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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 and CEO Keith McCullough’s updated levels for each.

 

*We also feature a special market commentary from Hedgeye managing director Moshe Silver.

 

Our team is grateful for your continued business and trust and wish you and yours a Happy Thanksgiving weekend!

Investing Ideas Newsletter      - InvestingIdeas11.28 

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

CARTOON OF THE WEEK

Investing Ideas Newsletter      - Dollar cartoon 11.25.2014

Sure... when you compare the Dollar to its peers in this global #CurrencyBurning gong show, the greenback looks pretty good.

IDEAS UPDATES

TLT | EDV | XLP | MUB

 

Slow-Growth, Yield-Chasing Update: More of the Same 

 

In last week’s Investing Ideas update, we highlighted how trends across the preponderance of domestic high-frequency economic indicators were supportive of our view that both growth and inflation are slowing.

 

Along those lines, the preponderance of this week’s economic data was more of the same in that regard (i.e. slowing at the margins). Here are those key releases (in order of release date/time):

 

  • Chicago Fed National Activity Index: 0.14 in OCT, down from 0.29 in SEP, which was revised down from an initial reading of 0.47
  • Markit Services PMI: 56.3 in NOV, down from 57.1 in OCT
  • Markit Composite PMI: 56.1 in NOV, down from 57.2 in OCT
  • Real GDP: revised up +10bps to +2.4% YoY in 3Q , which was still down from +2.6% YoY in 2Q
  • Case-Shiller Home Price Index: +4.9% YoY in SEP, down from +5.6% YoY in AUG
  • FHFA House Price Index: +4.2% YoY, down from +4.8% YoY in AUG
  • Conference Board Consumer Confidence Index: 88.7 in NOV, down from a downwardly-revised 94.1 in OCT
  • MBA Mortgage Purchase Applications: -4.3% WoW, down from +4.9% WoW in the prior week
  • Initial Jobless Claims: +313k WoW, up from an upwardly revised +292k WoW in the prior week; on a 4-week rolling NSA basis, the YoY rate of improvement (which implies the 1st derivative is negative) decelerated for the 5th consecutive week to -12.7%
  • Core Durable Goods (ex-Defense & ex-Aircraft): +5.8% YoY in OCT, down from 6.8% YoY in SEP
  • Core Capital Goods (ex-Defense & ex-Aircraft): +8.2% YoY in OCT, up slightly from +8.1% YoY in SEP
  • Real PCE: +2.2% YoY in OCT, down slightly from +2.3% YoY in SEP
  • University of Michigan Consumer Confidence: 88.8 in NOV, down from a preliminary NOV reading of 89.4
  • Pending Home Sales: +2.2% YoY in OCT, down from an upwardly revised +3.4% YoY in SEP
  • New Home Sales: +1.8% YoY in OCT, down from +14% YoY in SEP

 

Got #GrowthSlowing?

 

We know why most investors like surveys such as the [regional] Philly Fed Business Outlook or, worse, an “independent” research provider’s proprietary (READ: fabricated) assessment – they’re almost always bullish and they don’t require any work to interpret (i.e. no rate-of-change calculus, trend amalgamation, etc.)!

 

From our perspective, however, being lazy about the economic cycle at the all-time highs in the stock market seems like a risky proposition. We don’t get paid to be lazy and neither do you.

 

But, again, what the heck do we know? We’re just the guys that told you to Sell ‘Em in early-2008 and early-2011 too.

 

All told, long-term Treasury bond yields should continue to fall. And as rates fall, we want you to remain long of the long bond and defensive large-cap equities that resemble the long bond.

HCA

We spoke to HCA earlier this week and came away feeling good with our long position.  We noted with interest a new slide in their recent presentation at CSFB (see below).   We’re happy to see HCA using “macro” to talk to their buisness trends.  Better still, the company said they were getting good interest from the buyside, which is more than we get. 

 

Investing Ideas Newsletter      - HCA macro

 

We did notice that some of the items included on HCA’s macro slide are not particularly helpful in understanding the short or intermediate term modeling, and others are interrelated.  HCA’s list may be helpful thinking longer term, but for the short term, our new huckleberry is the Job Openings and Labor Turnover Survey (JOLTS) for healthcare openings (chart below).  We’ll include the series when we publish our Hospital Monitor next week with the Labor report.

 

Investing Ideas Newsletter      - jolts vs HCA 

Bottom line? After speaking to HCA, our takeaway is that 1.5% volume and 3.5% price (still) doesn’t feel like a stretch. If true, HCA shares can and should move higher from here.

RH

Hedgeye retail sector head Brian McGough has no update on Restoration Hardware this week.


* * * * * * * * * * 

Black Friday Special


The markets are clearly in the hands of the Bulls.  The Bullish / Bearish sentiment indicator continues to track at all-time bullish levels – leading us to wonder who will buy their stock when they all turn bearish – and markets are fully cooperating with the spirit of the season.  It’s All-Time Highs, all the time!

