• run with the bulls

    get your first month

    of hedgeye free


Housing's Parabola

Takeaway: Here's some more evidence that supports our case that housing is a lot stronger than many think.

Financials sector head Josh Steiner put out a posting in December plotting two possible trajectories for housing growth: “linear,” and “parabolic.” 


Steiner says the market sees Linear growth in the housing sector.  He believes they are wrong.  His work indicates the issue in the housing sector will not be weak demand, but shortage of supply. 


New construction slacked off in recent years over fears of a slowdown.  This led to reduced capacity in the building industry, which will now hold back an acceleration of new construction.  Tuesday’s housing starts number for February was strong (see chart below), but Steiner says the industry remains below capacity to build new homes to meet current demand.  This will be something of a headwind for overall growth, but should drive prices substantially higher in the near term, as there will simply not be enough homes to meet demand.


A recent look at a major Harvard study shows immigration tracking above the high end of the estimates range.  New immigrant statistics are a significant component of standard models of growth in new household formation. 


This provides one more metric on top of earlier Hedgeye work that saw an increase in live births and pet buying, for example – key components of the housing equation – that should keep housing demand extremely robust. 


Finally, Steiner characterizes housing as a “Giffen Good,” an economic term meaning an item where demand increases as prices go up – a seeming inversion of the Law of Supply and Demand.  The coming shortage in new homes should drive a surge in price – which should continue to drive demand beyond current linear projections. 


Welcome to the Housing Parabola.

Housing's Parabola - SF Starts  2

FedEx: Clock Starts Now

Takeaway: While a disappointing quarter, the April 1 capacity reductions suggests the inflection point in Express margins should be here.

FedEx:  Clock Starts Now


  • Specific Timing Positive:  Excess FedEx Express capacity, particularly in Asia, has been a problem for a many quarters.  While a smooth transition with intact service levels is obviously critical, the April 1 specific date for Asia capacity reductions is a positive.   On the FY2Q earnings call, management commented that we should see margin improvement in FY4Q and the April 1 date seems consistent with that outlook.  In short, we should see a FY4Q performance that is significantly better than FY3Q. 
  • Probably a Lower Bar:  Since 2016 FedEx Express cost reductions of $1.6 billion are measured against 2013 results, the Express restructuring may now be against a slightly lower bar.  While that is incrementally negative, the overall opportunity remains enormous relative to FDX's market value.  We also suspect that the company can exceed its cost reduction goals.  The company commented that the cost cuts are on track and that much of those benefits should be achieved by FY 2015.
  • It’s Always a Competitive Issue:   International Express is a cost leadership industry, in our view.  Operating with excess capacity, misallocated network capacity and old aircraft is a recipe for weak margins, since competitors can price based on their lower cost structures.  Retiring 727’s “early” would have meant retiring them some years ago, in our view.  Retiring them ASAP seems like a fantastic plan and an easy way to expand margins, as does removing excess capacity.

FedEx:  Clock Starts Now - 1t



  • Not Really Volumes:  While Express volumes are not exploding higher, most of FedEx Express’s FY3Q pain seems self-inflicted.  While painful for investors today, it should be fixable.  International Express volume has been shifting toward slower, cheaper channels for a while and the company is finally responding.
  • Ground Fine:  FedEx ground continued to take share.  Margins faced a tough comp on a one-timer last year.  Growth in SmartPost is likely to limit margins, but is a result of a market expansion and not a market problem, in our view.
  • Domestic Express Improved: Domestic Express apparently improved, with International Express the key laggard....
  • International Delay Could Possibly Mean TNT Deal:  That FDX did not take stronger actions in the quarter to rationalize International Express capacity may mean that it is waiting on a TNT integration.  FDX management discussed network imbalances on the call.   That is speculation on our part, but a TNT transaction would more effectively balance the international network, in our view. 

FedEx:  Clock Starts Now - 2t


  • If DHL Can Do It…:  We have confidence that FedEx Express can dramatically improve its margins toward peer levels for a number of reasons.  First, the industry is well structured with two competitors domestically and basically three and a half internationally.  FedEx has strong market positions in the Americas and Asia.  Another indication that FedEx Express can restructure successfully is that Deutsche Post’s DHL Express Division did so from a much worse operating position.  

FedEx:  Clock Starts Now - 3t



  • A Long-term Long Story:  Since our FDX black book, we have expected that FY4Q 2013 (next quarter) should be the inflection point for Express margins. We obviously did not expect the sequential margin drop this quarter, but do not see it as a meaningful risk to our thesis.  If FedEx Express can match competitor margins by FY2016, FDX should find itself with two businesses that are each worth roughly what the company currently trades for.  To the extent that margins start to expand next quarter, the market may start to price that outlook in ahead of its actual achievement.  We continue to think that FDX is one of the best long opportunities in the sector and would use weakness in coming days to add positions at what we expect to be the Express margin inflection point.




