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Cartoon of the Day: Perma

Cartoon of the Day: Perma - Perma wrong cartoon 09.12.2016

60% of the time, the Fed's forecasts work everytime.


Investing Ideas Macro Overlay: Positioning Your Portfolio Update

On today's “Macro Overlay,” Hedgeye CEO Keith McCullough takes a deeper look at the tickers currently on our Investing Ideas list.


CALL INVITE: TOP THREE DEFENSE POLICY ISSUES FOR THE NEXT PRESIDENT (9/14/2016 at 11AM EDT)

Takeaway: Join us for a call with Dr. James Miller, recent Undersecretary of Defense for Policy, on the choices facing the next President.

The next President will face huge defense policy issues as soon as he/she is sworn in on January 20: how to deal with Russia, China and ISIS, the split between defense and non-defense discretionary spending and massive recapitization bills for the nuclear triad as well as conventional forces.  Priorities will be established early and choices must be made.  Both campaigns have already begun thinking about these decisions.  We announce the first of a series of calls prior to the election on this theme.

 

Join us in an important call with Dr. James Miller, someone who has "been there and done that" and is in the know when dealing with all of these topics.  Dr. Miller will illluminate what he considers to be the top three issues and then take questions from listeners. 

 

As Under Secretary of Defense for Policy from May 2012 to January 2014, Dr. Miller served as the principal civilian advisor to the Secretary of Defense on strategy, policy, and operations.  He served as Principal Deputy Under Secretary of Defense for Policy, from April 2009 to May 2012. For his accomplishments, he was awarded the Department of Defense’s highest civilian award, the Medal for Distinguished Public Service four times, twice by Secretary Gates, and by Secretaries Panetta and Hagel.  He also received the Chairman of the Joint Chiefs of Staff’s Joint Distinguished Civilian Award.

 

Dr. Miller is President of Adaptive Strategies, LLC, which provides consulting to private sector clients on strategy development and implementation, international engagement, and technology issues. He serves on the Board of Directors for the Atlantic Council, and on the Board of Advisors for the Center for a New American Security and Endgame, Inc. He is a member of the International Institute for Strategic Studies, and the Department of Defense Science Board.

 

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Early Look

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Increasing Odds of Preemptive Strike Against North Korea

Takeaway: North Korea's nuclear test makes the commander-in-chief question in the campaign real.

Editor's Note: The note below was written by Hedgeye Potomac Research Senior Defense Policy Advisor LtGen Emerson "Emo" Gardner USMC Ret. For more info on our institutional research email sales@hedgeye.com.

 

Increasing Odds of Preemptive Strike Against North Korea - z kim

 

If it had been an earthquake that measured 5.3 on the Richter scale

 

...North Korea's fifth nuclear test would be considered "moderate", one of over a thousand such occurrences that happen each year.  The impact will be far greater than "moderate" on the campaign and on US defense policy and activity over the coming months.  

 

This was the most powerful North Korean test yet, estimated to be between 10 and 20 kilotons, approximately the size of the Hiroshima bomb, "Little Boy".  North Korea's second test this year comes just 16 days after North Korea's better than expected test of a submarine-launched ballistic missile (SLBM) that went over 300 miles before landing inside Japan's Air Defense Identification Zone (ADIZ).  North Korea has claimed that its nuclear test was of a missile-sized payload.

 

While we do not believe that North Korea has the capability to put the two capabilities together yet, it will - and well within the first term of the next President.   Pacific commanders have become increasingly concerned about the rate of North Korean progress.  Although the test was not unanticipated and fits into the well-known North Korean pattern of seeking concessions through aggressive behavior,  the actual event shows the apparent ineffectiveness of sanctions.  Those sanctions had just been increased to the "toughest yet" in March and President Obama has been in Asia for the last week calling for more.   

 

One of the two Presidential candidates who talked about everything but what is really important about being the next commander-in-chief during Matt Lauer's pathetic job interviews on Wednesday night will have to decide how the US is going to stop Kim Jong Un from getting these tools.  

 

A preemptive strike against North Korean capabilities has always been on the US menu of options.  While an effective strike against North Korean nuclear or missile launch facilities can be done, the concept is no slam dunk.  North Korea has been preparing to be attacked for decades. The 10 million people of Seoul are extremely vulnerable to well-concealed North Korean artillery and no amount of preemptive strikes will be totally effective against their use.  

 

Nevertheless, the probability of a US preemptive strike happening over the next twelve months has increased.

 

Two reasons:

 

  1. The North Koreans will do something provocative again soon.  President Obama is certain to tighten the screws further on North Korea and may even get Chinese support. North Korea almost always reacts to such pressure by ratcheting up the tension or doing something provocative.  
  2. Both candidates will try to out tough-talk each other on this issue as it moves to the top of the pile of steaming campaign fodder and one of them is going to be elected.

*  *  *

Email sales@hedgeye.com for more info on our institutional research

 

 

 

 

 

 

 


LAZ: We Are Removing Lazard From Investing Ideas

Takeaway: Please note we are removing LAZ from Investing Ideas (short side) today.

"We are removing Lazard (LAZ) from Investing Ideas today following the big move right to the Q2 lows," writes Hedgeye CEO Keith McCullough.

LAZ: We Are Removing Lazard From Investing Ideas - z laz


Polaris – Don’t Jump To Conclusions (our $0.02 on the PII miss)

Takeaway: There’s definitely a partial ‘economy miss’ but most of this is co-related. PII is actually a name we’d own at a price. Just not this one.

When we saw the Polaris 40% guide down to ≈ $3.70, we admittedly jumped to the conclusion that this is a major tell for the state of the consumer/economy. After all, it is due largely to lower unit sales associated with its RZR Turbo product, which at $24,999 (plus delivery and setup) is the poster child for a toy that average middle-American male can no longer afford to lever up to buy (check out image below). While we are bearish overall on the Macro environment, after digging further, we think that 50-75% of the miss is company–specific. It’s related to fixing issues that are already known, but underestimated by the company and to a lesser extent – the market.  

 

If you own/are short the stock, you already know this. We have not done a tremendous amount of work on this one in the past. But if you saw the headline and are assuming the worst as it relates to a read on the consumer (as we initially did), then we’d caution you to think again. Is part of the weakness due to weaker overall demand. Definitely. Is the company spending up to ensure customer satisfaction to ensure its top positioning (by 2x relative to Japanese brands) in the powersports market? Yes, and it’s probably the right move.

 

We think this is actually a good company in the grand scheme of things, with a management team we’ve been impressed by in the past. The stock was off nearly 20% over the past 6 weeks ahead of this announcement. So clearly, someone either got the memo or did some good research. We wouldn’t really chase it down here based on what we know today given our view on the economy at large, and at 15x multiple on what’s likely real underlying earnings, it might get cheaper before it’s worth stepping in. We’ll likely do more work on this along with Todd Jordan’s team (Leisure) if the stock weakens further.

 

This is what's causing PII's issues: 

Polaris – Don’t Jump To Conclusions (our $0.02 on the PII miss) - rzr

 

Polaris – Don’t Jump To Conclusions (our $0.02 on the PII miss) - piishare

Source: Polaris July Analyst meeting


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