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What's New Today in Retail (12/4)

Takeaway: WMT.com and JCP stand alone w/ POS sales updates. H&M attacking LULU? Shareholder looks to oust Jeffries from ANF. Un-American Eagle.



Hedgeye Black Friday Consumer Survey: Focus on JCP.  We'll be conducting a follow-up to our prior consumer survey (which helped us call a JCP beat and KSS miss) following Black Friday weekend and Cyber Monday. We'll have results next week, and will have an updated presentation accordingly. If you are interested in our results, please email sales@hedgeye.com, or .


ARO - Earnings Call: Wednesday (12/4) 4:15 pm

GES - Earnings Call: Wednesday (12/4) 4:30 pm

WTSL - Earnings Call: Wednesday (12/4) 5:00 pm

FRAN - Earnings Call: Thursday (12/5) 8:30 am

SKX - Analyst and Investor Meeting: Thursday (12/5) 9:30 am

HBI - ISI Group Consumer Holiday Conference: Thursday (12/5) 9:30 am

DG - Earnings Call: Thursday (12/5) 10:00 am




Weekly Athletic Footwear Data


What's New Today in Retail (12/4) - chart1 12 4

What's New Today in Retail (12/4) - chart2 12 4

What's New Today in Retail (12/4) - chart3 12 4







  • "J. C. Penney Company, Inc. today provided a preliminary update on the Company's performance for the fiscal month ending November 30, 2013. During that period, which includes the important Thanksgiving weekend, the Company's comparable store sales grew 10.1 percent over last year. The Company also noted that its e-commerce sales through jcp.com continued to be strong, running well ahead of last year, consistent with last month's trend."


Takeaway: See our note "JCP The Bear Case Lacks Intellectual Honesty"


WMT - Walmart.com Has its Best Sales Day Ever on Cyber Monday 2013



  • "Walmart today announced that Cyber Monday 2013 was the biggest online sales day in its history. The five-day period from Thanksgiving to Cyber Monday is the highest five-day stretch in online sales for the retailer to date, and Walmart.com processed more than 1 billion page views during that period."


Takeaway: It's kind of funny…every retailer will cherry pick the highlights and report them to the world. The bad news gets stifled. At least Wal-Mart had SOMETHING good to say -- even though it had nothing to do with store sales over Black Friday weekend. JCP had good news. So far, crickets from the rest of US retail.


ANF - Engaged Capital Tells Abercrombie: Replace CEO



  • "Engaged Capital said in a letter to the Abercrombie board that it should start looking for a replacement for chairman and chief executive Michael Jeffries, whose employment contract expires Feb. 1."
  • "The hedge-fund firm, which said it owns about 0.5% of Abercrombie's stock, also said the sale of Abercrombie to a private-equity buyer 'may represent the best option for shareholders.'"
  • "Abercrombie on Tuesday said it welcomed 'input from all shareholders' and that it had held 'extensive discussions' with many shareholders, including Engaged Capital, over the past several months."


Takeaway: We hope they succeed. We've been tempted to get involved with ANF over the years, but the fact that Jeffries is still CEO has repeatedly held us back. It's rare to see one person destroy significant equity value at a company, but that's the one area where Jeffries has succeeded.


HMB - H&M Sport to Compete in Activewear



  • "The Swedish high-street retailer will reveal today that it is launching H&M Sport, an expanded concept with a new visual identity, on Jan. 2 in all its markets worldwide."
  • "Dedicated areas in selected stores will feature activewear and accessories including windproof and water-repellent running jackets; warm-up tops and trousers for working out; comfortable garments for yoga; tennis shorts, and protective fleece jackets for outdoor activities."
  • "H&M signaled its intention to deepen its sportswear offering earlier this year when it said it would dress Sweden’s athletes for the Winter Olympics and Paralympics in Sochi, Russia, next year and the Summer Olympics and Paralympics in Rio de Janeiro in 2016."


What's New Today in Retail (12/4) - chart5 12 4


Takeaway: So many retailers are hopping on the Athletic bandwagon. Heck, you can buy yoga apparel at Whole Foods now. Nike and UnderArmour have been dealing with this for a long time. But Lululemon better keep an eye on the price gap between its Down Dawgs and what the H&M's of the world are offering.


