Housing: How A Stronger Dollar Is Influencing Foreign Buyers

Takeaway: A stronger dollar matters in the housing market because foreign demand makes up ~4% of total transaction volume and ~8% of dollar volume.

Editor's Note: Below is an excerpt from an institutional research note written last week by Hedgeye Housing analysts Josh Steiner and Christian Drake. To access our Housing team's institutional research email


Housing: How A Stronger Dollar Is Influencing Foreign Buyers - Dollar cartoon 03.09.2015


According to the National Association of Realtors, International Homebuyers purchased $103bn of US real estate from April 2015 through March 2016. Five countries: China, Canada, India, The United Kingdom and Mexico accounted for 51% or $52.8bn. China was the largest buyer for the second year in a row, accounting for 27% or $27.5bn of all foreign home purchases during the survey period.


  • Foreign Buyer residential home purchases were up +3% YoY to 214,900 units
  • Foreign Buyer dollar volumes were down -1.3% YoY to $102.6B
  • Sales Volumes to non-resident foreigners fell -11% YoY to 88.5K
  • Dollar Volume of non-resident purchases fell -18.5% YoY to $44B
  • 50% of International Buyer residential home purchases were paid in all cash
  • Foreign Buyers paid on average 56% more for an Existing Home than Domestic Buyers

Strong Dollar Impact

The U.S. Dollar is up 23% since July 2014 and, while gains have been more muted over the 12 months, currency headwinds continue to pressure purchasing power across key demand countries.  


As shown in the chart below, the Strong Dollar has increased the Median Price of US Existing Homes in the local countries of the Top 5 countries anywhere from 10% to 22% YoY.


Housing: How A Stronger Dollar Is Influencing Foreign Buyers - housing josh


For more information on our institutional research email

Capital Brief: An Unconventional Convention & Ditching To "Watch Dumpster Fires"

Takeaway: Unconventional Convention; Rules Ruckus; Rallying Republicans;

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email


Capital Brief: An Unconventional Convention & Ditching To "Watch Dumpster Fires" - JT   Potomac under 1 mb


“I have noticed that nothing I never said ever did me any harm.”

-Calvin Coolidge


The highly anticipated Republican convention kicked off last night with a solid celebrity B-list group of speakers and headlined by none other than Donald Trump’s wife, Melania - whose well-received maiden speech is now mired in controversy given stark similarities to Michelle Obama’s 2008 Democratic convention speech.


But this convention was supposed to be different – we all expected that - and instead of the usual emphasis on celebrities, the focus would then be centered on politicians who typically serve to give testimonials to the nominee and represent a passing of the torch for the party, but that is in short supply in Cleveland. Despite the, well, uneven start (more below), expect Donald Trump to grab the torch on his own and run with it.


The #NeverTrump crowd’s last-ditch effort to invite discord and derail Trump’s nomination was squashed after their attempt to force a roll call vote on the convention rules failed. The group submitted signatures from a majority of delegates in more than the required seven states to force a recorded vote from all 2,472 delegates. However, a number of delegates under pressure from the party reportedly removed their names, allowing the rules package to pass by a chaotic voice vote.


#NeverTrump hoped to unbind pledged delegates from voting according to their state’s primary or caucus result and allow them to vote independently. Despite its failure, the spectacle of #NeverTrump’s last stand exposed the lack of unity in the Republican party, embarrassing Trump and diverting media attention away from his message and primetime speeches.


The ten billion dollar question heading into this week’s events is: can the party survive the convention and emerge unified and enthusiastic while scores of Republicans refrain from endorsing (or even mentioning) the nominee? Speaking to the Wisconsin delegation, Speaker Paul Ryan intimated that the party still needed to come together without mentioning Trump’s name once and while TX Senator Ted Cruz is set to participate in the festivities, we understand he will not endorse.


Top that off with OH Governor John Kasich’s very public dissing of Trump and the convention in his own backyard - which happens to be a battleground state. In fact, the only former Republican presidential nominee to attend is former Senator Bob Dole – the nominee from 1996. We haven’t mentioned the litany of excuses Members of Congress are using to stay away - from hiking the Grand Canyon to cutting the grass or even taking their kids to watch dumpster fires.

High, High, High

Takeaway: The guide down and beat: A new high in earnings “beats” as a bull catalyst.

With Q2 earnings season underway, headlines centering on “earnings beats” as a bull catalyst are at a new cycle high. The “beat” catalyst from the bulge brackets is a bit ironic considering financials in the S&P 500 have beat bottom line estimates by double digits on average in the current cycle (taking out the post-recession beats, the 5-yr avg. beat is +5.9% from the Financials), outpacing  every other sector.


