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R3: Loyalty, Royalties, Cotton, and Promos

R3: Loyalty, Royalties, Cotton, and Promos

November 8, 2010

 

RESEARCH ANECDOTES

  •  Over the weekend UA’s CEO Kevin Plank experienced a historic win at the track as an owner of Shared Account, the 46-1 long shot filly, who came away with the Breeder's Cup $2 million Filly & Mare Turf race. By far Planks' biggest win Since purchasing Sagamore Farms in an effort to reinvigorate Maryland horse racing, it  may only be a matter of time before he mixes business with pleasure.    Doesn’t every racehorse need compression gear or UA horseshoes?
  • The British are still coming.  This time Brit Prep retailer Jack Wills makes a stateside move with two new retail outlets in the northeast, one in Boston and one in Soho.  The retailer of “university prep” sells a wide range of men’s and women’s apparel as well as accessories.  There is also a fully functional e-commerce site highlighting the company’s collections.
  •  Holiday marketing campaigns are creeping up earlier than ever, with most retailers launching their efforts a full two months in advance.  This year Best Buy launched its official holiday campaign on November 1st, a full 10 days earlier than last year.

 

OUR TAKE ON OVERNIGHT NEWS

  

 The wellness market is growing beyond its core companies. While rocker-bottom specialists MBT, Ryn and FitFlop remain category leaders, many comfort players are seeking to carve out niches in the rapidly expanding wellness arena. Strong brand recognition, accessible price points and enhanced technical features are giving brands such as Easy Spirit, Spring Step and Waldlaufer an opportunity to join the movement. And retailers said there is space for them, provided they have something new to offer. <wwd.com>

Hedgeye Retail’s Take:   As “wellness” shoes permeate the comfort market, it’s possible this could provide an opportunity for the category to expand far beyond traditional athletic channels and deeper into family, specialty, and brown shoe retailers.

 

Cashing in on the family name. The Jackson brothers are hoping the fashion business is as easy as ABC.  Jackie, Tito, Jermaine, Marlon and Randy Jackson — along with the estate of the late Michael Jackson — are launching their first licensed apparel line under the J5 Collection name, commemorating their decades as The Jackson 5. The men’s and women’s T-shirts and jackets will be in stores in February and incorporate imagery from their years as the so-called First Family of Music <wwd.com>

Hedgeye Retail’s Take:  With MJ’s secret long lost songs being strategically released what better time to also jump on the Jackson bandwagon. 

 

Know your audience. From intimate apparel to gowns and fine jewelry, the Middle East is a growth engine for luxury brands, but it takes more than razzle-dazzle to sell in the region.  Understanding Islamic religious practices and cultural traditions, which can vary from country to country, is a necessity and partnerships among Western brands and local companies are the most effective way to surmount obstacles and avoid any misunderstanding. <wwd.com>

Hedgeye Retail’s Take:  While it may sound simple, we would not be surprised to see many Western brands fail at their Mid-East expansion efforts as a result of under spending on market research. 

 

 Cotton talk commonplace across the globe. Chinese textile companies were quoting price increases of as much as 30% at the massive Canton Trade Fair, telling customers that a global cotton shortage and persistent labor shortages were driving up costs, according to several reports.  Spot prices for standard grade Chinese cotton have risen to 30,000 Yuan from as low as 15,000 yuan earlier this year as a global shortfall of the fiber and speculators have driven up prices. Meanwhile, Chinese factories continue to have trouble recruiting and retaining workers, who increasingly have options closer to home or are demanding higher wages and benefits.  <sportsonesource.com>

Hedgeye Retail’s Take:  Interesting comment here suggests manufacturers and mills have been building inventories of raw textiles in an effort to circumvent near-term price spikes.  

