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The Macro Show Replay | October 7, 2015

 


Big S&P Sector Variance

Client Talking Points

OIL

Both the commodity (WTI) and the stocks (Energy indexes) are signaling immediate-term TRADE overbought this morning post a bad U.S. jobs report and the USD signaling immediate-term oversold. The CRB Index was up +1.9% vs. SPX -0.4% yesterday – apparently the new bull market narrative for consumer stocks (only sector UP year-to-date) is rising gas prices?

ROTATION

It wasn’t just CRB/Oil/Gold vs SPX rotation of chart chasers forced to chase “reflation”, it was what consensus is overweight (Healthcare stocks) vs. underweight in Long Only land (Energy stocks). At one point, intraday, the XOP (Oil & Gas ETF) was +6% and Biotech (IBB) was DOWN -6% (Healthcare, XLV -4%)! #crashy

OVERBOUGHTS

This is where using our risk range model matters most – when bearish TRENDs have counter-TREND rips to the top-end of our immediate-term range. On that score, alongside Oil, XOP, XLE, of the equity majors we’re registering overbought signals in: Nikkei, Hang Seng, KOSPI, DAX, CAC, and FTSE. If you’re still bearish Global Equities, this is where you sell (again).

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

 

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 7%
FIXED INCOME 26% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
GIS

Our Consumer Staples team remains positive on General Mills coming out of the 2Q15 earnings call. We have been LONG GIS for the last six months and continue to have a favorable view of the company due to the following reasons:

  • Sequential improvement in cereal
  • Growth in Natural & Organic categories
  • Snacking
  • Cost cutting initiatives
  • M&A activity
PENN

Many of the regional gaming states will release September revenues next week and as we’ve written about, they should look a lot better than August. Overall same store revenue declined 5% in August (we had predicted –2%) but most of the decline was due to the calendar and a difficult comparison. For September we are projecting an increase of 2% YoY

 

Our Missouri tracker is forecasting September gaming revenues to be up 3.6% YoY. This is a 6% sequential improvement from August's YoY change of -2.5%. Meanwhile, Pennsylvania slot revenues were up 4% in September. Our thesis for a sequential rebound in September remains intact. We like PENN on the long side from these levels.

TLT

It was an important couple of weeks for those who were still wrestling with our lower-for-longer views. The brevity of the macro moves post-report Friday proves just how non-consensus that call remains in a year where the S&P 500 is down -8%. The scary thing with regard to Janet’s credibility is that bad news is now being priced in as bad news. Moreover, we believe this late-cycle weakness is likely to remain ongoing.  

Three for the Road

TWEET OF THE DAY

Now $YUM's CEO & board must DE-RISK the China business by implementing a plan to evolve the business model in a meaningful way..  #asap

@HedgeyeHWP

 

QUOTE OF THE DAY

Erroneous assumptions can be disastrous.

Peter Drucker

STAT OF THE DAY

The average number of coffee drinks consumed is 2.1 per day in the U.S. People in their twenties consume 1.8coffee drinks per day, those in their thirties consume 2.0, those in their forties consume 2.2, those is their fifties consume 2.4 and those in their sixties consumer 2.4 (Zagat).


October 7, 2015

October 7, 2015 - Slide1

 

BULLISH TRENDS

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BEARISH TRENDS

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INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT

In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices are going to burst, and could be in a bear market for years.

 

COMPANIES IMPACTED – TSN, HRL, CAG

 

On Thursday, October 15th at 1:00 pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 

 

The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further

 

JIM ROBB BIO

Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.

 

Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.

 

The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.

 

Call details and materials to be provided next week.

 

Contact for more information. 

 


CORRECTED: INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT

In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices are going to burst, and could be in a bear market for years.

 

HEDGEYE LONG IDEAS - MCD, DFRG, YUM

 

ADDITIONS TO THE HEDGEYE LONG BENCH - RUTH, TXRH

 

OTHER BENEFICIARIES - SHAK, QSR, SONC, JACK, BLMN, HABT, WEN, RRGB 

 

CORRECTED: INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT - CHART 100

 

On Thursday, October 15th at 1:00 pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 

 

The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further

 

Purchasing over $1 billion of red meat, McDonald’s is one of the biggest beneficiaries of the lower beef prices.  We are bullish on the MCD turnaround and now the company will likely be seeing a significant commodity tailwind in 2016-2017.

 

JIM ROBB BIO

Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.

 

Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.

 

The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.

 

Call details and materials to be provided next week.

 

Contact  for more information. 

 


INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT

In short, the economy is slowing; the ag commodity complex prices are crashing; the herd is fat and growing and consumers are consuming less red meat.  Therefore, the current set up for a crash in red meat is nearly perfect:

  1. Because beef is among the most expensive proteins.
  2. The strong dollar is hurting the export market for beef.
  3. U.S. per-capita beef consumption in 2015 will decline to 53.9 pounds per person, the lowest in government data that goes back to 1970. 
  4. Cattle futures are in a free fall and could crash further and stay low for an extended period of time.  As a result, the bubble in red meat prices are going to burst, and could be in a bear market for years.

 

HEDGEYE LONG IDEAS - MCD, DFRG, YUM

 

ADDITIONS TO THE HEDGEYE LONG BENCH - RUTH, TXRH

 

OTHER BENEFICIARIES - SHAK, QSR, SONC, JACK, BLMN, HABT, WEN, RRGB 

 

INVITE | THOUGHT LEADER CALL | THE LOOMING CRASH IN RED MEAT - CHART 100

 

On Thursday, October 15th at 1:00 pm ET we are holding a Thought Leader call discussing the current crash in cattle prices and the long-term implications for the industry.  On the call will be James G. Robb, Senior Agricultural Economist and Director, Livestock Marketing Information Center. 

 

The call will focus on the following:

  1. Historical context to the current cattle market supply and demand dynamics
  2. The free fall in cattle prices
  3. The cattle life cycle and why the largest cattle herd expansion in history is now underway
  4. Why the “fat” inventory of cattle will continue to drive prices lower
  5. The ramifications of falling beef prices across the supply chain
  6. A time table for key industry events that could drive price down further

 

Purchasing over $1 billion of red meat, McDonald’s is one of the biggest beneficiaries of the lower beef prices.  We are bullish on the MCD turnaround and now the company will likely be seeing a significant commodity tailwind in 2016-2017.

 

JIM ROBB BIO

Jim Robb is the Senior Agricultural Economist at the Livestock Marketing Information Center (LMIC) and for 18 years has served as the Director. He has written several hundred articles and newsletters on a variety of agricultural marketing and cattle industry topics. Jim is a regular speaker at conferences throughout North America and has given expert testimony to the US Senate Agriculture Committee.

 

Prior to joining the LMIC, Jim was an Agricultural Economist at the University of Nebraska. He also has worked in the agricultural banking sector. Jim received degrees in Agricultural Economics from the University of California-Davis and from Michigan State University.

 

The LMIC began in 1955 and is a unique cooperative effort that supports market education, research, and outlook. Currently, the Center includes 28 US Land Grant Universities, Utah State University was a founding partner. The Center also includes six USDA agencies, and several associate organizations.

 

Call details and materials to be provided next week.

 

Contact for more information. 

 


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