TODAY’S S&P 500 SET-UP – April 9, 2014
As we look at today's setup for the S&P 500, the range is 37 points or 1.19% downside to 1830 and 0.81% upside to 1867.
CREDIT/ECONOMIC MARKET LOOK:
- YIELD CURVE: 2.29 from 2.29
- VIX closed at 14.89 1 day percent change of -4.37%
MACRO DATA POINTS (Bloomberg Estimates)
- 7am: MBA Mortgage Applications, April 4 (prior -1.2%)
- 10am: Wholesale Inventories, Feb, est 0.5% (pr 0.6%, rev 0.7%)
- Wholesale Sales m/m, Feb., est. 1% (pr -1.9%, rev -1.8%)
- 10:30am: DOE Energy Inventories
- 2pm: Fed issues March 18-19 FOMC minutes
- 3:30pm: Fed’s Evans speaks in Washington
- 7:30pm: Fed’s Tarullo speaks in Washington
- President Obama speaks at Fort Hood memorial service, then attends DCCC, DSCC fundraisers in Houston
- House Financial Services Cmte panel holds hearing on capital formation for growth cos, 10am
- Senate Judiciary Cmte hears from Comcast exec. VP David Cohen on proposed $45b purchase of Time Warner Cable, 10am
- House Armed Services Cmte holds hearing on natl defense priorities, 10am
- House Ways and Means trade subcmte holds hearing on trade implications of U.S energy policy, LNG exports; 1:15pm
- Budget (Senate Appropriations):
- EPA Administrator Gina McCarthy testifies, 9:15am
- Labor Sec. Thomas Perez, 10am
- Clinton says no imminent decision on presidential run
WHAT TO WATCH:
- Toyota recalls more than 6m vehicles globally
- Alcoa sees almost decade-long aluminum surplus ending on cuts
- La Quinta raises $650m pricing IPO below marketed range
- GM fined by U.S. safety agency for incomplete recall answers
- Comcast to pitch its Time Warner deal as boost to innovation
- Tougher leverage limits for U.S. banks approved by regulators
- Tesla plans to find more financing for new Model S leasing unit
- Weather Channel returns with less reality after DirecTV blackout
- SAC Capital judge seeks profit info before approving plea
- Greece said to plan opening book for 5-yr note sale tomorrow
- Goldman Sachs considers closing Sigma X dark pool, WSJ reports
- Goldman, Warburg in next round for Huarong stake: Reuters
- Zayo explores IPO that values co. at $7b: Reuters
- Detroit said near deal with some bond insurers: WSJ
- Microsoft issues final security update for XP: Reuters
- AngioDynamics (ANGO) 4:01 pm, $0.09
- Apogee Enterprises (APOG) 4:30 pm, $0.29
- Bed Bath & Beyond (BBBY) 4:15 pm, $1.60 - Preview
- Cogeco Cable (CCA CN) Aft-Mkt, C$1.11 - Preview
- Constellation Brands (STZ) 7:30 am, $0.76 - Preview
- Dollarama (DOL CN) 7:30 am, C$1.10
- MSC Industrial (MSM) 7:30 am, $0.85
- PriceSmart (PSMT) 4:10 pm, $0.87
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
- WTI Retreats From Month-High as Crude Supplies Gain; Brent Slips
- World’s $8.9 Billion Banana Trade Threatened by Deadly Fungus
- Texas Cotton Desert Boosts Cost for Clothing Makers: Commodities
- Gold Trades Near Two-Week High as Investors Await Fed Minutes
- Raw Sugar Rises as Brazil Seen Delaying Sales; Coffee Declines
- Soybeans Climb to 10-Month High as U.S. Reserves Seen Declining
- Grandfather’s Utility Threatened by Renewable Islands of Profits
- Codelco Sees Copper Glut Imperiled by Project Lags: Commodities
- OPEC Plans to Make Room for Extra Oil From Iran, Iraq, Libya
- MORE: Iraq to Soon Reach Oil-Export Deal With Kurds, Luaibi Says
- Copper Falls Amid Concern About Potential China Debt Defaults
- Morgan Stanley Raises 2014 Brent Crude Forecast to $105/Barrel
- Aluminum Surplus Seen Ending by Alcoa as Producers Pare Supplies
- Renewables Replace Declining Nuclear, Coal in Northwest Europe
The Hedgeye Macro Team
Quick Update Note...
