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Trump's Big Night ... Hillary's Homestretch ... Harry Reid's Final Prophecy

Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

TRUMP'S BIG KNIGHT:

Trump's Big Night ... Hillary's Homestretch ... Harry Reid's Final Prophecy - trump flag

 

Polls show that Trump is heading for a big win in IN, as he moves closer to being the presumptive Republican nominee. Ted Cruz hopes that the alignment of Republican stars - including the tepid support of IN Governor Mike Pence - will help him pull off a victory that breaks Trump's streak.

 

John Kasich has already abandoned IN, but still looks likely to receive a sizable number of votes - especially those from anti-Trump voters who are critically needed by Cruz to put him over the top. If Trump wins big tonight, he will only need ~50% of the remaining delegates to clinch the nomination - and momentum already has propelled him to a 30+ point lead in CA.

exacerba-TED: 

Trump's Big Night ... Hillary's Homestretch ... Harry Reid's Final Prophecy - cruz cruz

 

It's not just losing primaries that has Cruz's campaign concerned - his strategy of winning the nomination on the second ballot may also be crumbling. To date, Cruz has been very successful at nabbing delegate spots for his supporters in behind-the-scenes maneuvering at state conventions, but the loyalty of these supporters once they become unpledged is increasingly being questioned.

 

Combined with his underperformance in PA, and a loss in IN - a delegate desertion would sound the death knell for Cruz's campaign even before Trump potentially hits 1237.

HILLARY'S HOOSIER HOMESTRETCH?:

Trump's Big Night ... Hillary's Homestretch ... Harry Reid's Final Prophecy - hillary clinton 222

 

For the first time in months, Hillary Clinton's campaign out-fundraised Bernie Sanders $36 million to $26 million. Sanders soldiers on and vows that there will be a contested convention, but if he loses in IN today he will be hanging by a thread, and will continue to be the thorn in Clinton's side.

 

If he can pull off a win, it will change the narrative back in his favor, especially going into KY, NE, and WV - all states that are more favorable terrain to him - but he would have to take 65 percent of the remaining delegates to clinch the nomination. A Clinton victory allows her to keep her focus on Donald Trump and the big picture, but it may come down to the bottom of the ninth tonight...

REID'S LAST WILL:

With retirement on the horizon, Minority Leader Harry Reid has expressed certainty that Democrats will retake the Senate this fall, and is confidently passing the leadership reigns over to Sen. Chuck Schumer. Despite Schumer's almost certain re-election in deep blue NY, he has gone all out on fundraising, and currently has $26 million on-hand.

 

This war chest should serve as a potent weapon for Schumer, who can funnel millions of dollars to candidates and committees - and help ensure Reid's prophecy comes true.


ROUNDUP: Currency War Consequences, Gold, & The Fed #BeliefSystem

ROUNDUP: Currency War Consequences, Gold, & The Fed #BeliefSystem - currency wars

 

Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"Isn’t the Fed burning the US Dollar and Wall St begging for more fun? Not in Japanese and European stock “chart” terms; Euro testing $1.16 vs. USD this am (almost a 4 standard deviation move) and European Equity markets remain in crash mode from their 2015 highs (draw-downs: DAX -20%, Spain’s IBEX -25%, Italy’s MIB -25%)"

 

 

So, as the Fed burns the buck, consider the delicious irony of the U.S. Treasury adding China, Germany, and Japan to a "watchlist" of currency manipulators.

 

Outside the dismal realm of Euro-area equity markets... 

 

There's always a bull market somewhere, right?

 

"Instead of down -20% to -27%, Gold (GLD) is already +22% for the YTD! That remains in our Top 3 Macro Long Ideas (Macro Themes Deck) alongside the Long Bond (TLT) and Utilities (XLU) – these ideas all reflect the same view that #GrowthSlowing globally (i.e. economic gravity) can’t be fixed by a central market planning #BeliefSystem this time."

 

 

We think a breakdown in the central planning #BeliefSystem will eventually hit the U.S. (investors have already lost faith in central bankers at the ECB and BOJ). A precarius thing to note: The market has largely priced-in a dovish Fed.

 

So where do we go from here?

 

As Hedgeye Senior Macro analyst wrote in a recent Early Look, we would need to see a collapse in both growth and inflation expectations for the Fed to provide additional easing and further prop up the markets from here but that would weigh heavily on asset prices.

 

"We recognize that this is the most risky view to take because the Fed can do whatever it damn well pleases. It’s a board of unelected, unaccountable bureaucrats and, for all we know, President Obama gave Janet Yellen (a known Democrat) marching orders to keep the stock market inflated into the general election.

 

Who knows? Anything can happen. But fading what is already priced in is where the money will be made from here."

