$WMT: Made in USA? Kind of.

Takeaway: Hedgeye Retail Sector Head Brian McGough tosses some cold water on Wal-Mart's "Made In USA" initiative.

Hedgeye Retail Sector Head Brian McGough tosses some cold water on Wal-Mart's "Made In USA" initiative.


$WMT: Made in USA? Kind of. - madus


From Women's Wear Daily:

  • "Bill Simon, Wal-Mart’s U.S. president and chief executive officer, revealed at an investment summit here Thursday that three of its suppliers have committed to moving production back to the U.S., or expanding existing capacity, as part of the retail giant’s longer-term commitment to buy $50 billion worth of American-made products over the next 10 years."

Takeaway: We are all about boosting U.S. production. But let's put this news into context. $50 billion over 10-years is likely $1 billion in year one, and $10 billion in year ten. But even if we want to be generous, and call it $5 billion per year, it's still only 1% of the half a trillion worth of product Wal-Mart will sell next year. Bottom line is that this is hardly Wal-Mart going all-out. It's a PR campaign more than anything else.







Macau gross gaming revenues reached 36.477 BN MOP (35.415 BN HKD, 4.568 BN US$), up 31.7% YoY. 



The risks of changing China visa policies and shifting tourism trends should also be taken into account by investors. The biggest unpredictable factor for gambling stocks in Macau is still the Chinese government, and investors seem to be underestimating the risk. 


Signs that Beijing could add restrictions are detectable. The government seems frustrated that Macau hasn't moved beyond gambling to offer leisure and entertainment activities that might appeal to families world-wide, not just hard-core gamblers from China.


One reason Macau casino stocks have thrived this year is what hasn't happened. Even amid an austerity campaign in China, Beijing has made no move to cut off the flow of Chinese gamblers to the city.  But Macau stocks deserve a discount because they effectively operate at the whim of Beijing, which can block the flow of customers at any time.


The peak-time minimum bet at mass-market tables has more than tripled in the past two years, to $125 from $40, much higher than at peers such as Las Vegas ($20), the Philippines ($7) and Singapore ($50).



WYNN's lawsuit against its former director Kazuo Okada was halted for six more months so the U.S. can continue to investigate possible bribery of Philippine officials by the Japanese billionaire.  Nevada state court Judge Judge Elizabeth Gonzalez in Las Vegas granted the Justice Department’s request for a second six-month stay of the civil case so that the government can pursue the criminal probe unhindered.

Get Busy

This note was originally published at 8am on October 18, 2013 for Hedgeye subscribers.

"Get Busy Living or Get Busy Dying"

-Morgan Freeman, Shawshank Redemption


Earlier this week, I raced a 95 year old lady down the Merritt Parkway on my way home from work. 


Well, kinda. 


To review:  while driving north from our new HQ in Stamford, I watched in my rearview mirror as a navy blue Mustang darted back & forth between lanes before pulling up beside me, then speeding ahead. 


After racing to catch-up for a confirmatory, second look…90 is, apparently, the new 25.     


The age was undeniable, but there were no coke bottle glasses, no cautious, granny-fied 3 o’clock- 9 o’clock hand positioning, no squinty eyed lean forward, no Buick or Oldsmobile.


Just a sharp gaze and tangible life energy. 


The experience was a pleasant surprise and a welcomed contrast to the latest, consuming iteration of beltway brinksmanship – which, unsurprisingly, lacked both pleasantness and originality. 


Back to the Global Macro Grind…..


I don’t know granny’s life recipe for sustained physiological alacrity – but the ‘pleasant surprise’ of her apparent vitality dovetails nicely with one of our top 3 Macro Investment themes for 4Q:  #GetActive


Without giving away the full, institutional macro alpha thunder, our call for an increase in active investment management is predicated on a few key points:


1.   Big Government Intervention:  Our fiscal policy creation process remains a circus and the new golden boy in the monetary policy arsenal – the “communication tool” – remains in beta testing and breeding decidedly more market uncertainty than price stability at present.  Collectively, we expect policy intervention to continue to perpetuate Market/Currency/Economic Volatility.  Volatility breeds both opportunity and a heightened probability for an expedited drawdown in equities and …


2.   Active Management outperforms in down markets:  Historically, on average, the HFRX Equity Hedge index outperforms the SPX in down markets and that outperformance increases as the magnitude of negative monthly S&P500 performance increases.  At extremes of negative market performance, the HRFX has outperformed by ~800bps on a monthly basis.  Hedge funds apparently hedge after all.


