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Us Versus Them (What We Think About US GDP)

Takeaway: Our estimate for Q1 2016 GDP is 1.0% versus delusional Fed commentary and Wall Street's high forecast.

Us Versus Them (What We Think About US GDP) - 4  growth cartoon 03.02.2016

 

Yellen & Co. remain steadfast believers in an "all is well" U.S. economy as a mostly blinded Wall Street eats it up. Right? Apparently, the Fed doesn't believe its own forecasts. The Atlanta Fed's GDPNow forecast for Q1 2016 has tumbled from 2.7% in Febraury to 0.6% today (click here and here for more). Talk about a messaging mess (among other Fed messes...)

 

Meanwhile, Fed head Janet Yellen waived away recent weakness largely blaming "transitory" lower oil prices, a stronger dollar that would "gradually dissipate" and "foreign economic growth... [that was] weaker this year than previously expected." 

 

Roger that.

 

Here's where we shake out in comparison to Wall Street's stubbornly high Q1 GDP forecast and the Atlanta Fed's scattershot estimate.

 

Us Versus Them (What We Think About US GDP) - gdp estimates wall fed us

 

... And watch the video with Hedgeye CEO Keith McCullough below to learn what we REALLY think about the Fed and "data dependence."

 


[UNLOCKED] Keith's Daily Trading Ranges

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 of which are determined by what's flashing on Keith's screen and by what names 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
1.89 1.75 1.78
SPX
S&P 500
1,989 2,069 2,060
RUT
Russell 2000
1,069 1,124 1,114
COMPQ
NASDAQ Composite
4,732 4,892 4,870
NIKK
Nikkei 225 Index
15,852 16,853 16,759
DAX
German DAX Composite
9,713 10,062 9,947
VIX
Volatility Index
13.25 19.70 13.95
USD
U.S. Dollar Index
94.26 96.31 94.58
EURUSD
Euro
1.11 1.14 1.13
USDJPY
Japanese Yen
111.42 113.66 112.12
WTIC
Light Crude Oil Spot Price
36.64 39.92 38.11
NATGAS
Natural Gas Spot Price
1.80 2.04 1.96
GOLD
Gold Spot Price
1,206 1,261 1,234
COPPER
Copper Spot Price
2.15 2.24 2.18
AAPL
Apple Inc.
103 110 109
AMZN
Amazon.com Inc.
533 606 593
MCD
McDonald's Inc.
122 126 126
XLU
Utilities Select Sector SPDR
48.13 49.84 49.62
XLF
Financials Select Sector SPDR
22.01 22.82 22.50
FB
Facebook, Inc.
110 116 114


Welcome to Q2

Client Talking Points

JAPAN

The Nikkei was annihilated -3.6% last night after ending Q1 with 3 straight down days (it’s back in #crash mode at -22.5% since U.S. stocks peaked when the G7 Equity Bull Market Cycle peaked in July of 2015). The #BeliefSystem on central-market-planning is breaking down, hard, right where it all began (Krugman said “print lots of money” 1980s, and they did).

EUROPE

So Janet Yellen Devaluing Dollars into Q1 end doesn’t get everyone a sticker? Dollar Down pushes Yen and Euro Up causing Japanese and European stocks to move back into crash mode with DAX starting Q2 -1.7% and -21% since The Cycle peaked in 2015.

UST 10YR

The Long Bond remains the best (and most liquid low volatility) way to stay in synch with our 1H 2016 #GrowthSlowing call. The UST 10YR Yield of 1.78% makes bonds overbought into the jobs report; so think about trimming some of that core in the 1.75-1.80% range so that you can reload on long in the 1.90-2.0% range – think about risk managing Utilities (XLU) longs that way too.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 66% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
CME

CME Group (CME) put up a decent fourth quarter earnings print with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts.

 

Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.

GIS

We continue to like General Mills (GIS) as one of the best large cap names in the packaged food space. With that being said, the third quarter was not without its noise surrounding the numbers; Green Giant divestiture, Walmart clean store policies, foreign currency exchange, and grain merchandising just to name a few, muddied the waters. But digging through the noise, this is a business that is truly turning a corner. When they set sail on fiscal year 2016 back in June of 2015, we knew this was not going to be an easy ship to turn towards success. Now, with many key product platforms turning (through strong product innovation and renovation) in the right direction and operational improvements implemented through cost savings initiatives, GIS is on the cusp of success. We will be measuring this success by realization of sustained top line growth in the low single digit range.

