UA: Great Early Read


Conclusion: A great print from UA. One of the few companies to up guidance without any mention of the words  economy’, ‘slowdown’ or ‘headwinds’. We were concerned about a potential CMG scenario headed into this print and hedged our positive TAIL exposure. That caution was misplaced.

  • Great, clean quarter from UA – definitely did not pull a CMG or NKE, which was a distinct possibility.
  • Revenue was in-line with our estimate of 28% growth – 600bp better than the Street.
  • To our surprise, there were literally no cautionary statements thrown out by management about economic headwinds. In fairness (and in irony), part of UA’s resilience is due to its own failure to penetrate International markets to date. But regardless, the lack of any form of caution is clearly noteworthy. International remains only 5.6% of sales, down slightly from 1Q and up 80bps from ly.
  • Direct to consumer revenue is up to 29%. Nike is drooling over this staggering statistic. This is a stealth part of this story that people are not focused enough on.
  • The company is maintaining its 300bp-500bp estimate for EBIT growth above revenue growth – but on a 200bp-300bp better top line growth rate (22%-24%).
  • UA took up the year by $20mm in revenue guidance, despite beating 2Q by $12mm. Granted, it did not provide this 2Q guidance. So for all we know the consensus simply printed a number below a conservative plan. But still, this delta is notable.
  • Footwear came in guardedly positive. Top-line growth was 44%, but the 2-year comp accelerated by 16 points to 37%.
  • The balance sheet clearly improved, with the sales/inventory spread poking its head in positive territory for the first time in 7 quarters, which is gross-margin bullish for 2H.
  • Tough to poke holes in this one.


UA: Great Early Read - UA SIGMA


Lie To Us

This note was originally published at 8am on July 10, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“The average person lies 3 times for every 10 minutes of conversation.”

-Dr. Cal Lightman


Most recently, I have thrown a little spice into my life – staying up past 10PM, watching some Netflix. Since I generally don’t watch TV, the whole experience of viewing something that’s not on mute has been exhilarating.


This past week while on vacation, I stumbled upon a crime mini-series called “Lie To Me.” Dr. Cal Lightman (Tim Roth) is the star of the show. He runs a firm called The Lightman Group where, through the study of micro-expressions, body language, etc., his team’s job is to figure out when people are lying.


I loved the premise of the show because it’s all about something our head of Healthcare Research, Tom Tobin, and I have been studying since at least 2003 – liars. Formally, it’s called Kinesics. And, if you take some time to embrace its principles, it won’t take you long to figure out when a central planner or banker is probably lying.


Back to the Global Macro Grind


Fiction or non? This morning’s Global Macro news-flow had 2 different lines of storytelling:

  1. Pre-4AM US Futures down 6 handles on a bad start to US earnings season, Patriot Coal (PCX) filing for bankruptcy, and Chinese import growth continuing to slow.
  2. Post 5AM US Futures up 5 handles on Spain getting a re-do (almost as popular as getting a sticker for trying hard) on the timing of its bank bailout and Barclays execs lying on TV.

Ok, maybe these guys aren’t lying. Maybe they are just fibbing. Or, maybe, they aren’t lying to themselves as they (internally) attempt to define the difference between what Barclays Chairman, Marcus Agius, called the “difference between culpability and responsibility.”


You see, when deciding what ex-Barclays CEO, Bob Diamond, should be paid on the way out ($100M or $3M? What’s a few million, amongst friends?), you wouldn’t want things like the Sherman Act or a US criminal investigation to get in way of who has already greased whom in British politics.


Downward and upward we go.


Whether we are lying to ourselves or not that the bull case at this point isn’t bailouts, we have ourselves a classic Bull/Bear debate brewing that boils down to 1 very simple risk management question:


Is Global #GrowthSlowing fully priced into corporate earnings, or not?


From a long-term investor’s perspective, Kinesics (and a little probability based math) will help us start to answer this question. In trying to deduce the probability of whether or not the “earnings are great” bulls are lying to themselves, a picture will be more effective than prose.


In today’s Chart of The Day, our jedi Hedgeye mean reversion analyst from the Yale Shiller School of long-term cycles shows you all you need to know about where US corporate profit margins are in the context of long-term history.


In other words (sorry, had to use some words), if Global #GrowthSlowing continues, the longest of long-term corporate profit margin cycle peak is probably in.




