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Guest Speaker Call: OUTLOOK FOR NATURAL GAS PRICES AND BASIS

Guest Speaker Call: OUTLOOK FOR NATURAL GAS PRICES AND BASIS - Marketing Image

 

Tomorrow (Wednesday, February 18th at 11:00 a.m. EST) Hedgeye’s Macro and Energy teams will host a guest speaker call on US natural gas fundamentals with Keith Barnett, Head of Fundamental Analysis at Asset Risk Management (ARM), which is an independent producer services company that provides solutions for more than ninety clients through financial hedging advisory, physical marketing, and midstream solutions.

 

Topics for Discussion:

  • Rapid growth in US production driven primarily by emergence of Marcellus / Utica shale play has created basis price dislocations as infrastructure and demand re-calibrate to new supply / demand regional balances…
  • Demand growth along the US Gulf Coast [industrial, LNG exports, and pipe exports to Mexico] create a “battle zone” for basis differentials to re-balance in 2016-2020, with the Haynesville waiting in the wings…
  • British Columbia / Northern Alberta shale plays will look for a home, especially if BC LNG exports continue to be delayed and lower crude prices dampen oil sands (gas demand) development…
  • Lower crude prices will affect the supply side through reduced liquid-oriented gas, and the demand side by impacting petchem plant development, global LNG price arb, and Mexico project development…
  • And more…

Dial-In Instructions*:

US Toll Free:

US Toll:

Conference number: 39017544

 

*A visual presentation will be available an hour prior to the call.

 

About Keith Barnett……Keith Barnett is Senior Vice President and Head of Fundamental Analysis at Asset Risk Management.  He has over 30 years of experience in the energy industry with leading companies like Chevron, Columbia Gas Transmission, American Electric Power, and Merrill Lynch Commodities. Keith held engineering, managerial and executive positions with those companies in the areas of production, drilling, offshore platform design, natural gas marketing, fuel procurement, trading and structuring analytics, corporate strategy and fundamental analysis of energy markets. He had significant participation in two National Petroleum Council studies; including leading the power demand team in the 2003 natural gas study and serving on the steering and report-writing committees. Keith was also the Natural Gas Task Force lead for the Edison Electric Institute for several years. He has testified before the Federal Energy Regulatory Commission and the Senate Sub-committee on Energy on natural gas and power matters. He is a frequent speaker on natural gas, power, and global energy markets. 

 

Prior to joining Asset Risk Management, Keith served as Director of Strategic Analysis for Merrill Lynch Commodities where he led the effort to create an integrated global point of view for energy commodities that could serve short term trading and longer-term investment horizons. He also worked most recently with Spring Rock Production, which is producing a state of the art natural gas and oil production forecast for the USA and Canada.  Keith has an engineering degree from Texas A&M University.

 

About Asset Risk Management……Headquartered in Houston (with offices in Chicago, Denver and Pittsburgh), Asset Risk Management (ARM) has been helping oil and gas producers make better hedging decisions since 2004. ARM represents more than 85 public and private companies and interacts with all major energy commodity counterparties. ARM’s value is realized not only in the development and implementation of dynamic strategies, but in the ongoing optimization of those strategies as warranted by market volatility, execution efficiencies, reporting and continual monitoring of technical and fundamental factors in the market with the client's best interests and specific objectives in mind.  Learn more: http://asset-risk.com/.

 


Retail Callouts (2/17): FL, NKE, UA, AdiBok, GIL, Ports

Takeaway: Our online traffic tracking shows the divergence continues between Athletic Footwear Brands and FL in January.

EVENTS TO WATCH

Retail Callouts (2/17): FL, NKE, UA, AdiBok, GIL, Ports - 2 17 chart2

 

 

COMPANY HIGHLIGHTS

 

NKE, UA, AdiBok, FL - Foot Locker vs Brands Online Traffic Divergence Continues

 

Takeaway: We've hit on this a lot lately, but based on the numbers we just pulled down it's worth rehashing.

 

1.       Brick and Mortar athletic footwear sales might never be up again. The way the math works, we'd need to see sales growth in excess of 6% across the industry in the US for us to see Brick and Mortar growth. The way our model works - we have online accounting for more than 100% of the growth over the next 6 years.
Retail Callouts (2/17): FL, NKE, UA, AdiBok, GIL, Ports - 2 17 chart3 B
2.       We think that growth accrues to the brands instead of the retailers. We've seen the verbiage at NKE change meaningfully over the past few quarters relating to e-comm. One of the big drivers of that is the margin opportunity. A direct sale for Nike comes in 20 percentage points higher than a typical wholesale transaction and the EBIT dollars are about 4x.
Retail Callouts (2/17): FL, NKE, UA, AdiBok, GIL, Ports - 2 17 chart4
3.       One of the biggest points of pushback we get as it relates to the shifting dynamics in the marketplace is, when? Our answer is right now. Over the past two quarters we've seen Nike's online business accelerate to +70% and +66% respectively. That marks the first time where Nike online sales growth has outpaced its wholesale partners.
4.       And it's not just Nike. We track the visitation statistics for about 250 retailers across 4 different providers. We stacked the brands (Nike, UA, and AdiBok) up against Foot Locker. This is the indexed trend in visitation by month. We saw a meaningful divergence in April of 2014 and that's continued to accelerate into January.
Retail Callouts (2/17): FL, NKE, UA, AdiBok, GIL, Ports - 2 17 chart1

