Currencies Matter

Client Talking Points


A big time (read: 16-year high) #GrowthAccelerating data point out of the United Kingdom this morning with a Services Purchasing Manager's Index (PMI) for October of 62.5. Boom. All of the austerity whiners and Keynesians out there who don’t like #StrongPound should feel shame. The Pound Sterling is up +0.5% versus the US Dollar. We remain long of it.


The Dollar is failing at its intermediate-term TREND line of resistance again this morning with no support to the TAIL risk line of $79.21. Meanwhile, Bloomberg is running a ridiculous headline that the Fed’s policy should be “prolonged” to “stoke growth.” Huh? In related news, Rates Down, Dollar Down still means US Growth expectations down. See our chart of the day and US economic history for more information.


One of the stealth leading indicators for the credibility of US Growth’s slope (accelerating or slowing) is the one that is most hostage to domestic supply and demand. Natural Gas got crushed for a -7.8% loss last week. It's down another -1% this morning. It's officially bearish TREND now here at Hedgeye.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.

Three for the Road


There is a gaping divide between how Global Macro practitioners view the world and how academic economists view the world...@HedgeyeDDale


"Man will never be able to build a flying device like a mosquito. I look at nature's complexity and think, man has the intelligence of mold growing on an apple." -Ray Dalio


You have a 1 in 2,067,000 chance of dying in a plane crash and a 1 in 423,548 chance of dying from falling out of bed. (

What's New Today in Retail (11/5)

Takeaway: Chain store sales still not picking up speed. GPS merchandising/signage blunder. TGT bets big on NYC. AMZN gets charitable -- sort of.



FOSL - Earnings Call: Tuesday 11/5 4:30 pm

ANF - Analyst Day: Wednesday 11/6 8:30 am

RL - Earnings Call: Wednesday 11/6 9:00 am




ICSC - Chain Store Sales Index


Takeaway: Retail sales decelerated for the second week in a row. Not to a disastrous extent -- but definitely not the rate of change we want to see headed into the start of the holiday shopping season.


What's New Today in Retail (11/5) - chart1 11 5

What's New Today in Retail (11/5) - chart2 11 5




GPS - A little confusion at Old Navy these days


What's New Today in Retail (11/5) - chart4 11 5


Takeaway: Not exactly the message Gap wants to be sending to teens.


DKS, DIS - Dick's Sporting Goods to Run ESPN’s Online Fan Shop 



  • "Dick's Sporting Goods and ESPN today announced a multi-year agreement in which Dick's will serve as the exclusive e-commerce provider of licensed merchandise and sporting goods on and related digital properties."
  • "This is the latest evolution in a growing relationship between ESPN and Dick's Sporting Goods, which also includes sponsorship of ESPN’s Champ Week coverage for college basketball, and content collaborations such as Hell Week, an original documentary produced by Dick's Sporting Goods Films in association with ESPN, which aired on ESPN2 and ESPNU earlier this year."
  • As a result of the new agreement, fans will now be able to shop an expanded range of licensed fanwear available at the rebranded ESPN Fan Shop powered by Dick's Sporting Goods, located at 
  • "Contextually integrated shopping opportunities will be featured across ESPN platforms in the near future – including, ESPN The Magazine, ESPN Radio and mobile properties like ScoreCenter, GameCast and WatchESPN – allowing fans to easily purchase officially licensed products…"


Takeaway: Definitely a positive move for DKS. But is it material enough to offset the fact that it can't seem to comp in it's own stores?


MW, Allen Edmonds - Allen Edmonds Bought by Private-Equity Firm Brentwood



  • "Allen Edmonds Corp., a maker of high-end men's shoes that generated some takeover interest from Men's Wearhouse Inc...has revealed it has agreed to be sold to another buyer."
  • "The closely held shoe maker on Monday said it agreed to be acquired by Brentwood Associates, a Los Angeles-based private equity firm. Terms of the deal weren't disclosed."


Takeaway: This is a punch in the jaw to MW, as Allen Edmonds would have been an exceptional fit. Perhaps Allen Edmonds was swayed by the fact that it is building its own retail business in rather high-end locations -- and did not want to be a part of a retailer it perceives to be old and stuffy.


TGT - Target cleans up in NY’s Grand Central



  • "Target turned heads at New York’s Grand Central Terminal Monday morning with its newest popup store featuring an exclusive collection of bath and body products by Sonia Kashuk."


What's New Today in Retail (11/5) - chart6 11 5


Takeaway: Not quite sure how much TGT paid for the real estate -- even though it's temporary. But you can't deny the fact that it picked one of the top foot-traffic locations in the world.


AMZN - Amazon Launches Do-Good Site



  • "on Oct. 30, launched AmazonSmile, a separate website that allows shoppers to direct 0.5 percent of their purchase totals toward a charitable organization of their choice."
  • "Some products sold on, including Kindle e-books and other digital media products, won't be eligible for the program. But otherwise, the pricing, selection and experience customers receive on will be identical to the regular Amazon site."


What's New Today in Retail (11/5) - chart3 11 5


Takeaway: Great idea -- from a socially-responsible perspective. But to exclude their highest grossing item -- especially one that is a proprietary product -- seems borderline ridiculous.