In fact, every sector beats estimates, just about every quarter. This reporting season has started no differently. Earnings have come in at -5.7% Y/Y in aggregate so far with earnings exceeding expectations by nearly 4.2%:


High, High, High - S P 500 Earnings Beat Miss


High, High, High - S P Rev.   Earnings Comps


High, High, High - S P Beat Miss


Looking at more highs, the current forward multiple is at a new cycle peak on earnings expectations that assume positive S&P earnings growth by Q3 2016, 9% in Q4 2016, and +16% and +14% by Q1 and Q2 2017 respectively. Starting in Q4 of this year, positive earnings growth expectations are baked in for every sector for three quarters through Q2 of 2017. So we’re looking at a market that has been taken to an all-time high on cycle-high buyback activity with a new cycle high forward multiple with optimistic earnings expectations in the denominator as seen in the chart immediately below.


High, High, High - S P NTM and TTM PE Multiple


High, High, High - S P NTM and TTM EV EBITDA Multiple


High, High, High - 07.19.16 EL Chart


So the earnings management cycle goes on...


Lofty earnings expectations --> Negative guidance communicated --> estimates taken lower --> company beats estimates


That’s seemingly a marginal positive for now. According to factset:

  • S&P 500 earnings expectations for Q2 started the quarter at -2.1% Y/Y and were revised to -5.5% Y/Y by June 30th
  • 81 companies issued negative guidance for Q2 vs. 32 that issued positive guidance

In Q2 of 2015 only two S&P 500 sectors comped down, energy and industrials, and energy’s -56.5% Y/Y comp was in reality a very large contributor to a -1.2% S&P earnings comp in Q2 of last year. And looking at energy in isolation, spot energy commodity prices were meaningfully lower Y/Y on average in Q2 of 2016. All in all, Q2 is not an easy comp across the board which has been largely baked into in expectations in real-time:


High, High, High - q2 2015 comps


With lofty expectations, companies remain objectively laser focused on exceeding expectations, and the corporate gamery has increasingly picked up steam since margins and corporate profits peaked in 2H 2014 – buyback activity continues to make-up an increasing share of daily volume while return of capital via dividends is only showing early signs of deceleration:


High, High, High - profits and operating margin


High, High, High - Factset Buybacks


High, High, High - Factset dividends


As we've written, our expectation for Y/Y GDP for Q2 has been revised higher to +2.3%, implying the Q/Q SAAR number on which most of global macro is focused, could easily have a “4%” in front of it. The strength of last Friday’s retail sales report was a notable contributor to our revision with goods consumption contributing ~1/3 to PCE and ~1/4 to GDP – the trend in this series is meaningful. However, to re-iterate two important points with respect to the market’s potential reaction to a positive print:

  • Can good news from an economic perspective now be good for the market just as deteriorating trending data was good for the creation of a policy tailwind?
  • Is the risk of marginally hawkish policy with the data supported backdrop overpowered by good news?

Those are two questions worth asking, but a key takeaway with regard to our positive revisions for Q2 is the data supported overlay that employment and consumption is past peak with revolving credit showing mixed signs of slowing at a cycle low in delinquencies (credit growth has provided a consumption growth cushion since the consumer peaked in 1H 2015). Credit growth remains very robust, but taken as a whole, there is little room for an extension in the current consumer credit cycle and some metrics have already rolled over:


High, High, High - PCE growth 


High, High, High - Consumer Credit


High, High, High - consumer credit standards


High, High, High - Credit Quality


With the current “E” expectation empirically in question, we chose the title “high, high, high” instead of “peak, peak, peak” because we are constantly asked to weigh in on on the direction of the broader equity market in real-time (understandably as beta is the measuring stick for most) instead of focusing on what have been our better than bad tactical exposures within equities for most of 2016 (Long Utilities, short Financials). 


So can market levels, multiples, and buyback activity reach new highs? Sure, but as we wrote in this morning's early look:


“At this price (i.e. the all-time closing high of 2166), even if you believe the “E” (Earnings) embedded in the SP500’s multiple, this is a Top 3 most expensive stock market in US history.”


And to add another behavioral overlay, fund flow data indicates the cyclical gravitation to beta is at a new cycle high with fund flows out of actively managed funds averaging -$2.8Bn weekly in 2016 according to ICI and headline stories this week of actively managed outflows Financial Times.  


Please ping us back with comments or questions. We’re happy to look into anything mentioned above in more detail.


Ben Ryan





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Iran Nuclear Deal Emerging as a Potential Election Risk For Energy Markets

Takeaway: Trump pledges to undo the Iran nuclear deal. Reimposing US sanctions will put Iran's 750K b/d of new crude exports to world markets at risk.

