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[UNLOCKED] Keith's Daily Trading Ranges

Editor's Note: We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five are determined by what's flashing on Keith's radar screen and what tickers subscribers are asking about. Click here to subscribe.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.31 2.16 2.25
SPX
S&P 500
1,998 2,047 2,016
RUT
Russell 2000
1,094 1,140 1,110
COMPQ
NASDAQ Composite
4,870 4,990 4,891
NIKK
Nikkei 225 Index
18,099 18,811 18,374
DAX
German DAX Composite
10,126 10,584 10,310
VIX
Volatility Index
17.28 22.65 19.34
DXY
U.S. Dollar Index
98.01 99.77 99.45
EURUSD
Euro
1.07 1.10 1.08
USDJPY
Japanese Yen
118.11 120.30 119.05
WTIC
Light Crude Oil Spot Price
35.04 38.11 36.14
NATGAS
Natural Gas Spot Price
1.89 2.52 2.34
GOLD
Gold Spot Price
1,059 1,085 1,077
COPPER
Copper Spot Price
2.04 2.14 2.09
AAPL
Apple Inc.
101 106 102
AMZN
Amazon.com Inc.
618 660 633
GOOGL
Alphabet Inc.
749 791 761
DIS
Walt Disney Company, Inc.
99 105 100
NFLX
Netflix Inc.
105 113 107.66
VRX
Valeant Pharmaceuticals, Inc.
92.07 105.65 100.86


NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES

Hedgeye initiated Materials coverage in Q4. Below, we outline the thesis on Newmont Mining. Please email  or if you have more interest in the team's work. 

 

----------

 

Overview

We hosted a Black Book call on December 22nd to outline our thesis on Newmont Mining.  This presentation builds on our November ‘Gold Flush’ Black Book, which outlined a broader bearish thesis for the commodity.  Please ping us back at or reply to this email, and we’ll send along the Presentations and Replays for both black books.  We can also send our EQM Data Set/Model with the data behind our charts and other background.

 

Takeaway:  We expect shares of NEM to trade toward $10/share amid continued gold price pressure, an inability to repeat prior reported production cost declines, and a return to a pre-commodity boom valuation profile. 

 

 

Highlights

 

Gold Not Low, NEM Not Cheap: Gold prices are not even close to low by historical standards; a move away from negative real rates in a disinflationary/Fed tightening environment may prove unhelpful.  Gold prices are highly dependent on investor purchases; investor purchases are holding their historical relationship to gold and trending lower with prices.

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 1

 

  • Commodity Value Trap:  Newmont, like many mining companies, has been a secular underperformer over the longer-term. Shares of low P/E cyclicals in an ongoing downcycle are typically ‘value traps’ that look cheap while continuing to underperform

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 2

 

  • Expectations For Gold Mine Supply Drop Misguided:  Mine supply has historically been underestimated by consensus forecasters.  We expect ongoing mine supply growth in 2016 and 2017. 

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 3

 

  • Newmont Higher Cost Producer, ~$800 Gold Price Would Be A Major Problem: NEM is a higher cost producer with known assets.  We expect the company to struggle relative to competitors in the lower gold price environment. 

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 4

 

  • Cost Progress Not Credible Per HE Adjusted AISC:  We believe that NEM’s lower cost profile has partly come from capitalizing costs based on an excessively bullish long-term gold price assumption.  Gold is not near the $1,300/oz. assumed in the company’s stockpile assumptions, for example.  While not necessarily inappropriate from a disclosure/accounting perspective, the imbedded above market price assumption nonetheless provides an economically unrealistic view of NEM’s production cost profile, as we see it.   

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 5

 

  • Dubious Sustaining Capital Cost Cuts:  Another component of the drop in NEM’s All-In Sustaining Cost (AISC) has been lower “sustaining capital” expense.  However, the concept behind this slippery metric is already captured in accounting by “depreciation”.  Not surprisingly, sustaining capital at NEM historically roughly matched depreciation expense.  We do not see these cost reductions as credible since explanations for the subsequent deviation, such as longer mining truck tire life, should either be captured in depreciation or viewed as temporary deviations between cash and accrual metrics.  

