Takeaway: Top-down signals and bottom-up fundamentals support chasing Argentine equities (ARGT) to new highs.

On JUN 18 the US Court of Appeals for the Second Circuit lifted the stay on Judge Thomas Griesa’s (NY-Southern District) previous ruling after Argentina was denied an opportunity to have its case against bond restructuring holdout NML Capital heard by the Supreme Court two days prior.


This effectively forces Argentina to make good on $1.5B of overdue credit on JUN 30 (or be forced to via seizures of int’l assets) – the same day it owes an additional $900M to bondholders that took place in the country’s 2005 and 2010 restructurings of 92% of the country’s 2001 $95B sovereign default at 29 cents on the dollar. Moreover, the ruling prevents Argentina from prioritizing payments on restructured bonds over those of the holdout paper.


Argentine policymakers rightfully fear the ruling opens the country up to an additional ~$15B of likely claims by other holdout creditors – effectively putting more than half of the country’s $28.8B in FX reserves at risk. It’s worth noting, that Argentina uses FX reserves as it primary source of USD liquidity.




One key issue to monitor over the next week is that a clause in the aforementioned restructuring contracts prevents other bondholders from receiving better deals in subsequent negations – an option Argentine leaders have signaled they are likely to pursue.


This intention was stated less than a week after Argentine financial markets were roiled by Argentine President Cristina Fernandez de Kirchner and Economy Minster Axel Kicillof’s aggressive remarks following the decision to lift the stay; they referred to the decision as “extortion” and said they would attempt to transfer their restructured foreign law bonds to local legislation in order to skirt the ruling.


Specifically, the Buenos Aires Stock Exchange’s benchmark Merval Index dropped -10.9% and -4.9% on JUN 16 and JUN 19, respectively. The Argentine peso declined -6% the black market to 12.40 per USD on JUN 19, its first day back “trading” since JUN 13. Fast forward to today, the Merval Index is up +10.4% since last Monday (JUN 16) on what appears to be a change of heart among the Argentine brass with respect to the ruling and threats of technical default.




There’s follow-through in the bond market as well; the country’s 2021 notes have rallied 9.63 cents on the dollar from their JUN 16 low to 97.27. Argentina’s 5Y CDS have tightened -1190bps from their JUN 17 wides to 1437bps. The market likes what optically appears to be a shift, on the margin, in the direction of less-crazy policy out of the Fernandez regime. Her decision to eventually award Spain’s Respol $5.1B after their 2012 expropriation of YPF and her decision to settle $9.7B worth of obligations with the Paris Club in late-MAY is supportive of this view.



Source: Bloomberg

Perhaps the “Fernandez discount” is on the brink of being sustainably eroded. If that is the case, Argentina is a country that could stand to see increased international interest in its financial markets on the political change catalyst; in fact, Argentina is not unlike India or Brazil in this regard.


In addition to this, our TACRM system is giving us two thumbs up on the ARGT etf here. From a quantitative perspective, the index fund is signaling “buy” on an idiosyncratic basis and, from a top-down perspective, both EM Equities and Commodities remain “buys” at the primary asset class level. The latter is supportive of marginal improvement in Argentina’s creditworthiness due to likely improvement in the current account balance (commodities account for ~65% of Argentine exports).








We don’t think it’s prudent to build a materially sized position in Argentine stocks; nor do we think it’s a long-term holding without further color on the holdout negotiations or a continued willingness for the Fernandez government to be less crazy. Moreover, the country’s debt ladder would seem to suggest that it’s far from out of the woods; it owes $10.3B  to international creditors in 2015, $12.7B in 2017 and $12.1B in 2018.



Source: Bloomberg


Time will tell. For now, happy squirrel hunting!




Darius Dale

Associate: Macro Team


***To the extent you’d like to learn more about TACRM and how we apply its consistent and robust quantitative signals to our decision-making process, please review the following white paper, which can be accessed via the following link: In short, TACRM systematically distills actionable investment color from the global financial marketplace in a manner that is consistent with quantitative rigor that investors have come to expect from Hedgeye.***

LULU - Flash Call Wednesday 6/25 11am ET

Takeaway: We'll be hosting a flash call to discuss why we turned positive and added LULU to our Best Ideas List - tomorrow, June 25th, at 11am ET.