LULU - Lululemon Deals with New Round of Complaints about Yoga Pants



  • "The new batch of complaints has focused on a couple of styles of pants -- Groove and Wunder Under, according to news reports."
  • "A Lululemon spokeswoman said in an email that the problem isn't widespread, and that only a very small number of customers has complained. Her email mentioned only Groove Pants, not Wunder Under."
  • "'We've heard from a very small number of guests that they have experienced some piling on their Groove Pants,' spokeswoman Alecia Pulman said in the email Friday. Her email was in response to queries from Reuters and other news organizations. 'The information we have tells us that piling is not a widespread concern and this guest feedback is not indicative of a larger issue,' she said."


Takeaway: Great example of how a company that had one PR blunder now has to deal with the press making a mountain out of a molehill. If the Luon debacle never happened, this would be a non-event.


J Crew, AEO, WSM - J Crew eyes share of Britain's retail bonanza with new Regent Street store



  • "When...J Crew, opens its first major British outlet on Regent Street in London this week it will be just the latest foray from a battalion of US retailers levelling their sights on the competitive UK market."
  • "Hot on the heels of retailer could be American Eagle, a casual clothing chain, which is thought to be looking to sign its first outlets in London, probably at the Westfield shopping centres in Stratford and White City."
  • "Meanwhile, homewares group Williams-Sonoma is set to open its first store in the UK, a branch of its upmarket West Elm brand, on Tottenham Court Road in central London on 5 December. It is understood to be looking for at least five more London stores and may take its Pottery Barn fascia there next year."


Takeaway: Makes perfect sense. In fact, it's a bit surprising that J Crew doesn’t have a bigger presence in the UK already. It's not exactly a brand-new early-cycle brand.


M - Bloomingdale's Glendale Store Sets New Focus



  • "Bloomingdale’s is back on the expansion path, with a 115,000-square-foot unit in the Glendale Galleria in Los Angeles set to open Friday."
  • "The Glendale site advances Bloomingdale’s strategy for opening scaled-down department stores and for trading up. It also marks the retailer’s first department store opening in three years."


What's New Today in Retail (11/5) - chart5 11 5


Takeaway: We're not a fan of M by a long shot. But a massive redeeming factor that always makes us double check our thesis is the fact that it owns Bloomies. It's beyond debate that it is one of the best retailers in the apparel/accessories business. That said, it's not big enough to offset our view that Macy's Inc is nearing an ungrowable level of sales/square foot, margins are near peak, capital intensity is increasing, and expectations are high.


PVH, GIII - PVH Corp. and G-III Apparel Group, Ltd. Complete Sale of G.H. Bass & Co. Business



  • "PVH Corp. and G-III Apparel Group, Ltd. announced today that they have completed the previously announced sale of substantially all of the assets of PVH’s G.H. Bass & Co. division to a subsidiary of G-III. Gross proceeds from the transaction were approximately $50 million, paid in cash."


Takeaway: Good riddance. Between Calvin and Tommy -- PVH has its hand full with two quality brands with global relevance. The last thing it needs is Bass.




Bangladesh Wage Board Finally Makes Recommendation; Gazipur Overrun By Violent Protests



  • "A special ad hoc panel convened by the government has decided to increase the minimum wage to about 5,300 takas ($66) per month, a 77 percent increase from the previous benchmark of 3,000 takas ($38)."
  • "The Ministry of Labor still has to approve what only amounts to a non-binding recommendation. Kalpona Akter, the executive director of the Bangladesh Center for Worker Solidarity, a non-governmental activist group that represents workers, has already voiced complaints that the wages will still be the lowest in the world. Also, Atiqul Islam, president of the Bangladesh Garment Manufacturers and Exporters Association, also made clear that his organization has yet to accept the wage increase."
  • "Riots have roiled Gazipur, closing down fifteen factories. Throngs of angry workers have reportedly broken the windows in at least twenty buildings, also vandalizing cars. Apparently, they are demanding a wage hike to at least 8,000 takas (about $103)."


Indian Factory Fire Kills Six



  • "A fire erupted in a textile factory in New Dehli, India, killing at least six workers, including four women….A fire department official said, 'The initial investigation suggests that a short circuit was the cause of the fire, but a definitive conclusion has still not been reached.'”


Charts & Bullets:  Some trends from Singapore gaming in Q3

  • Singapore gross gaming revenues rose 28% YoY in Q3 2013 to S$2.0 BN.  Adjusted for high hold in both periods, GGR still gained 12%.
  • Market VIP rolling chip volume grew 34% YoY in 3Q, 4th consecutive quarter of high double digit gains - Genting did particularly well in this segment, exploding 52% higher YoY, while MBS RC volume gained a respectable 19%.
  • Because of the huge VIP quarter, Genting is inching closer to market share parity with MBS on overall gaming revenues
  • As for the mass segment, MBS widened its share lead over Genting to 56%.  Flat market mass volumes were disappointing in the midst of continued government restrictions on local players and players with political influence. 











