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NKE: Building An Olympian

NKE: Building An Olympian - usgym nike



The XXX Olympics have been exhilarating to watch, make no mistake about it. It is currently beating out the 2008 Beijing Olympics with ease. It’s also the premier event to put advertising dollars to work and to generate buzz around new products. At the forefront of the marketing blitz is Nike (NKE).


With nearly every top notch/famous athlete that’s competing using Nike, there’s room for all sorts of marketing and advertising from Nike. We believe that two specific campaigns, both from Nike, are going to make a massive impact on the public.



NKE: Building An Olympian - nike VOLTbest



The first campaign is a bit on the subliminal side. If you’ve noticed - Hedgeye Retail Sector Head Brian McGough did during the first week of the games – nearly every team are wearing bright, neon green Nike shoes. Known as the Volt line of footwear, this is the shoe uses Nike’s new FlyKnit technology and go for about $150 a pair and everybody seems to love them. It didn’t hurt that Michael Phelps chose to wear them for his interview with Bob Costas on NBC this past Sunday. With Phelps’ massive size and contrasting black pant, you couldn’t help but stare at the shoes. See below for a screenshot.


NKE: Building An Olympian - michael phelps and bob costas


Speaking of Phelps, this brings us to our second marketing campaign that Nike uses: building an organic brand around an athlete.


Any company can throw some clothes and a check at an athlete, hope they perform and walk away. That’s simple and doesn’t resonate as much with its consumer base. What you need is something emotional and outstanding. Per Brian McGough:


The best brands will take the stories that inevitably rise from performance (in this case, the Olympic Games), and craft stories around key athletes to create an emotional connection to the consumer AFTER the fact. When Liu Xiang, the Michael Phelps of China (he won the gold medal on the 100m hurdles eight years ago in Athens – an unprecedented feat for the Chinese) dropped out of the race last minute due to injury on his home turf in 2008, Nike turned the disappointment upside down, and created a marketing message that made consumers sympathize with the rigors of training at such a high level for one’s country.”


The result? Running revenue accelerated in China. Building brands is important for business; how you do it is everything.

You Can’t Sugarcoat It

You Can’t Sugarcoat It






The bulls enjoyed their high-fiving of 1400 on the S&P 500 yesterday. That’s fine, but we’ve got two indicators that are cause for concern. Going back to the VIX, it’s about to seriously test our long-term TAIL support level of 14-15. With the VIX this low, you can expect the market to break down soon. The second indicator is the Bull/Bear Spread spiking back up to +1810bps wide to the bull side. Bears have been eviscerated from the spread, down to 25.5% vs 27.7% last week. A change is coming soon and the futures dropping well below that coveted 1400 level is key. If we drop below 1381, watch out for a bumpy ride.




There’s a problem going on in Britain right now – three to be exact. Standard Chartered is at risk of losing its New York banking license due to this Iranian money laundering scandal that broke this week, HSBC is dealing with a similar money laundering issue and Barclays is still wrangling with the LIBOR scandal. There’s now a rift being created between regulators and politicians in the United States and Great Britain. Expect further witch hunts down the road as we prepare to investigate one another’s banking institutions.







 Cash:               DOWN                           U.S. Equities:    Flat


 Int'l Equities:   Flat                                Commodities:    Flat


 Fixed Income:  UP                                Int'l Currencies: Flat









This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

  • TAIL:      LONG            



The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TAIL:      LONG  






“@KeithMcCullough you guys killed it short side with $mcd $coh $rl, congrats” -@lipscrl




“A lifetime is more than sufficiently long for people to get what there is of it wrong.” – Piet Hein




Market expects Chinese corn production to rise Friday to 197-200mmt vs 195mmt last month.





Priceline and Orbitz are down pre-market 16% and 9%, respectively.



We'll have more analysis on this later but PCLN and OWW are getting crushed pre-market as bookings and other leisure travel metrics are worse than expected.  Commentary from these online travel companies do not exactly corroborate MGM management's commentary that, "We've already seen an improvement in customer trends here in the third quarter."


MGM's stock popped yesterday on an in-line quarter and the positive forward looking commentary (post June).  That looks like some commentary that should be faded.  We remain below the Street for 2012 and 2013 MGM EBITDA - 2% and 11% lower than consensus. 