Please join us for a Flash Call on Lululemon (LULU) tomorrow, June 25th, at 11am ET. The purpose of the call is to review why we turned positive and added LULU to our Best Ideas list as a Long following the company’s latest disappointing quarter.


Simply put, our view is that things are so bad, that it’s good – and the subsequent activism by Chip Wilson supports that case.  Don’t get us wrong, Wilson is as much a liability now as he ever has been. But, we think that the path he’s marching down leads this company, and the stock, down an array of very defined outcomes - most of which are positive for LULU shareholders.  Our math suggests at least 3-to-1 upside/downside.


We’ll be exploring the following…

  1. A key focus for us is the decision tree facing this company based on Wilson’s effort to regain control of the Board. If he wins, certain things will happen. If he loses, there’s a completely different set of outcomes. We look at all outcomes that have a remote chance of happening and look at likely ensuing stock price.
  2. What obstacles does Wilson face in going activist on the company that he created? There are many. We’ve done the deep dive on the Board history and relationships.
  3. We’ll analyze the governance factors surrounding anyone who wants to influence this Board.
  4. What factors could lead to a take-out? Who could absorb a deal this big, and more importantly, who wants to?
  5. What’s the worst case scenario, and what would need to happen for us to back off of our thesis?
  6. Yes, there’s this thing called Selling Yoga Apparel. That matters. We’ll outline what fix we think the company needs in order to jump start its financial model.  



Toll Free Number:

Direct Dial Number:

Conference Code: 619868#

Materials: CLICK HERE


Cartoon of the Day: Kicked Consumers

Takeaway: U.S. consumers are experiencing some significant headwinds.

Cartoon of the Day: Kicked Consumers - consumer cartoon 06.24.2014

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In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance


CCL F2Q 2014 REPORT CARD - ccl1 


CCL F2Q 2014 REPORT CARD - ccl2



  • MIXED:  Every quarter, CCL manages to mess something up.  This time, management is blaming lower forward occupancy in the Caribbean. However, we are encouraged by the pricing environment we're seeing out of the Caribbean (even if it is uneven among their brands) and if pricing is sustained, this will bode well for 2015 performance in that region, in the face of declining supply.  While the hold price and sacrifice occupancy strategy may prove risky for CCL for another quarter, the pieces are set for CCL, at least, to meet their internal expectations for the year.  While we were neutral heading into today's print, we continue to believe CCL has to overcome the lowest bar among the 3 big operators this year; CCL should not set it any lower. 



  • MIXED:  Pricing is better at the expense of lower occupancy
    • Cautiously optimistic pricing will continue to firm and improve. 
    • On a number of voyages, willing to give up a couple of points of occupancy to hold price


  • WORSE:  Since March, fleetwide booking volumes for the next three quarters are running slightly behind, due to North America bookings. Mgmt expects the booking curve to continue to lengthen.
    • Fleet-wide booking values during this year's wave season have been running almost 20% ahead of the prior year, significantly outpacing capacity, albeit at lower prices.
    • Cumulative bookings for the next three quarters were ahead of the prior year as overall booking curve has started to lengthen.
    • Currently still toward the lower end of historical booking curve.


  • SAME:  Costa continues to improve its performance in F2Q.  Spain was one region of particular strength.
    • Costa achieved strong booking volumes during wave season, and in fact, we were almost up 50% year-over-year.  We've seen a continued improvement in perception with an almost doubling of trust and confidence in the core Italian market. 
    • The European economy is still choppy, but it's obviously strengthened. And we do see accelerated progress in the Costa brand


  • WORSE:  NA yields will be slightly negative (down from slightly positive) with the Caribbean behind on occupancy.
    • Our North American brands have caught up on occupancy compared to prior year
    • Seasonal European program for NA brands is strong; well ahead on both price and occupancy.


  • BETTER:  nicely ahead on both price and occupancy
    • Behind on price but well ahead on occupancy, which bodes very well for pricing on the remaining inventory.


