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THE HEDGEYE DAILY OUTLOOK

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


As we look at today's setup for the S&P 500, the range is 23 points or 1.09% downside to 1962 and 0.07% upside to 1985.                                               

                                                                                

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: 1.99 from 1.99
  • VIX closed at 12.24 1 day percent change of -4.45%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, July 18 (prior -3.6%)
  • 10:30am: DOE Energy Inventories

 

GOVERNMENT:

    • 8:45am: FDIC Advisory Cmte on Community Banking meets
    • 9am: Treasury Sec. Lew speaks on multilateral develp. banks
    • 9am: Bipartisan Policy Center forum on energy, Tom Fanning, CEO of the Southern Co. (11am keynote), Energy Sec. Ernest Moniz, Bank of America Chairman Chad Holliday among speakers
    • 9:30am: Senate Environment Cmte hearing on EPA proposed carbon pollution standards for existing power plants
    • 10am SEC meeting on potential money market fund rule change
    • 10am: State Dept.’s Brett McGurk at House Foreign Affairs Cmte on Iraq terrorism response
    • 10am: House Homeland Security Cmte holds hearing on unfulfilled recommendations after Sept. 11 attacks
    • U.S. ELECTION WRAP: Kingston Versus Perdue; Obamacare Ruling
    • Perdue wins Georgia U.S. Senate Republican runoff to face Nunn

 

WHAT TO WATCH:

  • Rebel stronghold holds breath as shellfire escalates in Donetsk
  • Daimler 2Q earnings rise 12% on S-Class Sedan
  • EU said to weigh extra Google concessions in antitrust probe
  • Apple hints new products near with bigger iPhones looming
  • Japan blocks imports from supplier as China meat scare spreads
  • LinkedIn to buy Bizo for $175m to expand marketing tools
  • Money-market funds getting new regime aimed at preventing runs
  • Deutsche Bank drops on report N.Y. Fed faulted oversight
  • Calstrs asked Pepsi to give Nelson Peltz seat on board: FT

 

AM EARNS:

    • Air Products & Chemicals (APD) 6am, $1.45
    • Amphenol (APH) 8am, $1.05
    • Biogen Idec (BIIB) 7am, $2.83
    • Boeing (BA) 7:30am, $1.98 - Preview
    • Delta Air Lines (DAL) 7:30am, $1.03 - Preview
    • Dow Chemical (DOW) 7am, $0.72
    • EMC (EMC) 6:52am, $0.43 - Preview
    • Freeport-McMoRan (FCX) 8am, $0.52 - Preview
    • General Dynamics (GD) 7am, $1.77
    • Hercules Offshore (HERO) 7am, $0.01 - Preview
    • Janus Capital Group (JNS) 7am, $0.18
    • New York Community Bancorp (NYCB) 8am, $0.26
    • Norfolk Southern (NSC) 8am, $1.74 - Preview
    • Northrop Grumman (NOC) 7am, $2.22 - Preview
    • Owens Corning (OC) 7:28am, $0.44
    • PepsiCo (PEP) 7am, $1.23 - Preview
    • Praxair (PX) 6:02am, $1.59
    • Ryder System (R) 7:55am, $1.39
    • SEI Investments Co (SEIC) 8:30am, $0.42
    • Simon Property Group (SPG) 7am, $0.94 - Preview
    • TE Connectivity (TEL) 6am, $0.99
    • Thermo Fisher Scientific (TMO) 6am, $1.62
    • Tupperware Brands (TUP) 7am, $1.47
    • Whirlpool (WHR) 6am, $2.91

 

PM EARNS:

