Hats off to India's central bank. Governor Raghuram Rajan says too bad on the Bernanke model and RAISES rates for the second time in two months. Get this: India’s stock market loved it! Witness the +1.65% move on the Sensex as a credible central banker (one that goes both ways) protects the purchasing power of The People. India is back to bullish TREND here at Hedgeye, and should be on #StrongRupee.
Some of the French bureaucrats are whining about #StrongEuro’s impact on “exports.” Meanwhile, Mr. Market says that’s a complete crock. European stocks are loving it. Italy is up another +1.4% as business confidence recovers alongside a stronger currency. Bank of England Governor Mark Carney is driving the bull case for the Pound too. #EuroBulls remains a Top-3 Macro Theme for Hedgeye here in Q4.
Can you say D-O-G? That’s how the Financials act with Bernanke leaning on the long-end of the curve. The XLF was down in a market up week last week, and were down again yesterday as consensus is forced to chase slow-growth (Consumer Staples +1.2% yesterday). The Yield Spread (10year – 2year) compresses again this morning to 219 basis points wide. It's a bearish U.S. Growth signal versus bullish Europe.
|FIXED INCOME||0%||INTL CURRENCIES||18%|
In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up.
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.
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.
“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” -Mark Twain
Twitter currently has 218 million active monthly users, with 169 million of these users coming from outside the U.S, posting roughly 58 million tweets a day. 135,000 Twitter accounts are registered every day.
Takeaway: Retail sales lackluster for the week. SHLD closes Canadian stores, while TGT opens. Sharp slowdown in UK retail. Classic quote from JCP.
EVENTS TO WATCH OVER THE NEXT 24 HOURS
WMT - Investor Meeting (Sao Paulo): Tuesday 10/29
JNY - Earnings Call: Wednesday 10/30 8:30 am
TGT - Financial Community Meeting: Wednesday 10/30 1:00 pm
ICSC - Chain Store Sales Index
Takeaway: After a flash of brilliance last week, retail sales numbers per ICSC (survey of 80 retailers) dipped below the growth rate seen in the prior two years. While we're still not in the holiday spending frenzy, these numbers are getting increasingly important as each week passes. The retail industry better see them pick up in very short order, otherwise the holiday shopping season will start out as highly promotional.
UK retailers suffer sharp slowdown in sales, says CBI
Takeaway: While CBI has had mixed accuracy in the past. Such a strong directional move can't be ignored. Where there's smoke, there's fire.
JCP - Penney again says sales trends are improving
Takeaway: We're no fan of Ullman. But his quote is classic. He's absolutely right. There's nothing JCP has on its plate that cannot be fixed.
TGT - Target Set to Complete Canadian Store Openings for 2013
Takeaway: Sears closes more Canadian stores on the same day Target announces it's opening 33 stores. Go figure.
KORS - Michael Kors to join S&P 500, replaces NYSE owner
Takeaway: Completely appropriate move. If Coach is in the S&P, KORS definitely should be.
SHLD - Sears Holdings Provides Update On Actions To Transform Business And Third Quarter Performance
Takeaway: The monetization of Canadian stores, and the exploration of a sale of Land's End and Auto are all massive moves for SHLD. And they're probably the right ones. The only problem with selling such assets, is that the ones that are worth something to someone else are also the ones that are worth keeping.
MW - Men's Wearhouse Outlines Stand-alone Strategy
Takeaway: The reality is that MW is probably right. It is evolving itself into a house of high-end brands (recent purchase of Joseph Aboud, and rumors that it is looking to buy Allen Edmonds). In effect, it is transforming itself into a place where Men actually want to shop. Go figure. It's rare in retail to find a concept that successfully migrates UP the food chain. MW appears to be doing it. That's why JOSB wants it -- and it's trying to buy it on the cheap. Good luck with that...
TGT, RSH, M - Retailers take print ads digital to entice you to shop — at their stores
LVMH - LVMH’s DFS Group Plans To Open First Europe Shop in 2016
Takeaway: Smart. Upwards of 30% of shopping in Western Europe is driven by Chinese tourists. Don't ignore them.
China and Vietnam Remain Clear U.S. Apparel Leaders So Far This Year
Altagamma Study Points to Slowdown in Luxury
Retailers adds 15,200 jobs in September – NRF
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This note was originally published at 8am on October 15, 2013 for Hedgeye subscribers.
“The most dangerous leadership myth is that leaders are born - that there is a genetic factor to leadership. That’s nonsense; in fact, the opposite is true. Leaders are made rather than born.”
We’ve started our work for our October 31st IPO Blackbook on Twitter and digging into a company that was founded in 2006 and already has 215 million monthly users. Talking about going viral in a hurry!
Similar to Facebook, Twitter has that little problem of how to make money. That attribute aside, the companies are very different, even if much of the conventional media puts them in the same category. Facebook is a true social network and, as such, is largely closed and limited in terms of how large a network it can become. On the other hand, Twitter is open, transparent, real-time and has scale.