3.   Sector Picking will Matter:  As the Chart of the Day below illustrates, the variance in sector performance this year is near a historic low Put differently, it hasn’t really mattered what sector you bought  – beta has been the new alpha and simply buying the market was the best allocation decision.  Over the intermediate term, a mean reverting breakout in the variance of sector returns is almost a guarantee.  Consider the performance delta between Financials  and Utilities in the quasi-analogous post-1994 period, after Greenspan began his rate raising campaign.  Financials returned 50%, 32%, and 45% in 1995, 1996, and 1997 respectively.  Utilities returned 25%, 0%, and 18% over that same period.  A 3Y CAGR of 42% for Financials vs 14% for Utes. 


In truth, #GettingActive is really just an investment euphemism for Trading.   


Trading generally gets a bad rap because it doesn’t fit the canonical ‘stocks for the long-term’ dictum, it doesn’t market well and, well, it’s hard – the recent multi-year trend in collective hedge fund benchmark underperformance hasn’t been a siren song for incremental actively managed AUM either. 


Keith has actively managed market risk in the Hedgeye portfolio for 5+ years, actively manages the Hedgeye HFT (High Frequency Tweet) machine and is probably more” active” than constrained in opining on markets, policy and policy makers.


To the latter point, sometimes I think the punditry of the Early Look prose occasionally belies the reality of our risk managed positioning. 


For instance, while we were highlighting an increased likelihood for a policy induced deceleration in domestic growth back on Oct 9th/10th, at the same time, we were taking up both our gross and net long positioning into the back end of the 4% market correction. 


From a process perspective, our conviction level rises and we typically get louder about an idea when both the research (fundamental) view and the quantitative risk management signal are both in agreement. 


But what if there is no fundamental data?


The gov’t shutdown the last two weeks has served as an illustrative example of how our risk management process works in practice – primarily because  there was no incremental fundamental data to inform our marginal macro view,  leaving the risk management signal as our principal signaling mechanism for driving portfolio decisions.


Contrasting yesterday’s price signals and subsequent allocation decisions with those made a week ago exemplifies the process.  


What were the market and price signal dynamics back on Oct 10th and why did we buy the dip:

  1. $USD – V-bottomed off its long-term tail line of support at 79.21
  2. VIX – was breaching its TREND support level of 18.98 on the downside
  3. SPX – recaptured TREND support at 1663
  4. 10Y Treasury – Held TREND support of 2.58%
  5. U.S. Stocks moving towards immediate term oversold, down for 11 of the prior 15 days

With all the price signals in agreement, the highest probability swing was to get longer and play for the 24 handles of immediate term upside. 


Yesterday’s price signals were very similar:

  1. 10Y Treasury – 10Y was back to flirting with a TREND breakdown through 2.58%
  2. $USD – The dollar was moving back towards testing TAIL support at 79.21.

Down Rates + Down Dollar + Rising Policy Uncertainty is not a factor setup we want to be long of over the intermediate term, but we kept the portfolio unchanged at 6 Longs, 3 short into the close. Why?

  1. SPX – higher highs are bullish and equities were not signaling immediate term overbought
  2. VIX – Debt Default fear remained for sale with the VIX continuing in free fall
  3. Squeezage – with  hedge fund short positions as YTD highs there’s room to let the squeeze rally breath a bit.
  4. Hilsenrath’s mid-afternoon proclamation that Oct-Taper is officially a no-go & Bernanke/Yellen risk remains acute juices the immediate term downside risk for both the dollar and interest rates. 

