The Week Ahead

The Economic Data calendar for the week of the 25th of January through the 29th of January is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.



The Week Ahead - 01.22.16 Week Ahead

Investing Ideas Newsletter

Takeaway: Current Investing Ideas: TIF, JNK, NUS, W, FL, WAB, MDRX, ZBH, FII, XLU, MCD, RH, GIS & TLT

Investing Ideas Newsletter - bears in car cartoon 01.21.2016


Below are our analysts’ new updates on our fourteen current high conviction long and short ideas. As a reminder, if nothing material has changed in the past week which would affect a particular idea, our analyst has noted this. We will send CEO Keith McCullough’s updated levels for each ticker in a separate email.



To view our analyst's original report on Allscripts Healthcare Solutions click here.


We presented our Short Case on Allscripts Healthcare Solutions (MDRX) earlier this week to Institutional Investors. The problems facing Allscripts could very well be terminal, as they continue to lose share among the largest of Health Systems.


Investing Ideas Newsletter - Allscripts cartoon


This is a problem because as hospitals and health systems continue to merge, Allscripts' addressable market rapidly shrinks. Attrition also becomes a major issue, as Allscripts' current clients are acquired by health systems using competing solutions from Epic, Cerner, MEDITECH and athenahealth. 


Investing Ideas Newsletter - mdrx shrinking


Our work suggests that attrition is much worse than management is letting on, and is an underappreciated reason why the correlation between bookings, sales and backlog have broken down in recent years. In fact, two of Allscripts largest clients have signed contracts with competitor Epic, for a system wide integrated EHR in 2015, with an implementation scheduled for mid-2017. 


Nowhere in the press releases, filings or transcripts does management address these pending losses and what it means for the business.  Instead, they are communicating a message of stability and market share gains, which according to the data, is a misleading narrative.


Bottom line: We continue to see more than 30% downside on a trend duration, with tail risk of 50% or more.


Investing Ideas Newsletter - 20160122 MDRX NetWinnerOfClients


To view our analyst's original report on Junk Bonds click here and here for Utilities


The volatile week ended with a big squeeze in equity and commodity markets, but more cracks in credit emerged, especially those bonds related to inflation expectations:

  • The U.S. 10-Year yield went nowhere, declining 2bps to 2.05%
  • TLT lost -0.4% -- small pullback given last week’s rip
  • JNK bounced +0.3% -- weak response to last week’s sell-off if you’re a bull

Meanwhile, in 2016, Utilities (XLU) continues to be the bright spot in the equity markets. XLU is up 1% this year, having edged out all other S&P 500 subsectors by a wide margin. Last week, XLU was down marginally but was still second best among the subsectors, beating all but Healthcare (XLV). Essentially, it's paying off to own low-beta XLU in a crashing market.


Back to the bond market. Taking a longer term view, as the unwinding of the unprecedented corporate credit bubble gathers steam, the JNK move was a weak bounce in what we see as a developing crash in high yield and junk bond markets:


Investing Ideas Newsletter - 01.22.16 JNK Chart


Rating agency S&P disclosed on Thursday three concerning stats as it relates to the wellness of credit oustanding:

  • More companies were at risk of having their credit ratings cut at the end of December than at the close of any other year since 2009
  • The number of potential downgrades was at 655, compared with 824 reported by the finish of 2009
  • The year-end total for 2015 was "exceptionally" higher than a yearly average of 613


Then on Friday, S&P followed with additional action:

  • Disclosure that oil-exporting countries face fresh downgrades as crude prices fall further and that it could repeat last year's move when it made a big group of cuts all at once
  • S&P currently has Azerbaijan, Bahrain, Kazakhstan, Oman, Russia, and Saudi Arabia on negative outlook in its Europe, Middle East and Africa region, as well as Brazil and Venezuela in Latin America

Moody’s echoed the shaky state of credit markets by announcing it was putting the ratings of 120 oil and gas companies on watch Friday.


