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LIZ: Quick Hit


Top-line trends look good in LIZ’s 1Q results with earnings coming in shy by a dime due to less aggressive cost reduction measures. Kate came in stronger than expected reaccelerating underlying 2-year comps reflecting in part the added holiday boost and management reaffirming F12 EBITDA targets. The story is pressing forward here…


Some additional callouts:


-          Brands Comp Trends:

    • Kate came in strong up +38% in 1Q posting a +73% comp in March ahead of the high end of our expectations reflecting a sequential acceleration in the 2-year comp in both March and 1Q reflecting in part the added holiday boost.
    • Lucky comps came in up +21% - slightly below our expectations of +24%, but still well within the range we expected. 2Q will be the brand’s toughest compare of the year so we expect a deceleration in comps over the near-term and our modeling +12% for the year.
    • Juicy comps came in -4% as expected. I’m sure we’ll hear more about the latest line on the call, but sounds like early results are still positive.
    • The absence of an April comp update suggests that management will likely run through the impact of the holiday shift. As we highlighted in our preview, Lucky is likely running negative in April and Kate could be low double-digit to slightly negative even depending on the magnitude of the shift. This will be one of the key focuses of the call.

-          Outlook

    • F12 EBITDA targets of $125-$140mm were reaffirmed. The absence of a revision here is net positive given the company’s history.

-          Corporate Expense Initiative:

    • We expect more detail from Bill and the team regarding the timing of cost reductions. Aside from the April brand update, this is another key focus for the call, but given Q1 progress, we expect more aggressive cuts over the balance of the year.


We’ll have more after the call at 10am EST. The dial-in number is with pass code 72892664.


Casey Flavin




Credibility's War

This note was originally published at 8am on April 12, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Indeed, policies such as competitive currency devaluations risk unleashing a wave of destructive protectionism.”

-Dennis C. Blair, US Director of National Intelligence (February 2009)


On my flight back to New York last night I was reviewing my institutional client meetings in Denver and Kansas City and thought to myself, God help us all if Ben Bernanke continues to engage in this currency war against US Consumers and Savers.


Since the word war is not one you want to bark out loud on a US flight, I decided to keep it to myself and keep thinking. Jim Rickards’ recent book, Currency Wars, provides an excellent historical perspective on why using that word didn’t come out of thin air.


In addition to the aforementioned quote from the US Director of National Intelligence, Rickards starts Chapter 3 “Reflections on a Golden Age” (page 37) with the following quotes:

  1. “We’re in the midst of an international currency war.” –Guido Mantega, Finance Minister of Brazil (2010)
  2. I don’t like the expression currency war.” –Dominique Strauss-Khan, Managing Director IMF (2010)

Well, I don’t like DSK and I couldn’t care less what he, or any of his conflicted and compromised cronies of the Keynesian Kingdom, think about our expressions. American Patriots, Unite. We are fighting for the credibility of our currency.


Back to the Global Macro Grind


If there’s ever been a morning where the currency war is on the tape, it is this morning:


1.       FED – in a central planning speech in NYC last night, Bernanke’s pandering Fed Head from San Francisco, Janet Yellen, said “I consider a highly accommodative policy stance to be appropriate in present circumstances.”  (must be hard times at Facebook – great depressions perhaps in Southern California too?)


2.       BOJ – mincing zero words on currency war, the Bank of Japan’s equivalent of Bernanke, Masaaki Shirakawa, stated plainly that “The BOJ will pursue powerful easing.”


Powerful words from un-elected, but very powerful and politicized people.


The Japanese Yen, of course, went down on that – but the US Dollar didn’t. Why? That’s simple – this is war. As I am sure Einstein would agree, Credibility’s Currency War amidst the 3 major fiat currencies of the world (USD, EURO, YEN) is relative. For politicians at least, it’s a short-term race to the bottom.


