Morning Reads on Our Radar Screen

Takeaway: A quick look at some stories on our radar screen.

Keith McCullough – CEO

A Plea for Caution From Russia (KM note: It’s time for Obama to shut Putin up with currencies of mass appreciation aka #StrongDollar > via New York Times)

Jobless claims drop below 300,000 (via Marketwatch)

Li Says China Rebound Not Yet on Solid Foundation (via Bloomberg)

China Statistics Chief Says No Tolerance for Fake Data (via Bloomberg)

Colombia arrests woman 'with cocaine' in pregnancy bump (via BBC)


Morning Reads on Our Radar Screen - poo9


Todd Jordan – Hotels & Gaming

Hilton Worldwide Files for $1.25B I.P.O. (via DealB%k)


Howard Penney – Restaurants

Review: Mighty Wings from McDonald’s (via GrubGrade)

Dunkin' Donuts to Enter UK Market (via WSJ)

Inheriting the Family Apron (via New York Times)


Josh Steiner – Financials

U.S. Bank mortgage chief sees tough conditions ahead for industry (via StarTribune)

Umpqua Agrees to Buy Sterling Financial for $2 Billion (via Bloomberg)


Jonathan Casteleyn – Financials

Blackstone’s Hilton Files for $1.25 Billion IPO in U.S. (via Bloomberg)


Kevin Kaiser – Energy

The Best 9/11 Survival Story You've Probably Never Read (via Esquire)

ENR – Cheap for a Reason

Energizer fits the profile of a stock, at the very least, that we do not want to own. We expect the stock to underperform as competitive pressures continue to impact both the personal care and home product segments of the company’s business. Sluggish top-line performance, particularly in Personal Care, is weighing on expectations as cost savings are being pulled forward to maintain earnings growth.


Overview: Energizer is one of the largest manufacturers and marketers of primary batteries, portable lighting and personal care products in the wet shave, skin care, feminine care, and infant care categories. The company’s exposure to these respective product categories is detailed in the chart below.


ENR – Cheap for a Reason - enr rev by category



Fundamental Outlook: Energizer is widely known for its battery and lighting products but the company derives 54% of its revenue and 51% of its operating profit from the personal care category which has seen a deceleration in trends over recent months. The company has grown revenues and income at 8% and 26%, respectively, on a blended trailing-twelve month basis.


Personal Care: In the most recent quarter, Hydro Disposables offset sharp declines in U.S. men’s razors and shave prep sales as negative impact of promotional environment has created a more difficult competitive environment.


Household Products: Distribution losses at two U.S. retailers will impact numbers starting in 4Q, exacerbating the impact of declining category sales of roughly 2% and other company-specific restructuring-related factors.



Conclusion: Going forward, earnings targets may be met as cost savings are made but we believe the stock’s multiple is unlikely to appreciate meaningfully until investors see evidence of an acceleration in sales growth. The stock is currently trading at 13.7x forward earnings, which is close to the high-end of its range over the past four years. The bull case seems to be that earnings should grow as cost savings are implemented and, as a result, the multiple should expand. This thesis strikes us as similar to the bull case on KMB. In that instance, sluggish revenue growth has dissuaded investors despite cost savings driving earnings to meet expectations. As investors increasingly look for growth over yield, we expect ENR’s performance to underperform its peer group. We favor EL on the long side, at current levels, and would continue to be short KMB.


ENR – Cheap for a Reason - KMB ENR eps


ENR – Cheap for a Reason - enr levels



Rory Green

Senior Analyst





Companhia de Fomento Predial e Desenvolvimento Kong Sing Ltda won permission to build developer Chan Chor Tung’s 12-storey block of flats at the foot of Mong Ha Hill.  The premium for the 896-square-metre site is MOP23 million (US$2.9 million) with annual rent is MOP2,215.


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Oil Likes Putin

Client Talking Points


Yes - oil prices like Putin. Brent Oil broke its immediate-term momentum line of $115.11 last week. But it held our TREND support line and bounced right where it should have. Higher oil prices remain the biggest risk to global consumption growth. There’s only one real way for President Obama to fight Vladimir Putin on this – weapons of mass US currency appreciation. #StrongDollar


It's right back into crash mode for Gold and Silver this morning (Gold is down -20% year-to-date) after Gold saw its highest net long position since January. Remember, these are commodities – people chase price. The TREND resistance is firmly intact up at $1485/oz; TRADE resistance now $1389.


This is the first morning in weeks where Treasuries, Bunds, Gilts, and JGBs all have a bid (at the same time). They havve been getting absolutely killed, so this bounce was inevitable. But it is something to watch as US, German, British, and Japanese stocks all signal immediate-term TRADE overbought within my risk range model.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


If there is a sector more universally loved... with more groupthink than MLPs, let me know. I don't think there is. @HedgeyeENERGY


“I would rather be vaguely right than precisely wrong.”

