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DAILY TRADING RANGES, REFRESHED

This note was originally published November 15, 2013 at 07:39 in Daily Trading Ranges

Editor's note: This is a complimentary look at Hedgeye's Daily Trading Ranges product. To subscribe click here

DAILY TRADING RANGES, REFRESHED - jo9

BULLISH TRENDS

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BEARISH TRENDS

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INDONESIA’S Economic NIGHTMARE

Takeaway: We profile Indonesia’s recent hardship as further supporting evidence of our #EmergingOutflows and #AsianContagion theses.

This note was originally published August 19, 2013 at 12:07 in Macro

INDONESIA’S Economic NIGHTMARE - indo9

SUMMARY BULLETS:

  • It’s been an especially long ~3M for investors operating in Indonesian capital and currency markets:
    • It’s benchmark equity market, the Jakarta Composite Index, is down -16.2% over that time frame, which compares to a regional median delta of -5.7%.
    • It’s currency, the Indonesian rupiah, has fallen -8% vs. the USD over the past 3M to a ~4Y-low; this -8% decline compares to a regional median delta of -1.3% over that same duration.
    • Indonesia’s 2Y and 10Y sovereign debt yields have backed up +289bps and +277bps, respectively, over the past 3M; those fixed income [price] declines compare to regional median deltas of +24bps and +85bps on the 2Y and 10Y tenors, respectively.
  • All told, the Indonesian economy and its policymakers have not done themselves any favors as it relates to protecting investors from price declines consistent with our top-down #EmergingOutflows and #AsianContagion theses.
  • The bottom-up GROWTH/INFLATION/POLICY fundamentals in Indonesia continue to deteriorate at the margins and that alone should continue to keep “the flows” from being supportive of Indonesian assets.

It’s been a long 3-4 months for investors operating in EM capital and currency markets. Since we outlined our structural bearish bias on Emerging Markets in our 4/23 presentation titled: “EMERGING MARKET CRISES: IDENTIFYING, CONTEXTUALIZING AND NAVIGATING KEY RISKS IN THE NEXT CYCLE”, the MSCI EM Index has fallen -5.1%; the JPM EM FX Index has fallen -5.8%; the JPM EM USD Bond Index (EMB) has fallen -11.3%; and the Market Vectors EM Local Currency Index (EMLC) has fallen -13.4%.

 

It’s been an especially long ~3M for investors operating in Indonesian capital and currency markets:

  • It’s benchmark equity market, the Jakarta Composite Index, is down -16.2% over that time frame, which compares to a regional median delta of -5.7%.
  • It’s currency, the Indonesian rupiah, has fallen -8% vs. the USD over the past 3M to a ~4Y-low; this -8% decline compares to a regional median delta of -1.3% over that same duration.
  • Indonesia’s 2Y and 10Y sovereign debt yields have backed up +289bps and +277bps, respectively, over the past 3M; those fixed income [price] declines compare to regional median deltas of +24bps and +85bps on the 2Y and 10Y tenors, respectively.

While the flows have certainly punished Indonesia simply for being an emerging market in 2013, we’d argue that the country’s own “fundamental misbehavior” has contributed to the aforementioned underperformance:

 

GROWTH SLOWING

Indonesia’s most recently reported real GDP growth rate of +5.8% YoY (2Q13) was the slowest rate since 3Q10 and -1.5x standard deviations below the trailing 3Y mean. On this number, Bank Indonesia (the country’s central bank) revised down its 2013 GDP forecast to “the lower end” of its [new] +5.8% to +6.2% forecast range; prior to that, they had been expecting 2013 growth to come in at +6.6%.

 

INDONESIA’S Economic NIGHTMARE - dale1

 

This weekend, we received far worse news on the economic growth front: the current account deficit widened to a nominal record $9.8B in 2Q13; as a percentage of GDP, the current account deficit widened to 4.4% in 2Q13, which is also a record. In the context of capital outflows, the country will have an increasingly difficult time maintaining existing growth rates by plugging this savings/investment imbalance with outside capital. To the extent the country fails to do so, at the margins, economic growth will continue to slow.

 

INDONESIA’S Economic NIGHTMARE - 2

 

Not ironically, Indonesia scored rather poorly (5th worst out of 29 countries) on our BOP/Currency Crisis Index, which was one of the “Four Pillars” in our EM Crisis Risk Model, so today’s current account deficit-induced issues Indonesia is experiencing across its capital and currency markets (Jakarta Composite Index tanked -5.6% DoD, while the IDR also plunged -1.9% DoD vs. the USD) comes as no surprise to us.

