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4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION

Takeaway: The Fed's 4Q14 Senior Loan Officer Survey shows a healthy lending environment. The only exception is the multifamily channel of CRE.

Bullish Senior Loan Officer Survey in All but One Category

The Fed released its fourth quarter Senior Loan Officer Survey yesterday afternoon. The survey covers lending standards and loan demand and was conducted between September 30th and October 14th. 

 

Overall, the survey paints a very positive picture, though admittedly is somewhat backward looking given the survey period was 3-5 weeks ago. Across C&I and CRE loans, lending standards continued to ease while loan demand improved. On the consumer side, residential mortgage lending standards eased. Consumer non-mortgage loans saw lending standards ease again this quarter and demand strengthened again. Notably, banks willingness to make consumer loans is still increasing.  

 

This survey suggests that the reasonably strong loan growth trends we saw from banks in 3Q14 should persist in 4Q14 barring any sharp loss of confidence intra-quarter. 

 

Bottom Line:

The first chart below looks at the historical C&I lending standards question (LHS) juxtaposed against the price of the S&P 500 Financials subsector (RHS). C&I lending standards have historically turned tighter ahead of or coincident with peaks in Financials equity prices. We've highlighted in green the periods during which Financials stock prices are rising. in the 1 period it was clear that lending standards were tightening as early as late-1999 suggesting the top was near. In the 2003-2007 period standards were cooling steadily throughout 2006 and rolled into negative territory (i.e. standards were tightening on net) in mid-2007, about a quarter ahead of the peak in prices. As the chart shows, C&I standards are not showing any signs of rolling over through the most recent reading.

 

Takeaways:

There are two useful takeaways here. First, inflections in this series either lead or are coincident with turning points in Financials equity prices. Second, underwriting standards are autocorrelated, meaning they trend in the same direction for a long time before reversing. This means that once the turn begins you can ride the trend for a long time.

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - C I vs prices

 

C&I Loan Tailwinds Persist: Easing Standards and Rising Demand

Demand for C&I loans continued to rise in the 4Q survey, spreads tightened, and standards continued to ease. 

 

Notably, a net 47% of banks reported not increasing spreads for large and mid-size firms, while a net 15% of banks reported stronger demand for C&I loans among large and mid-size borrowers. 

 

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - C I standards

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - C I spreads

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - C I loan demand 

 

CRE Loan Demand Rises Further While Standards Continue to Ease

Commercial real estate loan demand improved in the quarter with a net 25% of banks reporting stronger demand for C&D and Nonfarm nonresidential loans. Meanwhile, a net 10.8% of banks reported easing C&D loan standards 4Q14 - the highest percentage recorded since the introduction of the C&D survey category.

 

Multifamily Issues

The one area of softness in the survey was that a small fraction of banks (+1.3%, net) reported tightening standards on Multifamily loans. While not a big deal in the face of all the other data, anytime a category rolls from positive to negative or the other way around we take note.

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - CRE Standards

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - CRE Demand

 

Residential Real Estate - A Mixed Picture

Residential mortgage loan standards were easier in 4Q for both prime and nontraditional borrowers. A net 11% of banks reported easing standards on prime borrowers, while a net 5% of banks reported easing standards on nontraditional borrowers. 

 

The demand side, however, saw negative trends across the board. We consider this less meaningful because there is built-in seasonality in the purchase market (Fall/Winter home sales always drop relative to Spring/Summer) and the refi market is a direct function of rates.  

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - Resi Standards

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - Resi Demand  2 

 

 

 

Consumer Loans - Cards, Cars & Installment

Banks reported a net easing of standards for credit cards, auto loans and installment credit. This survey was roughly in-line with that of recent surveys. On the demand front, auto loans are again hot. 25% of banks, net, reported an increase in demand for auto loans. Meanwhile, demand for card and installment loans remained positive on net, but slowed a bit sequentially. 

 

Finally, banks willingness to make consumer loans (non-mortgage loans) was a plus 8.7%, net in the fourth quarter. 

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - consumer standards

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - consumer demand

 

4Q14 SENIOR LOAN OFFICER SURVEY: BROAD-BASED IMPROVEMENT WITH ONLY ONE EXCEPTION  - consumer willingness

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Cartoon of the Day: Winnie the Putin

Takeaway: Deflation is pulverizing Vladimir Putin (and oil bulls). WTI crude is down another -2% to $77/barrel.

