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CAT | Used Down

 

 

Takeaway:  Increasing awareness of the overhang of used equipment is a big deal for Caterpillar Financial.  We are very excited to hear how Caterpillar explains away falling collateral values in key equipment categories at its November 17th Caterpillar Financial investor meeting.

 

 

Feeling Used? CAT Black Book (latest of many)

 

 

Officially Denied:  We are excited to see what CAT comes up with on Caterpillar Financial in the November 17th investor meeting.  We think that segment is a bigger risk than investors appreciate, and our Black Book above illustrates why.

 

CAT | Used Down - CAT Used 11 9 15

 

 

Press Coverage:  While we have been tracking building used equipment pressure in resources-related capital equipment for quite some time, we saw news coverage for the first time today from an auction in Australia.  

 

CAT | Used Down - CAT Used 2 11 9 15

 

 

Here is the link: http://mobile.abc.net.au/news/2015-10-28/heavy-machinery-prices-slashed-at-auction-mining-downturn-bites/6892966?pfm=sm&section=nsw

 

 

Why This Matters:  Caterpillar Financial relies on used equipment as collateral for its lending activities. While the article focuses on mobile mining equipment, we expect the issues to impact a broader array of categories.  Gensets look likely to become problematic, for instance.  We do not expect this to go away, and it should eventually result in a painful 2016 at Caterpillar Financial.  Investors typically hate problems at captive finance subsidiaries.

 

 

Feel free to ping us back for additional background.

 


Cartoon of the Day: Hubris

Cartoon of the Day: Hubris - Ackman cartoon 11.09.2015

 

In Greek mythology, Icarus, on wings made of feathers and wax, defies his father's warning and flies too close to the sun. The wax in his wings melts and Icarus falls to his death. In other words, hubris was Icarus' downfall.  

 

Uber-combative hedge fund investor Bill Ackman has been similarly burned. Not by the sun, but by Valeant Pharmaceuticals (VRX). Since Ackman's Pershing Square Capital disclosed it's stake in VRX shares are down almost 60%. 

 

Ouch.


UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau

It’s shaping up to be a good week for our Gaming, Lodging and Leisure team. Our analysts went long after calling the bottom in Macau casino stocks back in September. Last week, they called the top. Stocks have fallen as much as 10% today.

 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - z cas

 

In a note to institutional clients back in September, Gaming analysts Todd Jordan and Felix Wang wrote that the outlook for casino operators in Macau was looking up. Stocks like Wynn Resorts (WYNN), Melco Crown (MPEL), Las Vegas Sands (LVS), MGM Resorts (MGM), and Galaxy Entertainment had been hammered by a preponderance of bad “junket” news. Our Gaming team correctly noted that the casino operators would soon be lapping last year's easy comps for its “mass” business." 

 

The first week in October was aided by a better than expected "Golden Week." But the rest of the month didn't come in nearly as strong. and our team thinks November will be back to what the longstanding trend. More to be revealed.

 

*From 9/30 until closing out their long call on 11/4 the stocks noted above were up between 27% and 40%.

 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - casino up

 

That rosy outlook reversed last week.

 

In their report, titled “October Not So Golden,” Jordan and Wang wrote “We’ve had a long Macau call on since late September but we fear the end of that trade is near.” After a good run, it was “a good time to book profits.”

 

They got the timing right. Among their chief concerns was gross gaming revenue (GGR) that would revert to the norm, i.e. bad news for gaming revenues. Wall Street remained bullish. But the data confirmed their thinking. Today alone, the casino operators are down between 2% and 10%.

 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - casino down

 

Where do we go from here? Well, the outlook isn’t good.

 

“We think November has started with a dud and fear is GGR could disappoint over the near-term. Moreover, our 2016 estimates remain well below the Street.”

 

Below is a key slide from Jordan and Wang's presentation to institutional subscribers last week laying out their thesis. 

UPDATE: Hedgeye's Todd Jordan Moves to Sidelines After Calling the YTD Bottom In Macau - macau call

 

(If you'd like to read our Gaming team's comprehensive research on Macau please ping sales@hedgeye.com.) 


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McCullough: Fed Raising Rates Into Slowdown Is A 'Big Risk'

McCullough: Fed Raising Rates Into Slowdown Is A 'Big Risk' - GDP cartoon 01.30.2015

 

Below is a brief excerpt from The Macro Show earlier this morning. In it, Hedgeye CEO Keith McCullough explains a key risk embedded in financial markets today following Friday’s jobs report, and what to expect if the Fed raises rates:

 

“Notwithstanding people’s visceral reaction to last week’s "Waldo" jobs number, the Federal Reserve’s potential to make a policy mistake, which is that it raises interest rates into worldwide deflation and growth slowing, is a big risk.

 

In particular, I am concerned that our forecast for GDP is right and the Fed’s forecast is wrong. Their forecast is that the jobs market is rainbows and puppy dogs and that GDP is going to be 3% to 4%.

 

We have Q4 GDP between 0.4% and 1.7% so anything in between is way slower than what the Fed thought. God help them if its 0.4%, on the lower end of the range, and they’re raising rates into that.

 

What does that mean for investors?

 

McCullough says that should the Fed tighten into a slowdown that would "blow up oil, China, Emerging Markets and anything tied to the aforementioned.”

 

In other words ... watch out. 

 


The Cyclical & Secular Slowdown Call

 

In this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough responds to a subscriber’s question about why a strengthening U.S. dollar and lower commodity prices isn’t necessarily the bullish economic harbinger many believe it to be.

 

 

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.

 


Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts)

Takeaway: Everything that has been signaling #Deflation in the last year, resumed its crash on Friday.

"A Fed rate hike ensures a depression of a year for Commodity and Emerging Market bulls," wrote Hedgeye CEO Keith McCullough this morning.

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - Oil cartoon 01.05.2015

Here are three charts he's highlighting.

 

"Oil: Barely bouncing this morning post another -4.9% #Deflation last week to -25% YTD. Texas is going to love a rate hike."

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - WTI

 

"Strong Dollar #Deflation matters."

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - USD

 

"Commodities: CRB Index -2.3% last wk to -16.9% YTD #Deflation."

Why Texas Is (Not) Going to Love A Rate Hike (In 3 Charts) - CRB


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%
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