 

INDONESIA’S Economic NIGHTMARE - BOP Crisis Risk

 

INDONESIA’S Economic NIGHTMARE - Hedgeye Macro EM Crisis Risk Model Summary Table

 

INFLATION ACCELERATING

The country’s CPI rate hit a ~4.5Y-high in JUL, accelerating to +8.6% YoY from a reading of +5.9% YoY in the prior month. While currency weakness (IDR down -9.6% YoY vs. the USD) has definitely played a major factor in the recent ramp in reported inflation readings in Indonesia, President Susilo Bambang Yudhoyono raised domestic fuel prices for the first time since 2008 in JUN to help curb rampant fuel subsidy costs that is eroding the fiscal balance (more on this below).

 

INDONESIA’S Economic NIGHTMARE - 5

 

We bold the word “help” in the previous sentence because, in reality, the recent fuel price hike is doing little to allay the aforementioned fiscal concerns: next year’s budget allocates 336.2 trillion rupiah ($32 billion) for total subsidies, which is little changed from the 346.4 trillion rupiah spent in the current fiscal year.

 

FISCAL AND MONETARY POLICY TIGHTENING

In the face of rampant inflation, Bank Indonesia has hiked interest rates by +75bps in the YTD, with 50bps of that tightening coming in the past two months alone (inclusive of the fuel price hike news). On Thursday, Bank Indonesia increased the country’s secondary reserve requirement ratio by +150bps to 4%.

 

Interestingly, there exists a divergence in the on-shore swaps market and the local currency sovereign debt market as it relates to the likelihood of further tightening over the NTM: 1Y OIS contracts are trading at a -140bps discount to the 6.5% benchmark reference rate; the 1Y sovereign debt yields are trading at a +63bps premium to the same rate.

 

We should expect to see this kind of confusion when in an environment of Growth Slowing as Inflation Accelerates. Also confused, it should be noted that Bank Indonesia held rates in its most recent meeting, opting for additional time to reassess the balance of risks facing the country’s beleaguered economy.

 

As it relates to Indonesia’s fiscal policy outlook, we’ll know more details later in the week when we receive the official 2014 budget outline. For now, investors can be assured of some meaningful degree of tightening, as the budget is expected to shrink the deficit/GDP ratio to 1.49% from a projected deficit equivalent to 2.4% of GDP in the current year.

 

All told, the Indonesian economy and its policymakers have not done themselves any favors as it relates to protecting investors from price declines consistent with our top-down #EmergingOutflows and #AsianContagion theses. The bottom-up GROWTH/INFLATION/POLICY fundamentals in Indonesia continue to deteriorate at the margins and that alone should continue to keep “the flows” from being supportive of Indonesian assets.

 

Darius Dale

Senior Analyst


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#Bernanke Bond Bubble Update

Takeaway: The proverbial waterfall of fund flows continues out of this epic Bernanke Bond Bubble.

I had to sell that long Treasuries position. I couldn’t gut it out past the 11am EST portion of Yellen's chat yesterday.

 

The proverbial waterfall of fund flows continues out of this epic Bernanke Bond Bubble. There will be nothing “tight” about timing that – it happens slowly, then all at once (h/t Ernest Hemingway).

 

The 10-year Yield is holding its 2.64% TREND support. More to be revealed.

 

#Bernanke Bond Bubble Update  - drake1

 

Editor's note: This is a snippet from CEO Keith McCullough's morning research. For information on how you can become a Hedgeye subscriber please click here.


When Doves Cry

Client Talking Points

US DOLLAR

You have to separate the front-running moves (Wednesday) versus this morning because USD Down, Gold Up isn’t happening this morning. The most important line in my model is the Dollar trading inside of $81.41 TREND resistance. (EUR/USD TREND line is $1.34.)

UST 10YR YIELD

I had to sell that long Treasuries position. I couldn’t gut it out past the 11am EST portion of Janet Yellen's chat yesterday with the Senators. The proverbial waterfall of fund flows continues out of this epic Bernanke Bond Bubble. There will be nothing “tight” about timing that – it happens slowly, then all at once (h/t Ernest Hemingway). The 10-year Yield is holding its 2.64% TREND support. More to be revealed.

YEN

Rip-roaring fun for the biggest net short position in FX land! But, will the Yen break to lower-lows versus the September low versus the USD? That remains the question. We will let the market tell us on this one, but the Yen could be a long for the 1st time in a while in my model; research would back that as ECB and Fed are going to battle it out on the burning currency front

Asset Allocation

CASH 64% US EQUITIES 6%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

The Mother of All Doves rocked the #KeynesianCrack house yesterday; Gold Bond beta chasing is back! (or is it?) @KeithMcCullough

QUOTE OF THE DAY

What's the subject of life - to get rich? All of those fellows out there getting rich could be dancing around the real subject of life. -Paul Volcker

STAT OF THE DAY

By the age of 4, the average child in a professional family has heard 20 million more words than a child in a middle-class family.


