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Social Bubbles

“I wonder how much it would take to buy a soap bubble, if there were only one in the world.”

-Mark Twain

 

Imagine that – if there were only one bubble, tulip, or social media stock left in the world – what on earth would we pay for it? Someone at Morgan Stanley can surely answer that with a comp table.

 

I have to give it to the folks @Facebook. They’re nailing it on “scarcity value.” I didn’t know that either of their last two acquisitions existed. After spending $21 billion on WhatsApp and Oculus, FB’s stock has broken my mo-bro line of $67.52 support too.

 

Social Bubbles - social media bubble burst

 

Imagine there was only one bro left in the marketplace? How much would he pay for the all-time-bubble-high in the last social media stock that stops going up? It’s all fun and games until someone gets popped.

 

Back to the Global Macro Grind

 

Never mind trying to figure out what Oculus is (an “immersive virtual reality company”) or that it was “valued” at $30M in June. These guys just got $400M large (in cash) and another $1.6B in Facebook’s (FB) bubbled up stock. #cool

 

Until it’s not…

 

In FB inflated currency terms, Oculus is “cheap” though. Ask the bankers. When you slap it on a sheet of paper next to Candy Crush (coming public today with at least a $7B valuation), it’s probably relatively “cheap” too.

 

I know. Fourteen years ago (Q2 of 2000), while I was leaving the big bubble house that Frank Quatrone built (Credit Suisse First Boston), calling a bubble what it was back then was subject to some really smart “it’s different this time” analysis.

 

But it wasn’t. This time won’t be different either.

 

Moving along, why don’t they just jam the US stock market right back to the all-time-bubble closing highs (SPX 1878) again in the next few trading days?

  1. It’s quarter-end…
  2. There’s no-volume out there anyway,
  3. And squeezing hedgies who keep shorting low and buying high is easy to do

On that last point, at least from a Style Factoring perspective, being long High Short Interest stocks is back!

 

Now tracking +2.8% YTD, that beats being long either Low Short Interest (as a style factor in the SP500) which is only +0.8% or, god forbid, the Dow (which is still down -1.2% YTD).

 

Alternatively, you can triple bypass the stress associated with buying the high short-interest bubble and:

  1. Buy #InflationAccelerating
  2. Buy #GrowthSlowing
  3. Short the US Consumer

How do you buy #InflationAccelerating?

  1. CRB Food Index +18.1% YTD
  2. Gold +9.5% YTD
  3. CRB Commodities Index +7.5% YTD

What about #GrowthSlowing?

  1. Utilities (XLU) +7.4% YTD
  2. REITS (MSCI Index) +8.1% YTD
  3. Bonds (yep, long-term Treasury Yields are down 30 bps YTD)

Oh, and the Short US Consumer Discretionary (XLY) position acts fantastic with the sub-sector -3.3% YTD. That’s horrendous on both an absolute and a relative basis. If you’re into that sort of thing…

 

You might be into buying former bubbles that blew up too. After all, isn’t that what being long of Gold and as many homes as you can get your hands on from A&E’s house flippers is all about?

 

Or is the show called Flip This House? Who cares what these $2, $7, or $19 billion dollar companies or shows are called. Fully loaded, listening to #OldWall bankers and mortgage brokers pitch us on why it all makes sense is just getting fun to watch.

 

Our immediate-term Macro Risk Ranges are now:

 

UST 10yr Yield 2.62-2.81%

SPX 1

VIX 13.09-17.47

USD 79.18-80.41

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Social Bubbles - Chart of the Day

 

Social Bubbles - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 26, 2014


As we look at today's setup for the S&P 500, the range is 24 points or 0.62% downside to 1854 and 0.66% upside to 1878.                                      

                                                                                         

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: 2.28 from 2.32
  • VIX closed at 14.02 1 day percent change of -7.09%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, March 21 (prior -1.2%)
  • 8:30am: Durable Goods Orders, Feb., est. 0.8% (prior -1%)
  • 9:45am: Markit U.S. Services PMI, March (p), est. 54.0 (prior 53.3)
  • 9:45am: Markit U.S. Composite PMI, March (p) (prior 54.1)
  • 10:30am: DOE Energy Inventories
  • 4pm: Fed releases capital analysis and review results
  • 8:20pm: Fed’s Bullard speaks in Hong Kong

GOVERNMENT:

