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Get Out of the Way, Ben

Takeaway: The greatest threat to US growth recovering is the government intervening in the economic cycle.

Editor's note: The brief excerpt below is from Hedgeye CEO Keith McCullough's morning research. For more information about Hedgeye's research products please click here.

 

Famed investor Warren Buffett told students at Georgetown University yesterday that, “The Fed is the greatest hedge fund in history.” He was trumpeting “how much money” the Fed makes. “It’s generating $80 billion or $90 billion a year probably… and that wasn’t the case a few years back.”

 

Isn’t that fantastic?

 

Get Out of the Way, Ben - Bernanke

 

One of the greatest financial minds in US history is marketing a political message that is about as anti-Benjamin Franklin as it gets. Anti-savings that is. Where in God’s good name do you think these “profits” come from?

 

It’s time to get our money out of the Fed’s hands and back into the hands of The People. We know how to generate returns. We’re the ones who are going to be doing the hiring when we make money. All the Fed’s “profits” do at this point is tax the American consumer. It’s called Down Dollar driven inflation. It’s regressive.

 

The greatest threat to US growth recovering is the government intervening in the economic cycle. There has never been a sustained US economic recovery that did not coincide with:

 

1.       Strengthening US Dollar

2.       Rising US Interest Rates

 

Why doesn’t every discussion about the Fed start and end with that?

 

Get Out of the Way, Ben - 888

 

 

 


PREDICTION: MERKEL WINS

Takeaway: While we believe Merkel will remain Chancellor, it’s unclear who her coalition partners will be.

German Federal elections will be held this Sunday. The race has been a tight one; not only in the last few weeks, but also over the last few months. While we believe that Angela Merkel will remain the Chancellor, with an estimated 30% still undecided, it’s unclear who her coalition partners will be. 

 

PREDICTION: MERKEL WINS - merks

 

In polling week-over-week, Merkel’s CDU/CSU party has held 40% while her current coalition partners, The Free Democrats (FDP), slipped half a point to 5.5%.  The opposition, led by Peer Steinbrueck’s Social Democrats (SPD), gained 1% on the week to 27%, while its potential coalition partners the Greens lost -2% to 9% and the Left gained half a point to 8.5%.  Other Parties, which include the anti-Euro Alternative for Germany (AfD), gained 1 point to 10%.

 

The polls equate to a lead of 1% for Merkel’s party with its current FDP coalition partners over the opposition SPD in coalition with the Greens and the Left.  Note that despite slight shifts in the polls, Merkel’s 1% advantage this week is the same as she had a week ago.   (See charts below)

 

As it relates to Monday’s financial markets, we expect that any coalition government that is formed with Chancellor Merkel’s party will represent a smooth transition to the market. 

 

PREDICTION: MERKEL WINS - hed1

 

PREDICTION: MERKEL WINS - hed2


Heading Into Germany’s Election on Sunday, Merkel Wins, Coalition Still Uncertain

German Federal elections are approaching this Sunday and the race has been a tight one, not only in the last weeks, but also the last months. While we believe that Merkel will remain the Chancellor, with an estimate 30% of pollster still undecided, it’s unclear who her coalition partners will be. 

 

In polling week-over-week, Merkel’s CDU/CSU party has held 40% while her current coalition partners, The Free Democrats (FDP), slipped half a point to 5.5%.  The opposition, led by Peer Steinbrueck’s Social Democrats (SPD), gained 1% on the week to 27%, while its potential coalition partners the Greens lost -2% to 9% and the Left gained half a point to 8.5%.  Other Parties, which include the anti-Euro Alternative for Germany (AfD), gained 1 point to 10%.

 

The polls equate to a lead of 1% for Merkel’s party with its current FDP coalition partners over the opposition SPD in coalition with the Greens and the Left.  Note that despite slight shifts in the polls, Merkel’s 1% advantage this week is the same as she had a week ago.   (See charts below)

 

As it relates to Monday’s markets, we expect that any coalition government that is formed with Chancellor Merkel’s party will represent a smooth transition to the market. As we describe further below, much of this “ease” is built on the fact that the SPD has a very similar outlook on EU and Eurozone policy.