What's New Today in Retail (11/15)

Takeaway: UA expanding into digital with MapMyFitness, JOSB takes MW offer off the table, H&M plans India expansion, CROX can't find a prom date

Athletic Apparel Data

 

Takeaway: The only brand that are showing up on game day are Nike, UnderArmour, Mountain Hardware, Marmot (note cold weather brands doing well), and believe it or not — Reebok. 

 

What's New Today in Retail (11/15)  - chart1 11 14

What's New Today in Retail (11/15)  - chart2 11 14

What's New Today in Retail (11/15)  - chart3 11 14

What's New Today in Retail (11/15)  - chart4 11 14 

 

COMPANY NEWS

 

UA - Under Armour to Acquire MapMyFitness, One of the World's Largest Open Fitness Tracking Platforms

(http://investor.underarmour.com/releasedetail.cfm?ReleaseID=807138)

 

  • "Today, Under Armour...announced the acquisition of MapMyFitness, the fitness technology company powering one of the world's largest digital fitness communities."
  • "With this acquisition, Under Armour will be uniquely positioned at the forefront of sports and technology and will continue to deliver game-changing solutions to how athletes train and perform. As part of the collaboration, Under Armour will add depth to its digital capability, offering athletes an elevated training experience through new digital products and platforms."
  • "MapMyFitness has one of the largest connected fitness communities in the world and offers a diverse suite of websites and mobile applications under its flagship brands, MapMyRun and MapMyRide. Utilizing GPS and other advanced technologies, MapMyFitness provides users with the ability to map, record and share their workouts."
  • "Under Armour intends to initially finance the $150 million acquisition of MapMyFitness with borrowings under its existing revolving credit facility, cash on hand or a combination thereof, while it evaluates longer-term funding options for the transaction. The deal is expected to close by the end of 2013 and the Company's previously provided 2013 guidance and preliminary 2014 outlook remain unchanged."

 

Takeaway: Solid move my UA here to get more embedded in digital training — something Nike has been doing for five years. Nike built its expertise organically — though there’s nothing wrong with buying a preexisting platform like MapMyFitness. UA could quickly rebrand it as its own in a way that won’t scare off the existing consumer, and likely convert some of them into UA customers. 

 

JOSB, MW - Jos. A. Bank Terminates Acquisition Proposal as Men's Wearhouse Fails to Engage in Discussions

(http://phx.corporate-ir.net/phoenix.zhtml?c=113815&p=irol-newsArticle&ID=1877327&highlight=)

 

  • "Jos. A. Bank Clothiers, Inc. today sent a letter to the Chief Executive Officer of The Men's Wearhouse, Inc. terminating its all-cash proposal to purchase Men's Wearhouse for $48 per share. As previously reported, Jos. A. Bank had advised the board of directors of Men's Wearhouse that Jos. A. Bank would terminate its proposal if the board did not engage in good faith negotiations by November 14, 2013. The November 14 deadline has passed with Men's Wearhouse having failed to engage in such discussions."

 

Takeaway: We’re surprised that MW did not at least show up to the table. We’re with MW in that we think a fair value is far above the JOSB bid. If the stock trades off materially as the takeout premium evaporates, we’d consider hitting the bid on this one.

 

HMB - H&M gets Foreign Investment Promotion Board nod, plans to invest Rs 720 crore 

(http://economictimes.indiatimes.com/news/news-by-industry/services/retail/hm-gets-foreign-investment-promotion-board-nod-plans-to-invest-rs-720-crore/articleshow/25708198.cms)

 

  • "The Foreign Investment Promotion Board (FIPB) has cleared Swedish clothing major H&M's Rs 720-crore proposal to set up single-brand retail stores in India…"
  • "H&M...plans to open 50 retail stores in India."
  • "The government had last year raised the FDI limit in single-brand retail to 100% from 51%, subject to certain minimum sourcing from local vendors. H&M had moved its proposal in April this year, but lack of clarity over certain issues had delayed a decision."

Takeaway: It’s nice to see a retailer actually succeed and grow in India. You hear that Wal-Mart? 

 

ADS - Adidas unveils white kit for German football team

(http://www.fibre2fashion.com/news/company-news/adidas-salomon/newsdetails.aspx?news_id=155670)

 

  • "At the 2014 FIFA World Cup in Brazil, the German team will play a World Cup for the first time in an all-white kit. Supplier adidas presented the new home jersey in collaboration with the German Football Association (DFB)."

 

 What's New Today in Retail (11/15)  - chart5 11 14

 

Jockey unveils limited edition Anchorman 2 briefs

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=155752)

 

"This holiday season, Jockey International, Inc. unveils limited edition Jockey–Anchorman 2 briefs. The classic Jockey product makes a "brief" appearance in Paramount Pictures' Dec. 20 release of "Anchorman 2: The Legend Continues" as a nod to the broad popularity of Jockey's ads from the late '70s and early '80s."

