Mother of All Doves

Client Talking Points

US Dollar

The greenback was back down yesterday on the heels of a #GrowthSlowing ISM Services report in the USA. That piece of economic news increases market speculation that Janet Yellen will back off on Fed taper talk – she is the Mother of All Doves, don’t forget. The US Dollar Index fails @Hedgeye TAIL resistance of $81.12.


The 10-Year Treasury yield holds yet another higher-low (and every line of support that matters in my model) at 2.96% ahead of the US employment report. There's no resistance to fresh highs of 3.05%. So yes, we’ll stay short Gold on that. $1185 support on that.


Simple math: If the Buck Burns, Euros win. It's hard for Keynesians to get this, but UK auto sales just hit their highest level since 2007 on a #StrongPound too. Why? A strong currency means strengthening confidence and higher European consumption growth. #EuroBulls.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL.  So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.


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.

Three for the Road


Yellen’s Senate confirmation vote (56-26) was the worst in Fed history – that’s progress @KeithMcCullough


"Hell, there are no rules here - we're trying to accomplish something." - Thomas Edison


Forget about Las Vegas. Macau has cemented its status as the undisputed heavyweight champion of the gambling industry. The Chinese territory reported gambling revenue of 360 billion patacas ($45 billion) for 2013, an increase of almost 20% over the previous year. If that sounds like a lot of cash, it is. Las Vegas will be lucky to make $6.5 billion, or 15% of Macau's total. (CNN)

What's New Today in Retail (1/7)

Takeaway: Abysmal ICSC reading…but marking meteoric rise of UA takes winter torch from NKE? Shrewd move by Li&Fung. SHLD PVH OXM MW UNIQLO



LULU: Consumers Challenge Our Bearish View - Friday 1/10 1:00pm EST


We reversed course and turned bearish on LULU in November for several reasons - such as concern over increased competitive pressure, waning relative value proposition, lack of focus inside the company, and the financial cost (and margin implication) for focus to return. But the purpose of this Black Book is not to tout our bear case, but rather to step back, open up our thought process, and challenge our thesis. We'll present our key issues to consumers in an unbiased non-leading way, and then we'll see how LULU customers chime in. We don't know what the results will be yet, but based on the results we expect to either a) back off of our bearish view, or b) gain conviction that the business is likely to get worse before it gets better. We're equally open to either option. The data will speak for itself.


TCS - Earnings Call: Tuesday 1/7 4:30 pm




ICSC - Chain Store Sales Index


Takeaway: This reading is simply bad. Numbers are still growing, which is good, but the growth rate isn't even in the same ball park as what we saw over the past two years. Our sense -- which unfortunately we cannot yet quantify -- is that this shows a dramatic shift to online shopping both pre and post holiday. Yes, we've been shopping online for years. But we think that online as a percent of total went parabolic this year. When we look at the 2013 holiday season in retrospect, it will be known as the point in time where bricks & mortar really started to take it on the chin. What this also goes to show is that so many 'sales monitoring' data sources that the Street has relied upon for years are losing relevance -- fast.


What's New Today in Retail (1/7) - chart3 1 7




JOSB, MW - Jos. A. Bank Urges Shareholders to Take no Action With Respect to Men's Wearhouse Tender Offer or Director Nominees



  • "The Board of Directors of Jos. A. Bank Clothiers, Inc. today confirmed that The Men's Wearhouse, Inc. has commenced an unsolicited tender offer to acquire all outstanding common shares of the Company at a price of $57.50 per share."
  • "The Board said that, consistent with its fiduciary duties, it will carefully review all aspects of the Men's Wearhouse offer in consultation with its financial and legal advisors and make a recommendation to shareholders, which will be outlined in a Statement on Schedule 14D-9 filed with the Securities and Exchange Commission on or before January 17, 2014."
  • "The Company's stockholders are advised to take no action on the tender offer until the Company's Board of Directors has announced its recommendation to stockholders."


Takeaway: So JOSB says it will uphold its fiduciary duties and fully evaluate the MW offer on its own merits. Does anyone want to bet that they come out against it after that fiduciary evaluation?


UA - UA has big presence at US Short Track Speed Skating Olympic Trials


What's New Today in Retail (1/7) - chart1 1 6


Takeaway: Short track speed skating has emerged as on of the most exciting events of the winter Olympics -- thanks in large part to Apolo Anton Ohno, who was a Nike poster-boy.  But there's a changing of the guard. Whether you look at the men's or women's competitors, UnderArmour's logo completely dominated in the Olympic Trials this past weekend. The only catch is that UA seems to have put its logo on the wrong side -- when the athletes are constantly making left turns on such a compressed track, the TV has a better shot at capturing the logo when its on the right side. But it made up for it by super-sizing the logo, which rivals the massive polo ponies Ralph Lauren uses at the US Open.

