Today we shorted Coach (COH) at $50.31 a share at 2:25 PM EDT in our Real-Time Alerts. We are going to be long of Livestock in manpurses. Back in the saddle shorting one of our favorite short ideas in consumer in the last 6 months, Coach (COH) = immediate-term TRADE overbought.




  • Carnival’s company margins (both North American and EAA brands) have declined in the past couple of years.
  • Higher fuel expense is much to blame but a rise in the onboard & other expense bucket is also pressuring costs.
  • The chart below shows that onboard & other margins not only have stopped improving but actually fell in recent quarters. 
  • Management guided onboard spend in 2013 to be similar to 2012; let’s see how much of that flows to the bottom line, beginning with 1Q earnings in 2-3 weeks



EURO: How Low Can You Go?

In the immediate-term scheme of things, we believe that there will be continued pressure on the Euro due to the uncertainty surrounding the next Italian government.  Further, we think that given the power of social media and the strong popular support for Beppe Grillo’s Five Star Movement, his call for an online referendum on Italy’s membership in the EUR could put further downside pressure on the cross. As you can see in the chart below, the EUR/USD (FXE) is dangerously close to breaking its TAIL line of support at $1.30.


EURO: How Low Can You Go? - zz. eur usd normal

Early Look

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DJIA: All-Time High

Takeaway: The US economy continues to recover with housing and labor markets leading the pack. Consumption = growth = upside surprise.

Today the Dow Jones Industrial Average surpassed its all-time high of 14,164 made back in 2007, reaching 14,272 intraday. Last week, Hedgeye Director of Research Daryl Jones appeared on CNBC and laid out our bullish case for US equities. With the Dow making new highs today, our bullish thesis is stronger than ever and we expect stocks to continue to climb higher as the US economy grows along with the labor and housing markets.


DJIA: All-Time High - dow

More Bullish: S&P 500 Levels, Refreshed

Takeaway: Above 1519 (weekly closing high), the US stock market is more bullish; below it, less bullish. Risk changes fast.

This note was originally published March 05, 2013 at 11:38 in Macro

Tops are processes, not points.


That’s certainly not to say we’ve reached the peak of the domestic equity market, however.


Rather, it’s a less-than-subtle reminder – especially to all those who are trying to make their respective careers by calling for what could eventually amount to the third major top in the US equity market of the past ~13 years – that risk can get exhausted in both directions – particularly when the fundamental research signals continue to confirm the price trends.


On the fundamental research front, the recent string of domestic economic data has been quite confirming of our 1Q13 Macro Themes – particularly our #GrowthStabilizing and #HousingsHammer views:


  • ISM Manufacturing PMI: 54.2 in FEB from 53.1 in JAN; New Orders up +4.5ppts. MoM to 57.8
  • ISM Non-Manufacturing PMI: 56 in FEB from 55.2 in JAN; ; New Orders up +3.8ppts. MoM to 58.2
  • Conference Board Consumer Confidence Index: 69.6 in FEB from 58.4 in JAN
  • University of Michigan Consumer Confidence Index: 77.6 in FEB from 73.8 in JAN
  • Correlogic Nationwide House Price Index: +9.7% YoY in FEB from +9.7% in JAN; the +11.3% rate of YoY appreciation in non-distressed properties was the fastest pace since 2009


As a reminder, the key takeaways from the aforementioned themes were (as it pertains to domestic financial markets):


  • LONG Domestic Equities (up over +8% YTD)
  • SELL/SHORT Fixed Income (UST 10Y yield up around +14bps YTD)
  • LONG US Dollar (DXY up around +3% YTD)
  • SELL/SHORT Commodities (CRB Index down more than -1% YTD)


For now – and ostensibly forever – sticking to the #process trumps making newsy, analytically-reckless market calls. Moreover, our #process is specifically designed to help our clients accomplish three things:


  1. Manage immediate-term market risk;
  2. Front-run intermediate-term trends; and
  3. Contextualize long-term cycles with a broad range(s) of economic history.


Process is king and our process continues to support maintaining a bullish bias on the US equity market.


Darius Dale

Senior Analyst


More Bullish: S&P 500 Levels, Refreshed - SPX

ECB on Hold, EUR Pressured

Takeaway: ECB rates unchanged on Thursday and EUR/USD continued downside pressure alongside Italian election uncertainty.

Positions in Europe: Short France (EWQ)

ECB on Hold

On Thursday the ECB’s governing council convenes; we expect no change to the main interest rates. Our rate position is largely in agreement with consensus -- 44 of 48 economists polled by Bloomberg expect no change.


This position is grounded in recent data that is supportive of an “accommodative” hands off approach from Draghi – CPI came down over recent months and is resting steady at 2.0% Y/Y in FEB, exactly at the ECB’s targeted level. PMIs across the core fell in FEB vs JAN, but beat initial expectations. While the Eurozone unemployment rate ticked 10bps higher to 11.9% in the month, the rate has historically been higher than the U.S.’s and is tame compared to peripheral figures.  In February Eurozone confidence figured improved, as did retail sales to -1.3% JAN Y/Y (exp. -2.9%) vs -3.0% DEC and industrial production improved to -2.4% DEC Y/Y vs -4.0% NOV.


Further, Draghi’s positioning has the added support from the conclusions of the Eurozone finance ministers meeting (on Tuesday), which was dovish, promoting a willingness to extend country deficit reduction targets due to the “pains” associated with austerity.

  • Specifically, EU Economic and Monetary Commissioner Olli Rehn had this to say: “the economic strains may also justify in a certain number of cases reviewing deadlines for the correction of excessive deficits.”
  • Of mention is that France’s deficit target of 3% looks to be pushed from 2013 to 2014.

While we think that investor sentiment is lower on the region currently due to concerns over Italy – as compared to the optimism in the back half of 2012 following the announcement of Draghi’s OMT –– we expect Draghi to keep his policy powder stowed on Thursday until there is a more meaningful flair-up in risk or greater change to the underlying data the bank tracks.


ECB on Hold, EUR Pressured - z. ecb rates




Broadly we think the uncertainty around the next Italian government will put downside pressure on the EUR/USD. Further, we think that given the power of social media and the strong popular support for Beppe Grillo’s Five Star Movement, his call for an online referendum on Italy’s membership in the EUR could put further downside pressure on the cross. 


Our critical quantitative lines on the EUR/USD (which can be played via the etf FXE) are outlined in the chart below:


ECB on Hold, EUR Pressured - zz. eur usd


The most recent weekly CFTC data (from 2/26) shows a decided swing into a net bearish position on the EUR/USD, with a steady decline since a recent bullish peak on February 5th, which we think primarily reflects the uncertainty coming into the Italian election on February 24-25. We expect a long runway of uncertainty on the next Italian government, with the first semi catalyst not coming until March 15th when the presidents of the lower and upper houses are expected to be elected. 


ECB on Hold, EUR Pressured - z. cftc


Matthew Hedrick

Senior Analyst

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