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Poll Of The Day: If You Had to Buy-and-Hold ONE ITEM For a Year Which Would You Choose?

What do you think? Cast your vote. Let us know.

 

Poll Of The Day: If You Had to Buy-and-Hold ONE ITEM For a Year Which Would You Choose? - z poll99

 


*TODAY* BlackStone Group (BX) | Economic Gravity - Adding to Best Ideas List as a Short

Takeaway: We are hosting a new Best Ideas call today at 11 am EST to discuss BlackStone Group as a short idea.

*TODAY* BlackStone Group (BX) | Economic Gravity - Adding to Best Ideas List as a Short - cover invite smaller

 

Rate of Change Decelerating: BlackStone is a market leader in all four of its business lines and a well liked and respected company which make it a dangerous stock in our view. The core factors that drive shares are starting to decelerate with distributable earnings sourced by net accrued performance fees now declining which is forcing the stock down in lock step. We calculate to make the Street's estimates next year that BX will have to expend 66% of its year end accrued performance fees, over 20 points higher than the balance expended for 2016 distributions and above the all time high of accrued fees paid out in 2015. 

 

Big Data Points to a Hyper Cyclical: The causal factors of BX stock price and internal fundamentals point to a hyper cyclical stock with positive coefficients to all market indices, consumer confidence, and nonfarm payrolls. Negative betas are evident to corporate credit costs, the U.S. unemployment rate, and both equity and fixed income volatility. With the economy entering late cycle territory and the path of least resistence higher for both vol and unemployment trends, we think investors risk overstaying their welcome remaining long the stock compared to the growing risks of shares inflecting lower with the economy.

 

Earnings Quality Will Matter Again:  The entire Alternatives group ranks poorly as Non GAAP accounting beneficiaries which make results look stronger than they really are. The entire earnings quality measure of the S&P 500 has been deteriorating since 2009 and is now back to the worse levels since 2007. The S&P 500 is now averaging a GAAP-to-Non GAAP ratio of 77%, which means that there is a -23% discount between adjusted and GAAP results. The Alternatives are much worse averaging a 59% ratio, or a GAAP discount of -41%. When the tide turns and investors look for safety in defensive stocks, we think the Alternatives group will fail to qualify for that category and will experience substantial declines on a flight to quality. 

 

Fair Value? Our base case valuation for BX shares is $20, or ~25% downside from current levels with a $15 per share valuation in our Bear case scenario, or -40% downside.

 

CALL DETAILS - Wednesday, September 7th at 11 am EST

  • Toll Free Number:
  • Toll Number:
  • UK: 0.
  • Conference Code: 13642040
  • To Automatically add to your Outlook Calendar Click HERE
  • For the Events Page and Live Video Link and Event Materials Click HERE

 

Please let us know of any questions.



Jonathan Casteleyn, CFA, CMT 

 

 


Joshua Steiner, CFA

 

 

Patrick Staudt, CFA

 


September 7, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.61 1.51 1.55
SPX
S&P 500
2,166 2,189 2,186
RUT
Russell 2000
1,232 1,257 1,253
COMPQ
NASDAQ Composite
5,196 5,284 5,275
XOP
SPDR S&P Oil & Gas Explore
35.21 37.98 37.84
RMZ
MSCI US REIT
1,225 1,249 1,242
NIKK
Nikkei 225 Index
16,339 17,158 17,081
DAX
German DAX Composite
10,503 10,744 10,687
VIX
Volatility Index
11.65 14.40 12.02
USD
U.S. Dollar Index
94.23 96.49 94.82
EURUSD
Euro
1.11 1.13 1.11
USDJPY
Japanese Yen
99.80 104.38 102.02
WTIC
Light Crude Oil Spot Price
42.77 45.90 44.83
NATGAS
Natural Gas Spot Price
2.61 2.89 2.72
GOLD
Gold Spot Price
1,311 1,360 1,354
COPPER
Copper Spot Price
2.02 2.12 2.08
AAPL
Apple Inc.
105.60 109.00 107.70
AMZN
Amazon.com Inc.
751 791 788
JPM
J.P. Morgan Chase & Co.
65.90 67.99 67.44
INTC
Intel Corp.
35.19 36.70 36.57
LVS
Las Vegas Sands Corp.
52.28 56.15 54.73
CMG
Chipotle Mexican Grill
395 435 414

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


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CHART OF THE DAY: Worst ISM Services Since 2010

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. 

