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Is Chanos Right On China Being One of the Greatest Short-Selling Opportunities In History?

 

After Jim Chanos' remark that there is still more pain to come in China and a tidy 7.0% GDP print, Hedgeye Director of Research Daryl Jones weighs the pros and cons of being short Chinese equity markets on The Macro Show.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

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Purchase Apps | Holiday Noise

Takeaway: Q3 Housing data is off to an ambiguous start thanks to Holiday volatility. We'll have a better sense for how things are trending next week.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

Purchase Apps | Holiday Noise - Compendium 071515

 

Today’s Focus:  MBA Mortgage Applications

Data volatility is notoriously prevalent around holidays and seasonal adjustments are notoriously poor at fully resolving the peri-holiday choppiness in activity.  Superficially, the last two weeks of Purchase Application data appear to support that notoriety. 

 

After rising +6.6% in the week ending July 3rd, Purchase Demand in the latest week declined -7.5%.   We’re inclined to simply call it a wash and wait for next weeks data before attempting to discern any underlying shift in demand to start 3Q. 

 

The Data:  Purchase activity declined -7.5% in the latest week, taking the index back below the 200-level to 196.4.  From a rate-of-change perspective, however, the data was more sanguine as growth actually accelerated +10bps sequentially to +17.0% YoY.  Refinance activity, meanwhile, rose +3.7% with rates on the 30Y FRM contract steady for a second week at 4.23%.   Rates remain -2.3% lower than the corresponding period last year with the current rate of 4.23% comparing to the full year average of 4.35% and the 1H15 average of 3.97%. 

 

In short, the high-frequency Purchase Demand data remains good on an absolute basis and very good on a rate of change basis but the holiday convolutes a clean reading of the trend to start 3Q.  Hurry Up and wait.  

 

 

Purchase Apps | Holiday Noise - Purchase   Refi YoY  

 

Purchase Apps | Holiday Noise - Purchase Applications LT 

 

Purchase Apps | Holiday Noise - Purchase 2013v14v15 

 

Purchase Apps | Holiday Noise - Purchase Index   YoY Qtrly 

 

Purchase Apps | Holiday Noise - Purchase YoY  

 

Purchase Apps | Holiday Noise - 30Y FRM 

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


Yes, Growth Is Slowing

Takeaway: Compares throughout the rest of the summer, and fall, AND holiday, don't get any better.

Editor's Note: The excerpt below is from a research note written yesterday by our Retail Sector Head Brian McGough. If you'd like to learn more about how Hedgeye can help you click here.

*  *  *  *  *

Yes, Growth Is Slowing - z snail

Retail Sales Slowing

 

Expectations were definitely out of whack headed into this Retail Sales print given the big headline miss.

 

Two things:

 

  1. The level of sales growth relative to last year is absolutely positively decelerating. In January we saw 5.4% growth, and we've steadily decelerated to 1.9% in the following five months. 
  2. We're scratching our heads as to why this is a big 'surprise'. Commentary from large and small retailers alike have supported a decelerating growth rate. In addition, while the 2-year run rate in the real discretionary categories is below what we witnessed in 2H14 (4%) it is consistent with what we've seen over the past 3-months. 

The bottom line? Yes, growth is slowing. Yes, we expected it. Compares throughout the rest of the summer, and fall, AND holiday, don't get any better.

 

Yes, Growth Is Slowing - z mcgough retail


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

INVITE (HOLX) | BEST IDEA UPDATE CALL... ROOM TO RUN, EVEN FROM "UP HERE"

Takeaway: We're hosting an update call Wendesday July 22. The path to $50... and higher.

INVITE (HOLX) | BEST IDEA UPDATE CALL... ROOM TO RUN, EVEN FROM "UP HERE" - 2015 07 15 Breast Health Accelerates

HOLX UPDATE CALL wednesday july 22

On Wednesday July 22 we are hosting a conference call and live studio event for institutional subscribers to review our outlook for HOLX.  We first added HOLX to the Hedgeye Best Idea List as a long in April 2014 when the stock was in the low $20s.  Since then, our original thesis has played out, with the stock doubling as we predicted, and many of the fundamental and sentiment drivers maturing on schedule.   We will review the path into the $50s on our call next week ahead of HOLX earnings report July 29.