So, we didn’t buy the rip or tighten up net exposure. 


What will we do today?  I don’t know – and that’s largely the point.  As always, we’ll let the market signal tell us which way to lean.


Does timing matter?  Implicit in allocations to active strategies is a belief that it does.


As Keith queried on twitter yesterday afternoon:


“If timing didn't matter, why are you watching Twitter right now?”


Similarly, are markets efficient or irrational and reflexive? 


Fama won the Nobel prize for “proving” the former.  At the same time, Shiller won for proving the latter.  Seems about right. 


Activity/Variety is both the spice of life and nature’s most potent cerebral exfoliant. 


Take a different route to work in the morning, eat dinner with your left hand, simplify a few radical expressions,  invest some incremental capital in the growth inflection happening across the pond, turn down CNBC and turn on #tweetshow today at 3pm.  


Switch it up, Get Busy. 


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.55-2.67%

SPX 1695-1745

VIX 12.61-15.24

USD 79.21-80.31

Euro 1.35-1.37

Pound 1.60-1.62


Enjoy the Weekend. 


Christian B. Drake

Senior Analyst 


Get Busy - Get Active


Get Busy - z. vp 10 18

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Ambition and Avarice

“Sir, there are two passions which have a powerful influence on the affairs of men.”

-Benjamin Franklin


And, in case you wondered whether or not your central planning overlords in Washington have yet to eliminate those two passions, they have only amplified them: “These ambitions are ambition and avarice; the love of power and the love of money.”


Franklin went on to add that, “separately each of these has great force in prompting men to action; but when united in view of the same object, they have in many minds the most violent effects. Place before the eyes of such men, a post of honour that shall be at the same time a place of profit, and they will move heaven and earth to obtain it.” (The Liberty Amendments, pg 23)


That’s why we all have no choice other than to Embrace Uncertainty in macro markets. There is nothing normal about a man from an un-elected US post moving your entire risk exposures with a whisper to the Wall Street Journal. Therefore you should not invest “normally.” Either #GetActive and do real-time macro or, as Dan Och recently said, “macro will do you.”


Back to the Global Macro Grind


BREAKING: Budget Deficit In US Narrows To 5 Year Low on Record Revenues –Bloomberg News


Not to be confused with the fear-mongering headlines Bloomberg/CNBC were running about how a US debt “default” could spell the 6th #EOW (end of the world) event of 2013, the fine folks in NYC’s groupthink tank finally nailed it.


Eleven months ago, we got ragingly bullish on the US Dollar because the only 2 factors in the (P) part of (POLICY) in our GIP (Growth, Inflation, Policy) Model @Hedgeye were Dollar Bullish:


1. FISCAL FACTOR: US Deficit/GDP was going to get cut in half to 4% (it was just reported at -4.1%, so we were off by a bit) because A) sequestration is good (spending down) and B) US #GrowthAccelerating would drive the denominator (GDP) up

2. MONETARY FACTOR: US #GrowthAccelerating would surprise those anchoring on last year’s Q412 GDP report of 0.14%, the Fed would fall behind the curve, #RatesRising would surprise to the upside, and tapering expectations would take hold


So easy a hockey head can do it. Then, sadly, the Fed gave into the mega Bond Bull Lobby on September 18th, 2013, smoked the Dollar, took rates back down, and the MONETARY FACTOR for USD Bulls was lost (again).


But the FISCAL FACTOR (which can only be obfuscated by the Fed as opposed to arrested like Bernanke did with USD and Bond Yields) continued along its path of least resistance and US Government Revenues were +15.2% year-over-year in September (not a typo)!


Oh, and the SP500 ripped the front-teeth out of all those #OldMedia mouth-pieces who shorted the October 2013 fear-mongered low about a US default when the US credit position was in its best position in half a decade. #NewAllTimeSPYHighs


And so it begins, after all-time SP500 and Russell2000 highs in October (SPY = +4.5% OCT 2013), it’s November. What in god’s good name are we supposed to do next?


