Short UPS: What Brown Can't Do For You

Short UPS: What Brown Can’t Do For You

  • Amazon’s potential delivery service is not a significant threat to UPS.
  • The real problem they face is a slowdown in the economy.
  • The faltering economy along with lower oil prices and a stronger dollar are tanking UPS’ stock price.

When it comes to the United Parcel Service (NYSE:UPS), investors love talking about the threat of Amazon (NASDAQ:AMZN). There’s constant chatter that Amazon is creating a delivery network to crush UPS. And that’s why you should sell.

Yes, it’s true. You should sell UPS. But not because of Amazon. Amazon may be a long-term threat, but investors are blowing it out of proportion. The real reason you should sell is because of massive macroeconomic headwinds. These macro drivers trump any problems Amazon may cause.

UPS is in the business of making deliveries. They’re the busiest and most profitable when the economy is booming. But that’s not what’s currently happening in the US. Our economy is slowing.

The faltering economy along with lower oil prices and a stronger dollar are killing UPS.

But before we get into that, let’s first clear up the confusion about Amazon. Read more

ConocoPhillips: The Dividend Isn't Worth The Potential Squeeze

ConocoPhillips: The Dividend Isn’t Worth The Potential Squeeze

  • A bet on ConocoPhillips is a leveraged bet on oil.
  • Why there’s a good chance the dividend will be cut.
  • There are safer plays for a dividend investor looking to put money into an E&P.

I’ve heard many income investors pitching ConocoPhillips (NYSE:COP) as a great value at its current price and 6.4% dividend (one of the higher yields among large E&Ps). Their analysis relies on two assumptions. First, current oil prices are unsustainable and will soon rebound. Second, ConocoPhillips’ dividend is sacred to management and is therefore safe from being cut.

I believe these investors have fallen prey to a bit of recency bias and a lot of wishful thinking. Dig into the assumptions and you find that buying ConocoPhillips as a value income play is far from a sure thing – and in fact comes with quite a bit of downside risk.

A bet on ConocoPhillips is a bet on the future price of oil. Read more

Stop Listening To Blowhard Oil Bulls

Stop Listening To Blowhard Oil Bulls

Some investors truly deserve a gold medal. The mental gymnastics they execute to avoid evidence contrary to their beliefs is amazing.

Instead of objectively assessing the avalanche of data that runs against their long-held opinions; they spin, distort, and bend over backwards to twist reality into what they want to be true.

Why? Because nothing is more important to these people than proving themselves right… even if that ultimately means staying wrong.

This human foible is perhaps no more prevalent than in the financial commentary space. And currently, the greatest examples of this are the indefatigable commentariat of oil bulls. Read more

2016 Is Shaping Up to Be a Year of Market Volatility After a Difficult 2015

2016 is shaping up to be a volatile year for financial markets. In order to get an understanding of how major asset classes will perform this year, let’s review their performance in 2015.

2015 Returns Read more

Shorting Wheat Feels Like A Trap

Shorting Wheat Feels Like A Trap

  • There are many factors depressing the price of wheat including the general commodity bear market, wheat’s global supply glut, a strong dollar, and good weather.
  • But with overwhelmingly bearish expectations for wheat, is there any room left to the downside?
  • We believe expectations are too bearish and that El Niño is a strong candidate to surprise overly short investors and cause prices to rebound hard.

Every once in awhile you run across an irresistible chart pattern. A pattern that tempts you like no other. Even as a practitioner of , your trigger finger still itches at the sight of it. You can’t wait to jump in and ride that beautiful trend.

That’s the sensation we get when looking at wheat futures (/ZW) to the short side.

Wheat is pushing up against a huge support line. The horizontal extends all the way back to 2007. Break that level and look out below…. Read more

Singapore Can’t Escape The Asian Currency Wars (Long USD/SGD)

  • The yuan devaluation will put upward pressure on USD/SGD.
  • The MAS must react to keep their economy from contracting.
  • Singapore is very vulnerable to currency shifts due to a large import/export market.

Singapore, an economy known for its disciplined monetary and fiscal policy, has managed to get caught in the crossfire of a currency war with no easy way out.

Ever since Abenomics, Asian currency wars have been a dominant theme for macro investors. A currency war begins when one country decides to devalue their currency in order to stimulate export demand. But neighboring countries with stronger currencies have a harder time competing for exports so they begin to devalue as well. What ends up happening is a “race to the bottom” where both countries end up devaluing their currencies into oblivion in order to stay competitive in the global marketplace. Read more

Apple: There Will Be No Asian Miracle

 

  • Although cash flush, AAPL isn’t exciting investors anymore
  • Its growth story hinges on China, where the macro picture is deteriorating
  • India shows lukewarm demand as well
  • AAPL isn’t innovating like they used to and is instead depending on stock buybacks

Read more

Drop That Chicken! (BRFS Short)

  • Brazil’s economic and political climate are toxic for its companies.
  • BRF is closely tied to Brazil’s economy. Where Brazil goes, so does BRF.
  • BRF’s margins are being attacked on all sides which has in turn hurt its bottom line.
Brazil is a mess. With a toxic economic and political environment, it is not a good place to put your money. But that doesn’t mean you can’t profit from the those who do invest there.

Brazil is currently facing its worst financial crisis since the Great Depression. As seen in the graph below, GDP shrunk 4.5% in the 3rd quarter from a year earlier. This is the 6th consecutive quarterly contraction. It’s also the lowest number recorded since Brazil started using their new GDP system in 1996.  Read more

This Bull Market Is Over… Done… Dead: 3 Indicators Pointing Towards Major Trouble Ahead

We watch a whole host of macro indicators; they give us a peek under the hood of markets and the global economy. The thing about these indicators is that they are slow moving — they’re not something that need to be checked every day, nor every week.

98% of the time, these indicators point to smooth sailing ahead and signal we should stay on the bull, going long risk-assets.

The other 2%, these indicators start turning over and begin flashing warning signs. It generally starts with just a few, and we know not to be alarmed, only that we need to keep an eye on the exit.

And then, generally every 5-7 years, our indicators (all of them) start screaming “Danger..Danger…Danger”. When this happens, we know it’s time to start tactically managing our longs and to loosen the leash on our inner-bear – and begin looking for opportunities to plunge to the short side. Read more

Extremely Important News Just Came Out Of China – Here’s How To Play It

Important market news came out this weekend, and surprisingly (or perhaps not so) it has received little notice. I’m talking about the PBoC’s statement released Friday, signaling that they are looking to break the peg to the dollar and rebalance against a currency basket. Here’s the news, via The Financial Times:

China has paved the way for a further weakening of its currency by announcing changes in how it measures the renminbi’s value.

As markets gear up for next week’s Federal Reserve meeting, the People’s Bank of China signaled it would measure the level of the renminbi (or yuan) against a basket of currencies rather than just the US dollar.

The move, announced on Friday, has raised investors’ alarm at the prospect of a new currency war – just as the US prepares to raise interest rates.

Readers who follow us at Macro Ops knew that this change was coming. Read more