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ADVENTURES IN ASIA

Back from Singapore/Macau, we offer up our observations

 

 

“The use of traveling is to regulate imagination by reality, and instead of thinking how things may be, to see them as they are.”

- Samuel Johnson - 18th century literary titan, essayist, lexicographer, poet, editor, critic, and famous talker. 

 

In the spirit of Dr. Johnson, last week the Hedgeye Gaming, Lodging and Leisure team’s fearless leader traveled more than 19,300 miles over five days and conducted 15 meetings in Singapore and Macau for a firsthand understanding of what’s really happening.

 

ADVENTURES IN ASIA - Asia Man

CALL TO ACTION

Without a clear resolution on most of the current issues facing Macau, the stocks look like trading vehicles over the near-term, up and down. Volatility should reign, although for long-term investors, the outlook seems secure – Macau should continue to thrive.

 

June may have been impacted more than expected by low VIP hold and with Q2 expectations matching the stock prices (that is, low), earnings season may not be so bad.  However, the VIP slowdown is real and the junkets were noticeably more pessimistic.  The smoking ban may be enforced against the premium mass which is a concern. We’re not seeing it yet but could premium mass face margin pressure as competition thickens?  Remember, the spread between junket commissions and premium mass rebates/comp levels remains wide.

 

For active investors, the short term trade looks long to us as does the entry point for long-term investors.  The intermediate term move could be negative with the smoking ban and continued weakness in VIP volumes.  As always, we will continue to be active with our Macau calls.  Stay tuned.

 

THE TRIP

We began the research trip with meetings in Singapore including the local gaming operator, the Singapore Tourism Board and a local market contact/long-time friend of the firm.  We begin with a few first-hand observations regarding the Singapore gaming market:

  • No real catalysts present to spark a resumption of GGR growth but the market looks stable.
  • The mass segment looks flattish as the government remains concerned over casinos stripping wealth from the locals.
  • Q2 strong for non-gaming in Singapore (due to school holiday) but typically not for VIP
  • No impact from China credit/liquidity issues – recall, Macau style junkets do not operate in Singapore.
  • No impact on inbound tourism/visitation from the disappearance of Malaysian Airline Flight 370.
  • Singapore government officials fear that the planned integrated resort in Bintan, Indonesia may eventually include casinos.  Even though the Muslim hurdle remains a large obstacle to legalized gaming in Indonesia, this situation warrants close monitoring.  While Bintan is not a heavily Muslim area, the area is a well-known tourist destination.  A description of the planned resort can be found at the following link:  http://news.omy.sg/News/Local-News/story2014045

Genting Singapore - unfortunately the positive catalysts appear to be outside of Singapore (Korea and Japan), both of which now appear to be delayed.

  • Singapore – Genting’s Mass share could get back to the 47-48% range.  The property made some customer loyalty program missteps but marketing executive is no longer with the company and changes have been made.  The problems began in 2013 and continued throughout most of the year.  Took away benefits from non-premium players.  Readjusted in Q1 2014 and gaining back some customers.
  • Despite persistent stock weakness, buyback not likely
  • Dividend raise is a possibility
  • Japan – Cabinet committee will decide if a gaming bill will be introduced in the fall
  • Genting Singapore has a good shot at Japan and unfortunately this seems to be the only catalyst for share appreciation
  • Jeju, South Korea – Subsequent to our meeting it was announced that groundbreaking has been delayed to 3Q 2014. Genting will not discuss the gaming aspect of its project until the company applies for and obtains a gaming license.  
  • Hedgeye is actually optimistic on the project but South Korea is likely not a catalyst until a gaming license is secured and the company can speak more freely about the casino contribution.
  • A CIMB analyst report suggesting Genting’s Jeju land will not be secured is patently false per the company.  Genting anticipates no land issues despite the analyst’s contention that it has been designated for other use

Following a mere 18 hours on the ground in Singapore, we went wheels-up for Macau, where we held meetings on Wednesday and Thursday.

 

Prior to putting two feet on terra firma in Macau, we hoped to hear more clarity and resolution from management and in our meetings on the topics of UnionPay, smoking ban, junkets liquidity, junket credit, a stabilizing outlook for the VIP segment, and Chinese macro issues.  While we feel better about the UnionPay issue, we walked away more dispirited and less optimistic for an imminent upturn in VIP.  Nevertheless, hold may have played a bigger role in June’s VIP demise and near term earnings expectations have reset lower – both could provide a scenario for near term upside in the stocks.  The next test of VIP resiliency will be October’s Golden Week.  As always, there are pushes and pulls and while we feel better about the long and intermediate duration, the stocks look like trading vehicles up and down over the next several months.