Cartoon of the Day: Winnie the Putin - Oil cartoon 11.03.2014


FLASH CALL - Top Russia Insider to Discuss Developments Inside Putin’s Russia (on 11/6 @ 1pm EST)

FLASH CALL - Top Russia Insider to Discuss Developments Inside Putin’s Russia (on 11/6 @ 1pm EST) - HE M putin

 

In light of the continuing crash of its currency and stock market, we are receiving considerable customer interest on the question: “What’s going on with Russia?”

 

As a result, Hedgeye’s Macro Team is hosting a special “Behind the Curtain” conference call this Thursday, November 6th at 1:00pm EST with Michael McFaul, one of the world’s foremost experts on Russia and Vladimir Putin. Until earlier this year, McFaul was the U.S. Ambassador to Russia and held closed-door meetings with Putin and his top lieutenants before finally stepping down out of concern for his family and his own safety.

 

Mr. McFaul has been called, “the leading scholar of his generation, maybe THE leading scholar, on post-Communist Russia.” He was President Obama’s chief advisor on Russia through his first term and was a main policy architect of “Reset” in U.S. - Russian relations.

 

A high-profile figure during his time in Moscow, McFaul was harassed and accused of orchestrating a coup. Perhaps in light of his considerable work and reputation as an expert on anti-dictator movements and revolutions, Putin reportedly stared at McFaul across a meeting table and remarked, “We know that your Embassy is working with the opposition to undermine me.” 

 

*The New York Times recently ran an intriguing article, “Former U.S. Envoy to Moscow Says Russians Are Still Spying on Himon McFaul detailing how Russia is still spying on him.

 

McFaul will provide 30 minutes of prepared remarks, followed by open Q&A moderated by Hedgeye’s analyst Matt Hedrick.

 

 

KEY TOPICS ON THE CALL WILL INCLUDE 

  • What are the roots of ‘Putinism’ and where is the country economically heading?
  • How do weaker energy prices influence the Kremlin’s strategy (economic, political, and social)?
  • How is the East-West battle over Ukraine resolved?
  • What are the impacts of sanctions on Russia and the West and how might they evolve?
  • Can Russia successfully pivot to the East?

 

CALL DETAILS

  • Toll Free Number:  
  • Direct Dial Number:  
  • Conference Code: 441871#
  • Materials: CLICK HERE (Slides will download approximately one hour prior to the start of the call) 

Ping for more information.

 

 

ABOUT MICHAEL MCFAUL


McFaul is the former U.S. Ambassador to Russia (from January 2012 to February 2014). Prior to this, McFaul worked three years for the U.S. National Security Council as Special Assistant to the President and Senior Director of Russian and Eurasian Affairs.  

 

He holds a BA in international relations and Slavic Languages and an MA in Slavic and East European Studies from Stanford University in 1986. He spent time in the Soviet Union as a student in the 1980s. He was later awarded a prestigious Rhodes scholarship to Oxford where he completed his Ph.D. in International Relations in 1991.

 

Born and raised in Montana, McFaul is fluent in Russian, and is currently a professor of Political Science at Stanford University and a fellow at the Hoover Institution.

 

He is the author and co-author of numerous books, including:  Revolution in Orange: The Origins of Ukraine's Democratic Breakthrough (2006); Between Dictatorship and Democracy: Russian Postcommunist Political Reform (2004); After the Collapse of Communism: Comparative Lessons of Transitions (2004); and Russia's Unfinished Revolution: Political Change from Gorbachev to Putin (2001), among many others. 


Daily Trading Ranges

20 Proprietary Risk Ranges

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Global #CurrencyBurning By Shortsighted Central Planners Has Major Market Consequences

Takeaway: This is going to get ugly.

Global #CurrencyBurning By Shortsighted Central Planners Has Major Market Consequences - 47

 

The Yen is burnt to a bloody crisp. It's trading $113.44 vs. USD last and has one of the widest immediate-term risk ranges we have ever seen in FX (109.37-113.66). That should continue to perpetuate both FX market (and equity + fixed income linked) volatility.

 

Yen Down = Oil Down (Dollar Up) and now you see the next leg down -2.7% WTI to $76.66/barrel as whoever was trying to defend the $80 line falls down. Oil is down a staggering -28% since June.

 

This is textbook #Quad4 deflation and precisely what we’ve been highlighting to our subscribers. It’s catching up to equity and fixed income expectations, by sector.

