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EVENT: P Best Idea SHORT call

Takeaway: Join us for our call Thursday, January 15th at 1:00pm EST. Call details will be posted Thursday morning.

We will be hosting a call outlining their Best Idea Short thesis on Pandora Media (P).  P’s user retention issues and waning TAM create a precarious setup into 2015.  Further, its monetization strategy will only make this worse.

    

Join us for our call Thursday, January 15th at 1:00pm EST.

 

 

KEY TOPICS WILL INCLUDE  

  • Users to Decline in 2015: P’s waning TAM isn’t large enough to compensate for its heightened attrition issues.
  • Tug of War: P will need to continue increasing ad load to drive much of its revenue growth, which will exacerbate its attrition issues.
  • Lofty Consensus Revenue: P would require a considerable acceleration in ARPU growth to hit 2015 estimates.  If P falls short in 2015, 2016 would be unattainable.

 

CALL DETAILS

We will be posting call details Thursday mornings.  Ping us or email  for more information.

 

 

 

Hesham Shaaban, CFA

@HedgeyeInternet

 


Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    


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1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.

  • The SUGAR, HEATING OIL, AND SILVER markets experienced the most BULLISH relative positioning changes week-over-week
  • The WHEAT, COTTON, AND ORANGE JUICE markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment

 

2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The RBOB GASOLINE, BRENT CRUDE, AND CORN markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis

 

3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The BRENT CRUDE, NATURAL GAS, AND WTI CRUDE markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1 yr basis

 

4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 open interest

 

Ben Ryan

Analyst


MACAU WEEKLY ANALYSIS (JAN 5-11)

Takeaway: The bottom isn’t in – bad 2nd week of January

CALL TO ACTION

Week #2 in January was a weak one for table revenues in Macau. Feedback from the ground indicates widespread weakness with Union Pay scrutiny adding to the long list of issues. Analysts making the “bottom is in” call last week may want to rethink their thesis. While estimates are finally getting cut ahead of the Q4 earnings season, it may not be enough. The near and intermediate risks continue to mount and the numbers are worsening. 

 

Please see our detailed note:  http://docs.hedgeye.com/HE_Macau_1.12.15.pdf


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Same Global #Deflation Story

Client Talking Points

#QUAD4

In our model, when both growth and inflation are slowing, globally, the Long Bond works and so do Consumer Staples (XLP) and Healthcare (XLV) stocks. With Energy (XLE) down -4% and SPX -0.7% last week, XLV and XLP were +2.3% and +1.6%, respectively – stay with this macro playbook (we like Industrials, XLI, short side too).

EUROPE

After dropping -5% and -6%, respectively last week, Italy and Spain are bouncing +0.5-0.9% this am – whatever Mario Draghi is trying to prove, he’s not proving it to the equity market. Russia leads equity losers again this morning -2.6%; Portugal and Norway -0.5-6% too; does he have enough in the central planning gun for JAN 22?

OIL

Maybe Draghi should just buy Oil and SPX futures (Wall St did last week, with both net LONG futures/options positions at 6 month highs – yes, that’s a contrarian indicator); WTI -2.3% this morning after a -8.4% week – just nasty #Quad4 Deflation.

Asset Allocation

CASH 53% US EQUITIES 7%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.

TLT

As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.

HOLX

Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road

TWEET OF THE DAY

$LULU guides up rev, 6-7% comp on constant $ basis, EPS +$0.06 on low end, $0.04 on the high end, Still one of our top picks #hedgeyebestidea

@HedgeyeRetail

QUOTE OF THE DAY

Who would want to use it anyway?

-President Rutherford B Hayes on the telephone, 1876

STAT OF THE DAY

The UST 10YR Yield was down -16 basis points on the week to -10% already for the year-to-date and Commodities (CRB Index) deflated another -1.2% on the week to start 2015 -1.9% year-to-date.


CHART OF THE DAY: Sector Style Factors: Macro #Alpha

CHART OF THE DAY: Sector Style Factors: Macro #Alpha - 01.12.15 chart

 

*  *  *  *  *  *  *  

This is a brief excerpt from today's Morning Newsletter.


If you’ve evolved your process to Cross-Disciplinary Macro you should be killing it right now. There are major asset classes like Long Duration Sovereign Bonds (think TLT) that are going straight up at the same time that others (like Commodities) are going straight down. 



Cross-Disciplinary Macro

“Disciplinary science has died.”

-Alan Leshner

 

From a risk management perspective, if something embedded in your #process is dead or dying, you better come up with something better to replace it!

 

Since 2001, Alan Leshner has been the Executive Publisher of the journal Science. He was cited in a fantastic #behavioral book I just finished reading called The Medici Effect, where he added that “most major advancements involve multiple disciplines.”