After the close, Permian Basin pure-play E&P Athlon Energy (ATHL) announced a significant asset acquisition in the Permian, and it looks to be the best comp transaction to the assets that LINN Energy (LINE, LNCO) is trying to swap/sell to date.
- 5 privately-negotiated transactions
- Combined cash purchase price: $873MM
- 23,500 net acres in Martin, Upton, Glasscock, and Andrews County (Hz. Wolfcamp play)
- 4,800 boe/d of current production, 67% oil
- 1P reserves: 31 MMboe; PD reserves: 12.1 MMboe (39%)
- 100% operated, 97% WI, 73% NRI
As far as we can tell, none of the acreage was acquired from LINN, though much of the acquired acreage looks very proximate to LINN and legacy ATHL’s positions (maps below). That’s somewhat strange to us – LINN is actively marketing acreage in ATHL’s backyard, but ATHL acquires acreage from 5 other private parties instead… One would’ve thought that ATHL would be in the running for some or all of LINN’s acreage. Maybe ATHL has an appetite for more acreage, maybe not... Or maybe LINN’s price was too high... ATHL hosts a conference call tomorrow AM to discuss the transaction, perhaps we get more color then.
At $75,000/boe/d or $30/proved developed boe (reasonable metrics for the production/PDPs), the acreage goes for ~$21,800/net acre.
Putting LINN’s entire Permian package on these same metrics values the production (17,000 boe/d) at $1.3B, the acreage (55,000 net acres) at $1.3B, and $2.6B in total.
We think those numbers are in-line with the whispers out there - the rumor we heard today is that LINN management thinks they can sell/swap the entire package for $2B - $4B. Still, this ATHL deal will likely be bullish for LINE/LNCO in the immediate term, as this deal gives some credence to the bull case, flawed as it may be.
ATHL Permian Acreage:
Source: ATHL Presentation
LINN Permian Acreage:
Source: LINN Presentation
the macro show
what smart investors watch to win
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
Energy Sector Head Kevin Kaiser warned investors to stay away from "mispriced" energy giant Kinder Morgan in this HedgeyeTV interview back in September. Since then, shares of Kinder Morgan (KMI) have fallen 11% with shares of KMP down over 5%.
Is that fear in the air? The sound of bubbles popping?
After notching new record highs recently, U.S. stocks have been falling with the S&P 500 yesterday posting its biggest three-day drop in two months (down -4.12% year-to-date). The action in the Nasdaq was anything but pretty with recent highflyers being brought down to earth.
Is a bigger correction at hand? We wanted your take on the market in today’s poll. So we asked: Do you think the S&P 500 will correct 10% or more by July 4th?
At the time of this post, the clear edge goes to the bears with 52% responding YES; 48% saying NO.
One responder who voted YES noted that, “the US economy is slowing more than consensus would like to admit, [and] consequently too many people [are] leaning the wrong way.”
Some YES voters said they believe the S&P 500 would only correct if earnings are as bad as predicted. And a few clarified that though they voted YES, if companies lower the bar, and then beat, then all bets are off and the “game can continue.”
One voter explained, “What should be working in terms of growth style factors isn't working. Slow growth assets continue to lead as the macro data comes in weaker. Bubbles popping. Might need to do more research since…Gartman is bearish...”
Speaking of Gartman, several comments referenced the CNBC market guest Dennis Gartman, editor of the Gartman Letter, who said in a recent interview that he’s getting out of equities and sticking with cash and gold to ride out the recent pullback – "I got scared," he said.
“Gartman’s scared, so we just bottomed out,” wrote one NO voter.
And another: “Dennis Gartman just said he's scared and getting out of stocks and into cash. As clear a buy signal as any.”
Though one responder admitted they thought a correction would happen a long time ago, if earnings do reset, as another comment puts it: "Unleash the Krak…Yellen!"
SUBSCRIBE TO HEDGEYE.
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.