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FL: Bear Growls

Takeaway: FW numbers definitely look sufficiently beared-up for FL this week. The flag is still yellow – not red. But we’re watching.

Footwear numbers definitely look sufficiently beared-up for FL this week. Total footwear dollars were down 6% for the week – marking the fifth consecutive deceleration in top-line on a trailing 3-week basis. We usually delineate between performance and non-performance, but even these numbers are ugly, with the weakest Performance sales trends since April. The spread between Performance and Non-Performance is also at its lowest range since September.

These numbers matter given that December accounts for about 12% of annual sales for Foot Locker and ~50% of Q4. It’s going to take a lot more than this for us to turn the yellow flag to red, as inventories – at least for the time being – are very clean. But given the pervasive view that the ‘sneaker cycle’ is going against us, this data is hardly comforting to the bull case.



FL: Bear Growls - FW Mo SalesPerc

We think that ultimately in this space ‘the tail wags the dog’ and that that the R&D cycle will fuel earnings upside. But we need to continue to see this in weekly sales results to be proved correct.


FL: Bear Growls - FW App 1yr trends


FL: Bear Growls - FL TTT

Holiday Sales: Golf Claps?

Looking at data from ICSC, holiday sales for this year are essentially in line with last year’s numbers. A bit on the weaker side and while not terrible, it’s nothing to get excited about. In each of the past two years, we saw an increasing decline in sales 3-4 weeks before the Christmas holiday, but then ‘catch up’ in the 1-2 weeks prior to the big day. With one week left in December, retailers will need to blow their numbers out of the water in order to impress. 


Holiday Sales: Golf Claps? - ICSC


Holiday Sales: Golf Claps? - ICSC2

Washington Playbook

Client Talking Points

The Grinches

Even with Christmas over and done with, the Grinch is still around. Instead of looking like a hairy, green monster with devilish eyes, he now looks a lot like the political class of America. Does anyone actually believe that President Obama and Congressional Democrats and Republicans will come to a solidified agreement by the deadline of December 31? Doubtful. What a way to bring in the New Year, right? Higher taxes and a bunch of politicians who don’t actually serve the public’s needs. Shameful. 

China's Bottom

In other news, it looks like China’s begun the bottoming process in commodities. Iron ore and rebar, two indicators of construction and the economy that we are fond of keeping an eye on, have had a strong quarter in terms of price appreciation. Growth is now stabilizing instead of slowing, this time on a global playing field. You’ve seen the housing market recovery and commodity drop out in the United States, now it’s time for other countries to give it a shot.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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.


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


“Better later than never @pdacosta: Spain's PM says does not rule out asking for European aidreut.rs/V8Rw5x” -@Nouriel


“Everything of importance has been said before by somebody who did not discover it.” -Alfred North Whitehead


The Financials Select SPDR ETF (XLF) is up +25.46% year-to-date, one of the best performing sectors in the market. Comparatively, Technology (XLK) is up only +12.69% for the same time period.

Rye and Coke

“An intelligent man is sometimes forced to be drunk to spend time with his fools.”

-Ernest Hemingway


In my homeland of the vast plains of Alberta, the drink of choice for many is Rye Whiskey and Coke.  Now normally, I wouldn’t start the Early Look discussing beverages of choices, but given what has been going on in Washington, D.C. over the last few months, what choice do any of us really have but to have a few cocktails to make ourselves feel better? Or, to Hemingway’s point, to enable us to at least suffer this political foolishness.


Now on one hand, I do give President Obama some credit for leaving the golf links early and coming back to work.  In reality, though, does anyone really believe that a last minute meeting tonight with Congressional leaders is going to solve either the fiscal cliff or the coming debt ceiling violation?  Personally, I hate to be consensus on this, but I sure don’t.  Currently InTrade has the probability of the debt ceiling being raised before December 31st, 2012 at 17%.


The issue currently in Washington is that Democrats and Republicans don’t agree with each other.  Ok, that’s not really a new issue, but heading into the deadline of December 31st neither side is acting like they want to work together and get a deal done.  This excerpt from a news article quoting House Minority Whip Steny Hoyer about sums up how divisive things are in the nation’s capital:


“In a sign of just how charged and hyperbolic this year-end debate has become, House Minority Whip Steny H. Hoyer, D-Md., used an unfortunately timed comparison that likened Republicans trying to use the debt limit for leverage on spending cuts to people threatening to shoot their own children.


It is somewhat like taking your child hostage and saying to somebody else, ‘I’m going to shoot my child unless you do what I want done.’ You don’t want to shoot your child,” Hoyer said at a press conference following a brief 10-minute pro forma session for the House.”


Obviously the timing of this quip was bad on many levels, but the reality is that this is obviously no way to set the table for some sort of grand bargain in today’s meeting with President Obama and the Congressional leadership.