Strap on your seatbelts as we expect that credit spreads will continue to widen. If the Fed pivots on its “4 rate hikes” in 2016 as the data continues to slow, Treasury bond yields get pushed lower and high-yield spreads widen into a late cycle deleveraging. This should continue to generate alpha in a Short JNK, Long TLT trade.


The Atlanta Fed snuck in a revised growth rate expectation after the close last Friday (what timing!). It’s becoming more probable that other Fed Heads will follow and acknowledge what we have echoed for a year and a half now.  


To view our analyst's original report on Nu Skin click here.


Nu Skin (NUS) has been crushed so far this year. The stock is already down roughly -16% YTD. While it did jump higher on Friday, we view this as another good opportunity to short the stock. The company is dealing with slowing distributor growth, small market share in its category, and the continued impending implications of further government intervention. This is not a company you want to be long.


To view our analyst's original report on Federated Investors click here.


In 2016, the asset management sector has been hit hard on market exposure and the -7% start to the year for the S&P 500. Market depreciation is especially impactful for the asset managers as negative market returns decreases billable assets and generally compresses valuation multiples for the sector.


With many questions on the solvency of the energy sector at low current oil prices, a U.S. central bank that is incrementally hawkish, and Chinese economic results coming in well below expectations, the environment is cautious at best.


With that said, the defensive nature of Federated Investors' (FII) business, with 70% of the firm’s assets-under-management in money market fund assets is outperforming the rest of the asset managers and we expect this divergence to widen as we get further into the year.


As investors get incrementally defensive and move to cash, industry money fund balances will increase. With ~10% share of cash products, FII assets-under-management will be more resilient than the rest of the industry.


Investing Ideas Newsletter - fii


To view our analyst's original report on Wabtec click here


Locomotives are continually being stored even while the total equipment fleet is young. Equipment heading to storage hurts Wabtec (WAB) in two ways. First, as equipment heads to storage, new equipment demand decreases.


Investing Ideas Newsletter - current cost


Second, WAB’s aftermarket business is hit as their customers choose to either delay maintenance and/or scavenge for parts off of stored equipment. This is particularly problematic with slowing freight rail capital spending on equipment for 2016.


Investing Ideas Newsletter - current storage


To view our analyst's original report on Tiffany click here.


Tiffany (TIF) missed yet again, blowing up the bull case that this is a great company at a defendable valuation. The forecastability of this cash flow stream is the worst we've ever seen outside of the Great Recession. If you did not think we were headed for a recession last week, you've got to give it serious credence today.


Unfortunately, in a recession TIF earnings could still go meaningfully lower (i.e. $3.00).


We acknowledge that TIF is a very good (once great) brand and company. But let's be honest...this company guided down more in the past year than it had it the preceding decade. That's hardly financial management befitting a Best-in-Breed company.


Barring a complete reset in Street numbers (down to the $3.50 range) we'll stay short.


To view our analyst's original report on Wayfair click here.


On Wayfair (W), management is selling high. Insider sales are nothing new at Wayfair as insiders have sold over $80mm net since the lockup expired at the end of March 2015. The chart below shows sale volume relative to the stock price. We view management's overall appetite to unload shares as a negative for the W business model long term. Insider sales accelerated in December driven mainly by higher sales from CFO Fleisher after filing a new 10b5-1 plan in November. January to date shows no signs of slowing.


We think this online only business model is one that will not be profitable in the home furnishings space in the long run. Management’s presentations may be bullish on the business model, but their trading activity points to the opposite.


Investing Ideas Newsletter - 1 22 2016 W insider sales 


To view our analyst's original report on Restoration Hardware click here.


With a $1.2 billion loss in market cap since the 3Q print (-34%), the market is suggesting that things are getting downright nasty at Restoration Hardware. Bad market style factors (small cap, high beta/high short interest) have been an enormous driver here, though they come on the heels of a sloppy 3Q print when for the first-time-ever concerns were raised about promotions to drive sales. Oh yeah, all that, plus there’s a very good chance we’re heading into a recession, as our Macro team has highlighted.


Regardless of where any of us stands on the recession debate, there’s one thing that matters to RH under $60 (and even under $70) – and that’s downside earnings support.