  • BETTER:   Significantly ahead on occupancy with flat pricing. 
  • PREVIOUSLY:   Year-round European program, which represents 70% of the EAA brands capacity for the remainder of the year, is behind on price but well ahead on occupancy.  Recent booking volumes have been substantially ahead of last year, which again bodes well for pricing on the remaining inventory.


  • SAME:  The weak 3Q guidance was partially attributed to Japan  (Princess brand)
  • PREVIOUSLY: 3Q will be impacted to some degree by Japan


  • BETTER:  Lowered FY NCC ex fuel guidance to 'flat to slightly up'.  Mgmt sees opportunities for cost cuts in its air program for 2015.
    • Increased our investment in advertising and expect to spend over $600 million in 2014.
    • Crew travel and ports are two examples of large areas where CCL is conducting deeper dives.  CCL is still at early stage in sizing the [cost] opportunities in these and other categories. 


Caribbean pricing holding well at the expense of lower forward bookings for 3Q. Once again, CCL offered guidance that is beatable but the unchanged, ambiguous language concerning full-year yields is disconcerting.




  • Turn a bit of a corner; inflection point for the company
  • European yields turned positive in 2Q
  • Favorable pricing in North America and Europe
  • Making every effort to maintain pricing
  • Gave up some occupancy in Southern Caribbean segment to keep pricing
  • Aggressive pricing by competitors in Caribbean
  • In 2015, expect flat capacity in Europe and Alaska, and slight reduction in Caribbean deployment with notable double digit decline in 3Q 2015
  • Asia/Australia capacity will be up mid-high teens in 2015
  • (Ibero) Grand Celebration will become Costa Celebration 
  • 5 ships leaving or sold from fleet in 2014/2015 (including 3 Seabourn, 1 Costa); new ships in 2016 will replace this capacity loss
  • Remain on track to reduce fuel consumption by 25% in 2014 when compared to 2007
  • 2Q:  
    • Better performance driven by better net revenue yields worth $0.04 (split btw ticket and onboard and other)
    • Capacity increased 5%
      • NA brands +8%; EAA brands flat
    • Net ticket yields -4%; NA ticket yields -7%; EAA ticket yields: +2%
    • Net onboard/other yields: +2.6%
  • Overall booking curve continues to lengthen; anticipate this trend will continue
  • Cumulative bookings:
    • EAA brands significantly ahead on occupancy with flat prices, which bodes well for pricing on remaining inventory
    • NA brands ahead on price but behind on occupancy as a result of large increase in industry capacty in Caribbean
  • Epect EAA brand yields turned positive in 2Q and will be positive for rest of year
  • Don't expect NA yields to turn positive until 4Q
  • Forecasting slightly lower occupancies for 3Q
  • Back half of year forecast has not changed-with slight improvement in 4Q offset lower occupancy in 3Q
  • NA brands:
    • Caribbean: behind on occupancy but ahead on price; 44% capacity for remainder of year for NA brands; booking volumes have been good.
    • Alaska:  nicely ahead on both price and occupancy, which bodes well for remaining inventory
    • Seasonal Europe program for NA brands are strong - well ahead on both price and occupancy.
  • EAA brands:  
    • European program represents ~80% of EAA brands' capacity- significantly ahead on occupancy with flat pricing.  Recent book volumes are meeting expectations at nicely higher prices
  • Better FY NCC ex fuel guidance due to lower occupancy and greater collaboration amongst brands.
  • 2Q better yields (4 cents), improved cost guidance (6 cents), improved fuel consumption/items (4 cents), unfavorable currency/fuel (-6 cents)

