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Currency War, Anyone?

Client Talking Points

US DOLLAR

The Burning Buck arrested its decline for all of 24 hours off its year-to-date lows (the Nikkei loved that!). With that said, I will likely short the bounce and buy more Gold (and bonds) on that as both US Dollar and UST 10-year yield fail our Hedgeye TREND resistance. Check out those slow-growth Utilities (XLU) ripping +6.7% YTD.

JAPAN

Got currency-correlation volatility? The Yen down 20 basis points versus the US Dollar and the Nikkei rips up +2.9% on that (after being down -2.2% in the session prior). The Nikkei VIX (volatility) is wicked hot as central planners turn the stock market into a pachinko parlor.

UK

Did you take our lead on #StrongPound? I hope so as it continues to drive accelerating consumption growth in the UK (see Retail Sales for January up +4.3% year-over-year – yes, even with the weather!). We still like both European currencies and growth investments more than the USA, Asia, or Latam. 

Asset Allocation

CASH 48% US EQUITIES 0%
INTL EQUITIES 8% COMMODITIES 17%
FIXED INCOME 12% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
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. 

LVS

Las Vegas Sands has transformed into that rare stock that should appeal to “Growth,” “Value”, and “Dividend/Cash Flow” investors alike.  The stock now yields higher than the S&P 500 (43% sequential quarterly dividend increase), and the company is buying back $200 million + in stock a quarter, yet still retains a pristine balance sheet.  The significant capital deployment opportunities can be funded out of annual free cash flow of nearly $4 billion. Management has indicated they are willing to raise leverage 1.5x which would still keep them well below industry average and if directed toward dividends, would result in a yield of over 6%.  And we haven’t gotten to the $10-14 billion in mall assets that could be monetized. We know of no other stocks in consumer land that provide this combination of cash flow, growth, cash return to shareholders, and value levers.

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

NATGAS: up another +3% to $6.25 this morning (despite the warmer weather) = +48% YTD @KeithMcCullough

QUOTE OF THE DAY

“No one ever drowned in sweat.” - USMC

STAT OF THE DAY

Approximately 1 in 600 Americans kids are registered to play ice hockey. Meanwhile, north of the border, 1 in 55 Canadians are.


SINGAPORE Q4 WAS ONE TO FORGET

Singapore contracts in Q4. Here is the growth and market share breakdown. 

 

 

Market trends

  • Singapore gross gaming revenues declined 12% YoY in Q4 2013 to S$1.7 BN.  Adjusting for hold (based on average since inception of 2.80%) for both periods, GGR still slumped 9% YoY.
  • Market VIP rolling chip volume shrank 7% YoY in 4Q, snapping 4 quarters of high double digit gains  
  • Mass revenue fell again in Q4, -6% YoY, the 2nd consecutive quarterly decline
  • Net non-gaming revenue fell 8% YoY in Q4, the 1st decline since 3Q 2012

Market shares

  • MBS GGR share is in-line with the 3 year average but below recent trends 
  • Volume share was consistent in Q4 relative to Q3 with MBS holding 47% of VIP rolling chip share and 57% of mass table volume share
  • MBS's mass table revenue share rose 2% points sequentially to 59% due to higher mass hold and volumes
  • MBS's slot revenue share was unchanged sequentially in Q4

* Blue trend lines in the charts below are from MBS's perspective

 

SINGAPORE Q4 WAS ONE TO FORGET - 1

 

SINGAPORE Q4 WAS ONE TO FORGET - 2

 

SINGAPORE Q4 WAS ONE TO FORGET - 33

 

SINGAPORE Q4 WAS ONE TO FORGET - 4

 

SINGAPORE Q4 WAS ONE TO FORGET - 5

 

SINGAPORE Q4 WAS ONE TO FORGET - 6

 

SINGAPORE Q4 WAS ONE TO FORGET - 7



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%

Your House

“We live in a house, and therefore we consume the house.”

-John Allison

 

Yep, I am Canadian.

 

I lived in a Canadian house until I was 24 years old and have the flag tattooed on my back. Consequently, I will be consumed by my confirmation bias today as Canada’s men try to beat America’s like our women did yesterday.

 

Your House - boom

 

Don’t worry, I’m not competitive or anything. When my all-American wife (Laura in Lacrosse) wasn’t looking one day, I hung a massive Canadian flag over my son Jack’s bed. As he was sleeping, I subliminally got him in the mind!