So unfortunately heading into 2013, I hate to report but it is likely that politicians and policy continue to inform much of our investment decision making.  That is not to say that everything is negative of course.  In fact, in the Chart of the Day today I’ve borrowed a chart from our Financials Sector Head on the recently released Case-Schiller Housing Price Index. As the chart shows, the last five months (ending with October 2012) have seen consistent year-over-year national home price increases.  In the last couple of Early Looks I’ve been beating this like a dead horse, but this is a real positive for the U.S. economy and consumer.


Unfortunately, a home price recovery will only get us so far as yesterday’s consumer confidence number tells us.   This reading for December came in at 65.1 versus the 70.0 that was expected and the 71.5 reading in November.  So it seems that the uncertainty relating to the fiscal outlook in the United States has likely had an impact, as expected, on consumer confidence.


Given that, the looming Longshoreman strike that looks likely to occur could not be happening at a more inopportune time.  This looming strike will impact 14 major East Coast and Gulf Coast ports. In aggregate, these ports move more than 100 million tones of goods every year, which is about 40% of the nation’s containerized cargo.  So even a shut down of a few days is likely to have a meaningful effect on the economy.


In cheerier news, it is starting to look like the bottoming process in China is taking place.  In terms of commodities, both rebar and iron ore have had very strong quarters of price appreciation.  On the back of this, the Shanghai composite was up more than 1% over night to close at its highest level since the summer.  Once again, this plays into our theme of global growth stabilizing.


In lieu of regularly scheduled macro call this morning, we are going to have our Financials, Industrials and Consumer Staples Sector Heads join the morning call and discuss their top ideas and themes heading into 2013 (if you are not subscribing to receive the morning call service, email for details on how to gain access).  Since I’m the Director of Research at Hedgeye, I’ll take some liberty and highlight what I think are each sector’s top idea long ideas. In my view, they are as follows:


1.   Financials – TCF Financial (ticker: TCB) is a play on housing which is improving, is growing both loans and deposits at a healthy clip, and has a CEO who is older than average which may make it ripe for a takeout.  On a reasonable multiple of price-to-tangible-book, we think the stock has 25% upside over the next twelve months.


2.   Industrials – Paccar (ticker: PCAR) has been one of our key names since launching Industrials coverage earlier this year.  A key tenet of the thesis is struggles at key competitor Navistar, which were reaffirmed to us this week (over the last year Navistar’s class 8 market share has been cut in half).


3.   Consumer Staples – Archer Daniels Midland (ticker: ADM) is a name that we highlighted in our Consumers Staples launch a few weeks back.  High corn price negatively impacted ADM in 2012, but an increase in corn plantings in 2013 should be a beneficial tailwind to ADM.  At just around 1.0x price-to-tangible-book, ADM is trading at a serious discount to its 1.2 average on this metric.


On a closing note, please enjoy the New Year with your friends and loved ones.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $109.42-111.48, $3.51-3.61, $79.21-79.99, $1.31-1.33, 1.70-1.78%, and 1, respectively.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Rye and Coke - Chart of the Day


Rye and Coke - Virtual Portfolio


The Macau Metro Monitor, December 28, 2012




The Guangzhou-Zhuhai Intercity Railway will operate on January 1.  The Railway connects Border Gate to the city of Guangzhou in just 80 minutes, where passengers can transit to the Beijing-Guangzhou high-speed railway inaugurated on Wednesday.  The Intercity Railway will cut the journey between Border Gate and Guangzhou by at least 40 minutes as the current coaches take more than two hours for the trip even when there is no major congestion. 



Macau had 793,343 visitors during the week-long holiday from 20th to 26th December, which is 0.68% higher than last year.  According to the government’s figures, the Border Gate remained the largest crossing-point for foreign visitors, recording some 910,243 arrivals and 951,615 departures during the period.  The Outer Harbor Ferry Terminal remained the second-busiest port, recorded 198,998 arrivals and 176,796 departures; Pac On has 103,930 and 73,831 respectively.  



Visitor arrivals decreased by 1.8% YoY to 2,374,110 in November 2012.  The average length of stay of visitors stood at 1.0 day, up by 0.1 day YoY.  Visitors from Mainland China increased by 2.9% from November 2011 to 1,503,158, coming mostly from Guangdong Province (654,625) and Fujian Province (68,307); Mainland visitors traveling under the Individual Visit Scheme increased by 12.8% to 632,640.  Visitor arrivals from the Republic of Korea (34,686) increased by 14.2%; however, those coming from Hong Kong (529,911); Taiwan (79,884); and Malaysia (34,318) decreased by 10.0%, 11.0% and 3.3% respectively.  Long-haul visitors from Europe (28,763) increased by 7.7%, while those from the Americas (29,847) and Oceania (10,359) decreased by 3.0% and 7.3% respectively. 



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 80.46%
  • SHORT SIGNALS 78.35%