Plenty of the Fed’s excuse makers say “there’s a difference between correlation and causality.” That must be a one-liner they are teaching at Western business schools or something because it certainly doesn’t apply to what’s actually going on in markets right now. We have plenty of causality (monetary policy) and plenty of correlation risk – ask anyone who trades in real-time.


A simple illustration of long-term causality is in our Chart of The Day. This is The Policy To Inflate Mechanism of Keynesians:

  1. 10-year chart of the Federal Reserve’s Balance Sheet (Total Assets/GDP)
  2. 10-year chart of the ECB’s Balance Sheet (Total Assets/GDP)
  3. 10-year chart of the Bank of Japan’s Balance Sheet (Total Assets/GDP)

What you’ll quickly notice in this chart is that one of these lines (Japan’s red line) is not like the others. That’s because Japan, under the un-qualified academic advice of Paul Krugman in 1997 to “Print Lots of Money”, actually listened to the Keynesian and went on, and on, and on with  “Quantitative Easing” until 2006.


Why did the BOJ stop printing money in 2006?


Take a wild guess. Because the said elixir of Quantitative Easing did not work.


Subsequent to 2006, both the ECB and Fed (the blue lines in the chart) decided to start acting Japanese, printing moneys in 2007 and 2008, respectively. Since then, the currency war between Europe and the United States of America has gone on, and on, and on.


The only people that I know that think this Keynesian experiment (with other people’s money) gone bad is going to ultimately end well are people who are paid to be willfully blind to its economic gravity.


To suggest that this 10-year chart of money printing and explicit Policies To Inflate has nothing to do with all-time record highs in food and energy prices (2008-2012) is a professional embarrassment.


If you want a solution to this Global Economic mess, it’s the Monetary Policy, Stupid. There has never been a country, in world history, that has debauched their currency’s credibility and achieved long-term economic prosperity.


So, next time you hear someone like Janet Yellen, Ben Bernanke, or some other conflicted and compromised European or Japanese politician tell you that this time is going to be different – please remind them, for the sake of our kids, that never is a long time.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), Euro/USD, and the SP500 are now $1618-1666, $119.04-122.64, $79.61-80.26, $80.03-83.12, $1.29-1.32, and 1355-1391, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Credibility's War - Chart of the Day


Credibility's War - Virtual Portfolio

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Loss of Confidence

“The failure of the Knickerbocker Trust was just the beginning of a more general loss of confidence.”

-Jim Rickards


Anyone who has been in this business for more than the last 5 years knows what the biggest problem is for the US stock market – confidence. The People do not trust the financial system and all of its central planning puppetry. Therefore, The People are not giving the asset management community the number one thing they want – fund flows.


No Confidence. No Flows. No Volume.


That’s not new this morning. Neither is the world’s reaction to the US Federal Reserve’s un-elected Central Planner in Chief’s Policy to debauch the US Dollar in a repeated, but fleeting, attempt to inflate stock and commodity prices.


Sure, the price of Oil and Gold are up on the Dollar Down move. But they are up less than they were on Bernanke’s moves to Qe1, Qe2, and Qe3 (Bernanke’s latest war on the American Consumer (and Saver), pushing 0% interest rates on fixed income savings accounts to 2014 was a hybrid Qe3). We don’t think he has an iQe4 upgrade in his bailout bag during the General Election debate.


The reason why I used another one of Jim Rickards’ quotes (page 49 of Currency Wars) this morning is that it’s a critical one to consider in terms of why the US Federal Reserve Act of 1913 was established in the first place.


I’ll let you read Rickards book to form your own opinion on this, but the upshot of the problem was that NYC bankers, traders, etc. have always had the same problem – at a point, they take on too much risk with other people’s money, and they blow up.


In any other business, you’d be accountable for those losses and your business would go away. Post the 1907 Crisis, when banks like Knickerbocker literally blew up, banking and capital markets related companies have worked very hard at making sure that they have an un-elected man at the Fed that they can both appoint and politicize for their own compensation purposes.