 

Middle-income not the same in every market.  China’s middle-income and affluent consumers will probably almost triple in 10 years with the bulk of the increase coming from smaller cities, Boston Consulting Group Inc. said today.  There will be 270 million more consumers whose annual household incomes exceed 60,000 yuan ($9,000) in the world’s most populous country by 2020, said Carol Liao, a partner at the Boston-based consulting company. That would lift the total number of middle-class and affluent Chinese to 415 million from 148 million now, she said.  “China is no doubt the highlight of the global consumer sector, and second-tier and third-tier cities are the main driving force within the Chinese market,” Liao said at a briefing in Beijing today. Three-quarters of the growth will come from smaller cities as incomes rise, she said. <bloomberg.com>

Hedgeye Retail’s Take:  With China’s definition of middle income hovering around $9,000 in HHI we remind investors that not all markets are created equal.  Perhaps middle income by local standards, but certainly not the “affluent” audience that western brands need to drive exponential growth. 

 

Loyalty not what it used to be.  For as long as anyone can remember, companies have relied on the tried-and-true loyalty program to keep customers. You know how it works: The airline, the hotel, the drug chain, etc., gives customers a nifty-looking VIP card and, with it, the chance to earn bonus points that accumulate until the "valued customer" can redeem them for some goody or other. But in an age rapidly redefined by digital technology, I'm prompted to ask: What, exactly, are all these companies really accomplishing with old-fashioned programs like these?  Not as much as they think. The bad news is that the days of bribing and tricking customers with points are over. The good news? A huge opportunity has opened as a result. <brandweek.com>

Hedgeye Retail’s Take:  Keep an eye on truly targeted loyalty offers, which are now sophisticated enough to understand price and item elasticity on a case by case basis.  Loyalty rewards alone are no longer a differentiated factor.

 
ASOS shoppers won't be hit by soaring prices as online retailers sees its profits jump.
Price rises announced by some fashion firms will not hit ASOS shoppers, the British online fashion retailer said today as it posted a 59 per cent rise in first-half profit.  ASOS, which targets internet-savvy 18- to 34-year-old women looking to emulate the designer looks of celebrities like Kate Moss, Sienna Miller and Alexa Chung but at a fraction of the price, today pledged not to raise the price of its own-brand products which represent half of its total offer.  That is in contrast to rivals such as Next, Britain's No. 2 fashion retailer, which last week warned its shoppers to expect price tags to rise by close to 8 per cent as the group said there was no sign of an end to the bubble in cotton prices. <dailymail.co.uk> 

Hedgeye Retail’s Take:  Complete opposite approach to fashion based retailer, Next, which was vocal last week in expecting to raise prices 8-10% to combat cost inflation.


Traffic generated from a Facebook-based promotion overwhelmed the site.  Lowes.com crashed late last week after traffic generated by a Facebook-based promotion overwhelmed the site. The Lowe’s Black Friday Sneak Peak Party started at 12:01 a.m. and offered 5,000 coupon codes for 90% off on a first-come, first-serve basis, and another 20,000 coupon codes for 20% off, along with other offers. Black Friday is the day after Thanksgiving. The resulting traffic overwhelmed the site, the company says, although the retailer did not say how long the site was down, and information from web monitoring firms was not immediately available. <internetretailer.com>

Hedgeye Retail’s Take:  Facebook promos are heating up and actually having a real impact.  In this case the impact was overwhelming, but the power of a targeted promo is clearly alive and well. 


Tightly Squeezed

This note was originally published November 08, 2010 at 07:57 am ET.

“The tighter you squeeze, the less you have.”

-Thomas Merton

 

Thomas Merton was a Trappist monk who wrote “The Seven Storey Mountain”, one of National Review’s 100 best non-fiction books of the last century. After seeing most of my short positions get Tightly Squeezed last week, I figured I’d spend part of my weekend studying my personal performance purgatory.

 

Rather than opine on what is and what is not an unrealized gain or loss, long time readers of this strategy note know that the score doesn’t lie – people in this business do. Here’s my entire book of positions (with cost basis and performance) in the Hedgeye Virtual Portfolio as of Friday’s close:

 

Tightly Squeezed - active portfolio

 

 

Now the point here isn’t that this portfolio doesn’t look as bad as it will if this market keeps going higher. There are no rules against buying or covering anything at any given time. The point is that it’s possible to express a very bearish point of view without getting smoked. But you need to get the timing right.

 

On the way down, perma-bulls can get crushed. Since its October 2007 high, the SP500 is down -22%.  On the way up, perma-bears can get squeezed. Since its March 2009 low, the SP500 is up +81%. My role as a Risk Manager isn’t to be perma-anything.

