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The Macro Show Replay | August 25, 2015

 


And The Bounce…

Client Talking Points

USD

A massive move in cross-asset class volatility (one of the biggest in macro history) now has the USD in the position of bearish TRADE, bullish TREND – with EUR/USD risk range now = $1.12-1.16, will ECB President Mario Draghi be the news @JacksonHole and devalue again? BOJ guys don’t have it in their central planning playbook to let Yen run away from them from here either.

GOLD

Gold is correcting this morning (alongside Treasuries) on the Global Equity bounce and maybe that’s sniffing out a Draghi move too – we’ll see, but we’re in wait and watch mode here on buying Gold as we would rather buy it at the low-end of my 1,131-1,168 range on a European or Japanese FX War move.

VIX

One of the most epic moves in U.S. Equity volatility, ever – and ever, given the 2008 and 2011 moves we risk managed through, is a long time - this is an absolute Phase Transition that will ultimately have to answer to growth expectations – risk range on VIX is now 29.03-47.13!

Asset Allocation

CASH 73% US EQUITIES 2%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 25% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

One of the ways that McDonald's is going to take market share back is through one of the most popular items on its menu—the Egg McMuffin. "I honestly believe that if there is a silver bullet, it’s all day breakfast for McDonald’s," says Restaurants Sector Head Howard Penney. "And I do believe they’re going down that road and they will do it."

 

Penney adds that we’ll probably know more about that at the November analyst meeting and what the breakfast potential will be. There’s obviously a lot of things that go around MCD doing breakfast (e.g. shrinking other parts of the menu, etc).

PENN

"We continue to like Penn National Gaming here due to stable regional gaming trends, better than expected quarterly and annual earnings, and the Plainridge and Jamul contribution to PENN’s two-year growth story," writes Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan. 

TLT

It was a very good week for those sitting behind the long-bond coming out of the FOMC minutes release on Wednesday. During a tumultuous 5-day stretch in which the S&P 500 fell over -5%, subscribers who followed our recommendation on TLT were sheltered from the market storm and gained almost +2%. Moreover, during the past month, TLT has gained +5.7% versus a -6.8% loss for the S&P 500 (a 1,200 basis point difference). In other words, it has paid handsomely to buck the consensus tide.

Three for the Road

TWEET OF THE DAY

FLASHBACK: 2.75% or 1.75%?  https://app.hedgeye.com/insights/45978-flashback-2-75-or-1-75 … via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Keep your eyes on the stars and your feet on the ground.

Franklin D. Roosevelt

STAT OF THE DAY

The average age of German citizens is 46, the average age is second only to Japan’s. One in 20 Germans is over 80 and by 2050 it will be one in six, according to UN data.


TWTR: The Crossroads (User Survey: n=7,500)

Takeaway: TWTR is risking long-term damage to its business model by trying to appease the street. Mgmt needs to shift gears before it’s too late.

KEY POINTS

  1. THE PROBLEM: Monetization is coming at the expense of user growth and retention.  TWTR runs a CPC ad model, meaning the user must engage with TWTR’s ads in order to generate revenue.  In order for TWTR to drive the level of revenue growth the street is expecting, it must continually introduce more and more ad load, which has historically pushed its more casual users away.  In short, TWTR has been chasing good prints at the cost of potential life-time users.  Longer-term, TWTR’s business model will be hampered by its cumulative churn, leading to a smaller user base to distribute ad load on to, hence lower potential revenues down the road.
  2. THE DATA: We have seen this dynamic playing out throughout TWTR’s reported history, with US MAUs and Ad Engagements (proxy for ad load) moving in opposite directions (see note below).  We also ran a survey attempting to segment TWTR’s users by engagement levels (n=7,500).  What we’ve found is almost 40% of respondents with a twitter account are no longer using the platform.  Of those that do remain, roughly half do not use the platform daily, suggesting they are more casual users, hence more likely to churn off.  The good news is that there is still room for user growth (estimated 38% US penetration), but not enough to support a model with elevated churn.
  3. THE CROSSROADS: TWTR needs to decide what matters more: appeasing near-term street expectations, or building a sustainable business model.  The latter means that TWTR needs to prioritize the user; both attracting new users and reclaiming the ones that it has lost.  We’re not sure exactly the best way go about doing that, but what we can say is TWTR can’t win the user while simultaneously chasing lofty consensus revenue expectations with rampant increases in ad load.  Mgmt's approach to 2016 guidance will essentially tell us where its priorities lie; i.e. whether TWTR is a secular short or something we can potentially get behind.  For now, we remain short.  

 

TWTR: Are Acquisitions Enough?
03/17/15 08:50 AM EDT
[click here]

  

TWTR: The Crossroads  (User Survey: n=7,500) - TWTR   Ad eng vs. MAU 2Q15

TWTR: The Crossroads  (User Survey: n=7,500) - TWTR   User Survey Churn 3Q15

 

 

Let us know If you have any questions or would like to discuss in more detail.

 

Hesham Shaaban, CFA

@HedgeyeInternet

 


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August 25, 2015

August 25, 2015 - Slide1

 

BULLISH TRENDS

August 25, 2015 - Slide2

 

BEARISH TRENDS

August 25, 2015 - Slide3

August 25, 2015 - Slide4

August 25, 2015 - Slide5

August 25, 2015 - Slide6

August 25, 2015 - Slide7

August 25, 2015 - Slide8

August 25, 2015 - Slide9

August 25, 2015 - Slide10


Cartoon of the Day: One Banged Up Bull...

Cartoon of the Day: One Banged Up Bull... - global growth.sick bull cartoon 08.24.2015

 

Baseball Hall of Famer Dizzy Dean famously said, "It ain't braggin' if you done it." It's in this spirit which we showcase the fact that Hedgeye's macro team led by CEO Keith McCullough has been proactively heralding the huge risk and related market implications of growth slowing around the globe. It was this reality which has played the lead role in the recent market carnage.

 

It has been a contrarian call all along. Our team of analysts made it.

 


Volatility Asymmetry (We’re In Uncharted Territory for Most Risk Managers)

 

Hedgeye CEO Keith McCullough answers a subscriber’s question on market volatility in this brief excerpt from The Macro Show earlier this morning.

 

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

 

Subscribe to Hedgeye on YouTube for all of our free video content.

 


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