The Fed was created to bailout banks, not American consumers.


Back to the Global Macro Grind


While it’s both shocking and sad (but expected), Ben Bernanke was able to get through an entire press conference yesterday without mentioning the words “US DOLLAR.”  What might be an even more glaring national embarrassment was that not 1 American journalist asked him about it either.


For those of us who aren’t paid to be willfully blind, here’s how real-time market expectations work:

  1. The Fed’s Monetary Policy drives the direction of the US Dollar
  2. The US Dollar, since it’s the world’s reserve currency, drives real Dollar adjusted expectations in liquid asset prices
  3. The inflation or deflation of asset prices (commodities in particular) drives the slope of Global Consumption Growth

I have my B.A. in Keynesian Economics from Yale. I don’t need a Ph.d in that dogma to explain to me how obvious the relationship is between the US Dollar and its purchasing power. Try it with your own money at home – you’ll get the point.


Despite Spain crashing again (Spanish stocks down -22% since February), even the Euro is strong versus the US Dollar this morning. The #1 Most Read Headline on Bloomberg: “Bernanke Prepared To Do More.” And the US Dollar Index is down for the 6th out of the last 7 weeks.


Our models show that Global Consumption Growth has never NOT slowed with oil above $96/barrel. Pick your vintage, Brent or WTIC, last I checked nothing happened in Iran overnight either. Prices of $104 and $119 per barrel, respectively, don’t lie; politicians do.


Does money printing matter? Does the amount of Dollars (World Reserve Currency) matter relative to World Oil Reserves? Of course they do. In 1990 the ratio of US Money Supply (M3)/Proved Oil Reserves = 4.1x. Today, that ratio = 10.7x. Reversing this factor alone would get you $75-80 oil, and the 99% would love that.


Got 1990s? Look at our Chart of The Day, then pull up a long-term chart of Oil – and you’ll see what I mean by Loss of Confidence:

  1. US Consumer Confidence tracked between 80 and 140 during the 1990s (this week it hit 69.2 for April)
  2. US Dollar Index Averaged $92.93 during the 1 expansion (avg GDP was 3.84%, so demand did what to oil?)
  3. Average price per barrel of WTIC Oil during 1 expansion = $18.63/barrel (not a typo)

It’s the US Dollar Stupid. That’s what real people use when they buy gas at the pump. So, if you’re part of a Keynesian crack house in Washington that’s addicted to devaluing the credibility and currency of the American people, shame on you.


If you want to try the “counter factual”, get your conflicted and compromised Fed friends to raise interest rates on Sunday night and tell me how many call options on oil you want to buy in front of that.


If you want to tell me Oil is up because of Iran, show me something going on in Iran. If you want to tell me Oil is up because global demand is up, show me where growth isn’t slowing.


Show me something. But don’t show me another complete embarrassment like yesterday’s Fed Press Conference. The concept of “price stability” (Fed mandate) does include the currency in which prices are paid. The Loss of Confidence in this country is rightly placed.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $118.64-120.77, $78.97-79.44, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Loss of Confidence - Chart of the Day


Loss of Confidence - Virtual Portfolio


TODAY’S S&P 500 SET-UP – April 26, 2012

As we look at today’s set up for the S&P 500, the range is 17 points or -0.98% downside to 1377 and 0.24% upside to 1394. 