PVH - PVH CORP. Announces License Agreement with Axis Golf Pty. Limited for IZOD Brand



  • "PVH Corp. announced that it had entered into a license agreement with Axis Golf Pty. Limited under which Axis Golf will market and distribute men’s sportswear, golf apparel and related accessories under the IZOD brand in Australia, New Zealand, Fiji, and other South Pacific islands. The initial term of the license agreement runs through December 2018."
  • "IZOD products will be sold at Golf World and Golf Mart, two golf retail store chains owned by an affiliate of Axis Golf and into selected golf retail, sports retail, department stores and IZOD stores to be operated by Axis Golf. The license permits Axis Golf to manufacture, market and distribute IZOD dress shirts, neckwear, and underwear, in addition to the categories mentioned above, and distribute belts, headwear, watches, umbrellas and flip flops purchased from other licensees of IZOD across the region."


Takeaway: On one hand, we have to hand it to PVH -- these guys are striking new license deals across its portfolio at the speed of light. But on the flip side, the scope of this deal seems extremely broad. The 5-year deal basically allows the licensee to design, manufacture and sell Izod products across categories. We hope that PVH is maintaining the right to veto any product designs that it thinks are inconsistent with the brand. In fairness, the contract includes minimum sales hurdles on which royalties are generated. If Axis misses minimums due to poor product planning, then the royalty rate goes up, before ultimately going back to PVH if it doesn't perform. 


9983 - Fast Retailing Dec sales rise 4.1%



  • "Fast Retailing announces December 2013 sales report. December 2013 same-store sales increased by1.1% year on year while sales at our own stores increased by 3.7%. Total sales including online sales increased by 4.1%."


Takeaway: These numbers don't seem impressive at face value. But keep in mind that we're talking about a Japanese company here. Any positive comp is good news. Granted, we suspect that most of the comp was driven by its International operations -- most notably US and Western Europe. But we'll take what we can get on this one. For those unfamiliar with the name, its primary concept is UNIQLO -- the same brand that sponsors Novak Djokovic.  Here's some useless trivia for you… The company started off with the name Unique Clothing Warehouse. But they shortened it to UniClo. But when they registered the subsidiary in Hong Kong, there was a clerical error that substituted the 'C' with a 'Q'. The embraced the mistake and never changed back. 


SHLD - Sears And Kmart Shoppers Can Now Score Rewards Points By Getting Fit



  • "Starting Friday, members of Sears’ loyalty program can earn points toward purchases at Sears and Kmart by logging into the Hoffman Estates-based retailer’s fitness site,, and tracking their physical activity."
  • "The Points for Progress program works with fitness apps and devices — the device must be a Fitbit or BodyMedia brand, both sold by Sears — and with Netpulse-enabled fitness equipment at more than 500 gyms in the U.S. and Canada."


Takeaway: We're fans of any initiative that is designed to boost fitness/activity levels -- even for Sears. But we question whether the average Sears customer will actually care -- especially when a significant purchase is required to earn points. Nonetheless, the company will likely get a tax credit, which is good because it needs every dollar it can get.


OXM - Tommy Bahama Dives Deep Into Footwear



  • "Tommy Bahama...just relaunched its footwear collection to include everything from flip-flops and boat shoes to espadrilles." 
  • "For spring ’14, women’s footwear features ocean-inspired elements, such as flip-flops with beaded starfish uppers, boat-shoe inspired espadrilles and cork-bottom platform slides. On the men’s side, offerings include barefoot driving mocs, canvas slip-ons and fisherman sandals."
  • "Currently, men’s accounts for 60 percent of the footwear mix and retails from $58 to $198. Women’s product is priced from $28 to $148."


Takeaway: The irony that Tommy Bahama makes a splash about warm-weather footwear on one of the coldest days on record.


494 - Li & Fung Sets Up Factory And Worker Safety Unit



  • "Li & Fung Ltd. has created a new business unit to focus on factory and worker safety."
  • "The new unit, called Vendor Support Services, is part of the firm's new three year business plan that will be disclosed more fully when the company reports full-year results in March."
  • "The new unit will be led by group chairman Dr. William K. Fung. It will incorporate the firm's existing range of support services to factories."
  • "'As the leading sourcing company in the world, we feel our responsibility is to play an even bigger role in bringing about and speeding up systematic positive change in the industry,' Fung said."


