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Client Talking Points


You have to separate the front-running moves (Wednesday) versus this morning because USD Down, Gold Up isn’t happening this morning. The most important line in my model is the Dollar trading inside of $81.41 TREND resistance. (EUR/USD TREND line is $1.34.)


I had to sell that long Treasuries position. I couldn’t gut it out past the 11am EST portion of Janet Yellen's chat yesterday with the Senators. The proverbial waterfall of fund flows continues out of this epic Bernanke Bond Bubble. There will be nothing “tight” about timing that – it happens slowly, then all at once (h/t Ernest Hemingway). The 10-year Yield is holding its 2.64% TREND support. More to be revealed.


Rip-roaring fun for the biggest net short position in FX land! But, will the Yen break to lower-lows versus the September low versus the USD? That remains the question. We will let the market tell us on this one, but the Yen could be a long for the 1st time in a while in my model; research would back that as ECB and Fed are going to battle it out on the burning currency front

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.


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


The Mother of All Doves rocked the #KeynesianCrack house yesterday; Gold Bond beta chasing is back! (or is it?) @KeithMcCullough


What's the subject of life - to get rich? All of those fellows out there getting rich could be dancing around the real subject of life. -Paul Volcker


By the age of 4, the average child in a professional family has heard 20 million more words than a child in a middle-class family.

What's New Today in Retail (11/15)

Takeaway: UA expanding into digital with MapMyFitness, JOSB takes MW offer off the table, H&M plans India expansion, CROX can't find a prom date

Athletic Apparel Data


Takeaway: The only brand that are showing up on game day are Nike, UnderArmour, Mountain Hardware, Marmot (note cold weather brands doing well), and believe it or not — Reebok. 


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UA - Under Armour to Acquire MapMyFitness, One of the World's Largest Open Fitness Tracking Platforms



  • "Today, Under Armour...announced the acquisition of MapMyFitness, the fitness technology company powering one of the world's largest digital fitness communities."
  • "With this acquisition, Under Armour will be uniquely positioned at the forefront of sports and technology and will continue to deliver game-changing solutions to how athletes train and perform. As part of the collaboration, Under Armour will add depth to its digital capability, offering athletes an elevated training experience through new digital products and platforms."
  • "MapMyFitness has one of the largest connected fitness communities in the world and offers a diverse suite of websites and mobile applications under its flagship brands, MapMyRun and MapMyRide. Utilizing GPS and other advanced technologies, MapMyFitness provides users with the ability to map, record and share their workouts."
  • "Under Armour intends to initially finance the $150 million acquisition of MapMyFitness with borrowings under its existing revolving credit facility, cash on hand or a combination thereof, while it evaluates longer-term funding options for the transaction. The deal is expected to close by the end of 2013 and the Company's previously provided 2013 guidance and preliminary 2014 outlook remain unchanged."


Takeaway: Solid move my UA here to get more embedded in digital training — something Nike has been doing for five years. Nike built its expertise organically — though there’s nothing wrong with buying a preexisting platform like MapMyFitness. UA could quickly rebrand it as its own in a way that won’t scare off the existing consumer, and likely convert some of them into UA customers. 


JOSB, MW - Jos. A. Bank Terminates Acquisition Proposal as Men's Wearhouse Fails to Engage in Discussions



  • "Jos. A. Bank Clothiers, Inc. today sent a letter to the Chief Executive Officer of The Men's Wearhouse, Inc. terminating its all-cash proposal to purchase Men's Wearhouse for $48 per share. As previously reported, Jos. A. Bank had advised the board of directors of Men's Wearhouse that Jos. A. Bank would terminate its proposal if the board did not engage in good faith negotiations by November 14, 2013. The November 14 deadline has passed with Men's Wearhouse having failed to engage in such discussions."


Takeaway: We’re surprised that MW did not at least show up to the table. We’re with MW in that we think a fair value is far above the JOSB bid. If the stock trades off materially as the takeout premium evaporates, we’d consider hitting the bid on this one.


HMB - H&M gets Foreign Investment Promotion Board nod, plans to invest Rs 720 crore 



  • "The Foreign Investment Promotion Board (FIPB) has cleared Swedish clothing major H&M's Rs 720-crore proposal to set up single-brand retail stores in India…"
  • "H&M...plans to open 50 retail stores in India."
  • "The government had last year raised the FDI limit in single-brand retail to 100% from 51%, subject to certain minimum sourcing from local vendors. H&M had moved its proposal in April this year, but lack of clarity over certain issues had delayed a decision."

Takeaway: It’s nice to see a retailer actually succeed and grow in India. You hear that Wal-Mart? 