    • Up from the prior day’s trading of 1052
  • VOLUME: on 4/25 NYSE 822.21
    • Increase versus prior day’s trading of 9.32%
  • VIX:  as of 4/25 was at 16.82
    • Decrease versus most recent day’s trading of -7.07%
    • Year-to-date decrease of -28.12%
  • SPX PUT/CALL RATIO: as of 04/25 closed at 1.45
    • Down from the day prior at 2.67 


  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.96
    • Down from prior day’s trading of 1.98
  • YIELD CURVE: as of this morning 1.69
    • Decrease from prior day’s trading at 1.72 

MACRO DATA POINTS (Bloomberg Estimates):



  • 8:30am: Chicago Fed, March (prior -0.09)
  • 8:30am: Jobless Claims, wk of Apr. 21, est. 375k (prior 386k)
  • 9:45am: Bloomberg Consumer Comfort, wk of Apr. 22 (prior -31.4)
  • 10am: Freddie Mac 30-yr mortgage
  • 10am: Pending Home Sales (M/m), March, est. 1.0% (prior - 0.5%)
  • 10:30am: EIA natural gas
  • 11am: Kansas City Fed Manf. Activity, Apr., est 7 (prior 9)
  • 1pm: U.S. to sell $29b 7-yr notes 


  • House, Senate in session:
    • House Ways and Means subcommittee holds hearing on tax extenders, 10am
    • Senate Banking Committee hears from Housing Secretary Shaun Donovan on the budget for HUD, 10am
    • Joint Economic Committee holds hearing on gasoline prices, 2:15pm
    • Treasury Secretary Timothy Geithner speaks in S.F. about the global economy ahead of annual U.S.-China strategic talks, 4pm 


  • BlackRock said to plan to start a fund with China Investment Corp.
  • Sun Microsystems co-founder Scott McNealy set to testify in Oracle IP trial
  • Mitsubishi said to consider bid for Gavilon Group, joining companies interested in the U.S. grain handler
  • Arch Coal said to be seeking buyers for several of its thermal-coal mines in the U.S.
  • Spotify said to be developing a U.S. Internet radio service that would take on Pandora Media
  • Vivendi said to consider overhaul of company structure that may lead to breakup of company
  • AstraZeneca CEO David Brennan to retire, cut profit forecast
  • Euro-Area April economic confidence drops more than forecast
  • Global earnings: Deutsche Bank 1Q profit falls more than est.; Volkswagen 1Q operating profit beats 


