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Q3 2014 HOTEL TRANSACTIONS: HIGHER PRICES

  • Q3 2014 worldwide reported hotel transactions (Luxury & UUP segments) volume was close to $2.9 billion, lower than the $5.3 billion reported during Q3 2013 but slightly higher than Q2 2014's $2.7 billion
  • The total number of UUP/LUXURY hotel transactions increased in Q3 to 30 versus 25 in Q3 2013; however, six transactions did not disclose a deal price.
  • Luxury average price per key was higher YoY in the US and internationally.
  • The environment bodes well for H, HLT and HOT and their continued transitions to asset light strategies.

Please see full report:  http://docs.hedgeye.com/HE_3Q14_Lodging_Transactions_10.9.14.pdf


Cartoon of the Day: Beware of #Quad4

Cartoon of the Day: Beware of #Quad4 - Bull   vultures 10.09.2014 

 

Hedgeye's Macro Team, led by CEO Keith McCullough recently hosted its quarterly Macro Themes conference call in which it detailed the THREE MOST IMPORTANT MACRO TRENDS it has identified for 4Q14 and the associated investment implications. At the top of the list is #Quad4. Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.

 

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FLASHBACK | 'Currency Wars' Author Jim Rickards on Why 2014 Is Worse Than 2008

As the global currency war heats up, we thought it would be a good time to revisit CEO Keith McCullough's HedgeyeTV interview with bestselling "Currency Wars" author Jim Rickards.


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OZM: Removing Och-Ziff from Investing Ideas

Takeaway: We are removing OZM from our high-conviction stock idea list.

We are removing Och-Ziff from Investing Ideas today.

 

This is more of a risk management move given our bearish #bubble view of small cap stocks. Our process says this stock is not immune. 

 

We have been encouraging our subscribers to raise their Cash position and allocate to the Long Bond (TLT, EDV).

 

OZM: Removing Och-Ziff from Investing Ideas  - Small cap canaries 09.23.2014

 



DFRG, EAT: Covering Our Shorts Given Strong Knapp Sales

Takeaway: Removing short DFRG from Best Ideas, short EAT from Investment Ideas. Relegating both to the Short Bench.

DFRG, EAT: Covering Our Shorts Given Strong Knapp Sales - 1

 

Last night, Malcom Knapp released sales results for September, estimating that same-restaurant sales increased +1.7% and guest counts declined -1.0% year-over-year.  The results imply sequential improvements of 110 bps and 100 bps, respectively.

 

In addition, the underlying trends were strong on the margin, with two-year average same-restaurant sales accelerating 50 bps sequentially  to -0.1% and two-year average traffic accelerating 30 bps sequentially to -2.3%.

 

Following our recent note calling out the positive correlation between same-restaurant sales and PCE excluding food and energy, we were waiting for one incremental data point to support our view that sales were turning.  Knapp delivered that.

 

Given the improvement we are seeing in these numbers, we are making a tactical move and covering our two remaining shorts in the casual dining space - DFRG & EAT.

 

We added DFRG to our Best Ideas list as a short on 06/05/14 at $27.27 per share.  Since this time, FY14 EPS estimates have been revised down from $0.97 to $0.90 and the stock has acted accordingly (down ~28%).  While we continue to believe DFRG has structural problems, we are going to stay tactical with this name.  Improving industry sales could delay its demise for several quarters.  We continue to believe DFRG is not the growth vehicle the bulls believe it is and would look to short it again on any notable strength.

 

We recently added EAT to our Investment Ideas list as a short and believe we may have pulled the trigger a little too early here.  There is no doubt that EAT will benefit from the current sales environment and while we believe the company has issues going forward, we need to see sales turn before we dust off the full-blown bearish playbook.  This is another name that we anticipate revisiting on the short-side in the intermediate-term.

 

With that being said, we are relegating both of these names to our Short Bench and will be actively looking for opportunities to once again get active on the short side.

 

Call with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


INITIAL CLAIMS - FURTHER IMPROVEMENT

Takeaway: The labor market continues to improve and we continue to like unsecured consumer lenders like COF & DFS.

More Sub-300k Thoughts 

The labor market is chugging along with seasonally-adjusted initial jobless claims tracking well inside of the magic 300k line, which represents a frictional floor of sorts. We've shown in recent weeks that when claims breached 330k to the downside in the last two economic cycles, the market has continued its upward march for another 31 and 45 months. This go-around, we're currently at 8 months suggesting the market may not yet be done with its rally.

 

Conversely, the fact that we're sub-300k also represents a warning call of sorts as it has historically signified that we're in the proverbial 8th inning of the rally. Moreover, there's no guarantee that this cycle will play out similarly to the last two, especially considering the less-than-robust sample size (n = 2). As such, we'd be keeping Financials exposures on a relatively short leash from a big picture standpoint and we'll continue watching the labor data closely for any signs of negative inflection.

 

All that being said, so long as the good times keep rolling, we continue to like unsecured consumer lenders like Capital One (COF) and Discover (DFS) on the long side. Resurgent credit card loan growth dynamics coupled with stable credit quality metrics should combine to push estimates higher and potentially expand the multiple by a point or two.

 

The Data

Prior to revision, initial jobless claims were unchanged at 287k WoW, as the prior week's number was revised up by 1k to 288k.

 

The headline (unrevised) number shows claims were lower by 1k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -7.25k WoW to 287.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -13.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -6.5%

 

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Yield Spreads

The 2-10 spread fell -1 basis points WoW to 187 bps. 3Q14TD, the 2-10 spread is averaging 187 bps, which is lower by -12 bps relative to 2Q14.

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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