We’re going to host a call and issue a Black Book on Wednesday, January 27th to show the stress points in the business, and where we shake out on the model. More to come next week.


To view our analyst's original report on McDonald's click here


We remain the bulls on McDonald's (MCD) as we expect them to beat consensus estimates once again. With a full quarter of all-day breakfast under their belt, Restaurants Sector Head Howard Penney expects to see a big lift in comps. We will give you a more thorough update next week following the 4Q15 results on Monday January 25th.


Foot Locker (FL) remains one of Retail analyst Brian McGough's favorite short ideas. We added the company to Investing Ideas last week. McGough will send out a full stock report early next week.


Below is a brief excerpt from a research report McGough recently sent to institutional subscribers.


"FL is at the top of our Best Ideas Short List. While our short thesis goes far beyond a few unfavorable data points, the question around timing has been a big issue for people who agree with our TAIL call, but can’t quite get there over the near term.


For many reasons, we think that $4.20 will likely prove to be the high water mark in this economic cycle, and the consensus estimates in years one through three are high by $1-$2 per share.


We think that emerging competition from its top vendor, Nike (≈80% of sales), will stifle growth, and leave the company with an earnings annuity somewhere around $3.50-$3.75 per share. Is that worth $64? Not a chance. Not for a company that is Nike’s best off-balance sheet asset. And definitely not when the Street is in the stratosphere approaching $6.00 in EPS (#NoWay)."  


To view our analyst's original report on Zimmer Biomet click here. 


Healthcare analyst Tom Tobin has no new update this week on Zimmer Biomet (ZBH). Tobin reiterates his short call on ZBH, which is down -3.1% versus the S&P 500's -2.6% since the company was added to Investing Ideas in September. Remember the core thesis:

  • "Employment growth slowing and fears of a recession will certainly dampen investor appetite for what is viewed as an elective procedure."
  • "Our team's long-term view calls for slowing/declining unit volume and deteriorating pricing. The impact to gross margins should be significant with very little spending flexibility within the organization."   


If you haven’t noticed yet, General Mills (GIS) has turned on its advertising for no artificial colors and flavors in its cereal, as well as an increased effort for its gluten free campaign.


Click here to view the 30 second spot TV commercial.


These steps taken on cereal, coupled with improved merchandise planning across their portfolio in the second half should bode well for the company’s future performance. Additionally, General Mills fits neatly into the style factors that we like from a macro point of view, large cap, low beta and liquidity.

HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls

Takeaway: All exchange traded categories are substantially higher to start '16 with fresh new highs in CME trading volume.

Jittery markets continue to trade all over the map with significant gap up and draw down days digesting a helter skelter of global market information in 2016. The S&P 500 put in a marginally positive holiday shortened week of +1.3% but still sports a decidedly negative -7% start to the New Year. Exchange activity however continues to propel higher with incremental volatility and investor uncertainty. Cash equity volume in 1Q16TD is now up +38% Y/Y, with equity options activity now up +33% Y/Y, with futures at a +25% growth clip over 2015. CME Group (CME) thus far, half way through January, has set all-time trading volume highs of 19.1 million futures and options contracts per day, taking out the former high of 17.5 million in average daily volume (ADV) in October 2014 on the potential for a Greek exit from the European Union. While CME stock has been caught up in the market swoon (with its valuation compressing), the earnings power of the Merc has increased (and is threatening to do so for the intermediate term with the swelling of open interest as well). Thus it will just be a matter of time in our view, before CME stock perks up (although it is already outperforming the broader market by ~150 bps).


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - CME chart


Weekly Activity Wrap Up

This week, cash equity trading volume came in at 10.7 billion trades per day, bringing the quarter's ADV to 9.5 billion. Options traders exchanged 23.0 million contracts per day, bringing the 1Q16TD average to 20.6 million. Futures activity came in at 28.5 million contracts per day, bringing the 1Q16TD average to 24.9 million.


