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Footwear, Nike UA winning. Apparel, TBL Losing.

Takeaway: Athletic FW is steadily growing while apparel is weak. $NKE is the steadiest of the bunch. UA looked great. Timberland/$VFC looks poor.

Athletic footwear continues strong last week, though we wish we could say the same about apparel. Keep in mind that neither of these datapoints was impacted by the storm. In fact, if anything we could argue that we should has seen some shopping (largely apparel) the days leading up to the storm. Nothing to be alarmed about, but we don't want to see this carry into next week. 

 

As it relates to Brands, Nike was 'steady as she goes' with a  high-teens growth rate in sell through. But the big surprise was UnderArmour, with 40%+ top line growth. That's about as good as we've seen from UA since it launched Spine.  One of the more troubling performances is Timberland, which has gotten sequentially worse over the past three weeks. One datapoint means little to us - three means a heck of a lot more. We'll look into it and be back to you. But keep this mind as it relates to what we think is an overextended VFC. 

 

Footwear, Nike UA winning. Apparel, TBL Losing. - 11 1 2012 5 49 28 PM


TRADE ALERT: WMT???

Takeaway: Buying an oversold WMT at $73 is better than chasing it at $77. Everything has a time and price. We’re going to keep a tight leash here.

Going long WMT here after a 30% 12-month run is one of the sleepier TRADE’s we’ve put on recently in retail. That’s especially the case when you take into account that all of the earnings upside in our model is coming from lower SG&A vs last year and lower share count. Hardly something to get super excited about. The historically low short interest coupled with the historically low Buy rating percentage probably cancel each other out. But how can we ignore that management has hardly sold a share since a 22% run stated off in March?

 

Per Keith… “Buying WMT at $73 at immediate-term TRADE oversold is better than chasing it at $77. Everything has a time and price. We’re going to keep a tight leash on this one.”

 

TRADE ALERT: WMT??? - WMT TTT

 

Short Interest Might Be Low, But The Sell-Side Does Not Like This Thing

TRADE ALERT: WMT??? - 11 1 2012 4 55 41 PM

 

Management Not Selling Despite The Run

TRADE ALERT: WMT??? - wmt3


Express & Courier Services Black Book Invitation

Takeaway: Hedgeye Industrials will present an Express & Courier Services Black Book NOV 8 @ 1:30PM, including $FDX, $UPS, DPW GY, TNT, $EXPD, & others

HEDGEYE INDUSTRIALS:


Express & Courier Services Black Book 

THURSDAY, NOVEMBER 8th 2012, 1:30pm EST  

 

Express & Courier Services Black Book Invitation - ups

 

 

Major Tickers: UPS, FDX, EXPD, DPW GY (Deutsche Post/DHL), TNTE NA (TNT Express)    

 

 

The Express & Courier Industrials sub-industry currently offers interesting investment and trading opportunities. Hedgeye's Industrials Team, led by Jay Van Sciver, will present an industry overview and highlight key long and short-term strategies on Thursday, November 8th, at 1:30pm EST.

 

Topics Will  Include: 

  • Cyclical Drivers: Changes in inventories, trade and other key factors
  • Long-term Industry Trends: A look at market maturity, returns and investment
  • Capacity: Where and how capacity changes impact industry returns
  • Industry Structure:   Discussion of current industry structure and how it is evolving
  • Asset Based vs. Freight Forwarding: How industry trends impact companies like EXPD and KNIN VX vs. FDX and UPS
  • Valuation: Fair value ranges for UPS, FDX, Deutsche Post and other key names

 

 

Participant Dialing Instructions

Toll Free Number:

Direct Dial Number:

Conference Code: 966535#

* Call will be answered by a live operator


 


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 80.28%
  • SHORT SIGNALS 78.51%

Dicey Spot: SP500 Levels, Refreshed

Takeaway: Rolling the dice is not part of the process.

This note was originally published November 01, 2012 at 11:34 in Macro

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)

 

What worked yesterday (and for the last month and a half) isn’t working today. TRADE or TREND?

 

I don’t know. All I know is that tomorrow is a big political storytelling day with a made-up government number slapped on top of it as we head into the home stretch of this epic Obama/Romney election. I have no idea who is going to win that either.

