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Short HAIN Call Today @1PM

Takeaway: We’re holding a conference call today at 1pm EST to update our short thesis on HAIN.

CALL DETAILS

Toll Free Number:

Direct Dial Number:

Conference Code: 727318#

Materials: CLICK HERE

 

Short HAIN Call Today @1PM - 1

 

The call will focus on updated financial performance — which includes slowing trends, compressing margins, and deteriorating returns – since our initial short call. 

 

We’ll also take a detailed look at the UK business, which we believe is merely a conventional food business rather than an organic one – and should be valued as such.  We’ll hit on several other key points throughout the presentation, all of which indicate the company is severely misunderstood and mispriced.

 

Our sum-of-the-parts analysis suggests substantial downside.

 


Short HAIN Call Today @1PM

Takeaway: We’re holding a conference call today at 1pm EST to update our short thesis on HAIN.

Call Details

Toll Free Number:

Direct Dial Number:

Conference Code: 727318#

Materials: CLICK HERE

 

Short HAIN Call Today @1PM - 1

 

The call will focus on updated financial performance — which includes slowing trends, compressing margins, and deteriorating returns – since our initial short call. 

 

We’ll also take a detailed look at the UK business, which we believe is merely a conventional food business rather than an organic one – and should be valued as such.  We’ll hit on several other key points throughout the presentation, all of which indicate the company is severely misunderstood and mispriced.

 

Our sum-of-the-parts analysis suggests substantial downside.


Counter-TREND Moves In Macro

Client Talking Points

EURO

Euro held the low-end of my $1.15-1.19 risk range, bounced, and his holding those gains at $1.16 this morning – anything Up Euro, Down Dollar gets you counter-TREND moves in commodities – how long they hold, we do not know.

COMMODITIES

The context of a counter-TREND bounce is critical – don’t forget that the CRB Index closed at multi-year lows on Tuesday at 219, then bounced +1% to 221 yesterday. Where #deflation gets priced next is highly dependent to the reaction to whatever Mario Draghi does – why doesn’t he just buy Oil futures?

KOSPI

In other global #GrowthSlowing news, Dr. KOSPI (and Copper) continue to signal ongoing slowing – next support for KOSPI is 1880. With Tech earnings weak (XLNX, FFIV, SNDK, etc.) overnight, it’ll be interesting to see how Tech (XLK -1.4% year-to-date) trades relative to the year-to-date laggard Financials (XLF, -5.2% year-to-date), post the AXP miss.

 

 

*SPECIAL ALL-DAY LIVE EVENT JANUARY 27TH


WATCH and INTERACT with CEO Keith McCullough and Hedgeye's analysts as they discuss the stock market, economy and more all in real-time. They will answer your questions live via email, phone, Twitter and chat throughout the entire trading day. 

   

Special appearances by market experts, including best-selling "Currency Wars" author James Rickards, money manager Michael Holland, Jones Trading chief market strategist Michael O'Rourke and many more. CLICK HERE to sign up.

 

Asset Allocation

CASH 57% US EQUITIES 5%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 6%

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

Best S&P Sector YTD? Utilities $XLU +4.2% YTD with growth slowing and bond yields falling

@KeithMcCullough

QUOTE OF THE DAY

Following the light of the sun, we left the Old World.

-Christopher Columbus

STAT OF THE DAY

Toyota Motor Corp. retained its crown as the world’s largest car company by sales in 2014, selling 10.23 million vehicles in 2014 up 3%. 


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Hedging the Storm in Energy

Hedgeye’s Macro and Energy teams hosted a call with Wayne Penello and Andy Furman of Risked Revenue Energy Associates (“R^2”) yesterday (Wednesday, January 21st) on the risks and outlook for hedging practices in the energy space. A replay link along with a summary of the key topics of discussion is included below:

 

