DE, AGCO, CNHI | El Nino? No Bueno

Takeaway:  El Nino correlates to weather, and weather correlates to DE.  But the direction is not so obvious.  We would view fleet dynamics as more important.  Volatility in weather is more of a risk to our short thesis than a further support of it. 

 

 

Replay & Materials From Ag Equipment Black Book:

 

Short DE Best Ideas Addition (5/22/2015) 

Where To From Here? (9/21/2015)

 

 

This is just a quick response to a bearish El Nino narrative circling farm equipment this week, in particular DE and AGCO.  For us, what is likely to matter most to farm equipment sales are fleet demographics and farm income trends.  We think we are in a period were the former is most critical.  Ongoing commentary from dealers and the advance orders support our more negative view. 

 

However, inflections in El Nino do appear to correspond well to inflections in DE’s relative performance.  Over the past decade, a short sample period for industrial equipment, the DE-El Nino correlation has been negative.  However, a longer series shows that the relationship with El Nino is not particularly consistent or, most likely, useful.  Unfortunately for DE, volatile weather cannot undo years of above trend farm equipment investment, aggressive pricing actions by inventory sodded competitors, or decrease stocks of used equipment.

 

DE, AGCO, CNHI | El Nino? No Bueno - DE 10 29 15

 

 

Upshot: El Nino correlates to weather, and weather correlates to DE.  But the direction is not so obvious.  We would view fleet dynamics as more important.  Volatility in weather is more of a risk to our short thesis than a further support of it.  


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more