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What About ISM Manufacturing? Still Falling

Takeaway: In case you missed it, today's ISM Manufacturing index fell yet again both from its cycle peak and month-over-month.

Here's an abridged transcript and chart on the ISM data from this morning's Real-Time Alerts Live via Hedgeye CEO Keith McCullough: 

 

"That damn data just won’t go up. The ISM data came in at 50.8. That's down versus 51.8 last month. So, to be clear, global growth and industrial growth has not bottomed. All the bottom calling was just a story.

 

A lot of people hoped that these ISM numbers were better, inasmuch as they hoped for better numbers out of Friday’s Consumer Confidence number and Chicago PMI. These indices are not just missing they’re hitting new lows."

 

Click the image below to enlarge

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GIS: We Are Removing General Mills From Investing Ideas

Takeaway: Please note we are removing General Mills from Investing Ideas (long side) today.

This morning, Hedgeye CEO Keith McCullough wrote in Real-Time Alerts:

 

"While I like GIS from a Style Factor perspective (it did its job last week, closing up in a down tape - doing its job again this a.m. +1%), it's:

 

A) Signaling a series of lower-highs from a long-term perspective

B) Not as well loved by my analyst team (Penney and Laidlaw)

 

So I'll take it off here on the overbought signal. We can always come back to it, lower.

 

KM"

 

GIS: We Are Removing General Mills From Investing Ideas - general mills

 

Hedgeye Consumer Staples analysts Howard Penney and Shayne Laidlaw sum it up below:

 

"We added General Mills (GIS) to Investing Ideas on May 26, 2015. During that time, the stock price has risen +10% versus the S&P 500, which is down -2.6%.  While we still like the long-term story, the stock’s performance in 2016 has been nothing short of spectacular.  Year-to-date GIS is up +7.8% versus +1.3% for the S&P 500.  The company’s 3Q15 performance was mixed with the company missing on revenues and beating on EPS with the benefit of cost cutting. 

 

That being said, there are a number of one-time items impacting volume growth that should self-correct in 4Q16 and FY17.  GIS is currently trading at 13.9x EV / NTM EBITDA an all-time high for the company.

 

Looking past GIS, the entire Consumer Staples space feel like there is a Safety Trade/ZBB/M&A bid underneath the entire group.  We maintain our long-term bullish stance on GIS, but given the rapid acceleration to all-time highs in the YTD period, a correction is inevitable."


5 CHARTS: A Global #GrowthSlowing Checkup

Takeaway: Investors who avoided #GrowthSlowing equity markets nailed it in the past year.

5 CHARTS: A Global #GrowthSlowing Checkup - World Market No 12.16.14 large

 

Still don't believe U.S. growth is slowing? Nasdaq investors do...

 

 

Meanwhile in Japan, growth has been neutered for decades. Despite the best efforts of BOJ central planners, macro markets continue to crash.

 

Check out the ramp in the Yen...

 

The Nikkei is still in crash mode, even though the BOJ instituted its negative interest rate policy in January

 

 

Speaking of negative interest rates...  

 

Italy's bank-heavy FTSE MIB index remains in crash mode.

 

And finally, peeling back the onion on the recent reflation trade, take a look at a longer-term chart of much-watched Dr. Copper.

 

Does that look bullish for global growth?

 


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.

RTA Live: May 2, 2016

 


YELP | Thoughts into the Print (1Q16)

Takeaway: We may sound like a broken record, but mgmt keeps making the same mistake (guidance). Expecting another 2H blowup, but mild near-term risk

KEY POINTS

  1. FLUFFING LOCAL? As a reminder, YELP is serving Google AdSense ads adjacent to its search results (Google pays YELP to display ads on its site).  We're not sure if the economics will be material, but it's something we can't just ignore given YELP's ~75M desktop UVs (4Q15).  Since YELP shuttered its Brand Advertising segment, those revenue will likely be reported in its Local Advertising segment.  Even if AdSense is immaterial to total revenues, it could be the difference b/w a beat/miss on 1Q results and/or 2Q guidance for no other reason than the sell-side isn't looking for it.  That said, there could be near-term, but temporary risk to staying short the 1Q release.  The key is to focus on YELP's ARPA, which will essentially tell us if AdSense is material.  
  2. 2016 ≈ 2015: We've kept the short on since it appears mgmt has repeated its mistake from 2015 by guiding to street expectations for 2016.  We suspect the inline guide was a panic move in response to LNKD's earnings release, which drove YELP down almost 20% in the following +12 hrs of trading before YELP's mid-day earnings release.  Post 4Q15 results, YELP now needs accelerating new account growth on historically low attrition rates to hit consensus Local Ad revenue estimates.  That also implies accelerating salesforce productivity since its guided revenue growth is exceeding its 2016 saleforce growth target (20%-30%).  In short, this is pretty much the same setup as this time last year; we're expecting another 2H blow-up on 3Q guidance (2Q print), if not 2Q guidance depending on how its other segments perform in 1Q.
  3. BUT IT'S SO CHEAP: It is, but we heard the same thing at various points along its slide from a forward 15x P/S multiple.  Granted, YELP might be in an asymmetric setup to the upside, but this is likely only a risk to the upcoming release; after that we're just getting closer to what we expect to be another full-year guidance cut.  The other implication is that YELP will be acquired.  We don't believe YELP's price is expanding the market of potential suitors simply because there are only a handful of companies that would be willing (large enough) to absorb YELP's model into its financials without taking a material hit.  As a reminder, the only way to fix that model is to improve ROI (i.e. lower price), which would result in down y/y revenues given YELP's attrition issues.    

