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September 15, 2015

September 15, 2015 - Slide1

 

BULLISH TRENDS

September 15, 2015 - Slide2

September 15, 2015 - Slide3

September 15, 2015 - Slide4

 

 

BEARISH TRENDS

September 15, 2015 - Slide5

September 15, 2015 - Slide6

September 15, 2015 - Slide7

September 15, 2015 - Slide8

September 15, 2015 - Slide9

September 15, 2015 - Slide10

September 15, 2015 - Slide11


Our Latest Thoughts On C-H-I-N-A

The hyperlinked presentation below contains a detailed update to our cyclical and secular Growth/Inflation/Policy outlook for on the Chinese economy. The key conclusions are as follows:

 

  • Section One – Correction or Collapse? (slides 4-32): China’s secular growth outlook is likely more dour than the average “China bear” is willing to admit, which implies the recent margin-fueled melt-up in Chinese equities was little more than a bubble that is likely to continue popping amid reduced state-backed intervention. Conversely, the secular outlook for capital markets reform in China is supportive of expectations for much higher share prices over the intermediate-to-long term. These conflicting forces have been anything but a fair fight given how much what is left the “Beijing Put” has proven to be impotent of late.
  • Section Two – Asset Class “Re-Rotation” Risk (slides 33-61): Our analysis continues to pick up on a positive inflection in the Chinese property market. To the extent this nascent recovery is sustained, we expect two things to occur: 1) mainland Chinese investors are likely to continue to flow capital back into real estate in lieu of stocks, at the margins; and 2) Chinese economic growth is likely to show stabilization for at least 1-2 quarters. The former is an obvious headwind to the Chinese equity market(s) and the latter is key risk in terms of reduced expectations for fiscal and monetary stimulus.
  • Section Three – RMB Internationalization Impact (slides 62-72): Ahead of next year’s [likely] rebalancing, Chinese policymakers have lobbied strongly in favor of the yuan to be included in the IMF’s Special Drawing Rights (SDR) basket. Regardless of any success with this initiative, we believe Chinese policymakers are serious regarding their pledge(s) to accelerate capital account reform. We believe an incrementally deregulated Chinese capital account has the potential to be a lasting positive influence upon both the Chinese and global economy – IF spillover risks are curtailed via effective safeguards. The extent to which Chinese authorities are willing to defend the CNY from bearish speculators remains to be seen.
  • Associated Investment Implications: Over the long term, we think H-Shares represent an active opportunity on the long side but do not view the current juncture as an appropriate time to buy given the elevated spillover risk resulting from a continued and necessary meltdown in the A-Shares. Longer term, however, we think both markets are poised to trade materially higher amid the confluence of key capital markets and capital account reforms. Meanwhile, China’s secular growth outlook should continue to impart deflationary pressure upon commodity prices and the nominal exchange rates of commodity-producing nations. Please note that we do not currently have any active investment ideas in/around China, having closed all positions on 8/21 (CLICK HERE for more details).

 

CLICK HERE to download the associated PDF.

 

Please feel free to engage us with questions, comments or concerns.

 

Have a wonderful evening,

 

DD

 

Darius Dale

Director


Cartoon of the Day: Poison?

Cartoon of the Day: Poison? - rate hike poison cartoon 09 14.2015

 

Hedgeye CEO Keith McCullough in today's Early Look:

 

...And while the “dots” on a rate hike continue to be pushed out (anyone remember they were “supposed to hike” in June?), Mr. Macro Market’s most immediate-term message to the Federal Reserve (Fed Fund Futures < 30% probability of a SEP hike) is don’t do it (again).

 

What if they do? You know, “just to get off of zero because it’s time”, or something like that...

 


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BABA: Stumbling into the Party (Barron's)

Takeaway: We spoke with Barron's at length on our bearish BABA thesis back in April. Thankfully, we weren't mentioned when it twisted our analysis.

Editor's note: This brief research note below was written earlier today by our Internet & Media analyst Hesham Shaaban. If you're an institutional investor interested in learning more about how you can subscribe to his research please email to sales@hedgeye.com.