Today: Expert Call with William W. Keep on Pyramid Schemes and the Multi-Level Marketing Industry

The Hedgeye Consumer Staples team, led by Rob Campagnino, will be hosting an expert call featuring William W. Keep TODAY at 1:00pm EST entitled "Pyramid Schemes and Multi-Level Marketing."



  • Date: Monday, March 25th at 1:00pm EST
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 587456#
  • Additional reading materials: CLICK HERE



  • What is Multi-Level Marketing (MLM) and where does it come from?
  • What are the key factors that determine a pyramid scheme versus a legitimate MLM company?
  • Framing the industry's learnings from such pyramid schemes as Equinox, Burn Lounge and Fortune Hi-Tech Marketing
  • Discussion of the FTC's role in the industry
  • Contextualizing Herbalife moving forward




Keep is a professor of marketing at The College of New Jersey and currently serves as Dean of the school. His research and writings -- published in the Journal of Marketing, the Journal of Public Policy and Marketing, the Journal of Business Ethics, and The Chronicle of Higher Education, among others -- focus on long-term business relationships, business ethics, public policy and higher education. As a consultant he worked with a variety of firms and served as an expert witness in the prosecution of pyramid schemes, including Security Exchange Commission (SEC) v. International Heritage Inc., at the time the largest pyramid scheme ever prosecuted by the SEC. Keep has appeared on CNBC to discuss the topic of pyramid schemes, the MLM industry, and Herbalife and published articles on the subjects for CNBC and Seeking Alpha.


Professor Keep holds a PhD in Marketing from the Eli Broad College of Business at Michigan State University (MSU) and a B.A. from James Madison College at MSU in social science and economics.




Please email to obtain the dial-in information for this call and a copy of the presentation, or to learn more about our research.




Rob has nearly 20 years experience in the industry and within the last 5 years on the buy side at some of the top hedge funds in the business, including Pioneerpath, Diamondback Capital, and Searock Capital. Prior, he was a senior equity analyst at Prudential Securities where he was consistently Institutional Investor ranked. Before Prudential he was at Sanford Bernstein as an equity research associate covering food, beverage, and retail. He began his career as a strategic consultant with PricewaterhouseCoopers. Rob has a MBA from Columbia and BA in Economics from Duke.



Hedgeye Risk Management is a leading independent provider of real-time investment research. Focused exclusively on generating and delivering actionable investment ideas, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts - united around a vision of independent, uncompromised real-time investment research as a service.

Footwear: Market Share By Numbers

Takeaway: Here’s who’s gaining share, who’s losing it, and who barely has its head above water.

This note was originally published March 19, 2013 at 20:56 in Retail

Here’s a review of who’s gaining share, who’s losing it, and who barely has their head above water. Hint: a) Nike, b) AdiBok, c) Unde rArmour


Here’s an overview of market share winners and losers, based on NPD’s monthly market share data:


a)      Nike Brand market share is parabolic. Brand Jordan and Converse are both healthy, but stable.


b)      AdiBok is a train wreck – both sides of the house. It’s a good thing that the brands have better allure outside the US.


c)      UnderArmour is barely UnderWater. The general trajectory of its market share change is positive, but still unable to sustain share above 1% of the US market.


d)      Puma is in a death spiral.


e)      New Balance continues to grind higher in regaining its position as one of the top five brands. Its share now exceeds Reebok and equals Adidas.


Nike Brand Market Share

Footwear: Market Share By Numbers - nikebrandmarketshare

Source: NPD


Brand Jordan Market Share

Footwear: Market Share By Numbers - brandjordanshare

Source: NPD


Converse Market Share

Footwear: Market Share By Numbers - conversemarketshare

Source: NPD


Adidas Brand Market Share

Footwear: Market Share By Numbers - adidasmarketshare

Source: NPD


Reebok Market Share

Footwear: Market Share By Numbers - reebokmarketshare

Source: NPD


UnderArmour Market Share

Footwear: Market Share By Numbers - underarmourmarketshare

Source: NPD


New Balance Market Share

Footwear: Market Share By Numbers - newbalancemarketshare

Source: NPD


Puma Market Share

Footwear: Market Share By Numbers - pumamarketshare

Source: NPD

Transparency, Accountability and Trust

Client Talking Points

Real Conviction

Transparency, accountability and trust – those are the key tenets of how we approach things here at Hedgeye. We have been bullish on US equities, and we have time-stamped our positions and have been completely open and transparent about them. So, yesterday, when the rest of the world was calling for the end of the world and wrung their hands over a three-day losing streak, we did what we said we would do: we bought the SPY. That’s who we are and that’s what we do.