 

Heading Into Germany’s Election on Sunday, Merkel Wins, Coalition Still Uncertain - yy. bar poll

 

Heading Into Germany’s Election on Sunday, Merkel Wins, Coalition Still Uncertain - yy. lt poll

 

 

We Expect Merkel Remains Chancellor, But Her Coalition Partners Are Uncertain

  • A critical lynchpin surrounds how much support the FDP receives. The FDP has been a weak coalition partner for Merkel, at times struggling to retain the mandatory 5% level across state elections.  Currently polling around the 4-6% level, FDP support is absolutely critical for Merkel to win a combined majority with her CDU/CDS party, if she does in fact want to extend her coalition.  It’s uncertain if the anti-euro Alternative for Germany Party (AfD) may sway voters away from voting FDP.
  • CDU/CSU and FDP Coalition Wins (known as the Black/Yellow Coalition or in German, Schwarz-Gelbe Koalition): We assign a continuation of the current coalition as the most likely outcome. Chancellor Merkel has enjoyed the popular support of the people. Despite dissatisfaction in bailing out member states, Germans have broadly applauded the way in which she’s handle the sovereign debt “crisis” and the majority of Germans favor remaining in the Eurozone.
  • CDU/CSU and FDP Coalition Does Not Win:  We expect the formation of a coalition government between Merkel’s CDU/CSU and Steinbrueck’s SPD (also known as the Grand Coalition, or Grosse Koalition), despite statements from Steinbrueck that he would not form a coalition with Merkel. Germany’s last Grand Coalition was in 2004-9.
  • On the anti-euro AfD party and undecided voters: Key considerations to this election are the support that the AfD party may receive (it’s currently around 3%, or below the 5% required to make it in the Bundestag, the lower house of parliament) and the large number of undecided voters, over 30% according to some polls. Commentators suggest that Germans may be embarrassed in polls to admit support for the AfD, and therefore the party will poll higher in the actual vote.  The AfD is a vehicle to express dismay with the Eurozone project and bailouts of member states.  It’s unclear just how much support they might come out with. 


CDU/CSU vs SPD: EU Policy Positions and Market Outlook

  • A key takeaway is that if the current coalition wins or a Grand Coalition with the SPD is formed, both coalitions are orientated in the same way on most EU policies, including:
  • Austerity: both parties favor fiscal consolidation at the state level, especially as a prerequisite for bailout funding,
  • Eurobonds: both parties are against issuing Eurobonds,
  • On the Banking Union: both are in favor of greater separation of ECB monetary policy and its supervisory role over the banks and regulation at the national level; both are opposed to a deposit guarantee fund,
  • On Greece: both parties recognize the likely need for a 3rd bailout; both are delaying any major decisions until after the election,
  • The outcome: Eurozone policy will like be unchanged; an “easy” transition should not disturb the markets.

 

EU/USD Levels (Updated)


Given The Bernanke’s “No Taper” announcement on Wednesday, our quantitative support levels on EUR/USD have moved higher. TRADE support was in the $1.30-31 range prior to the announcement, now it’s at $1.33, and what was intermediate term TREND support at $1.31 is now our long-term TAIL support line.  We expect an easy transition to Merkel’s new government will provide only further support in this cross, aided by a weaker USD on the back of Bernanke’s decision to push out the prospect of tapering its quantitative easing program.

 

Enjoy the weekend!

 

Heading Into Germany’s Election on Sunday, Merkel Wins, Coalition Still Uncertain - yy. eur usd  

 

Matthew Hedrick

Senior Analyst


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The Nike & Under Armour Show

Takeaway: From a brand perspective, it’s the Nike and UnderArmour show.

Editor's note: What follows below is a brief complimentary excerpt of a report released earlier this week by Hedgeye Retail Sector Head Brian McGough. For more information on how you can access McGough's highly-regarded research, please click here.

 

The Nike & Under Armour Show - shoe2

 

KEY TAKEAWAY TODAY

Athletic footwear sales continue to teeter on the zero growth mark in the US, though Athletic Apparel once again saves the day with growth in the low double digits. From a brand perspective, it’s the Nike and Under Armour show. The only other brand that’s showing up to play is Skechers.  

 

The Nike & Under Armour Show - bri1

 

The Nike & Under Armour Show - bri2

 

The Nike & Under Armour Show - bri3



What’s New Today in Retail (9/20)

Takeaway: Lots going on today. JCP, NKE, ADDDY, M, RL, PUMA, Clicks-to-Bricks concepts.

