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Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

10/16/15 PEP | EXPANDING INTO SNACKS AND BREAKFAST?

10/16/15 REPLAY | THOUGHT LEADER CALL | LOOMING CRASH IN BEEF

10/01/15 CAG | IN THE BEGINNING

9/28/15 CAG | GOING LONG

 

SECTOR PERFORMANCE

Food and organic stocks that we follow were in-line with the XLP last week. The XLP was up +0.3% last week, the top performers on a relative basis from our list were Mead Johnson Nutrition (MJN) and Kraft Heinz Company (KHC) posting increases of +3.9% and +3.7%, respectively. The worst performing company on a relative basis on our list was Lifeway (LWAY), which was down -6.3%.

Monday Mashup - CHART 2

 

XLP VERSUS THE MARKET

The XLP has fared better than most other sectors in the YTD time period but struggled last week versus the market. In the last five trading days, while the SPX was up +0.9%, the XLP was up just +0.3%.

Monday Mashup - CHART 3

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is BULLISH on a TRADE and TREND duration.

Monday Mashup - CHART 4

 

Food and Organic Companies

Monday Mashup - CHART 5

Monday Mashup - CHART 6

Monday Mashup - CHART 7

 

Keith’s Three Morning Bullets

So far, no good = 58/500 S&P names have reported = Revs -2.7%, EPS -7.9% - bull market, in storytelling (and Long-Term Bonds):

 

  1. USD – down for the 3rd straight week (post that terrible US jobs report) gave the SPX short squeeze what it needed (up, on decelerating volume, to lower-highs) but USD appears to be stabilizing this morning = Oil (-1.1%), Gold (-0.4%), and the “reflation” trade no likey
  2. NIKKEI – Japanese stocks no likey Down Dollar = Up Yen either; after closing -0.8% last week, Japan didn’t believe the China “news” and sold off -0.9% into the close, taking Nikkei -12% in the last 3 months (with USD -3.2% in the last 3 months)
  3. CHINA – look on the bright side of their storytelling, they didn’t stick a 7.0 this time and made-up “6.9%” GDP instead. Lol. Even the locals (who are paid to think a certain way) didn’t buy Chinese stocks on that – Shanghai Comp closes -0.14%

 

SPX immediate-term risk range = 1; UST 10yr 1.98-2.07%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


Firefly Co-Founder on Fox Business: Firefly Is ‘Uber For Space’

Firefly Co-Founder and CEO Tom Markusic discusses the company’s new partnership with NASA to build the next-generation of space rockets and getting small satellites to space to feed the world’s increasing appetite for information .

 

“[This] has profound social and economic implications,” Markusic told host Maria Bartiromo. “Right now, upwards of 70% of the world doesn’t even have access to the Internet.”


The Most Important Thing I Learned In California Last Week

 

“It’s ongoing performance anxiety, or as I like to call it HPAD (Hedgie Performance Anxiety Disorder) that really was apparent from San Francisco to Los Angeles,” explained Hedgeye CEO Keith McCullough in response to a subscriber’s question on The Macro Show this morning on the most important thing he learned in meetings with investors last week.


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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.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY

Takeaway: It was a quiet week outside of earnings, but the risk/reward remains skewed negatively.

 

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - Soft spot of data cartoon 10.16.2015 normal

 

 

Key Takeaway:

Last week was a relatively quiet one on the global macro risk front. That said, the intermediate term setup remains tilted toward the negative with a 3 to 1 ratio of red to green. Bigger picture, the overarching reality is that the environment is decidedly late cycle, and more and more data points are emerging in support of that conclusion.

 

Current Ideas: 


MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Positive / 1 of 12 improved / 0 out of 12 worsened / 11 of 12 unchanged
• Intermediate-term(WoW): Negative / 2 of 12 improved / 6 out of 12 worsened / 4 of 12 unchanged
• Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM15

1. U.S. Financial CDS – Movement in swaps was mild last week with the median change at -1 bps. Swaps tightened for 15 out of 27 domestic financial institutions. 

Tightened the most WoW: TRV, ALL, MMC
Widened the most WoW: GNW, RDN, MBI
Tightened the most WoW: ALL, CB, ACE
Widened the most MoM: GNW, LNC, C

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM1 2

 

2. European Financial CDS – Swaps mostly tightened in Europe last week although change was mild with a median -1 bps change. CDS for Portuguese Banco Espirito Santo, however, widened by +168 bps to 679, as the country's political negotiations between leftist parties and the ruling center-right coalition remain deadlocked. The widening is interesting because it conflicts with the movement on sovereign Portuguese CDS. The key takeaway for Portugal is that the situation translates to volatility.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM2

 

3. Asian Financial CDS – The median change was zero in Asian financials CDS last week. However, Mizuho & Sumitomo financial swaps widened by +16-17 bps.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM17

 

4. Sovereign CDS – Sovereign swaps were mixed last week with mostly minor movement. However, Portuguese sovereign swaps tightened significantly, by -25 bps to 146, as the market interpreted the political situation in the country as a net positive; last week, leftist parties in Portugal signaled their willingness to work with the ruling center-right coalition on the formation of a government, although negotiations remain deadlocked. 

