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Asking For More

"I could not have asked for anything more... I played great for four days and couldn't be happier."

-Rory Mcllroy


Feel-good fans couldn’t have asked for more in Rory McIlroy’s victory at the 2011 US Open yesterday. Irish eyes were smiling on the 22 year old European as he bear-hugged his Dad on Father’s Day.


And then, Europe decided not to bailout Greece…


As a result, Global Macro markets are Asking For More this morning. Unfortunately, more debt is not enough. While I am not sure who remains sober enough to realize that this time isn’t any different than most of the sovereign debt crises of the last 600 years (they end in restructuring and/or default), it seems there are at least a few fiscally conservative members of the Fiat Fool Coalition who are willing to concede that point.


On the heels of the Irishman’s victory, German Finance Minister, Wolfgang Schaueble, delivered the tough love concession to world markets this morning: “If the Greeks can’t or don’t want to make the necessary decisions, then we can’t move forward on this track.”


Risk Manager’s translation: first, deliver on the promises you made on spending cuts and selling assets, or stop Asking For More.


Fair enough Germany. Greece, play the ball as it lies.


Confusion is starting to breed contempt across asset classes this morning: 

  1. CURRENCIES: EURO/USD is re-testing it’s critical intermediate-term TREND line of $1.42 support
  2. COMMODITIES: Oil prices are getting hammered down to 4-month lows on US Dollar strength ($91.61/barrel)
  3. COUNTRIES: Spanish and Italian stocks are getting tagged (down over 2%) as peripheral contagion concerns mount 

This, of course, should all make sense to everyone who has been in Hedgeye’s camp that The Correlation Risk associated with La Bernank debauching the US Dollar can start as the US Dollar stops going down.


As a reminder, into and out of La Bernank’s last rock-star presser (April), the US Dollar Index was down -17% since Obama & Geithner started overseeing Nixon/Carter Deficit/Devaluation life in America (2009). In April, the USD was testing its all-time lows.


Today, the US Dollar Index is bidding for its 3rd consecutive UP week, and it’s up a full +3.8% since the beginning of May. Again, if you didn’t know what The Correlation Risk to an up US Dollar looks like, look at the prices of virtually everything priced in US Dollars (housing, stocks, commodities, etc.) since, well, the beginning of May!


Hedgeye calls this Deflating The Inflation (Q2 Macro Theme).


And, yes, like Growth Slowing As Inflation Accelerates (which we called for 6 months ago), we will be extra sure to remind our competition that we called this first too. As Rory Mcllroy reminded us yesterday – it’s ok to be young, confident, and on your risk management game.


What could continue to strengthen the US Dollar from here (and Deflate The Inflation)? 

  1. Quantitative Guessing (QG2) ending 10 days
  2. US Debt Ceiling compromise within 3-6 weeks
  3. European Contagion (ongoing) 

No, this Global Macro Risk Management setup isn’t very difficult to understand. It’s pretty simple to get right – if you get the US Dollar right. And since we have been right on 21 of the 22 calls we have made on the US Dollar since the founding of Hedgeye in 2008, we think we get this.


We also get being in Cash.


Here’s how the Hedgeye Asset Allocation Model flushed out week-over-week: 

  1. Cash = 49% (down 3% week-over-week from 52% last Monday)
  2. Fixed Income = 18% (Long-term Treasuries and US Treasury Flattener- TLT and FLAT)
  3. International Currencies = 18% (Chinese Yuan – CYB)
  4. International Equities = 6% (Germany and China – EWG and CAF)
  5. Commodities = 6% (Gold – GLD)
  6. US Equities = 3% (US Healthcare – XLV) 

As US Dollar strength Deflates The Inflation, we’ll be in a very good position to buy things on sale. The key will be to be patient on prices. Ultimately, a strong US Dollar is the only way out of this Keynesian mess. Lower-prices are going to be an important catalyst for Global Consumption. In terms of bullish catalysts for Chinese, German, and US Equities, I couldn’t Ask For More than that.


