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P | Register Response = Non Event (Web IV)

Takeaway: The Register punted the second question, but this wan't really a major event to begin with, especially since P has all but conceded defeat.

KEY POINTS

  1. REGISTER PUNTS QUESTION 2: The CRJs had asked the Register whether it was allowed to distinguish royalty rates by the type of copyright owner.  This was really a question of the major labels vs. independents, which can't command the same pricing as the majors.  The Register replied suggesting that this isn't a question that it should be addressing , but also stated that CRJs should adopt a single rate structure since no party involved argued for one that distiguished between licensors during the proceeding.
  2. ISN'T THIS A WIN FOR P? Not really.  While the majors may get dinged since a single rate could capture the independent's lack of pricing power, this is really a non-event for P.  The majors control roughly 70-80% of all music that is streamed.  So the difference would have been P paying a higher rate on ~75% of its tracks and a lower rate on the independent tracks, or likely weighted average blended rate that essentially capture this dynamic.  
  3. DEC 15th: The legal deadline for the CRB's decision.  We've laid out all the reasons why we believe P has the weakest position (i.e. Merlin) in this proceeding in the links below.  Whether you agree with our Web IV analysis or not, it's important to understand what's embedded in the current street assumption of down to flat rates.  The CRJs would not only have to bless the Merlin deal, they would have to overweight it.  Given that P has essentially blown up its business model prior to the decision (first link below),  we'd be careful to assume as much.

 

See charts and notes below for supporting detail/analysis on P's model and Web IV.  Let's us know if you have any questions or would like to discuss further.

 

Hesham Shaaban, CFA


@HedgeyeInternet 

 

P | Register Response = Non Event (Web IV) - P   Cash   Commitments 2

P | Register Response = Non Event (Web IV) - P   pre 1972 

P | Register Response = Non Event (Web IV) - P   Web IV fallout 1

P | Register Response = Non Event (Web IV) - P   Web IV fallout 2

P | Register Response = Non Event (Web IV) - P   Leverage Slide

P | Register Response = Non Event (Web IV) - P   Cost structure slide 2

 

P | Changing Its Tune (Strategic Update Call)

11/17/15 08:35 AM EST

[click here]

 

P: Can We Still Be Friends? (3Q15)

10/23/15 08:14 AM EDT

[click here]

 

P: It's All About the Benchmarks (Web IV)
10/02/15 12:22 PM EDT
[click here]

 

P: Fool's Gold (Web IV)
09/21/15 02:05 PM EDT
[click here]

 

P: Losing the Critical Debate? (Web IV)
04/08/15 08:53 AM EDT
[click here]


CLAIMS | ENERGY - THERE WILL BE BLOOD

Takeaway: Energy states continue to show accelerating deterioration in labor conditions relative to the rest of the country.

As an oilman, I hope that you'll forgive just good old-fashioned plain speaking.

 - Daniel Plainview, There Will Be Blood (I'm An Oil Man Speech)

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims1

 

Let's speak plainly. The trend in energy state claims (chart below) shows the spread between indexed claims in energy states and the country as a whole has steadily increased from a low of 3 in early July to 34 as of the most recent reading for the week ending November 14. Energy hedges are rolling off broadly as the end of 2015 approaches. We expect this emergent acceleration in the deterioration in labor conditions throughout  the energy patch to continue into 2016. 

 

The takeaway here is that company's with high relative exposures to energy hubs like Houston and Calgary will see headwinds continue for some time. 

 

Meanwhile, the rest of the country continues, for now, to exhibit decent performance as evidenced by the fact that non-energy states are collectively more than offsetting the weakness in the energy footprint. Overall, initial jobless claims showed week-over-week improvement with the SA figure falling from 272k to 260k and the year-over-year rate of change in rolling NSA accelerating slightly from -6.5% to -8.2%. 

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims18 2

 

The Data

Prior to revision, initial jobless claims fell 11k to 260k from 271k WoW, as the prior week's number was revised up by 1k to 272k.

 

The headline (unrevised) number shows claims were lower by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims was stable at 271k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -6.5%

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims2

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims3

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims4

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims5

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims6

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims7

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims8

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims9

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims10

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims11

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims19

 

Yield Spreads

The 2-10 spread fell -10 basis points WoW to 130 bps. 4Q15TD, the 2-10 spread is averaging 142 bps, which is lower by -11 bps relative to 3Q15.

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims15

 

CLAIMS | ENERGY - THERE WILL BE BLOOD - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


A (Not So) Happy Thanksgiving For U.S. Data

Takeaway: We're sticking with our reality-based recession call for 2016.

A (Not So) Happy Thanksgiving For U.S. Data - turkey

 

In a note to subscribers this morning, Hedgeye CEO Keith McCullough highlighted a few recent market developments that he's watching today: 

 

"It was another strong bounce-back morning for the greenback +0.4% vs. the Euro is taking the commodity crash right back to the woodshed – Oil -1.5% post yesterday’s +2.8% bounce (which helped Energy stocks lead the US equity rally off the lows intraday) - #Deflation Risk = On."

 

A (Not So) Happy Thanksgiving For U.S. Data - usd greenshoot

 

This evolving story has everything to do with monetary policy as the Yellen Fed looks to tighten in December while the ECB and Draghi ease. It's no surprise that the dollar is strengthening.

  

In other central planning news, the gap between 10yr and 2yr U.S. Treasuries is closing on speculation of a December rate hike. More analysis from McCullough:


"The yield curve continues to compress as the US economic data slows (Corporate profits -3.2% Q3 and Consumer Confidence tanked to 90.4) – this week the 10s/2s spread has compressed another 6bps to +129bps as credit trades like 1,000 pounds of stale pumpkin in a 100lb bag."

 

That further compression of the yield curve came after last week's -9bps.

 

Then again, the Fed apparently doesn't seem too concerned about raising rates into a slowdown. Here's the most recent spate of #GrowthSlowing data. Note the January peaks. 

 

Consumer Confidence

 

A (Not So) Happy Thanksgiving For U.S. Data - consumer confidence

 

Consumer Spending

 

A (Not So) Happy Thanksgiving For U.S. Data - gdp

 

Do you see any economic green shoots? We don't.


the macro show

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FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII)

Takeaway: We are flagging JPMorgan (JPM - Score: 93) (short) and Federated Investors (FII - Score: 15) (long) on sentiment and short interest.

This morning we are publishing our updated Hedgeye Financials Sentiment Scoreboard in conjunction with the release of the latest short interest data last night. Our Scoreboard now evaluates over 300 companies across the Financials complex.

 

The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.  

 

We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.

 

Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.

 

The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors. 

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI1

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI2

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI3

 

The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”

 

Let us know if you would like to receive a copy of our black book, which explains this system and its applications.

 

BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.   

 

SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms. 

 

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - Absolute 12 mo

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


The Macro Show Replay | November 25, 2015

 


CHART OF THE DAY: This Economic Indicator Always Peaks Before Recession

 

CHART OF THE DAY: This Economic Indicator Always Peaks Before Recession - 11.25.15 EL chart

 

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

 

"... Unless you think it’s the 1990s (newsflash: it’s not), US Consumer Confidence always puts in a cycle peak in the 100-110 range, right before a US recession. Yesterday’s reading of 90.4 for November dropped almost 10% from 99.1 in October."

 

 


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