 

The Good

  • UnionPay just not an issue going forward.  Punters using the illegal terminals will simply migrate to the traditional and legal UnionPay outlets to withdraw money.  While the government could force UnionPay retail outlets off the casino floor, the only impact would be a 20ft longer walk for the patron or stopping into a UnionPay retail outlet on the way to the gaming floor.  It’s certainly in the government’s power to force more meaningful restrictions on UnionPay but we struggle to see any motivation for such action.
  • Junkets are understandably in a more foul mood than there optimistic concessionaire brethren.  Despite disappointment with the stock price action, non-junket players and industry observers were remarkably upbeat.
  • We believe Q2 estimates are fine for most of the operators and at a time where buy-side expectations are low for a change, earnings announcements could be a positive catalyst.
  • Hold in the 1st half of June may have been lower than we anticipated. We expect hold adjusted YoY June growth to be nicely in positive territory.  The release of the June monthly detail in early July could be another positive catalyst, on the margin.
  • Galaxy Macau is nailing it in the VIP segment, despite the slowdown.  Two new junkets and a new VIP area are providing the boost.
  • Sands China seems to be making a VIP push – without sacrificing mass.  New management has considerably more skill and experience in this notoriously elusive segment for the company.  I think this time is different and so will market share growth.  Across the largest room portfolio in Macau, Sands China comps only 35-40% of rooms to gaming customers.  There appears to be a lot of underutilized room inventory that could be yielded up to junket players.  Stay tuned.

 

Metza Metza

  • It is still uncertain whether premium mass areas will be excluded from the smoking ban.  We believe premium mass is more likely than not to be impacted from the inconvenience of a full smoking ban but it is no way settled.  In fact, senior management of all the concessionaires met while we were in market formulating a coordinate strategy to lobby the government for a smoking ban exclusion.  Despite the dismissive front face to investors, there is consternation among the operators lest why even bother with the lobbying?
  • VIP business definitely took a turn for the worse and while it may not improve meaningfully, the last shoe to drop may have dropped.
  • The shift of low end VIP to premium mass seems to be continuing, at least in the view of most operators although there was some dissent on this kind of migration.
  • Whether it’s after the fact justification or reality, the operators seem to present the World Cup more as an excuse for weak numbers than our previous conversations.
  • Premium mass continues to attract the focus of most operators.  SCC opened the Dragon Palace in May with 50 premium mass tables and even SJM is making the push.

 

The Bad…

  • Our thesis regarding difficult Mass comps looks intact.  As we pointed out in our recent note, most of the casinos yielded up the tables (by raising table minimum bets) last year from July-November.  Deceleration in Mass growth could provide a hurdle for further share appreciation over the intermediate term.  Recall, most of the sell-side continues to recommend Macau gaming on the thesis of ‘robust’ or ‘strong’ mass segment growth exceeding 30% year-over-year. 
  • Most agree that a full smoking ban – even in VIP rooms – is inevitable. It’s all about how much time they can buy.
  • Wynn Macau appears to be more conservative to their junket approach given the environment.  Our hopes of more commission advancement to fuel junket liquidity and thus growth have likely been dashed.
  • Some of my contacts are concerned that the government could delay some Cotai openings to spread them out.  This was the theory a couple of years ago and now it’s resurfacing.  Permit delays would be the likely stalling tactic.
  • More than one of my sources is concerned with margin pressure in premium mass.  As long as the spread between junket commissions and premium mass rebates/comps remains as large as it is, there is potential for someone to spark a war, even before Galaxy Macau opens Phase 2. We haven’t heard that there is any movement and we certainly haven’t seen it in the margins.

June 23, 2014

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BULLISH TRENDS

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BEARISH TRENDS

 

June 23, 2014 - Slide8

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Video: KEITH's KEY CATALYSTS FOR GOLD

Takeaway: Gold holds @Hedgeye $1285 support like a champ.

The CRB Index (19 commodities) and CRB Food index powered fresh year-to-date highs last week of +11.8% and +22.8%, respectively. Gold holds @Hedgeye $1285 support like a champ.

