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Kevin Kaiser’s Latest Short Call: Why The Bull Case Is Poorly Thought Out | $MIC


“You don’t want to be on the wrong end of a short call by Kevin Kaiser of Hedgeye Risk Management,” Bloomberg wrote recently. A series of Kaiser’s short calls, from Linn Energy to Breitburn Energy Partners, have resulted in bankruptcy.


Kaiser’s latest short? Macquarie Infrastructure Corp (MIC). It’s a $6.4 billion collection of energy and industrial businesses.


In the days following the announcement of Kaiser’s short call, MIC shares fell almost 10%. It’s not looking up either. “It doesn’t take a lot to go wrong for this to get really ugly,” says Energy analyst Kaiser. He continues:


“I think probably a key tenet of the bull case is betting on management and the company’s capital allocation strategy. I think that’s poorly thought out.”


Here’s why:


  1. The existing businesses are clearly mature—there’s not much growth.
  2. The company relies mostly on acquisitions to grow.
  3. MIC has an aggressive dividend payout, over 150% of their earnings and free cash flow.


In other words, the stock is highly-sensitive to changes in U.S. economic cycles since they’re largely acquiring growth by tapping capital markets. Kaiser has seen this before. He explains how he thinks this plays out.


“So with this capital asset allocation strategy, like any other company that does this, what tends to happen is you buy when times are good. You buy when your stock price is high. You buy when asset valuations are high; when profit margins are near peak.


And then when capital market cycles roll over, you have to hunker down because your stock price has gone down, your leverage is high and you had to cut your dividend.”


Many investors are long MIC because they believe management can create value simply by deploying capital.


As Kaiser says, “I’m not so sure about that.” 

5 Reasons This Sporting Goods Retailer Is Still A Short (Even After Today's -13% Tumble)

5 Reasons This Sporting Goods Retailer Is Still A Short (Even After Today's -13% Tumble) - hibbett sports 2 14 17

Source: Wikipedia


Shares of Hibbett Sports (HIBB) are down -13% today. We’ve been short Hibbett for the better part of 2-years. Sometimes with high confidence, sometimes low – but always short.


I don’t like saying that, because "perma shorts" in Retail almost never work. In other words, 2-years is a REALLY long time to be short. But expectations are consistently too high.


Last night’s miss is the second or third in a series of ‘many more’ misses barring a significant rebase in margin expectations (like coming down by another 400bp). I’d argue that this name has even more margin downside than Nordstrom (JWN).


That's because of:


  1. Sub-average management.
  2. Tapped out on store growth
  3. No more Wal-Mart (WMT) stores to move next to (that had been its strategy for 20 years – sell a $125 baseball bat to people who go to WMT to buy eggs).
  4. Moving out of core ‘bible belt’ area into regions where it has a higher cost structure because of no nearby distribution centers.
  5. The bull case is about 'building e-comm.' Well guess what…I’m pretty sure that it does not have ecomm because Nike told them not to. Now it’s trying to catch up to peers who have a 10-year head start. Good luck with that. That’s like ‘shopzilla’ trying to catch up to Amazon.


This is not a terminal story – there’s a definite need for it. But simply at a size 40% below where it is today, and at a margin structure nearly half of where it is today.


And, I actually don’t think this is a relevant read through to Foot Locker, the so-called basketball cycle, or whatever. It is probably not completely isolated… but this is very company specific.


I think Foot Locker (FL) is in deep deep trouble, but probably not in 1H as Nike throws it a bone to re-accelerate top line. 


5 Reasons This Sporting Goods Retailer Is Still A Short (Even After Today's -13% Tumble) - 2 14 2017 HIBB


*Email sales@hedgeye.com for more access to and information on our institutional research.

Capital Brief: 6 Things to Watch During Another Tough Week for Trump

Capital Brief: 6 Things to Watch During Another Tough Week for Trump - trump texture image


Choose your adjective. It's shaping up to be another tough/busy/interesting week for President Donald Trump. Last night, national security advisor Michael Flynn resigned (more on that below), while judges on both coasts have now issued rulings against Trump's executive order closing U.S. borders to travelers from seven mostly Muslim countries.


Here's a quick, distilled look at the related issues all investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.


#Trump #Pence #Flynn


Capital Brief: 6 Things to Watch During Another Tough Week for Trump - michael flynn


National security advisor Michael Flynn resigned amid the latest news that he misled Veep Mike Pence and the Department of Justice informed the White House that he could be subject to blackmail by the Russians. Following days of speculation whether President Trump would fire him, the controversial Flynn was forced to take matters into his own hands.


Trump now has the ability to tap a seasoned advisor who can lend stability to a National Security Counci staff in disarray -- though the pool is limited given that last April, fifty Republican senior national security officials signed a letter stating that a Trump presidency would put our nation at risk.


Our seasoned colleague General Emo Gardner has more insight here. He's hosting a "flash call" today and lists Retired General Keith Kellogg, Former CIA director and General David Petraeus, and Retired Vice Admiral Robert Harward as potential replacements.