Company News 

JCP - Allen B. Schwartz Doesn't Renew Line at J.C. Penney

(http://www.wwd.com/retail-news/department-stores/allen-b-schwartz-doesnt-renew-line-at-jc-penney-7168130?module=hp-topstories)

 

  • "Allen B. Schwartz, co-owner, founder and design director of A.B.S. by Allen Schwartz, has pulled the plug on his Allen B. collection for J.C. Penney Co. Inc. after five years at the beleaguered retailer."
  • "Allen B., which started out as a sportswear collection but morphed into a dress line, was carried at 908 Penney’s stores. Schwartz said he designed, fit and sourced the collection, which was manufactured by Penney’s. The deal was under a royalty license."

 

Takeaway: If JCP wanted to keep this product, it would have kept the product. This is all a part of JCP getting its merchandise back on its feet and more appropriate for the core JCP shopper.

 

 

ADS - Adidas lowers FY guidance

(http://www.bloomberg.com/news/2013-09-19/adidas-cuts-2013-earnings-forecast-as-euro-gains-on-yen-to-real.html)

 

  • "Adidas AG...cut the low end of its 2013 profit forecast by 7.9 percent, citing the euro’s strength, a glitch in a Russian distribution site and weakness in the global golf market...Net income this year will be [820 million euros - 850 million euros]...Adidas had previously forecast net income of [890 million euros to 920 million euros]. Adidas also cut its operating margin forecast to about 8.5 percent from a previous forecast of 9 percent."

 

Takeaway: Definitely a sloppy preannouncement. The biggest notable is that it makes you think how infrequently this happens to Nike. It shows the quality gap between the two competitors.

 

NKE - Nike launches LunarFly 306  and shareholders approve CEO Mark Parker's 2013 compensation package of $15.4 million.

 

What’s New Today in Retail (9/20) - chart6 9 20

What’s New Today in Retail (9/20) - chart7 9 20

 

 

 

Takeaway: It’s good to be Mark Parker. No surprise here with either the level of compensation, or the approval of this year’s package. Note, however, that last year Parker made $35.2mm, including $23mm in stock awards. Yes, he’s taking a pay cut.

 

 

Neiman Marcus - Neiman launches ad campaign to promote new "Cusp" department that targets more youthful, hipper demographic

(http://www.wwd.com/media-news/fashion-memopad/harmonic-convergence-7170369?module=hp-media)

 

  • "The Neiman Marcus department and store that represents a hipper, more youthful demographic, has created a fall ad campaign that celebrates music and those who make it."
  • "The retailer chose up-and-coming rockers as models…[who] appear in ads wearing designs by Rag & Bone, Vince, Alexander Wang and Robert Rodriguez."
  • It seems as if everyone is launching a new ad or department centered on capturing the millennial shopper these days.

 

RL - Orland Bloom struts his stuff in the new Romeo & Juliet on Broadway in RL Denim and Supply Jeans

 

What’s New Today in Retail (9/20) - chart1 9 20

 

 

Takeaway: RL has been getting bolder with product placement. But unlike the US Open, they couldn’t have Orlando wearing a 12-inch Polo Pony on his back.

 

M - Macy’s is launch partner for Apple’s new streaming music service, iTunes Radio

(http://www.chainstoreage.com/article/macy%E2%80%99s-launch-partner-apple%E2%80%99s-new-streaming-music-service-itunes-radio)

 

  • "Macy’s announced that it is an exclusive launch partner for Apple’s new iAd-supported streaming radio service, iTunes Radio. In line with the retailer’s omnichannel strategy, Macy’s said the new service will allow it to reach a broad cross-section of consumers with compelling digital, visual and audio engagement experiences on their iPhone, iPad, iPod Touch, Apple TV, Mac or PC."

  

Takeaway: Not a surprise. Macy’s continues to make strides in furthering its OmniChannel  platform. We just question if people will pay for it.

 

LVMH - LVMH Acquires Stake in Nicholas Kirkwood

(http://www.wwd.com/business-news/mergers-acquisitions/lvmh-acquires-stake-in-nicholas-kirkwood-7169604?module=hp-topstories)

 

  • "...Moët Hennessy Louis Vuitton is to reveal today that it has taken a majority stake in London-based [women's shoe designer] Nicholas Kirkwood."
  • "The exact size of the stake and financial terms could not be learned. LVMH characterized the deal as a 'long-term partnership' that affirmed its commitment to 'nurture talent and creativity,' and said it would provide its expertise to help Kirkwood develop his brand internationally….At present, Kirkwood’s shoes are carried at about 150 department and specialty stores, and sold in three flagships: in London, New York and Las Vegas."

