The Clock Is Ticking: Will Trump Bring The GOP Together?


Much is being made of Donald Trump’s inability to unite Republicans at this stage of the campaign. Hedgeye Potomac Chief Political Strategist JT Taylor takes a look and offers some key thoughts on the subject, as well how Hillary Clinton stacks up on the Democratic side.

Lazard (LAZ) | Trending Not Mending

Takeaway: 2Q advisory activity has fallen off of a cliff and with BREXIT looming we think the quarter is lost with 3Q/Summer at risk next.

  • We are lowering our full year LAZ earnings estimate to $2.49 for '16 and remain at $2.57 for '17, -17% and -27% below Consensus
  • We continue to outline that Lazard has the most exposure to the upcoming BREXIT vote with over 25% of global advisory revenues in Europe. A withdrawal by Britain would be the worst case scenario
  • The M&A cycle peaked last year in our view and historically new restructuring revenue takes 2 years to offset M&A losses (but overall Advisory revenues never comp up overall -- see our BlackBook below)
  • The asset management business is working on a slightly better quarter solely on market appreciation as our data outlines no organic growth in 2Q16 thus far
  • LAZ shares remain a value trap in our view with Consensus estimates that need a substantial haircut and financials that won't comp up for at least the balance of 2016

While the technology sector yesterday created exciting headlines with Microsoft's all cash bid for LinkedIn ($26 BB) and Symantec's acquisition of Blue Coat Systems ($4.7 BB), none of the boutique M&A firms caught part of the deals. Despite the flurry of activity, M&A announcements industry wide are down -14% globally year-to-date which we think is just an opening foray considering less active strategic buyers and a rising cost of capital. For Lazard specifically, activity levels in 2Q have all but dried up, with transactions listed on their website down -37% year-over-year on an absolute deal count and a -74% drop in deal value. While the firm doesn't disclose all activity online (restructuring deals are listed when completed with M&A transactions listed on an announced basis), the dearth in activity is sharper than we expected. We are lowering our annual estimates for 2016 to $2.49, -17% below consensus and have an upcoming 2Q16 estimate of $0.57 (with Consensus at $0.61). Rebounding global equity markets with average balances up +6% thus far in the second quarter should salvage a really low 2Q result within the asset management division. However this slight improvement is solely due to markets as a rolling 3 month average of Lazard Asset Management flows from Morningstar has flat organic growth brewing for 2Q16.


We continue to ascribe a fair value range of $22-$26 for LAZ shares based on 8-10x our out year estimates and the stock remains on our Best Ideas Short list. We do not think shares are attractive on valuation until fundamentals comp higher year-over-year which we don't see until 2017.    


Lazard (LAZ) | Trending Not Mending - chart 1 deal volume


Lazard (LAZ) | Trending Not Mending - chart 2 deal count


Lazard (LAZ) | Trending Not Mending - chart 3 deal table


Lazard (LAZ) | Trending Not Mending - chart 4 AUM flow


Lazard (LAZ) | Trending Not Mending - chart 5 markets



LAZ - Incremental Color in 10Q is Dark

LAZ - Don't Get Caught Watching the Paint Dry

LAZ - Hiring in Restructuring, Chairman Bullish From Davos

LAZ - Value Trap - Best Ideas BlackBook

LAZ - As Good As It Gets - Adding to Best Ideas


Please let us know of questions,


Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA

Checking in w/ Asia, LatAm and EEMEA

Below are a few country-level summaries you may find helpful to expanding upon your global investment motif. As always, feel free to email us to the extent you’d like to dig deeper into a specific country or topic.



In China, the bulk of key high-frequency growth data surprised to the downside in MAY, headlined by the sharp slowdown in Fixed Assets Investment and FDI. At +9.6% YoY the former was the slowest rate of change since MAY ’00, while the latter saw the first negative print since DEC at down -1% YoY. We’ve reiterated time and time again that China has not bottomed and will not bottom anytime soon, which is precisely why industrial metals (copper, iron ore, nickel, palladium, aluminum, rebar, etc.) are demonstrably lagging the reflation rally in the commodity space from a multi-duration, multi-factor perspective. As highlighted our 6/9 note titled, “Got Demand?”, the global demand curve continues to trend lower, which creates an air pocket across risk assets globally to the extent the Fed cannot devalue the U.S. dollar any further from here.