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 6

 

  • Another Large Charge With 4Q15 Results:  Frequent large charges tend to boost ‘adjusted’ profits over time.   Stockpile & Ore on leach pad write downs for NEM have been higher than for peers such as Goldcorp and Barrick. 

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 7

 

  • Expect NEM To Trade Toward $10/Share:  Ratios not based on trailing earnings can be helpful in valuing cyclical companies.  

 

NEM, GOLD | MISSED OUR NEWMONT & GOLD BLACK BOOKS? 40% DOWNSIDE FOR NEM SHARES - 8

 

  • 2016 EPS Expectations Far Too High By Our Estimates:  We expect NEM to have flat to slightly negative EPS in 2016, well below consensus of $0.72/share.  The write-downs and impairments in the upcoming 4Q15 results may impact our 2016 expectations.

 

Upshot: We expect shares of NEM to trade toward $10/share amid continued gold price pressure, an inability to repeat prior reported production cost declines, and a return to a pre-commodity boom valuation profile.  

 

 

 


NEM, Gold | Missed Our Newmont & Gold Black Books? 40% Downside For NEM Shares

Overview

We hosted a Black Book call on December 22nd to outline our thesis on Newmont Mining.  This presentation builds on our November ‘Gold Flush’ Black Book, which outlined a broader bearish thesis for the commodity.  Please ping us back at or reply to this email, and we’ll send along the Presentations and Replays for both black books.  We can also send our EQM Data Set/Model with the data behind our charts and other background.

 

Takeaway:  We expect shares of NEM to trade toward $10/share amid continued gold price pressure, an inability to repeat prior reported production cost declines, and a return to a pre-commodity boom valuation profile. 

 

 

Highlights

 

Gold Not Low, NEM Not Cheap: Gold prices are not even close to low by historical standards; a move away from negative real rates in a disinflationary/Fed tightening environment may prove unhelpful.  Gold prices are highly dependent on investor purchases; investor purchases are holding their historical relationship to gold and trending lower with prices.

 

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 1

 

  • Commodity Value Trap:  Newmont, like many mining companies, has been a secular underperformer over the longer-term. Shares of low P/E cyclicals in an ongoing downcycle are typically ‘value traps’ that look cheap while continuing to underperform.

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 2

 

  • Expectations For Gold Mine Supply Drop Misguided:  Mine supply has historically been underestimated by consensus forecasters.  We expect ongoing mine supply growth in 2016 and 2017.

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 3

 

  • Newmont Higher Cost Producer, ~$800 Gold Price Would Be A Major Problem: NEM is a higher cost producer with known assets.  We expect the company to struggle relative to competitors in the lower gold price environment.

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 4

 

  • Cost Progress Not Credible Per HE Adjusted AISC:  We believe that NEM’s lower cost profile has partly come from capitalizing costs based on an excessively bullish long-term gold price assumption.  Gold is not near the $1,300/oz. assumed in the company’s stockpile assumptions, for example.  While not necessarily inappropriate from a disclosure/accounting perspective, the imbedded above market price assumption nonetheless provides an economically unrealistic view of NEM’s production cost profile, as we see it.  

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 5

 

  • Dubious Sustaining Capital Cost Cuts:  Another component of the drop in NEM’s All-In Sustaining Cost (AISC) has been lower “sustaining capital” expense.  However, the concept behind this slippery metric is already captured in accounting by “depreciation”.  Not surprisingly, sustaining capital at NEM historically roughly matched depreciation expense.  We do not see these cost reductions as credible since explanations for the subsequent deviation, such as longer mining truck tire life, should either be captured in depreciation or viewed as temporary deviations between cash and accrual metrics. 

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 6

 

  • Another Large Charge With 4Q15 Results:  Frequent large charges tend to boost ‘adjusted’ profits over time.   Stockpile & Ore on leach pad write downs for NEM have been higher than for peers such as Goldcorp and Barrick.