 

LVMH - Rumored to be in advanced talks to acquire J.W. Anderson

(http://www.bloomberg.com/news/2013-09-20/lvmh-said-in-advanced-talks-to-acquire-anderson-after-kirkwood.html)

 

  • "Moet Hennessy Louis Vuitton ...is in advanced talks to acquire a stake in fashion designer J.W. Anderson, according to two people familiar with the situation."
  • "LVMH...could sign a deal with London-based Anderson as soon as this month, said the people, who asked not to be named as the information is confidential."
  • "Jonathan William Anderson set up the label bearing his name in 2008, three years after graduating from London College of Fashion. He has collaborated with Gianni Versace SpA and Philip Green’s Topshop."

 

Takeaway: Someone is on a buying spree. Yeah, that’s suspect.

 

 

PUM - Puma Signs Jamaal Charles

(http://www.wwd.com/footwear-news/markets/puma-signs-jamaal-charles-7164367?module=hp-fn)

 

  • "Puma has signed Kansas City Chief’s running back Jamaal Charles to a two-year contract to be one of the faces of the brand’s training category for men."
  • "[He] will work with Puma on social media programs, beginning with a 'Get to Know Jamal' series of weekly videos that kicks off next week. He will also be featured in the brand’s 'Nature of Performance' campaign and will give input on the testing and development of future product."

 

Takeaway: Odd for Puma to deploy assets in the NFL. NASACAR and Indy? Yes. Football (Soccer)? Definitely. But NFL? It doesn’t sit well with us.

 

 

CFR - Richemont Said to Hire Adviser to Sell Lancel Luxury Bags

(http://www.bloomberg.com/news/2013-09-20/richemont-said-to-hire-adviser-to-sell-lancel-luxury-bags.html)

 

  • "...Richemont SA (CFR) has appointed an adviser to sell its luxury leather-goods brand Lancel, the maker of Brigitte Bardot handbags, according to two people familiar with the matter."
  • "Richemont hired investment bank Nomura Holdings...to help sell the brand, said the people, who asked not to be identified because the information is confidential. Lancel could be worth about 500 million euros ($668 million), according to one of the people...Richemont got control of the Paris-based brand when its Vendome unit bought it for 342 million francs ($375 million) in 1997."

  

TJX - TJX Quietly Relaunches Website

(https://www.sourcingjournalonline.com/tjx-quietly-relaunches-website/)

 

  • "With surprising stealth, T.J. Maxx (TJX) has revived its online presence. Quietly, without fanfare or even an official announcement, TJX just appeared online, after a protracted, eight year absence."
  • "TJX originally launched a retail website in 2004 but closed down after only a year, stymied by a weak response from its customers. Many experts believe that its unconventional business model was poorly suited to online retail."
  • "Now, TJX intends to streamline their internet offerings, focusing more on higher priced items and more exclusive brands."

 

HD - Home Depot Sending 20,000 Part-Timers to Health Exchanges

(http://www.bloomberg.com/news/2013-09-19/home-depot-sending-20-000-part-timers-to-health-exchanges.html)

 

  • "Home Depot...plans to end medical coverage for about 20,000 part-time employees and direct them to government-sponsored exchanges scheduled to open next month as companies revamp benefits to fit the U.S. Affordable Care Act."
  • "Employees with fewer than 30 hours a week will no longer be offered limited liability medical coverage, Stephen Holmes, a spokesman, said today by telephone. About 5 percent of Atlanta-based Home Depot’s 340,000 employees are enrolled in that plan.
  • This follows on the heels of similar announcements by Trader Joe's, UPS, and WAG.

 

BBY - Best Buy takes its vending machines from airports to…rest stops?

 

  • "These 'Best Buy Express' kiosks have been around since at least 2008, but mostly in airports—not off the New Jersey turnpike. ZoomSystems, the company that makes the kiosks, has created similar 'automated stores' for Apple and the Body Shop."
  • "Along with iPads, the machine offered iPhone cases, phone-charging equipment, audio cables to use in the car, Beats by Dre headphones, and other gizmos that would be helpful if you'd forgotten something at home."