Editor's Note: Below is a brief excerpt from an institutional research note written this morning by Hedgeye Potomac Senior Energy Policy Analyst Joe McMonigle. Joe is in Cleveland at the Republican National Convention. 


Iran Nuclear Deal Emerging as a Potential Election Risk For Energy Markets - z o9


As Republicans gather this week in Cleveland, there will be considerable talk about energy issues – support for hydraulic fracturing, coal, natural gas, LNG and overall US energy independence. While Donald Trump has not provided many specifics on his energy plans, there is a solid consensus that his administration would be favorable to fossil fuel energy sectors with very little downside risk for investors.


However, there is an emerging election risk to energy markets and that is Trump’s pledge to nullify the Iran nuclear deal.


It would be especially disruptive to oil markets as Iranian crude exports have regained significant market share in recent months.


The International Energy Agency (IEA) said last week that Iran’s crude production rose to 3.66 million barrels a day in June and 750,000 barrels a day since January when international nuclear sanctions were lifted.


Re-imposing US sanctions could put much of this new Iranian crude exports on the market at risk.


For more information on our institutional research email


Hedgeye Potomac, in conjunction with the international law firm of Squire Patton Boggs, will be hosting a series of calls on Brexit and will first examine the legal and procedural implications.  


With Prime Minister Theresa May now formally installed at 10 Downing Street, we will discuss with Squire’s Brexit Task Force the events following the UK’s exit vote from the EU and what the outcome of the vote spells for the UK and the rest of the world.


The call will take place on July 22nd at 11:00AM EST with prepared remarks followed by Q&A.



  • The timing and procedure of the withdrawal, and future negotiations between the UK and the EU
  • The consequences for UK, EU and US companies arising from the end of the application of EU Freedoms, Mutual Recognition, Passports and other privileges
  • Consequences under the domestic laws of the UK and the remaining 27 Member States
  • What happens to International Agreements entered into by the EU
  • What you need to know when entering into new contracts after June 23, 2016 and what you should do with respect to existing contracts
  • Labor, Employment and Immigration
  • What alternatives are available to the UK, including WTO, EFTA, EEA, Swiss-Style, Free Trade Agreements




Squire Patton Boggs is a full service global law firm that provides insight at the point where law, business and government meet. Squire Patton Boggs consists of over 1,500 lawyers in 45 offices across 21 countries.


Squire Patton Boggs’ Brexit Task Force is a multi-disciplinary team of lawyers and policy advisers who are uniquely placed to support clients from across the globe on the effects Brexit will have on business.


The Public Policy teams, particularly in Brussels and Washington, D.C., consist of top tier lawyers with considerable public policy experience - which helps them provide seamless and coordinated discussions with the relevant authorities.



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The Key Discussion Points Ahead Of Our Institutional Call on Wabtec | $WAB

The Key Discussion Points Ahead Of Our Institutional Call on Wabtec | $WAB - wab email


Editor's Note: Wabtec (WAB) is currently on our Industrials analyst Jay Van Sciver's Best Ideas List as a short. He is hosting a call today to update his thesis and preview their upcoming quarterly report. Send an email to for access or for additional information about our institutional research.



  • A Look At Freight Decremental Sustainability: WAB's report and guidance will test the sustainability of 1Q 2016's Freight segment decremental margin, which the 10-Q indicates was driven by lower Material costs. These favorable decremental margin expectations are now imbedded in 2H 2016 consensus estimates, and we expect the recent snap back in steel prices to have a significant 2H16 impact. While Materials costs went unmentioned in both the press release and earnings call, the company has apparently subsequently claimed mix as a factor; we do not find that claim credible. 
  • Consideration of Faiveley Deal Structure, Remedies: Investors should receive an update on the Faiveley acquisition, a deal we think management wanted to close by mid-year amid Freight segment pressure. Management has previously left no ambiguity that they expected to close the deal, but the information from regulators indicate to us that divestitures or other remedies will be required to close. Given the dearth of appropriate buyers for divested assets and not-so-minimal business overlap between WAB and LEY FP, comments should be interesting. The Faiveley merger remains a long thesis element for several large WAB holders.
  • Our Take On Management: We have observed thesis drift among WAB longs. While initially embracing freight aftermarket and regulation-driven demand, the focus shifted to international Transit growth and Faiveley. Now, discussions typically end with how this management team will execute through the downturn. If management is not able to deliver, further thesis drift may lack a new port.


What Levers Are Next? This management will not ride the downturn quietly, in our view. Wabtec still has substantial balance sheet capacity, and we would expect disappointing headlines to be offset with positive ones. Results last quarter should have seen pressure, but management was able to pull a Materials cost rabbit out of the hat. We will consider some options and the associated risks.


The Key Discussion Points Ahead Of Our Institutional Call on Wabtec | $WAB - wab call


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