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Strenuous Life

This note was originally published at 8am on November 21, 2012 for Hedgeye subscribers.

“We do not admire the man of timid peace. We admire the man who embodies victorious effort.”

-Theodore Roosevelt, 1899

 

As a Canadian immigrant with both an American made family and firm, Thanksgiving in this country has become a very special time for me. It’s a time to pray, give thanks, and reflect.

 

There are very few, if any, non-Lincoln American Presidential speeches that have impacted me like Teddy Roosevelt’s speech before the Hamilton Club in Chicago in April of 1899. For those of you who have not read it – it’s called The Strenuous Life.

 

“In speaking to you, men of the greatest city of the West, men of State which gave to the country Lincoln and Grant, men who preeminently and distinctly embody all that is most American in the American character. I wish to preach, not the doctrine of ignoble ease, but the doctrine of the strenuous life; the life of toil and effort, of labor and strife…”

 

Back to the Global Macro Grind

 

Grinding it out in markets, daily, for the last 5 years has been strenuous. But that’s not something to whine about - that’s what I love about this game – the daily grind. As my Dad always used to tell me, “when the going gets tough – the tough get going.”

 

Whether by indictment, exhaustion, or extinction, one by one we are seeing major players and firms from the #OldWall leave. In many ways, that’s very good news. There are few professions in this country that need to evolve more than this one does. And for this opportunity to be playing on the front lines of change, I am very thankful.

 

What Americans should also be thankful for this Thanksgiving is deflating in food and oil prices. With 71% of the US economy hinged to the C (Consumption) in the C + I + G + (EX-IM) = GDP calculation, this is where the rubber needs to meet the road back to growth.

 

While November (and Q412 overall) has been a mess from a US stock market perspective, the US Consumer Discretionary Sector has provided a light at the end of the tunnel that is not another oncoming train. For November to-date, here’s the score on that: 

  1. SP500 (SPY) = down -1.7%
  2. Energy (XLE) = down -2.4%
  3. Consumer Discretionary (XLY) = up +0.7% 

Oil got hammered yesterday (we covered our short position on red) and, to a degree, I think that’s what stopped US stocks from closing on their lows. Strong Dollar and Down Oil is great for US Consumption expectations heading into the holiday season.

 

Meanwhile, in Bernanke’s speech to one of the Keynesian Clubs yesterday, he implied that he may very well be out of money printing bullets. Most people don’t believe that. And they probably shouldn’t.

 

But what would the country do if the man just went away? Would the American life of “toil and effort, of labor and strife” change? Or, for the 90% of us who aren’t paid (politically or implicitly) to maintain asset inflation in food/energy prices finally get some relief?

 

I think the answers to these very simple questions are simple. And, until we have the free-market spine to face the long standing US economic truth that the American consumption economy runs faster and more sustainably when the things we consume fall in price, our lives will remain more strenuous.

 

Many disagree with me on that. Many think that Bernanke’s Dollar Debauchery and reflexive, short-term, commodity and stock market inflations will magically create economic growth. But they have not. They have slowed real (inflation adjusted) growth.

 

On CNBC last night, a US economist by the name of Joe Lavorgna (Deutsche Bank) called my economic views “radical.” Joe seems like a nice guy, but his US Growth forecasts at the end of both 2007 and 2011 for 2008 and 2012, respectively, were radically wrong.

 

Being wrong is fine – it happens to me all of the time. But not learning from my mistakes would render me useless. To change, you need to evolve your process. You may fail, but people will respect you more for showing them how and why you are changing.

 

I am many things. I have many faults. But I am not a man of timid peace. If I fail in my assumption that a Strong Dollar will create a Stronger America, I will reluctantly, but transparently, throw in my own towel and hold myself to public account.

 

If I am right, I will have expected to have won. And you’ll be winning too.

 

“It’s hard to fail, but it is worse to have never tried to succeed.”

-Theodore Roosevelt, 1899 (The Strenuous Life)

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Natural Gas, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1714-1737, $108.89-111.48, $3.69-3.91, $80.87-81.37, $1.26-1.28, 1.55-1.68%, and 1364-1397, respectively.

 

Happy Thanksgiving to you and your loved ones,

KM

 

Keiith R. McCullough
Chief Executive Officer

 

Strenuous Life - Chart of the Day

 

Strenuous Life - Virtual Portfolio


Cliffs And Peaks

 

Hedgeye CEO Keith McCullough appeared on CNBC's Fast Money this evening to discuss the fiscal cliff and whether or not corporate earnings have peaked. Our view since March has been that global growth and earnings are slowing; the sell-side essentially took the contra view on global growth and tried to cover up by stating that earnings would be fine. It shows how the sell-side's business model is fading and how desperate Old Wall is trying to save face.

 

As far as the fiscal cliff goes, the likelihood of politicians in Washington working together has the same chance as the Dow hitting 30,000 by year end. 

 

Watch the video clip we've posted for Keith's full take on the market and the cliff.


RESCHEDULED AGRICULTURAL EXPERT CALL; DIAL-IN AND MATERIALS

Takeaway: We apologize for the inconvenience, the Agricultural Call will be held tomorrow at 11am EST, the dial-in information will remain the same.

