prev

The Melt-Up: SP500 Levels, Refreshed

POSITION: no position in SPY

 

For the sake of risk managers out there who still respect that mean reversion is one of the most powerful mathematical forces to consider in risk management, I think I may have to preface every note I write on the SP500 from this price and beyond with the fact that this has been the most expedited 24-month move (in price) in modern US stock market history (rivaled only by the 1936 rally, which obviously ended in tears with another Big Government Intervention strategy in 1938).

 

That said, that doesn’t mean markets can’t melt-up before they melt-down. And this one is melting-up, right here and right now – so our job is to deal with it. Let’s do that the way we always do, across our 3 core durations: 

  1. TRADE (immediate term) – bullish on a 2.5 standard deviation move to 1330 (the +3 standard deviation move I have been talking about is 1340);
  2. TREND (intermediate term) – assuming we get the 1330 print, I have -7.3% downside risk to my TREND line of 1233; that’s your mean reversion risk (next 3-6 months); and
  3. TAIL (long term) – don’t forget that all we are doing here (like they did in Japan) is using government leverage to inflate to another lower-long-term high. 

Now 1330 is -15% below the October 2007 all-time high, but +97% above its March 2009 low (that’s not a typo). So the question really comes back to the incremental buyers who are going to fly with Buzz Lightyear to 1340 and beyond: What’s are you playing for from that price – and, more importantly, what’s the intermediate-term mean reversion risk to that strategy?

 

For now, we’re leaning long in the Hedgeye Portfolio and I’m very worried about it. From here, I expect to take down exposure on the way up.

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Melt-Up: SP500 Levels, Refreshed - 1


R3: URBN, ADI, AMZN, Jimmy Choo

R3: REQUIRED RETAIL READING

February 8, 2010

 

 

 

 

RESEARCH ANECDOTES

  • A sneak peek of Jimmy Choo’s men’s line is now available, with the company expected launch 16 styles in Fall 2011.  Prices won’t be cheap, with the lineup ranging from $595 to $1095.  Recall that Choo has been expanding beyond women’s footwear as the company contemplates and IPO.
  • According to the Pew Research Center, US desktop computer ownership has fallen slightly since 2006, as laptops have gained in popularity. Currently 59% of all adults own a desktop computer, and 52% own a laptop (76% own a computer overall).  In 2006, 70% of adults owned desktops while 30% had laptops.
  • Google Insights observed that shopping related searches picked up in the “heat” of recent snowstorms on the east coast.  Specifically, apparel retailers in Philadelphia actually saw a mid-week search peak on the 27th when they were in the middle of one of the worst blizzards.  Chicago and Dallas also prove to be noteworthy case studies where weather-induced boredom has helped to drive consumers towards ecommerce.    

OUR TAKE ON OVERNIGHT NEWS

 

Urban Outfitters Debuts Bridal Line - There’s not a single Cinderella-style wedding gown in the Bhldn collection. Bhldn, Urban Outfitters Inc.’s newest retail concept, is the firm’s attempt to put its unique, slightly off-kilter stamp on the bridal business. Rather than traditional gowns, Bhldn is more likely to make a large, lopsided taffeta bow the focal point of a dress, give a wedding gown an unfinished hem or cover elaborate pearl-studded flowers with a sheer layer of tulle so only a hint of the decoration is visible. There’s also a design component featuring items with a do-it-yourself sensibility, such as flower garlands that look homemade but are already put together, as well as glassware, serving pieces, candelabras, cake toppers and lanterns.< WWD>

Hedgeye Retail’s Take:    Official unveiling takes place on February 14th.  Head to BHLDN.com now for a sneak peak of the brand’s aesthetic, which is very much an extension of Anthropologie (at least from the limited imagery so far).

 

Loehmann's Reorganization Plan Ok'd - Loehmann’s Capital Corp., which operates the Loehmann’s nameplate, expects to exit bankruptcy proceedings by March 1. A Manhattan bankruptcy court on Monday confirmed the company’s joint plan of reorganization, paving the way for its exit from Chapter 11 protection subject to its finalizing the terms for a $45 million exit financing facility. Loehmann’s said, “The plan was overwhelmingly supported and accepted by the company’s creditors who voted. The implementation of the plan will enable Loehmann’s to continue operating as normal.”  <WWD>

Hedgeye Retail’s Take:  Good news for loyal customers with one exception.  Credit and liquidity are key to the off-price business, which in turns fuels quality merchandising.  Loyalists are very much aware of how the company’s offering has suffered over the past several months.