If you are buying stocks based on the premise that they are “cheap” (based on the wrong sales, margins, and earnings expectations), you are lying to yourself. Cheap, when using the right numbers, gets a lot cheaper.


To be clear, I’m not calling everyone a liar. To the contrary, if Dr. Lightman is right (and if you read this far in 10 minutes), you could accuse me of lying at least 3 times already.


But just because most politicians get paid to Lie To Us, that doesn’t mean I’ve been lying to you about #GrowthSlowing too. My team has been storytelling about that, since March.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1551-1599, $96.76-103.07, $82.49-83.47, $1.22-1.24, 6675-7361, and 1330-1359, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer




Lie To Us - Virtual Portfolio


TODAY’S S&P 500 SET-UP – July 24, 2012

As we look at today’s set up for the S&P 500, the range is 25 points or -1.45% downside to 1331 and 0.41% upside to 1356. 











  • ADVANCE/DECLINE LINE: on 07/23 NYSE -1601
    • Down versus the prior day’s trading of -1007
  • VOLUME: on 07/23 NYSE 742.90
    • Decrease versus prior day’s trading of -25.90%
  • VIX:  as of 07/23 was at 18.62
    • Increase versus most recent day’s trading of 14.44%
    • Year-to-date decrease of -20.43%
  • SPX PUT/CALL RATIO: as of 07/23 closed at 1.23
    • Down from the day prior at 1.99 


  • TED SPREAD: as of this morning 36
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.43%
    • Unchanged from prior day’s trading
  • YIELD CURVE: as of this morning 1.22
    • Unchanged from prior day’s trading

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am/8:55am: ICSC/Redbook retail sales
  • 8:45am: Fed’s Bernanke speaks to the Children’s Defense Fund National Conference on early childhood education via prerecorded video
  • 10am: Markit US PMI Preliminary, July, est. 52 (prior 52.9)
  • 10am: Richmond Fed Manuf Index, July, est. -1 (prior -3)
  • 10am: FHFA House Price Index M/m, May, est. 0.4% (prior 0.8%
  • 11am: Fed to purchase $1.5b-$2b notes due 2/15/36-5/15/42
  • 11:30am: U.S. to sell 4-wk, 52-wk bills
  • 1pm: U.S. to sell $35b 2-yr notes
  • 4:30pm: API inventories 


    • House, Senate in session
    • Senate hearing on consumer impact of broadcast-cable disputes: CBS, TWC
    • Senate Judiciary holds hearing on super PACs, 2:30pm
    • Senate Energy holds hearing on natural gas and transportation, 10am
    • House Energy hears from Chairman Allison Macfarlane, three NRC commissioners at oversight hearing, 10am
    • House Financial Services’ Consumer Credit subcommittee hearing on legislation to create a federal charter for non- depository lenders, 10am
    • House Financial Services Insurance Subcommittee hearing on Dodd-Frank Act’s impact on insurance industry, 2pm
    • Senate Banking Subcommittee on Financial Institutions and Consumer Protection holds hearing “Private Student Loans: Providing Flexibility and Opportunity to Borrowers;” Sallie Mae President Jack Remondi to testify, 2:30pm
    • NHTSA hearing on proposal to mandate anti-rollover technology in heavy-duty trucks, 10am
    • U.S. Chemical Safety Board releases preliminary findings from the investigation into BP’s 2010 Macondo well explosion in the Gulf of Mexico, 9:05am
    • International Swaps and Derivatives Association holds a Dodd-Frank Transaction Reporting Conference to review requirements’ impact on participants in the $648t global swaps market, 8:15am in New York
    • CFA exam level I & II results are e-mailed after 9am 


  • Germany pushes back after Moody’s lowers rating outlooks
  • Goldman Sachs, Bain Capital and Carlyle urged federal judge to dismiss lawsuit accusing largest investment banks, P/E firms of conspiring to rig bids on leveraged buyouts
  • Treasury Secretary Timothy Geithner said President Obama “absolutely committed” to letting tax cuts for wealthiest Americans expire as scheduled, in interview on “Charlie Rose” show yesterday
  • Apple lost Dusseldorf appeals court bid to ban sales of Samsung Electronics’s Galaxy 10.1N tablet computer
  • Rosneft starts talks with BP on buying stake in Russia venture
  • Compensation consultant to Best Buy’s board quit after company awarded more than 100 managers retention bonuses without tying them to performance
  • China manufacturing gauge shows slowdown may be ebbing
  • Spain’s borrowing costs rise at 3-mo. bill auction
  • Home values posted first Y/y increase since 2007 in 2Q as U.S. property market began to lift off bottom, Zillow said
  • Apple plans to send security manager to Black Hat USA 2012 to discuss iPhone, iPad, making first appearance at one of the hacking world’s largest conferences
  • U.S. Chemical Safety Board releases preliminary results from BP/Macondo investigation 