#Obamacare #GOP


Capital Brief: 6 Things to Watch During Another Tough Week for Trump - obamacare trump


The regulatory reform train will keep moving forward with no plans of slowing down. The House is lining up a slew of regulations they want to overturn through the Congressional Review Act: from one that determines states’ abilities to conduct drug testing programs for people applying for unemployment insurance to another that establishes how states can set up payroll deduction savings programs for private sector workers.


While many Republicans have complained about the pace of ACA and tax reform, regulatory reform is going full steam ahead.


#Trudeau #NAFTA #Canada


Capital Brief: 6 Things to Watch During Another Tough Week for Trump - trudeau canada


President Trump and Justin Trudeau met for the first time as the Canadian Prime Minister tried to find some common ground all the while trying to avoid contentious discussions on immigration and instead focussed on economic issues.


The president’s calls to renegotiate NAFTA will have a major effect on our neighbors to the north as 75% of Canadian exports come to the United States, but the trade deficit is considerably lower at $15B than with our neighbors to the south - $58B.  First daughter Ivanka Trump smoothed any tensions with Trudeau as they were able to connect over their shared desire to promote women in the workplace.


After what has seemed like a long confirmation process, the pace is picking up speed. Treasury Secretary Steve Mnuchin and Veterans Affairs Secretary David Shulkin were confirmed last night and Small Business Administration-designate Linda McMahon will receive a full floor vote this week.


There’s even a chance Trump could get Energy-designate Rick Perry and Interior-designate Ryan Zinke confirmed later this week.


Only 10 more Cabinet and 1,000 more sub-Cabinet positions- and a SCOTUS Justice left to go.


Movement of President Donald Trump’s nominees and major policies on Capitol Hill has been slow - which is the norm as Hill watchers will rush to tell you. But influential Ohio Senator Rob Portman has given Trump and other Republicans reason to be hopeful as he expects to see tax reform as early as this summer and since his plan is revenue neutral and is more likely to become permanent at the end of the tenth year of reconciliation.


Trump may be a little behind in his confirmations, but if Democrats keep dragging their feet and chew up valuable floor time, there won’t be quite as much time for the Republican agenda - or the Portman plan for that matter - to move forward on their terms.


Last week we hosted a call with Dorothy Coleman, Vice President, Tax and Domestic Economic Policy at the National Association of Manufacturers, to discuss tax policy on the manufacturing sector. You can find the replay here.



*Email sales@hedgeye.com for more access to and information on our institutional research.

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Sector Spotlight | Replay with Financials Analyst Jonathan Casteleyn

Missed it? No worries catch the replay below


Financials analysts Jonathan Casteleyn and Drago Malesevic reviewed the most important issues impacting their sector and how it's affecting their favorite stock ideas. 


And fielded questions live from the audience Q&A session at the end of the presentation.


CLICK HERE to access the associated slides.

Our Take: The Long-Term Market Picture Versus the Short-Term

Our Take: The Long-Term Market Picture Versus the Short-Term - tightrope


Balancing your long-term investing view against the short-term is one of the hardest things for investors to do. 


"I’ve spent 18 years trying to figure out the difference between my short and long-term market views," writes Hedgeye CEO Keith McCullough in today's Early Look, "And I’m still working on it…"


So here's our current market view right now across durations, according to McCullough:



(TRADE duration, 3-weeks or less)

Both the US Dollar and sectors most tethered to the S&P 500 like Financials (XLF) are overbought.


(TAIL duration, 3-years or less)

Super bullish on both the US Dollar and the prospects for Millennial Generation Consumption Growth Accelerating 

more On the Short-Term...

#Dollar $SPY #Nasdaq


We've been writing a lot about the short-term lately and how the U.S. stock market might be topping (click here for more). We say U.S. equities, in particular the Nasdaq, is overbought.


Case in point, total stock market volume (aggregate buying and selling) continues to decelerate on up days in the market, as conviction dissipates with each all-time high. Stock market volume was down -10% versus its 1-month average yesterday. 


Our Take: The Long-Term Market Picture Versus the Short-Term - volume 2 14 17

more On the long-term...

#Millennials #Consumption


See the Chart of the Day below.


According to Pew Research, "Millennials" (the word coined by Hedgeye Demography head Neil Howe) are defined as those ages 20-36 in 2017. There are a grand total of 75.4 million Millennials, now surpassing the 74.9 million in Baby Boomers (ages 53-71).


Our research suggests that halfway through Trump's term, at the beginning of 2020, Millennials will reach the key consumption threshold of 35 to 54 years old. In other words, the private sector deleveraging will begin to dissipate and add to U.S. economic growth. 


That's bullish for the U.S. Dollar.


Our Take: The Long-Term Market Picture Versus the Short-Term - 02.14.17 EL Chart

Bottom Line

"No one ever went broke booking gains," McCullough wrote earlier today. With the market at all-time highs and market signals like volume breaking down, we say book some gains so you can buy the long-term bull case back lower. That's it.

Cartoon of the Day: Me-OW!

Cartoon of the Day: Me-OW! - Market cat cartoon 02.13.2017


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



Click here to receive our daily cartoon for free.

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20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.