prev

A Bull Market In Volatility (VIX)!

While Wall Street is trying to figure out if they can squeeze an up day out of the shorts into the long weekend, let's try managing risk proactively ahead of everyone coming back to work on Monday.

Volatility, measured by the VIX, is one of the few charts, next to that of Gold, that I write about objectively in the context of a resoundingly bullish formation.

The only good thing about the VIX selling off -5% so far today, is that today is going to end soon. Doubting the "Bear" is setting the VIX up to make higher lows and higher highs.

I have a near term price target of 26.12 for the VIX, and remain comfortable with my call that the 31-32 level is coming to a theatre near you this summer.

KM

(chart courtesy of stockcharts.com)


US Employment Trends: Hope Versus Reality...

This morning's headline June Employment Report told us nothing other than nothing has changed. At -62,000 US non-farm payrolls the reported "Trend" remains negative.

Interestingly, away from the headlines CNBC is flashing you, there were 3 other callouts within this morning's employment data to consider:

1. The weekly jobless claims print of 404,000 takes us higher yet again on a 4 week moving average basis, ensuring that the July employment #'s could be worse

2. The non-farm payroll # for May was revised down from -49k to -62k. I know, it's worse when the right number is even worse than the one that initially freaked you out.

3. The -62k monthly change in non-farm payrolls was 10x as bad in 1974. Pull up the data set for some perspective. We're just getting started here folks!

After 16 years and 64 consecutive quarters of real growth, the US Consumer spending bull market is ending. This is only the beginning of the end.
KM

Selling My Lehman (LEH) - Keep a Trade A Trade!

This is a bear market that can and should be traded, not invested in with any level of concentration, until it washes itself out. I bought LEH on the "take under" rumor, and I am selling it for a +13.5% gain here.

Keep a "Trade" a trade.
KM

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Ugly Chart of the Month!

In a 'how could I not have seen this coming' moment, I realized that my '3 points in lost margin over 3 years' thesis for apparel has another nail in the coffin - a meaningful slowdown in the growth of the number of core customers.

All my clients (and then some) know my thesis on apparel - that the industry will give back 3 margin points over 3 years as the supply chain gets stress-tested to a degree not seen in over 10 years. This will be driven by 1) a reversal in a massive sourcing tailwind, 2) tightening capacity in Asia, and 3) the US consumer heading into a 'consumption depression' as the personal savings rate heads higher to offset at least a temporary pause (if not long term) in a 25 year bull market for home prices and equities.

I think that the lack of sourcing savings disarms the industry of a powerful weapon previously used to stimulate per capita unit demand (up 50% in 15 years). But shame on me for not accounting for the chart below. Demographics for this space are absolutely abysmal.

While it's easy to look at the aggregate population numbers in the US, those usually don't mean much when looking at a specific industry with unique consumers. My Jr Analyst Zac (one of the best collegiate sailors in the world) took this analysis to the next level and calculated the percentage of apparel spending by age group versus the growth in each of each of those individual age groups.

His major takeaway is that from 2001-2005, the apparel population grew at a favorable rate relative to the overall population. This rate started to roll in 2006 (around the time the industry started to show more stress) and headed lower into 2008. The bad news is that this rate accelerates further all the way through 2012. This is bad bad bad.

Not only are my previous concerns enough to take out 3 points of margin, but now the demographic picture seems like the nail in the coffin. Again, I completely realize that the future demographic trend is not a new development, but that my realization of it is. But I've been covering this industry for a long time. If it's news to me, then I'm willing to bet that its news to most others as well.

I'm not trying to be negative here folks, but these are facts I simply can't ignore.

ATLANTIC CITY: RANDOM THOUGHTS

ATLANTIC CITY
I spent a hot Tuesday in Atlantic City. This may sound strange but it was refreshing to hear doom and gloom commentary from Company and Property level management personnel. There is no false optimism here. I may be falling for the contrarian just to be contrarian perspective but the Buyside, Sellside, and even industry professionals all seem to hate Atlantic City. Unlike Las Vegas, estimates have come way down and revenues and margins have been under pressure for awhile. Don't get me wrong: June was not good and the smoking ban will hit the market hard come October 1st. However, the big Pennsylvania impact will abate soon and AC could actually benefit from the Staycation effect discussed in my last portal posting.

TRUMP BONDS
The price of the Trump bonds are clearly not reflecting that the sale of the Marina will close. The bonds currently trade at 62.25 despite a deleveraging $316 million pending sale. Richard Fields and Coastal Marina can walk away from the deal for just $15 million which doesn't sound like a lot. However, the lawsuit between Trump and Fields would be reinstated upon termination. This lawsuit has legs and is a reason to believe the deal could go through. Not making a call yet on the probability of this transaction closing but I'll have more on this one later.

THE WATER CLUB
How did Borgata manage to build The Water Club for just $400 million. This is a beautiful facility with 800 rooms, an unbelievable spa, meeting space, five pools, additional retail, and a new restaurant. In my career I've enjoyed calling out questionable capital projects in this industry. I've got to say, though, this is the first project I've seen in awhile that looks like it could actually hit the magical 15% ROI. Boyd Gaming has been an easy target for the shorts and I've been there along with them. Despite my negative view on Echelon (not the quality of the facility but the ROI potential) and continued headwinds in the Las Vegas locals business, the free cash flow yield of over 20% is hard to ignore, particularly considering the potential of The Water Club. Not sure if we are there yet on BYD but stay tuned. It's getting interesting.

EYE On Demographic Trends

According to NPD, most casual dining users can be found in two age groupings - 18-34 and 35-49. Collectively, these two groups account for approximately 50% of all casual dining visits.
  • While 18 to 34 year-olds comprise only 24% of the total U.S. population, they account for 26% of the total occasions at casual dining restaurants. The 35-49 age group accounts for 24% of casual dining visits.
  • While the number of people in this demographic is still growing year-over-year, it's at a decelerating rate. Beginning in 2009 the trends for this key demographic begin to flatten out and actually decline over the next five years.
  • The current consumption recession is putting significant pressure on an industry that has excess capacity. It appears that the demographic trends will complicate this issue.

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.

next