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Buying The Love

This note was originally published at 8am on December 05, 2012 for Hedgeye subscribers.

“Buying love is as stupid as loving money.”

-Loesje

 

Off the ice, I’m a sometimes cuddly Thunder Bay bear. And since it’s the holiday season, I decided to spread some of the holiday cheer and went shopping yesterday. I love buying things on sale, so I bought some US Consumer stocks. Why some people only buy these things when they are green is still beyond me.

 

Clearly, buying the love here requires a suspension of disbelief. I get that. But I am also getting used to getting that. For most of 2012, the economy has not been the stock market. On global #GrowthSlowing, the bond market has been closer to the truth.

 

But what is the truth? That’s a question that people have been asking since Pythagoras did circa 530BC. I’m sure Christopher Columbus found some not so true truisms when he landed on the shores of Hispanolia today in 1492 too. We’re always learning something.

 

Back to the Global Macro Grind

 

The truth is that it helps to know when someone is lying to you. For example, look at the fine folks of the Political Class in Greece. Today, the Greeks got the nod as the “most corrupt” country in the European Union. Nice. Must do more bailouts.

 

In other love-oriented news this morning, it turns out that France’s sperm count just dropped by 32%. Now, if you are a single French male getting taxed at 75%, that’s a problem. The good news is that this isn’t new news. The French study cited by BBC News Europe this morning goes back to 1989. Centrally planned life was not cited as causal.

 

On a more serious note, why would you love buying US Consumer stocks here? The reason for that is as simple as it has always been in our Global Macro Economic model – deflating the Bernanke’s Bubble (commodities) is a real-time tax cut.

 

I know, I know – the whole Marxist tax demagoguery thing is still a factor out there. And I’m certainly not trying to downplay the confidence interval you’ll need to have in the bottom-up research that will get you to buy something on sale (74% of companies issuing guidance so far in Q412 have guided lower ) - but tickle me with something that isn’t French this morning and humor me.

 

The immediate-term risk management setup for US Consumer Stocks is as follows:

  1. SP500 held its immediate-term TRADE support line of 1404 yesterday
  2. Consumer Discretionary (XLY) held its immediate-term TRADE line of $46.49
  3. Consumer Staples (XLP) held its immediate-term TRADE line of $35.28

From an intermediate-term TREND perspective, the Commodity Deflation setup looks equally bullish:

  1. CRB Commodities Index Inflation remains in a Bearish Formation (bearish TRADE, TREND, and TAIL)
  2. Brent and WTI Crude Oil prices remain in Bearish Formations as well ($111.58 and $92.20 TAIL resistance, respectively)
  3. Food Prices (Coffee, Corn – and don’t forget Wheat! “cream of wheat” –Woody Allen) are in Bearish Formations too

So, while deflation of certain asset prices may not be good for some in the Political Class, it’s really good for the Rest of Us. If they are going to tax everything and anything that isn’t locked down, we’ll take some back-pocket relief where we can find it.

 

What are the risks to Buying The Love in US (or Global) Consumption stocks?

  1. The Government
  2. The Government
  3. And, The Government

You see, it’s only the Government that can impose Policies To Inflate on its people. Bastiat and von Misses called it plundering. That’s what politicians do – they plunder you so that they get paid (that’s why they call your taxes, “revenues”).

 

Moving along…  In other globally interconnected market news this morning:

  1. Chinese stocks stopped crashing (up huge overnight at +2.87% on the Shanghai Composite)
  2. Russian stocks = +1.75% today (out of crash mode as well, now only -17.5% from the March #GrowthSlowing top)
  3. Both Global Equity Volatility and Sovereign Bonds (Treasuries and German Bunds) are finally overbought

When bonds and volatility are immediate-term TRADE overbought, it’s easier to fall in love with stocks (for a day) too.

 

Our Risk Ranges (support and resistance) for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1694-1711, $109.12-110.69, $3.54-3.68, $79.52-80.32, $1.29-1.31, $1.59-1.66%, and 1404-1419, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buying The Love - Chart of the Day

 

Buying The Love - Virtual Portfolio


Chinese Rebar Nears '09 Lows

We’ve always been a fan of Chinese steel rebar as an indicator of Chinese construction activity. The spot price of Chinese rebar is now nearing 2009 lows, reflecting weak demand for the commodity. There’s now a wide spread between the price of Brent crude oil and Chinese rebar, which historically had a positive correlation. It will take a stronger US dollar and a boost in Chinese construction to bring the two commodities together again.

