R3: AMZN, Gucci, JJB, & Ala Moana


March 15, 2011






  • According to the Japanese Tourism Marketing Company, more than one-third of all Japanese tourist that visit the U.S. annually do so via Hawaii. While few retailers are ‘over-indexed’ to Ala Moana, the contribution from one of the more productive U.S. malls will certainly have to be tempered near-term.
  • Add online retailer Shopbop to the list of recent entrants into the bridal category behind the likes of Urban Outfitters, Net-a-Porter and The Aisle New York. With dresses ranging from $200 to $2,500, the e-tailer is selling at a similar level to Costco’s latest bridal collaboration at $700-$1,400 with the primary difference the inability to actually try the dress on first.
  • According to the latest Millward Brown “Value-D” study which ranks global brands on how consumers perceive value vs. the associated costs, ranks number one.  Amazon is the only retailer to rank in the top ten on the global list, while Wal-Mart shows up at number six on the US list. 



JJB Sports Unveils Recovery StrategyThe 250-store chain also confirmed it would seek a further £65m from shareholders to fund the restructuring. JJB, which had been in merger talks with rival JD Sports, said the new-look operation would be based around the success of six trial stores.These stores were refocused to appeal to keen amateurs and sporting families.  Sales at these stores have been running at about 16% above the company average, JJB said in a statement. The company also said that it had reached agreement in principle with its major shareholders - Harris Associates, Crystal Amber, Invesco Asset Management and the Bill & Melinda Gates Foundation Trust - to support a £65m fundraising. <BBC>

Hedgeye Retail’s Take:  Very rarely, if ever, does a new prototype save the day for a retailer that has been under pressure for at least the past five years.  We’d be surprised to see this turnaround succeed based on a complete transformation of the store format.


Gucci With Al Tayer InsigniaAs part of a strategy to directly control its stores, Gucci said Monday it has signed a memorandum of understanding to form a joint venture with luxury retailer Al Tayer Insignia.  The agreement, which is expected to be finalized over the next few months, will allow Gucci to directly enter the United Arab Emirates. Gucci declined to provide details of the partnership, but said the joint venture will be headquartered in Dubai. Al Tayer has been Gucci’s franchisee in the region for more than a decade. The luxury brand currently counts six points of sale in the UAE. One store is located in Abu Dhabi, at Marina Mall, and three boutiques are at the Mall of the Emirates, at The Boulevard at Jumeirah Emirates Towers and at The Dubai Mall in Dubai. Gucci is also present at Dubai’s Harvey Nichols and Bloomingdale’s with corners in the two department stores. <WWD>

Hedgeye Retail’s Take:  Not surprisingly, luxury brands continue to chip away at the small but growing opportunities in the Middle East.  We wonder if at some point recent political unrest puts a damper on near term growth plans given the costs associated with opening boutiques in the region. 


Jack Rogers Opens in ManhattanFor six decades, the Navajo sandal has been the mark of Jack Rogers footwear. Now a casual chic collection inspired by the singular look is emerging, and the progress is most visible on Madison Avenue here between 87th and 88th Streets, where the first Jack Rogers store gets christened with a party tonight.  “We want to become a lifestyle brand,” said William Smith, chairman of Jack Rogers and managing partner of Global Reach Capital, during a visit to the 1,240-square-foot space. The classic sandal has been interpreted into a full line of footwear with more than 100 stockkeeping units, including closed-toe shoes, ballet flats, moccasins, high-wedged espadrilles, pumps, heels, shoes with Swarovski Elements micro beads, with monograms, in glazed suede or distressed leather, and even a rain boot for fall with a side zipper.  <WWD>

Hedgeye Retail’s Take:  A niche product for sure, but one that has a very loyal customer base.  We wonder how successful the iconic sandal company will be with its efforts moving into more traditional closed toe footwear.  Clearly a little private equity infusion is helping to push the brand beyond its 60 year sandal history.