 

My role is to attempt to be duration-agnostic and manage the multi-factor and interconnected risk that I see across global markets and time horizons. If I miss being long the top or short the bottom, sometimes that’s just the way it goes. Both tops and bottoms are processes, not points.

 

Here’s a brief rundown of the Hedgeye Portfolio’s current SHORT positions (in order of actions taken):

  1. Capital One (COF) – I shorted it again on Friday as Josh Steiner’s research continues to lead us to believe that putback liabilities aren’t priced in.
  2. Bank of America (BAC ) – I shorted it again on Friday after Josh Steiner highlighted some admissions in BAC’s 10Q that putback liabilities are real.
  3. Russell 2000 (IWM) – I shorted it on Thursday with the Russell +17.5% YTD and immediate term overbought in order to short small cap beta.
  4. The Euro (FXE) – I shorted it on Wednesday in conjunction with covering the short position I’d held in the US Dollar since June 7th.
  5. SP500 (SPY) – I shorted it again on Thursday as I continue to believe that Quantitative Guessing (QG) = JOBLESSS STAGFLATION.
  6. Italy (EWI) – I shorted it again on Thursday as Berlusconi’s leadership issues persist as do Italy’s sovereign debt problems heading into 2011.
  7. US Homebuilders (XHB) – I shorted it again on Thursday ahead of Friday’s pending home sales number (which was bad) and 30-year rates going up.
  8. Hudson City (HCBK) – I re-shorted this Josh Steiner idea (tri-state residential mortgage exposure) after covering it well, lower.
  9. Chipotle (CMG) – I shorted it again on Wednesday as Howard Penney’s research continues to indicate that the topping process is underway.
  10. Zimmer (ZMH) – I re-shorted this Tom Tobin idea (peak margins and pricing pressure) after covering it well, lower.
  11. Emerging Markets (FFD) – I shorted it again last Monday as global macro risks of mean reversion to the downside continue to mount.
  12. American Express (AXP) – I shorted it on 10/28 as Steiner thinks an imminent growth slowdown at Amex will lead to further multiple contraction.
  13. Illumina (ILMN) – I shorted it on 10/27 as Tom Tobin things growth expectations and multiple expansion are peaking ahead of a 2011 slowdown.
  14. Japanese Yen (FXY) – I shorted it on  10/8 as “Japan’s Jugular” remains one of our 3 core Hedgeye Macro Themes for Q410.
  15. Short Term Treasuries (SHY) – I shorted it on 6/23 with the expectation that at some point in my life, the yield on my savings account won’t be zero.

So, what does this tell you? Well, what it tells me is that what I’ve learned shorting stocks for the last decade continues to hold true. Unless you get the timing right, short-and-hold is not an effective risk management strategy.

 

Neither is buy-and-hope. Unless, of course, you get the timing right. While it was nice to see Howard Penney’s long Starbucks (SBUX) position continue higher out of Thursday’s earnings report, the only reason why we have a +168% long term gain here is that we had it in us to buy it when consensus didn’t want to buy anything Consumer Discretionary in early 2009.

 

When I look back on November 8th 2010, after being Tightly Squeezed for the entire week prior, will I have had it in me to hold the line on these short positions? I’m human, so I doubt it – but that’s probably the best reason why I should.

 

My immediate term support and resistance levels in the SP500 are now 1195 and 1227, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Tightly Squeezed - 3


WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS

European banks and sovereign CDS widened significantly last week, while US banks and municipal swaps saw spreads decline as investors sought yield in the wake of QE 2.  

 

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 3 of 10 improved / 4 of 10 worsened / 3 of 10 unchanged
  • Intermediate-term (MoM): Positive / 3 of 10 improved / 4 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Negative / 7 of 10 worsened / 1 of 10 improved / 1 of 10 unchanged / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - summary

 

1. US Financials CDS Monitor – Swaps were positive last week, tightening for all 29 reference entities. 

Tightened the most vs last week: AXP, ACE, CB

Tightened the least vs last week: PGR, XL, MMC

Tightened the most vs last month: ACE, BC, TRV

Widened the most vs last month: JPM, COF, PGR

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - us cds

 

2. European Financials CDS Monitor – In Europe, banks swaps diverged sharply from their U.S. counterparts.  Swaps widened for 33 of the 39 reference entities and tightened for only 6.    