 

In the video below Hedgeye CEO Keith McCullough talks key catalysts for continued momentum in Gold and what breakout line will be important for further upside.

 


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.

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 23, 2014


As we look at today's setup for the S&P 500, the range is 42 points or 1.88% downside to 1926 and 0.26% upside to 1968.                                          

                                                                                     

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: 2.14 from 2.15
  • VIX closed at 10.85 1 day percent change of 2.17%

 

MACRO DATA POINTS (Bloomberg Estimates):               

  • 8:30am: Chicago Fed Nat Activity, May, est. 0.2 (prior -0.32)
  • 9:45am: Markit US Mfg PMI, June prelim, est. 56.0 (prior 56.4)
  • 10am: Existing Home Sales, May, est. 4.74m (prior 4.65m)
  • 11am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $25b 3M bills, $23b 6M bills

 

GOVERNMENT:

    • President Obama, first lady Michelle Obama, VP Joe Biden participate in White House Summit on Working Families
    • Senate returns at 2pm; House holds votes at 6:30pm
    • House Veterans Affairs Cmte holds hearing on patient care
    • House Oversight Cmte hears from IRS Commissioner John Koskinen on missing Lois Lerner e-mails
    • Washington Week Ahead
    • U.S. ELECTION WRAP: Cochran Runoff Strategy; Senate Predictions

               

WHAT TO WATCH:

  • GE wins Alstom board’s backing for energy-assets deal
  • France reaches deal with Bouygues for up to 20% of Alstom
  • ISIL advances to Iraq-Jordan border; Obama warns of spillover
  • Putin supports Ukraine cease-fire, holding military drills
  • BlackRock said attending Russia forum
  • China PMI climbs to 7-month high, beats est.
  • Lululemon reassures investors after founder steps up pressure
  • American Apparel key investor won’t support founder Charney
  • BNP said close to $9b accord in U.S. sanctions case
  • GE Capital sells Scandinavian consumer finance unit for ~$953m
  • Nissan, Honda add >2m cars to air bag recall
  • Sterne Agee ousted CEO Holbrook said to face U.S. probe
  • InterContinental Hotels rebuffed Wyndham offer this yr: Sky
  • Euro-region PMI shows weakening as French woes intensify
  • AbbVie may raise Shire bid as high as GBP55/Shr: Jefferies
  • Oracle’s $5b deal to buy Micros could be announced today: WSJ
  • ‘Think Like a Man Too’ tops N.A. weekend box office
  • Aereo decision may be announced by Supreme Court
  • Barron’s Roundup: Amgen, Apache, National Oilwell, Pier One
  • U.S. Weekly Agendas: Finance, Industrials, Energy, Health, Consumer, Tech, Media/Ent, Real Estate, Transports
  • North American M&A Agenda
  • Canada Weekly Agendas: Energy, Mining
  • U.S. GDP, Housing Data, Nike, Wimbledon: Wk Ahead June 21-28

 

EARNINGS:

    • Micron Technology (MU) 4:02pm, $0.72
    • Sonic Corp (SONC) 4:05pm, $0.29

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Traders Barking Orders in London’s Last Open Outcry Get Reprieve
  • Gold Trades Below 2-Month High as Fed to Physical Demand Weighed
  • Hedge Funds Bet on Sugar as Dryness Threatens Crops: Commodities
  • China Palm Oil Imports Seen Falling as Economic Growth Slows
  • Copper Extends Longest Rally This Year After China Manufacturing
  • Bullish Oil Wagers Reach Record as Fighting Engulfs Iraq: Energy
  • Steel Rebar Rises on Iron Ore, China Manufacturing Expansion
  • LME Getting Interest From New Companies to Join Floor Trading
  • China Buying More Indian, Australian Bauxite After Indonesia Ban
  • EnBW Starts German Coal-Fired Plant With Solar Power Near Record
  • Glencore’s Singapore Crude Oil Trading Manager McBain Retiring
  • Corn Extends Weekly Rally as Investors Weigh Rain on Record Crop
  • Platinum Union Says Workers May Report June 25 If Deal Accepted
  • Gazprom Boosting Gas Transit via Ukraine Before Nord Stream Halt
  • China’s Corn Shipments From U.S. Rise in May, Customs Says

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Best of This Week From Hedgeye

Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYE TV

Chris Whalen, Senior Managing Director and Head of Research at Kroll Bond Rating Agency, explains why he's bearish on housing, how Washington is failing America, and opportunities he sees with Hedgeye Financials Sector Head Josh Steiner in Real Conversations

 

Restaurant Analyst Howard Penney details the three key reasons why he’s short the stock of Del Frisco’s, a high-end casual dining steak chain.