 

Here are a few key metrics:

 

Employment: Market boosters are pounding gleefully away at the comparative strength in the employment numbers, which remain the best in many years.  While remaining well below levels in recent years, seasonally-adjusted unemployment claims rose this week, making it three weeks in a row of erosion.  And non-seasonally-adjusted claims numbers continue to improve, but the 4-week rolling average has slowed for the fifth straight week, and the rate of improvement has slowed to revert to its underlying trend.  Simple math indicates that phenomena almost always Revert to the Mean; experience teaches that what goes up will almost certainly come down.  Today the rate of improvement is no longer improving.  Tomorrow, that rate will likely dip below the mean.  That’s what “mean” means (note to Janet Yellen.)

 

Also note that unemployment figures are being compared to relatively higher than average levels.  Yes, they are lower than they were last year, but this is an easy comparison.  Meanwhile the marginal slowing of the rate of improvement indicates that the car of the US economy is slowly running out of gas.

 

Unemployment is a lagging indicator; by the time unemployment figures reach alarming levels, the damage in the economy has already been done.  Hedgeye looks at the rate of change in the current comparisons, and that rate of change is slipping.  Positive, but less positive than it has been. 

 

Income & Spending: Hedgeye Macro analyst Christian Drake calls it “the great vanishing income growth of October 2014.”  Estimates for personal income were revised for the April-to-September period with total disposable personal income shaved by some $200+ billion (SAAR) vs. prior estimates.

 

Alongside a meaningful downward revision to the savings rate in recent months, a net effect of the revision was a complete shift in the trajectory of salary and wage growth.

 

Whereas, prior to revision, the slope of aggregate private sector wage growth in 2Q/3Q was one of acceleration, after the revision, it shifts to one of flat-to-modest deceleration.

 

The Bureau of Economic Analysis releases these figures on a two-month lag, still longer after the CPI is calculated.  But the Fed treats consumer income and spending as a coincident indicator, meaning they make policy based on the assumption that this represents current reality.  In case you haven’t noticed, a lot can change in the economy in two months.

 

A second month of soft Durable and Capital Goods spending in October is signaling an inauspicious start for domestic consumerism in 4Q and is heralding a likely moderation in consumer credit growth as well. Positive, but decelerating, income growth, goods consumption and credit growth  is not an escape-velocity factor cocktail. Hedgeye’s focus is this deceleration at the margin.  A negative change in the rate of change.  

 

Reliance on simple comparisons, whether in data points or in current rates of change, perpetuates a bullish narrative.  But under the hood, the trend is in clear risk of going away.

 

A bubble is a self-contained pocket of air.  A market bubble is a self-perpetuating pocket of high prices with no solid foundation.  Look no further than the weakness in volume on up days in the averages for lack of conviction behind these record highs.

 

Markets can’t defy gravity forever.  In time, erosion in the rates of change of key indicators will turn into actual changes in key data points. Then they’ll get it and the market gurus will be calling out negative reads in key indicators.

 

Position yourself early.  You never know how many shopping days are left until the next major correction.

 

It’s awful to have to say We Told You So.  It’s worse to have to say that we knew, and we didn’t tell you.

 

Happy Thanksgiving.

 


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 correls11 28 2014 3 37 38 PM

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 1st of December through the 5th 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.

 

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The Week Ahead - 11.28.14 Week Ahead


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Cartoon of the Day: It's Getting Smokey

Cartoon of the Day: It's Getting Smokey - Bearish cartoon 11.26.2014

Central bankers are torching their countries' currencies around the globe.


LEISURE LETTER (11/28/2014)

Tickers:  BYD, MGM, H, HLT

EVENTS

  • Dec 1:  8:30 am  IKGH Q3 earnings
  • Dec 2: 11 am ISLE Q2 2015 earnings
  • Dec 8: 10:30 MTN Q1 2015 earnings
  • Dec 12: Trump Taj Mahal Closing
  • Dec 17:  Upstate NY casino decision

COMPANY NEWS

BYD, MGM – will redesign Borgata buffet, renovate its spa and more as part of $13 million in renovations. Additional renovations will be made to the casino floor, front desk, suites and its back-of-the-house talent areas, said casino President and Chief Operating Officer Tom Balance.

Article HERE

Takeaway: The $13m is likely part of the $25m capex guidance for Borgata’s FY 2014.

 

Crown Racing and Gaming Minister Terry Waldron told State Parliament that the tax Crown pays on VIP gaming profits will be cut from 11% to 8%.  In return, Crown will guarantee it will pay at least $45.25 million to the State Government over the next five years - well above the $37.4 million it paid over the past five years. Crown believes the lower rate of 8%, which, with the Burswood Park Board levy of 1%, brings the rate to 9%, will allow it to match the incentives offered by casinos in Macau, Singapore and Las Vegas.

Article HERE

Takeaway: Crown will give out more incentives to attract China mainland VIPs in the coming days.