Q & A

  • 3Q yield:  very small movement from a tad positive into slightly negative at this point.  More promotional environment in Caribbean than anticipated.  Carnival brand decides to hold price and give up occupancy; lower occupancy driving yields down.
  • EAA brands moving in positive direction
  • Capacity in Caribbean:  +22% (3Q), +13% (4Q)
    • For CCL, capacity in 4Q is only +5-6%  in Caribbean, compared with +19% in 3Q
  • Yields will be up slightly in Q4
  • Opportunities in reducing air expenses; fully expect to begin to see benefit in 2015
  • Ticket revenue at EAA brands performed a little bit better than expected.
  • Onboard Casino program doing well; didn't change onboard revenue for remainder of year despite lower occupancy because of improvements that they're seeing.
  • Lower occupancy in Caribbean, Japan, and other things impact 3Q yields
  • 3Q guidance a little worse than CCL anticipated
  • 3Q NA yields will not be worse than -7% seen in 2Q
  • Annual strategy reviews in Aug/Sept
  • 2015 capacity growth: little over 2%
  • Biggest promotional activity has been in south Florida market; making deployment changes
  • 2015 overall capacity increases will be in Asia/Australia/New Zealand
  • 2015 Industrywide:  where NA brands exist, flat capacity; where EAA brands exist, capacity +6%.  Asia-Pacific region will grow 16% for industry.
  • Carnival brand:  image has rebounded very well. 
  • But overall rebound has not been what mgmt had hoped because of Caribbean promotions.
  • Held price at expense of occupancy worked well last year
  • Ex payroll/fuel:  1% cost improvement yields $60 million
  • Costa:  continue to improve a few more points than prior year
  • Can see yield improvement in Caribbean at some point.  Inflection point in 3Q moving to 4Q.
  • Onboard:  positive signs in multiple categories but casino revenue growth most significant
  • Costa strong in Spain
  • China: overall yields slightly less than corp average.  Chinese love gambling but drink less.


Takeaway: The New Home Market shows signs of life in May, but pricing trends in the existing home market continue to weaken.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 


NEW HOME SALES = MAY FLOWERS - Compendium 062414


Today's Focus: May New Home Sales & April Case-Shiller and FHFA


May New Home Sales - Key Takeaways

* Solid report as New Home Sales increase +75K sequentially (+18.6% MoM) in May, with the YoY reversing to +17% after three consecutive months of negative YoY growth.


* All regions showed positive accelerations in sales – most notably, the Northeast region saw YoY Sales improve to +36% YoY in May after negative year-over-year growth of -39.5%, -18.2%, and -31.3% over the February-April period. 


* Inventory:  New Homes for Sale increased to 188K from 187K prior – an increase of +0.5% MoM and +16% YoY. 


So, for reasons we’ve highlighted previously (QM, Investor Demand, Student Loan debt & Lower tier income growth stagnation, etc), the new Home market continues to look better on balance than the existing market where the 750K+ tier remains the primary source of strength. 


NEW HOME SALES = MAY FLOWERS - New Homes SaleS Absolute   YoY   3Y


NEW HOME SALES = MAY FLOWERS - New Home Sales LT w Summary Stats


NEW HOME SALES = MAY FLOWERS - New Home Sales Regional 


NEW HOME SALES = MAY FLOWERS - New Home Sales Regional YoY   


NEW HOME SALES = MAY FLOWERS - New Homes For Sale Absolute   YoY   




April S&P/Case-Shiller Home Price Report (& FHFA) - Key Takeaways

The rearview report for April (effectively March data for CS) says…..


* All primary price indices telling a congruous story with price deceleration now in full effect across Corelogic, Case-Shiller & FHFA, with the deceleration accelerating in the latest readings.


* Case-Shiller:  decelerates 160bps sequentially to +10.8% YoY from +12.4% in March, the fastest rate of sequential deceleration since March of 2008

-          Prices decelerating across 19 of 20 cities with Boston the lone city registering sequential acceleration

-          Demand Model looking solid with case-shiller still tracking pending nicely on an 18-mo lag. 


* FHFA:  decelerates 60bps to +5.9% YoY from 6.5% in March, matching the fastest rate of sequential deceleration since October of 2011.




NEW HOME SALES = MAY FLOWERS - Case Shiller vs Pending Home Sales 18Mo Lag


NEW HOME SALES = MAY FLOWERS - Case Shiller NSA Index Level LT


NEW HOME SALES = MAY FLOWERS - Case Shiller Scatter Index Weight vs Price Growth





Bottom Line:

The Existing Home Market and New Home Market continue to bifurcate with the latter showing marginal signs of strength and the former continuing to cool. Pricing trends, however, are softening as falling demand in the existing market manifests as pricing weakness on a lag.


About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.


About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.


Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.



Joshua Steiner, CFA


Christian B. Drake

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