 

Adidas Outdoor Collection - Adidas will bring its outdoor collection to the U.S. this fall, distributed through Agron Inc., a longtime partner and licensee of its accessory line. The 45-style footwear offering for men, women and children launched abroad two years ago and includes light performance hiking styles priced between $110 and $200, and a $230 multiday backpacking boot called the Super Trekking Formotion boot. Adidas also will deliver water and multisport styles to select retailers in June. That part of the line includes the men’s Speed Boat style that will retail for $75 and feature an easy-on EVA tongue top, and the colorful unisex Boat CC Lace shoe that retails for $65 and features drainage and Adidas’ Climacool upper. <WWD>

Hedgeye Retail’s Take:  Competition clearly heating up in the trail running/outdoor category with Adidas coming to market with an entirely new assortment.  Recall that The North Face, Merrell, Teva, and Timberland are all expanding their efforts in the category as well.

R3: URBN, ADI, AMZN, Jimmy Choo - r3 2 8 11

 

Big Retailers Let Their Amazon Channel Run Dry - Consumers can no longer buy products from Macy’s Inc., Buy.com Inc. and Gap Inc. on Amazon.com Inc., as each of the three retailers has decided to pull their products off of Amazon.com’s marketplace in recent months. Ever since Amazon.com Inc. started letting other retailers sell through its e-commerce platform as third-party sellers, there has been a “swinging pendulum of support and pull-back” from major retailers concerned about the ability of Amazon, No. 1 in the Internet Retailer Top 500 Guide, to use marketplace retailers' sales information for competitive purposes, says Scot Wingo, CEO of ChannelAdvisor Corp., a company that helps retailers sell through their-party e-marketplaces. <Internet Retailer>

Hedgeye Retail’s Take:  Clearly with momentum on a standalone basis, retailers themselves are looking to regain control of their distribution.  We’re just surprised it took so long for many of these retailers to realize that a direct customer relationship is more valuable than third-party affiliate arrangements.

 

Consumer Credit Expands - Consumers and lenders felt good enough about the economy to expand credit card debt for the first time in 27 months in December, helping to push retail stocks to a 0.5 percent gain Monday. The Federal Reserve said outstanding revolving credit inched up a seasonally adjusted 0.3 percent to $800.54 billion in December, the first monthly gain since August 2008, just before Lehman Bros. collapsed and the financial crisis took hold. Total consumer credit grew for the third straight month. The S&P Retail Index rose 2.31 points to 509.53 as the Dow Jones Industrial Average gained 0.6 percent, or 69.48 points, to 12,161.63. Investors were also encouraged by a flurry of acquisition activity, including AOL Inc.'s $315 million deal to buy The Huffington Post. <WWD>

Hedgeye Retail’s Take:   Coincidence or just a case of holiday cheer?  While shrinking credit availability and usage has been a headwind for the US consumer, this slight change in trend is certainly notable.

  

Ocean Container Lines Foresee Potentially Tight Q3 - A rebounding U.S. economy will likely lead to a tight supply of vessel space and equipment during the peak third quarter shipping season, according to Transpacific Stabilization Agreement (TSA), which represents the major container shipping lines serving the Asian-U.S. trade.  The group said its forecast of 7-8% growth in container traffic for the Asian-U.S. trade indicates that additional ships now being delivered will be needed and well-utilized in the upcoming third-quarter, when Asian-U.S. shipping peaks. “After demand growth of more than 15% in 2010, we expect further growth in the 7-8% range for 2011,” said Y.M. Kim, President and CEO of Hanjin Shipping Co. “This continued cargo growth, from a much higher base, is in our view a very positive sign of recovery.” <SportsOneSource>

Hedgeye Retail’s Take: Recall that Q3 volume hit record highs in 2010 as retailers pulled shipments forward looking to shirk both spiking shipping and input costs so while full-year growth expectations are robust on top of a strong 2010, expect the majority of that growth to be front-end loaded.