 

H – filed a mixed securities shelf of indeterminate size

Article HERE

 

MSC Cruises - is offering agents full commission on cruise and flight packages as part of its turn of year sales campaign. The line is also offering savings of £600 per cabin as part of the promotion, which runs from December 1 until March 5 next year. The campaign entitled “The Sale” is focused on promoting MSC’s fly-cruise programme and is valid on selected Mediterranean summer sailings in 2015 and winter 2015-16 destinations.

Article HERE

Takeaway: MSC has been aggressive with agent promotions lately, even in Europe.  

 

HLT Insider Transactions:

Executive Vice President and Chief Financial Officer, Kevin Jacobs sold 26,000 shares (non-options related) over two days, November 24 and 25 in two 13,000 tranches at an average price of $27.80 and $25.95, via scheduled 10b5-1 plan and now owns 681,123 shares.

 

Executive Vice President and President, Development, Architecture and Construction, Carter Ian Russell sold 200,000 shares (non-options related) at $26/share on November 25 via scheduled 10b5-1 plan and now owns 1,632,224 shares.

 

Executive Vice President, Hilton Worldwide and President, Hilton Grand Vacations, Mark Wang sold 25,000 shares (non-options related) at $26/share on November 25 via scheduled 10b5-1 plan and now owns 700,433 shares.

Takeaway: Regular scheduled insider selling at Hilton begins.  

INDUSTRY NEWS

Macau package tourists– The number of package tourists visiting Macau rose to 1.12 million last month in October, +56% YoY. The Statistics and Census Service says the number of package tourists from the mainland rose by 75% to 919,000. More came from Taiwan and South Korea but fewer from Hong Kong. Some 863,000 people stayed in the city’s hotels and guesthouses last month, 4% more than a year earlier. Each stayed, on average, 1.4 nights.

Article HERE

Takeaway:  These are usually lower-income tourists who do not make a dent in GGR - partially explains the growing disconnect between visitation (strong) and Mass revenue growth (weak to negative).

 

China Lottery Sales Increase 20% in October – Lottery sales in mainland China increased 20.3% YoY to RMB32.7 billion (US$5.3 billion) in October.  Welfare lottery sales in October reached RMB17.7 billion, up by 14.5% YoY. Sports lottery sales increased by 27.9% YoY to RMB15 billion

Article HERE

Takeaway: Chinese lottery sales growth have been strong.

 

Ho Tram to Offer VIP Phone Proxy Betting – The Grand Ho Tram casino resort in Vietnam is to start offering – to high-roller gamblers – live telephone betting on some of its tables from next month. 

Article HERE

Takeaway: Vietnam and the Philippines both offering viable alternatives for the shutting of phone proxy betting by Sands China and Wynn Macau.

 

China Corruption Crackdown – A top official at iconic Chinese state-owned liquor maker Moutai has been snared in the country’s ongoing anti-corruption campaign. Kweichow Moutai Group deputy general manager Fang Guoxing is under investigation for serious violations of discipline, the ruling Communist Party’s Central Committee for Discipline Inspection said.

Article HERE

 

Officials in north China's Shanxi Province have been expelled from the Communist Party of China and dismissed from public office, Zhang Xiuping, former deputy secretary of the CPC Jinzhong City Committee, because she took advantage of her post to seek profits for others in exchange for a large amount of money and property, and committed adultery, said a statement. Another official Wang Min, former head of the discipline authority in Yangquan City, took advantage of his post to seek profits for others, and accepted a huge amount of money and property. Another two officials expelled from CPC and dismissed from public posts were Yang Xiaobo, former mayor of Gaoping, a county-level city, and Qin Jianxiao, former secretary of the CPC Zezhou County Committee of Jincheng City, according to the statement.

Article HERE

Takeaway: Given the "hide out" story we featured on Wednesday, there appears to be no slowdown in the corruption crackdown by Mainland Chinese officials.

 

China SAR System & Taiwan Implications – Taiwanese vote this weekend in local elections that are being watched by China for signs the ruling party it prefers to deal with is losing its political grip.

Article HERE

 

Resell Your Nonrefundable Hotel Reservation on Roomer – Canceling your vacation at the last minute can be painful — mostly because of the money you lose on your nonrefundable accommodations. But Roomer, a three-year old startup, has created a marketplace where travelers can buy and sell these hotel reservations, and today it announced that it has raised $5 million in new funding. As described on Roomer’s website, booking a room through the service is just the same as booking through any other travel service, and it usually costs less. To sell your non-refundable reservation, simply submit a listing to the site and wait for someone to purchase it. When a buyer does so, Roomer contacts the hotel to transfer the booking to their name and then sends you the money through PayPal, Western Union, or wire transfer. Roomer takes a 15% cut of each transaction.

Article HERE

Takeaway: We wonder how hotels will crackdown on the reselling of rooms, especially since identification is required at time of check-in.  It sounds interesting but we are skeptical of Roomer's business plan.

MACRO

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 2014 earnings release, we recently turned negative on those stocks based on the negative European thesis. 

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


Keith's Macro Notebook 11/28: Oil | Russia | UST 10YR

Hedgeye CEO Keith McCullough discusses the top three things in his macro notebook this morning.

 


investing ideas

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Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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