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Macro Minute: The 3 Things You Need to Know From Yellen’s Testimony Today

 

Hedgeye CEO Keith McCullough distills the three things that really matter from Fed Chair Janet Yellen’s testimony before Congress today. 


Cartoon of the Day: Moby Deflation

Cartoon of the Day: Moby Deflation - Deflation cartoon 02.24.2015

The deflation data? It's only going to worsen throughout the first half of 2015.


McCullough to Bartiromo on Fox Business: Fed Is Risking ‘Huge’ Policy Mistake

Hedgeye Risk Management Founder & CEO Keith McCullough discusses his latest economic and market outlook with Fox Business anchor Maria Bartiromo, says the Fed has been too high on inflation and employment growth, and cautions policymakers from raising rates right now.


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WTW: Thougts into the Print (4Q14)

Takeaway: We remain short, but somewhat cautious into the print (bearish fundamental outlook vs. potentially more bearish buy-side expectations)

KEY POINTS

  1. 2015 OFF TO A ROUGH START: 1Q sets the tone for the year given WTW’s seasonal attrition patterns, so the company would not be able to recover if its winter selling season disappoints.  Our Google Trackers suggests that is the case, pointing to a notable deceleration in 1Q demand.  Meanwhile, consensus estimates are essentially calling for one of WTW’s strongest on record winter selling season on record.
  2. EXPECTING LIGHT GUIDANCE: Consensus is only looking for -4% decline in 2015 revenues, which would be a marked improvement over its -14% YTD growth in 2014 (despite the deteriorating demand trends mentioned above).  We’re expecting 2015 EPS of $0.71-$1.09 (vs. consensus of $1.43) on low-teens revenue declines, and the greater G&A expense levels that management guided to on its last call.  WTW's 2015 EPS guidance range could come in under $1.00, with negative 1Q15 EPS guidance (the latter hasn't happened in at least 10 years).
  3. BUY-SIDE EXPECTING A DISASTER? WTW is down 26% YTD, and short interest has accelerated to 61% of its float as of 1/30/15.  The bond market has followed suit, with WTW’s largest tranche trading at $0.65 (down 16%  YTD).  A short squeeze is possible on anything short of another disaster release, but we had the same concerns last year on a similar setup into the print.  However, the stock still appears to have a lot of downside from a mulitple perspective (the below charts are based on consensus estimates).
  4. HUMANA HAIL MARRY: Humana just announced today that it will offer its employees access to Weight watchers programs at "no cost for six months, and a significant discount thereafter".  Two things.  First, we don't know how much of a concession WTW is offering to Humana.  Second, the structure of the agreement may not yield all that much to WTW after considering the free six-month period vs. its seasonal attrition issues.  There is good chance that many participating Humana members will churn off the program before they start paying.

 

 

WTW: Thougts into the Print (4Q14) - WTW   1Q15 Google Tracker

WTW: Thougts into the Print (4Q14) - WTW   1Q15 Selling Season

WTW: Thougts into the Print (4Q14) - WTW   NA attrition

 

WTW: Thougts into the Print (4Q14) - WTW   Stock vs. SI

WTW: Thougts into the Print (4Q14) - WTW   NTM P S

WTW: Thougts into the Print (4Q14) - WTW   NTM EBITDA

WTW: Thougts into the Print (4Q14) - WTW   NTM PE

 

 

Let us know if you have questions, or would like to discuss in more detail.

 

Hesham Shaaban, CFA

@HedgeyeInternet

 

Thomas Tobin

@HedgeyeHC 


Collar Up, Rates Down

At the risk of stating the obvious, what looks like (and acts like) a dove … is a dove (even if her collar is up!).

 

Three Fed testimony takeaways:

 

  1. Yellen put an end to the recent Bond Bear fear-mongering of removing the word “patient”
  2. Yellen was incrementally concerned (dovish) about inflation not achieving her “target”
  3. She’s now hostage to the “data”, which includes slowing CPI and GDP reports on Thursday/Friday

 

Then, of course, there’s the jobs report for FEB (reported next week). And I continue to think the 10yr yield is one bad jobs report away from re-testing the JAN 2015 lows.

 

If it’s a good jobs report, bond yields should bounce from wherever CPI and GDP reports take them in the meantime.

 

KM

 

Keith R. McCullough
Chief Executive Officer


McCullough on Gold: Respect the "Force Majeure" of Dollar Up

Before helping celebrate Maria Bartiromo's one year anniversary hosting Opening Bell on Fox Business Network this morning, Hedgeye CEO Keith McCullough dialed in to Hedgeye's Morning Macro Call to provide his daily dose of market insight. 


In today's Q&A session, Keith gives his longer-term thoughts on gold and breaks down the difference between Bayesian and Frequentist probability theories in relation to analyzing labor market data.


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