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PRA GROUP (PRAA): NEW BEST IDEA SHORT CALL INVITATION

Takeaway: Please join us tomorrow, November 17th at 11 a.m. EST for our latest Best Ideas call on shares of PRA Group (PRAA).

PRA GROUP (PRAA): NEW BEST IDEA SHORT CALL INVITATION - PRA roller coaster

 

We will be hosting a call Tomorrow, November 17th at 11:00am EST to present a new name we've added to our Best Ideas List - PRA Group, Inc. (PRAA) - as a short

 

KEY POINTS 

  • Supply/Demand Headwinds: The market for buying defaulted receivables is especially unfavorable. Demand for paper has exceeded supply for a few years now, mirroring the environment last seen from 2005-2007 when shares of PRAA tumbled ~70%.
  • Growing Debt: Leverage at the company has risen quickly in the wake of the Activ deal.  
  • Insiders Dumping: Widespread insider selling suggests that insiders see similar intermediate/longer-term headwinds.
  • History's Guide: Our analysis of the interplay between labor markets, terminal IRRs and pre-tax margins will shed light on what to expect fundamentally from a timing standpoint.
  • Regulatory Pressure: The CFPB is expected to set new rules for debt collectors in 2016.
  • Current Value Unsustainable: The ERC less cost to collect and taxes is currently ~$400mn below the net debt of the company.

 

CALL DETAILS

  • Toll Free Number:
  • Conference Code: 13622076#
  • Materials: CLICK HERE (Materials will be available approximately one hour prior to the start of the call)

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


Euro, Kospi and Copper

Client Talking Points

EURO

The Euro is down another -0.4% vs. the USD at $1.07 this morning with the more important line of support being the YTD low of $1.05. While Dudley’s latest comments on “inflation continues to run well below the Fed’s target” are new/dovish this morning, the FX market is obviously focused on the tragic events in France.

KOSPI

Last week was ugly for everything Global Growth Expectations and the KOSPI continued to break-down overnight down another -1%, taking it’s month-over-month decline from OCT’s counter TREND bounce to -4.3%.

COPPER

Fresh new lows (again) this morning as Copper’s #Deflation Crash continues, down -1.1% to $2.12/lb. The 6 month crash in Copper is -26% vs. WTI Oil’s at -35% - the Fed would have to back off the DEC hike to arrest the #Deflation.

Asset Allocation

CASH 61% US EQUITIES 5%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
MCD

Restaurants Sector Head Howard Penney attended MCD's investor meeting in New York City early last week. His takeaway from the meeting was that it was "very very bullish" for investors. Expectations were high, but CEO Steve Easterbrook came to NYC with big changes which have ultimately exceeded those expectations. "The big smile on Steve Easterbrook's face when talking about the current quarter was very telling," Penney writes. "He could not hide the enthusiasm." MCD increased the dollar value returned to shareholders by $10 billion. Penney and his team still see +30% upside from here.

RH

Restoration Hardware (RH) shares got caught up in the tumultuous selloff of other high-end retailers. But we're still bullish on RH. Here's why. RH Tampa has just opened. That makes 4 new Full Line Design Galleries in 90 days. And all will be open before the start of holiday shopping season and just in time to house the new product lines RH Modern and Teen. Add up the four stores and we’re looking at about 210k square feet. That alone represents about 25% growth in square footage.

 

When all is said and done, we still think this company has $11 in earnings power 4-years out, which is nearly double the consensus. We remain convinced that the debate should not be ‘if or when’ the stock hits $115, but rather is it going to $200 or $300? We’ll be looking at an earnings CAGR of 40-50% over five years. What kind of multiple does that deserve? 20x? 25x? 30x? We’d argue the higher end.

TLT

It was a nasty end to the week for the “growth is back” bulls. It was an equally nasty end to the week in equity markets. The S&P 500 was “going to all-time highs” Tuesday before retreating over 3% from Wednesday to Friday.

 

With continued data-driven confirmation that growth is slowing:

  • PPI (producer price index) printed -1.6% Y/Y for October
  • On a m/m basis, PPI declined -0.4% 
  • Declines in the energy component certainly bring the index lower, but PPI ex. Food and energy only printed +0.1% Y/Y which is ugly

Three for the Road

TWEET OF THE DAY

Pelosky: Our Worrisome ‘Tri Polar World’ and Global Implications https://app.hedgeye.com/insights/47545-pelosky-our-worrisome-tri-polar-world-and-its-global-implications… via @jaypelosky @HedgeyeDJ

@Hedgeye

QUOTE OF THE DAY

Take calculated risks. That is quite different from being rash.

