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Setting The Record Straight On Our Macro Calls

Takeaway: For reality-challenged critics chirping from the cheap seats, here's an update on our top Macro calls versus the S&P 500.


Setting The Record Straight On Our Macro Calls - macro calls


We'll let the numbers speak for themselves.



Takeaway: Caribbean tailwinds abate somewhat for the rest of 2016 - soft guidance stemming from Europe & China matters

Here are our takeaways from today's release and conf call:

  • Thanks to close-in North America business the Q1 yield beat was huge. However, Q2 guidance is much weaker. A simple calculation would suggest 1H yield growth average 4% (it's actually a little less than 4% since Q2 has a higher weighting in terms of revenue contribution than Q1) which is slightly ahead of our expectations and the Street's. This is why only the low end of FY yield guidance was raised by 50bps despite the huge Q1 beat.
  • But the Q2 weakness is more concerning
    • Additional promotional discounting is needed in the Mediterranean for the close-in bookings to fill the ships. RCL has had to source more guests from Europe than usual (69-70% of European business (usually 2/3)) since North America guests are more hesitant to booking into Europe, a point we emphasized in our recent cruise presentation. As a result, RCL is lowering their yield expectations for Europe. This sourcing shift is also a negative for NCLH's European business which is mostly US-sourced. In addition, European guests spend lower on board the ships than North American guests do. 
    • The company continues to blame capacity increases in China, particularly in Shanghai. Management's tone has shifted from high optimism to caution regarding China. Capacity in China is 9% this year vs 6% last year.
    • Low end of expectations in Shanghai (50-60% of total China business) i.e. Quantum of the Seas and Mariner of the Seas. Everyone knows China is a close-in market. In its release, RCL implicitly suggested that visibility on China's bookings environment is getting murky. RCL certainly feels tenuous about China currently. In our recent cruise presentation, we stressed pricing pressures in China.  
    • The Easter shift accounts for 20-30bps, shifting from Q1 to Q2 2016. 
    • Introducing 2 new ships (Harmony of the Seas/Ovation of the Seas) ramps up occupancy but at lower yields - Harmony's inaugural sailings is in a tough European environment and Ovation is in China, which has seen lower yields YoY in 2016. 
  • Fuel/FX - Midpoint FY 2016 EPS guidance was raised by 25 cents with 15 cents contributing from a FX/fuel tailwind. FX/fuel benefited Q1 by 8 cents, which implies a 7 cent tailwind for the rest of 2016. 
    • But bunker fuel prices have risen on average ~15% since Q1 which leads us to believe that mgmt's fuel expense guidance could be too low
    • Meanwhile, the US dollar has weakened ~5% for RCL's blended currency basket since Q1.
    • Hence, so far in Q2, the tremendous rise in oil prices has outpaced that of the US$ weakness which suggests the 7 cent tailwind for the rest of 2016 may come in a little bit lower if current prices persist.
  • NCC ex fuel growth guidance was raised slightly for the full year to 1%. It's not that big of a hike but any hike isn't great as China costs have increased.
  • Caribbean is less important going forward. For some perspective, Caribbean deployment in Q1 was 63%; it's averaging ~39% for the rest of 2016. For Europe, itineraries accounted for almost 0%; for 2Q and 3Q, Europe accounts for 28% and 40% of RCL's capacity, respectively. China deployment overall, as mentioned above, is also higher YoY due to Ovation's entry into Tianjian into late June 2016. 


LNKD | Good Print, No Chase (1Q16)

Takeaway: The muted chase off a largely flawless print suggests 4Q15 is still top of mind; LNKD may need to over-deliver just to stay afloat this year


  1. 1Q16 = SOLID BEAT/SOFT RAISE: No big surprise on the beat after the scary 2016 guidance offered up on its last call.  Talent Solution revenue came in ahead of expectations, albeit notably decelerating in its legacy Hiring segment from 32% to 27% y/y growth.  However, LNKD produced unexpected accelerations in both Marketing Solutions & Premium Subscriptions revenue growth.  LNKD raised 2016 guidance largely inline with the 1Q beat; 2Q guidance edged above consensus.  
  2. NO NEW RED FLAGS: We avoided this print largely becuase we didn't know how mgmt was going to address the street, which we suspect may carry more weight than its reported metrics this year after the 4Q15 fallout on largely self-inflicted wounds.  However, mgmt handled themselves much better on the call this time around.  The focus of mgmt commentary was more on LNKD's long-term prospects and less so on the current environment.  Mgmt did address the EMEA/APAC concerns raised during the last call by suggesting that both markets are performing as expected.  Interestingly, revenues actually accelerated in both markets... 
  3. BUT NOT MUCH OF A CHASE: The stock is up only 2%, which is a fairly muted chase given the -45% YTD drawdown.  The lack of buy-side enthusiasm for what was largely a flawless print suggests the 4Q15 fallout is still top of mind, which also suggests there could be a ton of downside the next time LNKD doesn't handily beat/raise estimates.  1Q16 could be one of LNKD’s better prints of the year given the inevitable step-up in sell-side estimates, which generally tend to exceed guidance by a wide margin.  That said, we suspect LNKD could be closer to its ceiling than its floor this year.  We remain on the sidelines for now.


Let us know if you have any questions or would like to discuss in more detail.


Hesham Shaaban, CFA
Managing Director


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Dear President Obama: Who's 'Peddling Economic Fiction' Now?

