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McMonigle: An OPEC Meeting Spoiler Alert

In this brief HedgeyeTV video, Hedgeye Potomac Senior Energy Policy analyst Joe McMonigle explains why Saudi Arabia and Iran will once again dash OPEC oil production “freeze” discussions.


Cartoon of the Day: Sign of the Times

Cartoon of the Day: Sign of the Times - 10 yr yield cartoon 08.10.2016

 

Ten-year yields, globally, were down across the board this morning. Got #GrowthSlowing?


No Holding Back... Saudis Ramping Production Despite Oil Production "Freeze" Rumors

Takeaway: Saudis ramp oil production. That's right. No production freeze. Just as we've been saying.

No Holding Back... Saudis Ramping Production Despite Oil Production "Freeze" Rumors - Oil cartoon 04.07.2016

 

"Saudi Arabia told OPEC that it pumped a record 10.67 million barrels of oil a day in July to meet a summer surge in domestic demand, an increase that will do nothing to endear the group’s leading exporter to other members seeking output limits to shore up prices," Bloomberg writes.

 

That's right. No production freeze. Just as we've been saying. Check out Hedgeye Potomac Senior Energy analyst Joe McMonigle's piece "OPEC Oil Production "Freeze" Talk Will Have Similar Ending ... No Agreement." McMonigle has been making the case that Saudi Arabia and Iran have no incentive to agree to an oil production freeze anytime soon.

 

Here's a key chart from Bloomberg (with our commentary in red). As you can see, so far this year, Joe has been right. Saudia Arabia has, in fact, ramped production.

 

No Holding Back... Saudis Ramping Production Despite Oil Production "Freeze" Rumors - freeze


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The NIRP Effect: A Look At Pancaking Yields & Trillions In Negative Yielding Debt

Takeaway: The $9.4 trillion in negative-yielding sovereign bonds now make up 37% of the Bloomberg Global Developed Sovereign Bond index.

The NIRP Effect: A Look At Pancaking Yields & Trillions In Negative Yielding Debt - Yield cartoon 06.14.2016

 

As yields on bonds from the U.K., Spain, and Ireland make news lows this week, sovereign bond yields are digging ever deeper into the red. According to the Bloomberg Global Developed Sovereign Bond index, which tracks nearly $25 trillion worth of sovereign bonds globally, there are $9.4 trillion in negative-yielding sovereign bonds, making up 37% of the index. That's up from just 13% at the start of 2016. 

 

Meanwhile, the value of global negative-yielding investment grade corporate debt is up 1,254% this year at $368 billion. That's according to data in the Bloomberg Global Investment Grade Corporate Bond index, which tracks 10,050 investment grade bonds globally. (These figures have backed up a bit in the past month with rising yields in Japan and the U.S. Click here for our previous update.)

 

The index now includes 445 negative yielding bonds, versus just 59 at the start of the year, issued by companies such as General Electric, Siemens, Total, Unilever, Daimler, and Roche. 

Back to Sovereign Bonds...

 

A few notable developments... new lows for 10-year yields in Spain, Ireland and the U.K. Below are their respective yield curves versus this time last year. Note how they've fallen (yellow line last year versus green line today).

Spain

The NIRP Effect: A Look At Pancaking Yields & Trillions In Negative Yielding Debt - spain 8 10

U.K.

The NIRP Effect: A Look At Pancaking Yields & Trillions In Negative Yielding Debt - uk 8 10

Ireland

The NIRP Effect: A Look At Pancaking Yields & Trillions In Negative Yielding Debt - Ireland 8 10

Got #GrowthSlowing.


2 Reasons Why Wayfair Is Still A Short

Takeaway: W continues to invest in an addressable market much larger than we believe it will ever recognize. Starting to see cracks in the foundation.

Editor’s Note: Below is an institutional research note on Wayfair written yesterday by Hedgeye Retail analysts Brian McGough and Alexander Richards. To access our institutional research email sales@hedgeye.com.

 

2 Reasons Why Wayfair Is Still A Short - wayfair 8 10

 

The -20% move today is a nice near-term win, but let’s be perfectly clear about one thing…this short call is far from over. We saw a few cracks in the foundation within the numbers printed this morning and we think there’s considerably more downside risk embedded in this story as the company continues to invest in an addressable market that is much larger than our research has us convinced it will ever recognize. And ever is a long time.

  1. This is no longer a US story as the company has clearly pushed international expansion up higher in the queue. To date, Wayfair is present in four countries and the management team has now talked to roughly a $180bn market opportunity between the US and Western Europe. What that tells us is the company isn’t done funneling dollars across borders in order to diversify its revenue base. Meaning a bigger drag on earnings for longer.
  2. Over the past 12 months, Wayfair has rung the register on $2.7bn in the US. The current market share on Wayfair’s math is 13%, or looked at another way, 4% of its long term TAM. That still leaves a considerable amount of share to be captured in the US if you believe Wayfair’s math. We don’t think the outlook is as opportunistic for W, which based on our work suggests that the company has a $27bn TAM with upside to $45bn vs. the company at $90bn. That tells us that Wayfair is spending up now to supplement an unrecognizable US end market.

Capital Brief: Trying Times For Trump & The Growing List Of GOP Defectors

Takeaway: A Party Dividing?; Trump Econ 101; Unanswered Questions

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: Trying Times For Trump & The Growing List Of GOP Defectors - JT   Potomac under 1 mb

 

“The bud of victory is always in the truth.”

-Benjamin Harrison

A PARTY DIVIDING?

Following one of his campaign’s worst weeks yet, Donald Trump claims he won’t change his strategy or alter his temperament even slightly. His Second Amendment comments were beyond the pale - overshadowing yet another headline on Hillary Clinton’s State Department emails and influence from the Clinton Foundation - and will likely cost him more party members and donors as some are now making their support of Hillary Clinton very public. The list continues to grow - this time including ME Senator Susan Collins saying she would not vote for Trump. In addition to Collins, and other high-profile former Bush Administration defections, a letter signed by 50 senior Republican national security officials warned that a Trump presidency would “risk our country’s national security and well-being.”  

TRUMP ECON 101

Amid protesters’ interruptions, Trump’s economic speech to the Detroit Economic Club was a mix of the good, the bad, and the ugly. The plan stitched together old ideas from the left and the right, including a large dose of tax cuts mixed with outdated protectionism, reformed conservative social policy and a deregulation plan that would make Wall Street cheer. Will the unusual mix of policy captivate those outside of Trump’s constituencies and stall his recent slide in the polls and recapture the momentum that led him to the nomination? Clinton is expected to lay out her rebuttal later this afternoon.

UNANSWERED QUESTIONS

It’s hard to dismiss the fact that Clinton is leading by double digits in most national polls and now with just 90 days until election day, Trump still has not spent a dime on television advertising, even as Clinton continues to flood the airwaves with more than $50 million in ad spending. It's not for lack of money as the Trump campaign raised $80 million in July and finished the month with $37 million cash-on-hand. We’re stymied that he hasn’t tried to make up any lost ground not even posting during the Olympics as Clinton drops $5.5 million on prime time ads.


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