 

Editor's note: This is a complimentary excerpt from research written by CEO Keith McCullough earlier today. Click here for information on how you can subscribe.


RHP Q3 2014 EARNINGS CALL NOTES

Takeaway: Strong Q3 results and Q4 outlook. More rooms booked for Q4/2015 at significantly higher rates. Street share count remains too high

Healthy group outlook

PREPARED REMARKS

Colin Reed, CEO

 

Hotel Operations:

  • Operating Metrics up across the board
  • RevPAR driven by 3% occupancy, 5.7% ADR
  • Total RevPAR ~10%
  • Group: group room nights 31,000 more than YoY
  • Transient: room nights marginally down, less availability due to stronger group and 10,000 room nights out of service at Texan, ADR +$15 or 9.2%
  • Hospitality EBITDA:  Adj Margin 50bps
  • FCC Opryland settlement
  • Flow through ex "noise" 50%
  • Working to maximize efficiency and profitability
  • Decline in IYFY cancellations
  • Attrition levels declined

National  & Washington DC

  • City/Area better, while unpredictable due to Fed'l Gov't spending, outlook improving
  • National Harbor development refocusing attraction to area

Sales Production

  • In line with expectations
  • 390,000 room nights
  • Net room nights up
  • Booking pattern cyclical
  • During Q2: 640K nights booked, pulled forward
  • ADR for future year bookings is increasing

Opryland

  • Performance strong
  • Largest convention center outside of Las Vegas
  • On pace to have best year ever
  • Q3: occupancy 80%
  • All trends better, shift toward premium groups
  • 33% Margin performance

Entertainment Assets:

  • Misunderstood by many investors
  • 43% QoQ growth in Adj EBITDA
  • Country music is driving Nashville
  • Tourist based growth driving Nashville and performance
  • Reviewing options to unlock value for shareholders

Balance Sheet:

  • Convertible Notes matured & settled on Oct 1
  • Cash settled 2.4 million warrants for $57.9 million

 Group Bookings:

  • More nights on the books for 2015 than had on the book for 2014 one year ago and at higher rate
  • Funnel is full
  • Appear to be improving
  • Into Q4, funnel is healthy
  • Confident Q4 will follow traditional pattern
  • See booking performance improve via working with manager
  • Plan mapped out to achieve historical production levels

 

Mark Fioravanti, Chief Financial Officer

 

Hospitality Segment:

  • Increased employee costs hindered margins

Balance Sheet:

  • Subsequent to quarter end, paid off convertible notes
  • Cancelled equal shares of common stock = no dilution

Dividend:

  • $2.20/share with remaining payment in January 2015 - revisit dividend in January 

Q&A

 

Q: Group business - why not benefit more?

  • Seeing good performance, ADR up currently, 2015 pace strong, don't have new supply affecting, so should translate into good 2015 and 2016 - especially given current pace which is ahead for 2015 and 2016
  • 5.1 million room nights on the book for all future years

Q: Attractions segment - how to think about business vs. Nashville in evolutionary cycle against long-term growth?

  • RHP has 10% of Nashville room supply, but Nashville is experiencing extraordinary music base - not just country music all forms of music
  • Need to focus on airlift and infrastructure to get visitors and workers to downtown

Q: Trends for outside the room spend pricing?

  • Not looking at minimums.  Higher rates will generate higher out of room spend 
  • Not pricing a steak today for a stay four years from now, pricing F&B on <90 days until arrival date

Q: National margins?

  • Union costs (benefits), CITY booking costs due to incremental bookings, some one-time items in the prior year Q3

Q: Mix in Q3 2014 Group vs. Transient vs. 2013?

  • 75% Group / 25% Transient, Group slightly higher in 2014 than 2013.

Q: Booked room nights on forward basis?

  • More on books for 2015 than YoY forward basis and at higher rate due to corporate group.  Larger bucket of leads this year than last year about 8% higher and attrition rates lower.
  • 2015 mix likely 75% Group / 25% Transient

 


Here's Another Chart Showing Why Hedgeye's Howard Penney Is Bearish on Starbucks | $SBUX

Takeaway: Restaurants analyst Howard Penney recently added SBUX to our Best Ideas list as a short.

SBUX global traffic has now decelerated for five consecutive quarters, coming in at 1% in 4QF14.

 

Here's Another Chart Showing Why Hedgeye's Howard Penney Is Bearish on Starbucks | $SBUX - sbux

 

We remain the bear on Starbucks.


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