    • Allison Transmission Holdings (ALSN) 4:05pm, $0.32
    • Angie’s List (ANGI) 4:01pm, ($0.24)
    • Assurant (AIZ) 4:05pm, $1.54
    • AT&T (T) 4:01pm, $0.63 - Preview
    • AvalonBay Communities (AVB) 4:11pm, $0.86
    • Brandywine Realty Trust (BDN) 4:15pm, ($0.01)
    • CA (CA) 4:05pm, $0.60
    • Cheesecake Factory (CAKE) 4:15pm, $0.61
    • Cirrus Logic (CRUS) 4pm, $0.30
    • Citrix Systems (CTXS) 4:05pm, $0.61
    • Core Laboratories NV (CLB) 4:05pm, $1.34
    • CoreLogic (CLGX) 4:10pm, $0.37
    • Crown Castle International Cor (CCI) 4:02pm, $0.15
    • E*TRADE Financial (ETFC) 4:05pm, $0.23
    • Equifax (EFX) 4:15pm, $0.94
    • Everest Re Group (RE) 4:05pm, $5.89
    • F5 Networks (FFIV) 4:05pm, $1.35
    • Facebook (FB) 4:01pm, $0.32 - Preview
    • Fortinet (FTNT) 4:15pm, $0.10
    • Gilead Sciences (GILD) 4:02pm, $1.79 - Preview
    • Graco (GGG) 4:10pm, $1.01
    • Illumina (ILMN) 4:05pm, $0.50
    • Macerich (MAC) 4:30pm, $0.12
    • Polycom (PLCM) 4:05pm, $0.18
    • QUALCOMM (QCOM) 4:01pm, $1.21
    • Raymond James Financial (RJF) 4:16pm, $0.76
    • SLM (SLM) 4:15pm, $0.09
    • Susquehanna Bancshares (SUSQ) 4:30pm, $0.20
    • TAL International Group (TAL) 5:01pm, $0.96
    • Teradyne (TER) 5:01pm, $0.40
    • Torchmark (TMK) 4pm, $1.03
    • Tractor Supply Co (TSCO) 4:01pm, $0.95
    • TripAdvisor (TRIP) 4:02pm, $0.61
    • TriQuint Semiconductor (TQNT) 4:02pm, $0.07
    • Umpqua Holdings (UMPQ) 4:05pm, $0.24
    • Varian Medical Systems (VAR) 4:05pm, $1.09
    • Weatherford International PLC (WFT) 4:40pm, $0.21

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • China’s Gold Demand Drops in First Half as Bars Outweigh Jewelry
  • Rice Harvest in Thailand Seen Dropping on Drought, Subsidy Lapse
  • U.S. Steel Invoking Carnegie Legacy in Revival Plan: Commodities
  • Port Hedland Tug Deckhands Approve Strike Action for Second Time
  • Arctic Ice Melt Seen Freeing Way for South Korea Oil Hub: Energy
  • Aluminum Declines From 16-Month High as Rally Seen Excessive
  • Steel Rebar in Shanghai Falls to 1-Month Low as Demand Weakens
  • Palm Oil Drops to 11-Month Low on Rising Global Oilseed Supplies
  • Gold Holds Above Three-Day Low as Ukraine Weighed Against U.S.
  • Latvia, Slovakia Said to Back Early Carbon Permit Supply Curbs
  • Corn Lingers Near Four-Year Low as Wheat Slips on Global Supply
  • CNPC 2014 Oil-Product Trade With Venezuela to Reach 790,000 B/D
  • BHP Iron-Ore Output Rises 19% on Australia Growth Projects
  • Nickel Deficit Narrowing on China Pig Iron Output, Sumitomo 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


CHART OF THE DAY: $HLF Shorts Aren't the Only Ones Crying

CHART OF THE DAY: $HLF Shorts Aren't the Only Ones Crying - Chart of the Day

As you can see in our Chart of The Day, even the US government’s contortionist reading on US Consumer Price Inflation (CPI) delivers you a fresh new YTD low in NEGATIVE real wages (not good).



Fortunes Fall Short

“To go too far is as bad as to fall short.”

-Callie’s fortune cookie

 

Last night was a beauty at the McCullough dinner table. My newbie was chirping up a storm with pablum all over her face and my two older kids had a few of the best back-to-back fortune cookies ever.

 

Jack’s fortune reminded me of a critical risk management lesson: “there is nothing permanent, except change.” So I told him that that’s what my man Bill Ackman was probably thinking at his dinner table last night too.

 

Picking on the slide-deck guru is just fun and games. So please don’t take offense to my entertaining you with this topic this morning. It’s trending more than Putin/Obama. Fully loaded with the +25% short squeeze in HLF yesterday, I think the guy actually cried (sort of).

 

Fortunes Fall Short - 90

 

Back to the Global Macro Grind

 

There’s no crying in the asset management business. If you are going to well-up in public, I don’t care how much you are “worth” - I am going to give you a time-spanking and an Early Look time-out.

 

In other US stock market news yesterday…

 

  1. The Russell 2000 bounced on no-volume to lower-bubble-highs yesterday (1175 TREND resistance)
  2. Total US Equity Market Volume was -16% and -29% vs. its 1 and 3 month averages, respectively
  3. Front-month stock market fear (VIX) sold off to a higher low of 12.24, holding 11.94 TREND support

 

In other words, “rallies” continue to ramp to lower-highs on lower and lower volumes (not good) as volatility continues to make a series of higher-lows from the VIX’s most asymmetric point (10). All the while, the long bond rallied intraday yesterday and the 10yr yield is hitting fresh Q314 lows of 2.46% this morning.

 

With the Russell (IWM) still down YTD (not a good return), we’re going to keep you focused on where the real bull markets are in 2014:

 

  1. Treasuries
  2. Commodities
  3. Emerging Markets

 

The Treasuries one is easy to understand, provided that you understand that they (the Old Wall) still do not understand the link between inflation and both real wages and consumption growth.

 

As you can see in our Chart of The Day today, even the US government’s contortionist reading on US Consumer Price Inflation (CPI) delivers you a fresh new YTD low in NEGATIVE real wages (not good).

 

Now, to be fair, someone who A) hasn’t been long of inflation in 2014 and/or B) believes anything the Fed tells them about inflation will tell you that (if you back out shelter – i.e. rent, which is hitting all-time highs, and represents 30% of cost of living for the average American consumer) “2% inflation feels about right.” #Goldilocks

 

There were a bunch of 16th century dudes hanging out in officialdom who told Copernicus that Earth was the center of the universe too. But that doesn’t change that nothing is permanent, except change. As time and price changes, real-time risk managers do.

 

It wasn’t just Chipotle (CMG) taking price above the “goldilocks 2%” inflation rate yesterday:

 

  1. Hog prices ripped another +2% to +49.3% YTD
  2. Cattle prices popped another +2% to +15.9% YTD
  3. Aluminum prices continued another +1.9% higher to +14.5% YTD

 

But, those poor CNBC producers naval gazing at Billy probably missed that. Must resuscitate ratings from hitting new lows! I have slide decks too, but I certainly don’t have all the answers to the market universe; Mr. Macro Market does.

 

And I think that’s one of the main lessons of the last half decade – whether you are a central-planning goddess, hedge fund legend, or just plain wicked smaht… you can try to tell markets, prices, and economies what to do; but they don’t have to listen.

 

You can try to gussy up the idea as your “best ever.” You can tell all your “smart” friends what you are going to do before you try to do it too. But, eventually, you’re going to jump the shark, go too far, and fall short.

 

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

 

UST 10yr Yield 2.44-2.53% (bearish = bullish bonds)

SPX 1 (bullish)

RUT 1133-1164 (bearish)

Italy MIB Index 20157-21138 (bearish)

VIX 11.94-14.26 (bullish)

USD 80.29-80.93 (bearish)

EUR/USD  1.34-1.36 (neutral)

Pound 1.70-1.72 (bullish)

WTI Oil 100.15-104.03 (bullish)

Natural Gas 3.73-4.01 (bearish)

Gold 1 (bullish)

Copper 3.17-3.23 (bullish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fortunes Fall Short - Chart of the Day


Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

July 23, 2014

July 23, 2014 - 1

 

BULLISH TRENDS

July 23, 2014 - Slide2

July 23, 2014 - Slide3

July 23, 2014 - Slide4

July 23, 2014 - Slide5

July 23, 2014 - Slide6

July 23, 2014 - Slide7

 

BEARISH TRENDS

July 23, 2014 - Slide8

July 23, 2014 - Slide9

July 23, 2014 - Slide10

July 23, 2014 - Slide11
July 23, 2014 - Slide12


PENN: THE BENEFICIARY OF LOW EXPECTATIONS

The Q2 bar was set low and should be easily cleared.  Encouragingly, July is showing a pick up so expect higher than consensus Q3 guidance and commentary.


 

THE CALL TO ACTION

PENN reports Q2 earnings on Thursday and we project a beat.  Moreover, management guidance – while always tempered – should be better than Q3 consensus.  Our read into July is that YoY growth in regional gaming has improved considerably from the 1H 2014.  In fact, while we’re still anticipating a YoY same store decline in regional gaming revenues (see chart below), the drop could be the smallest since October/November.  Certainly not the most powerful long term thesis but on the margin, for a stock suffering from the “soft bigotry of low expectations”, a beat and raise could spark a nice move higher.

 

THE ESTIMATES

We’re projecting Q2 EBITDA and EPS of $82 million and $0.10 versus the Street at $77 million and $0.08, respectively.  For Q3, our estimates are $68 million and $0.07 – again above the Street at $60 million and $0.03.

 

THE SETUP

In our note on May 14, 2014 titled "Regional Gaming: Trend Friend" we highlighted:

  • Q2 is shaping up nicely relative to reduced guidance as we were hearing May was showing improvement from April.
  • Insiders at both PENN and PNK have bought stock in the last week – obviously, a positive signal.  BYD management, did you hear that?

Then, on June 3, 2014, in our note "Regional Gaming Catalysts, Positive?" we focused on:

  • Best May weather ever - sunny, blue skies and very few thunderstorms/tornados coupled with one extra Saturday provide a base for accelerating (less bad) regional results for May and June – and a potentially positive revision of estimates as the year develops
  • As we view regional gaming estimates, Q2 estimates should not be revised lower and could have an upside bias for BYD, PENN, and PNK.

Since then, June monthly results were down versus May and lower than our projections.  Reworking the models has us less enthusiastic regarding BYD and PNK Q2 earnings but not for PENN. 

 

Looking ahead to July, our model is projecting only a 2% YoY decline in same store sales for the mature regional gaming markets versus the 7% drop generated in June.  Morever, our advance read into Missouri and Pennsylvania suggests our estimate could be too low.  We believe both of those markets are markedly in the black on a YoY basis relative to our expectations of another monthly decline.  Could the regionals post their first monthly increase in SSS since November 2012?  Now that would be a catalyst. 

 

PENN: THE BENEFICIARY OF LOW EXPECTATIONS - ff

 

THE CONCLUSION

While always sober, management could be a little more positive with their forward commentary on the conference call tomorrow.  We’re already expecting a beat and higher than consensus Q3 guidance.  Indeed, anecdotal evidence more than supports our sequential improvement thesis.  Yes, the environment remains challenged and the demographic headwinds stiff, but with a high beta stock such as PENN and low expectations, pivots like this should have an outsized impact.


MID-JULY CRUISE PRICING SURVEY

Mixed pricing but RCL leads the way

 

 

OVERALL SURVEY SENTIMENT

  • CCL:  NEGATIVE
  • RCL:  POSITIVE
  • NCLH:  NEUTRAL

CALL TO ACTION

Mid-July was another period of pricing strength in Europe with mixed pricing in the Caribbean.  As we noted in “RCL: MOMO FROM EUROPE/QUANTUM” yesterday, we believe RCL is well-positioned for the rest of the year given its outperformance in Europe and a Quantum boost starting in November.

 

CCL pricing took a turn for the worse in mid-July, particularly in the Caribbean where Carnival brand pricing had been steady since April.  2H 2014 expectations have already baked in moderate YoY growth for the Carnival brand in the Caribbean.  That could be at risk if this trend continues.  Any upside to the stock following RCL’s release should be faded in our opinion.

 

For NCLH, the discounting in the Caribbean has abated for Q3 in mid-July but there are some worrisome signals peeking in Q4.  We’re agnostic on the stock here but could revisit our negative thesis from the Spring again as we get closer to Q4.

SURVEY

We track over YoY and sequential pricing for 13,000 ship itineraries spanning across 8 geographic regions.  We rely on sequential pricing trends (defined as how pricing has changed relative to pricing seen at the last time the company provided guidance) for price pivot signals.

 

CCL

For the 1st time since April, Caribbean pricing for the Carnival brand dropped sequentially.  On a YoY basis, Q3 pricing remains higher on a moderate basis, although the YoY comparisons have been quite volatile due to all the ship incidents last year.   

 

In Europe, Costa pricing slipped for the 4th consecutive month; but on a YoY basis, pricing continues to trend well up into the double digits.  While CCL should meet expectations for 2014, we’re concerned with the 2015 setup in the face of heightened investor expectations.  Pricing comparisons will be tougher in Europe and the China outlook is cloudy.

 

Caribbean

  • Carnival brand:  After relatively stable pricing in April, sequential pricing took a leg down in mid-July for the next three quarters.  While it is only a couple of weeks since CCL gave guidance, we wonder if the strategy of holding price at the expense of occupancy could be ending.  The next survey in August would be more telling.  On a YoY basis, the discounting brought Q3 pricing back into the red for the mid-July period; on average, Q3 pricing is still trending in the high single digits.  As of Q4 2014, pricing on a YoY basis is still in the double digits while an early read on Q1 2015 pricing shows modest growth.
  • Princess/Holland America:  Not much movement.  Slightly lower pricing for Holland America’s winter itineraries.

Alaska

  • Pricing has picked back up for the Carnival brand, Holland America, and Princess.

Europe

  • Costa sequential pricing slipped for the 4th straight month for the next three quarters
  • Mixed picture for the other brands  
    • Cunard sequential pricing is slightly lower for the winter itineraries.  On a YoY basis, pricing is modestly lower.
    • Holland America pricing improved slightly
    • For the 1st time this year, AIDA saw some pricing increases for Q3 2014 and Q1 2015. 
    • P&O Cruises UK – strong pricing across the fleet

Asia/Australia

  • Fairly quiet

 

RCL

Although the Caribbean market remains highly promotional, RCL pricing improved slightly on a sequential basis in mid-July.  RCL’s European pricing growth has trended +20% with fewer available itineraries relative to that seen in last mid-July.  Alaska pricing has finally broken through to the green side, although summer pricing overall is slightly lower.  

 

Caribbean

  • While RCL is not yet out of the woods, we did see the RC brand pricing jump sequentially in mid-July for 2H 2014
  • Celebrity pricing improved slightly; however, on a YoY basis, pricing remains lower - close to double digits
  • Quantum pricing for Nov/Dec itineraries remain relatively unchanged
  • Pullmantur pricing steady in Q4 2014 but a challenging start to Q1 2015 due to harder comps

Europe

  • Pricing in Europe has been extremely robust and Q3 got slightly stronger in mid-July. For July, both the RC brand and Celebrity pricing are up +20% for Q3.  Overall, Q3 pricing is +15%.
  •  Anthem pricing continue to creep up for summer/winter 2015 itineraries

Alaska

  • YoY comps is back in the green, with Celebrity leading the charge

Asia/Australia

  • While this region will be more material in the 2nd half of 2015, pricing has been generally steady among the RCL brands

South America

  • YoY pricing is still significantly behind for winter 2014 

 

NCLH 

Is there any end to the discounting in the Caribbean?  Not yet.  While Q3 Caribbean pricing has stabilized, we are seeing more price cuts for Q4 2014 and Q1 2015 itineraries.  New ship premiums were lower for the fall/winter itineraries.  On the positive side, European demand was even more robust in July, which bodes well for Q3.  Unfortunately for NCLH, Caribbean will always steal the limelight as Caribbean capacity is 165% greater than its European capacity in 2014. July pricing confirms that Q4 could be the next red flag.

 

Caribbean

  • It is still gnarly out there.  But it looks like the discounting has stopped for Q3.  However, Q4 2014/Q1 2015 pricing is weaker as new ship premiums shrank.
  • Premiums (charts below)
    • Breakaway’s Q3 premiums expanded in mid-July as its peer group pricing fell
    • Breakaway’s Q4 premiums narrowed slightly.  This is a key metric to keep an eye on as Quantum comes into the market in November.
    • For Getaway, Q4 APD is averaging $83, compared with peer group APD of $71.

MID-JULY CRUISE PRICING SURVEY - 11

 

MID-JULY CRUISE PRICING SURVEY - 22

 

MID-JULY CRUISE PRICING SURVEY - 33

 

  • NCLH has 49%, 40% and 62% of its capacity in the Caribbean (including Bermuda) for Q2/Q3/Q4 2014, respectively.  Compared with last year, Caribbean (including Bermuda) capacity is up 6% points.

Europe

  • Very strong pricing (+20%) in Europe for Q3

 

Hawaii

  • Q4 pricing is modestly lower.  Hawaii tourism has fallen in 2014 as visitation dropped - likely to do with the April 1st consumption (sales) tax increase from 5% to 8%.  Side note, the last time the tax went up, in a slightly smaller jump, from 3% to 5%, was in 1997.

STOCK VS SENTIMENT

 

CCL

Now that the Street’s and CCL’s estimates have caught up to our expectations for FY 2014, it is more difficult to outperform.

 

MID-JULY CRUISE PRICING SURVEY - 44

 

RCL

If the Europe surge is sustainable and Caribbean can hold its ground, RCL should outperform in the intermediate term. 

 

MID-JULY CRUISE PRICING SURVEY - 5

 

NCLH

Survey has signaled a bearish pivot on NCLH for much of 2014 due to a troubled Caribbean market.  While Q3 could be in-line, Q4 yield could be at risk. 

 

MID-JULY CRUISE PRICING SURVEY - 66


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