Hedging the Storm in Energy

  • An extended period of time with contract settlements in the $90s and $100s per barrel, along with backwardation in the forward curve created an environment where producers resisted hedging production and many were under-hedged at the mid-2014 highs in oil
  • R^2 expects continued strength in the USD and oil prices that will remain low for an extended period of time with a bottom in 2016
  • The most solid and well-liked companies do not have exotic hedge books and do not attempt to “time” their implementation of a hedge program. Rather they consistently hedge with straight-forward, vanilla swaps. Enhanced swaps and 3-way collars leave downside exposure and carry floating risk vs. a swap which carries fixed risk
  • Example with Pioneer (weak strategy) vs. Concho (well-managed):
    • Pioneer entered into enhanced swaps allowing them to swap for a higher price in the future, partially financed by selling a put below the market. They were forced to pay big premiums to buy-back this put sold when prices moved right through it
    • Concho entered into plain vanilla swaps (hedged 87% in 2015 and 69% in 2016) and has significantly outperformed the XOP 
  • Oil collars are economically attractive to producers for the first time in ~3 years from a cap/floor price ratio. The put/call price is normally negatively skewed (put options cost more than an upside call options), but this pricing scenario has now reversed
  • Volatility and credit deterioration are making it more expensive to hedge with counterparties (added premiums for worse credits and increased difficulty for counterparties to delta hedge their exposure)
  • Contango in the curve right now is not generated from lack of liquidity. These back-month contracts are still active, and price discovery is real
  • Small and mid-cap oil companies are hedged for 40% of production in 2015 and 20% of production for 2016 which is a real risk moving forward
  • Well-hedged producers are cutting cap-ex and scaling back growth plans
  • Un-hedged or under-hedged producers with too much debt will have to cut cap-ex, scale back growth plans, and will be forced into asset sales (this will accelerate when borrowing-bases are reassessed)
  • Borrowing-base determinations will reset in April, and this will result in restructurings: asset sales need banks approval because assets are collateral for counterparties
  • With regards to all of the paper leverage in commodity markets i.e. ETFs or leveraged futures commodity funds, some of the support for oil prices over the last week is based on the fact that many passive commodity investors had to re-weight there commodity exposure which caused another +60K long futures contracts last week (60 Million barrels of oil which is significant). The liquidation of these positions is a big risk and could be much worse than 08’. 

Please feel free to reach out to us with additional questions or comments with regards to the content discussed on the call.

 

 

Ben Ryan

Analyst

 


CHART OF THE DAY: We Still Like Housing on the Domestic Macro Front

CHART OF THE DAY: We Still Like Housing on the Domestic Macro Front - Starts Total   SF TTM

*  *  *  *  *  *  *

Editor's note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye U.S. macro analyst Christian Drake.

 

Yesterday’s housing data offered further confirmatory evidence of firming demand and the trend toward improving rate of change as we head into the new year. 

 

  • Purchase Applications:  Purchase demand registered a second week of positive year-over-year growth - the 1st weeks of positive growth since December of 2013 – accelerating to +3.7% in the latest week from +2.6% prior.  Growth is currently tracking +9.2% on a QoQ basis. 
  • Housing Starts:  Total Housing Starts rose +4.4% to 1.089MM units in December with both October and November estimates revised higher. Notably, single-family starts rose +7.2% sequentially to +782K, the highest level since March of 2008.   The Chart of the Day below shows the (improving) TTM trend in Housing Starts. 



Reverse Keynes

“If you die in the short run, there is no long run.”

-Larry Summers, offering a little reverse Keynes in discussing hysteresis & secular stagnation

 

 

If you stick your arms straight up over your head and hold them there, it’s impossible to stay angry.  Seriously, try it.

 

I’m not sure what you do with that nugget of empirically derived kindergarten teacher insight, but it may serve as a nice low-intensity therapeutic post this morning’s central planning event or as you puzzle further over the prospects of secular stagnation. 

 

Most mentions of secular stagnation in the financial press convey some vague notion of protracted ‘sub-trend’ growth due to an amorphous mix of lousy demographics and debt overhang.   

 

Despite the indefiniteness with which the idea is typically delivered, people find it intuitively appealing and seem willing to (at least partially) accept it simply because it plausibly characterizes our current, collective experience. 

 

In his 2014 address to the NABE, Larry Summers – who is credited with re-popularizing the term – presents a commonsensical and analytically tractable contextualization of the dynamics underpinning the secular stagnation thesis.   

 

Notably, Summers argues that the entre into economic purgatory actually began some 15+ years ago and what we had formerly viewed as “normal” growth was largely an unsustainable outcropping of overly expansive policy. 

 

Summers highlights recent expansionary periods across industrialized economies to illustrate the point:

 

  • USA 2002-2007“How satisfactory would the recovery have been with a different policy environment, in the absence of a housing bubble, and with the maintenance of strong credit standards.”
  • USA 1:  “there was very strong economic performance that in retrospect we now know was associated with the substantial stock market bubble of the late 1990s”
  • JAPAN 1:  “it is hard to make the case that over the last 20 years, Japan represents a substantial counterexample to the proposition that industrial countries are having difficulty achieving what we traditionally would have regarded as satisfactory growth with sustainable financial conditions.”
  • EUROPE 1:  “It is now clear that the strong performance of the euro in the first decade of this century was unsustainable and reliant on financial flows to the European periphery that in retrospect appear to have had the character of a bubble”

 

In short, Summers makes the case that the magnitude of growth in recent cycles overstated potential, was footed in a ‘sandy loam’ of loose policy, and would not have been achievable absent the associated increase in financial instability.