CARTOONS

Click here to subscribe to Cartoon of the Day. 


The Best of This Week From Hedgeye - Fed cartoon 6.19.2014

The Best of This Week From Hedgeye - Inflation cartoons 06.17.2014

CHART

 The Best of This Week From Hedgeye - chart of the week

 

poll

 

On Monday morning, the WSJ printed that “a raft of unsettling events have shattered the relative calm of the U.S. stock market and put investors on edge.” Concerns over Iraq and rising oil prices, Fed Policy jitters and other worries helped trigger a 12% jump in the VIX fear gauge and sent the S&P 500 down 0.7% last week, its worst performance in two months.

 

We wanted to know what you thought: Are we entering a new phase of market turbulence?

 

Click Here to see our readers' reactions.

The Best of This Week From Hedgeye - turbulence large

 

HEDGEYE.COM

 

IN CASE YOU WERE STILL WORRIED ABOUT DEFLATION...

From Associate Analyst Christian Drake:  "Our 1Q14 Macro Investment theme #InflationAccelerating called for ~100 bps increase in reported CPI into the easiest inflation comps in 3Q14.  With inflation running just above 1% into 2013 year-end, a +100 bps increase was effectively a call for a doubling in the rate of price growth." Read more here.

The Best of This Week From Hedgeye - inflation 1811026b large

 

 

TARGET TO CANADA: WE'RE SORRY

Retail Sector Head Brian McGough dives into $TGT's apology to Canadian consumers, and still thinks its Canada stores have a rough road ahead of them. Read more here. 

The Best of This Week From Hedgeye - Target Canada Stores

 


Investing Ideas Newsletter

Takeaway: Current Investing Ideas: GLD, HCA, HOLX, LM, LO, OC, OZM, RH, and TIP

Below are Hedgeye analysts' latest updates on our NINE current high-conviction investing ideas and CEO Keith McCullough's updated levels for each.

 

*Please note that we added OZM to Investing Ideas earlier this week. We will send out a full report next week.

 

We also feature two institutional research notes from earlier this week, as well as Keith McCullough's Friday morning macro call, all of which offer valuable insight into the markets and economy.

 

Investing Ideas Newsletter  - levs

 

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

HEDGEYE CARTOON OF THE WEEK

Investing Ideas Newsletter  - Inflation cartoons 06.17.2014 

IDEAS UPDATES

GLD –  This past Thursday Gold broke out of Hedgeye's immediate-term TRADE resistance of $1285 with the new risk range at $1285-$1336/oz. and intermediate-term upside from to TREND resistance of $1381. 


The repetitive call to front-run the Fed’s response to worse-than expected economic data finally manifest this week:

 

  • Headline CPI prints +0.4% vs +0.2% expected (inflation accelerates)
  • Full-year GDP forecast from the Fed lowered to 2.1-2.3% from 3% (growth misses and warrants a response)

As inflation accelerates, and growth expectations decrease, the likelihood of an easier Fed increases:

 

  • GLD Surges 3.5% on Thursday
  • Spot Volumes: 62%, 52%, and 49% above 1, 3, and 6-Month averages respectively
  • The 1-Week negative correlation tightens significantly to -0.91  

Meanwhile, divergence in the equity markets between consumer-based growth and inflationary sectors continues to take hold:

 

  • Energy (XLE) (+13.5% YTD); Utilities (XLU) (+14.9%)
  • Consumer Discretionary (XLY) (-1.00%)

 

HCA – Healthcare sector head Tom Tobin has no update on HCA whose shares were up almost 5% this week. He reiterates his high-conviction call on the stock.


HOLX ­­– (Editor's note: The following update was sent in from Healthcare sector head Tom Tobin earlier today.

 

I was running around San Francisco yesterday meeting with clients and again got a fresh round of questions about the upcoming 3D reimbursement announcement from CMS.  Apparently my questioners had seen a note from “my guy in DC” regarding Hologic.  This DC consultant’s business is to know what is coming out of DC regulators before news is officially announced, which is dubious for obvious reasons, but it doesn’t mean it isn’t true. 