What’s New Today in Retail (9/20) - chart3 9 20

 

 

Industry News

 

 UK Office of Fair Trading investigates price fixing on sports bras

(http://www.theguardian.com/business/2013/sep/20/oft-price-fixing-sports-bras)

 

  • "The Office of Fair Trading has accused leading underwear company DB Apparel and three department stores of price fixing on sports bras.
  • Debenhams, House of Fraser and John Lewis are accused of cooking up anti-competitive deals with DB Apparel UK over their Shock Absorber sports bras."
  • "The OFT alleges that the underwear maker and the stores committed a serious breach of competition law, by agreeing fixed or minimum prices for the bras."
  • "Following its 17-month investigation into the sports bra market, the OFT says that DB Apparel made nine anti-competitive agreements with the stores between 2008 and 2011, with the aim of increasing the price of the bras. During this period, Shock Absorber bras had a 15% share of the market."
  • "Shock Absorber bras were being sold today for between £25 and £38 on Debenhams' website."

 

Clicks to Bricks: Five Cool Concepts

(http://www.chainstoreage.com/article/clicks-bricks-five-cool-concepts)

 

  • "In a role reversal of sorts, pure online retailers are venturing offline and into the world of brick-and-mortar retail. Here’s a look at [three] that are generating lots of buzz:"

 

1. JustFab

  • "Online subscription fashion retailer JustFab’s first retail store, in Glendale Galleria, Glendale, Calif., was designed to mirror the brand's online shopping experience. Customers shop curated product displays, with trend story videos and in-store 'stylists' offering fashion advice. They can also register for exclusive VIP member pricing"

 

2. Proper Cloth

  • "Custom-made shirts — and fine Scotches — are the bill of fare in online shirtmaker Proper Cloth’s first brick-and-mortar outing.  The store is located in New York City’s Soho neighborhood, in a walk-up, residentially-styled loft space. (Appointments are encouraged, but walk-ins are ok.)  Customers can peruse the fabrics, be measured or fine tune the fit of a Proper Cloth shirt already ordered.  They can also get style or fit advice, and place online orders."

 

3. Bonobos

  • "Online menswear retailer Bonobos has entered the physical arena with Bonobos Guide Shop, a handsome and comfortably-furnished showroom where customers can try on the brand's shirts, pants and other products, get one-on-one expert fit advice and place an order (with delivery to their home). To date, the company has opened eight locations, from San Francisco to New York City."

 

Two days, 240 meetings: Apparel pushes free trade on Hill

(http://www.politico.com/story/2013/09/apparel-trade-meetings-capitol-hill-97092.html?hp=r8)

 

  • "A small army of clothing-industry executives has fanned out across Capitol Hill this week, pinning down 240 members of Congress for individual and group meetings to talk free trade. They are the representatives of at least 50 apparel manufacturers and retailers who have taken up a new strategy in an attempt to get their way in the blockbuster Trans-Pacific Partnership, as U.S. negotiators are becoming more difficult to reach."
  • "The U.S. apparel industry has formed a single coalition and set about the goal of finding friends who will push negotiators to insist that rules be included in the trade deal that help them sell cheaper products. They’re asking for signatures on letters, urging members of Congress to call President Barack Obama’s top trade negotiators and more — and trying to gin up attention along the way, tweeting about each meeting and even placing newspaper ads."

What’s New Today in Retail (9/20) - chart4 9 20

What’s New Today in Retail (9/20) - chart5 9 20

 

 

 Turkey Emerges as Major Denim Producer

(https://www.sourcingjournalonline.com/turkey-emerges-as-major-denim-producer/)

 

  • "Turkey is garnering a reputation as an emerging producer of denim, breaking into an industry generally dominated by a small handful of colossal companies….The global denim market is poised to continue its vigorous growth, expanding to $56 billion by 2018, according to a report issued by Global Research Inc. While the U.S. has long been the world’s most prolific producer of denim, it has been surpassed by upstarts like China, India, Bangladesh, Pakistan and Turkey."
  • Turkey, at the end of 12 month period ending 7/31/2013, was responsible for approximately 5.6% of Global cotton textile production.

 

What’s New Today in Retail (9/20) - chart2 9 20


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