To answer the question in any country, I always go back to the playbook:


  1. USA: FISCAL = hawkish (bullish USD); MONETARY = dovish (bearish USD)
  2. EUROPE: FISCAL = hawkish (bullish Euro); MONETARY = hawkish (bullish Euro)
  3. UK: FISCAL = hawkish (bullish Pound); MONETARY = hawkish (bullish Pound)


And to be clear, when I say hawkish or dovish, I mean what’s happening from a 2nd derivative perspective (i.e. what’s happening on the margin relative to the last 3-6 months).


This is why we’re #EuroBulls (see our Q413 Global Macro Theme deck) relative to being as bullish as we were, literally up until September 18th (shame on you Bernanke), on US growth. Same playbook; different relative pick.


Everything in macro is relative. Every asset allocator has a choice. And when push comes to shove in the coming 3-6 months, what will it be, German stocks or US stocks?


While the Russell2000 dropped -1.9% from its all-time performance chasing high in the last 2-days, German stocks hit a fresh all-time high. Fortunately, Mr. Market keeps score; not you or me. He gets it.


Since I’ve been bearish on Commodities and Fixed Income relative to Equities for the better part of a year now, I consider this shift to European Equities vs US Equities within an asset class that I like. If the Fed leans on the long-end of the curve, you can still be long US Equities, just not the Equities that worked best in 2013. The Growth Style Factor gets repressed by Bernanke’s intervention.


Having had an asset allocation to Commodities of 0% all year (CRB Commodities Index is 19 Commodities and it’s -6.1% YTD, on its YTD lows), getting long Gold for the 1st time in a long time gets interesting here too. I haven’t pulled the trigger yet, but front-running the next Hilsenrath article is a compelling catalyst.


How would that work? On a Friday, Bernanke’s boys float a headline to the WSJ that there won’t be a December taper, the Dollar gets slammed, Rates fall, and Gold rips. Oh yes, ambition and avarice matters in the land of the conflicted and compromised. And we aren’t yet dumb enough to not front-run proactively predictable behavior.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.48-2.60%



USD 79.21-80.35

Euro 1.35-1.37

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Ambition and Avarice - Chart of the Day


Ambition and Avarice - Virtual Portfolio

What's New Today in Retail (11/1)

Takeaway: RonJon breaks his silence. WMT's US mftgring initiative is smoke and mirrors. NFL jersey stats are in. TGT kicks off holiday price war.



JCP - Ron Johnson Speaks, Calls Reports On His J.C. Penney Tenure 'Largely Inaccurate And Surprisingly Uninformed'



  • "Johnson told me via email that although it’s premature to discuss his tenure at J.C. Penney, he did say that much of the analysis of his stint at the chain has been 'lacking in depth, largely inaccurate, and surprisingly uninformed.'"


Takeaway: Maybe he's looking for a job.


WMT - Wal-Mart Boosts Made in U.S.A. Initiative



  • "Bill Simon, Wal-Mart’s U.S. president and chief executive officer, revealed at an investment summit here Thursday that three of its suppliers have committed to moving production back to the U.S., or expanding existing capacity, as part of the retail giant’s longer-term commitment to buy $50 billion worth of American-made products over the next 10 years."


Takeaway: While we're all about boosting US production, let's put this into context. $50bn over 10-years is likely $1bn in year 1, and $10bn in year 10. But even if we want to be generous and call it $5bn per year, it's only 1% of the half a trillion worth of product WMT will sell next year. This is hardly WMT going all-out. It's a PR campaign more than anything.


MW, JOSB - Jos. A. Bank Prepared to Boost Men's Wearhouse Bid



  • "The retailer said it would consider raising the original offer of $48 a share if 'given the opportunity to conduct limited due diligence in order to determine that such an increase would be justified.'”
  • "In a letter to Men’s Wearhouse chief executive officer Douglas Ewert made public Thursday, Wildrick said that the $48 offer 'was necessarily based solely on publicly available information. We believe that if we were provided with access to a limited amount of non-public information, we could promptly determine whether we could increase our proposed acquisition price. We are, of course, prepared to execute a mutually acceptable non-disclosure agreement to provide Men’s Wearhouse with the assurance that any information provided will be kept confidential.'"