ADS - Adidas unveils white kit for German football team



  • "At the 2014 FIFA World Cup in Brazil, the German team will play a World Cup for the first time in an all-white kit. Supplier adidas presented the new home jersey in collaboration with the German Football Association (DFB)."


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Jockey unveils limited edition Anchorman 2 briefs



"This holiday season, Jockey International, Inc. unveils limited edition Jockey–Anchorman 2 briefs. The classic Jockey product makes a "brief" appearance in Paramount Pictures' Dec. 20 release of "Anchorman 2: The Legend Continues" as a nod to the broad popularity of Jockey's ads from the late '70s and early '80s."

"Presented in custom packaging featuring legendary anchorman Ron Burgundy, the briefs come in two colors that say 'I'm kind of a big deal': 'Beard of Zeus Blue' for afternoon delights and 'Sex Panther Red' for the jazz flute kind of nights, references from the classic original Anchorman film"



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Takeaway: This might be the most brilliant marketing gimmick we’ve seen all year.


CROX - Crocs Said to Explore Alternatives After Buyout Talks Falter



  • "Crocs Inc...held buyout talks that are unlikely to lead to a sale, leaving it to consider other options to boost value, people with knowledge of the matter said."
  • "Blackstone Group LP, which had explored a takeover, is now in discussions with Crocs about alternative deals, one person said, asking not to be identified as the information is private. The options include a stake sale or joint venture, another person said. KKR & Co. and other private-equity firms have decided against a bid, people said."


Takeaway: Let me get this straight…no one wanted to buy CROX outright, so the announce that they’re exploring other alternatives, and people think this is good news? That’s like looking for a prom date for three months, coming up dry, and then announcing that you’re evaluating alternative options for what to do while the rest of your friends are at the prom.


KER - Kering Sees Very Significant Profit Drop on La Redoute, Puma



  • "Kering SA...said it expects net income to drop 'very significantly' this year because of costs related to its planned sale of mail-order unit La Redoute and one-time charges for the Puma brand."
  • "Any 'solution' for La Redoute 'will have a significant impact on the net result from discontinued operations,' Paris-based Kering also said in a statement yesterday after the close of trading. Puma, the sporting-goods brand in which Kering is controlling shareholder, last week said it would book one-time charges of about 130 million euros ($175 million) this quarter."


Takeaway: No shocker here. Puma already announced that it’s following in the footsteps of its big brother Adidas this quarter in punting on first down. Nike is annihilating the Germans.


 Macy's Completes Beauty Floor Renovation



"Macy’s christened the new beauty floor at its Herald Square flagship in Manhattan this week with a host of launch activities including ribbon cuttings at new counters like Bobbi Brown and Laura Mercier. Celebrations, including appearances by various brands’ national makeup artists, will continue into December."

"The reimagined main floor features an additional 4,500 square feet of selling space for beauty and men’s grooming, a 17 percent increase, since renovations began this summer."


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Bangladesh Garment Factories Reopen After Wage Deal Reached



  • "About 250 Bangladesh garment factories reopened today in the Ashulia industrial zone on the outskirts of the capital, Dhaka, after owners agreed to a minimum wage of 5,300 taka ($68) a month for workers."
  • "A group of owners met Prime Minister Sheikh Hasina, who urged them to accept a recommendation made by a government-appointed panel, Atiqul Islam, president of the Bangladesh Garment Manufacturers and Exporters Association, said from Dhaka. The pay increase from 3,000 taka will be effective from Dec. 1, Labor Minister Rajiuddin Ahmed Raju said at a media briefing today."


Vietnam Leads Imports in September



  • "Vietnam posted the largest increase in apparel imports to the U.S. in September compared with a year earlier, as it continued to take business away from other Asian countries such as Indonesia, which posted a double-digit decline, while Bangladesh showed signs of a slowdown in production, a report from the U.S. Commerce Department showed Thursday."
  • "Apparel imports from Vietnam, the second-largest supplier to the U.S., rose 21.6 percent to 206 million square meter equivalents in September compared with September 2012. Indonesia, the fourth-largest apparel supplier to the U.S., posted a 17.1 percent decline in apparel imports to 73 million SME. China, the top supplier of apparel to the U.S., posted a 1.3 percent gain to 1.1 billion SME in the month."
  • "The pace of growth in apparel imports from Bangladesh…slowed in September. Apparel imports rose 2.2 percent to 124 million SME. This followed increases in the prior five months that ranged from 6.3 percent to 18.6 percent."



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

Empirically Bankrupt

“Much of the profession is empirically bankrupt because it is no longer taught economic history.”

-Charles Kindleberger


That quote comes from Chapter 12 “The Scandal of Money” (pg 115) in one of the only forward thinking economics books of 2013 (George Gilder’s Knowledge and Power).  It’s market practitioners like me vs the government PH.Ds. And it’s on.