George S. Patton

STAT OF THE DAY

U.K. Prime Minister David Cameron announced that the government will hire an additional 1,900 spies for its intelligence agencies MI5, MI6 and GCHQ following the terror attacks in Paris.


MONDAY MORNING RISK MONITOR | THE DEATH STAR

Takeaway: The Fed is fulfilling its destiny as the Death Star aimed at US and Global Growth. Meanwhile, the EU put up 30 bps of growth in 3Q15.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM11

 

Key Takeaway:

Three major stimuli drove a marked increase in risk last week: a rising expectation for a Fed rate hike into an already slowing growth environment, European GDP growth coming in at a meager 0.3%, and Portugal's government effectively falling. Most notably, concerns over credit risk ballooned last week with the high yield YTM rising by +42 bps to 7.84% and the Euribor-OIS spread widened by +4 bps to 15 bps. Beyond this, the growing conviction for a December Fed rate hike has the dollar up and commodities down 4.8% on the week and 7.4% on the month. This is further exacerbating EM weakness in places like Brazil and Russia.

 

Short-term risk measures were mostly negative last week while intermediate-term measures were more positive and long-term measures were mixed.


Current Ideas:


MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 2 of 12 improved / 5 out of 12 worsened / 5 of 12 unchanged
• Intermediate-term(WoW): Positive / 6 of 12 improved / 4 out of 12 worsened / 2 of 12 unchanged
• Long-term(WoW): Negative / 2 of 12 improved / 2 out of 12 worsened / 8 of 12 unchanged

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM15

 

 

1. U.S. Financial CDS – Swaps widened for 15 out of 27 domestic financial institutions. Bond insurers MBIA and Assured Guaranty CDS widened by 71 bps and 23 bps respectively on concerns that Puerto Rico is approaching default. Meanwhile, swaps for MGIC and Radian widened by 19 and 18 bps, respectively.

Tightened the most WoW: LNC, COF, JPM
Widened the most WoW: MBI, MTG, AGO
Tightened the most WoW: MMC, BAC, JPM
Widened the most MoM: ACE, RDN, CB

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM1

 

2. European Financial CDS – Swaps mostly widened in Europe last week as 3Q15 Eurozone GDP growth came in at only 0.3%. Portuguese and Greek CDS were outliers, as usual.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM2

 

3. Asian Financial CDS – Swaps among Asian financials were mixed last week. Indian swaps were mostly wider on concerns over a rate hike by the U.S. Federal Reserve.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM17

 

4. Sovereign CDS – Portuguese sovereign swaps widened by +45 bps to 215 as the country's government failed to pass its legislative program through the left-dominated parliament. Outside of Portugal, however, sovereign swaps were little changed. 

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM18

 

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM3

 

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM4


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week on concerns over a stronger dollar from a possible Fed rate hike. Brazilian sovereign swaps widened the most, by +29 bps to 434.
MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM16

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM20

6. High Yield (YTM) Monitor – High Yield rates rose 42 bps last week, ending the week at 7.84% versus 7.42% the prior week.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index fell 8.0 points last week, ending at 1837.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM6

8. TED Spread Monitor  – The TED spread fell 2 basis points last week, ending the week at 24 bps this week versus last week’s print of 26 bps.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM7

9. CRB Commodity Price Index – The CRB index fell -4.8%, ending the week at 185 versus 194 the prior week. As compared with the prior month, commodity prices have decreased -7.4%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - 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 widened by 4 bps to 15 bps.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index was unchanged vs last week, ending the week at 1.79%. 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 | THE DEATH STAR - RM10

12. Chinese Steel – Steel prices in China fell 2.1% last week, or 45 yuan/ton, to 2107 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 | THE DEATH STAR - RM12

13. 2-10 Spread – Last week the 2-10 spread tightened to 143 bps, -1 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM13

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.0% upside to TRADE resistance and 1.1% downside to TRADE support.

MONDAY MORNING RISK MONITOR | THE DEATH STAR - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

11/13/15 NUS | SHOW ME THE MONEY!

11/13/15 NUS | BLACK BOOK PRESENTATION REPLAY

11/10/15 HAIN | THE COMPETITIVE ISSUES ARE JUST BEGINNING

11/05/15 BDBD | ADDING IT TO THE LONG BENCH

 

SECTOR PERFORMANCE

Food and organic stocks that we follow underperformed the XLP last week. The XLP was down -2.7% last week, the top performers on a relative basis from our list were Amira Natural Foods (ANFI) and Dean Foods (DF) posting increases of +34.8% and +5.8%, respectively. The worst performing companies on a relative basis on our list were Flowers Foods (FLO) and Hain Celestial (HAIN), which were down -9.1% and -6.9%, respectively.