    • President Obama attends U.S.-EU summit in Belgium, holds press conference, speaks at Palais des Beaux-Arts in Brussels
    • Senate may continue consideration of Ukraine aid bill
    • FY2015 budget hearings/panels:
    • House Appropriations hears from FBI Director James Comey; Air Force Sec. Deborah Lee James, Air Force Chief of Staff Mark Welsh; FEMA Administrator Craig Fugate
    • House Education and Workforce Cmte hears from Labor Sec. Thomas Perez
    • 10am: Supreme Court may issue opinions, hears Secret Service free speech case
    • 10am: House Natural Resources Cmte hears from U.S. Fish and Wildlife Director Dan Ashe on effect of wildlife laws on domestic energy
    • 10:30am: Senator John Hoeven, R-N.D., Rep. Lee Terry, R-Neb., Canadian Ambassador to U.S. Gary Doer, API, others hold press conf. on Keystone XL pipeline
    • 11am: House Speaker John Boehner holds press briefing
    • U.S. ELECTION WRAP: Ricketts Expanding Fund to Reduce Govt

WHAT TO WATCH:

  • Fed to release results from latest supervisory stress tests
  • Facebook to buy Oculus for ~$2b in cash, stock
  • King Digital raises $500m in Candy Crush maker’s U.S. IPO
  • Blackstone said close to Gates Global takeover: Reuters
  • Fed’s Bullard sees ‘bit of ambiguity’ on end date of QE
  • U.K. starts selling GBP4.23b stake in Lloyds Banking
  • Carlyle’s PQ Holdings said to draw offers From Blackstone, KKR
  • Target to tell Congress it’s probing slow response to hackers
  • Ukraine awaits IMF finding as Obama warns of consequences
  • Citic Pacific said planning to buy parent assets in $40b deal
  • Obamacare deadline extended for last-minute enrollees
  • News Corp. names Lachlan Murdoch non-executive chairman
  • HSBC accused of predatory lending in Cook County, Illinois
  • Toyota to repurchase up to 1.9% of shares
  • BlackRock’s Fink says activists hurting L-T outlook: WSJ

EARNINGS:

    • AGF Management (AGF/B CN) 8am, C$0.12
    • Francesca’s Holdings (FRAN) 7:30am, $0.28
    • HB Fuller (FUL) 6:01pm, $0.50
    • Lindsay (LNN) 7am, $1.13
    • Movado Group (MOV) 7am, $0.30
    • Paychex (PAYX) 4:01pm, $0.42
    • World Point Terminals (WPT) Aft-Mkt, $0.25

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Near One-Week Low as Crude Stockpiles Gain; Brent Steady
  • Copper Declines on Selling Following Biggest Jump in Six Months
  • U.S. Farmers Sow GMO Corn Banned From China Markets: Commodities
  • Gold Trades Above Five-Week Low as Ukraine Weighed Against Rates
  • Iron Ore Forecast Cut by Australia as Miners Increase Output
  • Japan Raises Wheat Import Plan From 4-Year Low as Output Falls
  • Coffee Drops With ‘Excessive Volatility’ on Drought; Cocoa Gains
  • Rebar in Shanghai Retreats on Demand Outlook, Iron Ore Decline
  • Raise a Glass of Scottish Wine to Climate That Made It Possible
  • Palladium Funds Adding Demand Amid Supply Woes: Chart of the Day
  • Rising Utility Costs Linger After Winter’s Chill Fades: Energy
  • China Gets Gas Bargain as Russia Hit by EU Sanctions: Bull Case
  • Pemex Bids to Keep All of Mexico’s Proven Oil Reserves, CEO Says
  • Wheat Climbs as U.S. Crop Conditions Deteriorate on Dry Weather

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

 

 

 

 

 

 

 

 

 

 

 

 

 


A DEEP DIVE DISCUSSION WITH BYD AND MORE

A DEEP DIVE DISCUSSION WITH BYD AND MORE - byd

 

Join GLL Sector Leader Todd Jordan in Las Vegas April 7-8th for “Boyd Gaming: Snake Eyes, Box Cars or Craps” – a deep dive discussion with Boyd (BYD) senior management and other local Las Vegas participants, and company meetings with BYI, WYNN, and MGM. 

