prev

Long Oil? Keep This Chart Front and Center

Conclusion: Total oil and petroleum stocks are at all time highs in the United States, suggesting underlying demand is slow, which supports our view of decelerating GDP growth.

 

We can get verbose at times, but sometimes it's simply easier to just show one chart.  The chart below is comprised of distillates, crude oil, and gasoline stocks from Department of Energy data going back to 1990, which is as long as the data is kept.  Currently the aggregate supply on hand of petroleum products is 1.1 billion barrels, which is the highest level we've ever seen in this data set.

 

According to the BP 2009 Global Energy Abstract, the United States consumed 18.7 million barrels per day in 2009, which was 22.3% of the total world production. Its share of world imports is slightly smaller at 11.4 million barrels per day, or 21.6% of the total.  The point is, the United States consumes and imports more than 20% of the world's oil, so if inventories are at an all time high level in the United States, it is a negative data point for future prices.

 

Distillate stocks are the real outlier in U.S. petroleum stocks as they are well above the 20-year band of 100 and 150 million barrels of inventory for really the first time ever.  Distillate inventories are currently at 175 million barrels, which suggests anemic demand for distillates.

 

The last time inventories were close to this high was October 1991.  Despite inventory declining over the next two years, the price of oil fell more than 22% over that time period.

 

We'll have more thoughts on this topic from Energy Sector Head Lou Gagliardi next Thursday as he launches his energy sector coverage, but to the extent you are long oil . . . keep the chart below front and center.

 

Daryl G. Jones

Managing Director

 

Long Oil? Keep This Chart Front and Center - 2


SEQUENTIAL REVPAR UPDATE

Based on Upper Upscale RevPAR coming in at 10%, August represented a sequential slowdown in seasonally adjusted absolute RevPAR from July.

 


As we discussed in our 08/10/10 note “DOLLAR REVPAR MORE RELEVANT THAN %,” to keep pace with July, August need to generate RevPAR of roughly $100.  Actual August YoY RevPAR growth came in at +10% which, on the surface, appears stronger than July’s 7.8% increase.  However, on an absolute basis, adjusted for seasonality, August growth need to be at least 14% to match July’s performance.  In our opinion, RevPAR is actually on a declining pace sequentially which gives credence to our Pent Up Demand thesis espoused in our 08/17/10 note “PENT UP DEMAND THEORY.”

 

The good news is that September needs only to grow RevPAR 8% to match August’s performance versus 12% to match July.  The bad news is that if this new level of absolute RevPAR continues, 2011 RevPAR could fall below the Street’s estimate.


REGIONAL TRENDS LIKELY WORSENED AUGUST

With IL, IN, and IA already reported, August is looking worse than July on an absolute basis, after adjusting for seasonality.

 


As we did for lodging – yes, 10% RevPAR growth in August actually represented a slowdown – we’ve taken a look at sequential regional gaming trends on an absolute basis.  Of course, we adjust for seasonality since August is typically a better than average month but slower than July while September is one of the slowest months of the year.  Ignoring YoY changes is prudent in our opinion given the extreme volatility over the last two years. 

 

Seasonally adjusting the July actual revenues yield August regional gaming revenues of $1.047 billion, up 2% over last year.  However, Illinois, Indiana, and Iowa have already reported August, and they were all disappointing relative to July.  Plugging in those actual numbers, we arrive at a new estimate of $1.029 billion, flat with last year.  But that assumes that Louisiana, Mississippi, and Missouri are also not disappointing.  Since the regional markets tend to be impacted by the same macro factors, those three states could come in lower.  Thus, we believe August gaming revenues may come in at -1% to -3%. 

 

Based on July, the seasonality model would’ve projected September to be up almost 2% but if we are right on August, that would lower our September estimate to -2% and our October estimate to -4%.  Looking further ahead, November could be the first positive YoY month, but just barely, while December has more cushion and should be a positive growth month.  Nevertheless, these don’t sound like recovery numbers just yet.

 

REGIONAL TRENDS LIKELY WORSENED AUGUST - regional final


real-time alerts

real edge in real-time

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.

Covering our S&P 500 Short

This note was orinigally published at 3:02pm ET for Risk Manager Subscribers.  To receive Macro Select Content, and our Virtual Portfolio positions in real-time, please sign-up for a 14-day free trial or as a RISK MANAGER subscriber.

