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Poll of the Day: Housing Slowdown

Recent reports of declining mortgage applications could be the first sign of a #HousingSlowdown – one of Hedgeye’s quarterly macro themes.

 


Social Bubbles

This note was originally published at 8am on March 26, 2014 for Hedgeye subscribers.

“I wonder how much it would take to buy a soap bubble, if there were only one in the world.”

-Mark Twain

 

Imagine that – if there were only one bubble, tulip, or social media stock left in the world – what on earth would we pay for it? Someone at Morgan Stanley can surely answer that with a comp table.

 

I have to give it to the folks @Facebook. They’re nailing it on “scarcity value.” I didn’t know that either of their last two acquisitions existed. After spending $21 billion on WhatsApp and Oculus, FB’s stock has broken my mo-bro line of $67.52 support too.

 

Social Bubbles - social media bubble burst

 

Imagine there was only one bro left in the marketplace? How much would he pay for the all-time-bubble-high in the last social media stock that stops going up? It’s all fun and games until someone gets popped.

 

Back to the Global Macro Grind

 

Never mind trying to figure out what Oculus is (an “immersive virtual reality company”) or that it was “valued” at $30M in June. These guys just got $400M large (in cash) and another $1.6B in Facebook’s (FB) bubbled up stock. #cool

 

Until it’s not…

 

In FB inflated currency terms, Oculus is “cheap” though. Ask the bankers. When you slap it on a sheet of paper next to Candy Crush (coming public today with at least a $7B valuation), it’s probably relatively “cheap” too.

 

I know. Fourteen years ago (Q2 of 2000), while I was leaving the big bubble house that Frank Quatrone built (Credit Suisse First Boston), calling a bubble what it was back then was subject to some really smart “it’s different this time” analysis.

 

But it wasn’t. This time won’t be different either.

 

Moving along, why don’t they just jam the US stock market right back to the all-time-bubble closing highs (SPX 1878) again in the next few trading days?

  1. It’s quarter-end…
  2. There’s no-volume out there anyway,
  3. And squeezing hedgies who keep shorting low and buying high is easy to do

On that last point, at least from a Style Factoring perspective, being long High Short Interest stocks is back!

 

Now tracking +2.8% YTD, that beats being long either Low Short Interest (as a style factor in the SP500) which is only +0.8% or, god forbid, the Dow (which is still down -1.2% YTD).

 

Alternatively, you can triple bypass the stress associated with buying the high short-interest bubble and:

  1. Buy #InflationAccelerating
  2. Buy #GrowthSlowing
  3. Short the US Consumer

How do you buy #InflationAccelerating?

  1. CRB Food Index +18.1% YTD
  2. Gold +9.5% YTD
  3. CRB Commodities Index +7.5% YTD

What about #GrowthSlowing?

  1. Utilities (XLU) +7.4% YTD
  2. REITS (MSCI Index) +8.1% YTD
  3. Bonds (yep, long-term Treasury Yields are down 30 bps YTD)

Oh, and the Short US Consumer Discretionary (XLY) position acts fantastic with the sub-sector -3.3% YTD. That’s horrendous on both an absolute and a relative basis. If you’re into that sort of thing…

 

You might be into buying former bubbles that blew up too. After all, isn’t that what being long of Gold and as many homes as you can get your hands on from A&E’s house flippers is all about?

 

Or is the show called Flip This House? Who cares what these $2, $7, or $19 billion dollar companies or shows are called. Fully loaded, listening to #OldWall bankers and mortgage brokers pitch us on why it all makes sense is just getting fun to watch.

 

Our immediate-term Macro Risk Ranges are now:

 

UST 10yr Yield 2.62-2.81%

SPX 1854-1878

VIX 13.09-17.47

USD 79.18-80.41

Gold 1301-1345

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Social Bubbles - Chart of the Day

 

Social Bubbles - Virtual Portfolio


April 9, 2014

April 9, 2014 - Slide1

BULLISH TRENDS

April 9, 2014 - Slide2

April 9, 2014 - Slide3

April 9, 2014 - Slide4

April 9, 2014 - Slide5

April 9, 2014 - Slide6

BEARISH TRENDS

April 9, 2014 - Slide7

April 9, 2014 - Slide8

April 9, 2014 - Slide9

April 9, 2014 - Slide10

April 9, 2014 - Slide11
April 9, 2014 - Slide12


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – April 9, 2014


As we look at today's setup for the S&P 500, the range is 37 points or 1.19% downside to 1830 and 0.81% upside to 1867.                                         

                                                                                      

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: 2.29 from 2.29
  • VIX closed at 14.89 1 day percent change of -4.37%

MACRO DATA POINTS (Bloomberg Estimates)

  • 7am: MBA Mortgage Applications, April 4 (prior -1.2%)
  • 10am: Wholesale Inventories, Feb, est 0.5% (pr 0.6%, rev 0.7%)
  • Wholesale Sales m/m, Feb., est. 1% (pr -1.9%, rev -1.8%)
  • 10:30am: DOE Energy Inventories
  • 2pm: Fed issues March 18-19 FOMC minutes
  • 3:30pm: Fed’s Evans speaks in Washington
  • 7:30pm: Fed’s Tarullo speaks in Washington

GOVERNMENT:

    • President Obama speaks at Fort Hood memorial service, then attends DCCC, DSCC fundraisers in Houston
    • House Financial Services Cmte panel holds hearing on capital formation for growth cos, 10am
    • Senate Judiciary Cmte hears from Comcast exec. VP David Cohen on proposed $45b purchase of Time Warner Cable, 10am
    • House Armed Services Cmte holds hearing on natl defense priorities, 10am
    • House Ways and Means trade subcmte holds hearing on trade implications of U.S energy policy, LNG exports; 1:15pm
    • Budget (Senate Appropriations):
    • EPA Administrator Gina McCarthy testifies, 9:15am
    • Labor Sec. Thomas Perez, 10am
    • Clinton says no imminent decision on presidential run

WHAT TO WATCH:

  • Toyota recalls more than 6m vehicles globally
  • Alcoa sees almost decade-long aluminum surplus ending on cuts
  • La Quinta raises $650m pricing IPO below marketed range
  • GM fined by U.S. safety agency for incomplete recall answers
  • Comcast to pitch its Time Warner deal as boost to innovation
  • Tougher leverage limits for U.S. banks approved by regulators
  • Tesla plans to find more financing for new Model S leasing unit
  • Weather Channel returns with less reality after DirecTV blackout
  • SAC Capital judge seeks profit info before approving plea
  • Greece said to plan opening book for 5-yr note sale tomorrow
  • Goldman Sachs considers closing Sigma X dark pool, WSJ reports
  • Goldman, Warburg in next round for Huarong stake: Reuters
  • Zayo explores IPO that values co. at $7b: Reuters
  • Detroit said near deal with some bond insurers: WSJ
  • Microsoft issues final security update for XP: Reuters

EARNINGS:

    • AngioDynamics (ANGO) 4:01 pm, $0.09
    • Apogee Enterprises (APOG) 4:30 pm, $0.29
    • Bed Bath & Beyond (BBBY) 4:15 pm, $1.60 - Preview
    • Cogeco Cable (CCA CN) Aft-Mkt, C$1.11 - Preview
    • Constellation Brands (STZ) 7:30 am, $0.76 - Preview
    • Dollarama (DOL CN) 7:30 am, C$1.10
    • MSC Industrial (MSM) 7:30 am, $0.85
    • PriceSmart (PSMT) 4:10 pm, $0.87

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • WTI Retreats From Month-High as Crude Supplies Gain; Brent Slips
  • World’s $8.9 Billion Banana Trade Threatened by Deadly Fungus
  • Texas Cotton Desert Boosts Cost for Clothing Makers: Commodities
  • Gold Trades Near Two-Week High as Investors Await Fed Minutes
  • Raw Sugar Rises as Brazil Seen Delaying Sales; Coffee Declines
  • Soybeans Climb to 10-Month High as U.S. Reserves Seen Declining
  • Grandfather’s Utility Threatened by Renewable Islands of Profits
  • Codelco Sees Copper Glut Imperiled by Project Lags: Commodities
  • OPEC Plans to Make Room for Extra Oil From Iran, Iraq, Libya
  • MORE: Iraq to Soon Reach Oil-Export Deal With Kurds, Luaibi Says
  • Copper Falls Amid Concern About Potential China Debt Defaults
  • Morgan Stanley Raises 2014 Brent Crude Forecast to $105/Barrel
  • Aluminum Surplus Seen Ending by Alcoa as Producers Pare Supplies
  • Renewables Replace Declining Nuclear, Coal in Northwest Europe

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

 

 

 

 

 

 

 

 

 

 

 

 

 


ATHL Permian Deal a Good Mark for LINN

Quick Update Note...

After the close, Permian Basin pure-play E&P Athlon Energy (ATHL) announced a significant asset acquisition in the Permian, and it looks to be the best comp transaction to the assets that LINN Energy (LINE, LNCO) is trying to swap/sell to date. 

 

Details:

  • 5 privately-negotiated transactions
  • Combined cash purchase price: $873MM
  • 23,500 net acres in Martin, Upton, Glasscock, and Andrews County (Hz. Wolfcamp play)
  • 4,800 boe/d of current production, 67% oil
  • 1P reserves: 31 MMboe; PD reserves: 12.1 MMboe (39%)
  • 100% operated, 97% WI, 73% NRI

As far as we can tell, none of the acreage was acquired from LINN, though much of the acquired acreage looks very proximate to LINN and legacy ATHL’s positions (maps below).  That’s somewhat strange to us – LINN is actively marketing acreage in ATHL’s backyard, but ATHL acquires acreage from 5 other private parties instead…  One would’ve thought that ATHL would be in the running for some or all of LINN’s acreage.  Maybe ATHL has an appetite for more acreage, maybe not...  Or maybe LINN’s price was too high...  ATHL hosts a conference call tomorrow AM to discuss the transaction, perhaps we get more color then.

 

At $75,000/boe/d or $30/proved developed boe (reasonable metrics for the production/PDPs), the acreage goes for ~$21,800/net acre.

 

Putting LINN’s entire Permian package on these same metrics values the production (17,000 boe/d) at $1.3B, the acreage (55,000 net acres) at $1.3B, and $2.6B in total.

 

We think those numbers are in-line with the whispers out there - the rumor we heard today is that LINN management thinks they can sell/swap the entire package for $2B - $4B.  Still, this ATHL deal will likely be bullish for LINE/LNCO in the immediate term, as this deal gives some credence to the bull case, flawed as it may be.

 

ATHL Permian Acreage:

ATHL Permian Deal a Good Mark for LINN - linn1

Source: ATHL Presentation

 

LINN Permian Acreage:

ATHL Permian Deal a Good Mark for LINN - linn2 

Source: LINN Presentation

 

Kevin Kaiser

Managing Director



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