What's New Today In Retail (12/23)

Takeaway: TGT has a long way to go to reassure customers. JOSB gives MW a taste of its own medicine. NKE plays defense w US soccer. 'Anti-AMZN' 42%



TGT - Target Says Few Fraud Reports From Card Data Breach



"Target Corp. said on Friday it has received 'very few' reports of credit-card fraud after the discount retailer suffered a massive data breach that compromised 40 million credit and debit card accounts over a 20-day period."

"The Minneapolis-based company is rushing to reassure customers and keep them shopping in the final days of the big holiday-shopping season. On Friday, it said it would offer buyers 10% off at its U.S. stores this weekend. Target also will extend free credit-monitoring services to those affected by the breach, and will be contacting those customers directly."


Takeaway: Seriously, Target. Whether or not there have been fraud reports is irrelevant. It doesn't change the fact that you exposed your customers to criminals not once. Not twice, but 40 million times. Saying 'only a few fraud reports' is akin to lowering a child off a boat into shark infested waters and saying 'she only got bit a few times'.


TIF - Award Issued in Arbitration Between The Swatch Group Ltd. and Tiffany & Co.



"As previously disclosed by Tiffany & Co. in filings with the United States Securities and Exchange Commission, certain claims and counterclaims had been pending between and among The Swatch Group Ltd. and its wholly-owned subsidiary Tiffany Watch Co…"

"In respect of certain breaches of the Tiffany Parties under the Agreements, Tiffany is to pay the Swatch Parties CHF 402.7 million (or approximately USD $449.5 million), plus interest thereon from June 30, 2012 to the date of payment at the statutory compound interest rate for damages under applicable Dutch law (which rate is currently three percent)."

"Tiffany & Co. intends to fund any amounts to be paid by the Tiffany Parties from immediately available cash on hand and funds available under its existing debt facilities. The management of Tiffany & Co. believes that the charges associated with this award will reduce earnings per diluted share for the fiscal year ended January 31, 2014 by $2.30 - $2.35 relative to the guidance issued on November 26, 2013 of $3.65 - $3.75."


Takeaway: We're surprised not by the judgment, but by the fact that TIF noted so quickly how it intends to pay. These things are usually stretched out a lot longer than this. I guess accrued interest on $450mm is a powerful motivator.


JCP - Blake Shelton Performs for J.C. Penney



"The country singer and 'The Voice' judge made an unexpected appearance in Greeley Square, across from the J.C. Penney Manhattan store, in his role as the company’s JCP Cares ambassador."


Takeaway: Nice win for JCP…but to have a real impact on the company's numbers they need U2 and the Stones to tour all 1,100 JCP stores…twice.


JOSB - Jos. A. Bank Rejects Men's Wearhouse Acquisition Proposal; Will Continue to Review Strategic Acquisition Opportunities



"Jos. A. Bank Clothiers, Inc.  today responded to the non-binding acquisition proposal it received on November 26, 2013, from The Men's Wearhouse, Inc. The Company said that after thorough consideration by its Board of Directors, with the assistance of its financial and legal advisors, it has unanimously rejected the proposal made by Men's Wearhouse."

"The Company's Board of Directors concluded that the price proposed by Men's Wearhouse significantly undervalued the Company and its near and long-term potential and was not in the best interest of the Company's shareholders."

"Further, as the Company has said previously, it is reviewing all alternatives regarding potential strategic acquisition opportunities that would enable the Company to drive significant value for shareholders."


Takeaway: This is a kick in the teeth to MW. MW was good enough for JOSB to buy, but apparently not good enough to be the buyer.


NKE - Nike to sponsor US Soccer for nine more years



"Nike and the U.S. Soccer Federation have announced a renewal of their partnership, that will see [Nike] design and create the kits for men and women’s United States teams at every level for nine more years."

"Nike and U.S. Soccer, currently celebrating its centennial, have been partners since 1995."


Takeaway: This is purely defensive. Do you really think that US Soccer is a revenue driver for Nike? No. It makes money off its sponsorship of teams like Brazil -- not the US. But could you imagine Nike's shame if Adidas came along and endorsed the US? That would be almost as big a slap in the face as if Nike pulled the Germany endorsement away from Adidas (something it has repeatedly tried to do).


MIK - Michaels Reorganizes IPO Plans



"Michaels Stores Inc. has reorganized its plans for its public trading debut. The arts-and-crafts retailer initially withdrew its delayed initial public offering on Friday, citing its July reorganization, which created an indirect parent holding company called The Michaels Companies Inc., as the reason for the withdrawal."

"Michaels Companies, meanwhile, filed for an IPO of up to $500 million in common stock. The timing, number of shares to be sold and the price range for the proposed offering haven’t yet been determined."


Takeaway: At face value, an IPO of Michael's Stores might not seem too sexy, but keep in mind that this stock was a rocket when it was public during the last cycle -- and that's before rumors swirled around about it going private.

JOEZ - Hudson Clothing's Jeans Dodges EU Tariff



"Los Angeles-based Hudson Clothing LLC yesterday received a ruling from the UK's customs and tax department exempting its women's blue jeans from a 200 percent EU tariff increase imposed last spring."

"According to attorney Elise Shibles of Sandler, Travis & Rosenberg, PA, who represented Hudson in the matter, the retaliatory EU tariff that raised the tax on U.S.-made women's denim trousers from 12 percent to 38 percent should not have been applied to Hudson's jeans. Shibles crafted a legal argument asserting that the blue jeans in question fall under a tariff provision not covered by the increased tax."


WMT, COST, BBY, JCP - Albany-based anti-Amazon hitting revenue targets



"CommerceHub, a tech company owned by billionaire John Malone’s Liberty Media, has watched growth skyrocket in recent seasons as it fuels online sales nationwide for chains like Walmart, Costco, Best Buy and JCPenney."

"The service, which allows retailers to beef up their picks online without buying inventory or operating costly warehouses, was a big hit industrywide during the Thanksgiving weekend. It adds merchandise to client websites while making sure a network of third-party suppliers can deliver it posthaste."

"Sales of CommerceHub’s 'virtual inventory' — the name Poore uses for third-party goods that his firm sources for retail clients — surged 42 percent to $1 billion from Thanksgiving through cyber-Monday."

"Year to date, online sales processed through CommerceHub are up 31 percent to $7 billion, he says, or about double the rate of online sales growth across the US generally."

"What’s more, Poore predicted that virtual inventory fulfilled by third-party suppliers will account for more than 90 percent of all online goods within the next five years, up from about a third today."




Outlook Unchanged After 'Super Saturday'



“'As big as Super Saturday was, it’s still a lousy season,' said Craig Johnson, president of Customer Growth Partners. He estimated Super Saturday could exceed Black Friday — for the past 10 years the largest volume day of the year — by a $1 billion to $2 billion. 'Super Saturday could be the number-one day of the year,' agreed ShopperTrak founder Bill Martin. He added that the last Friday to Monday stretch might prove to be 'the largest spending period of the year, bigger than Black Friday weekend.'”


Rampant Returns Plague E-Retailers



"Behind the uptick in e-commerce is a little known secret: As much as a third of all Internet sales gets returned, according to retail consultancy Kurt Salmon. And the tide of goods flowing back to retailers is rising. Shipper United Parcel Service Inc. expects returns to jump 15% this season from last year, making them a significant and growing cost for retailers."

"The stakes get even higher during the holidays, when return volume peaks. So this year, chains are digging through past transactions to weed out chronic returners, train shoppers to make better decisions or stem buyer's remorse."

Got Growth?

Client Talking Points


Volatility (VIX) was down -12.5% last week. It's back into crash mode for 2013 (down -23.5% year-to-date) alongside Gold. Both of them hate the whole #RatesRising on growth surprising to the upside thing. More importantly, the VIX is under our 14.91 Hedgeye TREND line again. That of course is bearish for the VIX.


Germany ripped right back up to its year-to-date highs last week (EuroStoxx600 was +3.7% on the week). It's holding those gains this morning and is up +0.4%. We will stay with our Q413 #EuroBull macro theme provided that EUR/USD $1.35 TREND holds.


Gold is down another -0.4% this morning after dropping -2.5% last week. Gold is down -29.1% year-to-date as the 10-year Treasury yield holds 2.90% (with next resistance 2.95%). The immediate-term risk range for Gold is now 1184-1229.

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


Morning... Heading to Lake Okeechobee to slay Florida largemouth bass @HedgeyeEnergy (Kevin Kaiser)


"There is only one thing that makes a dream impossible to achieve: the fear of failure." - Paulo Coelho


US stocks were up last week with the S&P 500 up +2.6% (+27.5% YTD). The Russell 2000 was up +3.6% (+35% YTD). Got Growth in your 2013 portfolio? Industrials +3% last week (+35.3% YTD) versus slow-growth Utilities +0.9% (+8.3% YTD).

December 23, 2013

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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.

Speaking of Growth

“The mass of the American people are most emphatically not in the deplorable condition of which you speak.”

-Theodore Roosevelt


That’s what a 28-yr old Teddy Roosevelt said to a fear-mongering-class-warfare-guy when he ran for mayor of New York City in 1886. In one of the first debates of his career, he went on to pummel the parasitic politician with positivity and resolve:


“… the states-men and patriots of today are no more responsible for some people being poorer than they are for some people being shorter… if you had any conception of the true American spirit you would know we do not have “classes” at all on this side of the water…” (The Bully Pulpit, pg 126-127)


While a lot of people spent a lot of time whining about the #EOW (end of the world), government spending cuts, and #RatesRising in 2013, many of us went on doing what American Doers do – grow. Relative to where consensus was, this country hasn’t seen a growth surprise to the upside like this in a long-time. I’d like to thank all of you who grew your businesses for contributing to that.


Back to the Global Macro Grind


As 2013 comes to an end, the year’s growth score-card will be reported on a lag. Mr. Macro Market obviously didn’t miss making this call in real-time however. What a run US GDP growth went on into the highs of Q313. #Boom!


At +4.12% GDP growth in Q3, the 1st takeaway shouldn’t be someone who missed it whining about “inventories” (newsflash: businesses build inventories as growth in demand accelerates – it’s called a cycle); it should be that GDP of +4.12% was actually understated!


The US GDP Deflator (subtracts from nominal growth to get you real-inflation-adjusted GDP growth) for Q313 was overstated at +2% (that compares with the MIT billion prices project of +1.7% and the CRB Commodities Index which was tracking -6-7% year-over-year). Which means nominal US GDP growth was over +6%  in Q3 and the real print could have been 4.5-5%!




The US stock market didn’t miss this. Neither did the Bond market (#RatesRising), nor Gold (crashing -29% YTD). The people who really missed this were actually the politicians. Who, like in 1886, were busy trying to tell stories about the economy they need you to believe rather than the one you had.


When we write about “growth” we’re talking about investment “style factors.” Here’s how the market prices those YTD:

  1. LOW YIELD STOCKS (i.e. growth stocks) = +44.2% YTD (vs slow-growth High Dividend Yield stocks +16.8%)
  2. TOP 25% EPS GROWTH STOCKS (by S&P quartile) = +40.4% YTD
  3. HIGH BETA STOCKS = +37.6% YTD

In other words, being long these GROWTH styles even beat the high flying US stock market indices:

  1. SP500 = +27.5% YTD
  2. Russell2000 = +35.0% YTD
  3. Nasdaq = +35.9% YTD

And obviously the major US Equities indices smoked being long things like:

  1. Fear (VIX) = -23.5% YTD
  2. Gold and Silver = -29.1% and -36.5% YTD
  3. Utilities (XLU) = +8.3% YTD

Utilities, MLPs, REITs got crushed relative to any domestic growth and/or cyclical sector of the US Stock market too:

  1. Consumer Discretionary (XLY) = +38.4% YTD
  2. Healthcare (XLV) = +37.7% YTD
  3. Industrials (XLI) = +35.3% YTD

And sure, some might quibble with Healthcare being called a US domestic “growth” sector, but that’s what we’ve called it since making it one of our favorite sectors in our Q113 Global Macro Themes, so they can quibble away.


Quibbling and whining might win people on your respective teams a few arguments, but these kinds of players (and class warfare dudes) don’t help you win championships. Those with open, objective, and flexible minds do.


The hardest thing to do in this business is having the humility to embrace that Mr. Macro Market might know something you don’t know. And clearly, whether by +4.12% GDP growth (old news now) and/or growth style factor performance in the marketplace, as the great behavioral philosopher Notorious B.I.G wrote, “if you don’t know, now you know.”


Our immediate-term Global Macro Risk Ranges are now:



VIX 13.01-14.91

Gold 1184-1229


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Speaking of Growth - Chart of the Day


Speaking of Growth - Virtual Portfolio


TODAY’S S&P 500 SET-UP – December 23, 2013

As we look at today's setup for the S&P 500, the range is 33 points or 1.39% downside to 1793 and 0.42% upside to 1826.           










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.52 from 2.51
  • VIX  closed at 13.79 1 day percent change of -2.54%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Chicago Fed Natl Activity Index, Nov. (prior -0.18)
  • 8:30am: Personal Income, Nov., est. 0.4% (prior -0.1%)
  • 9:55am: UofMich. Conf., Dec. final, est. 82.7 (pr. 82.5)


    • Deadline for Americans who want coverage effective Jan. 1 under ACA; hundreds of thousands whose health plans are being canceled as their coverage doesn’t meet rules are exempt next yr


  • Apple strikes deal to sell iPhone through China Mobile
  • U.S. eco growth to quicken next yr, IMF’s Lagarde says
  • OPEC ministers see no ’14 glut amid signs of demand growth
  • Tiffany ordered to pay Swatch $449m over venture dispute
  • Shoppers get big discounts on last-minute holiday purchases
  • Apple CEO Tim Cook sees “big plans” for 2014: 9to5Mac
  • YRC said close to getting $250m in equity: WSJ
  • Darden shrholder Starboard to push company reorganization: WSJ
  • Elliott “irrevocably” rejects McKesson’s offer for Celesio
  • “Hobbit” sequel leads N.A. weekend box office w/ $31.5m
  • Goldman real-estate investment fund escapes Volcker rule: WSJ
  • Paulson sells Washington Mutual debt amid FDIC lawsuit: WSJ


    • No earnings expected from S&P 500


  • Gas in New York Surges to Highest Intraday Price in Two Years
  • Hedge Funds Cut Gold Bull Bets Amid Record Outflows: Commodities
  • WTI Trades Near Two-Month High on U.S. Growth, Sudan Violence
  • Nickel Reaches Seven-Week High as Indonesian Export Ban Nears
  • Soybeans Advance as Dry Conditions in Argentina May Stress Crops
  • Gold Resumes Decline in London on Less Haven Demand Speculation
  • Rebar in Shanghai Falls to One-Month Low as Ore Price Declines
  • Cocoa Climbs as Much as 0.5% to Highest Price Since Sept. 2011
  • Gold Assets Post Biggest Weekly Drop Since July as Prices Slump
  • Last U.S. Lead Smelter Closes Toxic History in Ore-Rich Missouri
  • Speculators ‘Throwing Money’ at Natural Gas on Icy Blast: Energy
  • Refiner EPS, Ebitda May Rebound on WTI-Brent: 2014 Outlook
  • Qatar to Boost Europe LNG Sales as Gas Trades at 7-Year High
  • Raw Sugar Falls as Traders Have First Net Short Since September


























The Hedgeye Macro Team














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