 

Undoutedly, as the year plays out, there is much more to be revealed. However, there's one thing that we're crystal clear on:

 

we're sticking with TLT, XLU & GLD.

 

ROUNDUP: Currency War Consequences, Gold, & The Fed #BeliefSystem - macro calls update


An Unsettling Update On Earnings Season

Takeaway: A breakdown of S&P 500 earnings by sector reveals 6 of 10 have reported negative earnings growth.

An Unsettling Update On Earnings Season - earnings cartoon 04.25.2016

 

For Q1 Earnings Season to-date, 315 of the 500 companies in the S&P 500 have reported results:

  1. Aggregate SALES growth is down -2.6% year-over-year = worst level of the season so far;
  2. Aggregate EPS growth is down -8.9% year-over-year = worst level of the season so far;
  3. Industrials and Financials have EPS down -7.6% and -13.4% year-over-year, respectively;
  4. Energy earnings are down -96.5% year-over-year

 

An Unsettling Update On Earnings Season - s p earnings update


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5 Not So Insignificant Markets In Full-Blown Crash Mode

5 Not So Insignificant Markets In Full-Blown Crash Mode - Stocks crash test dummies cartoon 02.18.2016 

 

Around the world, equity markets are teaching investors some subtle risk management lessons. Namely, blindly buying cheap stocks is not always a recipe for success. When economic fundamentals deteriorate, cheap stocks get cheaper.

 

Case in point, this morning, the European Commission warned of slower Euro-zone growth, while inflation will remain subdued. That put a healthy handicap on European equity markets, many of which remain in crash mode.

 

Like Spain:

 

 

Germany...

 

 

... And Italy:

 

 

Meanwhile, over in Asia...

 

While you were sleeping, the often overlooked reality playing out in Chinese equities just got worse.

 

 

By the way...

 

 

The Nikkei is still in crash mode.

 

5 Not So Insignificant Markets In Full-Blown Crash Mode - japan down


PCLN | Beta Test

Takeaway: We believe we’ve isolated the main drivers of the story. Tracker beta test suggests accelerating 2Q bookings, but no call on the stock, yet

INTRODUCTION

The Hedgeye Internet & Media and  Gaming, Lodging, Leisure teams are teaming up to jointly cover the OTAs.  We’re beginning with PCLN, which is a complicated story given its scale and broad geographic exposure.  Below, we break down the story into what we believe really matters, i.e. what’s really driving the business amidst all the noise, and what’s moving the story on the margin.  Within that construct (Points 1-4), we have built our first tracker to forecast PCLN’s quarterly bookings and hopefully get ahead of bookings guidance.  Our tracker is currently calling 1Q bookings to exceed guidance/consensus, andfor 2Q bookings guidance (ex Fx) to accelerate off 1Q levels, ahead of current consensus expectations.  This would normally translate into a positive stock move, but we would caution that the stock has performed well in April and expectations are likely higher post EXPE earnings.  Since we’re only in the formative stages of actively following PCLN, we’re uncertain as to sentiment – that is, how much upside is already baked into the stock.   Going forward, we hope to introduce our PCLN tracker results on a more formal basis as we refine/build upon our first tracker, and hopefully introduce an additional one.  We believe we’re on to something, both from a theoretical and pragmatic perspective, and look forward to augmenting your OTA investment process.