Uptick in M&A activity - The thrift that companies exercised during the recession by building up their balance sheets is coming back to haunt them in the form of pressure to buy, and it’s lifting the mergers-and-acquisitions market to levels that could approach historic highs. Global M&A activity bounced back in 2010, rising 22.7 percent to $2.09 trillion over 2009 as U.S. M&A rose a less robust 2.8 percent to $714.3 billion, according to The Mergermarket Group. Still, both volume figures were well below the levels of 2008, when global activity hit $2.5 trillion despite a near freeze in fourth-quarter activity following the year’s financial crisis, and the progressively higher levels of M&A from 2005 to 2007. <WWD>

Hedgeye Retail’s Take:  Nothing like a banker bonanza as we head into more uncertain times from a macro perspective.  From a retail standpoint, we note that there are still numerous rumored deals that remain on the table.


Earthquake Hits Luxury Companies  - The stars have aligned for the luxury industry since the global recovery began. But the earthquake in Japan is a reminder of how quickly tragedy can change the industry's prospects.  Japanese investors dumped stocks Monday in response to Friday's earthquake, with the Nikkei 225 tumbling 6%. While the U.S. stock market fell just a fraction of that amount, luxury highfliers came under fire. Tiffany, which trades at 18 times this year's consensus earnings, fell 5%. Coach and Burberry Group of the U.K. fell by similar amounts.  Luxury investors have learned to pay less attention to Japan in recent years. Once vital, Japan accounted for 19% of Tiffany's sales in 2009, compared with 28% in 2000. <WallstreetJournal>

Hedgeye Retail’s Take:   It’s likely that beyond the physical recovery, the psychology of luxury buying will take even longer to rebound. 


Smartphone Owners like to Scan and SaveSmartphone owners are realizing the power of the mobile app to both gather information about products and services and save, a new poll from Chadwick Martin Bailey and iModerate Research Technologies finds. A poll of 1,491 U.S. adults finds of those who have used a smartphone app or mobile browser while shopping, 44% have used a bar code scanning app such as RedLaser or ShopSavvy that lets them compare prices and learn more about products and services in stores. 38% have used a discount or deal app such as those from Groupon or LivingSocial that offer deep discounts, typically on local goods. Location-based shopping apps such as foursquare and shopkick came in last among the shopping-related apps mobile shoppers employed, with 13% reporting using them. <InternetRetailer>

Hedgeye Retail’s Take:  Not surprisingly, the democratization of retail pricing is being empowered by the smartphone and its ability to act as a personal bar code scanner.  It will not be long before self checkout also occurs via the smartphone, thus eliminating the need to wait in lines.


Photo-Sharing Trends Encourage MarketersConsumers are increasingly sharing photos via social networks and mobile apps, and marketers are looking to capitalize on this trend. For most marketers, photo-sharing can help build brand awareness and encourage consumers to interact with the company. LIPTON Brisk iced tea partnered with mobile photo-sharing app Instagram for a campaign prior to the 2011 South By Southwest (SXSW) Conferences and Festivals. Fans were encouraged to take pictures through Instagram and tag them with #briskpic to be entered in a photo contest. The winning photos were included on a limited-edition can of the drink during SXSW.  <eMarketer>

Hedgeye Retail’s Take: Product placement is certainly not a novel concept, but if LIPTON is any indication, brands’ ability to integrate with mobile/social networking far exceeds the adoption rate compared to sitcoms of the 90s.


R3: AMZN, Gucci, JJB, & Ala Moana - R3 3 15 11



Dark Moon

This note was originally published at 8am on March 10, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I like to think that the moon is there even if I am not looking at it.”

-Albert Einstein


On this day in 1973 British rock band Pink Floyd released the Dark Side of The Moon. In Hedgeye-speak, that album was multi-factor and multi-duration, focusing on the interconnectedness of the world. Money, war, and death – from time to time, these can be the dark sides of this world. Pretending that their impacts on human behavior cease to exist isn’t my view of a risk management process; neither is hope.