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon1


U.S. Cash Equity Detail

U.S. cash equities trading came in at 10.7 billion shares per day this week, averaging with last week to bring the 1Q16 average so far to 9.5 billion shares per day. That marks +38% Y/Y and +35% Q/Q growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 24% share of first-quarter volume, which is consistent with the prior quarter and year-ago quarter, while NASDAQ is taking a 19% share, +57 bps higher Q/Q but -91 bps lower than one year ago.


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon2 2


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon3


U.S. Options Detail

U.S. options activity came in at a 23.0 million ADV this week, bringing the 1Q16TD average to 20.6 million, a +33% Y/Y and +29% Q/Q contraction. In the market share battle amongst venues, NYSE/ICE has been trending downward at a moderate pace, but at an 18% share it is +125 bps higher than the year-ago quarter. Meanwhile, NASDAQ's recent declines bring it -440 bps lower than 1Q15. CBOE's market share is down -83 bps Y/Y but has improved recently; its 27% share of 1Q16TD volume is up +195 bps from 4Q15. BATS and ISE/Deutsche have been taking share from the competing exchanges, with BATS up to a 10% share from 9% a year ago and ISE/Deutsche taking 16%, up from 13% a year ago.


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon4


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon5


U.S. Futures Detail

22.4 million futures contracts traded through CME Group this week, bringing the 1Q16TD average to 19.1 million, a +28% Y/Y and +45% Q/Q expansion. CME open interest, the most important beacon of forward activity, currently tallies 104.0 million CME contracts pending, good for +14% growth over the 91.3 million pending at the end of 4Q15, an improvement from last week's +12%.


Contracts traded through ICE came in at 6.0 million per day this week, bringing the 1Q16TD ADV to 5.8 million, +15% Y/Y and +21% Q/Q growth. ICE open interest this week tallied 67.0 million contracts, a +5% expansion versus the 63.7 million contracts open at the end of 4Q15, consistent with last week.


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon6


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon8


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon7


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon9 


Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon10


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon11


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon12


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon13


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon14

HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon15


Sector Revenue Exposure

The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:


HEDGEYE Exchange Tracker | Chicago...the Merc Not the Bulls - XMon19 3



Please let us know of any questions,


Jonathan Casteleyn, CFA, CMT 




 Joshua Steiner, CFA





Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Cartoon of the Day: Full Of Hot Air?

Cartoon of the Day: Full Of Hot Air? - long helium cartoon 01.22.2016


Happy faces aside, we think this is a market you sell on strength.

3 Must-See Market Calls On HedgeyeTV

Takeaway: There's nothing "transitory" about what's going on right now.

Our omnipotent Fed head Janet Yellen is fond of saying that virtually anything central planners missed (e.g. #Deflation, #GrowthSlowing, global market meltdowns) is merely "transitory." Okay.


Here are three videos where Hedgeye CEO Keith McCullough discusses the coming crash in equity markets, our dour U.S. economic outlook and global #GrowthSlowing.


1. The Most Important Thing Going On Right Now (12/11/2015)


Old Wall completely missed our now prescient Macro theme global #GrowthSlowing. We were espousing the idea 18 months ago. It continues to ravage portfolios today. Here's why.  




Before you watch this video, note the date. It's just before a major summer selloff in U.S. equity markets. Watch McCullough discuss the myriad market leaders primed for a plunge including Tesla, down -14.5% since then, and Apple, off -12.7%. 


3. THE U.S. ECONOMIC OUTLOOK IN 2016? NOT GOOD (12/28/2015)


Since making the #GrowthSlowing call, our Macro team has been on the right side of U.S. economic growth. Down, down, down. Meanwhile, so-called "blue-chip" economists and the Fed have are still ratcheting back their expectations. To be clear, we're not getting bullish on the U.S. economy anytime soon. 

Click here to subscribe to our YouTube channel.

