prev

Retail: Pray

With all eyes on the consumer, there’s definitely a disconnect between weak consumer confidence and strong same store sales. Here are some stats showing that we need a BIG sequential comp ramp to offset recent Confidence numbers – just as yy compares are getting tough.

 

As a backdrop, let’s keep in mind the size of the major data points in question -- PCE vs. retail sales vs. chain store sales (SSS)

 

PCE = $11 trillion – about 72% of our economy

Retail Sales = $3.1 trillion. In other words, only 28% of consumers’ total expenditures take place in a retail store or online.

Chain Store Sales = about $300 billion per year. (That’s Billion – with a ‘B’). These are the data points that come out the first Thursday of each month. They account for only 10% of Retail Sales, and only 2.7% of what actually comes out of consumers’ wallets. And yes, they become less meaningful by the day as the major retailers opt out of reporting numbers.

 

We’d argue that Consumer Confidence should most closely track Retail Sales – which is 10x the size of the data points we get on SSS day and includes far more relevant categories. PCE is tougher to use as a benchmark, as it also includes housing, medical, and other expenditures that happen regardless of the consumer’s confidence level. 

 

Even though Retail Sales SHOULD be the key number to watch, the fact of the matter is that it’s reported on a 2-month lag. The most real-time measure is consumer confidence, and (albeit incrementally not meaningful to the consumer) chain store sales.

 

As for some analysis…

1) Over the past year, chain store sales growth has only been about 30% correlated with consumer confidence; 2-year chain store sales have been ~60% correlated with consumer confidence over the past 12-months.

2) BUT, if we lag consumer confidence by a month – which makes mathematical and logical sense, and then compare that to an underlying run-rate for comps (2-year SSS) we get to a correlation closer to 88%.

3) On that lag, if we look at the sales numbers we’d need to see in order to maintain a) the underlying 2-yr sales growth rate and b) the .88 correlation, it would suggest a -8.5% comp decline (i.e. what we should be looking at this month, all else equal). If anything, there are more reasons for the industry to come in on the lower side of ‘all else equal’(storms, power outages on east coast and CA, etc…).

 

Retail: Pray - PCE Retail Sales Comps Cons Cong 2 yr chart

 

Retail: Pray - 2 yr comp   cons conf

 

Retail: Pray - 2 yr comp   cons conf 1 mo lag



Bears Bounce: SP500 Levels, Refreshed

POSITION: Long Utilities (XLU), Short Industrials (XLI)

 

The beauty of bounces, particularly Bear Bounces, is that you get to re-short your shorts and sell some longs. When I was on CNBC yesterday (210PM EST), the SP500 was at 1137. Now, 23 hours later, it’s 34 points (+3%) higher. That’s a big move.

 

Across our risk management durations, here are the 3 lines that matter to me right now: 

  1. 1265 = long-term TAIL resistance
  2. 1174 = immediate-term TRADE resistance
  3. 1138 = immediate-term TRADE support

In terms of S&P positions, I only had longs going into yesterday’s close. That’s the best I can do to express what was a Short Covering Opportunity. This morning, I sold our Healthcare (XLV) long and re-shorted Industrials (XLI) as 1174 was not violated on the upside.

 

I started the day with 14 LONGS and 6 SHORTS. Now I have 12 LONGS and 8 SHORTS.

 

Managing your risk around proactively predictable ranges remains critical.

 

Let the market tell you what to do,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bears Bounce: SP500 Levels, Refreshed - SPX


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

(REVISED) PENN: TRADE UPDATE

Please disregard previous email.

 

 

Today, Keith shorted PENN in the Hedgeye Virtual Portfolio at $36.40.  According to his model, PENN currently has TRADE resistance at $37.54 and TREND resistance at $40.03.  

 

As we mentioned in our notes last week (REGIONALS ROLLING [OVER], (9/8/11); REGIONALS: SHOW ME THE GROWTH, MO (9/13/11)) the regional gaming market revenues for August slowed down in some markets and declined in others.  We saw a similar bearish trend in July.  A sluggish domestic environment characterized by weak housing and high unemployment has certainly affected the US consumer in those two months and it should continue into September.

 

PENN is our top short in the regionals space given its exposure to many of the underperforming markets (IL, IN, PA) and relatively more downside to its trough valuation in March 2009.  We certainly don't see the quarterly upside for Q2 that the investors have grown accustomed to and estimates may actually need to come down.  While PENN is a fine company with solid management, the sell side is overly bullish on the name in our opinion.

 

(REVISED) PENN: TRADE UPDATE - PENN



PENN: TRADE UPDATE

Keith shorted PENN in the Hedgeye Virtual Portfolio.  

 

 

Today, Keith shorted PENN in the Hedgeye Virtual Portfolio at $36.40.  According to his model, PENN currently has TRADE resistance at $37.54 and TREND resistance at $40.03.  

 

As we mentioned in our notes last week (REGIONALS ROLLING [OVER], (9/8/11); REGIONALS: SHOW ME THE GROWTH, MO (9/13/11)) the regional gaming market revenues for August slowed down in some markets and declined in others.  We saw a similar bearish trend in July.  A sluggish domestic environment characterized by weak housing and high unemployment has certainly affected the US consumer in those two months and it should continue into September.

 

PENN is our top short in the regionals space given its exposure to many of the underperforming markets (IL, IN, PA) and relatively more downside to its trough valuation in March 2009.  We certainly don't see the quarterly upside for Q2 that the investors have grown accustomed to and estimates may actually need to come down.  While PENN is a fine company with solid management, the sell side is overly bullish on the name in our opinion.

 

PENN: TRADE UPDATE - PENN


Former CNBC Executive Joins Hedgeye

Hedgeye Risk Management, the leading real-time investment research firm, today announced that Jeremy Pink, former Senior Vice-President, Business News at CNBC, has joined the firm as a Managing Director to lead their mass-market product and media efforts.
 
“We’re excited about having a distinguished executive on our team.  Jeremy shares our vision for redefining the financial media space; the depth and breadth of his experience will help accelerate building out that aspect of our business,” said Keith McCullough, Founder and CEO of Hedgeye Risk Management.   
 
“Hedgeye’s dedicated team of analysts and researchers creates some of the most innovative and original content about financial markets and macroeconomics of anyone in the world. I am delighted to help bring that original content to retail investors around the globe,” Mr. Pink said in a statement.  “Hedgeye’s analysis and insight promises transparency, accountability and trust; attributes that smart investors demand in today’s volatile global markets.”

Hedgeye is pushing its resources into building its mass-market business with a real-time stock alerts product and daily newsletter to start.  Mr. Pink will be developing more subscription products targeted at this market segment with brokerage accounts, half of who don’t trade at all and an over-whelming majority who trade between just 1-10 times per year.  Hedgeye’s value proposition around real-time risk management and its principles of transparency, accountability and trust, give it confidence that retail investors will inevitably subscribe and become more active in managing their own portfolios.

 
 
ABOUT HEDGEYE RISK MANAGEMENT
Hedgeye Risk Management, a leading on-line financial media and information company, delivers real-time research to institutional and individual investors. Hedgeye generates and delivers actionable investment ideas by combining quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team includes some of the world’s most highly regarded research analysts – united around a vision of independent, un-compromised real-time investment research, as a service.


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next