BABA: Stumbling into the Party (Barron's) - Alibaba cartoon 01.29.2015

KEY POINTS

  1. ARRIVING LATE TO THE PARTY: There isn't much that we all didn't already know.  GMV growth has slowed precipitously, the subsidiary structure is complicated, counterfeit goods are a concern, China macro is headwind, and so on and so forth.  But Barron's bear case is not so much on the above factors, but rather the implication that BABA is making up its reported metrics.  Its basis is largely driven off a quote from another BABA analyst, and a rather weak comparison of BABA's reported metrics to China demographic data.
  2. AFTER ONE TOO MANY: Barron's first takes issue with the fact that BABA's active buyers are roughly the same size as the Chinese e-commerce population reported by CNNIC (Dec 2014).  Remember that BABA has +80% market share, so this shouldn't be a surprise to any of us.  Second, Barron's twisted the demographic analysis we shared with them: that BABA's average consumer spends well in excess of what the average Chinese consumer could afford.  That doesn't mean that BABA is fudging the numbers as the article implies, it just means that China's Elite and/or Group Buying is driving BABA's GMV.  We explained this to the author, he chose to omit it.

 

Note that we have covered our short position in BABA, but we have included a set of notes below that covers the major themes behind our bearish thesis.  Let us know if you have any questions, or would like to discuss in more detail.  

 

Hesham Shaaban, CFA
203-562-6500
hshaaban@hedgeye.com
@HedgeyeInternet 

 

 

BABA: What the Street is Missing
11/26/14 08:03 AM EST
[click here]

 

BABA: Model Facing Secular Pressure
12/04/14 09:17 AM EST
[click here]

 

BABA: The Mobile Debate
03/04/15 10:34 AM EST
[click here]

 

BABA: Solid Pushback → Same Conclusion
03/31/15 08:12 AM EDT
[click here]


BABA: Stumbling into the Party (Barron's)

Takeaway: We spoke with Barron's at length on our bearish BABA thesis back in April. Thankfully, we weren't mentioned when it twisted our analysis.

KEY POINTS

  1. ARRIVING LATE TO THE PARTY: There isn't much that we all didn't already know.  GMV growth has slowed precipitously, the subsidiary structure is complicated, counterfeit goods are a concern, China macro is headwind, and so on and so forth.  But Barron's bear case is not so much on the above factors, but rather the implication that BABA is making up its reported metrics.  Its basis is largely driven off a quote from another BABA analyst, and a rather weak comparison of BABA's reported metrics to China demographic data.
  2. AFTER ONE TOO MANY: Barron's first takes issue with the fact that BABA's active buyers are roughly the same size as the Chinese e-commerce population reported by CNNIC (Dec 2014).  Remember that BABA has +80% market share, so this shouldn't be a surprise to any of us.  Second, Barron's twisted the demographic analysis we shared with them: that BABA's average consumer spends well in excess of what the average Chinese consumer could afford.  That doesn't mean that BABA is fudging the numbers as the article implies, it just means that China's Elite and/or Group Buying is driving BABA's GMV.  We explained this to the author, he chose to omit it.

 

Note that we have covered our short position in BABA, but we have included a set of notes below that covers the major themes behind our bearish thesis.  Let us know if you have any questions, or would like to discuss in more detail.  

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

 

BABA: What the Street is Missing
11/26/14 08:03 AM EST
[click here]

 

BABA: Model Facing Secular Pressure
12/04/14 09:17 AM EST
[click here]

 

BABA: The Mobile Debate
03/04/15 10:34 AM EST
[click here]

 

BABA: Solid Pushback → Same Conclusion
03/31/15 08:12 AM EDT
[click here]


What’s Moving Oil Prices? Supply And Demand or The Dollar?

 

In response to a subscriber’s question on The Macro Show this morning, Hedgeye CEO Keith McCullough explains his thinking and process on the move in oil prices.

 

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.

 


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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