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MACAU: WAY BACK IN 2013

Takeaway: Stocks are down a lot but still at July 2013 levels – a time when estimates were higher, the outlook brighter and risks greater.

CALL TO ACTION

It’s been a year since we made the first call of our three pronged short call and we remain bearish on Macau stocks. Yes, the sell side has caught up and most analysts are bearish. While the stocks have fallen a lot, they have only reached July 2013 levels. We’ve made the bear case in many ways over the past year but the purpose of this note is to show that there is downside precedent. In July of 2013, 2015 Street EBITDA estimates were much higher than they are now and the short, intermediate, and long term growth forecast was much greater.

 

Please see our detailed note: 

http://docs.hedgeye.com/HE_WAY_BACK_IN_2013_3.11.15.pdf


Keith's Macro Notebook 3/11: Euro | Yields | Sentiment

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


What is the Risk of Oil Storage Capacity Constraints?

Takeaway: If current trends can continue (which would be a stretch for the bull case), we could likely see a problem by June in Cushing, OK.

The domestic production machine goes on for now, but a sequential deceleration in production growth is well underway.

The EIA released its monthly drilling productivity report Monday which showed more of the same. Production levels and efficiency continue to increase as storage capacity dwindles:

  • Rigs continue to come offline at an ACCELERATING rate
  • Production levels are still delta positive on both a m/m and y/y but  DECELERATING
  • Production per rig is also delta positive on a m/m and y/y basis but DECELERATING

What is the Risk of Oil Storage Capacity Constraints? - Rig Table

 

What is the Risk of Oil Storage Capacity Constraints? - Baker Hughes Rig Count Chart

 

In the recent past we have been producing approximately ~1MM B/D in excess of what we’re consuming domestically. And now the question becomes… When will this present a big problem? The case that an infrastructure lag will put a floor in prices is straightforward, but considering we’re only 2/3rds full in aggregate, there is plenty of pain between now and the point in time where the production surplus will be at a critical state.

  • For 9 consecutive weeks the EIA has reported an AGGREGATE crude oil inventory build to new all-time highs
  • For 14 consecutive weeks, the country’s main trading hub in Cushing, OK has reported a positive inventory build

Cushing, OK remains a focal point because of the transportation constraints that excess crude flow could cause if pipelines are forced to be utilized in a storage capacity. Storage capacity at Cushing is also being filled much faster than the country’s storage availability in aggregate as it is a main crossroads for crude flows to the Gulf. 

 

What is the Risk of Oil Storage Capacity Constraints? - DOEvf vs. Cushing Change in Inventory Build

 

Inventories in Cushing remain well short of full capacity, and well short of levels reached as recently as 2013.

 

In January of 2013, Cushing had 51.675MM barrels of Oil in storage and only about 65MM barrels of capacity which translated to:

 

  • January 2013: 80% capacity utilization (Spot WTI moved -12% peak to trough from January to April after capacity utilization peaked)
  • March 2015: 66% capacity utilization (using the methodology outlined below)

Cushing inventories have only recently turned positive on a Y/Y rate-of-change basis and remain below 2013 levels (a point in time where storage capacity was much lower). 

 

What is the Risk of Oil Storage Capacity Constraints? - Cushing Inventoriesvf

 

What is the Risk of Oil Storage Capacity Constraints? - Cushing Capacity Tablevf

 

Should current trends continue, which we peg as unlikely, storage capacity in Cushing may be full by June. The EIA only reports storage capacity data semi-annually (September 30th and March 31st), so we have assumed the average increase in 6-Month storage capacity above since the shale revolution started. 

 

WTI crude oil remains in a BEARISH FORMATION (TRADE, TREND, TAIL) with our intermediate-term TREND duration price deck in a range from $36.38-$58.02. 

 

Please feel free to ping us with comments or questions.

 

What is the Risk of Oil Storage Capacity Constraints? - levels chart

 

Ben Ryan

Analyst

 

 

 

 

 

 

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing

Takeaway: As the Fed pushes the first rate hike back and Greece buys more time, fund flows have become incrementally more aggressive.

This unlocked research note was originally published March 05, 2015 at 09:36 by Hedgeye's Financials sector team led by Josh Steiner and Jonathan Casteleyn. For more information on our services click here.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

With the S&P 500 up over 5.0% in February alone, investors are chasing that performance with above average equity trends. In the most recent five day period ending February 25th, total stock products outpaced total fixed income for the second consecutive week. Stocks (both funds and ETFs) took in +$5.0 billion versus total bond products with a +$3.8 billion weekly take, representing another +$1.2 billion incremental weekly total for equities. Our research shows that this performance chasing phenomenon is most commonly displayed when year-over-year equity averages are positive which pulls along the 6 month moving average for global equity fund flows. Thus as long as equity markets stay positive on a year-over-year comp basis (which stays easy until June), equity flows should remain stubbornly high.  

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI signature

 

Last week's slightly higher appetite for stocks followed three events that decreased risk perception in the market: (1) the Federal Reserve on February 18th releasing its January minutes in which it continued to indicate that it would be patient in raising rates, (2) Eurozone finance ministers on February 20th agreeing on a four-month bailout extension for Greece, and (3) Janet Yellen's February 24-25 testimony in which she emphasized that even once the Fed removes "patience" from its verbiage a rate increase will not be immediate.