 

The fact that secular stagnation sits at the fore of the current macro discussion is simply because its realities become increasingly tangible at the lower bound in rates where policy becomes impotent in cushioning the blow of the financial instability it helped propagate in the first place. I encourage you  to read and consider Summers proposition for yourself >> HERE

 

Meanwhile, Super Mario’s on deck with the latest currency war announcement out of the ECB this morning.  With the alphabet soup of Eurozone stimulus programs to-date largely ineffectual in impacting the real economy, consensus sitting on an expectation for ~€600B in QE, and anything short of “unlimited” likely to be underwhelming, is the recent re-crescendo in interventionism more likely to propagate financial stability or volatility?

Reverse Keynes - Draghi cartoon 01.20.2015

 

…….If Florida is heaven’s waiting room, Frankfurt is fast becoming the central bank triage center for #DeflationsDominoes as the multi-decade policy to inflate reaches its terminal end. 

 

In other, less dismal news – we still like housing on the domestic macro front.   We don’t like it at every time and price and don’t think the industry goes full escape velocity in the intermediate term but we do think the dynamics are such that it goes from 2014 underperformer to 2015 outperformer. 

 

We detailed the thesis on our 12/16/14 Conference Call but understanding why we like housing in 2015 is, perhaps, most easily explained by why we didn’t like it in 2014:

 

  1. Taper + Tighter Credit:  2014 started with a thud as rates peaked into 2013 year-end and the twin terrors of QM (January 10, 2014) and lower FHA loan limits (January 1, 2014) constricted the underwriting box right out of the gate.
  2. Polar Vortex & Major Investor Retreat: Wicked weather capsized early-year demand while the end of the REO-to-Rental trade by private equity firms drove a substantial decline in both total volume and price uplift in select markets like Phoenix, Las Vegas, SoCal and much of Florida.
  3. Decelerating HPI: After rising at 11-12% year-over-year throughout the bulk of 2013, US home prices began to decelerate by March 2014 and continued to decelerate until just recently.

 

Looking forward, 2015 is essentially setting up as the obverse: 

 

  1. Easy Comps: 2014’s collapse is the 2015 comp
  2. HPI stabilization:  Housing related equities follow the slope of home price growth and HPI is stabilizing
  3. Expanding Credit Box:  Lower FHFA down payment requirements, lower FHA premium costs, housing as a 2015 policy focus
  4. Lower Rates:  Rates are nearly a half point lower than the 2014 avereage already.   A 1% reduction in rates equates to ~10% increase in affordability
  5. Labor Market Improvement:  Improvement remains ongoing and is picking up in key housing demand demographics. 

 

Yesterday’s housing data offered further confirmatory evidence of firming demand and the trend toward improving rate of change as we head into the new year. 

 

  • Purchase Applications:  Purchase demand registered a second week of positive year-over-year growth - the 1st weeks of positive growth since December of 2013 – accelerating to +3.7% in the latest week from +2.6% prior.  Growth is currently tracking +9.2% on a QoQ basis. 
  • Housing Starts:  Total Housing Starts rose +4.4% to 1.089MM units in December with both October and November estimates revised higher. Notably, single-family starts rose +7.2% sequentially to +782K, the highest level since March of 2008.   The Chart of the Day below shows the (improving) TTM trend in Housing Starts. 

 

To close, the current challenges faced by policy makers remain acute.  Investors tasked with front-running reactionary policy measures and discounting their prospective impacts and collateral damages remain equally challenged.  Neither condition is particularly amenable to a proverbial raising of the arms type remedy.  

 

“You don’t really know how tall you are until you have your back against the wall”

 

….that’s another axiomatic gem I picked up along my short stint on the kindergarten teaching circuit.  It seems fitting.

 

Our immediate-term Global Macro Risk Ranges are now:

 

SPX 1

VIX 16.66-23.07

EUR/USD 1.15-1.19

WTI Oil 44.96-49.85

Gold 1

Copper 2.48-2.64 

 

To (sustainable) growth,

 

Christian B. Drake

U.S. Macro Analyst

 

Reverse Keynes - Starts Total   SF TTM


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