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

CHART OF THE DAY: Magnificent Investing


CHART OF THE DAY: Magnificent Investing - Chart of the Day

Magnificent Investing

“Another thing that freaks me out is time.  Time is like a book.  You have a beginning, a middle and an end. It’s just a cycle.”

-Mike Tyson


This week I enjoyed a few days off in the Banff and Lake Louise region of Alberta in the heart of the Canadian Rockies.  As part of my tour, I hiked up to view the Takakkaw Falls in Yoho National Park.  The falls are the second highest natural falls in Canada at 245 metres.  In Cree, the word Takkakaw is loosely translated to mean “it is magnificent” and is an apt description of this natural wonder.


Interestingly, while much of North American is being adversely impacted by record hot temperatures, Western Canada seems to be thriving.  Specifically, the crops appear to be in excellent condition.  In fact, the Canadian Wheat Board issued its first crop outlook for the 2012 – 2013 season and in it said the following:


“Wheat fundamentals are favorable to prices. World wheat production is forecast to fall by over 40 million tonnes to 646 million tonnes.  A weather-related shortfall in Russia, Ukraine, and Kazakhstan is the main driver behind the global production decline. The U.S. corn belt has been hit by a severe drought, resulting in dramatic declines in corn and soybean production potential.”


We Canadians are known for our subtleness and this report from the Canadian Wheat Board is no exception.  To translate: it is going to be a record year for Canadian farmers because of shortage of supply of both wheat and corn globally.  This shortage of supply is primarily being supported by drought like conditions in both the U.S. and key growing areas in Europe. As a result, many agricultural commodity prices have been in a mini bull market.  As an example, the corn ETF, aptly named CORN, is up more than 50% in the last two months. Being on the right side of a trade like this is what I would call: Magnificent Investing.


Personally, I haven’t studied global warming enough to either be a proponent or opponent, although this year certainly gives some credence to the concept. That said, Keith and I have at times discussed our longer term investment view of Canada and even presented this view to various municipal governments across Canada.  A key component of this view is obviously the vast resources of Canada as typified by the agricultural production capabilities and the Saudi Arabia like oil resources in Alberta.  But another important potential tailwind for Canada is weather patterns.


UCLA Geography Professor Laurence C. Smith has done much of the work that underscores our long term investment view of Canada.  In his book, “The World in 2050: Four Forces Shaping Civilization’s Northern Future”, Smith highlights some of the key forces driving economic share gains of the Northern Rim Countries, or as he calls them NORCs.  A key point in his thesis related to NORCs is that their share of crop production will increase dramatically if and when the world becomes warmer because they will be less directly impacted by an increase in temperature.  His prediction is for this trend to really have an impact by 2050, even though it sounds a little like 2012 . . .


No doubt climate cycles can be challenging to invest around, though industrial cycles can be much more predictable and create longer term (in our models TAIL duration) investable fundamentals.  Our recently hired Industrials Sector Head Jay Van Sciver has spent more than a decade on the buy-side and a key component of his investing framework is that if you get the industrial cycle right, you’ll get a lot of other things right.  An example he uses in his presentation is being on the right side of U.S. electrical transmission infrastructure investment cycle.  A couple of points to consider:

  • In the down cycle from Q1 1992 to Q1 2000, the SP500 returned 243%.  In that same period, the primary players in this industry, Copper Industries, Hubbell, and Thomas & Betts, returned on average 25%.
  • In the up cycle from Q1 2001 to Q1 2012, when investment in transmission infrastructure was accelerating, the SP500 was up 51%.  Meanwhile, the key players noted above were all up more than 300%.

I’ll say it again, if you get the cycle right, you’ll get a lot of other things right.


Van Sciver’s launch presentation on June 27th was a bearish call on the airline cycle.  Call him lucky or good, but as we highlight in the Chart of the Day, airline stocks have basically been in free fall since he launched.  In fact, speaking of Magnificent Investing, one of his least favorite names, UAL, is down almost -20% in that period.  His next deep dive will be on the global truck OEM market and he will be hosting a conference call on August 16th to discuss. Ping us at or contact your sales person if you are an eligible institution and would like to join this call and review Van Sciver’s work.


