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Capital Brief: 3 Key Insights On Trump Ahead Of Tonight's Speech

Takeaway: Third Time's The Charm?; The Kids Are Alright; Missed Opportunities

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 sales@hedgeye.com.

 

Capital Brief: 3 Key Insights On Trump Ahead Of Tonight's Speech - JT   Potomac under 1 mb

 

“Politics makes me sick.”

-William Howard Taft

THIRD TIME’S THE CHARM?

Day three of the Republican convention concluded with a positive shift with a speech by veep nominee Mike Pence who focused on introducing himself to an unfamiliar nation, while building on party unity and important policy ideals. Pence’s role will be simple in the coming months, he’ll provide a balance between Donald Trump and the Republicans, adding much-needed substance and value to both the party and the ticket.

 

But it wouldn’t be a day at a 2016 Republican convention without some drama or controversy. In what we think will be remembered as political miscalculation, Senator Ted Cruz called on Republicans to “vote your conscience” without endorsing Trump and was booed off stage (of course, with Trump seizing the opportunity to step on Cruz’s message by entering the convention hall at just the right time) providing Trump with the singlemost unifying moment of the convention so far.   

THE KIDS ARE ALRIGHT

Most of America knows Trump for his real estate deals and from his reality tv show, but they don’t know him personally and he may actually be a good guy. As his most trusted advisers and surrogates, his family has moved to humanize him, bring him down to earth, and show his sensibility. Trump’s family has provided audiences nationwide with a different view of the man running for president – with the hope that he’s someone they can relate to on a personal level.

 

Melania’s speech missed it for obvious reasons, but Donald Jr., Tiffany, and Eric have been the messengers he’s needed all along - and Ivanka, the most anticipated of the five, will have her turn tonight.

MISSED OPPORTUNITIES

Tonight will be give Trump the opportunity to turn the page on a Republican convention that has been part coronation, part Keystone Cops, part soap opera. We’re beating a dead horse into the ground, but his campaign continues to be late to the game on everything - missing opportunity after opportunity to shore up the base before the convention even started as he’s been the presumptive nominee since winning Indiana on May 3.

 

Now, instead of focusing their attention on critical undecideds and independents at the convention given a captive national audience, Trump and Republicans keep finding themselves struggling to unify, stay on message (see Trump’s comments on NATO yesterday) and offer up a positive vision for the country.


Macro Meets Micro: Behind The Bursting Biotech Bubble

In this excerpt from The Macro Show earlier today, Hedgeye CEO Keith McCullough and Healthcare analyst Andrew Freedman discuss the macro and micro fundamentals behind the bursting biotech bubble.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.


Around The World In 5 Charts

Takeaway: "No need and no possibility for helicopter money," BOJ's Kuroda told BBC. Add in the ECB presser today, central planning nonsense abounds.

Around The World In 5 Charts - World Market No 12.16.14 large 

 

As the hopes and whims of investors swing wildly through markets, these delusions become increasingly disconnected from economic reality. 

 

A case study in delusion: Japan. "No need and no possibility for helicopter money," BOJ head Haruhiko Kuroda said in a BBC Radio 4 program that was broadcast Thursday. “At this moment, the Bank of Japan has three options with quantitative and qualitative easing with negative interest rates."

 

The Yen jumped 1.1% on the news. Now the WSJ reports this broadcast was recorded in June and FX markets backed off.

 

This is all getting rather silly...

 

We reiterate today that the supposed catalyst "helicopter money or bust" is not a risk management process. Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier today: 

 

"Heli-Ben money hits a wall with Kuroda saying “no need or possibility for helicopter money” – doesn’t that suck. Reiterating short Nikkei as the Yen just popped +1.1% on that after failing to break-down through 108 vs. No support for Nikkei to 14,993."

 

While We're on Central planning nonsense...

 

ECB head Mario Draghi kept rates on hold today but had a number of innocuous things to say about the Euro-area economy, like this gem:

 

"Headwinds to economic recovery in euro area include outcome of UK referendum and other geopolitical uncertainties."

 

And then Draghi suggested that a "public backstop" would be "very useful" to help struggling European banks. Furthermore, Draghi added that the bad debts in Italy’s banking sector are a “very big problem.” Italian bank UniCredit popped 4% on the news (after falling more than -60% in the past year) along with other bank related stocks pushing the FTSE MIB index up marginally today. 

 

Around The World In 5 Charts - Italian bank cartoon

 

McCullough dissects the latest out of Europe:

 

"Protracted recession pending in Europe? What’s the catalyst to get Italy, France, etc. out of one? Reiterating the short call on both European Equities (Germany, Spain, and Italy… in that order) and the Euro vs. USD (Italian stocks haven’t joined the helicopter party, -0.3% this am and -30% vs. where you could have bought them at this time last year)."

 

It's getting ugly out there...

 

"Turkey's president has declared a state of emergency for three months following Friday night's failed army coup," the BBC reports. "The emergency allows the president and cabinet to bypass parliament when drafting new laws and to restrict or suspend rights and freedoms." (For more analysis on what to expect out of Turkey, check out Hedgeye Potomac National Security analyst LTG Dan Christman USA Ret.  "What Comes Next After The Failed Coup In Turkey.")

 

In COMMODITIES MARKETS...

