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Investing Ideas Newsletter

Takeaway: Current Investing Ideas: EDV, HCA, MUB, RH, TLT and XLP.

Below are Hedgeye analysts’ latest updates on our six current high-conviction long investing ideas.

 

We also feature two pieces of content from our research team at the bottom.

 

*Note: We will send CEO Keith McCullough’s updated levels for each investing idea at the beginning of this coming week.

CARTOON OF THE WEEK

Investing Ideas Newsletter - Monetary policy cartoon 11.07.2014

IDEAS UPDATES

TLT | EDV | XLP | MUB

 

With the exception of a few noteworthy [bullish] housing data points and [outrageously incongruent] regional surveys, the critical economic releases from this week continue to support our view that both growth and inflation are slowing simultaneously:

 

  • Industrial Production: +4% YoY in OCT vs. +4.2% in SEP; down -0.1% MoM vs. Bloomberg consensus expectations of a +0.2% increase
  • Headline PPI: +1.5% YoY in OCT vs. +1.6% in SEP
  • Headline CPI: unchanged at +1.7% YoY in OCT; for the quarter-to-date, CPI is tracking down -10bps from the 3Q average
  • Markit Manufacturing PMI: 54.7 in NOV vs. 55.9 in OCT; this marks the lowest reading since JAN and down for the third consecutive month

 

Calling for continued disinflation is a trivial matter at this point (CLICK HERE to review why).

 

Growth bulls, however, will accuse us of cherry-picking #GrowthSlowing data. In the spirit of pre-empting that (we play chess, not checkers @Hedgeye), we thought we’d take this moment to highlight the trending rate of change across the broad spectrum of key economic indicators:

 

Investing Ideas Newsletter - 5MANUFACTURING PMI

Investing Ideas Newsletter - 6SERVICES PMI

Investing Ideas Newsletter - 7INDUSTRIAL PRODUCTION

Investing Ideas Newsletter - 8BUSINESS CONFIDENCE

Investing Ideas Newsletter - 9CONSUMER CONFIDENCE

Investing Ideas Newsletter - 10RETAIL SALES

Investing Ideas Newsletter - 11REAL PCE

Investing Ideas Newsletter - 12DURABLE GOODS

Investing Ideas Newsletter - 13JOBLESS CLAIMS

Investing Ideas Newsletter - 14PAYROLLS

Investing Ideas Newsletter - 15EXPORTS

Investing Ideas Newsletter - 16IMPORTS

 

As you can see, the vast majority of the key economic indicators are slowing quite ardently.

 

When growth slows, we like the long bond (TLT, EDV, MUB) and equities that can give us a yield (i.e. XLP, XLU and XLV). With a likely [bullish] #Quad1 setup coming down the pike in 1Q15, this research recommendation of ours is admittedly long in the tooth.

 

Investing Ideas Newsletter - 17UNITED STATES

 

That being said, however, we see no reason to back off the thesis now. Anyone who’s followed our investment advice to be long of bonds and slow-growth, yield-chasing in the equity market is clearly having a great year:

 

Investing Ideas Newsletter - 18YTD PERFORMANCE

 

Specifically, we still expect to see the final crescendo of consensus capitulation on the short side of Treasuries in the coming weeks.

 

Furthermore, we think the worst thing you can do right now is sell these winners to rotate into the Consensus Macro playbook of buying early cycle stocks up here. We think you’ll get a much better opportunity to rotate in #Quad1 from lower prices in the coming weeks.

 

If we’re wrong on that, we’ll be wrong on that. But the process stays stick with the current playbook – especially when the data supports it!

HCA

The long position in HCA comes down to two assumptions: 1-2% volume and 3-4% price. If those are reasonable assumptions, HCA is going much higher. It would seem consensus is expecting much worse.

 

On volume, we’ve talked previously about the importance of maternity trends to hospitals, and HCA is no exception. We assume their strong volume growth in 3Q14 was driven largely by an increase in births as well as newly insured people coming on from Health Reform. We are slightly cautious in the short term as two data series reflecting recent maternity strength are sliding toward weakness in the last few updates. We’re also seeing good patient visit trends, and within two time series we began using recently, strong hiring and capital spending among providers, both of which reflect strong demand in our view. SO maybe if maternity slows, other trends will pick up the slack. If we see orthopedic cases continue to accelerate, and a higher mix of high priced ortho cases, the positive impact on our pricing assumption will be substantial, and 3-4% price will prove to be low.

 

Below is a chart that shows how many jobs in healthcare remain open versus HCA’s same store volume growth. It would seem 1-2% volume is not a stretch goal.

 

Investing Ideas Newsletter - jolts vs HCA

RH 

Restoration Hardware shares were up 6% this week for two reasons. 1) The bullish read-through we received this past week from the Williams-Sonoma print and 2) the RH Atlanta store opening.

 

1) Keep in mind that Williams-Sonoma turned out to be an excellent directional indicator for RH last quarter. WSM putting up great top line numbers augurs well for RH shares.

 

2) As far as Atlanta is concerned, the store opening there is more than your average store. Legacy stores are 8,000 sq ft. Design Galleries are 20,000. This one is a whopping 65,000 So, despite the fact that it's only one store on a base of 68, it's really the equivalent of adding 6 new stores.