 

What I do know is that, across our core risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE resistance = 1431
  2. Intermediate-term TREND support = 1419
  3. Immediate-term TRADE support = 1388

 

In other words, 1388-1431 is your refreshed Risk Range (on our immediate-term TRADE duration) and 1419 is proving to be a pretty good trigger line for beta (which evidently moves both ways).

 

A close above 1419 would be bullish; a close below it bearish. After the next 2 market closes, we’ll let the market tell us which way to lean.

 

For now, the easiest thing to do is take down gross exposure. Rolling the dice is not part of the process.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dicey Spot: SP500 Levels, Refreshed - SPX


TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED

Takeaway: A bottom in the Chinese economy will likely not have nearly the same impact as it did in 2009.

SUMMARY BULLETS:

 

  • From our vantage point, the most bullish data point emanating from China in the week-to-date – inclusive of the sequential acceleration in Manufacturing PMI and the PBOC’s record $60 billion injection into Chinese money markets this week – was today’s news that China’s GDP accounting methods were to be standardized with “international standards”.
  • From a forward-looking GIP perspective: Chinese GROWTH has likely bottomed; Chinese GROWTH is not poised to accelerate meaningfully over the intermediate term; Chinese INFLATION is in a bottoming process and likely would have bottomed already had we not seen the degree of CNY strength we’ve seen in recent months; Chinese INFLATION is poised to accelerate modestly over the intermediate term; The slope of Chinese POLICY has bottomed; and The slope of Chinese POLICY is not poised to be substantially eased over the intermediate term.
  • If China continues to grow at a pace slightly faster than what we saw in 3Q for the foreseeable future, would that be enough to save the global economy from sliding into recession over the intermediate term? We don’t know. What we do know is that sell-side consensus and, by proxy, corporate management teams aren’t even in the area code of asking themselves this question.

 

From our vantage point, the most bullish data point emanating from China in the week-to-date – inclusive of the sequential acceleration in Manufacturing PMI and the PBOC’s record $60 billion injection into Chinese money markets this week – was today’s news that China’s GDP accounting methods were to be standardized with “international standards”.

 

From what we’ve noticed over the years covering dozens of countries from a bottom-up perspective, international standards for GDP accounting = shoot first; ask questions later. More specifically, we think this means China is likely to adopt a more US-style GDP presentation: report the most positive headline figure you can and subsequently revise it down 1-3 times in the coming months/years. This bodes well for a sequential uptick in China’s YoY GDP growth in 4Q12E.

 

In recent weeks leading up to the general elections, the US has certainly challenged China as the largest economic data manipulator across the Global Macro landscape (monthly Jobs Reports, Consumer Confidence, GDP, ADP Payrolls, etc.), but it looks as if China wants to take back the baton. If that is the case, do not fight them. Going back to the aforementioned point regarding the implication of this change on China’s future GDP figures, a positive inflection from 3Q would be in line with our models, as well as recent commentary from Chinese officials:

 

  • “China's growth may have bottomed out in the third quarter of 2012 and a slight rebound may be seen in the final three months of the year.” – Yu Bin, director of the Macroeconomic Research Department at the Development Research Center
  • China will achieve its full-year growth target of 7.5 percent and the rebound in the fourth quarter is likely to extend into next year.” – Jia Kang, a Ministry of Finance researcher
  • An official at the Ministry of Industry and Information Technology recently stated that stronger growth in Q4 industrial output (vs. Q3) will lay a solid foundation for China to achieve its GDP growth target of over +7.5% for this year.

 

Our latest GIP outlook for China is included in the chart below; note the potential for Chinese GROWTH to slow in 4Q12E – an event that might feel like an outright recession for companies like BMW, Caterpillar and POSCO, all of whom are explicitly banking on some form of post-leadership transition stimulus:

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 1

 

We’ve been vocal in recent weeks about our outlook on China’s economy. To sum it up in very frank clauses:

 

  1. Chinese GROWTH has likely bottomed;
  2. Chinese GROWTH is not poised to accelerate meaningfully over the intermediate term;
  3. Chinese INFLATION is in a bottoming process and likely would have bottomed already had we not seen the degree of CNY strength we’ve seen in recent months;
  4. Chinese INFLATION is poised to accelerate modestly over the intermediate term;
  5. The slope of Chinese POLICY has bottomed; and
  6. The slope of Chinese POLICY is not poised to be substantially eased over the intermediate term.

