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PURCHASE APPS SLIGHTLY BETTER TO START 3Q

Takeaway: 3Q begins with a small bounce in purchase applications but the divide between PHS and purchase apps remains extreme.

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.

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Compendium 070914

 

Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended July 4. 

 

The data reflected a modest Increase to start 3Q with a +3.7% WoW increase in Purchase Apps and a +0.4% increase in Refi’s driving a +1.2% increase in the Composite Index

 

While we still aren't seeing any meaningful signs of a positive inflection in demand, moving forward, it's probable we see continued improvement from a rate of change perspective (YoY will improve even if purchase index level stays static) as comps ease through 2H.  

 

Here's a summary look at the data: 

Composite Index:  +1.2% sequentially and the first positive week in the last four.  

 

Purchase Apps:  First increase in 4 weeks with purchase demand +3.7% WoW, taking the Index back above the 180 level (181.7).  YoY improves to  -9.9% from -15.9% prior as we continue move past peak 2013 comps.

 

Refi:  Up +0.38% sequentially with the YoY improving to -45.9% from -48.5 prior with rates holding just above their best levels of the TTM. 

 

30Y Rates: Tick up +4bps WoW to 4.32% but holding near the best levels of the last year.  The latest week marks the 3rd consecutive week 30Y FRM rates are down on a YoY basis.  

 

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Purchase   Refi YoY   

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Purchase LT   Summary Stats 

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Purchase Index   YoY Qtrly 

 

 PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Composite Index   YoY Qtrly

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Composite LT   Summary Stats 

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - 30Y Rates

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

Joshua Steiner, CFA

 

Christian B. Drake


Expert Call: Is Increased Internet Regulation Imminent?

Takeaway: We're hosting a call today to discuss the progression of the major regulatory debates for the Internet & Media sector

Expert Call: Is Increased Internet Regulation Imminent? - HE IM net alt

We are hosting a thought leader call on Net Neutrality/Title II Outcomes & Implications with industry veteran, Jonathan Spalter, Chairman of Mobile Future. The call will be held TODAY at 1:00pm EDT.

 

KEY TOPICS WILL INCLUDE: 

  • Net Neutrality Implications
  • Title II Internet Reclassification Implications
  • Various Scenarios for Internet, Media, & Telecom sectors
  • Handicapping Outcomes
  • What the Calendar Looks Like

  

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 286369#

 

ABOUT JONATHAN SPALTER 


Jonathan Spalter, the chairman of Mobile Future, the national mobile and wireless technology association, has a long track record building and leading innovative media, technology and policy research companies in the U.S, Asia-Pacific and Europe. He founded the policy-focused independent investment research company Public Insight and was CEO of Snocap, a digital music licensing company founded by the creators of Napster. Spalter also held senior management roles at the Paris headquarters of Vivendi Universal, the global media, telecommunications, and entertainment group. He was senior vice president of the company's worldwide public policy team and also served as executive vice president of business development and strategy for Vivendi Universal Net and CEO of affiliate Atmedica Worldwide. During the Clinton administration, the Senate unanimously confirmed Spalter as associate director of the U.S. Information Agency, where he was also appointed chief information officer. In addition, he served as an advisor to and spokesman for Vice President Al Gore, as well as having served as a Director on the National Security Council and Assistant Press Secretary for International Affairs at the White House.  

 


NKE – Walking Away from Manchester United Deal

Takeaway: Nike almost never backs away from endorsement deals. We give the company credit for putting shareholder value ahead of ego

This is a truly unprecedented move -- Nike almost never backs away from endorsement deals. We give the company credit for putting shareholder value ahead of ego - especially after it since it was so badly embarrassed in Brazil yesterday. 

 

 

This all raises several questions. 

 

1. What kind of internal controls allowed Nike to ponder striking this deal in the first place -- taking a pre-existing contract for £23.5mm per year and nearly tripling it to £60mm?

 

2. Are there any promises initially made by ManU about Nike product opportunities or media exposure that it reneged on after terms of the deal were first reported?

 

3. Who will endorse ManU? We think we know the answer to that. Adidas CEO Herbert Hainer is on a pink cloud now after his German National team annihilated Nike's Brazilian team on their home turf. His confidence is high. Reports are that Adi is ready to ink a 10 year deal at £75mm per. Nearly a 2.5x premium to Adi’s £31mm deal with Real Madrid – which would make it the 2nd most lucrative kit deal in the world next to ManU. If the deal is finalized, Adi will own 6 of the 10 biggest European kit deals totaling ~$300mm. Or about 5% of the company’s forecasted ’14 SG&A spend.