 

 

 

__________________________________________

Position Changes Today: Covered SPY, Bought EWG

I attempted to explain this today in my EL titled “Feeling Strange”, but I think it’s worth repeating. Duration Mismatch crushes performance and the best way to avoid it is having a Duration Agnostic risk management process.
 
As a reminder, we have 3 core durations that we manage risk around: TRADE, TREND, and TAIL.
 
Currently, the SP500 is bullish from an immediate term TRADE perspective (support = 1085)
and bearish from an intermediate term TREND perspective (resistance = 1144). That means that we can be mentally malleable enough to admit that the immediate term upside in the SP500 is more probable than the immediate term downside. Be sure not to confuse this with pretending you are going to be the next Buffett – keep a bullish TRADE a trade.
 
Both the DATA (ABC confidence, MBA mortgage apps and jobless claims) and the SP500’s PRICE support this immediate term bullish view. You might say, heh last week you shorted the SPY and how can you change your mind that quickly? Well, for starters, I didn’t have this week’s DATA or PRICES in my back pocket when I made that move earlier last week. The key to risk management isn’t being wed to a view that was based on prior DATA and PRICES.

If next week’s DATA turns back to bearish and the SP500 breaks 1085 again, I’ll short SPY again. As is customary, all my moves are on the tape – I have done nothing but cover and buy positions in the Hedgeye Portfolio since 11:02AM on September 3rd.
 
If the SP500 closes above our immediate term resistance line of 1107, I see heightened probability of this pain trade taking us all the way back up to another lower-high of 1123. And from a bearish intermediate term TREND perspective, nothing will have changed other than immediate term DATA and PRICES.

 

 

Covering our S&P 500 Short - chart1

 

 
Stay transparent my friends,
KM


Keith R. McCullough
Chief Executive Officer


Bear Market Macro: SP500 Levels, Refreshed...

Position Changes Today: Covered SPY, Bought EWG

 

I attempted to explain this today in my EL titled “Feeling Strange”, but I think it’s worth repeating. Duration Mismatch crushes performance and the best way to avoid it is having a Duration Agnostic risk management process.

 

As a reminder, we have 3 core durations that we manage risk around: TRADE, TREND, and TAIL.

 

Currently, the SP500 is bullish from an immediate term TRADE perspective (support = 1085) and bearish from an intermediate term TREND perspective (resistance = 1144). That means that we can be mentally malleable enough to admit that the immediate term upside in the SP500 is more probable than the immediate term downside. Be sure not to confuse this with pretending you are going to be the next Buffett – keep a bullish TRADE a trade.

 

Both the DATA (ABC confidence, MBA mortgage apps and jobless claims) and the SP500’s PRICE support this immediate term bullish view. You might say, heh last week you shorted the SPY and how can you change your mind that quickly? Well, for starters, I didn’t have this week’s DATA or PRICES in my back pocket when I made that move earlier last week. The key to risk management isn’t being wed to a view that was based on prior DATA and PRICES.

 

If next week’s DATA turns back to bearish and the SP500 breaks 1085 again, I’ll short SPY again. As is customary, all my moves are on the tape – I have done nothing but cover and buy positions in the Hedgeye Portfolio since 11:02AM on September 3rd.

 

If the SP500 closes above our immediate term resistance line of 1107, I see heightened probability of this pain trade taking us all the way back up to another lower-high of 1123. And from a bearish intermediate term TREND perspective, nothing will have changed other than immediate term DATA and PRICES.

 

Stay transparent my friends,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bear Market Macro: SP500 Levels, Refreshed... - 1


CHART: Three Currency Monte

The chart was extracted from a note dubbed "THREE CURRENCY MONTE" issued to Risk Manager Subscribers earlier today, September 9, 2010.  Sign up for a free-trial or subscribe for access to the note, Macro Select updates and the real-time portfolio.

 

__________________________________________________________________________________________________

The past couple of days have provided some interesting commentary and data points out of Asia and the U.S. as it relates to the yuan, the yen, and the dollar. We remain bullish on the Chinese yuan from a TAIL perspective, bearish on the U.S. dollar from a TAIL perspective and bearish on the Japanese yen from a TREND perspective.

 

 

CHART: Three Currency Monte - Screen shot 2010 09 09 at 1.23.57 PM


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
next