Early Look

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November 5, 2013

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Information Revolution

“The mechanization of ginning, spinning, and weaving the cotton launched the industrial revolution.”

-Jack Weatherford


The cotton gin was 1793. Twitter was 2006. Eli Whitney and Jack Dorsey had more than a few things in common. One was their age (Whitney was a 28 yr old teacher and Dorsey was a 29 yr old web developer/failed shoe salesman). That’s where revolutions come from, baby. As my man Brandon Flowers wrote in “Only The Young” (great tune):


“Look back in silence; the cradle of your whole life. There in the distance, losing its greatest prize. Nothing is easy, nothing is sacred. Why? Where did the bough break? It happened before your time. Only the young can break away, break away…“


And so it continues to begin – the unearthing of every single Western academic dogma about economics and markets ever spun. The unraveling of a weave of storytellers that only my God can be smiling down upon as stronger currencies lead new peoples to the promise land of purchasing power. Behold, the Information Revolution in financial markets is here!


Back to the Global Macro Grind


Tomorrow at 11AM EST, Hedgeye veteran blue-liner, Daryl Jones, and Hesham Shaaban will host a Black Book conference call on the Twitter IPO (if you’d like information on how to access the call, ping ). It’s a fascinating story within the history we are building here @Hedgeye. I see it as our Trojan Horse in taking down the #OldWall of aforementioned dogmas.


Mr. Market, take down that #OldWall!


How is that going to work? Let’s just look at what we did using Twitter yesterday in order to front-run a ridiculous #OldWall financial media meme that the Fed being on taper-hold is a “good” thing for growth:

  1. All research starts with asking the right question – our clients often ask, “Isn’t #RatesRising Bad for Growth?”
  2. So we created a video answering that simple question with a simple answer @HedgeyeTV:
  3. And we went on to answer two more big client questions we have been getting, then tweeted it (and re-tweeted it)

In the stone age of perceived financial market and economic wisdoms, you didn’t have Twitter, Videostreaming, YouTube, etc. So you actually had to take the government’s (and the banks they bail out) word for it on these economic history matters.


Ginning, spinning, and weaving, these academic dudes (and dudettes) who have never risk managed markets can get really creative. So was Karl Marx in introducing the adored Obama concept of #ClassWarfare in the first sentence of the Communist Manifesto.


And who the heck am I to call these people out? Sometimes I feel like a modern day version of some Iroquois or Creek Indian who is sitting here creating things (like cotton and rubber - you know, the stuff all the white dudes actually started to use). But what do I know?


What do you know?


The more I read, the less I know. So, admittedly, I do get a little frustrated to see central planning bureaucrats like Jim Bullard @FederalReserve on Big Government Intervention TV spewing economic forecasts that are rarely right, but never in doubt.


At one point yesterday @CNBC, Bullard actually said that it’s time Americans see QE (money printing, Dollar Devaluation, and 0% rates of return on your hard earned savings accounts) as a “normal policy position.”




Go back to that Iroquois style @HedgeyeTV video Darius Dale and I did and see the next popular client question: “How Concerned Are You About A Major Dislocation in the Credit Markets?”


Bullard, dude, there is nothing normal about credit markets that go no-bid when a bond ticks down half a point. Wake up man. You and your boy Bernanke have a “new normal” alright. It’s called a MBS bond bubble that people can’t get out of!


In other counter-Keynesian-consensus-dogma-economic-news this morning:


BREAKING: UK Services PMI for OCT hits a 16yr high at 62.5


Huh? With austerity and a #StrongerCurrency (we’re long the British Pound) the United Kingdom is seeing #GrowthAccelerating? You bet your Danny Blanchflower (Dartmouth Dogma professor of Currency Devaluation and Big Government Spending) it’s accelerating.


This morning, to be sure on my historical account, I went back to the time period I reviewed with my kids this weekend in the movie “Free-Birds” (where turkeys try to turn back the clocks on being slaughtered for Thanksgiving), and the replay still shows that there has never been a country that has devalued its way to long-term economic prosperity. Danny, you can’t turn back the clock. Gobble, gobble.


#StrongCurrency = Deflates The Inflation and real (inflation adjusted) consumption #GrowthAccelerating.


On the margin, that’s Europe now (not the USA –it was the USA 10 months ago):

  1. Swiss Consumer Prices (CPI) drop to -0.3% y/y in OCT = consumption tax cut for consumers
  2. Eurozone PPI (producer prices) drop -0.9% y/y in SEP = cost of goods tax cut for producers (good for margins)

And on what planet are Old World pundits allowed to fear-monger you that Deflating The Inflation is a bad thing? I guess maybe Pluto, Dartmouth (sorry guys, I’m picking on Blanchflower), or one that doesn’t have Twitter. Good luck keeping that one alive. As another revered American revolutionary, Martin Luther King Jr. reminded us, “a lie cannot live” forever.


Our immediate-term Risk Ranges are now:




Swiss Market Index 8159-8232

USD 80.17-80.98

Euro 1.34-1.36

Pound 1.60-1.62


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Information Revolution - Chart of the Day


Information Revolution - Virtual Portfolio

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