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U.S. Dollar Driven #Deflation Risk

Client Talking Points

OIL

WTIC is down another -0.8% (post last week's -6.3% decline) and they're really going after the levered names again (our Energy analyst Kevin Kaiser had another good SELL note on KMI recently). Russian Stocks lead losers this morning down -1.9% and Natural Gas is crashing down another -3% to $2.00.

SPAIN

Spain had their centrally-planned V-bottom, but failed @Hedgeye TAIL risk resistance of 10692 on the IBEX. The IBEX is down -0.6% this morning as Spain still needs to report their economic slowing data, unfortunately - QE hope won't change that.

RUSSELL 2000

The Russell 2000 failed at both TRADE (1175) and TREND (1199) resistance and remains in draw-down mode -10.5% from its year-to-date (and bubble) peak - one of the best pure play ways to play a #LateCycle slowdown in the USA is via Russell's domestic revenues. 

 

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

 

Asset Allocation

CASH 68% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 32% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

What week it was for MCD shareholders! Shares finished the week up 7.3%. We have been saying all along that the third quarter of 2015 would be the inflection point for the McDonald’s (MCD) turnaround. After this print, it appears that the heartache is finally over at McDonald’s, as this quarter marks the first good quarter the company has had in two years.

 

From here, the upside in the stock price lies with the growth of All Day Breakfast, additional G&A cuts, national value offering implementation, reimaging of restaurants, commodity deflation, especially in beef and increased operational efficiencies, among others. In addition, the REIT is a potential driver of incremental value but not crucial to the long-term success of this call. With Steve Easterbrook at the helm we are confident this company will be better managed than it has been in a long time.

RH

RH unveiled a full floor of Modern product in their New York Flatiron store this week. The new concept sits on the first floor of the 21k sq. ft. store and marks the 3rd property in RH’s fleet (along with Denver and Atlanta) to carry the new product line.

 

Fundamentally and financially, we’re about to see growth at RH go on a multi-year tear. We think this stock is headed to $300 over the next 2-3 years. We’ve been patient for the catalyst calendar to begin, and the waiting is finally over.

TLT

As devaluation and global currency war jockeying from central bankers around the world continues, the acknowledgement of growth slowing continues to push yields lower. The long-bond was up on Thursday, after the ECB meeting, despite an easing-fueled rip in equities. The bond market doesn’t believe in the growth storytelling and we expect it to continue.

 

Remember that Down Euro Devaluation is a global TIGHTENING event because the world’s biggest asset price #deflation risk is that the world’s inflation expectations (commodities, debt, etc.) are DENOMINATED IN DOLLARS. That has implications for gold (risk to being long), but we want to get through the Fed meeting and GDP data next week before we pivot on a gold view. Stay tuned.

Three for the Road

TWEET OF THE DAY

UPDATE: Hedgeye Energy Analyst Kevin Kaiser Reiterates His Short Case on Kinder Morgan | $KMI https://app.hedgeye.com/insights/47127-update-hedgeye-energy-analyst-kevin-kaiser-reiterates-his-short-case… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Failures to heroic minds are the stepping stones to success.

Thomas Chandler Haliburton

STAT OF THE DAY

A biscuit which had been aboard a lifeboat on the Titanic has sold at auction for £15,000. The auction was at Henry Aldridge & Son in Devizes, Wiltshire, UK.


The Macro Show Replay | October 27, 2015

 


October 27, 2015

October 27, 2015 - Slide1

 

BULLISH TRENDS

October 27, 2015 - Slide2

October 27, 2015 - Slide3

October 27, 2015 - Slide4 

BEARISH TRENDS

October 27, 2015 - Slide5

October 27, 2015 - Slide6

October 27, 2015 - Slide7

October 27, 2015 - Slide8

October 27, 2015 - Slide9

October 27, 2015 - Slide10

October 27, 2015 - Slide11

 


Daily Trading Ranges

20 Proprietary Risk Ranges

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TWTR: Thoughts into the Print (3Q15)

Takeaway: Tricky setup with a lot of moving parts. We remain short since TWTR will eventually need to rebase 2016 expectations, question is when.

