The Economic Data calendar for the week of the 26th of December through the 30th 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.
Over the past 20 years, NKE has outperformed the S&P500 in 9 out of the 10 Olympic event years by an average spread of ~18%. More importantly, Nike has shown stronger gains relative to the S&P in Summer Olympic years, a la London, vs. Winter years.
Our call on Nike goes far beyond a single sporting event. In addition, my view is that once someone holds up a chart like the one below, the ‘trade’ is known and should therefore cease to exist.
But as much as we hold on to such logic, we cannot argue with math. The math here is very clear.
Positions in Europe: Short France (EWQ)
Asset Class Performance:
The European week was dominated by one major theme: the ECB’s LTRO
While on Tuesday European equity markets ripped ahead of Wednesday’s opening of the ECB’s first 3YR Long Term Refinancing Operation (LTRO) facility, with 523 banks taking up €489 billion in loans at 1% (vs initial estimates of €293B from Bloomberg and €310B from Reuters), European equities turned down on Wednesday and sovereign yields actually increased day-over-day, an indication to us that the LTRO will not be the panacea that the market had hope for. What a difference a day makes! (For more see our note on 12/21 titled “Optimism Is Over Ski Tips On LTRO”). Key points include:
Interest Rate Decisions:
(12/20) Riksbank Interest Rate CUT 25bps to 1.75%
(12/20) Hungary Base Rate HIKE 50bps to 7.00%
(12/21) Czech Republic Repo Rate UNCH at 0.75%
(12/22) Turkey Benchmark Interest Rate UNCH at 5.75%
(12/23) Russia Refinancing Rate CUT 25bps to 8.00%
Chart of the Week:
-Below we show Consumer Confidence from the countries reporting data this week. Of note is that while we are getting some slowing in the declines month-over-month (Germany here shows positive divergence), we’d expect confidence to continue to wane alongside the uncertainty on Eurocrat actions to reduce sovereign and banking risk.
CDS Risk Monitor:
-On a w/w basis, CDS was largely down across the periphery. Italy saw the largest pullback at -32bps, followed by Spain (-18bps) and Ireland (-11bps). On a m/m basis, Spanish CDS is down -95bps and Italian CDS is down -57bps.
-Our position remains unchanged week-over-week: we’d short the cross at $1.33 for an immediate term TRADE. The EUR/USD remains broken long term TAIL ($1.40) and intermediate term TREND ($1.42) in our models and we think the lack of resolve from the newest proposals for a fiscal union will encourage greater downside.
The European Week Ahead:
Sunday: European Bank capital raising “plans” due for meeting 106 Billion EUR target
Monday: Nov. France Total Jobseekers and Net Change
Tuesday: Dec. Finland and Czech Republic Consumer/Business Confidence
Wednesday: Dec. UK Nationwide House Prices (Dec 28-30th); Q3 Russian Current Account (Dec 28-31st)
Thursday: Nov. Eurozone Money Supply; Dec. German Consumer Price Index – Preliminary; Dec. Italian Consumer Confidence; Q3 Hungarian Current Account; Q3 Ukraine’s GDP – Final
Friday: Nov. German Retail Sales; Q3 BoE Housing Equity Withdrawal; Nov. Italian PPI; Dec. Spain’s Consumer Price Index – Preliminary
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“Big money got a heavy hand, Big money take control, Big money got a mean streak, Big money got no soul...” Neil Peart
Big money is underweight Wal-Mart, just as the company is on the tail end of a multi-year comp slump, that we think has bottomed. In fact, based on the Hedgeye Retail Sentiment Monitor (see chart below), WMT’s current score of 69 is at its lowest level in over four years – and has declined from 94 at this time last year.
We’re rarely going to make a sentiment call (it’s just not what we do), but when the fundamentals are improving, returns are inflecting and it’s not represented in sentiment, we definitely pay attention.
We think that Wal-Mart is outperforming this holiday. That’s in part because of a turnaround in its merchandise strategy from last year where the only category that comped positive was food, and also due to the layaway plan, which helps 4Q (even if a product was laid away in 3Q). But we also think that Wal-Mart will be among the biggest beneficiaries of our Macro team’s King Dollar theme, which calls for Consumption to follow the stronger dollar, with commodity prices easing on the margin.
In that regard, we can reasonably quantify how underowned WMT actually is by looking at public disclosure of its shareholder list. The bottom line is that when people (especially big long only money) realize that they need to at least get equal weight WMT, we think that roughly 6% of the float will need to trade hands. They’ll be competing with WMT, which will also be in the market buying 5-6% of its stock.
Here’s our math…
The S&P uses a float adjusted Market Cap re the sizing of S&P 500 components. With a float adjusted market cap of $104Bn, WMT accounts for 0.95% of the S&P500, which has a float adjusted market cap of $10.9T.
Looking at the top shareholders of WMT by AUM (not top holders), only 12 of the top 50 own enough of the stock to be considered equal weight or over-weight the stock relative to its representative weighting in the S&P.
Among the Top 80% of funds that currently own WMT as ranked by AUM, WMT accounts for only 0.39% of the average portfolio – over $6Bn shy of what this sample alone would need to acquire in order to be equal weight, or ~6% of the float. Given that our analysis does not account for the funds that don’t have a position in WMT at all, this figure actually understates what true demand in the market would ultimately be.
The following table of Top 50 shareholders by AUM is purely based on SEC filings:
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