 

The primary focus of this trip will be to assess BYD’s ability and willingness to increase shareholder value.  In addition to the deep dive BYD discussions, we also have meetings scheduled with BYI, WYNN, MGM, Station Casinos (BYD competitor – private company), and with Kevin Kelly, former COO of Station Casinos.  Note that LVS, PNK, and IGT will not participate in meetings because they are all in their quiet periods.  Meetings will run from Monday afternoon through Tuesday afternoon. To join our team in Las Vegas or for more details about this trip please contact us at . Please note space is limited.

 

Tuesday, April 8th – BYD Meeting Schedule

  • 1:30pm: The Orleans – meeting with Tony Taeubel, GM
  • 3:00pm: Meeting with Keith Smith CEO and Josh Hirsberg CFO
  • 5:00pm: Sam’s Town Las Vegas – meeting with John Sou, GM   

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.

LM: Adding Legg Mason, Inc. to Investing Ideas

Takeaway: We are adding LM to Investing Ideas.

Hedgeye Co-Head of Financials Sector Research Jonathan Casteleyn is adding Legg Mason to Investing Ideas. 

 

We will send out a full report shortly detailing our bullish case.

 

LM: Adding Legg Mason, Inc. to Investing Ideas - 170 1Legg Mason Tower II


HOLX: Adding Hologic, Inc. to Investing Ideas

Takeaway: We are adding HOLX to Investing Ideas.

Hedgeye Healthcare Sector Head Tom Tobin is adding Hologic, Inc. to Investing Ideas. 

 

We will send out a full report shortly detailing our bullish case.

 

HOLX: Adding Hologic, Inc. to Investing Ideas - Hologic Logo RGB


LULU: Why We're Pulling the Plug on the Bear

Takeaway: We pulled the plug on our LULU Bear call. Our work clearly shows that things are improving. If the qtr is weak, we may get outright bullish.

Conclusion: After being extremely bearish on LULU since the fall, we're changing our position on the name. While we are not outright bulls at this point -- and while we believe there are extreme challenges for LULU from here -- we do not think that the bear case carries meaningful merit. If the quarter is sloppy and the stock trades down, we may get outright bullish. 

 

DETAILS

As background, we had been long-term bulls of LULU, but last fall turned bearish as LULU's well-publicized gaffes started to come about. Then we conducted a detailed consumer survey of 500 female Yoga shoppers (80% of whom were LULU customers) across appropriate demographic groups. That survey -- conducted three months ago -- told us to press our short, and it was right to suggest we do so. 

 

But yesterday we released an update to our survey, which asks the same detailed questions (and then some) to the same demographic group. The punchline is that things are unquestionably getting better on the margin. We outline all of the reasons why, and then some, in our 52-page slide deck, the link to which is below. Also, if you care to listen to the accompanying presentation, that audio link is below as well. 

 

One slide we'll highlight is #12, which shows the 'Brand recommendation factor' now versus when we first ran the survey at the beginning of the year.   The question asks the extent to which consumers would recommend each of 18 brands to their friends. At the start of the year, LULU ranked embarrassingly low. But today, it is right in line with peers. There's definitely room for improvement. But things have gotten better on the margin, and that's what matters most to us.

 

LULU: Why We're Pulling the Plug on the Bear - lulu1   

 

By no means is the change in our opinion based on one simple question. But many of the questions that we asked -- especially those where we could compare today's results versus those from the start of the year, simply suggest that anyone playing on the short side for things to materially worsen from here has a pretty tough risk/reward on their hands.

 

Are their challenges? Sure. Athleta (GPS) is emerging as a major threat to LULU's business, and Nike is strengthening on the margin. Also, based on our results we think that there is a problem with perception of value for LULU's product, which suggests to us that the company will have to start a more meaningful discounting strategy.

 

In the end, we come out much higher on the top line over our 3-5 year modeling period, but we have margins going from 24.5% to just under 19% (see Exhibit below). While multiples rarely expand when margins are coming down, we think that with the stock having a 4-handle, better top line will probably win over margin degradation.

 

If the company gives weak guidance on the quarter, based on what we see we'd likely look to get more aggressive on the name. 

 

LULU: Why We're Pulling the Plug on the Bear - LULU2

 

HERE'S A LINK TO OUR FULL SURVEY AS WELL AS THE AUDIO PORTION OF THE PRESENTATION

 

 

MATERIALS: CLICK HERE

AUDIO REPLAY: CLICK HERE 


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