    • Aetna (AET) 6am, $1.40
    • Ball (BLL) 6am, $0.59
    • Starwood Hotels & Resorts Worldwide (HOT) 6am, $0.52
    • Iron Mountain (IRM) 6am, $0.28
    • MetroPCS Communications (PCS) 6am, $0.17
    • Potash of Saskatchewan (POT CN) 6am, $0.64
    • Time Warner Cable (TWC) 6am, $1.25
    • Tyco International (TYC) 6am, $0.79
    • Whirlpool (WHR) 6am, $1.08
    • Patterson-UTI Energy (PTEN) 6am, $0.57
    • Bunge Ltd (BG) 6:30am, $1.17
    • Coca-Cola Enterprises (CCE) 6:30am, $0.33
    • Dow Chemical (DOW) 6:30am, $0.60
    • L-3 Communications Holdings (LLL) 6:30am, $1.87
    • Mylan (MYL) 6:30am, $0.50
    • PulteGroup (PHM) 6:30am, $(0.03)
    • AmerisourceBergen (ABC) 7am, $0.81
    • Ametek (AME) 7am, $0.65
    • Colgate-Palmolive (CL) 7am, $1.24
    • CME Group (CME) 7am, $4.01
    • CONSOL Energy (CNX) 7am, $0.58
    • Digital Realty Trust (DLR) 7am, $1.05
    • Entergy (ETR) 7am, $0.75
    • Fidelity National Information (FIS) 7am, $0.51
    • Interpublic Group (IPG) 7am, $(0.10)
    • Moody’s (MCO) 7am, $0.69
    • Altria Group (MO) 7am, $0.49
    • Omnicare (OCR) 7am, $0.77
    • PepsiCo (PEP) 7am, $0.67
    • Raytheon Co (RTN) 7am, $1.16
    • Tellabs (TLAB) 7am, $(0.03)
    • Xcel Energy (XEL) 7am, $0.37
    • Zimmer Holdings (ZMH) 7am, $1.30
    • Goodrich (GR) 7:25am, $1.65
    • Noble Energy (NBL) 7:28am, $1.42
    • Amylin Pharmaceuticals (AMLN) 7:30am, $(0.29)
    • Bristol-Myers Squibb Co (BMY) 7:30am, $0.64
    • Celgene (CELG) 7:30am, $1.13
    • CMS Energy (CMS) 7:30am, $0.41
    • Dominion Resources (D) 7:30am, $0.87
    • Invesco Ltd (IVZ) 7:30am, $0.44
    • JetBlue Airways (JBLU) 7:30am, $0.08
    • Lockheed Martin (LMT) 7:30am, $1.71
    • Mead Johnson Nutrition Co (MJN) 7:30am, $0.78
    • Occidental Petroleum (OXY) 7:30am, $1.92
    • Waste Management (WM) 7:30am, $0.40
    • United Continental Holdings (UAL) 7:30am, $(1.10)
    • Monster Worldwide (MWW) 7:35am, $0.03
    • United Parcel Service (UPS) 7:45am, $1.01
    • Liz Claiborne (LIZ) 7:51am, $(0.12)
    • Avnet (AVT) 8am, $0.99
    • BorgWarner (BWA) 8am, $1.29
    • Kellogg (K) 8am, $0.99
    • Exxon Mobil (XOM) 8:04am, $2.08
    • Cameron International (CAM) 8:10am, $0.55
    • Shoppers Drug Mart (SC CN) 8:28am, C$0.57
    • Vulcan Materials Co (VMC) 8:30am, $(0.44)
    • TransAlta (TA CN) 8:54am, C$0.23
    • Safeway (SWY) 9am, $0.30
    • Amazon.com (AMZN) 4pm, $0.07
    • Expedia (EXPE) 4pm, $0.14
    • Federated Investors (FII) 4pm, $0.39
    • Informatica (INFA) 4pm, $0.33
    • Maxim Integrated Products (MXIM) 4pm, $0.28
    • Principal Financial Group (PFG) 4pm, $0.74
    • Angie’s List (ANGI) 4pm, $(0.26)
    • Clearwire (CLWR) 4pm, $(0.40)
    • Vertex Pharmaceuticals (VRTX) 4pm, $0.53
    • Fortune Brands Home & Security (FBHS) 4:01pm, $0.03
    • Cerner (CERN) 4:01pm, $0.50
    • Axis Capital Holdings Ltd (AXS) 4:01pm, $1.09
    • Coinstar (CSTR) 4:01pm, $1.39
    • MetLife (MET) 4:03pm, $1.29
    • Starbucks (SBUX) 4:03pm, $0.39
    • VeriSign (VRSN) 4:04pm, $0.43
    • Cincinnati Financial (CINF) 4:05pm, $0.41
    • Gilead Sciences (GILD) 4:05pm, $0.93
    • Leggett & Platt (LEG) 4:05pm, $0.32
    • Republic Services (RSG) 4:05pm, $0.42
    • Validus Holdings Ltd (VR) 4:05pm, $0.70
    • Zynga (ZNGA) 4:05pm, $0.05
    • KLA-Tencor (KLAC) 4:15pm, $1.10
    • Western Digital (WDC) 4:15pm, $1.53
    • Eastman Chemical (EMN) 5:06pm, $1.14 