Monday Mashup - CHART 2

 

XLP VERSUS THE MARKET

Monday Mashup - CHART 3

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP is BEARISH 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

<CHART8>

 

Keith’s Three Morning Bullets

Both US and European Equity Beta signaled immediate-term oversold into Friday’s close:

 

  1. EURO – down another -0.4% vs. USD at $1.07 this morning with the more important line of support being the YTD low of $1.05. While Dudley’s latest comments on “inflation continues to run well below the Fed’s target” are new/dovish this am, the FX market is obviously focused on the tragic events in France
  2. KOSPI – last week was ugly for everything Global Growth Expectations and KOSPI continued to break-down overnight down another -1%, taking it’s month-over-month decline from OCT’s counter TREND bounce to -4.3%
  3. COPPER – fresh new lows (again) this morning as Copper’s #Deflation Crash continues, -1.1% to $2.12/lb – the 6 month crash in Copper is -26% vs. WTI Oil’s at -35% - the Fed would have to back off the DEC hike to arrest the #Deflation

 

SPX immediate-term risk range = 1; UST 10yr Yield 2.15-2.36%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


Hedgeye to Host First “Macrocosm” Investor Conference

Exclusive event will feature premier global investors and thought leaders

 

FOR IMMEDIATE RELEASE

 

STAMFORD, Conn., November 16, 2015 -- Hedgeye Risk Management announced today that it is hosting “Macrocosm: The Dock Debates” to be held at The Loading Dock in Stamford, CT on November 18th. The conference is the independent financial research and media firm’s first investor conference and will showcase premier thought leaders and investors from across the globe.

 

Hedgeye to Host First “Macrocosm” Investor Conference - z mac

 

A series of speakers and debates will illuminate key market and economic topics and themes that will impact investors over the near and longer term.

 

The Macrocosm Investor Conference will feature hedge fund managers including Greenlight Capital’s David Einhorn; Lucerne Capital’s Pieter Taselaar; and Critical Mass Partners’ Mike Taylor, as well as Michael Aronstein, Chairman and CEO of Marketfield Asset Management.

 

Additional speakers include James “Jim” Rickards, bestselling author of “Currency Wars” and “The Death of Money”; Daniel Lacalle, renowned European economist and author; Jurrien Timmer, director of Global Macro at Fidelity Investments and Neil Howe, a historian, economist and demographer credited with coining the term “Millennials” and best known for his work with William Strauss on social generations and generational cycles in American history.

 

Hedgeye CEO Keith McCullough will moderate each 30 minute debate. Approximately 15 minutes will be allotted after each presentation for Q&A from conference attendees. The interactive forum intends to give behind-the-scenes access to listen to and interact with some of the greatest minds across numerous fields.

 

“The breadth and depth of the topics we are going to cover at Macrocosm offer a unique learning opportunity that Wall Street simply can’t provide,” said McCullough. “We are bringing together some of the world’s greatest investing minds in a small, interactive setting designed to encourage a free flowing exchange of ideas.”

 

This conference is a private event and is closed to the media.

 

*For more information about Macrocosm please email sales@hedgeye.com

   

ABOUT HEDGEYE RISK MANAGEMENT


Hedgeye Risk Management is an independent investment research and media firm. Focused exclusively on generating and delivering actionable investment ideas in a proven buy-side process, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts, all with buy-side experience, covering Macro, Financials, Energy, Healthcare, Retail, Gaming, Lodging & Leisure (GLL), Restaurants, Industrials, Consumer Staples, Internet & Media, Housing, and Materials.

 

CONTACT: Dan Holland

dholland@hedgeye.com

203.562.6500


CHART OF THE DAY: Has U.S. Consumer Confidence Peaked?

Editor's Note: Below is a brief excerpt and chart from this morning's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe. 

 

"... As you can see in today’s Chart of The Day, US Consumer Confidence looks a lot like the US economic and profit cycle. Elevator on the way up, and windows on the way down. Since it’s behavioral, it makes sense – unless you don’t do #behavioral.

 

If you don’t do history, math, and behavioral – you don’t do macro like we do. And we’d humbly submit that if you don’t do rate of change macro like we do, macro is currently doing you."

 

CHART OF THE DAY: Has U.S. Consumer Confidence Peaked? - 11.16.15 EL chart


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