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Bearish: SP500 Levels, Refreshed

POSITION: Short SPY

 

We had this right in November. We had it dead wrong in December. We are waiting for January to end.

 

Managing globally interconnected risk doesn’t happen in a vacuum. Globally, inflation is accelerating. Domestically, US Consumption has slowed materially in January versus December and that, alongside real-time inflation pressures, is why US Consumer stocks are underperforming.

 

We just covered our short position in Consumer Discretionary (XLY) because, at down -3.1% on the day, it’s immediate term oversold. If you’re looking for a line where we’d cover our SPY position, 1275 could be it. That would be our immediate-term TRADE view from here. If 1275 doesn’t hold, our intermediate-term TREND line of support remains all the way down at 1215.

 

From a long-term TAIL perspective, much like equities in Japan, all US Equities are doing here is debating where they’ll finally make their lower-high.

 

What was immediate term TRADE support this morning is now resistance at 1290. So 1 should provide some bearish fodder for the bulls to consider. Remember, consensus is still that US growth is “back” and that the SP500 is going to be up double digits in 2011.

KM

 

Bearish: SP500 Levels, Refreshed - 3


R3: COLM, BGP, H&M, P&G

R3: REQUIRED RETAIL READING

January 28, 2010

 

 

 

 

RESEARCH ANECDOTES

  • Long, long overdue but never too late.  H&M announced (via Twitter) that the brand will be launching e-commerce! Unfortunately, fast fashionistas will have to wait an entire year before the launch which is slated for 2011/2012.
  • Given the early success of Omni Heat technology for Columbia, the brand looks to expand the penetration from 10% of the assortment to 40% for Fall 2011.  The distribution will remain narrow and focused on specialty and sporting goods retailers. 
  • Just weeks after a report suggested that celebrity endorsements have low ROI’s, a new study emerges that takes a look at which athletes make the best endorsers.  The Nielsen study found that Olympians dominate the top 5 male endorsers, while tennis players dominate the top female endorsers.  Formal NFL players top the list of most effective commentator endorsers.

OUR TAKE ON OVERNIGHT NEWS

 

Borders gets conditional lifeline; shares soar - Shares jumped 36 percent in after-hours trading after Borders said GE Capital, a unit of General Electric Co (GE.N), agreed to provide a $550 million credit facility under several conditions, including that it close stores and arrange financings with other lenders, vendors and landlords.Borders, the No. 2 U.S. bookstore chain by sales, also said it is prudent to explore alternative avenues, including a possible restructuring under court supervision. James McTevia, a bankruptcy restructuring consultant with McTevia & Associates, said Borders' discussion of an possible "in-court restructuring" was referring to a bankruptcy filing. "Borders has a commitment for financing that allows it to walk down two paths at the same time," McTevia said.<Reuters>

Hedgeye Retail’s Take: Less than 24 hours after BGP receives some indication that GE Capital may save the day (for now), the media is reporting that some publishers are not interested in funding the company’s restructuring.  The publishers want their cash, not paper based on a hopes for a turnaround.

 

Prada to Set IPO in Hong Kong - The Italian luxury goods house said Thursday that it will go ahead with an initial public offering on the Hong Kong Stock Exchange, although it did not specify a time frame or the size of the stake to be sold. Analysts believe an IPO could happen as early as this spring and value the company up to $9.5 billion.It will be at least the fourth time the firm has aimed for an IPO, having called off the last several attempts due to weak global markets.<WWD>

Hedgeye Retail’s Take: Signs of an IPO have been building as the company has become more vocal in recent months in presenting its growth prospects.  However, as the article notes, this “roadshow” has served many rubber chickens in the past.  It’s not official until it’s official.