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM18

 

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM3

 

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps mostly tightened last week. Russian swaps tightened the most, by -31 bps to 289. Brazilian sovereign swaps, however, widened by +30 bps to 441 as Fitch downgraded the country's sovereign credit rating to one notch above junk.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM16

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM20

6. High Yield (YTM) Monitor – High Yield rates rose 3 bps last week, ending the week at 7.54% versus 7.51% the prior week.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 2.0 points last week, ending at 1846.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM6

8. TED Spread Monitor – The TED spread was unchanged last week at 31 bps.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM7

9. CRB Commodity Price Index – The CRB index fell -0.1%, ending the week at 199 versus 200 the prior week. As compared with the prior month, commodity prices have increased 2.7%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 10 bps.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index fell 1 basis point last week, ending the week at 1.90% versus last week’s print of 1.91%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM10

12. Chinese Steel – Steel prices in China fell 0.9% last week, or 19 yuan/ton, to 2157 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM12

13. 2-10 Spread – Last week the 2-10 spread tightened to 142 bps, -3 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM13

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.7% upside to TRADE resistance and 3.4% downside to TRADE support.

MONDAY MORNING RISK MONITOR | INTERMEDIATE ASYMMETRY - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


Retail Callouts (10/19): Retail Idea List, UPS Raising Rates, DLTR, PIR

Takeaway: Idea List Changes - DLTR, PIR. UPS raising shipping rates again -- And retail margin expectations are STILL too high.

Hedgeye Retail Idea List

Retail Callouts (10/19): Retail Idea List, UPS Raising Rates, DLTR, PIR - 10 19 2015 chart1 B

 

This Week's Changes

DLTR: Graduated to the top spot on our Long Bench. Seemingly not the kind of name we'd like at this point of the economic cycle. But we think there's an asymmetric setup here in the wake of the Family Dollar acquisition that works even in a slowing economy.  Stay tuned for more on this as our vetting continues.

 

PIR: We turned the TRADE indicator from negative to positive -- now positive on all three durations.  We had been concerned heading into the latest quarter, but think that expectations for the next quarter and FY are very much in check.

 

UPS raising shipping rates again -- And retail margin expectations are STILL too high.

(http://www.wsj.com/articles/ups-targets-discount-sharing-with-new-fee-on-retailers-1445035798)

 

There is a lot going on with UPS and Fed Ex pricing with fuel surcharges (going into effect in Nov), ground rate hikes (December), and 3rd party fulfillment surcharges -- the squeeze is on for retailers as free shipping thresholds come down to $0. Both UPS, FedEx, and even USPS have been vocal about the dilutive impact from growing e-commerce sales which are more expensive to fulfill because of neighborhood deliveries. But unlike retailers who we think will more and more use free shipping (and returns) as an offensive weapon to try to hold onto market share, the shipping duopoly has the clout to pass on increasing costs to its retail partners.

 

If this were a different part of the economic cycle, we wouldn't make much noise about this. But the fact of the matter is that without higher freight costs, retail EPS growth is decelerating from a mid-teens rate earlier this year to zero in 4Q/1Q.  The problem is that the consensus has EPS growth reaccelerating from a lsd rate to 10%. The consensus is wrong.

Retail Callouts (10/19): Retail Idea List, UPS Raising Rates, DLTR, PIR - 10 19 2015 chart2

Retail Callouts (10/19): Retail Idea List, UPS Raising Rates, DLTR, PIR - 10 19 2015 chart3

Image Source: E-commerce Bytes

 

WMT - Federal probe into Wal-Mart operations in Mexico has found minimal offenses. The case and fines are likely to be much smaller than initially expected.

(http://www.wsj.com/articles/wal-mart-bribery-probe-finds-little-misconduct-in-mexico-1445215737)

 

TFM - The Fresh Market is working with Apollo Global Management to explore a buyout.

(http://www.bloomberg.com/news/articles/2015-10-16/fresh-market-founder-said-to-work-with-apollo-on-buyout)

 

KATE - EJ Victor to launch Kate Spade New York furniture collection

(http://www.furnituretoday.com/article/524851-ej-victor-launch-kate-spade-new-york-collection)

 

RetailNext forecasts Holiday sales at +2.8%

(http://www.retailingtoday.com/article/retailnext-holiday-sales-expected-climb-only-)

 

AMZN - Amazon looking to buy stake in India on demand home services company Housejoy 

(http://economictimes.indiatimes.com/small-biz/startups/amazon-in-advanced-talks-to-buy-stake-in-home-services-company-housejoy/articleshow/49397892.cms)

 

H&M Opens First Store in South Africa

(http://wwd.com/retail-news/mass-off-price/hm-opens-first-store-in-south-africa-10264590/)


Earnings Season: So Far, No Good

Earnings Season: So Far, No Good - earnings cartoon 01.27.2015

 

"EPS ex-Energy" is a joke - Industrials and Cyclicals are already in a profit recession - Financials & Banks next.

Click image to enlarge. 

Earnings Season: So Far, No Good - 10 19 2015 Earnings

 

EPS growth slowing, combined with US consumer confidence falling (from cycle peak) are 2 of the Top 3 leading indicators for a US recession.

 

Earnings Season: So Far, No Good - 10 19 2015 eps inflecting


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