 

Superbowl Commercials Underwhelm- Advertisers paid about $3 million for every 30 seconds of air time during the Super Bowl last night and used those pricey seconds to showcase their best creative efforts. Teen sensation Justin Bieber and heavy-metal icon Ozzy Osbourne hawked for Best Buy, Chrysler used Eminem to uncover Detroit’s soul and GoDaddy followed the hot chick formula that’s proven useful for the brand in the past. But one digital marketing expert says that marketers generally stumbled in connecting their TV commercials to their web assets in a way that would strengthen ties with consumers. “We were surprised that there weren’t more and better uses of digital,” says Dennis Bajec, chief creative officer of Resource Interactive, a digital marketing agency. <InternetRetailer>

Hedgeye Retail’s Take: This was a big year for advertisers looking to generate more than just a 30-second impression with pre-game efforts to ‘reveal’ spots directly on company/branded sites as well as post game promotions with the former representing a marked change from years past. In case you missed it, Volkswagen’s successful Star Wars inspired spot went viral in the week leading up to the game creating a significant buzz among parents of budding Lord Vaders.

 

 

 


MCD: US SALES SLOWDOWN IN JANUARY

MCD reported global sales of 5.3% which surpassed consensus expectations of 4.4%.  By region, it seems that the U.S. slowdown I have been anticipating for 2011 may be kicking off.  MCD beat the consensus in every region of the world but the USA.  As you know, I believe that MCD has issues in the USA that have not been fully addressed by management.  

 

Despite an easy -0.7% compare, MCD printed a 3.1%, which implies two-year average trends sequentially decelerated by 60 basis points.  On a calendar-adjusted basis, two-year average trends accelerated slightly (by 17.5 bps) from December’s disappointing result.  January’s result for the U.S. was significantly lower than the Street’s expectation of +4.4% for the U.S.

 

The decline in MCD's two-year average trends to 1.2% clearly puts a same-store sales decline of 2-3% in play for March 2011. 

 

MCD: US SALES SLOWDOWN IN JANUARY - mcd us jan

 

Europe saved the day for MCD, printing a +7.0% comp, which implies a 335 basis point sequential acceleration in two-year average trends from December.   On a calendar-adjusted basis, two-year average trends accelerated 412.5 basis points. 

 

MCD: US SALES SLOWDOWN IN JANUARY - mcd eu jan

 

APMEA results came in above my expectations and those of the Street.  Two-year average trends decelerated sequentially on a two-year average basis by 20 basis points.  On a calendar-adjusted basis, APMEA two-year average trends accelerated by 57.5 basis points. 

 

MCD: US SALES SLOWDOWN IN JANUARY - mcd apmea jan

 

 

Howard Penney

Managing Director


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%

TALES OF THE TAPE: CMG, JACK, CHUX, EAT, MCD, SBUX

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

  • CMG is generating headlines as Immigration Customs Enforcement officers scrutinize the company’s alleged employment of illegal immigrants. 
  • JACK is offering a limited time offer Fish Sandwich for $2.99. 
  • There was little in the way of price action yesterday, with the overall space trading sideways. 
  • CHUX and EAT both declined on accelerating volume.
  • China raised rates overnight to combat inflation. Both MCD and SBUX have raised prices to combat inflation in China.

TALES OF THE TAPE: CMG, JACK, CHUX, EAT, MCD, SBUX - stocks 28

 

Howard Penney

Managing Director


Bond Boys

This note was originally published at 8am on February 03, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Big boys don’t cry unless their last name is Boehner, or they’re a banker in need of a bailout.”

-William H. Gross

 

Bill Gross is one of the buy-side’s best writers. And in his Investment Outlook note from PIMCO yesterday, that was one of his best one liners. There’s nothing quite like having the Big Boy discussion out there about what’s actually happening in the marketplace.

 

What’s happening out there is that The Ber-nank and the bullish Bond Boys are all of a sudden getting smoked out of their holes by inflation. And the manager of the world’s biggest bond fund isn’t happy about it.

 

Before I recap some of Gross’ snarly attacks on The Ber-nank (he one-upped me!), let’s preface this Big Boy argument not with what should be happening to bond yields (Bernanke’s QG2 promise is that they’d remain low), but what is happening to bond yields:

  1. 2-year US Treasury yields - continue to make higher-highs and higher lows since Bernanke made his Quantitative Guessing 2 promises. This morning 2’s are busting a move towards 0.67%, which is a +24% move for the week-to-date and +103% move since the 1st wk of November
  2. 10-year US Treasury yields - broke the sound barrier of their December highs yesterday and at 3.52% are +38% higher since the 1st wk of November.
  3. 30-year US Treasury yields – continue to make higher 9-month highs, pushing towards 4.64% yesterday which is up +17% since the 1st week of November, and up +31% since the 1st week of September.