    • Spirit Airlines (SAVE)  5:45am, $0.47
    • RF Micro Devices (RFMD) 4pm, $0.01
    • Whirlpool (WHR) 6am, $1.69
    • Total System Services (TSS) 4pm, $0.32
    • EI du Pont de Nemours (DD) 6am, $1.46
    • FMC Technologies (FTI) 4pm, $0.48
    • Polaris Industries (PII) 6am, $0.91
    • Edwards Lifesciences (EW) 4pm, $0.65
    • Synovus Financial (SNV) 6am, $0.02
    • Buffalo Wild Wings (BWLD) 4pm , $0.68
    • Centene Corp (CNC) 6am, $(0.10)
    • Panera Bread (PNRA) 4pm, $1.43
    • NorthWestern (NWE) 6am, $0.29
    • Hatteras Financial (HTS)  4pm, $0.89
    • Potlatch (PCH) 6:45am, $0.09
    • Robert Half International (RHI) 4pm, $0.35
    • Rogers Communications (RCI/B CN) 6:47am, C$0.86
    • Norfolk Southern (NSC) 4:01pm, $1.53
    • Altria Group (MO) 6:58am, $0.57
    • Nabors Industries (NBR) 4:01pm, $0.37
    • Reynolds American (RAI) 6:58am, $0.76
    • Illumina (ILMN) 4:01pm, $0.37
    • EMC (EMC) 7am, $0.39
    • American Campus Com. (ACC) 4:01pm, $0.49
    • Simon Property Group (SPG) 7am, $1.81
    • Ezcorp (EZPW) 4:01pm, $0.62
    • Biogen Idec (BIIB) 7am, $1.56
    • Questcor Pharmaceuticals(QCOR) 4:02pm, $0.65
    • Lexmark International (LXK) 7am, $0.88
    • Thoratec (THOR)  4:02pm, $0.44
    • Penn National Gaming (PENN) 7am, $0.64
    • TripAdvisor (TRIP) 4:03pm, $0.41
    • Western Union (WU) 7am, $0.43
    • Broadcom (BRCM) 4:05pm, $0.67
    • Ametek (AME) 7am, $0.46
    • Netflix (NFLX) 4:05pm, $0.05
    • Regions Financial (RF) 7am, $0.14
    • Juniper Networks (JNPR) 4:05pm, $0.16
    • Husky Energy (HSE CN) 7am, $0.36
    • Tempur-Pedic International (TPX) 4:05pm, $0.38
    • Under Armour (UA) 7am, $0.05
    • Riverbed Technology (RVBD) 4:05pm, $0.21
    • Pentair (PNR) 7am, $0.80
    • Polycom (PLCM) 4:05pm, $0.20
    • Waters (WAT) 7am, $1.16
    • Aflac (AFL) 4:07pm, $1.61
    • AT&T (T) 7:25am, $0.63
    • Compuware (CPWR) 4:13pm, $0.07
    • Rockwell Collins (COL) 7:30am, $1.15
    • Aaron’s Inc (AAN) 4:15pm, $0.47
    • Domino’s Pizza (DPZ) 7:30am, $0.46
    • CH Robinson Worldwide (CHRW) 4:15pm, $0.71
    • Anixter International Inc (AXE) 7:30am, $1.50
    • International Game Tech. (IGT) 4:15pm, $0.29
    • FirstMerit (FMER) 7:30pm, $0.28
    • Altera Corp (ALTR) 4:15pm, $0.39
    • PrivateBancorp (PVTB) 7:30am, $0.16
    • Cymer (CYMI) 4:25pm, $0.04
    • Lockheed Martin (LMT) 7:30am, $1.91
    • WR Berkley (WRB) 4:29pm, $0.61
    • United Parcel Service (UPS) 7:45am, $1.17
    • Apple (AAPL) 4:30pm, $10.37
    • Ryder System (R) 7:55am, $0.93
    • Unisys (UIS) 4:30pm, $0.51
    • Illinois Tool Works (ITW) 8am, $1.10
    • Trustmark (TRMK) 4:30pm, $0.44
    • Sigma-Aldrich (SIAL) 8am, $0.97
    • Linear Technology (LLTC) 5pm, $0.45
    • Paccar (PCAR) 8am, $0.81
    • (CTRP) 5pm, $0.20
    • Peabody Energy (BTU) 8am, $0.53
    • Range Resources (RRC) 5pm, $0.06
    • Six Flags Entertainment (SIX) 8am, $0.73
    • Bell Aliant (BA CN) 5pm, $0.43
    • Gentex (GNTX) 8am, $0.29
    • Acadia Realty Trust (AKR) 5pm, $0.24
    • Lennox International (LII) 8am, $0.96
    • Valmont Industries (VMI) 5:30pm , $2.16
    • Liberty Property Trust (LRY) 8am, $0.63
    • Cabot Oil & Gas (COG) 5:31pm, $0.06
    • Wabtec (WAB) 8:05am, $1.23
    • Suncor Energy (SU CN) After-mkt, $0.73
    • Avery Dennison (AVY) 8:30am, $0.54
    • Community Bank System (CBU) Aft-mkt, $0.50
    • Neogen (NEOG) 8:45am, $0.26
    • Newfield Exploration (NFX) Aft-mkt, $0.64
    • Carlisle (CSL) Bef-mkt, $1.28
    • UMB Financial (UMBF) Aft-mkt, $0.69
    • Jarden Corp (JAH) Bef-mkt, $1.10
    • Rock-Tenn (RKT) Aft-mkt, $1.02 