  • Mad Cow Case Seen as No Bar to Record Beef Exports: Commodities
  • Natural Gas to Climb as Goldman Sees Output Cuts: Energy Markets
  • Mexico Oil Opening First Time Since 1938 Shows Revival: Energy
  • Mitsubishi, Marubeni Said to Consider Offers for Gavilon
  • Copper Heads for Highest Close in Three Weeks on Supply Outlook
  • Aluminum Appliance Demand in China Little Changed This Year
  • Indonesia Halts U.S. Beef on Mad-Cow Disease, Minister Says
  • Gold Extends Advance on Optimism Fed to Do More to Spur Growth
  • India to Get Normal Monsoon Rain This Year, Weather Bureau Says
  • Farmers at Center of Mad Cow Probe Grumble Over Tainted Image
  • Corn Climbs on Signs of Increased China Demand; Soybeans Gain
  • Sugar Production in Pakistan Seen Climbing on Yields, Group Says
  • Palm Oil Declines as Higher Malaysian Output May Boost Supplies
  • China Said to Plan Increase in Rapeseed Prices to Spur Planting
  • Oil Trades Near Weekly High on Fed; Iran Considers Nuclear Halt
  • China to Phase Out 700,000 Tons of Outdated Copper Capacity





US Dollar – last we checked, nothing happened in Iran yesterday or on the demand side of oil other than the Buck Burning during Bernanke’s presser. This morning, you see the follow through on that as Oil and Gold push toward lower-highs.






EUROPE – 1-day squeeze and European Equities are reminded that AAPL isn’t in their indices; straight back down this morning with Spain crashing again (ie down -22% from the Feb top). DAX failing right at our intermediate-term TREND line of resistance (6688) and that’s probably the more important callout on the margin. UK has stagflation with $119/brent.






ASIA – you’d think Dollar Down = everything up, especially Tech related Asian Equity markets. Nope. Taiwan -0.55% and KOSPI up 0.1%; both remain bearish TRADE and TREND in our model which is interesting, to say the least. Hong Kong and Singapore Export demand is tanking y/y at -7% and -5% respectively for (March prints).










The Hedgeye Macro Team



Today’s upgrade of BWLD (by an analyst that made a superb call downgrading the company right at the top) centered on the conversation about chicken wing prices turning from “higher prices” to “lower prices” and the impact that would have.  In the same paragraph, in highlighting the sensitivity between the year-over-year change in wing prices and EPS, the report reminded us of the truth: cents per pound do not matter as much as year-over-year inflation for BWLD earnings.


Another notion supported by the upgrade was that egg sets and chick placements are lapping last year’s decline and, therefore, are likely to be supportive of moderating wing prices.  That may be true but, pertaining to BWLD; the question is whether or not it will come soon enough to save 2Q.  For two reasons, we do not think it will.

  1. Egg sets will likely not increase, year-over-year, until the last week of the second quarter even under aggressive assumptions. 
  2. Even if we are wrong on #1, the actual supply of chicken does not influence the market for two months.  Egg sets being placed today reflect chickens that will hit the market in the last days of 2Q.  Demand in the summer months is also expected to be strong, according to SAFM. 

Conversation about chicken wing prices moving lower will not change the likelihood that BWLD misses 2Q as costs increase as a percentage of sales and comps decelerate sequentially.  As the chart below illustrates, as of 4/20, the leading indicator of supply – egg sets – is declining ~5% year-over-year.  We expect that line to remain negative through June.


BWLD & WEEKLY COMMODITY MONITOR - egg sets wing prices




Overall, proteins moved lower last week while grains, dairy, and coffee moved higher.  Beef prices were hit by the BSE news but it seems that the livestock disease “firewall” in the U.S. food system was effective.  Larry Hollis, beef veterinarian at K-State, commented on CattleNetwork that the particular strain of BSE that was detected in the animal in question is unlikely to involve any transmission to another animal or consumers.  The condition did not, apparently, arise from any feed but rather was naturally occurring and the “firewall” procedures in place worked well to identify this one instance. 


Coinciding with the concern around “pink slime” or Lean Finely Textured Beef, the news was certainly not positive for beef prices.  The market today seemed to reflect a degree of stability in beef prices.  Japan, Canada, and the European Union today said that they’ll continue to import American beef.






















BWLD & WEEKLY COMMODITY MONITOR - chicken whole breast









Howard Penney

Managing Director


Rory Green





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