Takeaway: JOSB simply doesn't get it. MW wants to go solo as it builds a house of brands, instead of being a standard, run-of-the-mill mid-tier men's apparel retailer like JOSB. If the deal does happen, it's going to be at a price well above here. The simple fact that JOSB is so aggressive in wanting this transaction casts serious doubt in its ability to grow profitably through its existing model. 


HBC - Hudson's Bay Begins a Beauty Metamorphosis



  • "Hudson’s Bay is putting the finishing touches on an expansion and upgrade of the beauty selling departments of six of its 90 stores, four of them flagships."
  • "It is the first major renovation of those floors in Toronto, Montreal and Vancouver in 15 years, according to Shelley Rozenwald, chief beauty adventurer and senior vice of cosmetics for Hudson’s Bay and Lord & Taylor."
  • "The size of total departments also have significantly expanded. In the Yorkdale store, the beauty department has been doubled from 16,000 square feet to a total of 32,000 square feet. The entire store measures 200,000 square feet. The other stores, particularly Vancouver, picked up an additional 30 to 40 percent of space in their beauty departments."


What's New Today in Retail (11/1) - chart2 11 1


Takeaway: Big investment in an area that is among the most profitable for Macy's, Bloomingdales, and Nordstrom. But renovating 6 of 90 stores isn't going to move the needle.


DKS - Broncos and Seahawks Top NFL Jersey Sales 



  • "Through the midway point of the NFL season, Dick's Sporting Goods Jersey Report is showing that Denver Broncos or Seattle Seahawks are by far the two most popular teams. In seven markets across the country (New York, Boston, Indy, Washington, Chicago, Dallas, and Atlanta), the Broncos and Seahawks are second (or third) in sales behind the local team(s)."


  • Team Sales Top 10 through Week 8 (The number in parenthesis indicates the team’s ranking in Week 1)
  1. Denver Broncos (2)
  2. Baltimore Ravens (3)
  3. Indianapolis Colts (5)
  4. Chicago Bears (4)
  5. Washington Redskins (1)
  6. New York Giants (6)
  7. Pittsburgh Steelers (7)
  8. New England Patriots (9)
  9. Seattle Seahawks (15)
  10. Philadelphia Eagles (16)


  • Player Sales Top 10 through Week 8 (The number in parenthesis indicates the player’s ranking in Week 1)
  1. Peyton Manning (2)
  2. Andrew Luck (3)
  3. Robert Griffin III (1)
  4. Russell Wilson (16)
  5. Tom Brady (9)
  6. Ray Rice (5)
  7. Eli Manning (6)
  8. Joe Flacco (7)
  9. LeSean McCoy (21)
  10. Colin Kaepernick (11)


Takeaway: Not a surprise to see either of those teams at the top. The player jerseys are more interesting. The fact that Peyton and Andrew Luck are 1 and 2 is borderline hysterical. As for the other Manning, it's good to see that he still ranks number 7 despite the year he's having. He's got some loyal fans.


WMT - Green Dot and Walmart Expand Walmart MoneyCard Portfolio with a Suite of Prepaid Debit Cards



  • "Green Dot Corporation and Walmart today announced they have expanded the line of Walmart MoneyCard® reloadable prepaid debit cards to include six new card types designed to meet the needs of their growing customer base. Issued by Green Dot, the Walmart prepaid debit card portfolio now includes nine cards, and is available in more than 4,100 Walmart stores nationwide."


Takeaway: Timed perfectly with the expiration of food stamp stimulus.


TIF - Tiffany Scores $2.2M Judgment Against Cyber Counterfeiters



  • "Filed in the southern district of Florida, the lawsuit named 78 defendants operating Web sites such as,,,, which sold counterfeit Tiffany jewelry."
  • "As part of the judgment, the court required that the Web site operators’ infringing domain names be transferred to Tiffany. It also requested that $2.2 million be paid to Tiffany, but tracking down Internet counterfeiters to collect damages is extremely difficult, making the likelihood of collecting very slim."