CALL TODAY | THE IRAN FACTOR: Contextualizing Iran's Impact on the Global Energy Industry

TODAY at 1:00 PM EST the Hedgeye Macro Team will host a conference call with former Energy Secretary Spencer Abraham and Senior Energy Analyst Joe McMonigle from Potomac Research Group to discuss the implications of the U.S. and EU lifting sanctions on the Iranian energy industry. A corresponding slide deck will be available approximately 1 hour in advance of the call.


As part of Hedgeye’s recent acquisition of Potomac Research Group , we’re excited to introduce both Abraham and McMonigle to Hedgeye subscribers.


Watch THE replay below.




This past weekend the International Atomic Energy Agency (IAEA) certified that Iran met its legal obligations as part of July’s agreement. The US and European Union (EU) lifted all nuclear related sanctions on Iran within hours.


In today’s call, we will outline some of the obvious and possibly unforeseen winners and losers after Implementation Day. The goal of the call will be to leverage the Potomac team’s policy experience, expertise, and network to contextualize key upcoming geopolitical catalysts amid a sea of mainstream noise post-deal.   



  • Near Term Surprise?: Iran has the capability to increase production near-term by a larger quantity and at a faster pace than most analysts and policymakers have forecasted.
  • Direction and Policy Tone of Releasing Deliverable Crude: We’ll give an update on the nearly 50MM barrels of crude stored on tankers offshore that is available for immediate delivery and on the move. Iran will move quickly to get into OPEC’s “market share” game (a game that Saudi Arabia will play for the foreseeable future).
  • Updated Iranian Oil Contract:  We’ll discuss the likely outcome of a re-worked Iranian Oil Contract. Iran’s Oil Ministry is planning a conference in London for oil companies and investors on February 22-24 to unveil its new Iran Petroleum Contract. In November, Iran held an introductory briefing for international oil companies on the new oil contract, and the general approach was received quite favorably.
  • Short-Term vs. Long-Term: While initial production capabilities may be significantly understated in the short-run, billions in western investment is needed to bring Iran back to pre-sanctions production levels.   
  • Which companies will participate? European oil companies are now free to do business in Iran. However, while the US lifted nuclear sanctions on Saturday, other US sanctions related to terrorism and human rights remain in effect and prevent US companies from immediately doing business in Iran.
  • Geopolitical Rivalries: A price war with rival, Saudi Arabia will commence. Russia is geopolitically-aligned with Iran, but they are business competitors. Russia was successful in taking many of Iran’s southern European clients. Iran will look to compete for this business at the same time that Europe is looking to diversify its energy needs away from Russia.  



Toll Free:


UK: 0-

Confirmation Number: 13628992

Materials: CLICK HERE






Spencer Abraham

Secretary Spencer Abraham serves as Senior Energy Analyst and is Chairman and CEO of The Abraham Group, an international strategic consulting firm focused on the energy sector and based in Washington, DC.

Secretary Abraham is a member of the Board of Directors of Occidental Petroleum, NRG Energy and PBF Energy. Secretary Abraham served as the tenth Secretary of Energy in United States history from 2001-2005 under President Bush. Prior to being named a Cabinet Member, Spencer served as an effective and highly productive U.S. Senator from Michigan for six years.

Secretary Abraham is a member of the Board of Directors of Occidental Petroleum, NRG Energy and PBF Energy.  In addition, he is a frequent commentator on FOX News, CNN and Bloomberg TV as well as a periodic contributor of op-ed articles to the Financial Times, The Wall Street Journal, The Washington Post, The Weekly Standard and other publications.

Secretary Abraham holds a law degree from Harvard University, where he co-founded the Federalist Society, and is a native of East Lansing, Michigan.


Joseph McMonigle

Joseph McMonigle serves as a Senior Energy Analyst and is president and co-founder of The Abraham Group LLC.

Mr. McMonigle is the former Vice Chairman of the Paris-based International Energy Agency. He also served concurrently as U.S. Representative to the IEA (2003-2005).

In addition, Mr. McMonigle served as Chief of Staff at the U.S. Department of Energy and also as the American co-chair of the U.S.-China Energy Cooperation Working Group. He is also an attorney and member of the Energy Bar Association as well as the Pennsylvania and District of Columbia bars.


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