"Presented in custom packaging featuring legendary anchorman Ron Burgundy, the briefs come in two colors that say 'I'm kind of a big deal': 'Beard of Zeus Blue' for afternoon delights and 'Sex Panther Red' for the jazz flute kind of nights, references from the classic original Anchorman film"

 

 

 What's New Today in Retail (11/15)  - chart7 11 14

 

Takeaway: This might be the most brilliant marketing gimmick we’ve seen all year.

 

CROX - Crocs Said to Explore Alternatives After Buyout Talks Falter

(http://www.bloomberg.com/news/2013-11-13/crocs-said-to-explore-strategic-options-as-buyout-talks-falter.html)

 

  • "Crocs Inc...held buyout talks that are unlikely to lead to a sale, leaving it to consider other options to boost value, people with knowledge of the matter said."
  • "Blackstone Group LP, which had explored a takeover, is now in discussions with Crocs about alternative deals, one person said, asking not to be identified as the information is private. The options include a stake sale or joint venture, another person said. KKR & Co. and other private-equity firms have decided against a bid, people said."

 

Takeaway: Let me get this straight…no one wanted to buy CROX outright, so the announce that they’re exploring other alternatives, and people think this is good news? That’s like looking for a prom date for three months, coming up dry, and then announcing that you’re evaluating alternative options for what to do while the rest of your friends are at the prom.

 

KER - Kering Sees Very Significant Profit Drop on La Redoute, Puma

(http://www.bloomberg.com/news/2013-11-13/kering-sees-very-significant-drop-in-2013-net-on-puma-redoute.html)

 

  • "Kering SA...said it expects net income to drop 'very significantly' this year because of costs related to its planned sale of mail-order unit La Redoute and one-time charges for the Puma brand."
  • "Any 'solution' for La Redoute 'will have a significant impact on the net result from discontinued operations,' Paris-based Kering also said in a statement yesterday after the close of trading. Puma, the sporting-goods brand in which Kering is controlling shareholder, last week said it would book one-time charges of about 130 million euros ($175 million) this quarter."

 

Takeaway: No shocker here. Puma already announced that it’s following in the footsteps of its big brother Adidas this quarter in punting on first down. Nike is annihilating the Germans.

 

 Macy's Completes Beauty Floor Renovation

(http://www.wwd.com/beauty-industry-news/retailing/macys-completes-beauty-floor-renovation-7278888?module=hp-topstories)

 

"Macy’s christened the new beauty floor at its Herald Square flagship in Manhattan this week with a host of launch activities including ribbon cuttings at new counters like Bobbi Brown and Laura Mercier. Celebrations, including appearances by various brands’ national makeup artists, will continue into December."

"The reimagined main floor features an additional 4,500 square feet of selling space for beauty and men’s grooming, a 17 percent increase, since renovations began this summer."

 

What's New Today in Retail (11/15)  - chart6 11 14

 

INDUSTRY NEWS

 

Bangladesh Garment Factories Reopen After Wage Deal Reached

(http://www.bloomberg.com/news/2013-11-13/bangladesh-garment-factories-to-stay-shut-amid-worker-protests.html)

 

  • "About 250 Bangladesh garment factories reopened today in the Ashulia industrial zone on the outskirts of the capital, Dhaka, after owners agreed to a minimum wage of 5,300 taka ($68) a month for workers."
  • "A group of owners met Prime Minister Sheikh Hasina, who urged them to accept a recommendation made by a government-appointed panel, Atiqul Islam, president of the Bangladesh Garment Manufacturers and Exporters Association, said from Dhaka. The pay increase from 3,000 taka will be effective from Dec. 1, Labor Minister Rajiuddin Ahmed Raju said at a media briefing today."

 

Vietnam Leads Imports in September

(http://www.wwd.com/business-news/government-trade/vietnam-leads-imports-in-september-7278546?module=hp-business)

 

  • "Vietnam posted the largest increase in apparel imports to the U.S. in September compared with a year earlier, as it continued to take business away from other Asian countries such as Indonesia, which posted a double-digit decline, while Bangladesh showed signs of a slowdown in production, a report from the U.S. Commerce Department showed Thursday."
  • "Apparel imports from Vietnam, the second-largest supplier to the U.S., rose 21.6 percent to 206 million square meter equivalents in September compared with September 2012. Indonesia, the fourth-largest apparel supplier to the U.S., posted a 17.1 percent decline in apparel imports to 73 million SME. China, the top supplier of apparel to the U.S., posted a 1.3 percent gain to 1.1 billion SME in the month."
  • "The pace of growth in apparel imports from Bangladesh…slowed in September. Apparel imports rose 2.2 percent to 124 million SME. This followed increases in the prior five months that ranged from 6.3 percent to 18.6 percent."

 

 


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