 

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

 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet

 

YELP | Thoughts into the Print (1Q16) - YELP   New Acct vs. Sales rep 4Q15

YELP | Thoughts into the Print (1Q16) - YELP   2016 Scenario Analysis


MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY

Takeaway: Decelerating U.S. growth is again weighing on bullish sentiment.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM11

 

Key Takeaway:

Although data last week showed European GDP growing faster than expected, investors were more focused on the ongoing deceleration in U.S. economic growth, which came in at a low 0.5% annualized rate for 1Q15. Bank CDS widened globally, the TED spread widened by 2 bps to 43, the CDOR-OIS spread widened by 1 bps to 44, and the price of Chinese steel fell -2.3% last week. Our heatmap below is negative on the short term, positive on the intermediate, and mixed on long-term measures.

Current Ideas:

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM19

 

Financial Risk Monitor Summary

• Short-term(WoW): Negative / 3 of 13 improved / 7 out of 13 worsened / 3 of 13 unchanged
• Intermediate-term(WoW): Positive / 7 of 13 improved / 4 out of 13 worsened / 2 of 13 unchanged
• Long-term(WoW): Negative / 2 of 13 improved / 2 out of 13 worsened / 9 of 13 unchanged

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM15

 

1. U.S. Financial CDS – Swaps mostly widened for domestic financial institutions. Slower than expected U.S. economic growth affected moneycenter bank CDS the most; swaps in that group widened by an average 8 bps.

Tightened the most WoW: PRU, MET, LNC
Widened the most WoW: GS, HIG, MS
Tightened the most WoW: BAC, C, MS
Widened the most MoM: HIG, AIG, AXP

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM1

 

2. European Financial CDS – Financial swaps mostly widened in Europe last week. Greek and Portuguese bank swaps stood out, with the Greek banks widening between 107 and 444 bps and Banco Espirito Santo widening by 241 bps to 1396.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM2

 

3. Asian Financial CDS – Financial swaps in Asia mostly widened last week. The median CDS widened by 8 bps to 145.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM17

 

4. Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese swaps tightened the most, by -8 bps to 254, as the ratings agency DBRS confirmed the country's BBB rating with stable outlook.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM18

 

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM3


5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week, although Brazil stood out on the opposite end of the spectrum, tightening by -19 bps to 340.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM16

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM20

6. High Yield (YTM) Monitor – High Yield rates fell 12 bps last week, ending the week at 7.39% versus 7.51% the prior week.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM5

7. Leveraged Loan Index Monitor  – The Leveraged Loan Index rose 8.0 points last week, ending at 1893.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM6

8. TED Spread Monitor  – The TED spread rose 2 basis points last week, ending the week at 43 bps this week versus last week’s print of 40 bps.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM7

9. CRB Commodity Price Index – The CRB index rose 1.7%, ending the week at 185 versus 181 the prior week. As compared with the prior month, commodity prices have increased 9.9%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM8

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 1 bps to 9 bps.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM9

11. Chinese Interbank Rate (Shifon Index) – The Shifon Index rose 1 basis point last week, ending the week at 2.05% versus last week’s print of 2.04%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM10

12. Chinese Steel – Steel prices in China fell 2.3% last week, or 72 yuan/ton, to 3075 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM12

13. Chinese Non-Performing Loans Chinese non-performing loans amount to 1,274 billion Yuan as of Dec 31, 2015, which is up +51.2% year over year. Given the growing focus on China's debt growth and the potential fallout, we've decided to begin tracking loan quality. Note: this data is only updated quarterly.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM4

14. 2-10 Spread – Last week the 2-10 spread tightened to 105 bps, -2 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM13

15. CDOR-OIS Spread – The CDOR-OIS spread is the Canadian equivalent of the Euribor-OIS spread. It is the difference between the Canadian interbank lending rate and overnight indexed swaps, and it measures bank counterparty risk in Canada. The CDOR-OIS spread widened by 1 bps to 44 bps.

MONDAY MORNING RISK MONITOR | GLASS HALF EMPTY - RM14


Joshua Steiner, CFA



Jonathan Casteleyn, CFA, CMT


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