 

CHART OF THE DAY: Worst ISM Services Since 2010 - el 09.07.16 chart

 

"...Seriously. That was the worst ISM Services report since 2010 and the largest sequential decline in New Orders (leading indicator) in 104 months and this character at the San Francisco Fed, John Williams, came out intraday saying “the economy is strong” and needs rate hikes.

 

What, precisely, does “the economy is strong” mean? At Hedgeye we deal in real-time and space terms using this thing called the 2nd derivative as a leading indicator for future “levels.” In other words:

 

A)     The economy is either accelerating or

B)      The economy is decelerating

 

It’s not that complicated."


Is The Fed Your God?

“If only we had the vast knowledge of God, everything could be understood and predicted.”

-Benoit Mandelbrot

 

If you’re not religious but looking for new options, I do not recommend bowing at the altar of Federal Reserve forecast conformity. Thank goodness (and my God) that the USA’s economic data continued to slow yesterday. Stocks, commodities, and bonds loved it!

 

That’s right, #GrowthSlowing remains the bull case for “stocks” inasmuch as it’s always been the secular/demographic one for long-term US Treasuries. So I’m thinking I’m going to pick up some mind share from those marketing long-only-equity strategies until this stops.

 

If bad is good, when will bad become bad? No worries. Mr. Macro Market will let us know. That’s why what my man Mandelbrot called a “contrary approach, macroscopic instead of microscopic, stochastic instead of deterministic, more fruitful” to proactively predicting market scenarios than making a demi-Goddess out of Janet Yellen’s forecasts. (The Misbehavior of Markets, pg 29)

 

Back to the Global Macro Grind

Is The Fed Your God? - Yellen data dependent cartoon 11.18.2015 

‘Dammit Keith, stop blaming Janet. She’s a nice lady and she works hard.’ Oh, I totally agree with that. If she’s “data dependent” she’s going to have to pivot back to dovish from hawkish – that’ll be her 6th hawkish/dovish pivot in 8 months. That’s really hard work!

 

What up with yesterday’s data, bros?

 

  1. ISM Services (proxy for 70% of the economy) slowed to 51.4 in AUG vs. 55.5 in JUL
  2. Business Activity and New Orders dropped a remarkable -7.5 pts and -8.9 points, sequentially
  3. Employment declined -0.7 pts, barely holding above a contraction at 50.7

 

Seriously. That was the worst ISM Services report since 2010 and the largest sequential decline in New Orders (leading indicator) in 104 months and this character at the San Francisco Fed, John Williams, came out intraday saying “the economy is strong” and needs rate hikes.

 

What, precisely, does “the economy is strong” mean? At Hedgeye we deal in real-time and space terms using this thing called the 2nd derivative as a leading indicator for future “levels.” In other words:

 

A)     The economy is either accelerating or

B)      The economy is decelerating

 

It’s not that complicated. Neither is measuring and mapping the rate of change in “inflation.” It’s easy to track how macro markets are pricing in deflation vs. reflation. The 5-year US Treasury Break-Even Rate has deflated back down to where it started 2016 = 1.30%.

 

Back to the whole concept we’re willing to give Williams a teach-in on @HedgeyeHQ – is the “data” getting better or worse (accelerating or decelerating)? If you’re into data point breadth, here’s a list that “data dependent” hawks should obfuscate or ignore:

 

  1. Chicago PMI = Worse
  2. ISM Services = Worse
  3. ISM manufacturing = Worse
  4. Markit Manufacturing PMI = Worse
  5. NFP = Worse
  6. Auto Sales = Worse
  7. Existing Home Sales = Worse
  8. Labor Market Conditions = Worse

 

In other words, like corporate profits, the manufacturing and industrial side of the US economy remains in a #Recession. Whereas the bigger and broader #LateCycle swath of the US economy (labor and consumption) continues to slow from its 2015 economic cycle peak.

 

I’d be more than happy to invite any establishment economist to our Macrocosm 2016 Conference (November 16th at The Yale Club in NYC) to debate me on why what I just wrote isn’t 100% accurate. Again, both stock and bond market bulls should be thankful it is.

 

While they aren’t accelerating on a trending basis, I purposefully left a few “bullish” economic data points off the aforementioned list. Can you tell me what they are? Do they, pardon the pun, trump the other eight? What is going to make those 8 data points great again?

