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The Slow Slide In Global Bond Yields & What It Means

Takeaway: Global bond yields hit new lows this morning nailing our #GrowthSlowing call.

The Slow Slide In Global Bond Yields & What It Means - bond yields

Get that Global Growth is Slowing?

 

Global bond yields do. Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"Around the world (Swiss 10yr yield hitting new lows this am at -0.40%), long-term yields have had #TheCycle right from a GDP #GrowthSlowing perspective – question now is, with the Fed “probably” raising rates in June/July, what do we do with our league leading positions in Long-Term Bonds, Munis, Utes, etc? I say it’s time to book some gains and enjoy the summer – we can always buy them back."

 

Below is a chart of the direction of global bond yields (indexed to 100) and what they've done in the past year:

 

The Slow Slide In Global Bond Yields & What It Means - 6 1 10yr yield


Brexit: Should I Stay or Should I Go?

Hedgeye Potomac is hosting a special call with Alexander Nicoll to discuss Brexit – will the UK vote to stay or leave the EU on June 23rd? 

 

Nicoll will discuss the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU.  (Hint: he believes the UK will ultimately vote to Stay...).

 

The call will take place on Wednesday, June 8th at 11am ET with Nicoll giving prepared remarks followed by Question & Answer.

 

 

KEY TOPICS ON THE CALL WILL INCLUDE 

  • How did the UK get to a vote and where do the divisions lie between political parties?
  • What are the arguments for staying and leaving?
  • Who will win?
  • What are the financial, political, and cultural impacts on the UK from Brexit?
  • What’s the impact of Brexit on the EU and Eurozone?  Could another country vote to break free?

 

ABOUT ALEXANDER NICOLL

 

Alex Nicoll is a Consulting Member of the International Institute for Strategic Studies, a London-based think-tank. Previously he was a member of the Directing Staff of the Institute as Director of Editorial, and also headed the defense program.  Before joining the IISS he was a journalist at the Financial Times newspaper for 18 years, with posts covering international capital markets, Asia, and defense. Earlier, he was a foreign correspondent for Reuters news agency, with posts in Hong Kong, Paris, Tehran and New York. 

 

Ping for more information.

 


OPEC Insight | McMonigle: Saudis May Seek Oil Policy Change In 2017

Hedgeye Potomac Senior Energy Policy Analyst Joe McMonigle is on the ground in Vienna ahead of tomorrow's OPEC meeting. In the interview below with Leslie Hayward from Energy Fuse, McMonigle provides key insights ahead of the meeting and discusses why Saudi Arabia may seek an OPEC oil policy change in 2017.

 

Click below to watch.


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ZROZ: We Are Removing Pimco 25+ Year Zero Coupon US Treasury ETF From Investing Ideas

Takeaway: Please note we are removing Pimco 25+ Year Zero Coupon US Treasury ETF from Investing Ideas (long side) today.

ZROZ: We Are Removing Pimco 25+ Year Zero Coupon US Treasury ETF From Investing Ideas - Growth cartoon 0624.2014

 

In Real-Time Alerts today, Hedgeye CEO Keith McCullough explained why investors should be selling long exposure to Pimco 25+ Year Zero Coupon US Treasury ETF (ZROZ):

 

"Yep, with your #GrowthSlowing investment exposures having a great absolute and relative day, it's time to book some more gains and raise cash.

 

On Bond Yields, this is what I wrote to our Institutional Subscribers this morning – around the world (Swiss 10yr yield hitting new lows this am at -0.40%), long-term yields have had #TheCycle right from a GDP #GrowthSlowing perspective – question now is, with the Fed “probably” raising rates in June/July, what do we do with our league leading positions in Long-Term Bonds, Munis, Utes, etc? I say it’s time to book some gains and enjoy the summer – we can always buy them back.

 

No one ever went broke booking gains,

KM"


An Update On Global Growth Slowing & Wall Street's False Narratives

Takeaway: Recently reported PMIs and revisions to the OECD's growth outlook spell out what we've long know here at Hedgeye. Global growth is slowing.

An Update On Global Growth Slowing & Wall Street's False Narratives - wall st

 

Wall Street storytelling about the stock market is at an all-time high. And one of those tall tales completely unravelled this week, Hedgeye CEO Keith McCullough writes in a note sent to subscribers this morning: 

 

"One narrative (for almost a year now) has been that “PMIs have bottomed” – and, clearly, post yesterday’s Chicago PMI of 49.3, last night’s China PMI of 50.2, and this morning’s 3 month low Eurozone PMI of 51.5, they have not – neither has copper and/or 'Chinese demand.'"

