Cartoon of the Day: Yellen's Arcade

Cartoon of the Day: Yellen's Arcade - Yellen   toy animals 09.27.2016


The Fed isn't "data dependent." It's S&P 500 dependent and will do anything to keep the bull market going. 

Sell American Express, Capital One & Discover

Takeaway: Credit card lenders are value traps with downside risk that should be avoided/shorted this late in the cycle.

Sell American Express, Capital One & Discover - credit cards


The Hedgeye Financials Team, led by Sector Head Josh Steiner, will be hosting a conference call tomorrow (at 1pm ET) to run through their outlook on Credit Card lenders.


Credit Card lenders are notoriously cyclical stocks that should be avoided/shorted late in the cycle. The cycle is late. 


Credit is deteriorating. Rapid loan growth is obfuscating underlying performance, and seasonality headwinds will combine with cyclical pressures to make both the intermediate term and longer-term outlook very challenging for the group.


Capital One (COF), Discover (DFS) and American Express (AXP) all have underappreciated risks.


  • Delinquencies are rising quickly across the group.
  • Roll rates are deteriorating.
  • Bankruptcy tailwinds are reversing.
  • Subprime and deep subprime exposures have grown significantly, creating more downside risk than people realize.



Attendance on this call is limited. Please note if you are not a current subscriber to our Financials research there will be a fee associated with this research call and related material. Ping for more information.

UberPOOL: The Future Of Public Transportation (& WAB Short Call Catalyst)?

Editor’s Note: Is uberPOOL a major technological event that will alter public transportation forever? And did Wabtec (WAB) just pay a premium to acquire Faiveley ahead of this revolutionary new change? Below is a brief excerpt from an institutional research note written by Hedgeye Industrials analyst Jay Van Sciver discussing uberPOOL and its implications for his WAB short call.


UberPOOL Could Be HUGE:  Pre-tax dollars can now be used for UberPOOL in New York City through TransitChek, with broader expansion coming to many key cities.  Even if this and related services sap just a few percentage points of transit demand, it can have a significant impact on total transit capital spending.  Importantly, bureaucrats hesitant to spend hundreds of millions of taxpayer dollars on public transit equipment may wait to see if ridesharing services could fill the gap instead. If it works here, it can reasonably be expected to go global. Is Wabtec into Faiveley at a premium price ahead of a major shift in government capital equipment expenditure?  


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Understanding ‘The Biggest Number In All Of Retail’ (In 30 Seconds Or Less)

In this brief excerpt from The Macro Show earlier today, Hedgeye Retail analyst Alec Richards explains the investing implications behind “the biggest number in all of retail.”


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Europe On The Brink? When Bad = Bad

Takeaway: The Italian stock market led the losers this morning and German bank stocks are getting crushed as economic reality rules the day.

Europe On The Brink? When Bad = Bad - Italian bank cartoon

What happens when bad economic data = bad news for stocks?


Look no further than Italian equities.


For some time now, Italian banks stocks have been pricing in Europe's already gloomy economic reality remaining a protracted slump. 



Bank stocks just happen to be among the most impacted by this economic slowdown, as the ECB's negative interest rate policy crushes profitability (see net interest margin) and nonperforming loans plague their balance sheets. The evidence of this negative feedback loop is littered throughout the Eurozone. 


(Click here for our most recent look at the ongoing carnage in Italian bank stocks.)

Take Deutsche Bank for example.


In the past 11 months, shares of Germany's largest bank are down -62% and the stock plummeted on Monday on rumors that the company was seeking aid from Berlin, since the bank remains undercapitalized. (Deutsche Bank denied those media reports today but that didn't stop the shares from hitting a 30-year low. Problems persist.)


Europe On The Brink? When Bad = Bad - deutsche bank

Next up... Commerzbank.


Germany's second largest bank announced today that it would eliminate 9,000 jobs and suspend dividend payments in a revamped cost cutting effort. (Note: This is take 2 for Commerzbank, which has already cut full-year profit targets and eliminated 5,200 jobs.)


Europe On The Brink? When Bad = Bad - commerzbank


Among our Macro team's top three 3Q16 Macro Themes (released in July) is #EuropeImploding.

the carnage continues

3 Things We're In Complete Agreement With Donald Trump On...

Takeaway: Trump: "We are in a big fat ugly bubble" .. "The Fed is doing political things" .. "Raise rates & market is going to come crashing down"

Last night's debate...


Pitted Donald Trump's ugly outlook against Hillary Clinton's rosy future. And regardless of your politics, Trump's tirade about the stock market, interest rates and the Fed stuck out. 


3 Things We're In Complete Agreement With Donald Trump On... - trump 3 things 2


The comments above came after a rehearsed Clinton soundbite attempted to excoriate what she calls "Trumped-up Trickle Down." 


"Slashing taxes on the wealthy hasn’t worked. We need to rebuild the middle class. I don’t think top-down works in America. I think we should be building the Middle Class, investing in the Middle Class, making college debt free so young people can get their education, helping people refinance their debt from college at lower rates. Those are the kinds of things that will really boost the economy. Broad-based inclusive growth is what we need in America, not more advantages for the people at the very top."


Trump's eyes rolled throughout until he finally responded, "Typical politician, all talk and no action. Sounds good, doesn’t work. Never going to happen. Our country is suffering because people like Secretary Clinton have made such bad decisions."

He continued... 


"Now look. We have the worst revivial of an economy since the Great Depression; and believe me we’re in a bubble right now. The only thing that looks good right now is the stock market and if you raise interest rates even a little bit that’s going to come crashing down. We are in a big, fat ugly bubble and we better be awfully careful.


We have a Fed that is doing politicals things. This Janet Yellen of the Fed. The Fed is doing political things by keeping interest rates at this level. And believe me, the day that Obama goes off to the golf course for the rest of his life and they raise interest rates, you’re going to see some very bad things happen. Because the Fed is not doing their job. The Fed is being more political than Secretary Clinton."


Hyperbole aside, Trump makes some important points. Namely... the U.S. economy continues to slow and the Fed is propping up equity markets under the guise of "data dependence." So Trump is on to something, but the political gong show continues.


More to be revealed.




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