KEY POINTS

  1. PCLN = TOP-DOWN STORY: PCLN is effectively the largest public hotel company; its 432M room nights in 2015 are more than 2X that of any public hotel operator.  That said, PCLN is too large to evade macro/industrial trends.  PCLN will remain a secular growth story, but it’s the collective travel economy that will move the story on the margin (i.e. accelerating vs. decelerating bookings growth).  We’re not suggesting that factors such as ad spend and property counts are trivial, but believe they take a backset to the travel economy.
  2. IS AIRBNB A THREAT? If it was a material threat, we should have seen it by now, and maybe we have.  PCLN is highly exposed to the EU – the region was an early Airbnb adopter - but to date we haven’t seen any material correlation between Airbnb density and EU Hotel RevPAR per our proprietary Airbnb real time dataset.  We suspect the big difference b/w the EU and US markets is that there already was an established alternative accommodation market in the EU; Airbnb may just be facilitating that market vs. the US where it is essentially creating it.  That said, we do not suspect Airbnb will have a further material long-term impact on PCLN, but we will be monitoring our dataset on an ongoing basis.
  3. SWING FACTOR = DESTINATION: PCLN’s MD&A and gross profit seasonality suggests that the EU and US drive the bulk of its bookings.  While the overwhelming majority of total travel expenditures in both markets favor domestic travel, those consumers are far more likely to book a hotel, and for an extended period, when traveling abroad.  In short, we believe the travel destinations of PCLN’s users carry the most weight.  Put another way, we believe ARPU drives this story.
  4. TRADING STOCK: While we currently prefer PCLN longer-term as the public OTA that is probably most insulated from both branded hotel & Airbnb headwinds, the volatility around its earnings releases suggest it is more of a trading stock, which is how we’ll be looking to play this moving forward.  On that front, it’s really all about booking guidance vs. consensus, which has driven the stock action in 4 of the last 5 quarters (as far back as we can pull historical consensus bookings estimates).
  5. BETA TESTING OUR FIRST PCLN BOOKINGS TRACKER: The problem with the default tracking metrics that the street is using (i.e STR/flight metrics) is that they track the stay, not the booking; the former is basically pointless.  We’ve built our first in what will hope will be a series of a proprietary trackers to get ahead of room-nights bookings and guidance (see chart below).  Our tracker is based primarily on points 1 & 3 above, and is currently calling for 1Q bookings to eclipse guidance by 2%-4%, and for 2Q16 bookings growth (ex Fx) to accelerate off of 1Q levels.  We’re expecting the midpoint of PCLN’s 2Q bookings guidance range (ex FX) to be in the mid 20s%.  In turn, we believe consensus bookings estimates are light for 1H16.  Note that our tracker applies to PCLN only (not EXPE, TRIP, etc.) 
  6. GOING FORWARD? Even though the tracker is statistically significant and has been successfully back-tested, we’re using the 1Q16 release on Wednesday as a beta test as we work to refine and build upon our tracker moving forward.  To be clear and up front, we believe our tracker will be highly value add and is proprietary, so we will not be divulging the “special sauce” for obvious competitive reasons. We understand the tracker is a prove-it-to-me product at this point; we’re looking at it the same way.  For those reasons, we’re not making a call on PCLN at this point.

 

PCLN | Beta Test - PCLN   Room Nights Slide

PCLN | Beta Test - PCLN   Airbnb Slide

PCLN | Beta Test - PCLN   Outbound Slide v2

PCLN | Beta Test - PCLN   Tracker 1Q16 slide v1

 

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

 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet

 

Todd Jordan
Managing Director


@HedgeyeSnakeye

 

 


Leading Healthcare Policy Authority Emily Evans Joins Hedgeye

FOR IMMEDIATE RELEASE

 

STAMFORD, Conn., May 3, 2016 -- Hedgeye Risk Management, a leading independent provider of investment research and online financial media firm, announced today that healthcare policy authority Emily Evans has joined Hedgeye Potomac Research as a Managing Director to lead its Health Policy sector. Evans has over three decades of professional experience working both in and around government and is regarded as a leading authority in the area.

 

“We’re very excited to welcome Emily to our growing Washington policy team following our acquisition of Potomac in January,” said Hedgeye CEO Keith McCullough. “She brings an impressive foundation of knowledge and real-world public policy experience. Her insight will augment our existing fundamental Healthcare research led by Tom Tobin. The big winner here is our clients who gain greater visibility into investing developments and implications in one of the most significant U.S. sectors.”

 

Prior to joining Hedgeye, Evans was a partner at Obsidian Research, a healthcare research boutique that she founded.

 

Throughout most of her career, she worked in public finance at J.C. Bradford & Co. until its sale to UBS/PaineWebber in 2000. As the Investment Limited Partner in charge of municipal bond underwriting, Evans helped to bring over $10 billion in securities to market – including hundreds of healthcare-related projects such as skilled nursing facilities, continuing care retirement communities and acute care hospitals.

 

Leading Healthcare Policy Authority Emily Evans Joins Hedgeye - z emily evans   pr picture

 

“Emily brings deep healthcare policy, regulatory and legislative acumen to the table,” said J.T. Taylor, Managing Director at Hedgeye Potomac Research. “Her addition rounds out our robust Washington to Wall Street research.”

 

In recent years, Evans has also provided consulting services to the government and finance communities. She served for nine years on the Nashville City Council and is a graduate of Mount Holyoke College.

 

“I am thrilled to be adding deep healthcare policy, regulatory and legislative research to the robust Hedgeye platform,” said Evans. “This firm is uniquely positioned to deliver high-quality, actionable research to investors interested in that 17 percent of the U.S. economy dedicated to the delivery of healthcare services.”

 

ABOUT HEDGEYE RISK MANAGEMENT

 

Hedgeye Risk Management is an independent investment research and online financial media firm. Focused exclusively on generating and delivering 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

Dan Holland

dholland@hedgeye.com

203.562.6500


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