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Yellen Puffs Dovish Peace Pipe, Bond Yields Fall

The UST 10YR Yield is getting smoked after Fed Chair Janet Yellen takes a toke of the dovish peace pipe, keeping the “patient” word in, and acknowledging what she cannot reverse (#Deflation in all reported inflation metrics). In other words, her acknowledging deflation (without actually calling it that) is what kept "patient" in the vernacular.

Yellen Puffs Dovish Peace Pipe, Bond Yields Fall - Yellen cartoon 08.18.2014

The UST 10YR is at 1.96% this morning and is down -14 basis points lower than just 24 hours ago with slowing CPI and GDP reports (Thursday and Friday) up next.

 

On a related note, the USD evidently did not like the dovishness either, but the selloff here is modest compared to bond yields. The USD is only -0.2% vs. Burning Euros and Yens. That should put a short-term bottom in for Oil, Gold, etc. And that also helps keep the S&P 500 at all-time highs (both rate sensitive and inflation expectation stocks stop going down).

 

For the record, Yellen is as dovish, on the margin, as I thought she could be.

 

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LEISURE LETTER (02/25/2015)

TICKERS: SJM, LVS, IGT, RCL


 

 EVENTS

  • Feb 25: 
    • Prestige analyst day (9:00am-12pm)
    • ISLE F3Q 2015:
  • Feb 26: RHP 4Q CC 10:00am  pw: 73087325

COMPANY NEWS

SJM - Legislative Assembly member Ella Lei Cheng I has asked the government to look again at the gaming tax relief that SJM gets for dredging the harbor. Ms Lei says in a written inquiry that the government should reconsider the arrangement when it gets round to reviewing the gaming concessions. The rate of gaming tax SJM pays is one percentage point less than what the other concessionaires pay.

ARTICLE HERE

 

LVS -  Sands China announced what it describes as an “exclusive partnership” with a major non-gaming resort on neighboring Hengqin Island in mainland China, to offer two-center holiday packages.

 

The arrangement with Hengqin Chimelong International Ocean Resort – a few minutes drive from Sands China’s Cotai Strip properties via the Lotus Bridge immigration checkpoint – is to be marketed by Sands China as the ‘Macao Hengqin Experience Package’.

ARTICLE HERE

 

Ainsworth - The company said revenue gains in the Americas “assisted in increasing the contribution of revenue from international markets which now represent 52 percent of total revenue compared to 33 percent in [the] previous corresponding period”. Revenue in Australia dropped 34% YoY to AUD53.5 million, while that of the international segment went up by 45% to AUD58.4 million. The company grew its installed base of recurring revenue machines in the US by 48% to 2,286.

Takeaway: Ainsworth is making headway in the US slot market.

 

IGT - has been chosen to provide its Advantage 9.2 System Suite with Service Window, in addition to 80 IGT games at the new Three Rivers Casino Coos Bay, slated to open in April 2015 in Coos Bay, Oregon.

  

RCL - Citing foggy conditions that have delayed Brilliance of the Seas' previous cruise and are forecast to continue for the next few days, RCL canceled the Feb. 23 sailing. RCL will provide a full refund of the cruise fare plus a future cruise certificate for 25% of the fare paid for the Feb. 23 voyage.  

Takeaway:  RCL has been busy dealing with ship-specific incidents this year.

 

Viking - Viking Cruises, currently with 60 vessels across Europe, Russia and Asia, plans to begin sailing on the Mississippi in late 2017. Plans call for the construction of six vessels over the next three years at an estimated cost of $90m to $100m per vessel, all to be built in US shipyards and crewed by US citizens. The vessels will be owned by Tennenbaum Capital Partners, a Los Angeles-based alternative investment management firm, and time-chartered to Viking in compliance with maritime laws.

ARTICLE HERE

INDUSTRY NEWS

Arizona - The Tohono O’odham Indians are building a temporary casino as the first phase of their $400 million casino in Glendale, west of Phoenix, the Phoenix Business Journal reported. The temporary casino will have 1,089 slot machines and should be open by the fourth quarter. 