 

The #StrongDollar ravaging continues.

 

  

Meanwhile, Here at home...

 

Equity markets are within spitting distance of all-time highs. But, as we've pointed out before, the recent stock market rallies have come on declining total market volume. Not good.

 

  

In these uncertain times, What do you buy?

 

On pullbacks... Gold (GLD), which has developed a seemingly antithetical correlation of 0.9 to the U.S. dollar over the last 30-days. Note: Gold has been working all year (and remains a Hedgeye Long call):

 

 

As our outspoken CEO Keith McCullough is fond of saying, "Risk happens slowly at first, then all at once."

To be crystal clear, market risk is rising.


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Daily Market Data Dump: Thursday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, key currency crosses, and commodities. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Thursday - equity markets 7 21

 

Daily Market Data Dump: Thursday - sector performance 7 21

 

Daily Market Data Dump: Thursday - volume 7 21

 

Daily Market Data Dump: Thursday - rates and spreads 7 21

 

Daily Market Data Dump: Thursday - currencies 7 21

 

Daily Market Data Dump: Thursday - commodities 7 21


CHART OF THE DAY: The Top 10% vs Everyone Else

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... In today’s Chart of The Day is slide 48 of our current Q3 Macro Themes deck. It’s titled “The High-End Matters” and it shows that the Top 20% of US Households account for 39% of US Consumer Spending. That’s not a typo."

 

CHART OF THE DAY: The Top 10% vs Everyone Else - 07.21.16 EL Chart


P | Thoughts into the Print (2Q16)

Takeaway: We expect a small beat/soft raise, but the trajectory of P's underlying drivers/longer-term story may matter more than the actual print.

KEY POINTS 

  1. THESIS REFRESH: We covered our P short back in January following heightened bearish sell-side sentiment off the Web IV announcement.  P is now on our Long Bench; we believe it has more upside than downside from here since it diversifying away from the ad-supported model.  But we're concerned about execution; particularly on interactive.  P currently has limited if any leverage in negotiations, especially since it has publicly set expectations around the timing of its interactive rollout.  Our other concern is on the core business, specifically around a slowdown in Local Advertising, especially if it is coupled with delays in striking interactive deals.  Collectively that could push the speculative bulls out of the name.  Regarding the 2Q print, we expect a small top-line beat with the mid-point of the 3Q guide coming in below consensus and full-year guidance raised inline with the 2Q beat.  But we suspect the print will matter less than its underlying drivers (e.g. Local Ad Revenue growth) and the trajectory of P's longer-term story; collectively what we're focusing on below.  
  2. LOCAL CONCERNS: P's Local Revenue growth reaccelerated last quarter (42% vs. 34% in 4Q15), a big positive at face value since it appears to be driven by a surge salesforce productivity (1Q local reps up 12% y/y vs. 39% in 4Q15).  But the more realistic way to assess productivity is on a lag since it’s not likely that P’s new reps are producing at full capacity when being hired intra-quarter.  On that basis, P only saw marginal improvement in productivity in 1Q, extending a stretch of waning productivity.  Mgmt has curbed the rate of Local Rep hiring recently, which is a concern since headcount has historically been its largest source of Local Revenue growth.  Looking out to 2H16 Ad revenue estimates, we see 3Q16 as stretch, and have to take a big leap of faith on productivity gains to get to 4Q16 estimates, especially since National salesforce productivity has been largely declining on a y/y basis.  
  3. INTERACTIVE TIMING? P expects to sign direct licenses with each of the major labels by 4Q16 and go to market in 1Q17.  However, we can't assume that timing will go exactly to plan.  From the perspective of the labels, we have to wonder if they are in any rush to get a deal done with P that isn't decidedly in their best interest.  There are at least 2-3 established interactive providers today; letting P in may not accomplish much more than adding a new interactive vendor to sell what is currently a largely commoditized product.  In turn, that could just incite more pricing pressure within the industry, which would directly impact the labels' interactive revenue, without any guarantee of a lift in interactive subscribers.  We get that P has 80M current users that it could target, but they can already sign on with any interactive provider today since P doesn't have a moat around its users.  Also keep in mind that interactive isn't one deal, but three separate deals it will need to hammer out with each of the labels.  In short, P may not be able finalize its deals by year end, at least at current market terms.  
  4. WHAT WE’RE KEYING IN ON: First, salesforce hiring, particularly on the local side since that has historically been P’s largest source Local Ad revenue growth, and may be a leading indicator for revenue growth over the coming quarters.  Mgmt suggested that is has roughly “155, 160 [local] sales people, or so” at a June 16th event, which suggests mgmt has curbed hiring (ended with 154 locals reps in each of the last 2 quarters).  Second, 2Q16 local sales rep productivity to see if there is a material inflection in the trend.  Third, anecdotal commentary on the timing on any interactive deals; specifically a change in tone.  For context, mgmt appeared to have had a progressively waning confidence level around the Web IV outcome at the end its prepared remarks in the last 3 earnings calls leading up the CRB decision; we're wondering if we will hear something comparable regarding interactive timing.  

  

Let us know if you have any questions, or would like to discuss further.

 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet

 

P | Thoughts into the Print (2Q16) - P   Local Sales Prod 1Q16 

P | Thoughts into the Print (2Q16) - P   National Sales Prod 1Q16


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