Other Markets Aren’t Worried, Either

The German Dax moved up another 0.8% last night, and is closing in on a five-year high. Meanwhile, the Shanghai Composite ripped 2.7% higher. So, it’s not the end of the world. But, if you feel the need to short, then short Europe. Just make sure you’re shorting the right markets like Italy, Russia and France in our opinion.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


“You are either right or wrong in this business – humility is in being accountable to both.” -- @KeithMcCullough


“Don’t cry because it’s over. Smile because it happened.” – Dr. Seuss


8, the seed of Robert Morris in the NIT college basketball tournament, who upset Kentucky last night


TODAY’S S&P 500 SET-UP – March 20, 2013

As we look at today's setup for the S&P 500, the range is 27 points or 0.67% downside to 1538 and 1.08% upside to 1565.            














  • YIELD CURVE: 1.69 from 1.66
  • VIX  closed at 14.39 1 day percent change of 7.71%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, March 15 (prior -4.7%)
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC announces rate decision, releases summary of economic projections
  • 2:30pm: Fed Chairman Ben Bernanke holds news conference


    • Obama’s first visit to Israel; 3-day trip includes mtgs, news conferences with Palestinian Authority President Mahmoud Abbas, Jordanian King Abdullah II in Amman
    • 10am: Sen. Judiciary Cmte hold hearing on domestic drones, law enforcement, privacy issues
    • 11am: Interior Dept opens bids to lease 38.6m acres off coasts of La., Miss., Ala., for exploration that may tap 1b barrels of oil, 4t cubic feet of natural gas
    • 2:30pm: FAA Admin. Michael Huerta, NTSB Chairman Debbie Hersman testify at Senate Commerce Cmte hearing on FAA’s safety initiatives and the effect of sequestration
    • 3pm: Japan Intl Transport Inst forum on vehicle safety w/ speakers from NHTSA, Japanese regulator and Toyota


  • Bernanke seen keeping QE pace until 4Q as Fed meets
  • Freddie Mac sues BofA, UBS, JPMorgan for alleged Libor rigging
  • Europe weighs Cyprus’s fate after lawmakers reject bank levy
  • BlackRock’s CEO Fink says Cyprus is not major problem
  • HP holds annual meeting amid dismay over Autonomy purchase
  • Apple may face sanctions in privacy suit over document sharing
  • Hostess wins approval of asset sales of more than $800m
  • MF Global trustee reaches agreement with JPMorgan
  • Chesapeake trial over $1.3b bond call set for April 23
  • Wall Street may win swap-rule reprieve in House legislation
  • Vodafone said to be ready to accept lower debt rating on M&A
  • Yahoo may buy stake in France Telecom’s Dailymotion: WSJ
  • Norwegian Air plans follow-on order for stricken Boeing 787
  • Transocean “should have done more” before blowout, CEO says
  • Los Angeles to halt purchases of coal-generated electric power


    • Lennar (LEN) 6am, $0.16 - Preview
    • General Mills (GIS) 6:59am, $0.57
    • FedEx (FDX) 7:30am, $1.38 - Preview
    • Actuant (ATU) 7:30am, $0.37
    • Herman Miller (MLHR) 4pm, $0.28
    • Oracle (ORCL) 4:01pm, $0.66
    • Tumi (TUMI) 4:01pm, $0.26
    • Guess (GES) 4:03pm, $0.87
    • Jabil Circuit (JBL) 4:30pm, $0.54
    • Clarcor (CLC) After-mkt, $0.46


  • WTI Crude Oil Rebounds in New York After Biggest Drop in a Month
  • Arabica’s Allure Returning for Roasters After Rout: Commodities
  • Gold Trades Below Three-Week High as Investors Weigh Cyprus, Fed
  • Gold Falls From Three-Week High as Investors Weigh Fed, Cyprus
  • Wheat Gains on Signs of Increasing Demand, U.S. Weather Concerns
  • Biggest Exporter Australia Increases Iron Ore Forecast on China
  • European Council Votes to End Sugar Quotas in 2017, EU Says
  • Physical Lead Market Seen by Macquarie Under Downward Pressure
  • Rebar Rises for Second Day as Moving Average Signals Rebound
  • Milk Jumps to Record on New Zealand’s Worst Drought in Decades
  • Russia, Egypt Yet to Contribute to AMIS Farm-Commodity Database
  • Wheat Buying by Bangladesh to Climb as Price Drop Boosts Demand
  • Olam Shares Top Level Last Reached Before Carson Block Attacked
  • Arabica Coffee Gains as Roasters May Switch Blends; Sugar Rises          


















The Hedgeye Macro Team









real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.