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - euro cds

 

3. Sovereign CDS – Sovereign CDS increased 50 bps on average last week as Greece, Ireland and Portugal continued to surge higher.   

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 7.82 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - high yield

 

5. Leveraged Loan Index Monitor – The leveraged loan index rose 11 points last week, closing at another new YTD high. 

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - leveraged loan

 

6. TED Spread Monitor – Last week the TED spread fell slightly, closing at 17.1 bps.

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 5.2 points, closing at 21.7.

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - joc

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 90 bps week over week.

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - greek bond

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads fell to their lowest level for at least four months, closing at 157.     

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - mcdx

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell 18 points, closing at 250 versus 268 the prior week.  

 

WEEKLY FINANCIALS RISK MONITOR: OUTLOOK NOW NEGATIVE ACROSS ALL THREE DURATIONS - baltic

 

Joshua Steiner, CFA

 

Allison Kaptur


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THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 8, 2010

As we look at today’s set up for the S&P 500, the range is 32 points or -2.53% downside to 1195 and 0.09% upside to 1227.  Equity futures are trading lower tracking weakness in European markets and following a good rally last week underpinned by the FOMC’s QE2 announcement. No important economic data is due today.

  • Alpha Natural Resources (ANR) may rise to $60 on China, India demand, Barron’s said, citing Brean Murray Carrett & Co. analyst Jeremy Sussman
  • AvalonBay Communities (AVB) may sell up to $500m of common stock over three years, according to Nov. 5 filing
  • Cablevision Systems (CVC) said its avg. cable TV price may increase 2.88%
  • CommScope (CTV): TPG Capital may top Carlyle Group’s $3.9b offer, WSJ reported Nov. 5
  • Emcor (EME) CEO Frank MacInnis will sell 160,000 shares
  • GT Solar International (SOLR) raised fiscal 2011 EPS forecast to $1-$1.20 from 90c-$1, vs est. 93c
  • IDT (IDT) will pay 22c dividend and comparable payout in fiscal 2Q; also pursuing tax-free spin-off of Genie Energy
  • JDS Uniphase (JDSU) is undervalued and may rise as online video traffic grows, Barron’s said
  • Mariner Energy (ME) reported 3Q adj. EPS 2c vs est. 8c
  • Microsoft (MSFT): Demand for Kinect video game console looked solid on first day of sales, UBS said
  • Pfizer (PFE): Pfizer’s experimental pill for rheumatoid arthritis reduced pain, inflammation for 71% patients, according to study; drug may post annual sales of $2b, Bernstein says

 PERFORMANCE

  • One day: Dow +0.08%, S&P +0.39%, Nasdaq +0.06%, Russell +0.43%
  • Month-to-date: Dow +2.93%, S&P +3.60%, Nasdaq +2.85%, Russell +4.73%.
  • Quarter-to-date: Dow +6.08%, S&P +7.42%, Nasdaq +8.88%, Russell +8.94%.
  • Year-to-date: Dow +9.74%, S&P +9.93%, Nasdaq +13.65%, Russell +17.78%
  • Sector Performance: Financials +2.12%, Industrials +0.54%, Consumer Discretionary +0.53%, Energy +0.47%, Materials +0.33%, Tech +0.03%, Utilities (0.01%), Consumer Staples (0.40%), Healthcare (0.53%), and Telecom (0.60%)
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Massey Energy +11.21%, Fluor +9.50% and Boston Scientific +6.63%/Whole Foods -3.77%, CBS -3.68% and Allergan -3.63%.