So far, the best strategy we can offer Global Macro Risk Managers is grounded philosophically in Chaos Theory. Some people call it Complexity Theory – mathematically speaking, Chaos and Complexity theories are pretty much the same things.


Much like Einstein’s aforementioned admission of a Dark Moon, there are some things in markets that you can’t see. But, from dark pools, to the “flows”, and inside information – it’s all there. No matter where your concept of your research “fundamentals” go, there it is – either by expectation or by the actual “news”, it’s always being absorbed into the market’s last price.


Where I used to get run-over in positions was when I considered my research on a company the center of the universe. As if Mr. Macro Market knew me and owed me something. You can go get yourself a Yale degree and draw up a “smart” looking slide presentation about your bottom-up investment thesis – and that investment strategy will be all good and fine, until it isn’t.


Usually what hits you like Big Alberta when he has you lined up at the blue-line with your head down is the macro. Or, as some bottom-up only investors like to call it, “the unknown.” Well that excuse, losing your investor’s money, and a few false teeth might get you a ride home on the bus, but it’s certainly not going to give you an entitlement to dress in the next game.


The next risk management game in a globally interconnected marketplace starts now. Like a good Chaos Theorist, you either wake up accepting that Global Macro market risk is grounded in uncertainty, or you don’t. Like the moon, Asian Growth Slowing and Greek Debt Imploding is still there this morning, even if you weren’t looking at it…


Here’s this morning’s Global Macro grind:


1.       Asian Growth Slowing As Global Inflation Accelerates

-Japan revised its Q4 GDP estimate LOWER again to -1.3% (don’t forget that the US has done the same with Q4 GDP, twice)

-China reported a huge sequential slowdown in Exports for February at +2.4% (lowest level of demand since early 2009)

-South Korea raised interest rates to 3% (2nd rate hike for 2011 YTD with the #1 reason being inflation)


2.       European Sovereign Debt Yields Rising As Global Inflation Accelerates

-Credit ratings being cut in Spain this morning aren’t leading indicators – and neither is the assumption that more debt will solve this

-Greek bond yields continue to rise to higher all-time highs (all-time is a long time)

-British and German Equity markets are breaking down through their respective immediate-term TRADE lines of support


3.       US Growth Expectations Slowing (finally) As Global Inflation Accelerates

-US Treasury yields are finally backing off (2s down to 0.68% this morning) dulling one of the “growth signals” the bulls had in FEB

-Oil prices remain elevated and impose a significant sequential tax on US consumption growth (Q4 avg oil price = $85/barrel)

-Volatility (VIX) remains well above our intermediate-term TREND line of support (18.08) as fundamentals challenge the “flows”


So, that’s what we call The Big Stuff here at Hedgeye. And the Risk Manager strategy is to stay ahead of The Big Stuff. Whether you are looking at a company from the bottom-up or a country from the top-down, Growth Slowing as Inflation Accelerates in your cost structure definitely matters.


The Big Stuff can also morph into consensus. For example, I think The Inflation that we’ve been belaboring since October is now becoming consensus. This is where managing risk gets a lot trickier. What’s priced in? How long can consensus be right?


Here’s some more Big Stuff with potentially long-term tails:

  1. A Super Sovereign Debt Cycle Structurally Impairing Long-Term Growth
  2. A Global Inflation and Unemployment Problem Inspiring Revolutionary Revolt
  3. A Global Belief In The Fiat Currency System Coming Under Attack

Again, like the Dark Moon – it’s all there…


So, we’ll keep focusing on what we see in our globally interconnected risk management model, trying our best to change our asset allocation and long/short positioning as consensus changes are absorbed into market prices.


