Hedgeye Senior Macro Analyst Darius Dale discusses how to invest amid a slowing economy and secular stagnation with Fox Business anchor Maria Bartiromo on this morning's "Opening Bell."
WHY GOLF IS BROKEN
While everyone basks in 21-year-old Jordan Spieth’s lights-out victory this weekend at Augusta, let’s keep one thing in perspective about the Golf Industry: We’re seeing a massive bifurcation in participation, and it’s not particularly healthy.
Simply put, a significantly smaller number of golfers are playing a far greater number of rounds. The number of golfers in the United States has declined by 5mm, or 16%, in the past six years. On the flip side, the number of rounds per player is up 12% to 19 rounds per year over that same period.
Two factors explain away 80% of this drop. One is the ’07-’09 recession, which took the marginal golfer out of the game (‘core’ golfers will golf in any economy, weather, zombie apocalypse, or whatever…). Then just as the US emerged from a crippling recession (6/09), Tiger Woods fell from grace (11/09), thereby removing the biggest positive mass-marketing force the game has ever seen.
Fortunately, what we call ‘core’ golfers (plays at least 8 times a year) accounts for about 56% of golfers, and 85% of spending. For the most part, this is a healthy demographic. But someone who plays 20, 30, or even 50 rounds per year almost certainly does not go to a Golf Galaxy or a Dick’s. They likely belong to a Club, and buy gear at the Club’s pro shop.
It’s the ‘non-core’ golfer (less than 8x per year) who uses mass channels, and that group has been decimated – accounting for almost all the decline in players over the past six years. Before the Recession/Tiger Debacle, there were 13.2mm ‘non-core’ golfers. Now there’s closer to 10mm. That’s roughly a 25% decline in a customer base for the mass golf retailers.
Could they come back? Of course. But we’re going to need a lot more than Tiger passing the torch to Rory McIlroy, or UA’s Spieth crushing the field at the Masters.
Hedgeye Director of Research Daryl Jones shares the top three things in CEO Keith McCullough's macro notebook this morning.
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Client Talking Points
There is increased speculation that the Greek government may default. The Greek Prime Minister’s office adamantly denied that it would pursue the strategy of defaulting on its debt. There are however, several leaks to major newspapers that Greek negotiations are not working out and that there is real potential of a default. Greece currently has more than 315 billion in Euro denominated debt outstanding.
The German finance ministry upped their outlook for growth in 2016 to 1.6% from 1.5% in 2015. We are holding an institutional conference call today at 11:00AM ET to detail why we still like Germany equities on the long side. CLICK HERE to watch a short segment in which Hedgeye's Director of Research, Daryl Jones, highlights the key points of our bullish thesis on German stocks ahead of today's call.
China's GDP appears poised to miss expectations and debt is set to accelerate. On the Chinese debt front there are actually two important points to highlight A) margin debt in China, when adjusting for the relative size of the markets, is double that of the NYSE; and B) leverage for Chinese companies is at the highest level since 2004 and debt relative to assets is that the highest level since 2007.
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Top Long Ideas
Manitowoc (MTW) is splitting the business into two companies. While the crane business receives the most attention in part due to its cyclicality and because they are well, more noticeable, Manitowoc’s other business, Foodservice equipment, is the larger of the two in terms of operating income (60% vs. 40% for Cranes). Several indicators are pointing towards upward momentum for MTW’s Foodservice business. Restaurant same store sales have benefitted since the drop in oil prices. Furthermore, an indicator by the National Restaurant Association, RPI Capital Expenditures Index, has surged recently in part due to lower fuel prices driving restaurant traffic and restaurant owners’ outlook.
iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was again strong in the latest week with Pending Home Sales, HPI and Purchase Demand all accelerating to close out March. Pending Home Sales rose +3.1% sequentially in February with signed contract activity up a remarkable +12% YoY, taking the index to a new 19-month high. Mortgage Purchase Applications – the most real-time, high frequency housing demand indicator - rose +5.7% WoW on the back of last week’s +4.9% advance and accelerated to +7.6% on a year-over-year basis. HPI: The Case-Shiller 20-city series showed home prices grew +4.6% year-over-year in January. A stabilization/inflection in home price growth is important as housing related equity performance tracks the slope of home price growth strongly.
It was another week of declining long-term yields getting you paid on the long-side of Low-volatility Long Bonds (TLT). To reiterate our view over the longer-term, we pin a good chance the U.S. Dollar will reach new highs ($120 anyone?) with the probably of long-term Treasury yields reaching all-time lows very much in play.
Three for the Road
QUOTE OF THE DAY
I am a slow walker, but I never walk back.
STAT OF THE DAY
The number of golfers in the U.S. has declined by 5mm, or 16%, in the past six years. On the flip side, the number of rounds per player is up 12% to 19 rounds per year over that same period.
Takeaway: We remain negative on Macau as grind mass could be the next pressure point. Lowering our April forecast
CALL TO ACTION
Another weak week in Macau – reducing April GGR forecast. April on track to represent the 11th straight month of deteriorating sequential gaming volumes, seasonally adjusted.
No change to our negative investment thesis. Street GGR forecasts have come down and are not far from ours (HE estimate at -25% for 2015). However, we fear the Street is underestimating the grind Mass revenue deterioration which will adversely impact margins. Moreover, the Mass reinvestment rate may be ticking up, another pressure point on margins. Consensus EBITDA estimates remain well above Hedgeye.
Please click on the link to see our detailed note:
Editor's Note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye Director of Research Daryl Jones. Click here to learn more/subscribe.
Aside from January 2nd, yesterday had the lowest volume in U.S. equity markets for the year. Was it complacency? The calm before the storm? Or, was it simply a non-event and just a quiet day in the markets?
...Those questions will largely be answered in hindsight for most stock market operators. But in the meantime, keeping our eyes on the minefield ahead is as important as it has ever been in the last five or more years. As the Chart of the Day below shows, volatility can and will pick up dramatically.
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