 

George Cowan, from one of the birthplaces of Complexity Theory (the Sante Fe Institute), added that “you need to get scientists to think about things other than their specialty.” (pg 27) This is so obviously true in asset management today. And I think we are so early.

Cross-Disciplinary Macro - 77

 

Back to the Global Macro Grind

 

Since many US institutional investors still focus exclusively on the US Equity market, there is a lot of frustration out there when it comes to relative performance compared to their US stock market index bogeys.

 

While I’m obviously sympathetic to what people are paid to do, that doesn’t mean I have to put my head in my hands and capitulate alongside them. I can only re-explain that broadening one’s horizons beyond what the SPY is doing is going to help them win.

 

If you’ve evolved your process to Cross-Disciplinary Macro you should be killing it right now. There are major asset classes like Long Duration Sovereign Bonds (think TLT) that are going straight up at the same time that others (like Commodities) are going straight down.

 

If you’re a US Equity only investor (and you’ve expressed the aforementioned position in what we call Sector Style Factors), you should be crushing it too. Look at last week’s S&P Sector level returns:

 

  1. Healthcare Stocks (XLV) +2.3% week-over-week to start 2015 +2.7% YTD
  2. Consumer Staples (XLP) +1.6% on the week to start the year +1.3% YTD
  3. Energy Stocks (XLE) down another -4% last week to -3.5% YTD
  4. Industrial Stocks (XLI) -1.9% week-over-week to start 2015 -2.1%
  5. SP500 -0.7% last week to start the year -0.7%

 

In other words, instead of banging you head against the Old Wall trying to short SPY into a global #GrowthSlowing + #Deflation, all you had to do was be short both of those factors and long the 2 S&P Sectors that literally jump off the page in our Macro Playbook on the long side.

 

I can recap why Healthcare (XLV) and Consumer Staples (XLP) outperform in what we call #Quad4, but since I have been writing about this since September, there’s no need to be repetitive. Since October, our net asset allocation to Commodities has been 0%.

 

How about a US equity only “Income Fund”? Here’s the other very basic differential your portfolio should have capitalized on last week:

 

  1. US REIT Stocks (MSCI Index) +3.5% week-over-week to start the year +5.0% YTD
  2. US MLP Stocks (Alerian Index) down another -3.5% on the wk to start 2015 -2.5%

 

Again, when A) global growth is slowing, bond yields are falling… so you buy stocks that look like bonds… but B) you don’t buy the ones that have two-rocks tied together (Oil + Energy Leverage) like these widely owned and overvalued upstream E&P MLP stocks.

 

If you run a diversified macro fund, making lower-volatility (and higher absolute) returns was so easy a Mucker could do it last week:

 

  1. Long Bond Bulls got paid bank with the UST 10yr Yield down -16 basis points on the wk to -10% already for the YTD!
  2. Commodities (CRB Index) deflated another -1.2% on the week to start 2015 -1.9% YTD
  3. Oil (WTI) got slammed another -8.4% week-over-week to -9.4% already for 2015
  4. US and German 5yr Breakevens (#deflation risk proxies) both dropped to 1.18% and -0.19%, respectively
  5. European Stocks (EuroStoxx600) dropped -1.0% week-over-week to start 2015 -1.3%

 

No, there’s nowhere in our playbook that says “buy European stocks on valuation.” And thank god for that as country equity indexes like Italy and Spain dropped -5% and -6% (on the week!), respectively.

 

If you’re a Global Macro hedge fund, you should be slaying the alpha beast right now. Imagine just being Short Euros, European Stocks, Oil, US Energy and Industrials… with the Long Bond and some Healthcare/Staples/REITs action on the long side?

 

Sadly, Consensus Macro funds can’t. Here’s where they were position from an options perspective going into the end of last week (CFTC Non-Commercial futures/options positioning):

 

  1. SPX (Index + Emini) net LONG position got +31,658 LONGER last week to +170,240 (vs the 6mth avg of +14,575)
  2. 10yr Treasury Bond net SHORT position got +17,379 smaller last week to -250,163 (vs the 6mth avg of -72,383)

 

Forget generating alpha, having those levered (options) positions on issued some seriously negative beta. And we’re quite happy you made money on the other side of that, fading the crowd, doing Cross-Disciplinary Macro, Hedgeye-style!

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.88-2.07%

SPX 1

FTSE 6

VIX 15.69-21.89

EUR/USD 1.17-1.19
Oil (WTI) 46.01-50.99

 

Best of luck out there this week,
KM

 

Keith R. McCullough
Chief Executive Officer

 

Cross-Disciplinary Macro - 01.12.15 chart


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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