 

Those are actually tougher questions than answering the why on how many economists/strategists missed the 2016 US economic slow-down. Two centuries ago, before astronomers had good telescopes, establishment scientists were able to obfuscate reality too.

 

I believe there is a God. I sort of believe there’s hell too (working for Obama’s Fed would certainly be some version of it). While I can prove those things to myself qualitatively, I can’t prove them to you, quantitatively, like I can the rates of change in economic data.

 

Our immediate-term Global Macro Risk Ranges with intermediate-term TREND Research Views in brackets are currently:

 

UST 10yr Yield 1.51-1.61% (bearish)

SPX 2166-2189 (bullish)
RUT 1 (neutral)

NASDAQ 5196-5284 (bullish)

XOP 35.21-37.98 (neutral)

RMZ 1 (bullish)

Nikkei 168 (bearish)

DAX 104 (bearish)

VIX 11.65-14.40 (bullish)
USD 94.23-96.49 (bullish)
EUR/USD 1.11--1.13 (bearish)
YEN 99.80-104.38 (bullish)
Oil (WTI) 42.77-45.90 (bearish)

Nat Gas 2.61-2.89 (bullish)

Gold 1311-1360 (bullish)
Copper 2.02-2.12 (bearish)

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Is The Fed Your God? - el 09.07.16 chart


Thank goodness for more USA #GrowthSlowing data...

Client Talking Points

Rates

On the heels of the worst US ISM Services report in 104 months (since 2010), rates got spanked and anything that looked like a bond and/or inverse USD correlation ramped; 2yr Yield down -13% (from 0.84% to 0.73%) in less than a week as markets tell Yellen she has to pivot back to dovish on the data (her 6th hawkish/dovish pivot in 8-9 months).

Yen

US #GrowthSlowing data = Down Dollar, Up Yen – wow was that a fun trade; we're long Yen (for a trade) as everything dovish/hawkish happens on the margin and it looks like the Japanese have some dissent at the BOJ in going for a big devaluation here in SEP (they also need to wait to see what the Fed does); risk range JPY/USD = 99.80-104.38.

Oil

Squeeze me please me, and find me any reason why – but w/ an immediate-term inverse correlation of -0.7 on Oil/USD, all we just did here was bounce within the $42.77-45.90 risk range; our Energy Policy analyst and I have 3 mins (video) on why we don’t buy into the alleged “freeze” here: https://app.hedgeye.com/feed_items/53592-mcmonigle-no-opec-freeze-without-iran.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/6/16 44% 7% 8% 14% 21% 6%
9/7/16 58% 4% 4% 7% 23% 4%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
9/6/16 44% 21% 24% 42% 64% 18%
9/7/16 58% 12% 12% 21% 70% 12%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

See updates below.

TLT

Income & Consumption

Slowing employment growth + a decline hours worked + deceleration in earnings growth will = a deceleration in aggregate income growth when the official data are reported at the end of the month.  Absent a significant decline in the savings rate and/or significant re-acceleration in credit growth, consumption growth can be expected to track income growth lower. 

UUP

Industrial Activity 

The -14K decline in manufacturing employment in August accords with the retreat in the employment subcomponent in the ISM manufacturing report.  Lower manufacturing employment and a slowdown in manufacturing hours worked also points to a sequential decline in Industrial Production when that data is reported later in the month.  In short (and in the short-term), bad economic data is good as falling rate hike expectations support asset price inflation.  Over the intermediate-term, "slower-and-lower-for-longer" continues to characterize the growth, inflation and interest rate outlook and support #GrowthSlowing allocations in bonds, gold, and dollars.   While incremental dovishness from the Fed may serve as a short-term headwind to the dollar, the structural case for the $USD amidst ongoing policy divergence between the U.S. and the balance of global DM markets remains intact.   

Three for the Road

TWEET OF THE DAY

S&P tags 251 "troubled" companies, 25% in energy sector pic.twitter.com/sHuFmFQS31

@Hedgeye_Comdty

QUOTE OF THE DAY

“I think a hero is an ordinary individual who finds strength to persevere and endure in spite of overwhelming obstacles.”

–Christopher Reeve

STAT OF THE DAY

Aaron Jones of UTEP leads the NCAA in rushing with 249 yards.  Nick Chubb of Georgia is second with 222 yards.


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

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