TLT

In our model the second quarter is the toughest compare on both GDP and U.S. corporate profits so we want to be very careful going into that and be positioned defensively. Stay long Long-Term Treasuries (TLT).

 

While small/mid cap U.S. Equities reverted to their bear market mean last week (Russell 2000 down -2.0% on the week and -16.7% since US Corporate Profits peaked in Q2 of 2015), so did a few other US Equity Market Style Factors that had had a big 1-month bounce:

  1. High Beta stocks were -2.0% on the week
  2. High Leverage (Debt/EBITDA) stocks were -1.9% on the week
  3. High Short Interest stocks were -1.7% on the week

 

Three for the Road

TWEET OF THE DAY

NEW VIDEO | McCullough: Shame On You Mark Zandi https://app.hedgeye.com/insights/50046-mccullough-shame-on-you-mark-zandi… via @KeithMcCullough #GDP #Economy #OldWall

@Hedgeye

QUOTE OF THE DAY

Most people never run far enough on their first wind to find out they’ve got a second.

William James                                                   

STAT OF THE DAY

Founded in 1937 TROW is a leading stock fund manager with headquarters in Baltimore Maryland and employs 5,900 associates.


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Hedgeye Converting to a Master Limited Partnership (MLP)

Independent Investment Research Firm Aims To Take Advantage of MLP Structural Advantages

FOR IMMEDIATE RELEASE

 

STAMFORD, Conn., April 1, 2016 -- Hedgeye Risk Management announced today that it has officially converted to a Master Limited Partnership (MLP) effective immediately. This corporate structure conversion occurs concurrently with Hedgeye’s acquisition of all the assets of the “Old Walla-Balla Oil Field” headquartered in Lower Manhattan, with oil fields scattered across the southeast United States.

 

The main objective of Hedgeye’s corporate conversion is to increase tax efficiency and diversify the research firm’s growing revenue base.  In addition, like many MLPs before Hedgeye, the firm’s new low cost of capital will allow it to aggressively overpay for declining assets.

 

“This was a very simple decision,” said Hedgeye President Michael Blum. “Our Energy analyst Kevin Kaiser did extensive work featured in Barron's on LINN Energy, Kinder Morgan and Summit Midstream Partners which made us well aware of myriad risks to the MLP structure.  And yet, in the midst of the miasma, we saw one clear, obvious benefit too good to pass up—the ability of investment bankers to sell the dream of a yield in a zero interest rate universe.” Blum said.

 

The new Hedgeye MLP will issue a dividend to holders of both Hedgeye General Partnership (GP) and Hedgeye Limited Partnership (LP).

 

  • Holders of the GP units will receive a preferred dividend yield of 18% securitized by gold stored in the Company’s vault. 
  • Holders of the LP units will receive an unsecured dividend yielding 5%.  It is expected the initial payout ratio on the LP dividend will be 51%, based on pro-forma calculation excluding all expenses and capital expenditures.  (On a cash basis, the payout ratio is expected to be north of 300%)
  • All holders will receive a $25 gift certificate to Chipotle provided by Hedgeye Restaurants Sector Head Howard Penney.

 

“Look, like most things Old Wall, we recognize that these oil fields are a declining asset,” said Hedgeye Chief Financial Officer Todd Jordan.  “But we also recognize that our firm’s core revenues can’t continue growing at 30%+ per annum organically forever. This combination of tax savings and proceeds will allow us to further diversify our revenue and return cash to shareholders via a non-GAAP distribution set at a yield of 18%. Maybe 52%. It’s not entirely clear yet."

 

"Except the Chipotle gift card," Jordan added. "They’ll definitely get the gift card.”

 

***Proceeds from the bought deal coinciding with transaction will be used for the following purposes:

 

1) Start a Hedgeye Gear apparel business which has been launched in its Beta form.

