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Cartoon of the Day: No Oil Freeze

Cartoon of the Day: No Oil Freeze - OPEC cartoon 04.18.2016


On Friday, Hedgeye colleague and Potomac Research Group Senior Energy analyst Joe McMonigle wrote, "We believe there is no chance Saudi Arabia reverses its position and agrees to freeze production on Sunday," after Iran announced it would skip the much-hyped oil "freeze" meeting in Doha. That proved prescient. Over the weekend, OPEC members, including Saudi Arabia, and non-OPEC countries, like Russia, failed to reach an agreement to freeze oil production.

Setting the Record Straight On Our Market Calls

Setting the Record Straight On Our Market Calls - bear winking


The trolls are back! 


Since equity markets bottomed in February, a growing chorus of market prognosticators -- from outright haters to permabulls and everyone in between -- have been chirping our calls from the cheap seats.


Let's set the record straight.


We still believe U.S. equities are headed for a crash. Myriad macro market risks loom ever larger over the U.S. economy (see corporate profits and flagging economic growth). These risks are as relevant today as they were earlier this year when the market sold off. They have not gone away.


Set aside for a moment that the permabulls most dismissive of our bearish market calls got run over by the selloffs we warned subscribers about in July and again in December. Let's take a look at some cold hard facts. In particular, how our top Long and Short ideas we recommended heading into 2016 have performed.


Long The Long Bond (TLT):


Setting the Record Straight On Our Market Calls - tlt v s p 4 18




Setting the Record Straight On Our Market Calls - xlu v xlf 4 18

we'll stick with what's working.

Why We Think Agrium Has Substantial Downside | $AGU

Takeaway: We believe Agrium has substantial downside from here.

Our analysts Jay Van Sciver and Ben Ryan presented the bear case on Agrium (AGU) last Wednesday with a detailed 90-slide black book during an institutional conference call. To summarize, we believe the retail business is misunderstood and subject to short-termism from an analysis perspective.


In our view, operating margins in the retail business—which have been stable post-recession—will contract meaningfully as the sector continues its long cyclical downturn. We expect margin and top line pressure at Agrium's retail unit to expose the overvaluation of this business segment by the market.


Below are some relevant slides highlighting why we think Agrium has significant downside. 


**Email sales@hedgeye.com for the deck and/or related inquiry.


Click chart to enlarge

Why We Think Agrium Has Substantial Downside | $AGU - z jay 2


Why We Think Agrium Has Substantial Downside | $AGU - z jay 3


Why We Think Agrium Has Substantial Downside | $AGU - z jay 4


Why We Think Agrium Has Substantial Downside | $AGU - z jay5

The Latest Victim Of Europe's Nasty Economic Malaise

The Latest Victim Of Europe's Nasty Economic Malaise - Economic growth cartoon 10.20.215


Gone are the days of proclaiming a single ailing economy the "sick man of Europe." Across the Eurozone, countries are plagued by the same inexhaustible disease, #GrowthSlowing.


Don't expect that to change anytime soon. The latest news out of Spain simply confirms our thinking about lackluster European growth. Here's the update from our Macro team in a note sent to subscribers earlier today:


"Spain's Economy Minister Luis de Guindos lowered the country's 2016 GDP forecast to 2.7% versus 3.0% and the 2017 forecast to 2.4% versus 2.7%. This follows last week's reduced growth forecast by the IMF for Spain for the first time since 2013, to 2.6% from 2.7% for 2016. Yet the forecasts pale to our own, which according to our GIP (growth, inflation, policy) model, show the Spanish economy tracking into Quad 3 (equating to growth slowing as inflation accelerates) in the back half of the year with a mere 1.0% GDP forecast for 2016."


We expect things in Europe to get a lot nastier as this evolving reality continues to play out.



$25 or $50 Oil? Here’s What McMonigle Says


In this brief excerpt from The Macro Show this morning, Hedgeye Energy Policy Analyst Joe McMonigle explains why he believes oil prices are going lower in the short term, and where he sees it heading in the months to come. 

BUILDER CONFIDENCE | Suspended Animation

Takeaway: Builder sentiment held at 10-month lows in April. Forward expectations bounced +1pt, but remain well below their Oct 2015 highs.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


BUILDER CONFIDENCE | Suspended Animation - Compendium 041816

Today's Focus: March NAHB HMI (Builder Confidence Survey)

Builder Confidence in April was static at 58 against unrevised March estimates, holding at 11-month lows for the third straight month and marking a 6-month past the cycle peak of 65 recorded in October.


Across the Survey Indicators, Current Sales moved lower from 65 to 63, putting in their lowest reading since May of last year. Meanwhile, there was a +1pt gain in Forward Expectations and also a +1pt gain in Buyer Traffic, but both those surveys remain below their LTM averages.


Regionally, all four US regions posted sequential declines. The Northeast and West both fell -2pts, while the Midwest and South each registered -1pt declines. 


Commentary was largely generic, referencing jobs and rates as broadly positive for the fundamental backdrop:


NAHB CEO Robert Dietz:  “Builders remain cautiously optimistic about construction growth in 2016. Solid job creation and low mortgage interest rates will sustain continued gains in the single-family housing market in the months ahead.”


In short, nothing particularly remarkable in the April release as Builder Confidence remains past peak and the larger demand trend across both the new and existing markets remains one of deceleration. 


Looking to March Housing Starts data tomorrow, we expect the number to remain strong from a rate-of-change perspective as we lap the depressed, severe weather comps from last February/March.  


Looking more broadly at both US Housing and the US Economy, they could best be summarized as a whole lotta “not much” going on at present.  






BUILDER CONFIDENCE | Suspended Animation - NAHB LT


BUILDER CONFIDENCE | Suspended Animation - NAHB Regional


BUILDER CONFIDENCE | Suspended Animation - NAHB Survery Indicators 





About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.




Joshua Steiner, CFA


Christian B. Drake


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