Article HERE

Takeaway: After much controversy, it looks like this property is finally on its way

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.

 


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Results From The Dovish Peace Pipe

Client Talking Points

UST 10YR

The UST 10YR Yield getting smoked after Janet Yellen puffs the dovish peace pipe, keeping the “patient” word in and acknowledging what she cannot reverse (#Deflation in all reported inflation metrics); 1.96% this morning is -14 basis points lower than 24 hours ago with slowing CPI and GDP reports (Thursday and Friday) up next.

USD

The USD evidently did not like the dovishness either, but the selloff here is modest compared to bond yields. The USD is only -0.2% vs. Burning Euros and Yens, so that should put a short-term bottom in for Oil, Gold, etc. … and that helps keep the S&P 500 at all-time highs (both rate sensitive and inflation expectation stocks stop going down).

#HOUSING

#Housing is one of our Top 3 Themes in our Global Macro Themes deck, it hit higher-highs yesterday post the Toll Brothers (TOL) quarter/commentary. The ITB (sector ETF)is up +8.9% year-to-date and remains one of our favorite allocations in U.S. Equities, alongside Healthcare (XLV) and Consumer Discretionary (XLY) which are +5.9% and +5.0% year-to-date, respectively (SPX +2.7%).

Asset Allocation

CASH 40% US EQUITIES 9%
INTL EQUITIES 8% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
EDV

#Housing is one of our Top 3 Themes in our Global Macro Themes deck, it hit higher-highs yesterday post the Toll Brothers (TOL) quarter/commentary. The ITB (sector ETF)is up +8.9% year-to-date and remains one of our favorite allocations in U.S. Equities, alongside Healthcare (XLV) and Consumer Discretionary (XLY) which are +5.9% and +5.0% year-to-date, respectively (SPX +2.7%).

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

HOLX

Hologic (HOLX), at this stage in their product cycle and in the current stage of the economic cycle, has some very impactful tailwinds emerging to their revenue growth and the implied growth in the future. A stock generally will perform really well when doubt about future growth turns to optimism while the most recent data confirms the optimism. So far, we have a little bit of both; recent positive data like the December 2014 quarter upside and consensus estimates and ratings starting to move off of multi-year lows. A less-worse trend in Pap testing and rising patient volume can combine to get us close to flat for HOX’s Cytology (Pap) business. As the growth in Cytology improves and is less of a drag, the 3D Mammography growth can flow through. We think the outlook is bright, and with a few more data points, we think a lot more investors will agree with us.

Three for the Road

TWEET OF THE DAY

@KeithMcCullough and I will be streaming the @Hedgeye Morning Macro Call LIVE this morning at 8:30am ET: https://app.hedgeye.com/insights/42542-hedgeye-morning-macro-call-live-with-keith-mccullough

@HedgeyeDDale

QUOTE OF THE DAY

The lion does not turn around when a small dog barks.

-African Proverb

STAT OF THE DAY

Purchase Applications are up +4.6% week-over-week and +9.8% year-over-year, this is the fastest rate of growth since June 2013. Tracking +2.8% year-over-year, +7% quarter-over-quarter.


February 25, 2015

CLICK HERE for a free look at Hedgeye's Morning Macro Call for institutional subscribers. Post your questions for Keith and hear him answer live on the air.

 

February 25, 2015 - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

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CHART OF THE DAY: Getting the Market Right: Sector Outperformance YTD

CHART OF THE DAY: Getting the Market Right: Sector Outperformance YTD - 02.25.15 chart

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This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for more information on how you can subscribe.

 

But, for those of us who like to buy both stocks and bonds (I wouldn’t have an Independent Research business if I marketed one asset class over another, sorry), we want to be buying the parts of the US stock market that will go up the most.

 

We call these Sector Style Exposures. In Equities, the 2015 outperformance of the following sectors remains obvious:

 

  1. US Housing Stocks (ITB) were +2.5% yesterday to +8.8% YTD
  2. Healthcare Stocks (XLV) were -0.1% yesterday to +5.9% YTD
  3. Consumer Discretionary (XLY) stocks were +0.5% yesterday to +5.0% YTD

 


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