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 511 (+1539)  
  • VOLUME: NYSE - 1243.47 (-9.55%)
  • VIX: 18.26 -1.40% - YTD PERFORMANCE: (-15.77%)
  • SPX PUT/CALL RATIO: 1.62 from 1.73 -6.41%  

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 16.80 -0.304 (-1.779%)
  • 3-MONTH T-BILL YIELD: 0.13%
  • YIELD CURVE: 2.20 from 2.20

COMMODITY/GROWTH EXPECTATION:

  • CRB: 313.56 +0.40% - up 9 of last 10 days
  • Oil: 86.85 +0.42% - BULLISH
  • COPPER: 394.85 +093% - BULLISH
  • GOLD: 1,396.72 +1.14% - BULLISH

CURRENCIES:

  • EURO: 1.4032 -1.12% - BEARISH
  • DOLLAR: 76.548 +0.88%  - BULLISH

OVERSEAS MARKETS:

 

European markets:

  • FTSE 100: (0.28%); DAX (0.07%); CAC 40 (-0.05%)
  • Markets are mixed with major indices finding some support on reports that Deutsche Bank had received several offers for BHF Bank, edging the sector into positive territory despite Commerzbank's results disappointing.
  • Basic materials led gains, one of only six sectors to trade higher.
  • Telecommunications and utilities lead decliners.
  • Greece's PM says will not call a snap general election after provisional estimates indicated the ruling party would win 7 of the 13 regional elections held over the weekend

Asian markets:

  • Nikkei +1.11%, Hang Seng +0.35%; Shanghai Composite +0.96%
  • Japan rose on a weaker yen and US jobs data.
  • NTT DoCoMo rose 1% on a report its next-gen phone service will be priced lower than the market was expecting
  • Shanghai-based companies powered China higher after Walt Disney (DIS) signed an agreement to build a theme park in the city
  • Qantas weighed on Australia, falling 2% after saying it is keeping its Airbus A380s grounded for longer than its initially planned 48 hours, having found potential issues with three engines on two planes 

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER



Tightly Squeezed

“The tighter you squeeze, the less you have.”

-Thomas Merton

 

Thomas Merton was a Trappist monk who wrote “The Seven Storey Mountain”, one of National Review’s 100 best non-fiction books of the last century. After seeing most of my short positions get Tightly Squeezed last week, I figured I’d spend part of my weekend studying my personal performance purgatory.

 

Rather than opine on what is and what is not an unrealized gain or loss, long time readers of this strategy note know that the score doesn’t lie – people in this business do. Here’s my entire book of positions (with cost basis and performance) in the Hedgeye Virtual Portfolio as of Friday’s close:

 

Tightly Squeezed - 1

Tightly Squeezed - 2

 

Now the point here isn’t that this portfolio doesn’t look as bad as it will if this market keeps going higher. There are no rules against buying or covering anything at any given time. The point is that it’s possible to express a very bearish point of view without getting smoked. But you need to get the timing right.

 

On the way down, perma-bulls can get crushed. Since its October 2007 high, the SP500 is down -22%.  On the way up, perma-bears can get squeezed. Since its March 2009 low, the SP500 is up +81%. My role as a Risk Manager isn’t to be perma-anything.

 

My role is to attempt to be duration-agnostic and manage the multi-factor and interconnected risk that I see across global markets and time horizons. If I miss being long the top or short the bottom, sometimes that’s just the way it goes. Both tops and bottoms are processes, not points.

 

Here’s a brief rundown of the Hedgeye Portfolio’s current SHORT positions (in order of actions taken):