KEY POINTS

  1. UPSIDE ALREADY EXPECTED? TWTR preannounced 3Q15 revenues to come in at or above the high end of guidance, so now a 4Q guidance beat may also be the expectation.  That will be a challenge since consensus is assuming no decay in y/y ad revenue growth from 3Q to 4Q, which means TWTR can't afford any slippage on either engagements or CPE (despite slowing user growth and its first positive CPE comp from 4Q14, respectively).  While acquisition revenue could help fill the void, consensus already appears to be baking that in with 4Q data licensing revenues ramping to $63M by 4Q (vs. $50M reported in 2Q).  However, TWTR could produce upside on MAUs following tepid user growth comments on its last call.  
  2. BUT TRICKY SETUP: We’re not sure what matters more on this print: the release or how the new C-suite addresses the street regarding the longer-term story.  That’s really tough to gauge since we’re not sure what Dorsey could offer to breathe life back into this story; but he may not need much on muted sentiment.  But we also suspect that Dorsey knows that 2016 expectations need to be rebased, and doubt he is willing to risk another blow up similar to the 1Q15 release.  That said, we suspect the new c-suite may try to manage expectations before it releases 2016 guidance on the next print (also less incentive to guide high for 4Q15).
  3. WHAT WE’RE KEYING IN ON: Ad engagements and CPE; the wider the divergence between the two, the more TWTR is increasing ad load.  We suspect TWTR's surging ad load is what is causing its softening user growth metrics, and mgmt's ongoing attempts to appease street revenue expectations has led to a heighted level of cumulativer churn that will ultimately cap its long term upside (see 1st note below).  Put another way, TWTR has been chasing short-term upside at the expense of long-term damage to its model; we're ultimately trying to figure out whether that may change under the new regime.  

 

TWTR: Thoughts into the Print (3Q15) - TWTR   Ad MAU vs. CPE 3Q15

TWTR: Thoughts into the Print (3Q15) - TWTR   4Q15 Ad Rev Scen

TWTR: Thoughts into the Print (3Q15) - TWTR   FC Ad Rev 2Q15

 

See notes below for supporting analysis on TWTR's user retention issues and monetization strategy.  Let us know if you have any questions, or would like to discuss further.  

 

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

 

TWTR: The Crossroads  (User Survey: n=7,500)
08/25/15 07:48 AM EDT
[click here

 

TWTR: What the Street is Missing
05/19/14 09:09 AM EDT
[click here]


Cartoon of the Day: Ackman's Valeant Effort

Cartoon of the Day: Ackman's Valeant Effort - Ackman cartoon 10.26.2015

 

Earlier this spring, controversial hedge fund manager Bill Ackman called Valeant Pharmaceuticals (VRX) “a very early-stage Berkshire [Hathaway].” Hmm. Fast forward to last week when an investment research firm compared the drugmaker to Enron. Shares have plunged 35% since and are down 57% from its August high. Last check, Ackman's Pershing Square Capital owns a 5.7% stake in VRX, constituting a whopping 19% of Pershing Square’s portfolio.

 

Ouch.

 

Our Healthcare analysts got the call right. On July 22, 2014, analyst Tom Tobin issued our Valeant Black Book laying out the short case and calling out what we considered to be an unsustainable business model.

 

CLICK HERE to access Tobin's prescient institutional research report on Valeant. If you’d like to learn more about our institutional research offerings please ping sales@hedgeye.com.


Q3 LODGING EARNINGS PREVIEW

call to action 

We turned positive on the lodging stocks as part of our September 22nd conference call/presentation and we remain so. Q3 earnings season probably won’t be littered with big earnings beats and raises but expectations are lower following a few pre-announcements and softer Smith Travel weekly numbers. Our focus is on where we are in the cycle – early enough for the stocks to outperform in our opinion – and the 2016 outlook. Our meeting planner survey suggests the group segment may outperform expectations and corporate negotiations could lead to a record setting 2016 rate gains in that segment.

 

RELEVANT TICKERS: H, HLT, HOT, HST, MAR, WYN 

 

Please see our detailed note here: http://docs.hedgeye.com/HE_Lodging_Q3_Earnings_Preview_10.26.15.pdf

 

 

 


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