TGT: Apparel/Grocery bifurcation


FYI, Home and hardlines still steady losers, grocery up +mid-teens on top of +MT ly. First qtr in last eight where apparel did not contribute to aggregate comp at TGT.


TGT: Apparel/Grocery bifurcation - TGT Matrix



GIL: A Hot Mess


We dubbed Gildan’s Q3 results a ‘gong show,’ which puts this mornings’ results in the category of a hot mess. It’s actually more about next year’s outlook than the quarter here. GIL isn’t likely to be the only victim, we expect other ‘cotton plays’ HBI and CRI to also see pressure as the ability to maintain selling prices to retailers comes under question.


GIL is guiding F12 down over 40% below consensus estimates next year to $1.30 from $2.26E – so much for looking cheap. With Q1 expected to come in at an EPS loss ($0.40), the company is effectively guiding Q2-Q4 13% below expectations as well.


Here are a couple other notable callouts out the press release ahead of the call:

  • “the combination of weak end-use demand and distributor destocking is projected to result in an approximate 40% decline in Gildan's unit sales volumes in the screenprint market in the first quarter.”
  • “Gildan announced yesterday that it is reducing gross selling prices in the U.S. wholesale distributor channel effective December 5, 2011, and applying the benefit of this price reduction to existing distributor inventories.”
  • "Short-term promotional discounting began to increase at the end of the fourth quarter, and has continued to increase in the first quarter of fiscal 2012.”
  • “Gildan announced yesterday that it is reducing gross selling prices in the U.S. wholesale distributor channel effective December 5, 2011, and applying the benefit of this price reduction to existing distributor inventories.”

Some specifics on projections:

  • “Selling price increases which were recently implemented in the retail market did not reflect the full pass-through of high-cost cotton. Therefore, while gross margins for retail products are continuing to be adversely affected in the first half of fiscal 2012 by the high cost of cotton, it is not currently expected that Gildan's selling prices to retailers will decline when the Company benefits from lower cotton costs in the second half of the fiscal year.”

Hedgeye Retail: Bad now, could be even worse later if prices come down as we expect, this is NOT a conservative assumption.


GIL: A Hot Mess - GIL S


Casey Flavin




The Macau Metro Monitor, December 1, 2011




Macau November gross gaming revenue totaled MOP23.058 BN (HK22.385BN, US2.88BN), up 32.9% YoY.



Average home prices in 100 Chinese cities slipped 0.3% MoM in November, the third month of a modest pullback in the face of government measures to curb an exuberant housing market.  Average home prices eased 0.2% in October and 0.03% in September on a monthly basis.

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Dynamic Risk Management

This note was originally published at 8am on November 28, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Schumpeter’s ambition was to replace static with dynamic economic theory.”

-Sylvia Nasar


Chapter V of Nasar’s “Grand Pursuit”, Creative Destruction: Schumpeter and Economic Evolution, was my favorite. While I am not sure if it’s politically correct to say that I like to creatively destruct things, I’m not sure I care. I’m not exactly a politically correct kind of a guy.


While Joseph Schumpeter ended up becoming a compromised man of government later in life, his early days of collegiate thinking were some of the most formative in all of modern economic theory.


Shakespeare wrote that youth is ‘ambition’s ladder.’ Being left to the devices of his own commoner’s experiences (“born in a small factory town” in the Czech Republic, page 171), Schumpeter defined “creative destruction” using common sense.


Back to the Global Macro Grind


First, in order to contextualize this morning’s sharp squeeze higher across Global Equities, we need to take a step back and remind ourselves of what pricing of risk that we are bouncing from:

  1. US Dollar Index was up another +2.1% to close the week at a fresh Q4 high of $79.69 (up +9.2% from the April low)
  2. EUR/USD was down -2.2% to our immediate-term TRADE oversold line of $1.32
  3. US Stocks (SP500) were down another -4.7% week-over-week to close at a higher-YTD-low of 1158
  4. Italian, German, and French stocks were down -8.3%, -5.3%, and -4.7%, respectively (all crashing and in Bearish Formations)
  5. Asian stocks were down across the board again (Taiwan -6.2%, Australia -4.5%, Hong Kong -4.3%)
  6. CRB Commodities Index (19 commodities) was down another -2.2%
  7. Gold was down another -2.1% (in-line with the weekly US Dollar move up)
  8. Volatility (US Equities) was up another +11% to 34.47 (taking the cumulative rip in Bernanke’s “price stability” since April to +130%!)
  9. Long-term US Treasuries rose again as 10-year yields dropped to 1.96%
  10. Yield Spread (10s minus 2s) compressed by another 4 basis points week-over-week to 169bps wide

Dead cats bounce.