Checking in w/ Asia, LatAm and EEMEA - 1


Checking in w/ Asia, LatAm and EEMEA - 3


Checking in w/ Asia, LatAm and EEMEA - China


In Japan, the 2Q MoF Business Survey was the latest piece of data highlighting Japan’s ongoing bout with #Quad4; the headline All-Industry reading of -7.9 was the lowest print since 2Q14. Elsewhere in Japan, cash on corporate balance sheets hit a record high of $1.01T in FY15 amid ongoing structural deterioration in Japan’s growth outlook. A U.S. equity bull would say that’s bullish (buybacks, dividends, etc.), but the Nikkei 225 Index’s -24% peak-to-present return would seem to suggest otherwise. Consistent with our 2Q Macro Theme, the breakdown of the #BeliefSystem remains ongoing throughout both the Eurozone and Japan.


Checking in w/ Asia, LatAm and EEMEA - Japan


In India, the economy’s ongoing shift into #Quad3 is incrementally confirmed with the advent of the APR Industrial Production and MAY CPI data. At +5.8% YoY, the latter is the fastest rate of headline inflation since AUG ’14 and calls into question the RBI’s easing bias. Indian financial markets have figured this out on a very immediate-term basis (e.g. SENSEX down -1.4% WoW; 1Y OIS Spread +3bps wider WoW; 10Y Yields backed up +5bpsWoW; and INR down -0.5% WoW vs. the USD), bucking what had been a trend of persistent resilience. We anticipate this inflection will be sustained with respect to the intermediate-term TREND.


Checking in w/ Asia, LatAm and EEMEA - India


In Turkey, slowing growth (Real GDP slowed -90bps in 1Q to +4.8% YoY) and ongoing plans to make the country’s leadership more authoritarian in nature have weighed heavily upon Turkish financial markets of late (e.g. BI 100 Index down -2.6% WoW; 10Y Yields backed up +28bps WoW; and TRY down -0.5% vs. the USD WoW). Regarding the latter, leaders of the ruling AKP have confirmed plans to transition more power to President Recep Tayyip Erdogan, but only after the summer recess. In the interim, the party will focus on prioritizing a new package of laws that includes measures on the economy and taxes. Normally, that would be a bullish catalyst, but the aforementioned move to authoritarianism, at the margins, remains a meaningful bearish overhang. On the flip side, at least 330 votes are needed in 550-seat parliament to trigger a referendum to amend the constitution and the AKP currently only has 317 seats. This implies Erdogan might fall short of his desire to transition Turkey to an executive-branch leadership model, but we’ll cross that [potentially bullish] bridge when we get there.


Checking in w/ Asia, LatAm and EEMEA - Turkey


In Russia, Putin cut the benchmark One-Week Auction Rate -50bps to 10.5% on Friday. OK, we made that statement largely in jest, but it’s not at all farfetched to suggest supporting Russia’s economic recovery ahead of critical parliamentary elections in SEP has likely become one of CBoR’s primary objectives (Yellen/Obama/Clinton anyone?). That said, however, their shift in APR to an easing bias and now the aforementioned follow-though here in early-JUN is quite warranted given trends across Russia’s key high-frequency inflation indicators, which are all slowing on a trending basis as of the APR/MAY timeframe. Moreover, steepening base effects for headline CPI through year-end should perpetuate additional rate cuts as reported inflation continues its trend lower. Additionally, fiscal policy looks to get incrementally supportive, at the margins, to the extent Putin ramps up spending ahead of the aforementioned elections. This combination of supportive monetary and fiscal policy in an economy that’s already trending in #Quad1 is as potent a bull case in EM that I’ve seen in recent memory. I’m inclined to be bullish on Russia, but refuse to chase that exposure here amid our bearish expectations for financial markets globally (i.e. we’ll probably get to buy RSX much cheaper than ~$17).