My immediate-term support and resistance ranges for Gold, Oil, and the SP500 are now $1, $91.60-98.29, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Asking For More - Chart of the Day


Asking For More - Virtual Portfolio

The Week Ahead

The Economic Data calendar for the week of the 120th of June through the 24th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - len1

The Week Ahead - len2

R3: M, Puma, China, Deals…



June 17, 2011






  • Confirming that product costs are flowing through on average up 15% in the 2H as expected thus far, management at PVH highlighted that it is planning to increase ticket prices between 12-15% on average banking on half of the increase from AURs with the balance driven by unit increases rather than simply pricing alone.
  • In the latest retail concept designed to drive store traffic, Pier 1 Imports has announced that it’s launching its Pier 1 To-Go after a successful test. The new concept enables consumers to see what items are in stock online and then reserve them to be picked up at a store eliminating much of the hassle associated with today’s shopping experience. Not surprisingly, the company has seen an increase in both ticket and units per transaction compared to the company average. For shoppers that prefer to avoid the crowds altogether, but wants to save S&H costs this is a great alternative and one that we’d expect other home furnishing retailers to consider testing as well.
  • At a recent conference, management of DKS noted that Academy has proven to be a good competitor in TX in recent years, but there is increased uncertainty with KKR now at the helm. It’s important to note that TX has been comping at a faster rate than the company average of late – something to keep in mind if Academy gets more disruptive with 5% of the company’s store base located in this market.



LF USA Adds Ellen Tracy License - LF USA has added another license to its growing collection — Ellen Tracy. Since 2009, Brand Matter LLC, the owner of Ellen Tracy, has licensed RVC Enterprises to produce a women’s better sportswear line. Together they forged a strategic alliance with Macy’s Inc. as the exclusive department store retailer, which will continue. The transition of the license to LF USA is effective with the August shipments of the Ellen Tracy women’s better sportswear line. Mark Mendelson, president of Ellen Tracy, has moved to LF USA, along with his entire design team. Susanne Klevorick remains creative director and senior vice president of design. <WWD>

Hedgeye Retail’s Take: Funny…It’s getting some life pumped into it now that it is no longer owned by LIZ.


Macy’s Reaches Tentative Deal With Union - Macy’s Inc. and the Retail, Wholesale and Department Store Union have reached a tentative agreement that will avoid a walkout of more than 4,000 workers at four of the retailer’s New York-area stores, including the Herald Square flagship.The two groups negotiated around the clock to avert a strike that union members had authorized earlier this week. “This is a solid contract and it reflects the fact that our workers are the true magic of Macy’s,” said Ken Bordieri, President of Local 1-S of the RWDSU. <WWD>

Hedgeye Retail’s Take: We don’t know the specs. Near term this is a positive for M as a NYC strike would be damaging – in perception if not reality. Longer term this likely included wage increases/work rules that won’t go unnoticed by the other 160,000 employees at Macy’s.


Milan Models Eclipsed by M&A Chatter - Men’s spring-summer 2012 in Milan may be the first fashion season where clothing and accessories are the last things on people’s minds.  As PPR SA hunts assets, Prada SpA and Salvatore Ferragamo SpA court investors for initial public offerings and a French investment firm snaps up Moncler SpA, the chatter in Milan is of who’ll be next to list or get bought. Suitmaker Corneliani kicks off four days of shows in the Italian city tomorrow. Potential targets may include Burberry Group Plc (BRBY), Mulberry Group Plc (MUL) and Tiffany & Co. in the medium term, according to John Guy, an analyst at Royal Bank of Scotland Group Plc in London. LVMH Moet Hennessy Louis Vuitton SA (MC)’s 4.3 billion-euro ($6.1 billion) purchase of Rome-based jeweler Bulgari SpA (BUL) may spark a wave of consolidation as some companies seek to narrow the gap with their larger peers. “Expect more mergers and acquisitions and IPOs,” said Armando Branchini, vice chairman of Intercorporate, a Milan- based consulting firm specializing in luxury goods. “When the favorable winds blow, all the sailors hoist their sails.” <Bloomberg>

Hedgeye Retail’s Take: What’s funny is that this shows how this is really a relationship business. Such a big number of strategic acquisitions in the consumer non-durables/durables spaces happen around these trade shows. It’s where the key players assemble and think big.  Remember, Paul Fireman (Reebok) and Herbert Hainer (Adidas) happened to be at the same sporting event back in 2006. They casually got together, and by the end of the night decided that a merger was the best way to crush Nike. Whoops… (except for Fireman and Reebok shareholders, who made out like bandits relative to what they’d have done on their own in the ensuing 12 months).