 

4. Of course this all could have been another instance of NKE gamesmanship. Bidding up the price and then walking away at the 11th hour leaving its competition holding the bag.  

 

All in, a week before the World Cup final is hardly the time we'd expect Nike to be backing off of its football endorsements. Something's up that goes deeper than the headlines suggest. 

 

NKE – Walking Away from Manchester United Deal - manu


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 80.30%
  • SHORT SIGNALS 78.51%

LEISURE LETTER (07/09/2014)

Tickers: CCL, HOT, MAR

EVENTS

  • July 15-17 Pre-RCL earnings Hedgeye Cruise pricing survey

COMPANY NEWS

326:HK –China Star Entertainment Ltd, which controls Casino Lan Kwai Fong on the Macau peninsula, is raising HKD538.5 million (US$69.5 million) to expand its hotel and gaming operations. Planned investments include a shopping and entertainment complex with apartments. Additionally, China Star is in the process of acquiring an equity interest in a junket operator called Eight Elements Entertainment Ltd. The company has agreed to pay HKD800 million for the rights to the profit from the Eight Elements junket operation

Takeaway: An attempt by a small operator to reinvent itself and maintain a small following on the Macau peninsula in the face of new supply and more exciting gaming venues on the Cotai Strip.

 

Affinity Gaming – the Las Vegas based casino operator with 11 properties in Nevada, Colorado, Missouri and Iowa is warning investors that it expects to default on a portion of nearly $383 million in long-term debt.  However, the company says it's working with advisers and lenders on a possible amendment, waiver or refinancing.

Takeaway: A sign of the fate to come for small regional gaming operators as the gaming revenue pie is skinny-sliced by new competition and bad demographics?

 

CCL – AIDA announced (CCL brand) said it plans to drop all ports of call in Israel for the next two months, because of security concerns - following shrapnel from defense rockets landing on the deck of AIDAdiva as it disembarked the Israeli port of Ashdod.

Takeaway: Europe tensions rising again

 

CCL – informed travel agents and guests effective October 9, 2014, smoking will no longer be allowed on the balcony of staterooms and all interior staterooms, suites, and balconies will also be smoke free.  Additionally, the company announced gratuities will be raised from $11.50 a day to $12.00 per day per passenger with all voyages departing October 9, 2014 and onward.  

 

Insider Transactions:

HOT - CEO Paasschen Frits D. Van sold 51,435 shares of stock on Thursday, July 3rd at an average price of $82.00 and now owns 246,915 shares.

 

MAR - CEO Arne M. Sorenson sold 150,000 shares of stock on Wednesday, July 2nd at an average price of $65.00 and now owns 420,618 shares.

Takeaway: Our read of the tea leaves is both companies will "beat" earnings estimates. Conversely, we doubt either CEO would be selling stock during "the quiet period" if their company were going to "miss" estimates.

INDUSTRY NEWS

New York Upstate Gaming – according to a recent study by the New York Public Interest Research Group, over the past two years gambling interests have sweetened the pot with more than $11 million in spending to influence state and local lawmakers on the building of casinos. Specifically, casino bidders and their buddies spent $6.7 million on lobbying campaigns and funneled $4.3 million to political committees in 2012 and 2013 with Genting New York spending $2.5 million on lobbying and just over $984,000 on campaign donations.

Takeaway: Gaming can generate significant profits and those with deep pockets will "invest" accordingly to win a gaming license. 

 

New York City Tourism(NY Times) According to NYC & Company, New York is projected to host 55.8 million visitors during 2014, an increase of 1.5 million over 2013. However, visitors are not shopping, dining and entertaining themselves as voraciously as visitor spending this year is now expected to rise about 7 percent, to $41.3 billion - which translates into an average spend per visitor of $740.14, an increase of only 2% over 2013, the slowest rate of growth over the past 5 years.

Takeaway: Increased visitation is good for NY lodging, but slowing spend per visitor is a headwind for lodging and will force visitors to seek lower cost accommodations. 

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


The Fourth Turning

This note was originally published at 8am on June 25, 2014 for Hedgeye subscribers.

“That which hath been is now; and that which is to be, hath already been”

-Ecclesiastes

 

That’s the opening volley in one of the most recommended books Institutional Investors have offered up to me in the last year: The Fourth TurningWhat Cycles of History Tell Us About America’s Next Rendezvous with Destiny. I’m finally reading it on my family vacation this week in the homeland.

 

The Fourth Turning - flag

 

Back to the Global Macro Grind

 

One of the best ways to insure yourself against groupthink is not anchoring on a confirmation bias that “it’s different this time.” That’s why so many thoughtful buy-siders like The Fourth Turning. Its main premise is pretty much the only protection against long-term risk – mean reversion.

