Takeaway: To quote Hedgeye senior macro analyst and Asia wizard Darius Dale, “lots of red indeed.”
Click to enlarge image below.
Inventories of copper and iron ore have moved in different directions. Chinese metal-for-credit schemes may be complicating the data. The expected copper supply growth in coming years appears significant, although prices have firmed since March, in part due to inventory trends.
Iron Ore Inventories
Seaborne iron ore prices continue to decline, reaching the lowest levels since 3Q 2012.
Chinese Construction Materials
Nominal China Rebar prices have hit a 5-year low, which is likely not a positive sign for construction activity.
TODAY’S S&P 500 SET-UP – June 10, 2014
As we look at today's setup for the S&P 500, the range is 26 points or 1.09% downside to 1930 and 0.24% upside to 1956.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
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Please join the Hedgeye Gaming, Lodging, and Leisure Team led by Sector Head Todd Jordan for a Black Book call on International Game Technology (IGT) - the case for going private. This insightful call is scheduled for tomorrow, Tuesday, June 10th at 1:00pm EDT.
We are fast tracking this call due to this afternoon's news headline relating to IGT retaining a financial advisor to explore strategic alternatives. A call had previously been planned for later this week to discuss Hedgeye's long term investment thesis on IGT.
Todd Jordan previously served as Audit Chair on the Shuffle Master Board of Directors. As such he was licensed in many jurisdictions and is able to provide invaluable insight into any go private transactions.
Takeaway: 56% said YES; 44% said NO.
As Hedgeye CEO Keith McCullough observed in today’s Morning Newsletter, the VIX officially crashed last week, down -5.7% to -21.6% YTD. “If you want to fail really, really, fast in this business,” McCullough wrote, “get your clients levered-long the US stock market at 10 VIX (US Equity Volatility Index).”
We asked: Are you concerned about the ‘crash’ in volatility? Here’s what you thought.
At the time of this post, 56% said YES; 44% said NO.
A voter who is concerned about the ‘crash’ in volatility answered YES because:
Conversely, voters who voted NO had this to say:
Every month we read the MCD press release on monthly sales trends expecting to see something more. Typically, the opening comments from CEO Don Thompson consist of a few feel good statements that do little to convince us that the company is effectively addressing its issues.
This month, the opening statement is no different: “Around the world we are pursuing opportunities to provide our customers with their favorite food and drink, create memorable experiences, offer unparalleled convenience and become an even more trusted brand,” said McDonald’s President and Chief Executive Officer Don Thompson. “We are intensifying our commitment to place the customer at the center of everything we do and are determined to create experiences that deliver the most meaningful impact for our customers and our business.”
Given the 1% decline in same-store sales this month in the U.S. and a seventh straight monthly decline, the company is trending to levels not seen since 2002 (see chart below). The company also failed to drive positive traffic in this region, despite focusing the marketing calendar on its value message. This reinforces what CEO Don Thompson said at a conference last month, inasmuch as “MCD is all about increasing top line sales and transactions, and not based on optimizing profitability.” While the current trend isn’t nearly as bad globally, we believe the company still faces a significant uphill battle.
The stock has gained 6.2% over the last three months with the hope that the company would use its balance sheet to create shareholder value. Management did announce a shareholder friendly move, but this is old news. We believe the street will now turn its focus back to current business trends and the underlying issues that remain.
Industry conditions are difficult for a number of companies, but there are others that are thriving in this environment. MCD’s core customers are in the lower-to-middle class cohort, which continues to feel the effects of limited income growth and a benign job environment.
While MCD has the marketing muscle and cash flow to muddle along for a few years, it will be constantly fighting an uphill battle against macro trends and the consumers’ shift away from traditional fast food. In the end, we believe MCD will face a major restructuring to once again take share in the global QSR market.
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