Central planners are increasingly pushing on a string as macro markets continue to move in direct opposition to the best efforts of policymakers at the ECB and BOJ.
Hedgeye Internet & Media analyst Hesham Shaaban removed LinkedIn from his Best Ideas Long list heading into fourth quarter earnings. Good call. The stock is down 50% year-to-date. In this brief excerpt from The Macro Show earlier today, Shaaban responds to a subscriber’s question about whether LinkedIn is now “too cheap to ignore” and gives a deep dive explanation as to why he’s cautious on the stock.
In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why "we’re entering a new era in which simplicity — not choice — is the hallmark of a cutting-edge brand."
Click here to read Howe's accompanying About Everything research note.
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.
In an exclusive interview with Time magazine, Fed head Janet Yellen said:
"We are focused on Main Street, on supporting economic conditions—plentiful jobs and stable prices—that help all Americans."
We've been arguing that Fed policies have, in fact, perpetuated the exact opposite of Yellen's stated goal for some time now. In the charts below, via Hedgeye Senior Macro analyst Darius Dale, you can clearly see the massive build in asset prices that Fed helped create. This swelling of financial assets flowed predominantly to the balance sheets of the wealthy. Not Main Street.
"This grand central planning experiment where we've made literal market-moving rock stars out of government bureaucrats will definitely come to an end."
More on that...
Yellen & Co. have this nonsensical line of thinking that the Fed "did not make a mistake" with its December rate hike, a pause in April rate hikes was warranted because the Fed is "willing to be cautious" about poor economic data but that, ultimately, the economy is doing "quite well" so further Fed rate hikes is one of the world's "worst-kept" secrets.
Well, data-dependent Fed, what does the data say?
Here are a few charts via Hedgeye Senior Macro analyst Darius Dale of recent data releases. Notice the clear-cut declines across these data sets (Retail sales, PPI, and NFIB Business Survey):
Takeaway: A fantastic deal that gets RH what it can’t build on its own without multiple times the capital spend.
This RH acquisition makes all the sense in the world to us – not because we’re bullish on all things Resto. We’re not, actually. But we do think that the current valuation egregiously misses the mark in capturing the real economic value that RH will deliver in the coming years. Here’s a few points…
1) What is it? – Waterworks annual revenues are in the $100mm+ ballpark, with 15 showrooms across the country in key MSA’s: NY, LA, Miami, Chicago, Boston, UK etc. Along with that comes an established Trade business, with the product featured in 50 hotel projects and 45 apartment complexes with a particular emphasis in NY. The brand’s heritage is rooted in Bath and opened its first Kitchen showroom in August of 2014. The product offering is additive on the Bath side to RH’s current offering with a broader selection of technical fixtures. And the Kitchen business is a mirror image of the line RH had talked about creating when it hired Richard Harvey (who is no longer with the company) in June of 2013. The current offering includes: cabinetry, sinks, fittings, surfaces, etc.
2) Deal economics: The $117mm all-cash deal, implies multiples of 1.1x-1.2x sales and 10.5x EBITDA. Slight premiums to where RH is trading, but our sense is that RH has been courting partners that make strategic sense to fill out the category breadth since it closed its first convert in the early part of 2014. The timing here suggests that RH did what it said it would do all along, by taking advantage of market volatility to bolt on strategic partners to broaden the category assortment at a price that makes financial sense.
3) Year 1 accretion: That way we are doing the math, assuming it’s a ~$100-$120mm business, with HSD operating margins (DD EBITDA) closing in 2Q, we get to 3%-4% points of top line growth ($60mm-$75mm in revenue). At a HSD EBIT margin that’s 2%-3% points of EBIT growth, and $0.05 in earnings.
Waterworks product offering:
Following yesterday's 4.5% pop in the price of oil on OPEC production freeze speculation, we're back to fundamentals this morning (a.k.a. stronger U.S. dollar pushing prices lower).
So where do we go from here? Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:
"Another fun ramp to an immediate-term overbought signal (on an oversold USD signal) finds resistance, USD bounces, and Oil sells off -1.7% this am; OVX (oil volatility) is signaling nowhere near the end of this bear market in Oil (OVX = 48 with an immediate-term risk range of 44-53)"
In a recent Early Look, McCullough noted that Commodities (CRB Index) have an inverse correlation (30-day duration) of -0.88 vs. the US Dollar. That's what's driving commodity prices and oil today.
If you are trying to read the OPEC tea leaves, however, watch our Hedgeye colleague and Potomac Research Group's Senior Energy analyst Joe McMonigle in the video below.
Today, Saudi Arabia's Oil Minister downplayed the prospect of oil producers taking action saying "Forget about this topic." Furthermore, Iranian oil minister Bijan Zanganeh announced that he does not even plan to attend the Doha meeting.
McMonigle has been arguing for a while now that speculation about an OPEC oil production freeze is just talk, since Saudia Arabia and Iran's true intentions are what really matter. Here are links to other videos and research notes via McMonigle:
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