The reason why Gilder gets it is that he combines the weaponry of A) economic history and B) math (chaos theory). The late Charles Kindleberger, of course, wrote one of the most important market history books ever (Manias, Panics, and Crashes) in 1978.


Keynesian economists (who Kindleberger alluded to as “the profession”) don’t do non-linearity, entropy, etc. They are all about “smoothing” cycles, and “equilibrium” (or something like that) which are designed to promise the end-user (Big Government Interventionists) certainty. NEWSFLASH: markets, bubbles, and economies are grounded in uncertainty. Embrace it.


Back to the Global Macro Grind


If you don’t get what I am talking about, take a few minutes to watch and listen to Janet Yellen’s confirmation hearing yesterday. Watching a human being’s body language is always as important as attempting to listen to what it is they are trying to say.


If you don’t want to study the kinesics of it all (the study of lying) or read economic history, read my friendly competitor’s (Zervos) rant yesterday about how he loves Yellen. There’s no math or history in his analysis; it’s all about the storytelling.


Critical to #KeynesianCrack storytelling is the fear-mongering and the emotion of it all. Just so you know the difference between our perspectives, David Zervos is a Ph.D. who worked for the Federal Reserve in Washington, D.C.  I’d boil down his backslapping of his groupthink tank’s (The Fed’s) anti-dog-eat-dog-economic-cycle-gravity-banning-central-planning idea as follows:

  1. “Optimal Control Policy”
  2. “Rule evolution”
  3. “Equilibrium risk-free”

Like many in Washington, he’s entertaining – and he gets markets right too. But how he thinks this all ends for America, her former “free” markets, and economy is about as far off on another planet as I’ll ever be. To him, I’ll sound crazy this morning.


Calling our kings and queens crazy? People often ask me what I’d do differently if I was at the Fed. Since I’m not the central planning type, I’d either do what Volcker did (end the madness of stagflation policy), or just shut the place down.


People also ask me what I’d ask our almighty Federal Reserve Ph.D.’s if I was in Congress. Well, since I have never voted for a politician in my life, I doubt being in Congress is in the cards, but here are some questions for my friends sipping the Keynesian chartreuse:

  1. What the hell is an “optimal control” policy model and why use any model when every model the Fed has used has failed?
  2. Does “rule evolution” mean that when the prior optimal policy doesn’t work, you just change the rules?
  3. How do you think keeping the “risk free rate” at 0% ends when the bond market turns on your expected “equilibrium”?

Traditional anti-Marxists would call trying to mark markets to some damn “optimal” model and/or price floors just plain dumb. But I won’t do that this morning. I am Mucker. How dare I challenge a Ph.D. “science” of charlatans?


Yes I called them charlatans. If you don’t think I’m crazy yet – watch this video I made for my Washington friends yesterday titled #Yellen: Tools, Crickets, and Crack: http://app.hedgeye.com/media/697-yellen-tools-crickets-crack?media=all&page=1


Yep, too many pucks to the head. But before these Ph.D.’s bubble (and blow) up markets for the umpteenth time in world history, I’ll be standing on the front lines against their academic dogmas. Yes, Mr. Zervos – I’m the one who knocks.


Back to how we risk managed the event risk of Yellen being who she is (The Mother of All Doves), we made the playbook move of buying slow-growth Yield Chasing assets that drive what Jefco calls the “spooooz” higher.


But do not mistake Gold, Bonds, and Utilities leading yesterday’s short squeeze to another all-time US stock market (SPY) high for rising growth expectations (the Russell Growth Index was down). Remember, a Policy To Inflate nominal is not real economic growth.


Oh, and I sold all my Gold and Bonds by 11AM EST. Yellen’s darting eyes toward Nero Corker (the Keynesian overlord from Tennessee) did me in. I just couldn’t stomach being long their empirical bankruptcy for more than a few more hours. Keep moving out there!


Our immediate-term Risk Ranges (its math – we have 12 Big Macros in our Daily Risk Range product) are now:


UST 10yr Yield 2.66-2.81%


VIX 11.99-14.41

USD 80.53-81.41

Pound 1.59-1.61

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Empirically Bankrupt - Chart of the Day


Empirically Bankrupt - Virtual Portfolio






“If we’re given the chance to build a casino in Japan or Taiwan, we would at least be spending HK$20 billion or HK$30 billion,” Deputy Chairman Francis Lui said. “We have the financial capacity to do that.”


Galaxy also plans to invest HK$10 billion to develop leisure and sports facilities on Macau’s neighbouring Hengqin Island. The investment includes the costs of land acquisition and construction on the island that is being developed by local and international companies as an entertainment destination.

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