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SPY: THE TIME AND PRICE

CLIENT TALKING POINTS

SHORTING THE S&P 500

This week we’ve discussed shorting the S&P 500 via SPY. What we were waiting for, particularly after hitting 1400, was time and price. At 10:21AM yesterday we shorted SPY at $140.78; it is timestamped in the Hedgeye Virtual Portfolio for your viewing pleasure. We think the market will continue to trend lower today but will manage the risk and the range and will cover if need be.

Keep in mind that it is Friday. The odds of Jon Hilsenrath from the Wall Street Journal running his mouth near the close (especially if the market is in the red) are high. Hopefully most people have gained some common sense by now to take those words at face value.

A MESS OF CORN

Corn continues to trend higher with the futures ripping higher this morning ahead of the 8:30AM crop report. Considering that the Midwest has been ravaged by hot heat, strong winds and a prolonged drought, it’s not going to be good. Throw in the falling US dollar, courtesy of your central planners, and commodity prices are going to keep going up. There’s nothing positive to come out of this. Corn is so interconnected to everything (fuel, feed for animals, etc.) that making a trip to the grocery store will likely make you wince.

THE TIMESTAMP

It’s important to timestamp your trades. The reason is obvious: hold yourself accountable. When you timestamp your entry and exit points, you have nothing to hide. Your P&L says it all. If you’re up, you’re up and if you’re down, well, you’re down. It’s how this game works. We pride ourselves on holding a darn good batting average while providing totally transparent trades and will continue to do so. It’d be nice to say we were short JCP in the Virtual Portfolio going into today’s open but that’s OK. Going back to the first note in today’s Playbook, it’s all about time and price. When the markets and moons align for a trade, we’

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ASSET ALLOCATION

Cash:                  UP

U.S. Equities:   DOWN

Int'l Equities:   Flat   

Commodities: Flat

Fixed Income:  UP

Int'l Currencies: Flat   

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TOP LONG IDEAS

JACK IN THE BOX (JACK)

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.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

FIFTH & PACIFIC COMPANIES (FNP)

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.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

LAS VEGAS SANDS (LVS)

LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TRADE:  LONG
  • TREND:  NEUTRAL
  • TAIL:      NEUTRAL

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THREE FOR THE ROAD

TWEET OF THE DAY

“$JCP discussing ‘gross margin ex markdowns’ is worse than a .com start-up I saw in ‘99 who touted ‘profit before costs’. That co is gone now” -@HedgeyeRetail

QUOTE OF THE DAY

“Never express yourself more clearly than you are able to think.” – Niels Bohr

STAT OF THE DAY

Tough day for Bill Ackman. JCPenney same-store sales fell 21.7 percent during the second quarter, steeper than the 17.4 percent drop analysts were expecting, according to Thomson Reuters. Revenue tumbled 22.6 percent to $3.02 billion, also below Wall Street's low expectations.