Checking in w/ Asia, LatAm and EEMEA - Russia


Enjoy the rest of your evening,




Darius Dale


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.34%

Cartoon of the Day: Living In A Bubble?

Cartoon of the Day: Living In A Bubble? - Soros cartoon 06.13.2016


Last week, hedge fund titan George Soros grabbed headlines after it was announced he had come out of semi-retirement and placed bearish bets, shorting the S&P 500 and buying gold. 

Call Invite with Top Washington Political Strategist Scott Reed

Hedgeye Potomac is hosting a call with one of Washington’s top political strategists, Scott Reed, to share insight on the presidential election, the upcoming Democratic and Republican conventions, and outlook on the Senate and House races this fall.


The call will take place on Tuesday, June 21st at 11am ET with prepared remarks from Reed followed by Q&A.



  • Presidential election
  • Democratic and Republican conventions
  • Senate and House races




Scott Reed is the senior political strategist at the U.S. Chamber of Commerce. He is responsible for overseeing the Chamber’s federal voter education program. Reed created and implemented the blueprint for that strategy to help recruit business-friendly candidates, overseeing traditional and digital advertising campaigns, and identifying credible messengers to showcase the importance of the free enterprise system.


Reed was campaign manager for Bob Dole’s 1996 presidential campaign. He oversaw the national campaign, which included political strategy, policy development, communications, and advertising during the GOP primary and the general election. In addition, he directed preparations for the 1996 Republican National Convention in San Diego and the vice presidential selection process of Jack Kemp. In 1993, Reed was appointed executive director of the Republican National Committee. He served as chief operating officer of the GOP during the historic elections in 1993 and 1994 when the Republicans gained control of both the House and the Senate for the first time in more than 40 years. During the Bush administration, Reed served as chief of staff to Secretary Jack Kemp at the Department of Housing and Urban Development. He directed personnel, political, and policy matters, employing a long-term empowerment and privatization program. 




Toll Free:


UK: 0

Confirmation Number: 13638941

Remember When SF Fed's John Williams Forecasted Up To 5 Rate Hikes In 2016? We Do.

Takeaway: Misguided? Out to lunch? Delusional? You decide.

Remember When SF Fed's John Williams Forecasted Up To 5 Rate Hikes In 2016? We Do. - marketwatch story


Five rate hikes in 2016! Yes, five.


That was San Francisco Fed head John Williams' call in January of this year.


Reality check.


Now that the Fed has turned dovish (again), with poor economic data continuing its past peak cliffdive, markets are discounting the probability of any rate hike in 2016 at all. Currently, the market's probability of a hike isn't above 50% until February 2017.


Going out on a limb here ... but five hikes look like a stretch (given that there are just five meetings left in 2016). 


Click to enlarge

Remember When SF Fed's John Williams Forecasted Up To 5 Rate Hikes In 2016? We Do. - rate hike 6 13


Here's an illuminating excerpt from the interview with CNBC's Steve Liesman back in January, in which John Williams discussed his rate hike outlook.


LIESMAN: So let's talk about the path for Fed rate hikes this year. The median seems to suggest four this year. Is that also your forecast?


WILLIAMS: Well, I think that given the forecast they have for where the economy's going, what's happening with inflation – and inflation is the one thing that we're still struggling to get back to our 2% goal. That to me is the main focus. You know, I think something in that 3 to 5 rate hike range makes sense, at least at this time. But we're data dependent. We continue to be data dependent so the data's suggesting that gradual pace of rate hikes makes sense. But we'll have to re-evaluate that, reassess that, based on where we see inflation and other indicators that kind of are factors in inflation and how we see economic growth over the next year." (Emphasis added)


Williams continued saying that, by his estimation, U.S. GDP is headed toward 2% at the end of this year.




You decide.


(**If you'd like to read more Fed nonsense, here's the full transcript of the interview with links to the video.)

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