 

Tory Burch Opens in London - Tory Burch is transporting her American lifestyle concept to Europe with her first stand-alone store here, joining one she already has opened in Rome. Earlier this week in London, guests including Joely Richardson, Rena Sindi, John Frieda, Avery Agnelli, Laura Bailey, Ashley Hicks, Allegra Hicks, Cosima Pavoncelli, and Santa and Simon Sebag Montefiore gathered at the store on 149 New Bond Street for cocktails, and later for dinner at Hakkasan in Mayfair. <WWD>

Hedgeye Retail’s Take:  With a brand that is close to producing $400 million in the US alone, expansion into Europe is not surprising as the company looks to hit the $1 billion mark in 5 to 10 years.

 

P&G Zeros In on Beauty Ritual - Procter & Gamble Co. is bent on changing consumers’ beauty rituals to expand existing categories and gain more traction in emerging markets. “We need to innovate in everything we do,” Bob McDonald, chairman, president and chief executive officer, told analysts during an earnings call Thursday.  In some cases, he said, that means introducing new product categories, in others it means expanding categories by changing consumers’ habits. For instance, McDonald said, “In China, it’s getting consumers to wash their hair more than once a week.” <WWD>

Hedgeye Retail’s Take:  If growth is predicated on the Chinese washing their hair more often, we wonder how analysts will put this in their model?  Seriously, the world’s largest CPG company is banking on selling more shampoo by teaching the Chinese to bathe more frequently?

 

A Shift to Upscale Offerings at Mass- Buoyed by the success of premium skin care, mass merchants plan to further increase upscale assortments while adding enhanced services. That’s not to say, however, there won’t still be a focus on value pricing with more space allocated to inexpensive brands, too.  According to data presented during The NPD Group’s Hot Off the Press conference, beauty in the food, drug and mass arenas experienced 3 percent sales growth in 2010, versus a flat 2009. Makeup sales posted the biggest increase, followed by skin care, while fragrance sales declined slightly. <WWD>

Hedgeye Retail’s Take:  As the consumer gradually learns that masstige products are essentially the same as those found in the center core at the mall, it’s hard to defend the dominant share department stores have held for decades in the premium category.  This is still a category with major opportunities for company’s like Target, Walmart, and Costco.

 

Snow Sports Market Sets Billion Dollar Record in December - The snow sports market sold more than $1 billion worth of equipment apparel and accessories in December alone and reached $2.1 billion season-to-date, according to a report by SnowSports Industry America.   This is the first time in history snow sports sales have topped a billion dollars for sales in a single month. Sales through December this season are 16% higher in dollars sold and 10% more units sold compared to the same time last season.  With excellent snow conditions across the U.S. and improved consumer confidence 2010-2011 is predicted to be the best season ever for the market. Equipment sales continue to lead market increases with a 22% increase in dollars sold overall and 11% more units sold.    <SportsOneSource>

Hedgeye Retail’s Take: With the snowiest January on record in NYC and 1.5 inch from the snowiest month ever (Feb ’10), record outwear/snow sport sales couldn’t have come at a better time – in fact it may be even higher in January. 

 

What Makes Facebook Fan Pages Successful? - Well-known brands like Coca-Cola and Starbucks have had success turning their Facebook fan pages into popular sites with millions of fans. Local businesses are also leveraging the site and can learn from their global neighbors. Local businesses make up 17.6% of Facebook fan pages, according to financial services firm Wedbush, while companies come in at 6.3% and products at 3%. Interests, musicians and public figures are also high on the list. <eMarketer>

Hedgeye Retail’s Take: Free marketing, what’s better than that as a small business owner? With 77% of users looking to receive incentives online, social networking sites provide the perfect opportunity for small businesses as well as national players to gain loyalty and drive traffic at the consumer level.

 

R3: COLM, BGP, H&M, P&G - R3 1 28 11

 

 


Mr. Mubarak, Turn On That Internet!

Yesterday, we posted a note about the Jasmine Revolution becoming Tunisia’s top export. Specifically, we wrote:

 

“Over the last three days, there have been massive protests in Egypt against the autocratic regime of President Hosni Mubarak.  These protests are being driven by economic concerns, primarily spiraling costs of living (read: inflation).  As the costs go up, the underemployed and underpaid youthful population naturally vents, and in an autocratic regime they have no outlet other than, at least in their minds, to take to the streets.  No doubt the successful revolution in Tunisian was a catalyst for the Egyptian revolts; the success of overthrowing the Tunisian government has emboldened protestors across the region.”