That would be a polite way of putting it actually. Last week was the worst week for US stocks during a Thanksgiving week since 1932 (not a good historical reference point, fyi).


In a world dominated by Keynesian policy makers perpetuating immediate to intermediate-term price moves in their respective fiat currencies, what we have left is called Correlation Risk.


The Correlation Crash (one of our 3 Global Macro Themes for Q4 alongside King Dollar and Eurocrat Bazooka) is born out of what the world’s fiat reserve currency (US Dollar) does relative to everything else.


If you get the US Dollar right, you’ll likely get mostly everything else right.


To be clear, correlations, like political careers, are not perpetual. So don’t expect this to stay with you for the rest of your born life. Just expect to have to deal with its implications in your portfolio again today.


Today’s immediate-term TRADE inverse-correlations to the US Dollar Index are as follows:

  1. US Stocks (SP500) = -0.94%
  2. European Stocks (EuroStoxx) = -0.94%
  3. Commodities (CRB Index) = -0.87%
  4. Bond Yields (UST 10yr) = -0.81%

Now if you are still using a static Marshallian or Keynesian economic model to manage risk, you’re probably not too happy with your 2011. What you should have done in the last 4 years is use this tremendous learning opportunity to evolve your risk management process into a dynamic one – a process that embraces the uncertainty associated with a Globally Interconnected Market’s last price.


Today’s uncertainty leads me toward one question – can this EUR/USD bounce extend itself this week so that the following immediate-term TRADE and TREND lines of resistance are overcome:

  1. SP500 1203 (TREND)
  2. Germany’s DAX 5893 (TREND)
  3. France’s CAC 3089 (TRADE)
  4. Italy’s MIB 15135 (TRADE)
  5. Hang Seng 19443 (TREND)
  6. Shanghai Composite 2449 (TRADE)
  7. Japan’s Nikkei 8601 (TRADE)
  8. Brent Oil $110.61 (TREND)
  9. Gold $1726 (TRADE)
  10. Copper $3.45 (TRADE)
  11. UST 10-year yield 2.12% (TRADE)
  12. EUR/USD $1.37 (TRADE)

I know. Those are a lot of lines and a lot of durations. But that’s the point about Dynamic Risk Management – its construction needs to be multi-factor and multi-duration. And its principles need to adhere to one of the greatest mathematical discoveries since relativity (Chaos Theory).


“… just as Darwin had swept aside traditional with evolutionary biology” (Grand Pursuit, page 177), I’m very comfortable climbing Schumpeter’s ladder of creative destruction on Old Wall Street this morning. Change is good.


My immediate-term support and resistance ranges for Gold, Brent Oil, France’s CAC40, and the SP500 are now $1656-1726, 104.65-109.39, 2755-3071, and 1143-1195, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Dynamic Risk Management - Chart of the Day


Dynamic Risk Management - Virtual Portfolio

Melting Savings

“He saw his parents’ savings melt away.”

-Nicholas Wapshott


Yesterday was not a good day for me. You couldn’t have had a good day if you were having a good month.


Yesterday was not a good day for American, German, or British people who have savings accounts either. That’s what centrally planned policies to inflate do – they punish the conservative saver. They pay the debtor.


Bernanke gets that and so do The German People who are paying the German Government to lend Germany money this morning (short-term yields on German Bunds have gone negative). I guess the upside to the Bernanke model is that 3-month US Treasuries are yielding 0.00%. That way no one wins or loses. Fair share “free-market” capitalism baby.