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 7

 

  • Expect NEM To Trade Toward $10/Share:  Ratios not based on trailing earnings can be helpful in valuing cyclical companies.  

 

NEM, Gold | Missed Our Newmont & Gold Black Books?  40% Downside For NEM Shares - 8

 

 

  • 2016 EPS Expectations Far Too High By Our Estimates:  We expect NEM to have flat to slightly negative EPS in 2016, well below consensus of $0.72/share.  The write-downs and impairments in the upcoming 4Q15 results may impact our 2016 expectations.

 

Upshot: We expect shares of NEM to trade toward $10/share amid continued gold price pressure, an inability to repeat prior reported production cost declines, and a return to a pre-commodity boom valuation profile.  


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

CHART OF THE DAY: A #Recession In Contrarian Thinking

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

 

"... While I shall not love (or hate) stocks, one thing I thoroughly enjoy is fading what has become an epic “Hedge Fund” consensus. As you can see in today’s Chart of The Day (slide 18 in the Macro Deck), there is a raging #Recession in Contrarian Thinking."

 

CHART OF THE DAY: A #Recession In Contrarian Thinking - 01.06.16 EL chart


Eating Monkey Returns

“You can’t eat risk adjusted returns.”

-Old Wall

 

Actually, was it the Old Wall or its clients who said that first? Good question given that the brokerage statement has bad risk management premise. This is an important topic that Lasse Heje Pedersen delves into in Chapter 2 of Efficiently Inefficient.

 

“Suppose for instance that a hedge fund beats the risk free rate by 3% at a tiny risk of 2%, realizing an SR (Sharpe Ratio) of 1.5. Some investors might say ‘well it’s still just 3% - I was hoping for more return.’ (pg 31)

 

What people need, want, or “hope” for in terms of returns has nothing to do with what they are going to get. Hope is not a risk management process. Neither is levering up a portfolio that is no “smarter” than an unlevered one in a bear market.

 

Eating Monkey Returns - trust my gut cartoon 10.14.2015  2

 

Back to the Global Macro Grind

 

Bear market underway? Big time. And forget the obvious ones that even the most consensus US-Equity only perma bull is now forced to acknowledge (the ones in FX, Commodities, EM, etc.) – look at the one you already have in the US stock market!

 

On slide 31 of our Q1 Global Macro Themes presentation yesterday, we showed how bad the internals of the US stock market are by looking at the Russell 3000 (i.e. 98% of stocks you could be long or short):

 

  1. The median draw-down for stocks from their respective 52-week highs in the Russell 3000 is -22.5%
  2. The mean (average) draw-down is a nasty -27.7%
  3. And 76.8% of stocks in the Russell 3000 are currently trading below their 50-Day Moving Monkey

 

Don’t be the monkey.

 

As long-time readers of my daily rant know, I used to be a monkey. And I spend a lot of time trying to teach both me and you how not to be a monkey. Chasing 1-factor (price momentum) moving averages will eventually eviscerate your hoped-for returns.

 

What we do is different. And we do not apologize for that.

 

The most basic quantitative risk management tool I have that keeps me away from being consensus is my 3-factor model (PRICE, VOLUME, VOLATILITY) to measure a security’s risk, and I do that across 3-core risk management durations:

 

  1. Immediate-term TRADEs
  2. Intermediate-term TRENDs
  3. Long-term TAIL risks

 

In our Daily Trading Ranges (and TREND signal) product, you can see that we’ve been highlighting widely held US stocks that have been signaling bearish TREND (our best back-test duration) now for 3-6 months:

 

  1. Apple (AAPL)
  2. Priceline (PCLN)
  3. Disney (DIS)
  4. Valeant (VRX)
  5. Netflix (NFLX)

 

Since I only have time for 1 wife and 4 kids, I don’t fall in love with “stocks.” They are all just tickers to me. Sometimes I like them (like McDonald’s, MCD, right now). Sometimes I don’t like them (Gap, GPS, which I told you to short again in Real-Time Alerts yesterday).