 

CLICK HERE FOR ORIGINAL BEST IDEA NOTE

 

CLICK HERE FOR ORGINAL BEST IDEA PRESENTATION 

ROOM TO RUN, EVEN FROM HERE

The sensitivity table below makes use of our s-curve forecast model that is based on MQSA and our monthly count of 3D facilities published in the Tomo Tracker.  As we've published recently, consensus Breast Health revenue numbers are low compared to our model.  However, despite the large gap between our estimate and consensus, we view our estimates as conservative.  

 

As the table shows, if we accelerate the pace of adoption by even very small increments, the impact to revenue, EPS and valuation is substantial.

INVITE (HOLX) | BEST IDEA UPDATE CALL... ROOM TO RUN, EVEN FROM "UP HERE" - holx sensistivity

3d Tomo tracker 

Below are the monthly 3D Tomo Tracker update charts through June.   Our data on the facility counts with a 3D Tomo system allow us to update and forecast 3D adoption.  Our s-curve model currently has a variance of 0.13%  between predicted penetration and actual facility adoption between September 2012 and June 2015.  As seen in the revenue build table below, we believe Breast Health will drive substantial upside in the coming quarters beginning F3Q15 (Jun).

INVITE (HOLX) | BEST IDEA UPDATE CALL... ROOM TO RUN, EVEN FROM "UP HERE" - HOLX s curve June15

INVITE (HOLX) | BEST IDEA UPDATE CALL... ROOM TO RUN, EVEN FROM "UP HERE" - HOLX 3D monthly June15

INVITE (HOLX) | BEST IDEA UPDATE CALL... ROOM TO RUN, EVEN FROM "UP HERE" - holx sensistivity

 

Please call or email with questions.

 

Thomas Tobin
Managing Director 

@HedgeyeHC

 

Andrew Freedman

Analyst

@HedgeyeHIT 

 


Retail Callouts (7/15): Back-To-School, BBY, GES

Takeaway: NRF early reads on BTS markedly pessimistic as compares get tougher and wage pressure builds. Marciano out as CEO, but turning over control?

NRF Expects Dip in B-t-s Spending

(http://wwd.com/retail-news/trends-analysis/nrf-back-to-school-forecast-dip-10185381/)

 

For starters we don't trust the NRF forecasts farther than we throw them, but this is a markedly pessimistic view of the BTS shopping season from the Retail's most powerful lobbying organization. The -5.8% (slightly negative on a 2yr basis) drop in spending per household isn't quite as bad as the -7.8% estimate in 2013, but that came after a 14% rip in 2012. Across retail compares get markedly tougher starting in 2Q and extending throughout the rest of the year. That's also the same time we should start to see the sprouts of wage pressures due to the 800 pound gorilla's (WMT) decision to raise the minimum wage in its stores to $9.00. We haven't seen the real pressures from wages start to hit retail P&Ls because seasonal hiring hasn't really started yet. That changes in a few weeks.

Retail Callouts (7/15): Back-To-School, BBY, GES - 7 15 chart1

Source: NRF

 

BBY - While You Were Sleeping, Best Buy Was Selling $200 Gift Cards for $15

(http://time.com/3958414/best-buy-gift-cards/)

 

Oops...

This quote says it all.

“I am an employee of Best Buy, and we are very good at honoring our mistakes, however, mistakes this public with 1000s of people ordering something super discounted by mistake will most likely get canceled,” one Redditor wrote. “In the mean time, I went ahead and ordered 2, but chances are, we’re all getting a refund.”

 

GES - Paul Marciano Announces His Successor As Guess?, Inc. CEO

(http://investors.guess.com/phoenix.zhtml?c=92506&p=irol-newsArticle&ID=2067762)

 

Arguably the best thing that could happen to GES is the Marciano Brothers both go away. But we're really not seeing that happen. Paul Marciano announced his successor as CEO, but will remain Chief Creative Officer AND takes the title of Chairman from his big bro. In other words, he's not going anywhere.  Maurice will remain a director, and has been named Chairman Emeritus. In other words, he's not going anywhere. Anyone who knows the Marciano brothers also knows that as long as they are around, they're running the company -- regardless of a shift in CEO titles.