Takeaway: The guy is right. This is the right thing from a workplace safety perspective -- that's obvious. But it also raises the bar for virtually everyone else in the industry, many of whom can't financially afford to keep up. Ironically, by driving forward a workplace safety agenda, Li & Fung could shake out some marginal capacity in this business.


Loehmann's - Loehmann's IP Assets Sold



  • "According to bankruptcy court records docketed on Monday, Esopus Creek Value Series Fund LP is the successful bidder for the Loehmann’s intellectual property assets and customer lists. Madison Capital Holdings won the bidding for the 39 store leases and a joint venture among SB Capital Group, Tiger Capital Group and A&G Realty Partners has acquired the inventory that will be liquidated, furniture and fixtures, accounts receivable and cash in a court-approved auction held on Friday and Saturday. The auction results are still subject to Manhattan bankruptcy court approval this afternoon."


Takeaway: So few retailers that go bankrupt actually go away. But make no mistake, Loehmann's is history. Unlike what we've seen with consumer electronics retailers like Circuit City that go under and many locations are reborn as similar shops -- like PC Richard -- we think it's pretty safe to assume that the lion's share of this capacity will leave the apparel industry for quite some time.




More Than $250M Lost During Cambodia Strikes



  • "The Cambodian apparel industry suffered estimated losses of more than $250 million in sales and investment during the nearly two-week nationwide strikes staged by its workforce to protest for higher wages."

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Don't Lie To Me

“I just lied to someone else, but you can trust me because I’d never lie to you.”

-John Hamm


That was an excellent quote John Hamm used to discuss “implied distrust” in a solid chapter in Unusually Excellent titled “Being Trustworthy.” We are who we are – and, as a new Wall Street evolves, our goal is to be a 2.0 research source you can trust.


Be honest… Be vulnerable… Be Fair… “ (Unusually Excellent, pg 36) – these are some of the simplest rules of relationship building, yet some of the most difficult to rinse and repeat each and every market day.


Trust isn’t allocated in this profession. It’s earned, daily.


Back to the Global Macro Grind


With a polar vortex rolling through the USA and Florida State coming back from 21-10 at the half to win the championship (with 13 seconds left) last night, does anyone really care that the US stock market closed down 25 basis points yesterday?


Is this going to be another 1-2% correction in US stocks, or the beginning of yet another #EOW (end of the world)? I need to make some real-time asset allocation decisions around the answer to that question. So I’m not going to lie to you – I bought-the-damn-bubble #BTDB on red again yesterday.


I’ll go through the why on that in a minute, but first, here’s how I’ve re-positioned in the 1st three days of 2014:


1. Dropped CASH in the Hedgeye Asset Allocation Model from 50% to 30%

2. Raised my allocation to International FX from 27% to 30%

3. Raised my allocation to International Equities from 10% to 18%

4. Raised my allocation to US Equities from 10% to 16%

5. Raised my allocation to Commodities from 3% to 6%

6. Moved to 10 LONGS, 5 SHORTS in #RealTimeAlerts (vs 5 LONGS, 5 SHORTS on January 1)


Nope. I’m not going all wild and crazy, investing all the cash at the all-time highs in US Equities. That’s not how I roll. I’m a gradualist, of sorts. I like to work my way into a situation that appears to be developing. If it stops developing, I stop.


To be clear, buying into some spotty US #GrowthSlowing data doesn’t exactly fire me up. But buying at the low end of my SP500 risk range does. And I’ll do more of that, every time the process tells me to.


Unlike the ISM Manufacturing report for DEC (which was solid and did not slow), yesterday’s ISM Services (non-manufacturing) print was what it was, slowing on the margin versus its 2013 peak. Let’s break that down a little further:


1. ISM Services headline slowed to 53.0 in DEC vs 53.9 NOV (I know, the horror of it all)

2. New Orders in the ISM Services report slowed faster to 49.4 DEC vs 56.4 NOV (not good)

3. Business Employment in the report ACCELERATED to 55.8 DEC vs 52.5 NOV (good)


So… with the stock market red on the headline slowing (marginally – but that’s the point about what happens on the margin, it matters) I didn’t just start buying blindly. Instead, this is how I thought about it:


1. LEVELS: SP500 tested the low end of my immediate-term TRADE range (1) – that’s a buy/cover signal

2. TIMING: the next calendar catalyst is the US Employment Report on Friday

3. DATA: Friday’s employment data could easily rhyme with strength in the ISM (services and manufacturing) reports


Since I don’t just do US stocks, I also thought through how this could play out across multiple-factors:


1. BONDS: US 10yr Treasury Yield weakened on the ISM Services headline but held all lines of @Hedgeye support

2. GOLD: strengthened on weaker data + rates falling; that’s how Gold is trading now (but failed @Hedgeye resistance)

3. DIVERGENCES: Financials (XLF) made new highs (+0.23% for JAN) vs Utilities (XLU) down -1.69% JAN


That last point is a sneaky one. Stocks that look like bonds (slow-growth, high dividend yield) continue to act like dog breath (the smell of that doesn’t lie either!).


