• run with the bulls

    get your first month

    of hedgeye free


FL: Accelerating Into 2H


We’re at $0.38 for FL headed into Friday’s print before the open on a +9% comp ahead of Street estimates at $0.34E and a comp of +7%.

The stock is up +18% since we published our note “FL: We Like It Here” on June 27th versus the S&P up +6% so it’s fair to say that expectations are high headed into the print, but for good reason.

  • June footwear sales in the Athletic Specialty Channel came in up +9% following +10% in May. Sales accelerated in July as expected against easing compares headed into the 2H. Given the average 400-600bps markup of weekly trends that reflect sales in aggregate (vs athletic channel), July sales appear to have come in up low-double-digits to low-teens to finish the quarter. In addition, apparel sales also picked up in July. We think this translates to comp of +9% at FL.
  • Category mix remains a key driver of outperformance and upside versus peers with strength in basketball – a trend we expect to continue following strike related disruptions last year. Take a look at the chart below, basketball has steadily improved YTD with compares getting easier through the 2H. Running also reaccelerated during the quarter. While a bigger boost for FINL (more heavily indexed to the category), these improving trends headed into the 2H are clearly favorable.
  • Europe remains an overhang. FL indicated a strong start to European sales in May with sales turning positive (up +LSD vs. –MSD in Q1), which is a stark contrast to most other retailers with exposure to Europe mitigating further weakness in a region that accounts for ~24% of sales. While we admittedly don’t have great visibility into how June is shaping up, there are two factors to consider re Europe, 1) early indications suggest trends are stable if not turning positive, and 2) compares here are also getting more favorable.
  • We’re modeling +80bps of gross margin improvement driven primarily by occupancy leverage up +90bps offset by a modest drag on merchandise margin (-10bps). We are also modeling SG&A up +3.5% reflecting 5% growth in core SG&A including $6.5mm in incremental marketing spend offset by a ~$5mm reduction in Fx.

Bottom-line is that this story in on track. The key drivers continue to be product innovation complemented by an improving apparel assortment mix, growing international store footprint (more productive that domestic base), and expanding digital platform. Given the run into earnings, we think expectation for good numbers is largely reflected in the stock here and as such don't expect a move of the same magnitude we've seen in recent quarters. But numbers are still too low for the year. We’re at $2.49 for the year above the Street at $2.38 and $2.83 for 2013 vs. $2.64E. We continue to like the earnings visibility over the intermediate-term and this name on the long side.


Casey Flavin


FL: Accelerating Into 2H - FL Comps


FL: Accelerating Into 2H - Athl Channel


FL: Accelerating Into 2H - Athl Cat




Brent Under Pressure

Takeaway: Geopolitical risk and the threat of war have people getting long oil; not fundamentals. $OIL $USO

Brent crude oil, the worldwide standard for crude, is ripping even higher today, touching $116 a barrel and not looking to stop anytime soon. Oil is up +32% since June thanks to inflation and geopolitical risk. This is great for producers of oil; bad for consumers of oil.


Our Energy Analyst Kevin Kaiser had a nice quote that pretty much summed up the long case for crude oil. Allow us to share:


Bull case for #oil is bailouts and bombs - not growth. $USO $OIL



Brent Under Pressure - sweetBRENTchart



Kaiser pretty much nails it. A lot of market participants seem to have wised up this year and noticed that supply and demand economics don’t have anything to do with oil. We’ve got plenty of oil. But the threat of Iran closing the Strait of Hormuz or unrest in the Middle East is what has everyone on the edge of their seat. With hedge funds remaining incredibly bullish on oil, fundamentals are thrown out the window. It’s a waiting game.

Brent Under Pressure







Brent crude oil, the worldwide standard for crude, is ripping even higher today, touching $116 a barrel and not looking to stop anytime soon. Oil is up +32% since June thanks to inflation and geopolitical risk. This is great for producers of oil; bad for consumers of oil. Our Energy Analyst Kevin Kaiser had a nice quote that pretty much summed up the long case for crude oil. Allow us to share:


Bull case for #oil is bailouts and bombs - not growth. $USO $OIL




The global macro picture at the moment is bleak and more importantly, it’s slow. What do we mean by slow? Volatility and volumes are virtually non-existent, everyone’s on vacation including the Eurocrats in the Eurozone and half of Wall Street (gotta milk that Hamptons timeshare for all it’s worth!) and no one knows what asset class they want to buy. Bonds? Stocks? Everything is essentially flat. Now that the S&P 500 is above 1400, expect it to trade in a tight range for some time.


Watching the market in real time is like watching an amateur ping pong game. It’s slow, uneventful and no one is keeping score.




Chinese growth has been slowing for the last year. People keep saying that China’s market is going to crash. Guess what – it has already crashed. Chinese equities get slaughtered on a weekly basis and the economic numbers coming out of China are painful to look at, knowing that they’re likely doctored. China’s Foreign Direct Investment (FDI) print this morning of -9% year-over-year is grim. How grim? Allow the Chinese Ministry of Commerce to lay it out for us:


In the second half, China’s foreign trade and export situation will be more grim, there will be more difficulties, harder tasks, and the pressure of achieving the full-year target will be bigger…”






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



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.

  • TAIL:      NEUTRAL







“Moral: If you're going to steal, steal big .... and know people http://dealbook.nytimes.com/2012/08/15/no-criminal-case-is-likely-in-loss-at-mf-global/” -@HuffPeter




“Not a shred of evidence exists in favor of the idea that life is serious.” – Brendan Gill




The number of new housing permits rose by 6.8% to annualized level of 812,000 in July - highest number since August 2008.



the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.


The Macau Metro Monitor, August 16, 2012




The Financial Services Bureau (DSF) is allowing buyers of La Scala apartments to get back their special stamp duty (SSD) after announcing that it would annul the land-lease agreement with the residential project’s developer.