Belle to Launch B2C Shoe Site with Baidu - Shenzhen-based footwear company Belle International will work with Chinese search engine Baidu to establish a business-to-consumer site which will be led by the former vice president of business-to-consumer site 360buy.com, Xu Lei. Industry experts said that Belle’s new e-commerce plan would block other shoe B2Cs from shoe supply.  Belle has planned its online business as early as 2008, and launched its e-commerce website topshoes.cn. However, according to Belle's financial report released in March, its turnover in 2010 hit CNY 23.706 billion, of which topshoes.cn earned only CNY 100 million. <FashionNetAsia>

Hedgeye Retail’s Take: Most people don’t know Belle, but this might be the top story of the day. One of Belle’s strengths is that it was the first casual footwear brand that built physical infrastructure beyond the East coast of China. It even outpaced Nike. Now to pair up with Baidu as they go heavy online is a statement in itself.


Spanish Court Strikes Down EUR 98M Award to Puma Licensee - A district court in Madrid has overturned a Spanish arbitration panel's ruling that Puma Ag pay its Spanish licensee EUR 98 million Euros, Puma announced. PUMA is therefore no longer obliged to pay the sum. The verdict was reached on June 14. Puma appealed the arbitration ruling, which required it pay its former Spanish licensee and holder Estudio 2000 S.A. for its  remaining trademark rights in Spain. “The ruling by the District Court of Madrid is totally in line with what we had anticipated and frees us from the payment of 98 million Euros for the vesting of PUMA trademark rights,” said Jochen Zeitz, Chairman and CEO of PUMA AG. “We will now make full use of all the options available to us to secure all PUMA trademark rights in Spain.” PUMA will continue its efforts in uniting all Spanish PUMA trademarks. <SportsOneSource>

Hedgeye Retail’s Take: A rather big win for Puma, considering that it is hardly a Spanish brand. That said, the PPR capital infusion that PUMA Spain is seeing is an influence that we should probably not overlook.


China’s Alibaba will Split Taobao into Three e-Commerce Units - China-based e-commerce operator Alibaba Group Holding Ltd. said today it would split its Taobao online retail arm into three units. Alibaba says the Taobao Mall will serve consumers making purchases from retailers; eTao will focus on searches related to shopping; and Taobao Marketplace will enable consumers to buy and sell goods from each other. Alibaba also is considering going public, according to a letter that CEO Jack Ma sent to employees. The letter said the split will help the e-commerce operator compete better amid what Ma called dramatic changes in online retailing. In 2005, Yahoo Inc. bought a 40% stake in Alibaba.com. The company, which was founded in 1999 and had its initial public offering in 2007, has often been called the eBay of China.  <InternetRetailer>

Hedgeye Retail’s Take: Prepping for the deal… This makes perfect sense – public or not. It gives a glimpse as to how consumers think. Some like physical shopping. Some like to do it on a keyboard – but getting new goods at the best price. And others want used items that are presently in the hands of other consumers.



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Unless, Sardar Biglari makes an offer the take CBRL private, I don’t think the stock goes much above $50.  Today, CBRL was sold short today in the Hedgeye Virtual Portfolio.


In the 2006/2007, when CBRL faced Nelson Peltz, the stock peaked at $50.74 and in 2007, CBRL generated $225 million in EBITDA versus $228 million in fiscal 2010.


Given the secular decline I see in the concept’s business, I don’t see much value past the $50 level, because the cost of fixing declining traffic trends is both time- and capital-intensive.  One of the biggest issues is that the company is consistently raises prices in an attempt to protect margins and driving the core customer away in the process.  The core Cracker Barrel customer skews older with little disposable income and has suffered from the economic malaise of the past few years.


As I said in my CBRL note on 6/16 “I let you be the judge of the company’s performance since the beginning of fiscal 2007 (the last time the company faced an activist investor).  The store base has grown by 11%, sales by 2.3%, EBITDA by $3.4 million, EBIT has declined by $68,000 and the share price has gone nowhere. 


The questions investors need to ponder are: can Mr. Woodhouse fend off Mr. Biglari and what will he do to create value?  Will he pursue the same path he did against Nelson Peltz?  A transaction we know created ZERO value for shareholders.


While we wait the pressure on the core business will persist. 






Howard Penney

Managing Director

Early Look

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