My immediate term TRADE lines of support and resistance for WTI crude oil are $102.11 and $108.71, respectively. My immediate-term lines of support and resistance for the SP500 are now 1302 and 1334, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Dark Moon - dark moon


Dark Moon - CH2


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

  • MCD joined Tesco and Diageo in signing a U.K. health deal put in place by the government.  The deal involves better labeling and ingredients aimed at improving the nation’s health.
  • McDonald's has 3,302 restaurants in Japan. As of this date, the vast majority of the restaurants are open; fewer than 300 remain closed due to damage or staffing issues.
  • BJRI gained on strong volume.  It was the only restaurant stock we monitor that did so yesterday.
  • CBRL, DIN, and CPKI all declined on accelerating volume, as did CHUX. 
  • SBUX, TAST, and BAGL also declined on strong volume. 
  • According to Technomic, the top 10 restaurant chains ranked by their percentage increase in sales from 2009 to 2010 are:
  1. Five Guys Burgers and Fries at 38%
  2. Jimmy John’s Gourmet Sandwich Shop at 22%
  3. Chipotle Mexican Grill at 21%
  4. BJ’s Restaurant & Brewhouse at 20%
  5. Yard House at 18%
  6. Cheddar’s Casual Cafe at 14%
  7. Buffalo Wild Wings Grill & Bar at 14%
  8. Firehouse Subs at 14%
  9. Noodles & Co. at 14%
  10. Panda Express at 13%




Howard Penney

Managing Director


Daily Trading Ranges

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The Macau Metro Monitor, March 15, 2011



HONG KONG GNP RISES 7.2% IN 2010 China Daily

According to the Census and Statistics Department of Hong Kong, the city's GNP rose 7.2% YoY to HK$1,784.7BN in 2010 and 6.9% in 4Q2010  to HK$477.2BN.



The People's Bank of China said that new yuan‐denominated loans decreased $192.9BN YoY in February to 535.6BN yuan. At the end of February, total outstanding yuan‐denominated loans stood at $48.89 trillion, up 17.7% YoY. New yuan‐denominated deposits stood at $1.31 trillion in February, a YoY increase of 17.6%.



Spring Airlines, a budget airline, is scheduled to debut  operating flights between Macau and Mainland cities in April.



21 Chinese People's Political Consultative Conference (CPPCC) members, including Ambrose So, made a joint proposal suggesting that Zhuhai citizens be granted a one‐year multi‐entry visa to Macau, with a maximum stay of seven
days per visit. The suggested trial would be similar to mulit-entry visas already granted to Shenzhen residents for visitation to Hong Kong in April 2009.

Something For Nothing

“The world is full of so-called economists who are full of schemes for getting something for nothing.”

-Henry Hazlitt


Today you’ll hear a lot of excuse making. You’ll see a lot of finger pointing. The easiest thing to do will be huddling in the comfort of crowds that will tell you “nobody saw this coming.” While taking brokerage fees on that kind of advice may be convenient, that’s not a risk management process.


There will be no accountability from the Keynesians who have advised the Japanese to “print lots of money” (Paul Krugman). There will be no causality in the analysis. But there will still be an island economy that has levered itself up with 998 TRILLION Yen in leverage – that risk management compromise and the horror of this natural disaster will be something the Japanese citizenry will have to bear for a long time to come.


Of course our hearts and prayers go out to the Japanese, but we aren’t going to use their crisis as a crutch. It’s time to remind people that chasing US, European, or Japanese stock market returns for the sake of relative performance comes with major event risk. From deficit and debt spending to The Inflation born out of printing money from the heavens, getting Something For Nothing isn’t a perpetual return.


The Japanese stock market has lost -17% of its value in 2 trading days (biggest drop since 1987). If you go back to the week that fund flows into “Developed” Equity Markets peaked (the week of February 14th – see my Early Look titled “The Flows”), the Nikkei is down -20.7%. That’s called a crash.


Like America’s, the Debt/GDP crisis in Japan is obvious. In hopes of getting Something For Nothing, the Big Government Intervention bureaucrats of Japan have already jacked up sovereign debt to 210% of GDP – and that’s not including the projected 15 TRILLION in emergency stimulus they’ve already approved to spend on this disaster.