 

Chinese Rebar Nears '09 Lows - chinarebar


WYNN: Under Pressure

Wynn Resorts (WYNN) has had a tough time in Macau this year. The company is struggling to collect market share and revenues have been flat versus 2011 figures. While the Street consensus is that WYNN will see EBITDA growth of +3% over the next quarter, we see it falling 4%. Unless Wynn changes its junket commission and/or credit strategy, EBITDA growth is likely to remain flat at best until Wynn Cotai opens in 2016. Right now, the stock is under pressure with slowing market growth and hurdles like smoking restrictions and crackdowns on corruption in Beijing. 

 

WYNN: Under Pressure - wynn1


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Athletic FW Uptick

Takeaway: Performance categories returned to +HSD growth this week.

On the heels of recent volatility in athletic footwear retail names, this week’s athletic footwear sales came in better on the margin though underlying trailing 3-week figures decelerated reflecting the third consecutive week of industry sales declines.


Importantly, performance categories where FL and FINL are over-indexed were up +7.4% on the week compared to the broader industry down -3.7% reflecting a sharp rebound from last week and a return to a HSD growth trajectory.


The key brands of note continue to be Nike, Brand Jordan, and Under Armour who all gained share this week. We remain positive on NKE and FL and cautious on UA near-term.

 

Athletic FW Uptick - FW Table1

 

Athletic FW Uptick - FW 1Yr

 

Athletic FW Uptick - FW Table2

 

Athletic FW Uptick - FW Table3

 

Athletic FW Uptick - FW Spread

 


Keeping It Real

Client Talking Points

Calling The Shots

When we make calls or trades at Hedgeye, we make sure to timestamp everything we do. It's easy to say you saw a trend coming and put on a fantastic trade, but anyone can do that. We've only had four double digit losses out of several hundred trades this year and that's pretty damn good. Back in March, we made our Growth Slowing call that eventually turned into Earnings Slowing in Q3. With the housing market and stock market beginning to recover and commodities deflating, we're now in the camp of Growth Stabilizing. The fiscal cliff will play a big role in where we go from January and further out but right now, that's where we stand.

Asset Allocation

CASH 52% US EQUITIES 24%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
NKE

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

"Like most successful buy-side pros, my forecasts change daily b/c risk does" -@KeithMcCullough

QUOTE OF THE DAY

"What we anticipate seldom occurs; what we least expected generally happens." -Benjamin Risaraeli

STAT OF THE DAY

The 10-year Treasury yield hit 1.78% this morning, a seven week high.


Materials & Dial-in Information for Expert Call with John Taylor

Materials & Dial-in Information for Expert Call with John Taylor - taylorcallNEW

 

We will be hosting an expert conference call today, December 18th, at 1:30pm EST featuring Professor John B. Taylor of Stanford University. Professor Taylor is a highly regarded scholar known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. In the call entitled, Will Monetary Policy Take Us Over the Fiscal Cliff?, Professor Taylor will discuss our nation's current fiscal situation and the policy actions that are essential to augment our economy.

 

Please CLICK HERE to obtain a copy of the presentation and dial in 5-10 minutes prior to the 1:30pm EST start time using the number provided below. If you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 485213#

 

KEY TOPICS WILL INCLUDE:

  • Economic problems still remain detrimental to the nation's economic stability following the Presidential Election    
  • Continued policy to not deleverage has hindered economic growth
    • Fiscal, regulatory, and monetary
    • A drag will continue even if the fiscal cliff is avoided
  • Risks are two sided
  • A change in policy will bring back strong growth and stability

  

ABOUT JOHN TAYLOR:

  • Currently a Professor of Economics at Stanford University and a Senior Fellow in Economics at the Hoover Institution
  • Formerly served on the President's Council of Economic Advisers and as a member of the Congressional Budget Office's Panel of Economic Advisers
  • Served as Under Secretary of Treasury for International Affairs from 2001- 2005
  • Oversight of the International Monetary Fund and the World Bank
  • Responsible for coordinating financial policy with the G-7 countries
  • Accredited author, his latest the winner of the 2012 Hayek Prize, entitled: "First Principles: Five Keys to Restoring Americas' Prosperity"
  • Received numerous awards for his work as a researcher, public servant, and teacher
    • Awarded the Alexander Hamilton Award for his overall leadership at the U.S. Treasury, the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis 

 


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 80.65%
  • SHORT SIGNALS 78.63%
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