 

Admittedly, I have started to teach all 3 of my children that the USA is the best in the world, at creating asset bubbles. Just like John Allison does in the aforementioned quote about real-world economics, I have to call it like it is.

 

Back to the Global Macro Grind

 

“In economic terms, spending on housing is consumption, not investment… houses are not used to produce other goods… thus the misinvestment in housing in housing shifted resources from production to consumption.” –John Allison (pg 8)

 

No, “misinvestment” isn’t a word that spell-checks inasmuch as “misinformation” did for a Canadian hockey player (me) in the mid-1990s when it was introduced to me by one of the great leaders in my life (former US Olympic Hockey Coach, Tim Taylor).

 

“Mucker, you don’t really have any moves… so you need to start waggling the blade of your stick when you are carrying the puck up ice to give the defense some misinformation.” –Tim Taylor

 

Try it – it works!

 

Longer-term, an un-elected central planning bureau (The Fed) forcing investors to chase short-term price inflations (and “yields”) to all-time bubble highs won’t work. Anyone who didn’t sleep through the deflation of asset prices in 2008 will get that.

 

I had a lot of feedback on John Allison’s “fundamental themes” yesterday (mainly because I left 3 of his top 6 out). They are:

 

1.       “Individual financial Institutions (#OldWall) made very serious mistakes that contributed to the crisis
2.       “The deeper causes of our financial challenges are philosophical, not economic”
3.       “If we don’t change direction soon, the United States will be in very serious financial trouble in 20-25 years”

 

In other words, the government (and The Federal Reserve) created policies based on academic ideologies (weak currency “boosts exports”, cheap money “boosts housing”, etc) that are A) very short term in nature and B) misaligned with making long-term investments in productive, job generating, assets.

 

Newsflash: Gold is the least productive major “asset class” in the world – so it loves #InflationAccelerating-slow-growth government policies to fix prices (rates and wages) and devalue the purchasing power of The People in exchange for debt.

 

The Canada vs. USA score won’t lie today. Neither will the misinvestment, misinformation, or misalignment of the US stock market’s YTD score vs. economic reality (after torching their currencies, Venezuela was +460% last yr and Argentina is +10% YTD).

 

If you peel back the -0.5% and +9.5% YTD returns of the SP500 and Gold, respectively, and look at the S&P’s Sector Returns:

  1. Slow-growth-yield chasing Utilities (XLU) lead the charge at +6.7% YTD
  2. Consumer Sectors (XLY and XLP) lead losers at -2.6% and -3.0% YTD, respectively
  3. Interest Rate Sensitive Financials (XLF) are underperforming the SP500 at -1.9% YTD

#InflationAccelerating A) slows consumption growth (hurts consumer stocks) and B) encourages investors to chase “yield.” That’s why the Financials (XLF) suck relative to Utilities (XLU) this year inasmuch as they did at the start of 2011.

 

Put another way, as the Financials, Rates, and the US Dollar go, so will real-economic growth in America. The only modern periods of sustainable US economic growth (i.e. greater than 4% GDP) came in the 1 (Reagan) and 1 (Clinton) years. You saw a sneak preview of interest rates and the US Dollar breaking out to the upside in Q3 of 2013 too (US GDP ramped to +4.12%).

 

That wasn’t my house versus your house. That wasn’t Canada vs. the USA either. That’s how real-world economics works. The only misinformation about it in the US, Japan, Venezuela, etc. today is in how governments and their central-planning-access starved media group-thinkers sell it to you. From a free market capitalist perspective, it’s so very un-American.

 

Our immediate-term Macro Risk Ranges are now:

 

SPX 1811-1848

Nikkei 14124-14966

VIX 13.31-15.98

USD 79.91-80.55

Pound 1.65-1.67

Gold 1

 

Best of luck to both Team Canada and Team USA today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Your House - Chart of the Day

 

Your House - Virtual Portfolio


February 21, 2014

February 21, 2014 - 1 

BULLISH TRENDS

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February 21, 2014 - Slide8

February 21, 2014 - Slide9 

BEARISH TRENDS

February 21, 2014 - Slide10

February 21, 2014 - Slide11
February 21, 2014 - Slide12


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – February 21, 2014


As we look at today's setup for the S&P 500, the range is 37 points or 1.56% downside to 1811 and 0.45% upside to 1848.                                         