- Keynes


The number of new applications for U.S. jobless benefits fell below 300,000 for the first time since 2006.

Sin's Knowledge

This note was originally published at 8am on August 29, 2013 for Hedgeye subscribers.

“The physicists have known sin; and this is a knowledge which they cannot lose.”

-Robert Oppenheimer


Got introspective accountability? After he (quickly) realized the capacity of the nuclear weapons he helped create, Robert Oppenheimer became very unpopular with the State – primarily because he held both himself and the government to account.


Can you imagine a central planner of the Bernanke epoch holding themselves accountable to the highest levels of food, energy, education, etc. inflation in world history? Nah. That would require un-spinning the truth.


And the truth is that American political scientists who engaged in devaluing the purchasing power of the American people to 40 year lows in Q2 of 2011 know that sin. This is a market knowledge that history will not lose.


Back to the Global Macro Grind


If you’ve sat across the table from me and my macro research team in the last few years, you’ll know that I refuse to have a debate about mean reversion risks without contextualizing the post Nixon low in the world’s reserve currency (see chart):

  1. Got Causality? Of course, when a country cuts rates to zero then whispers to everyone front-running their next move that zero really isn’t zero (for Bernanke 0 = 0 minus 1, 2, 3, 4? QE5?), its currency goes down, hard
  2. Post Nixon (i.e. post his devaluing the Dollar by abandoning the Gold Standard in 1971, purely for political gain), the US Dollar Index has never seen a lower-low versus the 2011 low; that’s also when Gold hit its all-time high

Since most global commodities settle in Dollars, why there’s been raging inverse correlation (Dollar Down = Commodities Inflation Up) alongside causality in this relationship is trivial to everyone other than the people who should be held responsible for it.


What is less trivial is all of the unintended consequences associated with the ultimate central planning sin (an un-elected overlord confiscating the purchasing power of The People). Here are some of the big ones:

  1. Commodity Bubble
  2. Bond Bubble
  3. Emerging Market Bubble

Yep, that’s going to be a lot for Bernanke’s children (and their children) to noodle over for the next century. That is, of course, unless the next guy or gal running the un-elected agency does what no modern Federal Reserve Chairman has ever not done – raise rates.

For the last 6-12 months, I’ve spent a lot of time ranting about these Global Macro Themes:

  1. #CommodityDeflation
  2. #RatesRising
  3. #EmergingOutflows

These are relatively easy long-term TAIL risk calls to make because all 3 of them are basically about unwinding all 3 of the aforementioned bubbles. Once prices stop making all-time highs (commodities, bonds, or currencies), there’s this big little risk management critter Bernanke has never mentioned under oath called asymmetry.


So, alongside an English major who has never traded a macro market in his life being the chief Keynesian access “economist” @CNBC, at this stage of the cycle this is what you get:

  1. US Dollar making a series of intermediate-term TREND higher-lows (off her all-time lows in 2011)
  2. US Interest Rates making a series of intermediate-term TREND higher-lows (off their all-time lows in 2012)
  3. Gold and food prices making a series of intermediate-term TREND lower-highs (off their all-time highs of 2011-2012)

All the while, what we still get from the consensus TV circus that is government #AccessMedia is a bunch of uninformed people begging for more of the drugs that the political scientists got rich selling us.


If I am not clear on my long-term policy view, let me state it plainly – stop devaluing the Dollar and trying to smooth economic gravity. If you ever want to see US growth expectations come back, you have to let the US Dollar come back (and let rates rise alongside her).


Why am I going off on this today? Well America, we’re at The Crossroad. Unwinding the sin embedded in Bernanke’s post 2012 Jackson Hole policy is what markets have been doing for 10 months.


Collectively, we either have the responsibility within all of us to rise up against the tyranny of easy money and currency debauchery, or we do not. At this point, I can only hope the people who voted for this government hold it to account.


Our immediate-term Risk Ranges across 6 Big Macros are now as follows:


UST 10yr Yield 2.72-2.93%

SPX 1628-1665

VIX 15.26-17.04

USD 80.91-81.69

Brent 111.63-115.98

Gold 1347-1428


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Sin's Knowledge - CHART

Sin's Knowledge - vp

September 12, 2013

September 12, 2013 - dtr



September 12, 2013 - 10yr

September 12, 2013 - spx

September 12, 2013 - dax

September 12, 2013 - dxy

September 12, 2013 - euro

September 12, 2013 - oil 


September 12, 2013 - sensex

September 12, 2013 - VIX

September 12, 2013 - yen

September 12, 2013 - natgas
September 12, 2013 - gold

September 12, 2013 - copper


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