 

To points #2, #4 and #6, don’t just take our word for it; take the DRC’s official view:

 

“Next year, the economy will grow at a similar rate recorded in 2012, which is projected to be slightly higher than the 7.5 percent government target… Meanwhile, the growth of consumer price index (CPI), the main gauge of inflation, will rise to 4 percent in 2013. The figure is much higher than the below-3 percent rate predicted for [this] year. Easing measures adopted across economies, including the U.S., the European Union and Japan, have pushed up prices for global commodities and attracted inflows of short-term capital, which will likely hike CPI rates next year… The government will continue to implement a proactive fiscal policy and prudent monetary policy next year.”

-Yu Bin, director of the Macroeconomic Research Department at the Development Research Center, 10/26/12

 

On the fiscal POLICY front, it’s worth nothing that  China’s Finance Ministry had allocated 97% of the year’s budgeted funds for infrastructure spending through SEP. This means that in the absence of additional off-budget initiatives (hard to see w/ the upcoming National Party Congress dominating official attention), the Manic Media won’t be able to pester you with anymore unsubstantiated reports of Chinese “stimulus” spending that is actually nothing more than pre-planned expenditures for the rest of the year. Progress.

 

Additionally, government spending overall is up +21.1% YoY in the YTD through SEP, meaning that China will likely have to demonstrably slow the pace of expenditure growth if it is to meet its +14.1% 2012 target. Lastly, local governments, who can’t run budget deficits, may actually be feeling pressure to tighten fiscal POLICY as slowing land sales (-16.5% YoY in the YTD through SEP) forces them to turn to other measures of revenue collection (taxes, administrative fees, etc.).

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 8

 

If you accept each of the aforementioned bullet points at face value, then it should come as no surprise to see the Shanghai Composite Index remain in a Bearish Formation, Chinese interest rate markets pricing out any hopes of monetary easing over the NTM, China’s sovereign yield curve flattening, the FX market continuing to price in demonstrable weakness in the CNY and CNH over the NTM, Chinese rebar curve still exhibiting elements of backwardation.

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 2

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 3

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 4

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 5

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 6

 

Riddle us this: if China continues to grow at a pace slightly faster than what we saw in 3Q for the foreseeable future, would that be enough to save the global economy from sliding into recession over the intermediate term? We don’t know. What we do know is that sell-side consensus and, by proxy, corporate management teams aren’t even in the area code of asking themselves this question.

 

TAKE THEIR WORD FOR IT – CHINA HAS BOTTOMED - 7

 

If you’d like to get caught up on our latest thoughts on China, we encourage you to check out the following notes; as always we are available via email and telephone to discourse further:

 

 

Darius Dale

Senior Analyst


SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY

Takeaway: The Manic Media wants you to believe #Sandy ultimate impact is quite bullish for the US economy. South Korea isn’t buying it.

SUMMARY BULLETS:

 

  • Because of its deeply-ingrained sobriety on the POLICY front, we would typically be inclined to be long of South Korean equities and/or the Korean won (KRW) with respect to the long-term TAIL. From an intermediate-term TREND perspective, however, recent GROWTH and PRICE data suggests continued weakness in the South Korean economy.
  • That portends negatively for global GROWTH, given South Korea’s consensus role as a leading indicator for the global economy.

 

Many analysts across the buyside and sellside use South Korea as a leading indicator for the global economy. We think this is largely due to the South Korean economy’s exposure to the global capital equipment cycle (using the KOSPI as a proxy). Tech and Industrials comprise 40.4% of the KOSPI; that’s more than every other benchmark equity index in Asia except Taiwan (49.6%):

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - 1

 

As a leading indicator, the KOSPI’s Bearish Formation does not bode well for the intermediate-term outlook for global economic growth:

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - 2

 

Neither does South Korea’s sovereign yield curve, which has continued to make lower-highs since late MAR:

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - 3

 

Neither does South Korea’s NOV Business Condition survey data:

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - 4

 

On the flip side, South Korea’s OCT Exports (+1.2% YoY from -2% in SEP) came in solid, on the margin, and rhymes with the recent pickup in Asian trade activity. We will note that the OCT Export data saw shipments to the US drop -3.5% YoY vs. a +21.1% YoY gain for exports to SE Asia.:

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - 5

 

Somewhere in between the OCT Export data and the rest of South Korea’s GROWTH data lies the country’s OCT HSBC Manufacturing PMI, which accelerated to 47.4 from 45.7 in SEP. On balance, South Korea’s latest forward-looking GROWTH indicators look dour and portends negatively for global growth with respect to the intermediate term.