 

This morning it seems the Egyptian government is combating the spread of the Jasmine Revolution . . . by cutting off almost all internet in the country.  In the chart below (with credit to Arbor Networks), you can see the precipitous drop in internet traffic.  Somehow we don’t think this is going to appease the people of Egypt. 

 

This is a country with more than 2/3rds of its population below 30, a country where 40% of the population lives on under $2 per day, and unemployment is close to 10% (and higher in reality). 

 

If President Mubarak thinks that he is going to stem the rising tide of discontent in Egypt by limiting their ability to communicate, Tweet, and Facebook, he is, in our estimation, misjudging the power of the Jasmine Revolution.  So far, the stock and credit markets in Egypt agree with us, and profoundly so.  Specifically, Egyptian 5-year credit default swaps are hitting two-year highs today at 375 basis points and the EGX 30, the benchmark  equity index in Egypt, closed down (-10%), after a prior three-day drop of 16%.

 

Our advice is simply this : Mr. Mubarak, turn on that internet!

 

Daryl G. Jones
Managing Director

 

Mr. Mubarak, Turn On That Internet! - 1


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TALES OF THE TAPE: WEN, COSI, GMCR, CBOU, SBUX, EAT, YUM, DRI, MCD

Notable news items/price action over the past twenty-four hours.

  • WEN held their analyst day yesterday and, as my note published this morning details, I viewed the meeting as positive for the long term prospects of the stock which I continue to view as being undervalued
  • COSI has traded poorly this week but gained 5.4%, albeit on slowing volume.  I continue to like this turnaround story.
  • GMCR and CBOU declined on accelerating volume; coffee prices are posing a significant headwind for coffee companies and SBUX is growing market share.
  • SBUX downgraded at McAdams Wright Ragen.
  • EAT gained on accelerating volume.  This stock has performed strongly of late, even given the slowdown in Q4 for casual dining, and I continue to like the name as management executes on margin enhancing initiatives and sales driving catalysts come through over the next few months.
  • EAT was upgraded by Morgan Stanley this morning from “underweight” to “equal weight”.  Target increased to $26 from $18.
  • YUM’s Taco Bell chain is launching an ad campaign to fight back against a lawsuit over the quality of its beef taco filling.
  • YUM’s CDS spreads have blown out recently and this is due to rising food prices and the resulting riots in developing nations, according to Bloomberg.  General Mills, Darden Restaurants, and Campbell Soup Co. are other names named in the article.
  • MCD promoted Kevin Newell to the global chief brand officer role. 
  • The U.S. cattle herd probably shrunk to the smallest size since 1958 and the drop in beef supplies may boost prices to a record, analysts said. Ranchers held 92.211m head of cattle as of Jan. 1, down 1.6% Y/y, according to average estimate of 7 analysts  That would be the smallest herd in 53 years, said Ron Plain, livestock economist at the University of Missouri in Columbia.

TALES OF THE TAPE: WEN, COSI, GMCR, CBOU, SBUX, EAT, YUM, DRI, MCD - stocks 128

 

Howard Penney

Managing Director


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - January 28, 2011

 

Equity futures are trading mixed to fair value after Thursday's uneventful day.  Overnight, Moody's said on the US 'Aaa' rating: "Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising". Today we have the release of Q4 GDP and the final reading of January Michigan Consumer Sentiment.