In our global macro research, a key theme we’ve been hammering on for the last few years has been the global debt super cycle.  An important point of this cycle is that as government debt accelerates past 90% debt-to-GDP, economic growth slows.  This morning’s data from Europe does little to change our debt cycle thesis. Spanish 10-year yields are back pushing that 7% line at 6.98% and so there’s no surprise that the IBEX 35 is down -1.9%.  Further, German June exports were down -1.3% year-over-year and German industrial production was down -0.3%.  Clearly, even a relatively well situated country like Germany cannot escape the growth slowing debt cycle.


Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, and the SP500 are now $1, $107.34-111.83, $81.89-82.69, $1.23-1.24, and 1, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Magnificent Investing - Chart of the Day


Magnificent Investing - Virtual Portfolio


TODAY’S S&P 500 SET-UP – August 8, 2012

As we look at today’s set up for the S&P 500, the range is 26 points or -1.45% downside to 1381 and 0.40% upside to 1407. 











SENTIMENT – two beauty signals registering in the last 24hrs w/ the VIX testing long-term TAIL support (14-15) again and the II Bull/Bear Spread spikes back up to +1810bps wide to the bull side (Bears have been eviscerated from the spread, down to 25.5% vs 27.7% last wk). Big drawdowns in the last 5yrs happen after all the weak shorts have been squeezed out. 

    • Up versus the prior day’s trading of 765
  • VOLUME: on 08/07 NYSE 727.94
    • Increase versus prior day’s trading of 12.48%
  • VIX:  as of 08/07 was at 15.99
    • Increase versus most recent day’s trading of 0.25%
    • Year-to-date decrease of -31.67%
  • SPX PUT/CALL RATIO: as of 08/07 closed at 1.33
    • Down from the day prior at 1.54 


  • TED SPREAD: as of this morning 34
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.62%
    • Decrease from prior day’s trading of 1.63%
  • YIELD CURVE: as of this morning 1.36
    • Down from prior day’s trading at 1.37 

MACRO DATA POINTS (Bloomberg Estimates) 

  • 7am: MBA Mortgage Applications, week Aug. 3 (prior 0.2%)
  • 8:30am: Nonfarm Productivity, 2Q P, est. 1.4% (prior -0.9%)
  • 8:30am: Unit Labor Costs, 2Q P, est. 0.5% (prior 1.3%)
  • 10:30am: DoE Inventories
  • 11am: U.S. Fed to purchase $1.5b-$2b notes in 2/15/2036 to 5/15/2042 range
  • 1pm: U.S. to sell $24b 10-year notes 


    • House, Senate not in session
    • FDA advisory panel meets to discuss uses, limitations of in vitro dissolution testing, receive update on draft guidance for industry on biosimilars, 8am
    • IRS holds meeting on proposed regulations, fees imposed by Patient Protection and Affordable Care Act on issuers, 10am
    • International Trade Commission to vote on Ferrovanadium, Nitrided Vanadium imports from Russia, 1pm
    • Air Line Pilots Association holds annual safety forum, 8:30am 


  • McDonald’s sales growth may be slowest since 2009
  • Greece outlook revised to negative by S&P; ratings affirmed
  • Disney profit rises 24% on “Avengers” as rev falls short
  • Standard Chartered probe said to require up to $700m
  • Knight Losses Spur Tighter Automated-Trading Rules From SEC
  • J.C. Penney puts at record vs peers before earnings
  • Ford expands into China heavy truck market with acquisition
  • German exports fell in June as crisis curbed euro-area demand
  • King seen cutting U.K. outlook as BOE stays open to stimulus
  • Apple says Samsung document shows application icons copy IPhone
  • Rio Tinto 1H net beats est.
  • ING Groep 2Q net misses est.