 

 

OTHER NEWS

 

LZB - La-Z-Boy Adjusts to More Than Recliners

(http://www.wsj.com/articles/la-z-boy-adjusts-to-more-than-recliners-1436917459)

 

LUX - Fabio d’Angelantonio Exits Luxottica

(http://wwd.com/business-news/human-resources/fabio-dangelantonio-exits-luxottica-10184864/)

 

APP - Standard General Sues Dov Charney for Breach of Contract

(http://wwd.com/business-news/legal/standard-general-sues-dov-charney-for-breach-of-contract-10186087/

 

QVC to open first West Coast distribution center

(http://www.retailingtoday.com/article/qvc-open-first-west-coast-distribution-center)


No-Volume-Equity-Markets-Lower-Highs

Client Talking Points

CHINA

So they nailed another perfect 7.0 for said GDP in Q2 (same made-up # in Q1, not 6.87, or 7.11 – 7.0%) but the locals didn’t believe that, selling the Shanghai Composite Casino down for a -3% day (-4.2% in the last 2 days and -24.8% in the last month). 

OIL

Big up day for big Energy beta yesterday (Dollar was down), but don’t confuse a TRADE with a TREND - #StrongDollar holds all lines of support and WTI fades right at the top-end of our $49.79-53.61 risk range.

U.S.

Ugly U.S. Retail Sales report (must have been the sun – always gets ya after the snow) and UST 10yr Yield did what you’d expect on that, falling back to 2.39% this morning as consensus continues to bet Janet isn’t really data dependent (we think she actually is).

 

**The Macro Show - CLICK HERE to watch a replay of today's edition.

Asset Allocation

CASH 53% US EQUITIES 3%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 9%

Top Long Ideas

Company Ticker Sector Duration
GIS

General Mills remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. GIS has a lot of things going for it and they are going to show it in the top and bottom line this year. Over the last couple of months, the company has announced the removal of artificial colors and flavors from their cereals. More recently, they have committed to using only cage-free eggs.  Many of these small actions that management is taking are going to have a snowball effect as they go throughout FY16. Below is a list of some of the biggest things that we are looking forward to this year:

Yoplait in China

  1. Gluten-Free Cheerios
  2. No artificial colors or flavors in the cereal
  3. Granola innovation / Muesli
  4. Greek Plenti / Whips
  5. Original yogurt sugar reduction
  6. Renovation on Grain Snacks
  7. Strong push on Natural & Organic products
  8. Delivering Value to consumer on brands like Totino’s and Hamburger Helper
  9. Bringing U.S. innovation International
PENN

Gaming, Lodging and Leisure Sector Head Todd Jordan reiterates his team's bullish high-conviction thesis on Penn National Gaming. The company remains one of our favorite names on the long side and boasts the best new unit growth story in domestic gaming. Jordan further notes that with more states releasing their June gaming revenues this past week, we feel more confident in our higher than consensus Revenue, EBITDA, and EPS estimates.

TLT

Long-term Treasury rates remain the best proxy for forward-looking growth expectations. We outline three components of secular stagnation below to explain the SAVINGS/INVESTMENT GLUT that is at the heart of the academic argument for current policy measures:

  1. Negative demographic trends globally (decline in population growth and aging population)
  2. Reduced capital intensity in leading industries (think of the capital and labor required to start Facebook over U.S. Steel)

Falling relative prices of capital goods  

Three for the Road

TWEET OF THE DAY

The Fed had been wrong on US growth "expectations" for 4 years in a row

@KeithMcCullough

 

 

QUOTE OF THE DAY

I am easily satisfied with the very best.

Winston Churchill

 

STAT OF THE DAY

A record 62% of Japanese households labeled their livelihood as hard in 2014.


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 80.28%
  • SHORT SIGNALS 78.51%
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