 

And as it relates to size, our RH real estate deck specifically quantified why Atlanta is a market that could support a store as big as 90k ft. Translation = it's definitely not too big for this market.

 

 ADDITIONAL RESEARCH CONTENT BELOW

 

* * * * * * * * * * 

 

JAPAN: does THE "ABENOMICS TRADE" HAVE MORE ROOM TO RUN?

We’ve been dead wrong on Japan over the past month or so. With the exception of one MAJOR caveat, consensus probably has this trade right.

Investing Ideas Newsletter - ja

EMERGENT HOUSING MOJO

Existing Home Sales joins the bullish housing party, alongside NAHB (Tuesday) and Housing Starts & Mortgage Apps (Wednesday).

Investing Ideas Newsletter - h7


Commodities: Weekly Quant

Commodities: Weekly Quant - chart1 divergences

Commodities: Weekly Quant - chart2 deltas

Commodities: Weekly Quant - chart3 USD correls

Commodities: Weekly Quant - chart4 S P correls

Commodities: Weekly Quant - chart5 volume

Commodities: Weekly Quant - chart6 volatility

Commodities: Weekly Quant - chart7 sentiment

Commodities: Weekly Quant - chart8 1mth correls

Commodities: Weekly Quant - chart9 3mth correls

Commodities: Weekly Quant - chart10 6mth correls

Commodities: Weekly Quant - chart11 1Yr Correls
Commodities: Weekly Quant - chart12 3YR correls

 

Ben Ryan

Analyst 


The Week Ahead

The Economic Data calendar for the week of the 24th of November through the 28th of November is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.

 

The Week Ahead - 11.21.14 Week Ahead


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The Best of This Week From Hedgeye

Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYE TV

Real Conversations: A Dire Appraisal of Our ‘Broken Global Economy’

Dan Alpert, economic policy expert, author of “The Age of Oversupply,” and founding Managing Partner of investment bank Westwood Capital, discusses the dangerous global economic challenges the world is facing stemming from flawed government and central bank interventions with Hedgeye CEO Keith McCullough.

 

 

Morning Macro Call With Keith McCullough: ‘Why I’m Short the S&P 500 and Like Cash Right Now’

Hedgeye CEO Keith McCullough walks through the latest market and economic developments in this complimentary peek behind-the-macro-scenes of Thursday's Morning Macro Call for institutional subscribers.

 

COMPLIMENTARY VIDEO | Hedgeye's Morning Macro Call with CEO Keith McCullough 11/18/14

 

We are pleased to present this complimentary peek behind-the-macro-scenes of Hedgeye's Morning Macro Call for institutional subscribers from Tuesday. 

 

While you're at it... 

 

Click here to subscribe to HedgeyeTV on YouTube. It takes one second (and it's free!). Don't miss any of our acclaimed content including our analysts' latest ideas and CEO Keith McCullough's 'Real Conversations' interviews with leading market and economic practitioners.

 

CARTOON

 UniBull...

The Best of This Week From Hedgeye - UniBull 11.19.14

"I would love to see a poll on mutual fund PMs having to say "buy or sell" the S&P 500 at 2050 with $500,000 of their own money," Hedgeye CEO Keith McCullough wrote Tuesday.

 

Burn Your Currency. Fall Into Recession. Repeat 

The Best of This Week From Hedgeye - Abenomics 11.17.14

Behold the beauty of Abenomics - a failed #CurrencyBurning central plan that promises more of what doesn't work. In related news, Japan just fell into recession. 

 

CHART

 Sell The S&P 500 | $SPY

The Best of This Week From Hedgeye - COD 11.19.14 spy
 "It’s been a classic year of #divergences in Global Macro risk management (Long Bond TLT +18% vs Russell 2000 flat YTD)," wrote CEO Keith McCullough in Wednesday's Morning Newsletter. "So ending it any other way than putting myself on the front line, willing to be cut to pieces by SP500 (SPY) bulls, is right where I want to be."

 

How Are These #Inflation Expectations?

The Best of This Week From Hedgeye - COD 11.20.14 wti

 

POLL OF THE DAY

Are You Surprised Japan Fell Into Recession?

Japan’s stock market was down -3% Monday morning (after the Yen stopped going down) as Japan “unexpectedly falls into recession” (emphasis added) according to Bloomberg.

 

We wanted to know if you were surprised?

 

 


Please Join Hedgeye for Holiday Cocktails & Appetizers

'Tis the Season…. We hope you can join us at Cellar Bar (40 W. 40th Street – in the Bryant Park Hotel) on Tuesday December 9th from 5-9pm for some holiday cheer!

 

Please RSVP to this email if you can join.

 

We look forward to seeing you!

 

- Hesham

 

Please Join Hedgeye for Holiday Cocktails & Appetizers - z. Hedgeye  Holiday Invite

Please Join Hedgeye for Holiday Cocktails & Appetizers - z. Cellar Bar Map


WHY ARE MACAU METRICS GETTING WORSE?

Takeaway: The important Macau metrics have worsened again recently. It feels like there is a missing variable and estimates need to go a lot lower

Mass was much worse than expected in October. November should not be this bad. What gives?

 

 

Please see our note: http://docs.hedgeye.com/HE_MACAU_METRICS_NOV2014.pdf



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