 

 

OTHER NEWS

 

GIL - Gildan Activewear Announces Resignation of New CFO

(http://www1.gildan.com/corporate/downloads/Press%20Release_New%20CFO%20Resignation_EN_FINAL.pdf)
 

West Coast ports dispute drags on; labor secretary to intervene

(http://www.reuters.com/article/2015/02/16/us-usa-ports-west-idUSKBN0LK1XF20150216)

 

Obama makes strong appeal for public-private cooperation for cybersecurity

(http://www.chainstoreage.com/article/obama-makes-strong-appeal-public-private-cooperation-cybersecurity)

 


European Banking Monitor: Greece On An Island?

Takeaway: Greek banks are poised to default and no one seems to care.

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 

 

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Key Takeaway:

The main event remains Greece, where Greek bank swaps widened by 450-692 bps on the week and now stand at 1,416-2,274 bps. In other words, a high probability of Grexit has been priced in. Interestingly, unlike 2011, Europe doesn't really seem to care. The rest of Europe showed very little movement from sovereign to bank swaps and Euribor-OIS was essentially flat. The market seems to be saying that with EU GDP trending positively (+0.3% in 4Q14) and the ECB embarking on QE, Greece's fate just isn't that impactful for broader Europe

 

European Financial CDS - There's the rest of Europe, and then there's Greece. Greek banks continue to be priced for default as their swaps widened by 450-692 bps w/w and now higher by 966-1,581 bps m/m. Elsewhere in Europe, however, there was relatively little change as the median bank posted a 1 bps tightening w/w and is now 5 bps tighter m/m. Sberbank of Russia finally showed some signs of life, tightening by 47 bps  w/w to 672 bps on the news of the Russian cease-fire. 

 

European Banking Monitor: Greece On An Island? - chart1 euro financials CDS

 

Sovereign CDS – Despite modest growth in Eurozone GDP (+0.3% vs +0.2%  Q/Q), sovereign swaps mostly widened over last week. Italian sovereign swaps widened by 17.5% (19 bps to 128) and Spanish sovereign swaps widened by 10.8% (+10 bps to 104).  

 

European Banking Monitor: Greece On An Island? - chart2 sovereign cds

 

European Banking Monitor: Greece On An Island? - chart3 sovereign CDS

 

European Banking Monitor: Greece On An Island? - chart4 sovereign CDS

 

Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 10 bps.

 

European Banking Monitor: Greece On An Island? - chart5 euribor OIS Spread

 

 

Matthew Hedrick 

Associate

 

Ben Ryan

Analyst

 

 

 


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Keith's Macro Notebook 2/17: Europe | Oil | UST 10YR

 

Hedgeye Macro Analyst Ben Ryan shares the top three things in Keith's macro notebook this morning.


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 COTTON, WHEAT, and, COCOA markets experienced the most BULLISH relative positioning changes week-over-week
  • The SOYBEANS, ORANGE JUICE, and SUGAR markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment

 

Commodities Weekly Sentiment Tracker - chart1A

 

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

  • The RBOB GASOLINE, LEAN HOGS, and COFFEE markets are positioned for HIGHER PRICES near-term
  • The LIVE CATTLE, HEATING OIL, and ORANGE JUICE markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis

 

 

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

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

Commodities Weekly Sentiment Tracker - chart3 spot 1yr 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


HOT: EXECUTIVE UPDATE CALL

CONF CALL

  • $8-10m charge as a result of CEO transition and fulfillment of Fritz's agreement. 
  • No disagreements in corporate strategy. The change is on execution.
  • Confident 2015 expectations will be met
  • Will sell $3bn assets by 2016
  • Accelerate pipeline/footprint growth and will manage balance sheet
  • Affirm 1Q and 2015 FY EBITDA guidance and  $300-$350m share repurchase and $250m in quarterly dividends in 2015.

Q & A

  • Decision was made over the weekend
  • Formed a search committee. No timeline set.
  • #1 goal:  drive top-line growth 
  • Did you explore other strategic alternatives for the company? 
    • Want to deliver value to shareholders
  • Could do better:  Net rooms growth for 2015; 2015 EBITDA targets put out
  • Not as strong in mid-priced point segment.  Aloft/Four Points are a step in that direction but their competitors have a much bigger presence.
  • Time share spinoff nothing to do with this development
  • Aron:  Will keep outside directorship at NCLH
  • Will evaluate possible HQ move to India in the next few days

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