SHLD - Filing Reveals Edward Lampert's Stake in Sears



  • "Edward Lampert, Sears Holdings Corp.’s chairman and chief executive officer, pared his stake in the company over the last few months and no longer controls the majority of its shares, but the pruning job was relatively modest."
  • "In a regulatory filing Tuesday, Lampert and his various investment vehicles, including ESL Partners LP, were listed as owning 51.6 million shares of Sears stock, 48.4 percent outstanding. That’s down from the 58.9 million shares, or 55.4 percent, listed in March. The reduction was caused by distributions to ESL investors."


Takeaway: Perhaps this is a complete non-event if it was simply a distribution to ESL Investors. But if there was any part that was driven by his desire to downside his stake, then it would be catastrophic to SHLD. In fairness, Lampert is savvy enough to not let that happen.


AEO - American Eagle Inks Overseas Deals



  • "American Eagle Outfitters Inc. is expanding its presence in the Americas and in Asia-Pacific. The teen retailer has signed three new licensing agreements for stores that are set to begin opening in time for back-to-school in 2014."
  • "According to Simon Nankervis, senior vice president for the Americas and global licensing, one agreement is with Grupo David Enterprises. That contract covers Venezuela, the Caribbean Islands and, in Central America, the countries of Panama, Costa Rica, Honduras, Guatemala, El Salvador, Nicaragua and Belize."
  • "A separate agreement was signed with Grupo Comercializadoras for Colombia. In Asia-Pacific, the retailer signed an agreement with Pacifica Lifestyle Co. for stores in Thailand."
  • "All agreements are for two, five-year tranches. Each agreement also allows the licensing partner to open aerie concept shops-in-shop or side-by-side stores...While many of the stores in the U.S. are about 7,000 square feet, Nankervis said those overseas range on average from 4,000 square feet to over 7,000 square feet, depending on location and availability of real estate."


Takeaway: American Eagle is doing the unthinkable -- taking the 'American' Eagle brand outside of America. Let's face it, the US isn't too popular on the world stage. If AEO can make this work, they definitely tack on another leg of growth to the story.


Burton - Burton Unveils U.S. Olympic Snowboard Look



  • "When the 2014 Winter Olympics take place in Sochi, Russia, Feb. 7 to 23, the U.S. snowboarding team will be sporting Burton. The Vermont-based brand unveiled the original men’s and women’s designs at its flagship here Tuesday night."


What's New Today in Retail (12/4) - chart4 12 4


Takeaway: Out of any sport in the games, the apparel that gets the greatest focus is arguably snowboarding. Burton was the first and remains the premier snowboarding brand. Though it's surprising that one of the bigger brands with deeper pockets has not stepped up and bid away the deal.


NKE - Nike starts waterfree fabric dyeing facility in Taiwan



  • "NIKE, Inc. celebrated the opening of a waterfree dyeing facility featuring high-tech equipment to eliminate the use of water and process chemicals from fabric dyeing at its Taiwanese contract manufacturer Far Eastern New Century Corp."
  • "NIKE, Inc. has named this sustainable innovation 'ColorDry' to highlight the environmental benefits and unprecedented coloring achieved with the technology."




Visa’s Black Friday weekend online sales up 30%



What's New Today in Retail (12/4) - chart6 12 4


New Rules to Dictate Spending Habits of China Officials



  • "In what could be a further blow to luxury consumption in China, the nation’s leadership is deepening its pledge to crack down on corruption and ostentation with the release of new rules outlining how officials should avoid extravagant spending on activities ranging from overseas travel to the purchase of new vehicles."
  • "With 12 chapters outlining 65 rules on how to manage funds and employ more transparent spending, the document, released last week, is extensive and is causing analysts to question whether the antigraft campaign that began nearly a year ago under the new administration of President Xi Jinping will continue to have a far-reaching impact on China’s luxury sector. Spending on luxury products has historically been bolstered by the purchase of expensive gifts between officials and business associates as bribes."


#EOW (End of World)?

Client Talking Points


Volatility made another higher-low last week (signaling a short-term SPY stop), but then it failed at Hedgeye TREND resistance of 14.92 yesterday. This is what we call a very manageable risk range for US Equities. The VIX is now overbought .

S&P 500

Witness the 3-day correction of -0.7%. That's called bear scraps.So keep moving out there or get mauled. Fund flows have been epic (and they haven’t been put to work). Bottom line is you want to be buying red and selling green… and looking mean. 


We still like European growth equities more than U.S. equities right now. Germany (DAX) held our Hedgeye TRADE support of 9138 after another #GrowthAccelerating data point in the November Services PMI of 55.7 (versus 54.5 last month). #EuroBulls 

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


Remember the fear mongering in OCT about a US "Debt Default"? a consensus gift @KeithMcCullough


"We don't see things as they are, we see them as we are." - Anais Nin


U.S. private employers added 215,000 jobs in November, topping expectations, according to ADP, reinforcing expectations the Fed may soon begin to taper. Economists surveyed by Reuters had forecast the ADP Report would show a gain of 173,000 jobs. The high end of the estimates was 205,000. October's number was revised to 184,000 from the initially reported 130,000. (Reuters)

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Spiking Skew

“My reading of history convinces me that most bad government results from too much government.” -Thomas Jefferson


Over the Thanksgiving break, I started reading “Thomas Jefferson: The Art of Power” by Jon Meacham.   For many of you Americans (like Keith I’m Canadian), undoubtedly studying the founding fathers is old hat, but for me the book has a number of revealing insights.


The key insight relates to the quote at the outset.  Specifically, this idea that too much government may, in fact, be too much government.  No doubt there are some pensioners in Detroit who are thinking just that as they are beginning to realize that the “government guarantee” of their pension is not as solid as they believed it to be.


Like most great men, Jefferson had his faults.  Regardless, the author of the Declaration of Independence was a stalwart protector of individual liberty, especially in the face of the threat of government.  Compared to the Jeffersonian era, the individual American certainly has much broader freedoms than he, and especially she, would have had in the early 1800s.


The one caveat to this of course is in the area of economic freedom, specifically taxation.  From the Jeffersonian period to the early 20th century, the government was both a small percentage of the economy and direct taxation was originally very limited.  On the last point, as recently as 1895 the Supreme Court of the United States actually ruled that federal income tax was unconstitutional.


Today as we “gladly” hand over 1/3+ of our incomes to the federal government and the government comprises 20%+ of the economy, it certainly begs the question of whether we have the personal economic freedoms that our Founding Fathers envisioned.


Back to the global macro grind . . .


Related to the topic above, one sneaky macro positive that has been emerging domestically is a shrinking of the federal budget deficit.  Over the past four years, the federal budget deficit has been cut in half from the peak level of $1.4 trillion.  Certainly, a $700-ish billion budget deficit is still too large, but in this regard the trend is definitely our friend, especially as it relates to U.S. dollar tailwinds.


Sadly, none of today’s current politicians have the political acumen of Thomas Jefferson, so the primary method to halt federal government spending growth has been for the Tea Party to effectively hijack the government, which most recently led to a government shutdown.


In 2014, we may have déjà vu all over again.  Consider the federal government catalysts we have in front of us in the next three months:

  • December 13th – The bipartisan budget committee is supposed to report back on budget / compromise progress;
  • January 15th – The Current Continuing Resolution runs out;  and
  • February 7th – The next debt ceiling deadline. . .

The threat of more negative government catalysts is actually coming at a really complacent and inopportune time for the U.S. equity markets. Specifically, the VIX’s monthly average price was just under 13 in November and at the lowest level we’ve seen in over two years.  As many of you well know, there is an inverse correlation between the VIX, a measure of volatility, and the price of the SP500.  Suffice it to say, the equity volatility ball is sufficiently under water . . .


In the Chart of the Day, we highlight the SKEW Index compared to the VIX index.  As the chart shows, SKEW is spiking and historically SKEW has been a decent leading indicator of volatility.  Intuitively this makes sense as investors are becoming more compelled to hedge exposure given the highs in the market and the fact that year-end is fast approaching. 

A potential spike in volatility and decline in equities also makes sense given a number of other signs of a near term top.


Consider a couple of headlines from the Wall Street Journal and Reuters from yesterday:

  • “More Hedge Funds Turn to Long-only Strategies”
  • “Short Sellers Trying to Cope”

No doubt, this has been a challenging year for short sellers as stocks with high short interest have outperformed meaningfully, but when more than half of hedge funds launch or plan to launch long only strategies it does reek of capitulation.  (And no, the Hedgeye Long Only ETF won’t be launching anytime soon!)


Before signing off, I also wanted to remind you of Hedgeye’s Energy Best Idea call on Boardwalk Partners (BWP) this Thursday at 11am.  BWP is a $6.4 billion market cap MLP primarily engaged in the transportation and storage of natural gas in the south/central US.  The diversified holding company Loews Corp. (L) owns the 2% GP interest in BWP, all IDRs (currently in the 50/50 split), and 52% of the BWP’s outstanding common units.


BWP is a high-conviction short idea given the Company’s deteriorating base business, aggressive accounting, high leverage, unsustainable distribution, valuation.  If this thesis sounds a little like our calls on Kinder Morgan (KMP) and Linn Energy (LINE), it should.  We think the valuation of the MLP sector is grossly overstating the intrinsic value of the underlying businesses held in these structures.  If you’d like to get access to the call, email sales@hedgeye.com.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Spiking Skew - SKEW


Spiking Skew - 12 4 2013 8 07 41 AM

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TODAY’S S&P 500 SET-UP – December 4, 2013


As we look at today's setup for the S&P 500, the range is 31 points or 0.62% downside to 1784 and 1.11% upside to 1815.                                     










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.51 from 2.50
  • VIX  closed at 14.55 1 day percent change of 2.25%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Nov. 29 (prior -0.3%)
  • 8:15am: ADP Employment Change, Nov., est. 170k (prior 130k)
  • 8:30am: Trade Balance, Oct., est. -$40b (prior -$41.8b)
  • 10am: ISM Non-Manufacturing, Nov., est. 55 (prior 55.4)
  • 10am: Sept., Oct. new home sales; delayed by govt. shutdown
  • 10:30am: DOE Energy Inventories
  • 2pm: Federal Reserve releases Beige Book


    • Sec. of State John Kerry attends NATO mtg in Brussels
    • 9:30am: House Oversight and Govt Reform Cmte hears from Brookings, Mercatus, Cato experts on rollout of healthcare.gov
    • 9:50am: Education Sec. Arne Duncan at Federal Student Aid Training Conf., answers questions on Obama’s proposal to make college more affordable for middle-class Americans
    • 10am: House Energy and Commerce Cmte panel hears from policy institutes, think tanks on ACA, Medicare Advantage
    • 11am: Boeing CEO, Business Roundtable Chairman Jim McNerney holds conf. call to discuss CEO Economic Outlook Survey
    • 11:20am: President Obama speaks on economy at CAP event
    • 1pm: House Small Business Cmte hears from National Restaurant Assn on effects of Affordable Care Act


  • European Commission fines banks EU1.71b for rate rigging
  • JPMorgan said to snub Euribor deal
  • Deutsche Bank extends multi-party chatroom ban to fixed income
  • Merck, Lilly said to be interested in Novartis veterinary unit
  • Cyber Monday sales rise ~20%, Comscore says
  • China Mobile license paves way for world’s largest 4G network
  • Bats sees completing Direct Edge deal in 1Q
  • Ireland exits Bank of Ireland $2.4b preferred share stake
  • British probe to clear Huawei of allowing spying
  • Nokia/Microsoft: EU provisional deadline


    • Aeropostale (ARO) 4:01pm, $(0.25)
    • Avago Technologies (AVGO) 4:05pm, $0.81
    • Brown-Forman (BF/B) 7:45am, $0.91
    • Express (EXPR) 7am, $0.25
    • Guess? (GES) 4:03pm, $0.38
    • Korn/Ferry Intl (KFY) 4:01pm, $0.34
    • Mattress Firm (MFRM) 4:01pm, $0.54
    • National Bank of Canada (NA CN) 7:15am, C$2.09
    • Synopsys (SNPS) 4:05pm, $0.55
    • Verint Systems (VRNT) 4:05pm, $0.64
    • Wet Seal (WTSL) 4:05pm, $(0.12)


  • Record Rice Inventories in Thailand Jumping 17% as Exports Climb
  • Brazil Corn-to-Soy Switch Foreshadows Record Glut: Commodities
  • OPEC Seen Keeping Output Cap; Naimi Says Market in Best Shape
  • LME Is Reviewing Future of London’s Last Open-Outcry Trade Pit
  • WTI Rises on U.S. Crude Supply Drop as Discount to Brent Shrinks
  • Gold Falls to Five-Month Low as Silver Drops on Fed Taper Bets
  • Wheat Climbs on Speculation Cold Snap May Hurt U.S. Winter Crop
  • Copper Climbs Before Reports Seen Showing More Hiring in U.S.
  • Robusta Extends Gains After Biggest Rally Since 2011; Sugar Adds
  • Rebar in Shanghai Advances to Seven-Week High as Iron Ore Jumps
  • Soybean Meal Seen Falling 8.3% on Reversal: Technical Analysis
  • Ethanol Mills Face Closures as Obama Cuts Target: Energy Markets
  • Natural Gas Near $4 Makes Costly Appalachia Coal Basins Viable
  • Iran Will Meet Intl Oil Companies in March in London: Minister


























The Hedgeye Macro Team














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