The aforementioned quote comes from a book I cracked open this past weekend by Nichalas Wapshott titled “Keynes vs Hayek.” Plenty of people have written on this topic since the debate between the two schools of thought emerged in the 1920s. Wapshott’s is the most recent. So far, it’s a healthy reminder of how history rhymes.


I fundamentally believe it’s very difficult for a human being not to superimpose his or her personal experiences in life into the passions of their opinions. Call it context or perspective – it’s all one and the same thing to me. If you’ve studied enough economic history, you provide yourself an opportunity to walk down life’s path in other people’s shoes.


Keynes was born into a British family of the academic elite who found himself scaling the wall of the Ivory Tower by the time he was in his teens, whereas Hayek was more of a commoner solider “in the Austrian army on the Italian front who returned to find his home city of Vienna devastated and its people’s confidence broken.” (Wapshott)


“The Austrians mostly read English and were conversant if not persuaded by the English tradition; the English on the whole could not read German and largely ignored the works of Austrian and German theorists.” (Wapshott)


Hayek wasn’t an elite student. He actually didn’t start studying the “political economy” (reading Marshalian and Keynesian economics) until he went to war. Eventually, his views came to be shaped by his personal experience (inflation melted his parents savings away). His critique of an inconclusive social science experiment (Keynesian Economics) remains as relevant today was it was in the 1920s.


It’s a good thing Einstein figured out how to communicate in English.


Back to the Global Macro Grind


My introduction this morning isn’t meant to proclaim my mystery of Hayekian faith. I’m not a Republican or a Democrat. I’m not a Keynesian, and I’m not a Hayekian. My name is Keith McCullough and I do my own work.


I do not believe that policies to A) Inflate B) Pile-debt-upon-debt, or C) Bailout losers, is the long-term path to American economic prosperity.


To the contrary, I think debauching the US Dollar does exactly what it did yesterday - it stimulates inflation in asset prices and, as a result, slows Consumption Growth.


US GDP = 71% Consumption Growth.


Last time Brent Oil prices spiked like this, US GDP Growth slowed to 0.36% (Q1 of this year). And while that seems like a long time ago versus yesterday’s no-volume stock market reflation, that is not something I am going to let the Keynesians forget.


It’s the Policy To Inflate, Stupid.


As the US Dollar strengthened throughout Q2 and Q3, we saw some Deflation of The Inflation and, presto! US GDP growth recovered sequentially:

  1. Q111 US GDP Growth = 0.36%
  2. Q211 US GDP Growth = +1.34%
  3. Q311 US GDP Growth = +2.01%

The interconnectedness doesn’t lie; central planners do.


And no, I don’t feel shame in calling out these policies to inflate as stupid. Forrest Gump could tell you that stupid is as stupid does too. And there are a lot of “smart” people in the Ivory Towers of Keynesian economic forecasting that don’t look so smart anymore.


The economy is a globally interconnected ecosystem that could not care less about the short-term “political economy” of a few European bankers yesterday who begged Bernanke for a bailout.


The Global Economy of supply and demand ticks on this morning (in real-time):

  1. China reported their lowest level of manufacturing (PMI) strength since 2009 (47.7 for NOV PMI vs 50.4 OCT)
  2. Britain reported their lowest level of manufacturing (PMI) since June of 2009
  3. South Korea reported a 3-month high in inflation (CPI) of 4.2% NOV vs +3.6% OCT

Growth Slowing and Inflation Rising. Do the Keynesians get it? They will when they see Q4 US GDP Growth Slow, sequentially, again like it did in Q1 as Consumption Growth slows.


In the meantime, while there seems to be a language barrier between Mr. Macro Market’s real-time messaging and the Fed’s central mandate for “full employment and price stability”, the common man’s savings are being melted away as the precious few pander to their banking losses being saved.


My immediate-term support and resistance levels for Gold (back above $1736 TRADE support), Brent Oil (Bullish Formation), France’s CAC40 (Bearish Formation), and the SP500 (bullish TRADE; bearish TAIL) are now $1, $109.42-111.37, 3074-3208, and 1, respectively.


Best of luck out there in December,



Keith R. McCullough
Chief Executive Officer


Melting Savings - Chart of the Day


Melting Savings - Virtual Portfolio

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.