 

 MACRO DATA POINTS:

  • 8 a.m.: Fed’s Joseph Tracy speaks in Orangeburg, New York
  • 8:30 a.m.: Employment cost index, 4Q, est. 0.5%, prior 0.4%
  • 8:30 a.m.: GDP, 4Q, est. 3.5%, prior 2.6%
  • 8:30 a.m.: Core PCE, 4Q, est. 0.4%, prior 0.5%
  • 9:55 a.m.: Uni. of Michigan confidence, Jan., F, est. 73.3, prior 72.7
  • 1 p.m.: Baker Hughes rig count, Jan. 28  

TODAY’S WHAT TO WATCH:

  • Amazon.com (AMZN) forecast 1Q oper profit $260m-$385m vs est. $474.4m
  • Boston Scientific (BSX) got sued by U.S. for selling certain defective cardiac devices
  • Chubb (CB) forecast 2011 oper. EPS $5.35-$5.75 vs est. $5.82
  • Digital River (DRIV) forecast 2011 non-GAAP EPS $1.13 vs est. $1.35
  • MarkWest Energy Partners (MWE) boosted quarterly div to 65c from 64c; first increase since Oct. 2008
  • Microchip Technology (MCHP) forecast 4Q adj. EPS 56c-57c vs est. 57c, posted 3Q rev. $367.8m vs est. $362.9m
  • Microsoft (MSFT) reported 2Q adj. EPS 77c vs est. 68c, unearned rev. $13.42b vs est. $14.1b, according to data compiled by Bloomberg
  • Monster Worldwide (MWW) forecast 1Q adj. EPS 1c-4c vs est. 4c
  • QLogic (QLGC) reported 3Q adj. EPS 53c vs est. 42c
  • SanDisk (SNDK) forecast 1Q rev. $1.2b-$1.28b vs est. $1.16b
  • Tessera Technologies (TSRA) said it sees 1Q charge $2.5m-$3m, cites job cuts
  • Thoratec (THOR) reported 4Q adj. EPS 28c vs est. 29c
  • VeriSign (VRSN) says on conf. call sees 2011 rev. $750m-$780m vs est. $772.2m
  • Timothy F. Geithner gives address in Davos today; agenda for his trip also includes meetings with ECB President Jean- Claude Trichet, U.K. Chancellor of the Exchequer George Osborne and Belgian Prime Minister Yves Leterme
  • BankUnited raised $783m in IPO yesterday; sold 29m shares at $27 apiece after offering 26.3m shares at $23-$25 each
  • Sara Lee holds conf. call at 10 a.m. to give update on “strategic initiatives.” JBS gave up efforts to raise financing for takeover bid, making a spinoff of SLE coffee unit more likely, person with knowledge of the matter said yesterday
  • Kraft is re-assessing its brand portfolio and may look to sell slower-growth units such as Oscar Mayer meats business, NY Post says, citing unidentified source 
  • 69% of investors in Bloomberg global poll say Facebook is overvalued after Goldman invested $450m in a deal that put co. worth at $50b

EARNINGS:

  • American Electric Power (AEP) 6:57 a.m., $0.39 
  • Dover (DOV) 7 a.m., $0.82 
  • Ford Motor (F) 7 a.m., $0.48 
  • Honeywell International (HON) 7 a.m., $0.86 
  • Idexx Laboratories (IDXX) 7 a.m., $0.55 
  • Oshkosh (OSK) 7 a.m., $0.91 
  • AirTran Holdings (AAI) 7 a.m., $0.05 
  • Alliance Holdings GP (AHGP) 7 a.m., $0.71 
  • Alliance Resource Partners (ARLP) 7 a.m., $1.60 
  • Amcol International (ACO) 7 a.m., $0.41 
  • Scotts Miracle-Gro Co/The (SMG) 7 a.m., $(0.91)
  • Dominion Resources /VA (D) 7:30 a.m., $0.66 
  • *T Rowe Price Group (TROW) 7:32 a.m., $0.68
  • AGF Management Ltd (AGF/B CN) 8 a.m., $0.34 
  • Arch Coal (ACI) 8 a.m., $0.41 
  • Chevron (CVX) 8:30 a.m., $2.40 
  • Synovus Financial (SNV) Pre-mkt, $(0.20)
  • Enbridge Energy Partners (EEP) 4:01 p.m., $0.70 

PERFORMANCE:

 