 

The call is that when the reimbursement is announced at the beginning of July, 3D Tomography will not receive any additional dollar amount over 2D.  This is a problem for how long it takes HOLX and GE to penetrate the market where even an extra $25 per scan across 4 scans per hour and 8 hours a day, tallies up to a big number which can easily offset equipment cost.

 

If “my-guy-in-DC” is right, and has the inside view of what CMS will say, there will be a few sequential outcomes.

 

  1. HOLX trades down to $21-$22, or returns to the multiple it was at before HOLX announced they were finally receiving a code this year.
  2. Sellside makes no change to their estimates, since numbers have only moved higher to incorporate the March quarter upside and company guidance
  3. Breast cancer advocacy groups, facilities, and GE/HOLX pressure politicians and ultimately CMS to increase 3D reimbursement by the time the final rule is announced in November, or GE/HOLX launch a legislative initiative as they did to gain incremental reimbursement for 2D.  Either way, 3D will ultimately get a reimbursement increase over 2D

Even if I adjust my 3D facility adoption curve to a slower penetration pace to reflect $0 incremental  reimbursement increase, HOLX should trade in the $30-$38 range over the coming 12-18 months.  Street estimates for the June quarter are too low regardless.  Regardless of the reimbursement outcome, I’ll be able to see how many facilities are buying a 3D system, so if there is an impact, I’ll see it.

 

If we’re wrong on reimbursement, we still see several tailwinds for 3D

 

  • Mammography is competitive and facilities need to upgrade to maintain market share
  • A replacement cycle will accelerate as 2D systems from the last replacement cycle reach the end of their useful lives of 7-10 years
  • Mammography capital market is expanding
  • ACA is accretive to mammography demand
  • Dense Breast legislation drives conversion
  • A lower callback rate for 3D is accretive to the practice profits

 

LM – Deal activity in the asset management sector has taken a noticeable leg up during the course of the second quarter with several recognizable AUM transactions occurring in this week alone. Second quarter 2014 deal tallies have aggregated to $44 billion globally on 282 transactions amongst global asset management firms, the highest level since the $45 billion that transacted in the 4th quarter of 2007.

 

Generally, we estimate that nascent deal flow facilitates incremental transactions as empirical comps are created which can accelerate the deal process of pending negotiations in the pipeline.

 

We remind investors that part of our rationale for recommending Legg Mason as a long on our Best Ideas list is the company has been a successful roll up of various asset management properties over the past 20 years with the accretive integration of investment managers employing everything from quantitative strategies to domestic small cap equities to European hedge funds.

 

Historically, LM stock has reacted quite favorably to its roll-up strategy with substantial outperformance against the market after employing M&A. In analyzing the acquisitions of the main affiliates that still surivive under the LM umbrella (Batterymarch, Brandywine, Royce, etc), Legg stock has outperformed the S&P 500 by 900 basis points on average in the 6 and 12 month time periods after deal announcements. Thus if the recent amend and extend within Legg's long term capital structure does allow the company more financial flexibility coincides with what we believe is management's threshold to only do an immediately accretive deal, LM may soon finally pull a new affiliate under its umbrella which has been historically positive. 

 

Investing Ideas Newsletter  - lm

 

LO – Lorillard enjoyed a nice 6.5% pop this week, finishing Friday up 1.5%. There was little news on the week concerning the stock, yet the "animal spirits" surrounding a potential take-out from Reynolds American (RAI) continue to boost shares. We suggest staying on for the ride higher.

 

In related news, there was a Senate hearing on e-cigarettes earlier in the week. One key takeaway from it is that should the FDA finalize its proposed regulations for e-cigs –  which did not ban the marketing of e-cigs  – big Tobacco companies like LO stand to benefit over smaller independents given their deep pockets.

 

We continue to outline the long-term fair value price of the stock at $80/share.  We do not think LO will be imminently purchased and are staying long the stock that we added to Investing Ideas on 3/7/14. It is up over 24% since then.


OC – Owens Corning lowered its operating profit outlook Friday morning from $500 million to above $416 million, a move it hinted to in first quarter results. The roofing market is facing excess production, depressed demand from this past winter and a large competitor behaving aggressively in the market. Even in this environment OC’s roofing segment is still earning a respectable 18.4% TTM operating margin. OC’s roofing segment makes up ~30% of sales. OC’s other segments insulation and composites are still showing strong signs, which management noted in the same press release.