OIL – bearish TREND; bullish TRADE; we’ll stay short it with a wall of TREND line resistance up at $108.37 Brent. The only thing that can get US and Chinese Growth back on track is a sustainable drop in Brent back below $90. With Qe drug addictions in this market’s whisper, good luck with that. 

  • Europe Heat Wave Wilting Corn Adds to U.S. Drought: Commodities
  • China Ousts U.S. in Canada Oil Market With Bid for Nexen: Energy
  • Investors Plow Cash Into Crops as Gold Jilted: Chart of the Day
  • Crude Trades Near One-Week Low on Worsening European Crisis
  • Copper Seen Rising as China Factory Contraction May Be Slowing
  • Corn, Soybeans Tumble on European Risk, Forecast for Some Rains
  • LNG Goes Extra 9,800 Miles as Europe Spurs Record Rates: Freight
  • Cocoa Climbs on Speculation El Nino Will Cut Output; Sugar Falls
  • U.S. Gas Futures Near Seven-Month High on Warm Weather Forecasts
  • U.K. Natural Gas for Today Advances as Norwegian Imports Decline
  • Illinois Corn, Soy Yields Drop From 2011, Doane Crop Tour Shows
  • South Korea Buys 6,000 Tons of High-Grade Aluminum in Tenders
  • Cocoa Usage Seen Falling as Processors Erode World Butter Glut
  • Copper Gain Seen as New-Home Sales Spur Demand: Chart of the Day
  • Gold Set to Decline in London as Europe Concern Bolsters Dollar
  • Morgan Stanley Increases 2012 U.S. Gas Price Forecast by 14% 










GERMANY – for once we actually agree with a Moody’s move on the margin; Germany’s #GrowthSlowing slope has accelerated on the downside in the last 6 weeks, and that matters. This morning’s PMI print of 43.3 for July in Germany is an absolute bomb (45.0 in June) – German GDP growth could easily go negative y/y in Q3 (consensus has it up +0.5%).






HANG SENG – nasty 2-day 4% drop in a major leading indicator in our model that certainly trumps whatever flash there was in the made-up HSBC PMI print of 49.5; Hang Seng, like KOSPI, is now back into a Bearish Formation (both of these indexes have led the SP500 and German DAX since March, so watch them both closely – Asian Growth is Too Big to Bail).











The Hedgeye Macro Team


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Too Big To Bail

“It occurs at first very slowly, then all at once.”

-Ernest Hemingway


That’s what Hemingway said about going broke. That’s also what I said in response to my research team’s questions in the morning meeting yesterday about levered sovereign nations and their banks. From a time and price, this entire thing becomes Too Big To Bail. If it wasn’t, why are the Spaniards banning short selling?