Yesterday, the XLP broke the Hedgeye TRADE line as the earnings calendar seemed to be the big headwind for the staples - 8 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow +0.04%, S&P +0.22%, Nasdaq +0.58%, Russell 2000 +0.22%
  • Month/Quarter/Year-to-date: Dow +3.56%, S&P +3.33%, Nasdaq +3.86%, Russell +1.50%
  • Sector Performance - (6 sectors up and 3 down): - Financials +0.88%, Consumer Disc +0.79%, Industrials +0.37%, Tech +0.34%, Utilities +0.38%, Healthcare +0.25%, Energy (0.58%), Materials (0.83%), Consumer Spls (1.01%)  

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 338 (-823)  
  • VOLUME: NYSE 990.18 (+8.95%)
  • VIX:  16.15 -2.94% YTD PERFORMANCE: -9.01%
  • SPX PUT/CALL RATIO: 2.66 from 1.06 (+151.57%)

CREDIT/ECONOMIC MARKET LOOK:

 

Treasuries were higher with help from another well-received auction

  • TED SPREAD: 17.35 +0.913 (5.555%)
  • 3-MONTH T-BILL YIELD: 0.15% -0.01%     
  • YIELD CURVE: 2.83 from 2.83

COMMODITY/GROWTH EXPECTATION:

  • CRB: 331.39 -0.43%  
  • Oil: 85.64 -1.94% - trading +0.12% in the AM
  • COPPER: 433.85 +1.68% - trading +0.27% in the AM
  • GOLD: 1,322.20 -0.65% - trading -0.47% in the AM

OTHER COMMODITY NEWS:

  • Oil’s link to U.S. equities has unraveled from its strongest level in at least 20 years as increasing inventories reduce the price of crude in New York. The 30-day correlation between these two benchmarks was at 0.28 yesterday compared with 0.82 on Nov. 16, the highest level since at least March 1991.
  • Natural gas dropped to a four-week low on speculation that a stockpile decline last week wasn’t enough to keep supplies from reaching a record by November.  Gas fell 3.9 percent after the Energy Department said inventories dropped 174 billion cubic feet to 2.542 trillion.
  • Copper rose the most in two weeks on speculation that low U.S. borrowing costs will buoy demand for industrial metals.
  • Better-than-expected US home sales data turned the sentiment positive in entire base metals at LME, and zinc future traded higher at $2,276 per ton on London Metal Exchange (LME).
  • Argentine rains in recent days were not enough to help corn crops recover from earlier dry weather, the Buenos Aires Cereals Exchange said.  The crop, which is about 99 percent planted, is forecast to reach 19.5 million metric tons, the same as a week earlier, the exchange said today in an e-mailed statement.
  • Bangladesh, South Asia’s biggest rice buyer, doubled its import target for this year to cool domestic prices that surged to a record in December as consumers and farmers hoarded supplies, a government official said.
  • Wheat fluctuated in Chicago as some investors liquidated contracts after prices reached a five-month high on demand from North Africa, where riots broke out this month over rising food costs.  The grain gained 9.1 percent in the past two weeks as rioting in Algeria, Tunisia and Egypt sparked demand for food commodities.
  • Cocoa prices capped the longest rally in more than three years, touching a one-year on increased speculation that supplies will be disrupted from the Ivory Coast, the world’s largest producer. 
  • Cotton futures in New York jumped to a record as growers struggled to meet surging demand from China, the world’s biggest consumer.  Prices have more than doubled in the past year as China’s imports climbed to the highest level since 2006 and adverse weather slashed global crops.
  • The total U.S. cattle herd at the start of this year shrank to the smallest size since the Eisenhower Administration, reflecting high feed costs, aging producers and drought that hurt pasture conditions.  As of Jan. 1, the nation’s inventory of all types of cattle and calves fell to 92.1 million head, down 1.7 percent from the same date in 2010, according to a survey of analysts. That would be the smallest herd for that date since 1958, according to government data. 