                                                                                      

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: 2.44 from 2.43
  • VIX closed at 14.79 1 day percent change of -4.58%

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Existing Home Sales benchmark revisions
  • 10am: Existing Home Sales, Jan., est. 4.68m (prior 4.87m)
  • 10am: Existing Home Sales m/m, Jan., est. -3.9% (prior 1%)
  • 1pm: Baker Hughes rig count
  • 1:10pm: Fed’s Bullard speaks on economy in St. Louis, Mo.
  • 1:45pm: Fed’s Fisher speaks in Austin, Texas

GOVERNMENT:

    • 8am: Govs. Peter Shumlin, D-Vt.; Bill Haslam, R-Tenn., Jay Nixon, D-Mo.; Sam Brownback, R-Kan.; speak at Microsoft, Politico State Solutions Conference
    • 8:45am SEC Chair Mary Jo White  keynote at Practicing Law Institute conf.

WHAT TO WATCH:

  • G-20 to push growth as stimulus withdrawal backed, draft shows
  • Verizon sale cuts Vodafone’s value by half to $100b
  • NYSE joins funds seeking to end “maker-taker” trading rebates
  • High-speed traders lose direct access to Buffett’s Bus. Wire
  • Ukraine to sign accord to end crisis after deadliest protests
  • Ukraine default likely as political crisis deepens: S&P
  • WhatsApp free texting seen siphoning $33b from carriers
  • Proposed FY15 Medicare Adv rates may be released today: BI
  • RBS to shrink investment banking with 30,000 job cuts: FT
  • DuPont seed deliveries slowed as Ukraine violence increases
  • Dimon won’t face another investor vote on his 2 JPMorgan roles
  • Bitcoin offer prices slump on Mt.Gox as withdrawals suspended
  • Energy Future may split up, seeks two $4b loans for units: WSJ
  • Ford aims to sell more than 1m vehicles in China: WSJ
  • Valeo 2H earns rise on car demand in China, North America
  • Gucci posts slowest sales growth in 4 years amid tourism lull
  • Teva, Takeda, Merck may receive EMA opinions today
  • U.S. Treasuries remain good investment choice for China: Daily
  • U.S. GDP, G-20, Italy’s New Leader: Week Ahead Feb. 22-March 1

EARNINGS:

    • Ameren (AEE) 7:50am, $0.13
    • Barnes Group (B)  6:30am, $0.52
    • Boise Cascade (BCC)  8:45am, $0.19
    • Charter Communications (CHTR)  8am, $0.13
    • Dish Network (DISH)  6am, $0.41 - Preview
    • Donaldson (DCI)  7am, $0.45
    • EchoStar (SATS)  6am, ($0.08)
    • Ecolab (ECL) 8:20am, $1.05
    • Eldorado Gold (ELD CN)  7am, $0.36
    • Enerplus (ERF CN)  6am, $0.10 - Preview
    • First Capital Realty (FCR CN)  7am, C$0.05
    • Pinnacle West Capital (PNW)  8:30am, $0.19
    • Starz (STRZA) 7:30am, $0.45

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Set for Weekly Gain on U.S. Cold; Brent Poised for Advance
  • Gold Holds Below 15-Week High as Fed Cuts Weighed Against Data
  • Soybeans Steady Near Five-Month High After USDA Planting Outlook
  • Natural Gas Nears Biggest Weekly Gain Since 2010 as Cold Returns
  • China LNG Imports Rise to Record for Second Month on New Plants
  • Brazil Coffee Growers Seen Making ‘Big’ Sales as Futures Rally
  • China’s Corn Imports Drop as Inspectors Reject GMO-Tainted Grain
  • Coffee, Sugar Rebound as Funds Buying on Brazil Dryness Concerns
  • Gold Traders Split as Fed Stimulus Weighed Against Weaker Data
  • Rusal Sees Aluminum Deficit Driving Delivery Premium to 50%
  • Vicious Cycle Seen as Ore Pile Evokes Steel Bust: China Credit
  • Noble’s 15-Year, $500 Million Gas Deal Affirms Export Market
  • Iron Ore Sentiment Is Again Bearish as China Decline on Horizon
  • U.S. Soybean Inventories Seen Rising in 2015 on Record Crop

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

 

 

 

 

 

 

 

 

 

 

 

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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