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 1

 

In the most recent 5 day period, ending February 25th, total equity mutual funds put up net inflows of +$2.4 billion according to the Investment Company Institute, outpacing the year-to-date weekly average inflow of +$1.7 billion and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$2.4 billion and domestic stock fund contributions of +$72 million.  International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 16 weeks of positive flows over the same time period. We continue to flag caution in shares of Janus Capital (JNS) despite a slightly improved equity category because of the domestic bend to the JNS product suite (with domestic ICI trends still soft) and also that the Bill Gross fund raising and performance trends continue to be lackluster (see our latest research here)

 

Fixed income mutual funds put up inflows of +$2.9 billion, lagging their year-to-date weekly average inflow of +$3.0 billion but outpacing their 2014 average inflow of +$929 million. The inflow was composed of +$1.9 billion of contributions to taxable funds and +$1.0 billion of contributions to tax-free or municipal bond funds.  Munis have had a solid run with subscriptions in 51 of the last 52 weeks.

 

Equity ETFs gained +$2.6 billion in contributions, outpacing the year-to-date weekly average outflow of -$787 million and the 2014 weekly average inflow of +$3.2 billion. Fixed income ETFs took in +$927 million, trailing the year-to-date weekly average inflow of +$2.6 billion and the 2014 weekly average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly quarter-to-date average for 1Q 2015:

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 2

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 3

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 4

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 5

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 6

 

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly quarter-to-date average for 1Q 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 7 2

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 8

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR call-outs, investors used defensive funds such as the utilities XLU and long treasury TLT as sources of funds, withdrawing -3% (-$249 million) and -3% (-$259 million) respectively.

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 9

 

 

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$1.2 billion spread for the week (+$5.0 billion of total equity inflow net of the +$3.8 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been +$1.3 billion (more positive money flow to equities), with a 52 week high of +$27.9 billion (more positive money flow to equities) and a 52 week low of -$15.5 billion (negative numbers imply more positive money flow to bonds for the week). 

  

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 10

 

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

*UNLOCKED RESEARCH* ICI Fund Flow Survey: Performance Chasing - ICI 11 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

 


RTA Live: March 11, 2015

Hedgeye CEO Keith McCullough breaks down the Real-Time Alerts positions as of 10:30AM ET and takes questions from subscribers.

 

 


Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR

Takeaway: TGT cutting 13% of HQ workforce, but wage pressures still remain. FINL pumping the Rbk z-pumps. ChannelAdvisor Comps and SIGMAs.

EVENTS TO WATCH

Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR - 3 9 chart2

 

 

COMPANY HIGHLIGHTS

 

TGT - Target Corp. to lay off 1,700, eliminate 1,400 open jobs in restructuring

(http://www.theglobeandmail.com/report-on-business/international-business/us-business/target-corp-to-lay-off-1700-eliminate-1400-open-jobs-in-restructuring/article23384578/

 

Takeaway: There has already been so much coverage of this announcement, and rightly so. When the 3rd largest retailer in the country cuts 13% of HQ workforce, that's a big deal. If we add in the 1400 open job reqs and the 550 TGT Canada employees who were let go last month, Target actually reduced its fully staffed Steinhafel regime workforce by 24%. On an annualized basis it would equate to $170mm in cost savings at an average salary of $100K. That's about 20bps of margin and gets the company about 10% of the way to it's $2bil cost saving plan. But, this isn't the only labor issue facing Target. By our math, the WMT wage hikes extrapolated to TGT could mean 75bps in margin headwind at the store level.

 

FINL, FL, AdiBok - Finish Line Launches Mall-Exclusive Reebok ZPump Fusion

(http://phx.corporate-ir.net/phoenix.zhtml?c=81647&p=irol-newsArticle&ID=2024219)

 

Takeaway: This press release from FINL and Rbk is so wrong for some many reasons. For starters, why is FINL pumping Reebok's tires? They get exclusive running silhouettes from Nike all the time and don't utter a peep to the street. Could it be that this technology revolutionizes running, maybe…but we are highly skeptical. The most likely explanation is that Reebok helped offset the cost of FINL's ad-cost. Something that Nike has pulled back on over the past 5yrs.

Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR - 3 11 chart1

 

AMZN, EBAY - Positive 2yr trend for Amazon

 

Takeaway: Both companies saw a slight pop in the 2yr run rate in February. For AMZN, we would have expected more given that the company included 3rd party sellers (which this data source tracks) into its free shipping minimum calculation.

Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR - 3 11 chart3

 

VRA, BWS, EXPR - SIGMAs

Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR - 3 11 chart4

Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR - 3 11 chart5

Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR - 3 11 chart6

 

 

OTHER NEWS

 

AAPL - The Ugly Truth: Why the Apple Watch Already Needs A Facelift

http://www.complex.com/style/2015/03/apple-watch-is-ugly?utm_source=Sailthru&utm_medium=email&utm_term=Daily&utm_campaign=Daily%202015-03-10>

Retail Callouts (3/11): TGT, FINL, FL, AdiBok, NKE, AMZN, EBAY, VRA, BWS, EXPR - 3 11 chart7

 

ICSC applauds as Marketplace Fairness Act of 2015 introduced in Congress

(http://www.chainstoreage.com/article/icsc-applauds-marketplace-fairness-act-2015-introduced-congress)

 

RAD - New store puts Rite-Aid back in growth game

(http://www.retailingtoday.com/article/new-store-puts-rite-aid-back-growth-game)

 

HBC - Saks Fifth Avenue selling Disney dream

(http://www.retailingtoday.com/article/saks-fifth-avenue-selling-disney-dream)

 

GOOG - Google enters bricks-and-mortar retail space through Dixons Carphone tie-up

(http://www.retail-week.com/property/google-enters-bricks-and-mortar-retail-space-through-dixons-carphone-tie-up/5072832.article)

 

FIVE - Five Below entering Alabama; to open total of 70 stores in 2015

(http://www.chainstoreage.com/article/five-below-entering-alabama-open-total-70-stores-2015)


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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