There comes a point in an economy’s money printing and leverage-cycle that disaster (including war) can no longer be financed with Fiat Fool paper. As we rightful grieve for the Japanese people this morning, this is a major structural consideration that the 112th Congress of the United States of America should consider when politicking about the risk/reward in raising America’s Debt Ceiling.


In the US, we’ve been calling for a 3-6% correction in US Equities since fund flows peaked in mid-February. As of yesterday’s SP500 closing price of 1296, we’ve already registered -3.5% of that. This morning we’ll see our Drawdown Line of 1271 tested on the downside (see my intraday risk management note from yesterday titled “Drawdown: SP500 Levels, Refreshed”).


This is not to take a victory lap. I am long German Equities this morning and I am getting clocked in that position just as cleanly as you’ll get clocked in your long positions. This is a reminder however that having a large asset allocation to CASH is king if you proactively prepare for globally interconnected storms.


Yesterday I raised my allocation to CASH in the Hedgeye Asset Allocation Model to 49% from 43%. I sold down my US Equity allocation from 6% to 3% and I cut my exposure to Commodities from 15% to 12%.  Again, not a victory lap – this is simply what I did.


What a lot of other people did is what they have been doing since US and Japanese Equities broke out to the upside in December – buy-the-dip. They’ll be accountable justifying that strategy with “valuation” this morning inasmuch as I will be to mine. That’s what makes a market.


Without a Global Macro risk management process this morning, I don’t know what price momentum traders are going to do – but I do know what I am going to do – and really, that’s all I care about. So here are my risk management lines and a plan:


1.       ASIA


A)     Japan’s Nikkei225 Index long-term TAIL line of support (10,219) is now broken, so we’re not buying that.

B)      India, South Korea, Indonesia, Thailand, Singapore, etc. have been seeing Growth Slowing As Inflation Accelerates since November, so we’re not buying those either.

C)      China outperformed most of Asia last night and looks most interesting to us on the long side, if only because we have been bearish on that market for the last year and there’s a mean reversion opportunity on the upside. The immediate-term TRADE line of support for the Shanghai Composite of 2851 held.



2.       EUROPE


A)     Germany’s DAX broke its intermediate-term TREND line of support of 7012 this morning – that’s bad and I need to take down exposure to that market no matter how bullish the fundamentals have been for the last year. Fundamentals change.

B)      Britain’s FTSE and France’s CAC also broke their intermediate-term TREND lines of support of 5918 and 3959, respectively this morning. Another way to hedge my long Germany exposure will be to short one of these markets on the next bounce.

C)      Spain (which I am short in the Hedgeye Portfolio) looks worse than the DAX, FTSE, and CAC as it has more price performance chasers long of it with a hope that Piling Debt-Upon-Debt is going to end well. Sorry leverage folks. This time is not different.



3.       USA


A)     SP500, Nasdaq, and Russell2000 all broke their immediate-term TRADE lines of support last week and 7 of 9 S&P Sectors are already broken as well. That’s not going to be new this morning, so don’t let an excuse maker tell you otherwise.

B)      SP500’s critical line of drawdown support = 1271, so watch that line very closely in the coming days. Almost all of Asia and Europe have broken their intermediate-term TREND lines, so the call to “buy-the-dip” would imply that the US “decouples” from Global Growth Slowing, which you know we disagree with. US GDP growth estimates need to come down to where the market is pricing them.

C)      Volatility (VIX) is threatening a long-term TAIL breakout above the 22.03 line this morning. That’s not a line that you get paid to mess with, and I suggest you respect the inverse relationship between the SP500 line of 1271 and VIX 22.03, acutely.


No one in New Haven said there was such a thing as a Big Government free lunch. No one here is going to beg for Something For Nothing this morning either. It’s time to get serious about fiscal and monetary policy. It’s time to strengthen the US Dollar so that we can tone down The Inflation. It’s time for risk management.


My immediate-term support and resistance lines for WTI crude oil are $95.43 and $103.52, respectively. My immediate-term support and resistance lines for the SP500 are 1271 and 1312, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Something For Nothing - t1


Something For Nothing - t2

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