Investing Ideas Newsletter  - oc

As of right now we reaffirm our long term outlook. We will want to get a better sense of the roofing market dynamics if we need to adjust our view. We continue to expect the shares to perform well longer-term if the company can come anywhere near consensus expectations.    

 

RH – (Editor's note: Shares of Restoration Hardware were up over 18% last week, followed by an 11% gain this week, bringing its total gain to 32% over the last two weeks. Hedgeye retail sector head Brian McGough still thinks RH is the best idea in retail and has major upside potential from here.)

 

We were initially caught off guard in seeing the announcement from Restoration Hardware that it would sell up to $350mm in convertible notes. But after going through the numbers and the logic, we think it makes all the sense in the world. Here’s what we’re thinking…

  1. The company is, in effect, creating $350mm of low-cost liquidity through a convertible note offering.  It currently has only $149mm outstanding on a $417.5mm credit facility. So why would it need to do this deal?
  2. First off, because it can. We’d like to see the company tap the capital markets for lower cost financing from a position of strength rather than from a defensive position if the long-term growth plan is thrown a curve ball.
  3. The cost of the debt is not the issue at hand. Yes, it’s nice that the structure of this deal suggests that there is no dilution until the stock is $172 – about 95% above Thursday's closing price. And even then, we’re only talking about 1-2% dilution.
  4. No, the KEY ISSUE here is duration matching. The company just started what will be a 5+ year store growth plan where it will take square footage from 825k to about 2.3mm. It is signing leases today for 2H16. Its current credit facility expires in August 2016. One of the bear cases we hear is that the company would be locked into expensive leases in 2017/18 without having liquidity protection. Then we go into a recession, which would hurt cash flow and close the window for the company to find liquidity to finance its growth. That argument is officially shot in the foot.

The punch line on this financing deal is that it de-risked the growth strategy, and took out one of the key bear arguments on this stock. If there’s any bad news, it’s that that there will be dilution at some point over the next few years – because we think that RH trades through $172.

 

TIP – The Federal Reserve targeted rates lower again this week, adding to our #InflationAccelerating theme and burnishing our high-conviction, inflation-protection TIP idea.  We see cyclical and structural inflationary pressures, with commodity inflation accelerating to fresh YTD highs.

  • CRB (19 component) Commodities Index = +11.4% YTD
  • CRB Food Index up another +2.1% this week = +22.8% YTD
  • Nickel +2.9% this week = +33.1 % YTD, and
  • Gold +3.5% this week = +9.5% YTD 

If we’re right and the inflation-accelerating-slows US growth setup is similar to 2011, Gold can go a lot higher, and yesterday it broke out above Hedgeye’s immediate-term TRADE resistance of $1285/oz.  Tuesday’s data reported CPI MoM up to 0.1% to 0.4%, CPI YoY up 0.1% to 2.1%, and CPI Core Index up 0.2% to 2.0%, all of which were higher than estimates. 

 

Investing Ideas Newsletter  - grannis

 

The chart above (courtesy of Scott Grannis) shows inflation accelerating from 1.5% in February to 2.6% in May and core inflation accelerating from 1.6% to 2.1% in the same time frame.  Additionally, with the dollar quite weak, and gold and commodity prices elevated, the economy is symptomatic of rising inflation.  All of the aforementioned data points confirm our stance on iShares TIPS Bond ETF TIP being a high-conviction investment idea.

 

*   *   *   *   *   *   *
 

Click on each title below to unlock the content.

 

All-Time Highs: Can Livestock and Poultry Prices Go Higher?

We continue to field arguments against the inflationary read-through on the commodity squeeze. Sharp increases in livestock and poultry prices over the last ten years in the face of stagnant wage growth, a decline in savings rates, and a declining U.S. dollar illustrate this reality in staggering fashion.

Investing Ideas Newsletter  - beef

 

ICI Fund Flow Survey: Bonds Are Running, Stocks Are Choppy

Taxable bonds just put up their 18th consecutive week of inflow assisted by tax-free inflows at 22 consecutive weeks. Conversely, equity funds had another choppy week with domestic stock fund outflows, the 7th consecutive week, offset by international stock fund inflows.

Investing Ideas Newsletter  - flows

 

Keith McCullough's Morning Macro Call 7.20.14

Hedgeye CEO Keith McCullough takes a deep dive into what's going on in the markets and economy with a close look at commodities, gold and utilities.

Investing Ideas Newsletter  - call


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 78.63%
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