Takeaway: US growth continues to slow from 3% to 0.5%, while President Obama claims our Macro team's #GrowthSlowing call is "peddling fiction."

Dear President Obama: Who's 'Peddling Economic Fiction' Now? - obama


“I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform. By that measure, we probably managed this better than any large economy on Earth in modern history." -President Obama, New York Times Magazine, 4/28/16 




In case you missed it, yesterday's Q1 2016 GDP reading came in at 0.5%.


Yes, 0.5%. Meanwhile...



That's why President Obama's New York Times victory lap is a bit of a headscratcher considering first quarter growth was the worst it's been in two years. As we reminded subscribers yesterday, "We Called The U.S. Growth Slowdown (And Believe The Worst Is Yet To Come)." (Click here to read more about what we expect for growth in Q2 2016.)


Dear President Obama: Who's 'Peddling Economic Fiction' Now? - GDP cartoon 10.29.2015


To be clear, we've heard It all before.


Earlier this year, in his final State of the Union address, President Obama told the nation that anyone "claiming that America's economy is in decline is peddling fiction."


Meanwhile, U.S. growth has continued its downward descent, from 3% to 1.4% to 0.5%, so who's "peddling fiction" exactly? Now to be fair to President Obama, unaccountable Wall Street economists and unelected Fed bureaucrats completely missed U.S. #GrowthSlowing too.


So, no worries.


But we didn't.



We've taken President Obama to task for these kinds of statements before (see "7 Key Economic Talking Points For Serious Contenders at Tonight's #GOPDebate"). And considering yesterday's lackluster GDP report coupled with today's data on waning U.S. consumption and another declining PMI reading, we're sticking with the call that's been right for over a year now...

U.S. growth slowing

Are You Bullish? A Brief Update On The No Volume "Rally"

Takeaway: Volume was up +22% on yesterday's selloff.

 Are You Bullish? A Brief Update On The No Volume "Rally" - volume cartoon 5.20.2014


The lack of conviction in the recent "rally" is obvious.


While exchange volume has dried up to a meager drip since the February 11 bottom, that all changed yesterday with a shocking flood of activity ... on a Down Day.


Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning. 


"Algos/quants lifting little offers on up days; liquidation on the big down days – we still think this is a Liquidity Trap. Total U.S. Equity Volume ramped +22% vs. its 1-month average yesterday (SPX -0.92%, Nasdaq -1.2% on the day)."



For More...


Watch Hedgeye CEO Keith McCullough in the video below entitled, "You’re ‘Crazy’ Buying Stocks Now."


Washington Needs to Wake Up! Strong Dollar = Strong America

Takeaway: Down Dollar, Bailouts, Reflation? That’s not an America anyone should be proud of,. That's the 'Inequality' standard.

Washington Needs to Wake Up! Strong Dollar = Strong America - dollar cartoon 07.02.2014 


The Purchasing Power of The People (for Americans, US Dollars) is being burned for the sake of Wall Street and The Election. For those of you who aren't paid to be willfully blind, this is how it works:


US GDP Slows -> Yellen Burns The US Dollar -> Gas Prices Rise


Now, that might be good for propping up the stock market (U.S. Dollar index -0.88 correlation to S&P 500) but it's not good for the purchasing power of everyday Americans. In effect, if Yellen can't keep Oil Up (Dollar Down), she can't keep the stock market up - screw The People.


It's not a partisan issue either. Remember Ronald Reagan and Bill Clinton? Republican and Democrat? #StrongDollar, Strong America?


That’s what all Americans (not just the 1% of us “making money” on Wall St.) had in the 1980s and 1990s. That’s what allowed their purchasing power to manifest into everything that was not US Dollar Devaluation by the Federal Reserve. That was awesome.


Washington Needs to Wake Up! Strong Dollar = Strong America - strong dollar strong america




Every time the GDP cycle slows (and profit growth slows in conjunction with that), what do both Republicans and Democrats (Bush and Obama Administrations) beg for? Same thing Nixon and Carter did => Down Dollar, Bailouts, Inflations/Reflations, etc.


Not good.


That’s not an American Standard anyone in this profession should be proud of. That’s the “Inequality” standard. And, until a legitimate leader figures this out, we’re heading down history’s littered path of failed monetary policies. Sadly, if an un-elected Fed is allowed to devalue the Dollar into the US election… rising gas, rent, and food prices will most definitely be the struggle for both the American People and their economy.


Washington Needs to Wake Up! Strong Dollar = Strong America - Fed Up cartoon 03.22.2016


You see, inasmuch as Down Dollar asset “reflation” is a windfall for us “rich people,” it’s a passive aggressive consumption tax on the rest of the country (who these politicians patronize as “folks”).


As Senior Macro analyst Darius Dale pointed out recently  (see chart below), the Fed's massive monetary policy experiment to reflate asset prices was undoubtedly pocketed by the wealthiest (top 10%) of Americans. Meanwhile, Bernanke eroded the purchasing power of every working class Americans to 40 year lows.


In other words, Fed policies paid the few ... and crushed the many.


Washington Needs to Wake Up! Strong Dollar = Strong America - dale inequality


Maybe one of these big time “for The People” candidates should figure this out. For people with non-partisan standards, it’s really not that complicated. So while everyone on Wall Street is begging for Yellen to devalue the U.S. Dollar, I can draw only one conclusion and it looks like this:



Sadly, Old Wall has always found novel ways to line its pockets.


How much longer will working class Americans stand for it?

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