Hedgeye Converting to a Master Limited Partnership (MLP) - z h gear 1

 

2) Wholly acquire the Charlestown Chiefs of the Federal League and move the team to Stamford, CT.

Hedgeye Converting to a Master Limited Partnership (MLP) - z ch


3) Acquire the yacht Octopussy under the auspices of the Jones Act and relocate our offices to its main cabin.

 

ABOUT OLD WALLA BALLA

The firm is a declining, conflicted, and compromised asset based in lower Manhattans in the area more commonly known as “Wall Street.”

 

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: Jenny

867-5309


Hedgeye Converting to a Master Limited Partnership (MLP)

Dear Subscriber,

 

In lieu of the Early Look today, we would like to use this special opportunity to officially announce the big news of a very exciting corporate development.  While additional details follow in the press release below, please note that effective immediately, Hedgeye Risk Management, LLC will be converting to a Master Limited Partnership (“MLP”). 

 

There will be no change whatsoever in your services.

 

Regards,

 

Daryl Jones

Director of Research and Head of Sales

 

 

Independent Investment Research Firm Aims To Take Advantage of MLP Structural Advantages

FOR IMMEDIATE RELEASE

 

STAMFORD, Conn., April 1, 2016 -- Hedgeye Risk Management announced today that it has officially converted to a Master Limited Partnership (MLP) effective immediately. This corporate structure conversion occurs concurrently with Hedgeye’s acquisition of all the assets of the “Old Walla-Balla Oil Field” headquartered in Lower Manhattan, with oil fields scattered across the southeast United States.

 

The main objective of Hedgeye’s corporate conversion is to increase tax efficiency and diversify the research firm’s growing revenue base.  In addition, like many MLPs before Hedgeye, the firm’s new low cost of capital will allow it to aggressively overpay for declining assets.

 

“This was a very simple decision,” said Hedgeye President Michael Blum. “Our Energy analyst Kevin Kaiser did extensive work featured in Barron's on LINN Energy, Kinder Morgan and Summit Midstream Partners which made us well aware of myriad risks to the MLP structure.  And yet, in the midst of the miasma, we saw one clear, obvious benefit too good to pass up—the ability of investment bankers to sell the dream of a yield in a zero interest rate universe.” Blum said.

 

The new Hedgeye MLP will issue a dividend to holders of both Hedgeye General Partnership (GP) and Hedgeye Limited Partnership (LP).

 

  • Holders of the GP units will receive a preferred dividend yield of 18% securitized by gold stored in the Company’s vault. 
  • Holders of the LP units will receive an unsecured dividend yielding 5%.  It is expected the initial payout ratio on the LP dividend will be 51%, based on pro-forma calculation excluding all expenses and capital expenditures.  (On a cash basis, the payout ratio is expected to be north of 300%)
  • All holders will receive a $25 gift certificate to Chipotle provided by Hedgeye Restaurants Sector Head Howard Penney.

 

“Look, like most things Old Wall, we recognize that these oil fields are a declining asset,” said Hedgeye Chief Financial Officer Todd Jordan.  “But we also recognize that our firm’s core revenues can’t continue growing at 30%+ per annum organically forever. This combination of tax savings and proceeds will allow us to further diversify our revenue and return cash to shareholders via a non-GAAP distribution set at a yield of 18%. Maybe 52%. It’s not entirely clear yet."

 

"Except the Chipotle gift card," Jordan added. "They’ll definitely get the gift card.”

 

***Proceeds from the bought deal coinciding with transaction will be used for the following purposes:

 

1) Start a Hedgeye Gear apparel business which has been launched in its Beta form.

Hedgeye Converting to a Master Limited Partnership (MLP) - z h gear 1

 

2) Wholly acquire the Charlestown Chiefs of the Federal League and move the team to Stamford, CT.

Hedgeye Converting to a Master Limited Partnership (MLP) - z ch


3) Acquire the yacht Octopussy under the auspices of the Jones Act and relocate our offices to its main cabin.

Hedgeye Converting to a Master Limited Partnership (MLP) - yacht

 

ABOUT OLD WALLA BALLA

The firm is a declining, conflicted, and compromised asset based in lower Manhattans in the area more commonly known as “Wall Street.”

 

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: Jenny



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