And while our model will score Friday’s employment for what it is (a lagging economic indicator), if it’s bullish I think it will be bearish for Gold, Bonds, Utilities, etc. relative to both growth and inflation expectations.


If I didn’t think that, I wouldn’t be re-positioning this way in real-time. That’s the beauty of the #timestamp. Whether it ultimately proves to be right or wrong, my positioning doesn’t lie to me.


UST 10yr Yield 2.96-3.05%


VIX 11.84-14.56

USD 80.54-81.12

Gold 1185-1243

*all 12 macro ranges are in our Daily Trading Ranges product


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Don't Lie To Me - Chart of the Day


Don't Lie To Me - Virtual Portfolio


TODAY’S S&P 500 SET-UP – January 7, 2014

As we look at today's setup for the S&P 500, the range is 26 points or 0.26% downside to 1822 and 1.16% upside to 1848.                    










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.57 from 2.56
  • VIX closed at 13.55 1 day percent change of -1.53%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 8:30am: Trade Deficit, Nov., est. -$40.0b (prior -$40.6b)
  • 8:30am: Fed’s Rosengren speaks in Hartford, Conn.
  • 11am: Fed to purchase $2.25b-$3b in 2021-2023 sector
  • 11:30am: U.S. to sell 4W bills, $23b 52W bills
  • Noon: DOE short-term energy outlook
  • 1pm: U.S. to sell $30b 3Y notes
  • 2:10pm: Fed’s Williams speaks in Phoenix
  • 4:30pm: API inventories


    • Senate in session; House returns from holiday recess
    • Senate poised for test vote on unemployment benefits
    • CFPB Director Richard Cordray takes questions on Ability-to-Repay rule; National Assn of Realtors, 10am
    • FTC Bureau of Consumer Protection Director Jessica Rich announces program against deceptive advertising of weight-loss products, 11am


  • Consumer Electronics Show officially begins in Las Vegas
  • China-linked DuPont spying trial begins today
  • China Telecom cuts iPhone price ahead of China Mobile release
  • Goodyear refuses French union talks as managers held hostage
  • Combined shipments of devices set to grow 7.6% in ’14: Gartner
  • Yellen wins Senate support to lead Fed w/ record-low backing
  • BlackBerry returns to physical-keyboard roots under new CEO
  • Samsung posts 1st profit decline since 2011 amid Apple battle
  • Plans to release bendable TVs this year
  • U.S. exchange-traded products garner record $191b in 2013
  • Sony, Nintendo mull China’s console market as ban lifted
  • FTC to hold press conf. on deceptive weight-loss advertising
  • Invesco said to pay $291m for San Francisco office tower
  • U.S. apartment rent gains to be tempered by more construction
  • Credit Suisse speeds non-strategic business leverage cutting
  • German unemployment falls as confidence in recovery struggles


    • Apollo Education (APOL) 4:01pm, $0.90
    • Commercial Metals (CMC) 7am, $0.24
    • Container Store Group (TCS) Aft-Mkt $0.08
    • IHS (IHS) 6am, $1.31
    • Micron Technology (MU) 4:04pm, $0.42


  • Brent Crude Halts Longest Decline Since August Amid Iraq Clashes
  • Coldest Day in 20 Years Threatens U.S. After Transport Snarled
  • Hedge Funds Raise Gold Wagers as Yamada Sees $1,000: Commodities
  • Soybeans Decline as USDA May Lift Outlook for National Harvest
  • BofA Exits Power, Natural Gas in Europe as Trading Shrinks
  • Gold Holds Below Three-Week High as Investors Weigh Demand, Fed
  • Copper Fluctuates as China Banking Curbs Spark Demand Concern
  • Palm Oil Inventories Seen Dropping for First Time in Four Months
  • U.S. Exchange-Traded Products Garner Record $191 Billion in 2013
  • Shanghai Rubber Hits Four-Year Low Dragging Down Tokyo Benchmark
  • Rebar Retreats as China Imposes New Controls on Shadow Banking
  • Barrick Leads Multibillion Dollar Stock Sales: Corporate Canada
  • U.S. Crude Output Highest Since 1988 Yet Growth Is Flat
  • Iron Ore Exports to China From Port Hedland Increase in December


























The Hedgeye Macro Team














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