Please CLICK HERE to access the presentation. Dial in 5-10 minutes prior to the 11:00am EST start time using the number provided below. If you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 611762#

RESCHEDULED AGRICULTURAL EXPERT CALL; DIAL-IN AND MATERIALS  - Ag.Call

 

Restaurant Tickers Affected:

DRI, BLMN, TXRH, WEN, JACK, MCD, PNRA, PZZA, DPZ, YUM, CAKE, EAT and CMG

 

Food Processing Tickers Affected:
TSN, SAFM, SFD, HRL, PPC, CAG, DF and MON 

 

 

Tomorrow, December 5th, at 11:00am EST the Hedgeye Macro Team and Restaurants Team will be hosting an Agricultural and Consumer Economics Expert Call with Professor Darrel Good of the University of Illinois. Good has been part of the faculty since 1976 and took part in developing a comprehensive farm risk management website (www.farmdoc.uiuc.edu). His efforts are now focused on the performance of grain futures contracts as well as corn and soybean yield trends. 

  

Topics will include: 

  • Supply side - planting intentions and farmer's economics
  • Demand side - key drivers of demand - ethanol, protein, consumption (domestic and abroad)
  • General long-term trends to think about for farming - utilization, fertilizers, seed evolution
  • Thoughts on USDA projections, and their historical accuracy and what the implications are now
  • View on supply, demand, key drivers and prices for:
    • Corn
    • Wheat
    • Soybeans
    • Cattle
    • Chicken  

 

Good's Background

Darrel Good has a comprehensive understanding of the agricultural markets and economic implications. "There was a time period in the early seventies when grain markets changed dramatically," said Good. "Russia started importing grain, prices just exploded to the upside and there was renewed interest in markets and prices. I was hired to help develop a very extensive educational program in marketing and risk management."  

  • Professor in the department of Agricultural and Consumer Economics, is marking his 33rd year with the University of Illinois
  • Good and two other faculty members developed a seminar called "Price Forecasting and Sales Management"
  • One of the founding members of the farmdoc team
  • He writes one of the featured newsletters on the farmdoc site, Weekly OUTLOOK , and he is a primary contributor to the AgMAS section
  • Current research includes:
    • Evaluation of the pricing performance of agricultural market advisory services
    • Evaluation of USDA production and price forecasts
    • Evaluation of pricing performance of Illinois corn and soybean producers  

 


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 80.33%
  • SHORT SIGNALS 78.51%

Buy Consumer: SP500 Levels, Refreshed

Takeaway: If oil (and food) continues to deflate, consumers get a real-time tax cut. That’s bullish, for consumers.

This note was originally published December 04, 2012 at 11:00 in Macro


POSITIONS: Long Consumer Discretionary (XLY), Short Industrials (XLI) and Utilities (XLU)

 

I have no idea what the next government catalyst is going to be, but those who begged for more government have no business whining about it.

 

The only thing I know is that if oil (and food) continues to deflate, consumers get a real-time tax cut. That’s bullish, for consumers. Period.

 

Across our core risk management durations, here are the lines that matter to me most:

 

  1. Intermediate-term TREND resistance = 1419
  2. Immediate-term TRADE support = 1404
  3. Long-term TAIL support = 1366

 

In other words, if 1404 holds, a re-test of 1419 on the upside is probable. A close above 1419 would be explicitly bullish. On the downside, if 1404 doesn’t hold, it’s a long way to 1366. But that long-term TAIL support is good to have underneath.

 

Keep moving out there,

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buy Consumer: SP500 Levels, Refreshed - SPX


Golden Dollars

Over the last three years, gold has slowly built its way up in price as the US dollar is devalued by the Federal Reserve. In August of this year, the dollar began a particularly nasty decline while gold sought out a meteoric rise. Remember: get the dollar right and you get a lot of other things right. This applies to gold which has been rising over the past week (save for today's sell off) thanks to weakness in the dollar.

 

Golden Dollars - goldusd


URBN: Idea Alert

Takeaway: We think this high quality turnaround story is still in the early stages and expect upward earnings revisions ahead in 2013.

We’re adding URBN to the long-side of our Real-Time Positions yet again. We think this high quality turnaround story is still in the early stages. The long term story has not changed, but the near-term setup has. Buying on Red.

 

We published it first on 3/22 with the stock at $28. Then again at $26 on 5/22. Today we have an opportunity to publish it again in the wake of a 'less than breathtaking' quarter. Though we think we'll have the opportunity to remind you of our thoughts again 20% higher a year out. 


Underlying business trends came in largely as expected in the most recent 3Q, but importantly posted continued improvement in fundamentals. Importantly, Anthro is reaccelerating headed into a highly anticipated holiday season for the brand. With a rebound in comps along with new store, online, and international growth opportunities, we see a sustainable return to low double-digit top-line growth. Moderating markdown rates coupled with tighter inventories (see SIGMA below) is gross margin bullish at the same time the company is beginning to leverage its investment spending including its new DC. This call isn’t predicated on a return to prior peak margins (18%+) to work. In fact, we’re shaking out at +/- 16% margins over the next two years which will likely prove conservative.


The reality is that sentiment is still not overly bullish with 46% Buy ratings from the 31 firms that cover the name. While modestly more bullish than the 43% Buy rating mix YTD, it’s well below the 60%-80% mix from 2008 through 2010.


We’re shaking out ahead of the Street in the upcoming quarter as well as +12% and +20% above consensus EPS in 2013 and 2014 respectively. After nearly two years of declining estimate revisions, we think we’re at an inflection point of what we expect to be multiple upward earnings revisions in 2013. It's not cheap, and it’s a slow grind to full recovery. But from where we sit, boring can still work. 

 


URBN Risk Management Levels:

 

URBN: Idea Alert - URBN TTT levels

 

URBN SIGMA is back in the sweet spot (sales outpacing inventory growth with margins expanding):

 

URBN: Idea Alert - URBN SIGMA

 




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