But do people really believe they won’t be bailed out? Listening to the sad whisper of Qe Begging each and every market day, I’m not so sure. While the likes of Timmy Geithner may believe “deeply” that it would be “irresponsible” to not raise taxes, this economy is digging into a deepening hole that some of these banks may not be able to exit without the government’s hand.


But how many hands does the US government have? How many Spanish and Italian banks is Geithner going to have to attempt to bailout via the US tax payer backstopped IMF? How much time does the government have in a stagflating economy to bailout a domestic bank like Morgan Stanley? If it’s happening All At Once, neither you nor I know.


Back to the Global Macro Grind


As Keynesian central planners around the world continue to spin their wheels looking for the next “growth policy”, they continue to perpetuate #GrowthSlowing by piling more debt-upon-debt.


As Growth Slowing’s Slope accelerates on the downside, some of the few remaining leading indicators that were relatively stable for the last 6 weeks are now showing signs of the same economic gravity that has gripped them since March:

  1. Hong Kong’s Hang Seng Index – down -3.8% in the last 2-days has once again snapped intermediate-term TREND support
  2. Italy’s MIB Index – down -13% from its July high has snapped its YTD closing lows established at the end of May
  3. USA’s Russell 2000 – down -5% from its early July high has snapped both its TRADE and TREND lines of support

Oh snap.


All the while, some investors are obviously getting whipped around, buying high and shorting low. But that institutional performance chasing problem isn’t nearly as problematic as the causality driving the whip.


The worse the global economic data gets, the more Qe begging for bailouts the market hears. The more they beg, the more the government creates an expectation that they’ll be there to bail them out. These expectations are now in and of themselves becoming the market’s biggest risk.


Now, you could say that “growth expectations are low and stocks are cheap.” If I hear that a dozen times a day, I see it tweeted 100x over. So that’s consensus. It’s also what consensus has been saying since March. Growth continues to surprise on the downside and “cheap” stocks keep getting cheaper.


Looking at the Big Macro Data this morning, you can say whatever you want to say – but the data is the data:

  1. German PMI (manufacturing index) tanked in July at 43.3 versus 45.0 in June
  2. Chinese “flash” PMI rose in July from 48.2 to 49.5
  3. Brazilian inflation rose “surprisingly” on the mid-July reading back up to 5.2%

Hedgeye Playbook: get the slopes of Growth and Inflation right (sequentially) and you’ll get a lot of other things right:


1.   GROWTH: given that any PMI reading below 50 is just plain bad, you can call the growth data better than awful in China – but, at the same time, agree with Moody’s that Germany’s economic growth picture is, well, awful.


2.   INFLATION: that’s the most important Global Macro inflation data point we’ve had so far in July (primarily because it’s one of the few July numbers that have been reported!). This is the first sequential uptick in Brazilian inflation since September.


Does anyone remember September 2011? Ooh-lah-lah. Lots of bad stuff started happening to markets All At Once. In a #GrowthSlowing global economy, marginal food/energy price inflations also slow growth further.


Whether you go back to the July 2011 highs in stocks or commodities (and trace a draw-down line to the October lows), you’ll see the same thing. The world’s growth slowed, All At Once, after the Qe2 sponsored commodity price inflation shocks of July-August.


Now, I’ll be the first to agree, this is not 2011. This isn’t 2008 either. This Time Is Different! This is 2012. And, oh my, does the entire world have more sovereign and bank liquidity issues today than Lehman or Greece did in either of those periods. In 2012-2013, this globally interconnected web of debt, banks, and broken political promises might just be Too Big To Bail.


My immediate-term support and resistance risk ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Hang Seng, and the SP500 are now $1, $98.39-108.37, $83.22-83.98, $1.20-1.22, 184, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Too Big To Bail - Chart of the Day


Too Big To Bail - Virtual Portfolio

Where's The Growth?


Hedgeye Risk Management CEO Keith McCullough went on CNBC’s The Kudlow Report to discuss how getting the dollar right affects many other aspects of the market. A stronger dollar equates to lower prices at the pump and that’s something almost every American can get behind.


There are three major issues going on that have evaporated confidence from our capital markets. Growth continues to slow, abysmal job creation and the debate over the fiscal cliff continue to drag on. Luckily, there’s hope in the US Dollar (affectionately known as #KingDollar on Twitter).



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