Twitter is actually a true network in that it creates the network effect. As an example, when President Obama announce his victory in the 2012 election on Twitter, that Tweet was re-tweeted more than 25 million times. The most I’ve ever had a tweet re-tweeted was a couple of hundred times, but even there you get the point. Twitter amplifies your communication.
Analyzing Twitter has also made me consider the importance of leadership in corporate America. This weekend The New York Times Magazine had an article written by Nick Bilton that was titled, “All Is Fair in Love and Twitter.” It is one version of the power and leadership struggles that have occurred within Twitter.
Twitter is also a little bit about the American dream. Take this excerpt from the article for example:
“In 2005, Jack Dorsey was a 29-year-old New York University dropout who sometimes wore a T-shirt with his phone number on the front and a nose ring. After a three-month stint writing code for an Alcatraz boat-tour outfit, he was living in a tiny San Francisco apartment. He had recently been turned down for a job at Camper, the shoe store.”
Dorsey and his co-founders have been largely pushed out of Twitter, though many of them will obviously profit handsomely on the IPO. Time will tell whether current CEO Dick Costolo is the right man to monetize the Twitter network, but his experience at Andersen Consulting, founding and running Feed Burner (among other start-ups), and working at Google have allowed him to acquire learned leadership assets, to Bennis’ point, that will be critical for Twitter’s future.
Now, from Silicon Valley back to the global macro grind . . .
Front and center this morning is once again the U.S. debt ceiling. Thankfully, Bloomberg is no longer alluding to a Nazi Germany like default this morning and the reality is, as we’ve been predicting, that a deal gets done is becoming increasingly accepted. If the deal that is purportedly on the table gets done, then the government will get funded through January 15th and the debt ceiling will get pushed to early February.
Setting aside an actual default, which was of course always highly unlikely, a short term deal is actually one of the worse scenarios. As we show in the Chart of the Day today, economic confidence, according to the Gallup Daily tracking poll has fallen off a cliff in the last month due to the government shutdown and looming debt ceiling. Delaying an outcome by three or four months is unlikely to be much of a catalyst to improve confidence in the short run.
We are certainly seeing these trends reflected in the real economy. One example is the casual dining sector where weakness has been pervasive. While certainly there are some sector specific trends at play, with the majority of the stocks missing estimates and comparable same-store-sales declining -1.9% in September according to Black Box, the decline in consumer confidence is having its impact.
All is not bad for the consumer, though, and one positive to highlight is the price of gasoline. Even as oil remains stubbornly above the $100 bound for WTI and $110 for Brent, the price of gasoline in the U.S. is actually down. According to the Energy Information Administration, a government agency that is still open, the price of gas in the U.S. is $3.37 per gallon, which is down $0.48 from a year ago and down $0.06 from last week. Maybe consumers are spending more time on Twitter and less time driving?
Speaking of Twitter, for those of you that answered no to the question in the title, one great reason to join Twitter is the intellectual exchange that comes from meeting new people in your expanded network. One example of a person that I’ve met on Twitter is a gentleman named Doug Kass, who is a financial blogger for the Street.com and works out of his basement in Florida.
Even if not always correct, Kass certainly makes us think. One example was that last night he went old school on us and sent an email indicating that based on his analysis over the long run of twenty years, the U.S. dollar has no identifiable correlation to U.S. equities. While an interesting point, we would certainly caution any of you to invest on 20-year historical correlations. But if you want to, we also have a bridge in Brooklyn for sale . . .
The fact is correlations influence our intermediate term view of markets. Correlations aren’t perpetual, and correlation strength builds and decays. At times and price levels they matter and at others they do not. We get that. But over the last three years the correlation between the U.S. dollar and SP500 has been 0.60. But as Maynard Keynes said, when the facts change, we will.
Our immediate-term Risk Ranges are now:
UST 10yr yield 2.66-2.73%
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
THE MACAU METRO MONITOR, OCTOBER 29, 2013
HOTELS HAS NO PLAN TO DECREASE ROOM RATE Macau Daily News
The new Tourism Law has started to see impact on the tourism and hotel industries of Hong Kong and Macau. As the number of package tours from mainland China decreased by 50% in October, hotel occupancy rate has also seen a decline. Though a decrease in both package tours and occupancy rate, hotels do not have the intentions to cut prices as they are optimistic that the number of tourists will go up in November and December with different big events are happening in those two months.
CUSTOMIZED TOUR PRODUCTS ARE GETTING POPULAR IN CHINA Macau Daily News
With the new tourism law launched in October 1st, outbound tourism market has started changing. Custom Tours has become popular where tourists can design their own itineraries and have their own choice of traveling partners. China has become the world’s largest tourist country in 2012 with 83.18 million Chinese traveling abroad.
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