  1. Capital One (COF) – I shorted it again on Friday as Josh Steiner’s research continues to lead us to believe that putback liabilities aren’t priced in.
  2. Bank of America (BAC ) – I shorted it again on Friday after Josh Steiner highlighted some admissions in BAC’s 10Q that putback liabilities are real.
  3. Russell 2000 (IWM) – I shorted it on Thursday with the Russell +17.5% YTD and immediate term overbought in order to short small cap beta.
  4. The Euro (FXE) – I shorted it on Wednesday in conjunction with covering the short position I’d held in the US Dollar since June 7th.
  5. SP500 (SPY) – I shorted it again on Thursday as I continue to believe that Quantitative Guessing (QG) = JOBLESSS STAGFLATION.
  6. Italy (EWI) – I shorted it again on Thursday as Berlusconi’s leadership issues persist as do Italy’s sovereign debt problems heading into 2011.
  7. US Homebuilders (XHB) – I shorted it again on Thursday ahead of Friday’s pending home sales number (which was bad) and 30-year rates going up.
  8. Hudson City (HCBK) – I re-shorted this Josh Steiner idea (tri-state residential mortgage exposure) after covering it well, lower.
  9. Chipotle (CMG) – I shorted it again on Wednesday as Howard Penney’s research continues to indicate that the topping process is underway.
  10. Zimmer (ZMH) – I re-shorted this Tom Tobin idea (peak margins and pricing pressure) after covering it well, lower.
  11. Emerging Markets (FFD) – I shorted it again last Monday as global macro risks of mean reversion to the downside continue to mount.
  12. American Express (AXP) – I shorted it on 10/28 as Steiner thinks an imminent growth slowdown at Amex will lead to further multiple contraction.
  13. Illumina (ILMN) – I shorted it on 10/27 as Tom Tobin things growth expectations and multiple expansion are peaking ahead of a 2011 slowdown.
  14. Japanese Yen (FXY) – I shorted it on  10/8 as “Japan’s Jugular” remains one of our 3 core Hedgeye Macro Themes for Q410.
  15. Short Term Treasuries (SHY) – I shorted it on 6/23 with the expectation that at some point in my life, the yield on my savings account won’t be zero.

So, what does this tell you? Well, what it tells me is that what I’ve learned shorting stocks for the last decade continues to hold true. Unless you get the timing right, short-and-hold is not an effective risk management strategy.

 

Neither is buy-and-hope. Unless, of course, you get the timing right. While it was nice to see Howard Penney’s long Starbucks (SBUX) position continue higher out of Thursday’s earnings report, the only reason why we have a +168% long term gain here is that we had it in us to buy it when consensus didn’t want to buy anything Consumer Discretionary in early 2009.

 

When I look back on November 8th 2010, after being Tightly Squeezed for the entire week prior, will I have had it in me to hold the line on these short positions? I’m human, so I doubt it – but that’s probably the best reason why I should.

 

My immediate term support and resistance levels in the SP500 are now 1195 and 1227, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Tightly Squeezed - 3


UA/NKE and AMZN: Things are Changing

Three interesting callouts after a 'post daylight savings time' morning of online checks and research...

 

1) The rate at which Zappos is growing out its apparel offering is notable. Pay attention there. One of the few things that can stun growth there is internet taxation (like we saw in Texas two weeks ago). Separately, Amazon's apparel has been atrocious in the past. It's still nothing to write home about. But better on the margin? Definitely. Are we at a point yet where the two combined are 1+1=3? We're note sure. But the tail risk here for the rest of retail is that one day everyone wakes up and realizes that 1+1 now = 5. 

 

2) In looking through athletic apparel, it jumped out immediately that Nike has made a major push with performance apparel at Zappos. 710 out of the 7384 items on the site are Nike.  That's just shy of 10%. Under Armour's share? 0%. That means one of three things -- either a) AMZN/Zappos is not buying UA bc customers don't want it, b) Nike's push into getting apparel right and getting it into Zappos as a new channel partner came with a 'no Under Armour' inclusion in the implied agreement, or c) UA has simply chosen to not go there yet. Sounds to us like it is the latter.

 

3) Similarly, looking at shoes, Nike has 459 of the 2910 shoes currently on the site. Under Armour? 0.  Granted, UA is just starting its push into footwear, and Zappos is hardly in the relm of the aspirational retailers to showcase the brand as it launches. But the bottom line is this channel is there for the taking for the Armour.

 

This does not change our tune on UA (the stock)? No.  Simply put, the 2-3 year opportunity is enormous, and this company will continue to print 20%-30%+ ORGANIC top line growth through 2012. But consensus estimates for next year have finally come up to our level, and two new risks have entered the equation -- a) a meaningfully upped ante chip for athlete endorsements, and b) cotton prices in the stratosphere at the same time UA is making a push into a new line of cotton-based product (ie it has never had a process around managing cotton risk, and this is a heck of a time to develop one).  

 

Bottom line...We love the brand, really like the company and how it's progressed along its maturity curve, but we don't like the stock.

 

UA/NKE and AMZN: Things are Changing - 2


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 80.65%
  • SHORT SIGNALS 78.64%
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