 

While I shall not love (or hate) stocks, one thing I thoroughly enjoy is fading what has become an epic “Hedge Fund” consensus. As you can see in today’s Chart of The Day (slide 18 in the Macro Deck), there is a raging #Recession in Contrarian Thinking.

 

Trailing Hedge Fund Correlation to Beta held above 0.90 for a 2nd year in a row in 2015. Beta Chasing (chasing charts) breaks down when A) the “charts” do and B) Sector Variance breaks out (like it did last year).

 

When S&P Sector Variance is low, a brain dead monkey can make money. Maybe that’s why I nailed being bullish on US “stocks” in 2013! Low-variance means everything does the same thing – and almost every sector went straight up in 2013.

 

When Sector Variance breaks out (some sectors crash, some go up), then a large population of monkeys chasing charts dies and 2 smaller populations of them emerge:

 

  1. The “Value” Guy/Gal
  2. The Momentum Guy/Gal

 

Value guys in particular got killed in 2015 – that’s mainly because they started buying what they thought were “cheap” Energy and Basic Materials stocks using the wrong macro assumptions for #Deflation and #GrowthSlowing. And … cheap got cheaper.

 

All the while, momentum guys killed it in 2015 – and that’s mainly because they just stayed with charts and stories that weren’t breaking down like mainline (cyclical) growth and inflation assumptions were.

 

So far in 2016, neither value nor momentum guys/gals are getting paid. And that has been a consistent leading indicator for a US #Recession (see the years 2000 and 2008 for details) i.e. the 20-30% of stocks that are still working, stop working.

 

When most things stop working, you can only eat what you harvested. Our profession would have much higher credibility if we taught people that the time to harvest is as the economic and profit cycle begins to slow. The time to “invest” is when a recession is abating.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.16-2.31%

SPX 1
RUT 1094-1140

VIX 17.28-22.65
USD 98.01-99.77
Oil (WTI) 35.04-38.11

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Eating Monkey Returns - 01.06.16 EL chart


Less Good is Bad - 2016 Outlook | Call Invite

Takeaway: We will be hosting a conference call on Wednesday, January 13th at 11:00am EST to update our outlook for Housing in 2016.

Less Good is Bad - 2016 Outlook | Call Invite - housing theme cartoon 01.05.2016 FIX

 

The Hedgeye Housing Team, led by Joshua Steiner and Christian Drake, will be hosting a conference call on Wednesday, January 13th at 11:00am EST to update their outlook for Housing in 2016.  

 

KEY TOPICS WILL INCLUDE 

  • 2016: A Wall of Worry or Slope of Hope? Will housing return to stall speed growth after a solid year of acceleration? The same model that underpinned our long thesis in housing in 2012/13/15 and short position in 2014 is signaling another inflection as we head into 2016.
  • What if? – Navigating Recession Risk: What happens to housing and housing stocks when the economy stalls? Not all cycles are the same and the nature of the cycle matters for housing related equity performance.
  • Houston, We Have a Problem: The energy collapse has been a millstone around the neck of certain homebuilders. That situation looks poised to get worse. 
  • What’s the catalyst?  Domestic growth is decelerating, the energy market, labor/lot supply and interest rate volatility issues won’t resolve in the next quarter and, from a rate-of-change perspective, 2016 will be less good.
  • What's Priced In? What's priced into consensus and how do those expectations compare with the outlook for growth? Is valuation a catalyst after the recent correction in multiples?
  • Rates 180: Rates have been a primary boogeyman stalking housing for the better part of 2015.  We’ll contextualize housing’s sensitivity to rates during variant tightening cycles and discuss the implications of our outlook for the current cycle.
  • HPI Inflection: 2nd derivative HPI trends matter in housing and the slope of price growth is likely to stall. We'll detail the HPI outlook and what it means for housing related equities. 
  • Top Ideas: We'll run through the names and groups that we think are best (and worst) positioned for yet another reversal in housing.

  

CALL DETAILS

  • Toll Free Number:
  • Toll Number:
  • Conference Code: 13626823
  • Materials: CLICK HERE

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


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