A total of 7,845 building units exchanged hands at a price of  MOP31.05 billion in 2Q12 as per Stamp Duty record, up by 1.2x and 1.7x,  respectively QoQ. Of those units, 5,555 were residential units selling for MOP23.39 billion, up by 1.4x and 1.8x, respectively. In 1H12, there were 11,437 building units traded hands at MOP42.76 billion, down by 43.8% and 24.4% respectively YoY. 


The average transaction price of all residential units amounted to MOP55,427 per square metre of usable area, up by 21.9% QoQ. The average price of those in the Macao Peninsula (MOP47,461) and Taipa (MOP66,804) increased by 15.0% and 38.9%, respectively QoQ, while the average price of those in Coloane (MOP78,197) decreased by 6.0%.


In 2Q, 3,531 cases of real estate sale and purchase contracts were made, up by 77.4% QoQ, and the number of units rose by 34.2% to 4,358. In addition, there were 2,631 cases of residential mortgage contracts signed, an increase of 89.6% QoQ.

Market Slavery

This note was originally published at 8am on August 02, 2012 for Hedgeye subscribers.

“Nature has made no man a slave.”



What would the #OldWall’s manic media mouthpieces do without this week’s central planning events? What would we all do without the drugs that promise to suspend economic gravity? What would we wake up to this morning if markets were actually free?


Alcidamas was a popular Greek philosopher in 4th century BC who Victor Davis Hanson cites at the end of Chapter 8 in “The Soul of Battle.” That quote precedes an excellent chapter in human history titled “And All of Greece Became Independent and Free.”


It’s too bad that when we use the word free in today’s marketplace, the first thing that comes to mind is getting a sticker.


Back to the Global Macro Grind


US Stocks closed down for the 7th day in the last 9 yesterday, but no worries, we have a central plan on tap at 745AM EST that is going to whip this sucker right back up to a level where perma-bull marketers can say “but the market is up year-to-date.”


Everything in the land of nodding (other than where the entire street gets paid - fund flows, volumes, and performance), is just dandy right now. Buy, hold, and pray.


I have absolutely no idea what this conflicted and compromised central planner is going to tell us today. All I can assure you is that there’s at least -3.5% downside in the EuroStoxx50 and a stiff move to $1.20 in the EUR/USD if he doesn’t deliver the drugs.


Bernanke didn’t crack open the cocaine lines yesterday, and for that, I give him a golf clap. What his pseudo sober decision did to the rest of Global Macro markets was proactively predictable:

  1. US Dollar went straight back up (+0.7% on the day, closing above an important TRADE line of $82.95 support)
  2. Gold went straight back down (down a full 1% where we covered our short position at $1603 support)
  3. US Stocks went down, then up, then back down as underperforming hedgies got whipped around, again

What happens next?


I have no idea. Once I get Draghi’s Italian Job, I’ll let you know. Until then I can only wait and watch for “whatever” as I score ranges, probabilities, and risk managed scenarios – like I do every morning.


On that front, here’s a morning dump for you in US markets:

  1. US Dollar Index remains in a Bullish Formation (bullish on all 3 of our risk management durations, TRADE/TREND/TAIL)
  2. US Treasury Yields (10yr) remain in a Bearish Formation (bearish on all 3 of our risk management durations)
  3. US Treasury Yield Spread (10s minus 2s) = +129bps wide and continues to compress; very bearish economic signal
  4. SP500 immediate-term risk range of 1363-1386, with its intermediate-term TREND line right in the middle of that (1376)
  5. US Equity Volatility (VIX) remains in a Bullish Formation with intermediate-term TREND support = $17.62
  6. US Equity Volume studies are as nasty as I have ever measured them in my career (+16% on yesterday’s down move)
  7. Russell2000 negatively diverging from SP500, already bearish TRADE and TREND, closing down -1.7% yesterday
  8. S&P Sector Studies continue to flag on 3 Sectors (out of the 9 majors) as buys (Healthcare, Consumer Staples, Utilities)
  9. S&P Sectors recently snapping both TRADE and TREND lines = Consumer Discretionary, Transports, and Basic Materials
  10. Energy (which is asset price inflation, not growth) continues to be the best performer on a 1-month duration

On that last point, Keynesian central planners get their tighty whities in a bunch. I think that’s primarily because it implies that they themselves are perpetuating #GrowthSlowing by infusing a market wedgie of expectations that jams commodity prices higher.


#tighty #whitie #wedgie – none of those words spell checked on my PC, weird.


What might also seem a bit odd to the beggars for more of what isn’t working is what’s going on in the rest of the world this morning:

  1. Chinese Stocks, after having 1 up day, went straight back down last night (Bearish Formation, down -14% since May)
  2. Japanese Equities remain no volume/no bid (Bearish Formation, Nikkei225 down -16% since March)
  3. South Korean Equities (KOSPI, great leading indicator) backed off TRADE resistance of 1881 again last night

Oh, right – the rest of the world, per the Fed and ECB, is really the West. Damn them people in the East who eat inflated food and consume derivatives of $106/barrel Brent Oil.


As we beg the Italian for more of what the British are chastising Chinese swimmers for using, let’s get a medal count:

  1. China = 30 medals
  2. USA = 29 medals
  3. Japan = 17 medals

Not sure what that means for Global Macro other than China is not Japan.


In the spirit of winning, let’s just play the game that’s in front of us out there today. At the end of the day, Market Slavery to the next central plan or not, we can fight this for a lot longer than our overlords can remain in office.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1590-1624, $105.29-107.84, $82.35-84.03, $1.20-1.23, 6403-6736, and 1363-1386, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Market Slavery - Chart of the Day


Market Slavery - Virtual Portfolio

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.