Takeaway: Gotta hand it to TIF. This is yet another win for its counterfeiting police. These guys are not only resilient, but they're hugely successful.


Triumph - Triumph Launches Line With Helena Christensen



  • "Triumph International, the world’s largest lingerie company, will launch its first e-commerce site for the U.S. market today."
  • "The Web launch is part of an aggressive initiative of the $2.1 billion intimate apparel and underwear firm to enter the U.S. innerwear market, which generates annual retail sales of $14.5 billion."
  • "The company, whose brands include Triumph, Sloggi, Valisère and Hom, opened its first Triumph stores in the U.S. at the Walt Whitman Shops and Roosevelt Field mall in Huntington Station and Garden City, N.Y., respectively, in August. A third store is slated to open in New Jersey in early 2014."


Takeaway: WWD is getting a little loose with its facts and figures here. Triumph is not the world's largest lingerie company. Victoria's Secret is almost 20x larger.


TGT - Target Guests Should Expect to 'Pay Less' This Christmas



  • "Aside from everyday low prices and special promotional deals, Target offers: Five percent off all purchases to REDcard Rewards members; Additional discounts to guests using its Cartwheel app; Price matching. Target will match the price of qualifying items between Nov. 1 and Dec. 21 if a guest finds the same item for less in a local competitor's ad or at select online retailers."


Takeaway: Amazon and Wal-Mart might have something to say about this.


TCS - The Container Store Group, Inc. Announces Pricing of Its Initial Public Offering of Common Stock



  • "The Container Store Group, Inc. announced today the pricing of its initial public offering of 12,500,000 shares of its common stock at a price to the public of $18.00 per share. The shares will be listed on the New York Stock Exchange and will trade under the ticker symbol “TCS” beginning on November 1, 2013. The Container Store Group, Inc. is offering all 12,500,000 shares of common stock. The underwriters also have a 30-day option to purchase up to an additional 1,875,000 shares from the Company."


Takeaway: First they raised the range, then priced at the high-end. Not a surprise. This is a strong concept with ample unit growth (not to mention that the offering is only 12.5mm shares). Economics 101.


PERY, ELY - Perry Ellis International Expands Callaway Apparel Licensing Rights to Include Europe, Middle East and Africa



  • " Perry Ellis International, Callaway Golf's apparel licensee, today confirmed an agreement to expand its current design, manufacture and sell golf apparel across Europe, the Middle East and Africa."
  • "Currently, the principal apparel distribution in the region is operated directly by Callaway Golf. Perry Ellis International will assume responsibility for distribution channels for golf apparel product across Europe, the Middle East, and Africa, transitioning on January 1st, 2014. The men's and women's European Callaway Fall 2013 line is currently available at retail at leading golf specialty stores and resorts in the UK, Ireland, Germany, Sweden, Norway, Spain, Portugal, Austria, Switzerland, Finland, Czech Republic, Turkey and the Middle East. The addition of South Africa as well as a full European roll-out of the brand is expected by Spring 2014."




Bangladesh: Garment Workers Refuse Third Wage Hike Offer



  • "The government-formed Minimum Wage Board met today to settle the wage structure with an offer of Tk 4,250 ($55) per month, but the ready made garment (RMG) workers and their labor representatives were not having it."
  • "The RMG industry has been embattled for weeks seeking a wage increase from the current Tk 3,000 ($39) per month—the lowest worldwide wage rate in the industry—to Tk 8,114 ($105), a number considered to be a more reasonable living wage for the sector’s four million workers."
  • "Fearful factory owners came up from the previous offer in September to raise wages by 20 percent to Tk 3,600 ($47) after workers staged violent demonstrations and skipped work forcing factory closures in some cases. Just yesterday, more than 20 factories in Gazipur closed when workers demonstrated damaging production units so demands might be met."





the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.