So what gives here? Isn’t Big Government Intervention the elixir of American life?

 

Obviously a few things seem to be going the wrong way on Bernanke here - as they should when Global Inflation Accelerates. After all, there is always another side to any government supported trade. Debauching the US Dollar = inflation. And inflation kills bonds.

 

Now for a more sophisticated Big Boy dress-down on the matter, let’s turn back to what Bill Gross has to say about this:

  1. “A low or negative real interest rate for an “extended period of time” is the most devilish of all policy tools.”
  2. “This is the framework that has been created by modern-day policymakers who have innovated far beyond their biblical counterparts.”
  3. “Today’s rock bottom yields, however, have less to do with disinflation and more to do with providing fuel for an asset based economy that promotes unsustainable wealth creation and false confidence in perpetual capital gains.”

Well done Mr. Gross. Well done.

 

You see, the Thunder Bay Bear isn’t balled up in his ice fishing gear clawing at Bernanke’s beard all on his very own here. From Jim Grant in New York to Bill Gross in California, this is turning into a whale hunting expedition - with the hunted being the Chairman of the Fiat Fools.

 

Yes, I am pushing my own book here because I am long inflation (short bonds) and Gross is trying his best to protect his book (all bonds), but no matter where Bernanke may want this little inconvenient critter called real-time market prices to go, there it is…

 

Now, to be fair to the perma-stock market bulls who claim that they don’t see any inflation anywhere (despite being long commodity and energy stocks), there are 2 cornerstones to the argument that rising inflation and rising borrowing costs won’t hurt US stocks or corporate margins (even though borrowing costs are at all time lows and operating margins are at all time highs):

  1. This move higher in US interest rates is all about US growth accelerating
  2. And if US Growth doesn’t accelerate from here, we’ll blame the snow and/or dial up The Ber-nank for some QG3

There is also the infamous “flows” argument, but US stock market history fans should be reminded of what happens to legendary long only guys like Bill Miller when “the flows” stop…

 

Interestingly (and not ironically in terms of market timing), according to a Bloomberg headline this morning “Bill Miller Is Back On Top”…

 

Can someone get me a quote on what a dollar invested with ole Bill at the last US stock market top (2007) looks like today (give the poor guy some marking-to-model and don’t adjust that dollar for its debauchery).

 

I guess another angle you could take on why the Bond Boys are bitter is the upcoming calendar of events in US Congress:

  1. Midterm Message - the newly minted chairman of the US Financial Services Sub-Committee on Domestic Monetary Policy (Ron Paul) will be hosting his first dance with Ben Bernanke in Washington, DC next week (February the 9th)
  2. US Budget Deficit - at some point in the coming week, President Obama needs to unveil the alchemist draft of the US Federal Budget (don’t forget that the CBO just raised the Budget Deficit forecast by 46% for the next 3 years, so Barry has some pencil pushing to do).
  3. US Debt Ceiling – that needs to be addressed over the course of the coming month because, in theory, America needs to make a decision on this before March 4th, or our creditors might get a little peeved.

Or are they already right p.o.’d? If you were The Creditor of this nation (China) and watched Geithner mimic Larry Summers’ hand signals on C-SPAN as he threatens the white wall of Congressional stares with “the alternative”, wouldn’t you be?

 

This morning, Timmy’s assistant at the Treasury for financial markets, Mary Miller, said this about raising America’s $14.3 TRILLION debt ceiling: “We expect that Congress will do the right thing.”

 

With all due disrespect for what these government people have considered “the right thing” for the last 10 years, I’ll stay with the right risk management call that we’ve been making here in Q1 called “Trashing Treasuries.” (email sales@hedgeye.com if you’d like the 50 slide Q1 Macro Theme deck). Big Boys don’t cry wolf.

 

My immediate term support and resistance lines for the SP500 are now 1292 and 1311, respectively. We remain bullish on inflation and bearish on bonds. Our latest call to short Treasuries on the short end of the curve was made at 320PM EST on January 27th, 2010.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bond Boys - HeutLeut


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.

next