 

Looking to South Korean POLICY, which may help contextualize recent developments across other countries’ POLICY outlooks, we don’t expect any further rate cuts over the intermediate term and, absent a deflationary shock to the global economy, we think their next move on the rates front is likely higher, not lower. Trends in the South Korean sovereign debt and OIS markets agree with this view: 2yr yields slightly above the 2.75% policy rate and NTM swaps are pricing a mere 1bps under the policy rate (suggesting the market sees no change). The Bank of Korea will provide its latest update on NOV 8; consensus see no change then as well.

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - 6

 

In conjunction with our aforementioned thoughts on South Korean monetary POLICY, we think the data supports being long/overweight the KRW vs. peer currencies with respect to the TREND duration as fiscal POLICY continues to exhibit increasingly hard-to-find sobriety across developed nations:

 

  • “South Korea’s government plans to cut its fiscal deficit next year to the smallest in six years as policy makers preserve firepower amid a slowing global economy and rising welfare costs… Total spending will increase 5.3 percent to 342.5 trillion won ($306 billion), the Ministry of Strategy and Finance said in its budget proposal for 2013 released today. The deficit will shrink to 4.8 trillion won, or 0.3 percent of gross domestic product in 2013, down from 14.3 trillion won, or 1.1 percent this year, according to its calculations.” (Bloomberg)
  • “Using all available fiscal, monetary and financial policy means could have harmful effects.” Finance Minster Bahk Jae Wan on explaining why the government has resisted a supplementary budget
  • While we like the fact that they are at least rhetorically committed to fiscal discipline, we’re not sure how or why they think a +5.3% YoY increase in planned expenditures (including increases of +4.8% and +7.9% in welfare and education, respectively) will be met with enough revenue growth to actually shrink the budget deficit! Their plan to capture ~11% of revenues from state asset sales looks aggressive given where global “risk asset” prices may trend into and through 1H13; that suggests they may be unlikely to meet their target. Still, we love the fact that Korea is stiff-arming the Keynesian Bailout Beggar crowd by preserving its stimulus bullets for when it actually needs them – ahead of a presidential election, might we add! From a lower PRICE, we like Korean equities from a long-term TAIL perspective amid continued fiscal and monetary POLICY sobriety – the confluence of which is increasingly harder to find across the Global Macro universe.

 

The largest fiscal POLICY catalyst within the intermediate-term TREND duration is the DEC 19 presidential election. The latest on that front is that liberal candidates Moon Jae-in and Anh Cheol-soo are in talks to merge their candidacies to provide a formidable challenge to the ruling Saenuri Party's Park Geun-hye. If that were to happen, there is a legitimate chance you could see a South Korean economic and fiscal POLICY swing left, on the margin – especially on the social welfare front (good for the consumer; bad for the sovereign budget). Chaebol reform is a possibility, but any action on that front is a ways away and may just be populist politicking on the campaign trail. For now, it is safe to assume Park wins and the conservative Saenuri Party remains in power.

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - 7

 

From a cumulative GIP perspective, we think the KRW (+2% vs. the USD over the last month; best performer in Asia by far) is front-running a move to Quadrant #2 over the intermediate term; we’d expect to see the KOSPI follow suit as we get closer to that catalyst. For now, however, we remain in “do-nothing” mode on South Korean equities as a trip to Quadrant #3 is the most probable scenario for the fourth quarter. If there weren’t better opportunities on the short side of international equities, the KOSPI would be fully entrenched within our short inventory for the time being.

 

SOUTH KOREA – A MICROCOSM FOR THE GLOBAL ECONOMY - SOUTH KOREA

 

All told, because of its deeply-ingrained sobriety on the POLICY front, we would typically be inclined to be long of South Korean equities and/or the Korean won (KRW) with respect to the long-term TAIL. From an intermediate-term TREND perspective, however, recent GROWTH and PRICE data suggests continued weakness in the South Korean economy; that portends negatively for global GROWTH, given South Korea’s consensus role as a leading indicator for the global economy.

 

Darius Dale

Senior Analyst


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