008 and evolved…
The #OldWall’s magic-multiple thing is based on a consensus estimate for SP500 earnings of around $117/share. Tom Lee is up at $120, so he slaps a 17x “multiple” on that. Meanwhile Abby goes with the 18x, and there you have it – tah-dah!
But what if they are wrong on growth, inflation, and the SP500 earnings numbers? That’s when the consensus poop hits the fan. So watch out for stepping in that. Bear Droppings can ruin your bullish mood.
What about that Hedgeye Macro Theme #1 (#InflationAccelerating)?
- CRB Index (19 Commodities) was up another +0.8% yesterday (with the SP500 -1%) to +1.7% YTD
- Natural Gas Prices (for those of you who don’t live in a government hotel) = +30.3% YTD
- Oats (yes, I eat Oatmeal, every day!) = +18.9% YTD
So the other Goldman guy who is running the NY Fed now (Dudley) eats iPads and I eat oatmeal. No one cares. What Mr. Macro Market cares about is the 2nd derivative move – the slope of the line – the rate of change! And the fact of the matter is that #InflationAccelerating right now alongside US Consumption #GrowthSlowing is bearish for consumer stocks.
That’s a big reason why US Consumer Discretionary stocks (XLY) are -6.2% YTD and why the US stock market (SPX) is -4.0% YTD vs the CRB Index +1.7%. Dollar Down, Rates Down = Stocks Down. God called me on that too – it’s called a real-time US GDP #GrowthSlowing signal, and America’s mood will be changing if it becomes a reflexive one.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.67-2.80%
Nat Gas 4.79-5.49
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer