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REMINDER AT 11AM: RHP BEST IDEAS CALL

We're hosting a call today, September 22nd at 11:00am EDT to review our thesis in depth. 

 

Amid a very favorable fundamental backdrop for domestic hotels, RHP is the REIT with the greatest exposure to the group lodging segment. Our research indicates the group trends could be stronger than investor expectations this year and next.  Indeed, we expect Q3 and Q4 earnings beats for RHP and we enter the 2015 fray above the Street once again. RHP appears undervalued versus its comp space and with the potential for major dividend increases and better earnings. As a result, we see the potential for a total return of 40% over the next 12-18 months.   

 

 

THESIS OVERVIEW:

  • Investors should be bullish regarding RHP's leading exposure to the group lodging segment
  • Our primary research suggests the group outlook is stronger than the current consensus view and should lead to positive 2014 and 2015 earnings revisions
  • Street overestimating share count, resulting in a $0.25-0.45 AFFO/share understatement on the incorrect share count alone
  • Marriott affiliation is an advantage that offsets the single tenant risk
  • EV/EBITDA valuation discount of over 3 turns looks attractive
  • A likely dividend hike that should improve current yield of 4.8% - already above industry average

 

CALL DETAILS

Attendance on this call is limited. Please note if you are not a current subscriber to our Gaming, Lodging, and Leisure research there will be a fee associated with this call. Ping for more information.


European Banking Monitor: Sovereign CDS Flat, Financials CDS Mostly Tighter

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 

 

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European Financial CDS - Swaps mostly tightened in Europe last week as 25 banks saw swaps tighten vs just 11 that widened. Conspicuous moves came from Banco Espirito Santo in Portugal (+55 bps w/w to 385 bps) and Sberbank of Russia (+9 bps w/w to 340 bps). 

 

European Banking Monitor: Sovereign CDS Flat, Financials CDS Mostly Tighter - chart1 Financials CDSvf

 

Sovereign CDS – Sovereign swaps were largely unchanged last week. Italy and Spain tightened by 1 and 4 bps, respectively, while the US, France and Portugal widened by 1, 2 and 4 bps. 

 

European Banking Monitor: Sovereign CDS Flat, Financials CDS Mostly Tighter - chart2 sovereign CDS

European Banking Monitor: Sovereign CDS Flat, Financials CDS Mostly Tighter - chart3 sovereign CDS

European Banking Monitor: Sovereign CDS Flat, Financials CDS Mostly Tighter - chart4 sovereign CDS

 

Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 1 bps to 13 bps.

 

European Banking Monitor: Sovereign CDS Flat, Financials CDS Mostly Tighter - chart5 euribor OIS Spread

 

Matthew Hedrick

Associate

 

Ben Ryan

Analyst


 

 

 


Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    

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1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “large speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.

 

The COTTON, LEAN HOGS, CORN, and LIVE CATTLE markets experienced the most BULLISH relative positioning change in the CRB week-over-week:


After a pullback from the YTD highs, both Live Cattle and Lean Hogs have rallied again with the market chasing the move:

  • 1-month: Cattle +3.4%, Lean Hogs +11.8%
  • 3-month: Cattle +5.2%, Lean Hogs -17.2%
  • YTD: Cattle +15.7%, Lean Hogs +24.1%

Lean hogs contracts trading +2.9% this morning after finishing the week +26bps last week. The market is positioned more bullish week-over-week (z-score +1.48x 1-year average), but the forward looking expectation 1-year down the road is pricing the largest drop in prices of all commodities in the CRB    

 

The SUGAR, SILVER, and GOLD markets experienced the most BEARISH relative positioning change in the CRB week-over-week:

  • USD Bulls: Consensus chasing the USD move (+6.9% move off the May lows) on the back of multiple ECB Easing measures
  • EURO Shorts: CFTC data shows a market that is -2x standard deviations short of the Euro
  • Gold: Gold tracking closely with the dollar:
    • -5.9% vs. USD +6.9% from May 8th USD YTD low
    • GOLD/USD r-squared correlations: -0.91, -0.94 1/3-month duration

Commodities Weekly Sentiment Tracker - chart1 CFTC Net Fut Opt

 

2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The SUGAR, CORN, WHEAT, and COFFEE markets are positioned for HIGHER PRICES near-term
  • The LEAN HOGS, COTTON, and RBOB GASOLINE markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart3 spot 2nd month basis differential

 

3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The SUGAR, CORN, WHEAT, and COFFEE markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, RBOB GASOLINE, and COCOA markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart4 spot 1yr basis differential

 

4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.

 

Base Metals: Decrease in open-interest last week showing large capitulation/covering in aluminum, copper, and nickel on the sell-off (all three finished lower on the week). The entire base metals complex is breaking down.

 

We like copper on the short-side from both a fundamental and quantitative perspective (Bearish TREND set-up in our model):

 

Commodities Weekly Sentiment Tracker - chart2 agg. open interest         

 

Ben Ryan

Analyst


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Daily Trading Ranges, Refreshed [Unlocked]

Editor's note: This is a complimentary look at Daily Trading Ranges, our daily proprietary buy and sell levels on major markets, commodities and currencies. This note was originally published September 22, 2014 at 07:32 in Daily Trading Ranges. Click here to learn more.

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BULLISH TRENDS

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BEARISH TRENDS

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MONDAY MORNING RISK MONITOR: MOSTLY GREEN

Takeaway: Green still dominates our screen (for now) as both the short and intermediate trends are sequentially improved across the risk complex.

Current Best Ideas:

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 19 

 

Key Callouts:

 

* XLF Macro Quantitative Setup – The short-term setup in Financials looks bearish as our Macro team’s quantitative setup in the XLF shows 0.9% upside to TRADE resistance and 1.9% downside to TRADE support.

 

* 2-10 Spread – Last week the 2-10 spread tightened to 201 bps, -4 bps tighter than a week ago, but remains wider by 7 bps vs the prior month. 

 

* CRB Commodity Price Index – The CRB index fell -1.5%, ending the week at 279 versus 284 the prior week. As compared with the prior month, commodity prices have decreased -3.3% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 2 of 12 improved / 0 out of 12 worsened / 10 of 12 unchanged

 • Intermediate-term(WoW): Positive / 6 of 12 improved / 2 out of 12 worsened / 4 of 12 unchanged

 • Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 15

 

1. U.S. Financial CDS -  Swaps tightened for 24 out of 27 domestic financial institutions. The biggest moves among the large caps came from MS and C ,where swaps tightened by 4 and 3 bps, respectively. 

 

Tightened the most WoW: TRV, XL, HIG

Widened the most WoW: UNM, AON, COF

Tightened the most WoW: MMC, AXP, C

Widened the most MoM: AGO, RDN, MBI

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 1

 

2. European Financial CDS - Swaps mostly tightened in Europe last week as 25 banks saw swaps tighten vs just 11 that widened. Conspicuous moves came from Banco Espirito Santo in Portugal (+55 bps w/w to 385 bps) and Sberbank of Russia (+9 bps w/w to 340 bps). 

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 2

 

3. Asian Financial CDS - Asia was mixed on the week with China tightening, India widening and Japan mixed.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 17

 

4. Sovereign CDS – Sovereign swaps were largely unchanged last week. Italy and Spain tightened by 1 and 4 bps, respectively, while the US, France and Portugal widened by 1, 2 and 4 bps. 

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 18

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 3

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 1.6 bps last week, ending the week at 5.86% versus 5.88% the prior week.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 1.0 points last week, ending at 1877.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 6

 

7. TED Spread Monitor – The TED spread fell 0.2 basis points last week, ending the week at 22 bps this week versus last week’s print of 22.16 bps.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 7

 

8. CRB Commodity Price Index – The CRB index fell -1.5%, ending the week at 279 versus 284 the prior week. As compared with the prior month, commodity prices have decreased -3.3% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 1 bps to 13 bps.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 1 basis point last week, ending the week at 2.841% versus last week’s print of 2.853%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 10

 

11. Chinese Steel – Steel prices in China rose 0.8% last week, or 25 yuan/ton, to 2999 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 201 bps, -4 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.9% upside to TRADE resistance and 1.9% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: MOSTLY GREEN - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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