CURRENCIES:

  • EURO: 1.3703 +0.15% - trading +0.19% in the AM
  • DOLLAR: 77.727 -0.22% - trading +0.04% in the AM

EUROPEAN MARKETS:

  • FTSE 100: (0.78%); DAX: +0.11%; CAC 40: (0.05%) (AS OF 5:30 AM EST)
  • European markets trade mixed with peripheral European indices generally outperforming the region.
  • Indices opened lower before paring losses, an exception being the FTSE100 that remained near session lows. Declining sectors lead advancers 12-6 with healthcare (1.8%) and food & beverage (1%) leading fallers.
  • Financials lead gainers, banks +1% and insurers +0.8%, building on yesterday's advance, aided by optimistic comments from Bank of America's CEO in Davos.
  • The Irish Taoiseach says he will dissolve the Dáil on 1-Feb and announce a date for the General Election.
  • Spain's unemployment rate in Q4 rose to 20.3% from prior quarters 19.8%. US futures trade lower
  • UK Jan GfK consumer confidence survey (29) vs consensus (22) and prior (21)
  • The pound was pressured by the weak UK consumer confidence data and comments by Chancellor Osborne that the UK faced particularly acute challenges with the recovery likely to be slower than some other European countries
  • U.K. Jan. consumer confidence plunged most since 1994; fell 8 points from Dec. to minus 29: respondents have become more cautious on housing decisions, are worried about interest rate increases

ASIAN MARKTES:

  • Nikkei -1.13%; Hang Seng (0.68%); Shanghai Composite +0.13%
  • Most Asian markets fell today, with india down the most (1.54%)
  • China finished flat as new real-estate taxes in Chongqing and Shanghai harmed sentiment. Gains in small caps balanced weakness in property and financial shares.
  • South Korea fell (0.34%), but Samsung Electronics  rose 2% on results, and Hynix Semiconductor gained 5% on its outlook.
  • CNOOC dropped 7% to lead energy shares down in Hong Kong, and property counters fell on developments in China.
  • Energy Resources of Australia plunged 13% after canceling its dividend and reporting a 2010 net at the bottom end of guidance.  Australia treaded down (0.65%).
  • Megabanks fell on S&P’s ratings downgrade for Japan.
  • Japan December household spending (3.3%) y/y vs cons (0.6%). December retail sales (2.0%) y/y. December jobless rate 4.9% vs prior 5.1%. December core CPI (0.4%) y/y vs (0.5%) cons.

 


THE M3: CASINO SMOKING AREA; SJM PAY RAISE; CHINA CAP RATIO; HENGQIN BORDER

The Macau Metro Monitor, January 28, 2011


NEW DRAFT ANTI-SMOKING LAW ALLOWS CASINOS TO HAVE SMOKING AREAS
macaubusiness.com

A new draft of the government’s proposal to revise Macau’s smoking law, but allow smoking areas in casinos, has already been submitted to the Legislative Assembly.  Casinos can create smoking areas covering a maximum of half of the casino floor and must be physically separated from the non-smoking areas.  If passed, casinos will have one year after the new law is enacted to set up such smoking areas.


SJM ANNOUNCES PAY RAISE macaubusiness.com

SJM has announced a 5% salary increase for its entire staff, starting February 1.

 

CHINA SAID TO PLAN TO RAISE BANK CAPITAL RATIOS WHENEVER CREDIT EXCESSIVE Bloomberg

According to sources, China may order its biggest lenders, including Industrial Commercial Bank of China and China Construction Bank Corp. to raise capital ratios to as high as 14% when credit growth is judged excessive.  In normal conditions, lenders deemed systemically important will need to have a minimum 11.5% ratio, unchanged from the current requirement for China’s biggest banks, said the person.

 

ROUND THE CLOCK CONTROL SERVICES AT HENGQIN BORDER PENDING FOR APPROVAL Macau Daily News

The Macau Government's final approval for the Hengqin Border crossing between Macau and Zhuhai to open 24/7 is still pending, although approval is expected.

 

 


 


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