    • Lamar Advertising (LAMR) 6am, $0.15
    • DISH Network (DISH) 6am, $0.66
    • Air Canada (AC/A CN) 6am, C$(0.01)
    • EchoStar (SATS) 6am, $0.08
    • NRG Energy (NRG) 6:45am, $0.18
    • PPL (PPL) 6:53am, $0.41
    • Alpha Natural Resources (ANR) 7am, $(0.35)
    • BCE (BCE CN) 7am, C$0.81
    • International Flavors & Fragrances (IFF) 7am, $1.03
    • Carlyle Group (CG) 7am, $(0.04)
    • HollyFrontier (HFC) 7am, $2.24
    • Molex (MOLX) 7:30am, $0.38
    • Apollo Investment (AINV) 7:30am, $0.21
    • Brookfield Infrastructure Partners (BIP) 7:30am, $0.34
    • Ralph Lauren (RL) 8am, $1.78
    • Macy’s (M) 8am, $0.64; Preview
    • Computer Sciences (CSC) 8:13am, $0.22
    • Liberty Interactive (LINTA) 8:30am, $0.24
    • Finning International (FTT CN) 8:55am, C$0.46
    • Liberty Media - Liberty Capital (LMCA) 10:45am, $0.73
    • Allscripts Healthcare Solutions (MDRX) 4pm, $0.18
    • Onex (OCX CN) 4pm, NA
    • MEMC Electronics (WFR) 4:01pm, ($0.04)
    • Jack in the Box (JACK) 4:01pm, $0.35
    • MBIA (MBI) 4:01pm, $0.07
    • News Corp. (NWSA) 4:02pm, $0.32
    • Monster Beverage (MNST) 4:05pm, $0.61
    • Keyera (KEY CN) 4:05pm, $0.40
    • Canaccord Financial (CF CN) 4:05pm, (C$0.04)
    • Universal Display (PANL) 4:05pm, $0.25
    • CenturyLink (CTL) 4:12pm, $0.62
    • Dun & Bradstreet (DNB) 4:14pm, $1.43
    • Kinross Gold (K CN) 4:15pm, $0.17
    • Continental Resources (CLR) 4:15pm, $0.74
    • Yamana Gold (YRI CN) 4:29pm, $0.21
    • Canadian Apartment Properties REIT (CAR-U CN) 5:05pm, C$0.36
    • Integrys Energy Group (TEG) 5:07pm, $0.41
    • Sun Life Financial (SLF CN) 5:10pm, C$0.08
    • Franco-Nevada (FNV CN) 5:15pm, $0.28 



COPPER – the Doctor says he’s out; Copper testing its 1st duration of resistance (3.43 TRADE resistance) and failed this morning, moving lower by -0.7% after the 10yr UST yield backed off yesterday’s highs. Another #GrowthSlowing signal born out of $111 Oil. 

  • Coal to Drop as Steel Output Slows in BHP Setback: Commodities
  • Gas May Revisit $2 as Drop in Supply Glut Slows: Energy Markets
  • Clive Said to Miss July Commodities Rally as Brevan Gains
  • Sugar Reserve in India at Four-Year High Set to Help Exports
  • Rubber Tumbles to Lowest in Almost Three Years on Slowdown Risk
  • Oil Drops From Two-Month High in New York as U.S. Demand Eases
  • Soybeans, Corn Slide as Rain May Revive Drought-Stricken Crops
  • Gold Declines in London as Stronger Dollar Curbs Investor Demand
  • Copper Falls as Factory Report May Stoke Debt-Crisis Concern
  • Sugar Falls to One-Month Low as Supplies Improve; Cocoa Climbs
  • Electricity Seen Overstating China Slowdown as Services Rise
  • Copper Traders Make $839 Million Bet on China Boosting Demand
  • Alpha Posts $2.23 Billion Quarterly Loss After Taking Charges
  • Gold in Euros Seen Climbing to All-Time High: Technical Analysis
  • Commodities Daybook: Coal Set to Slump as European Demand Wanes
  • Taiwan Sugar Buys 23,000 Tons Corn, 12,000 Tons Soybeans
  • Zinc, Lead Traders Probably Added to Bets on Falling Prices














CHINA – Chinese stocks agree; after a paltry “rally” on no volume, the Shanghai Comp closed up, barely, +0.16% last night – but, more importantly, failed at an our immediate-term TRADE line of 2166 resistance; watching that and KOSPI, very closely here. Haven’t been short anything Asia on the meltup, thank god.











The Hedgeye Macro Team