 

In order to contextualize mean reversion risk, I think you need to:

 

  1. Study #History (so that you can contextualize where you are)
  2. Understand #Math (2nd derivative moves and how they are a leading indicator for mean reversions)
  3. Embrace Uncertainty (from a #Behavioral perspective, accept that risks happen fast, and slow)

 

Or at least that’s what my ongoing studies (which started with being immersed in linear-supply/demand Keynesian Economics @Yale in 1995) and risk management experience in real-time markets has led me to believe, so far…

 

If it is indeed, “different this time” (as the Ben Bernanke’s and Mohammed El-Erian’s of the world would lead you to believe), I’ll be dead wrong on my fundamental #history #math #behavioral framework. But none of us will know that until I’m long gone anyway.

 

That’s one of the most humbling points William Strauss and Neil Howe make in The Fourth Turning about cycles. They are long. And by the time you read enough #history to know that you just happen to be alive within one of them, you’ll wish you had read more, sooner.

 

What was America like 80 years ago?

 

We were proud as people, but modest as individuals…” –Strauss/Howe

 

How important are you, personally, to this world today?

 

Fewer than two people in ten said yes when asked around WWII… Today, more than six in ten say yes. Where we once thought ourselves collectively strong, we now regard ourselves as individually entitled.” –Strauss/Howe

 

That’s page 1 of the book. Since it was written in 1997, I’m betting that 7, 8, or 9 in ten central planners think of themselves as the epicenter of the universe today. How else could someone at the Federal Reserve wake up every morning fundamentally believing that they can bend economic gravity?

 

Gravity? How do Strauss/Howe define cycles?

 

Each cycle spans the length of a long human life, roughly eighty to one hundred years, a unit of time the ancients called the saeculum. Together, the four turnings of the saeculum comprise history’s seasonal rhythm of growth, maturation, entropy, and destruction:

 

  1. The First Turning is a High
  2. The Second Turning is an Awakening
  3. The Third Turning is an Unraveling
  4.  The Fourth Turning is a Crisis

 

The good news is that after a decade of Bush/Obama inflation policies slowing real-consumption growth and perpetuating “inequality”, we’re already solidly in The Fourth Turning in America.

 

You’ll get the updated US GDP report for Q114 to remind you of that today. Inclusive of the central-planners making up that US inflation is only running in the “low 1%” range, real (inflation-adjusted) GDP growth will be revised to negative, yet again.

 

The only way out is time.

 

Eventually, time runs out on broken policies. Sometimes this happens slowly; sometimes it happens all at once.

 

Now that US equity volatility (VIX) has made another all-time-higher-low at 10.61 (June 18th, 2014), we’ll see if it really is different this time – or if the crisis phase of US growth being infected by Federal Reserve Policies to Inflate is to be what it hath already been.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signal in brackets) are now:

 

UST 10yr Yield 2.46-2.64% (bearish)

SPX 1925-1962 (bullish)

RUT 1155-1195 (neutral)

India’s BSE Sensex 24801-25716 (bullish)

USD 80.17-80.51 (bearish)

Pound 1.69-1.71 (bullish)

WTIC Oil 105.71-107.28 (bullish)

Gold 1295-1338 (bullish)

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Fourth Turning - Chart of the Day


RISK HAPPENS FAST

Client Talking Points

VIX

+16.1% in a straight line in 2-days after bouncing off a generationally low level of complacency (front month VIX has never held, sustainably, below 10 – and we don’t think it’s different this time). The risk range is now 10.32-12.69.  

RUSSELL 2000

The RUSSELL 2000 is down -3% in 2 days back to almost flat year-to-date after failing right at the same spot it stopped going up in March. We don’t think portfolio managers who were long U.S. domestic momentum are allowed to live through another March-May, but we’ll see.

GOLD

Rock solid amidst U.S. domestic growth style factors going haywire. Gold is up another +0.3% this morning to +10% year-to-date. We’ll walk through why Down Dollar, Up Gold remains one of our better Macro ideas on Friday’s third quarter Macro Themes Call.

Asset Allocation

CASH 12% US EQUITIES 6%
INTL EQUITIES 12% COMMODITIES 24%
FIXED INCOME 26% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

OC

Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.

LM

Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road

TWEET OF THE DAY

COMMODITIES: inflation, as an investment style, continues to beat growth in 2014.

@Keith McCullough

QUOTE OF THE DAY

“Never confuse a single defeat with a final defeat.”

-F. Scott Fitzgerald

STAT OF THE DAY

Brazil’s 7-1 loss against Germany in the World Cup yesterday matched Brazil’s worst ever international defeat in its celebrated history, and marked its first loss on home soil in 63 competitive matches.


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