 

 

MORE EVIDENCE OF GLOBAL #GROWTHSLOWING THIS MORNING

 

The OECD announced it is lowering its global growth forecasts yet again, while our Macro team has been steadfastly predicting global #GrowthSlowing for well over a year now.

 

 

Here's the breakdown of the OECD's revisions:

 

  • Forecast for combined economy of 34 OECD countries is 1.8% this year and 2.1% in 2017 versus 2.2% and 2.3% respectively in November;
  • Similarly, the U.S. economy is expected to grow 1.8% this year and 2.2% in 2017, versus 2.5% and 2.4% in November;
  • The Eurozone economy is forecast to grow 1.6% this year from 1.3% in February. For 2017, the eurozone forecast was held flat at 1.7%;
  • Japanese growth is expected to be 0.7% this year and 0.4% in 2017 versus the 0.8% and 0.6% predictions in February;

 

An Update On Global Growth Slowing & Wall Street's False Narratives - China cartoon 05.06.2016

 

Then there's this fabrication from China, relayed through state-owned media outlet the China Securities Journal.

 

 

All of this boils down to a simple reality.

 

Here's the key takeaway from our outspoken CEO Keith McCullough:

 


UA | Wood To Chop

Takeaway: UA is neck and neck with NKE on Branding. But is still playing JV in parts of ops/fin - as shown by this TSA event. That matters at 65x pe.

We think that this UA miss matters more than the market probably thinks it does. We don’t fault UA one bit for taking a financial hit from the TSA bankruptcy. It’s part of doing business. If this were a company like HBI, it would take a special charge. But it’s not. UA is taking its lumps. Golf Clap for that one (and we mean it).  But we definitely question the timing and magnitude. If nothing else, this has to raise an eybrow as it relates to the financial controls inside the company. We know that any mention of ‘financial controls’ sounds alarming. If this were just any company, we wouldn’t raise a stink. But UA just replaced its CFO, and its stock trades at nearly 65x earnings. Yeah, we know the company took up its sales guidance, and that the Brand is ‘white hot’. Some would argue that’s all that matters, and they might very well be right.

 

But for this kind of multiple, we think it’s fair for shareholders to demand a Great Brand, AND a Great Company – the two don’t necessarily go hand in hand. For all its consistency over the years, particularly during this economic expansion, its financial controls have never been meaningfully stress-tested. Well, here’s a stress test. And if it’s pass/fail, we think it’s safe to say that UA failed. Again, at 65x earnings, we HAVE TO demand excellence across the board. If anyone thinks otherwise, we simply think they’re not being intellectually honest.

 

Let’s Look At The Timeline Of Events:

  • 3/2/16: TSA filed for bankruptcy planning to close 140 stores.
  • 3/4/16: UA proceeded to update its guidance, saying that the TSA announcement ‘had no impact on its guidance’.
  • 4/21/16: UA then raised its guidance when it printed positive 1Q results.
  • 5/18/16: TSA announced it would be closing all 450 stores.
  • 5/31/16: (2 weeks later) UA updated guidance to reflect the loss of TSA as a distribution partner.

 

There’s A Few Things That We Find Interesting

1) There was ‘No impact’ when TSA planned to close 140 stores, or 1/3 of its fleet, but a 13% earnings hit to UA when it closed the other two-thirds. That makes little sense to us.

2) The Impairment Seems Reasonable. At the end of FY15, the balance of TSA receivables was $32.5mm.  UA was therefore able to recoup almost $10mm as TSA entered bankruptcy and now takes a $23mm impairment, putting TSA at 4% of DSO, in line with its percentage of UA sales.

3) But SHOULD it be in line with others as a percent of sales? We’d argue that any company worth its salt would have seen this bankruptcy coming from a mile away – at least a year or two out. Nike has about 2.5x the exposure at TSA than UA, and we’d bet that its claim in the bankruptcy courts will be around the size of UA’s. The difference is that Nike has likely been tightening its TSA receivables meaningfully over time to mitigate exposure to this kind of event. It does not appear that UA has been following suit.

 

Our point here is that UA has been closing the gap meaningfully with Nike over the past few years in the US, which is next to impossible to do. Most of us simply think that the same is happening operationally and financially. But that has yet to really happen. The good news for UA is that this can certainly be fixed, and we think it’s a priority. But when investors evaluate UA’s multiple today, this ‘room for improvement’ behind the scenes should be considered.  When the economic cycle ends it matters most.


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