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FXB: Removing British Pound From Investing Ideas

Takeaway: We are removing FXB from Investing Ideas.

We are removing the British Pound (FXB) from Investing Ideas.

 

FXB: Removing British Pound From Investing Ideas - british pound 12 3


While we still like the pound (and especially what the Bank of England's Mark Carney is doing) we simply do not see as much relative upside left versus new ideas we added yesterday with Legg Mason (LM) and Hologic (HOLX). 

 

We continue to believe that the health of a nation’s economy is reflected in its currency. The Pound has benefited from the UK’s fiscal discipline to embrace austerity before its regional peers during the global recession – a policy decision that is paying off through accelerating growth above its European peers. 

 


Cartoon of the Day: Social Media 'Pixie Dust'

Takeaway: Imagine that – if there were only one bubble, tulip, or social media stock left in the world – what on earth would we pay for it?

Cartoon of the Day: Social Media 'Pixie Dust' - josie

 

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Bubble Up: SP500 Levels, Refreshed

Takeaway: The all-time-bubble-high of 1878 SPX is in play and if/when we tag that, the SP500 can then mean revert lower 35 handles.

POSITION: 11 LONGS, 6 SHORTS @Hedgeye

 

I’ve seen a lot in trying to trade markets for the last 16 years, but I haven’t yet seen something like this. For 3 months I feel like we’ve been watching the entire construct of consensus bang its head against the #OldWall, debating whether the US stock market is going to be -2/+2% YTD.

 

So let’s bubble this sucker right back up to the all-time-high into quarter-end and get on with it. From a #behavioral perspective, what we know is that consensus hedge funds will get net long up there (after tightening exposure on every selloff). Don’t be consensus.

 

Across our core risk management durations, here are the levels that matter to me most:

 

  1. Immediate-term TRADE overbought = 1881
  2. Immediate-term TRADE support = 1844
  3. Intermediate-term TREND support = 1815

 

In other words, the all-time-bubble-high of 1878 SPX (on a closing basis) is in play and if/when we tag that, the SP500 can then mean revert (lower) for another 35 handles once consensus is leaning too long (again).

 

De-stress and keep moving out there. Fading Beta within a risk range is a good business.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

 

Bubble Up: SP500 Levels, Refreshed - Slide2


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RH: Duration Review Into The Print

Takeaway: There will be puts & takes on the 4Q print. But the multi-year catalyst calendar starts in April. Beware getting beared-up over 1Q guidance.

Conclusion: They’ll be puts and takes on the 4Q print. But the multi-year catalyst calendar starts in April. Beware getting beared-up over 1Q guidance. We stand by our positioning on RH that we presented in our last update conference call/deck in early February. Specifically, we laid out how we’re thinking about the name across multiple durations. See the links below to both the slide deck and audio presentation. Our general view by duration is as follows.

 

TAIL Duration (long-term): One of the most powerful growth algorithms in all of Consumer. The company should earn around $1.70 this year, and we think that over 5-years that number approaches $11. Common perception is that RH is building a bunch of palaces and hoping that people will show up to shop. We think about it the other way around…they are creating assortments of product across multiple categories in the home space, and are subsequently taking a massive piece of a category where they only have 2-3% share. Yes, bigger stores are a part of this, which is critical to support the kind of product extensions we’ll see from RH. Currently, the Legacy 9,000 sq ft stores only house 20% of the SKUs and run at about $750/sq ft. The 25,000 Design Galleries highlight closer to 50% of the product, and they average an ‘per foot productivity’ rate that is 2x the existing core. People often ask us about why RH has the right to expand into new categories of Home. People asked that same question about Ralph Lauren in the 1980s when he expanded beyond neckties and polo shirts. Our full modeling assumptions are in the Deck (link below), but the key is to measure the success by product and design creation and sourcing, not by simply building stores.

 

TREND Duration (next 3-4 quarters): The trends should accelerate dramatically over the course of this year for RH. First and foremost, the product line is being meaningfully changed for the Spring. With that will come an updated Sourcebook – which the company has not released in the better part of a year. At the same time, after a full year of not adding a single square foot of space, RH will be adding four new stores throughout this year. In April/May we’ll see the much anticipated opening of Greenwich, CT, the store in the Flatiron District in NYC, then in the Fall we’ll see Los Angeles and Atlanta. As noted above, the actual stores are not as important to us as the product that goes behind them. But this year, the calendar is lining up nicely with a product refresh in the Spring and then four large stores immediately following, That’s about 12% growth in square footage. That might not sound huge for a company that will be looking at a 30%+ growth rate in square footage within two years. But it matters to us given that it has not grown square footage since before 2008.

 

TRADE Duration (Immediate-term): The TRADE duration was a slam dunk when the stock was in the $50s. The reality is the Street got beared up because just about every retailer was missing numbers due to weather and whatever else is going on out there in the economy. But with RH, 47% of it’s sales are dot.com, which are weather proof, and the category in itself is not very ‘at-risk’ due to snow. Think about it…if you want to go shopping for clothes, you might pick up a pair of jeans. If it’s snowing, that purchase is probably dead. But if your kids need new bunk beds, are you going to bag the purchase just because it’s snowing? No. We have some useful stats on the topic in the Deck. We’re not very worried about the actual number that RH reports. The company has extremely good visibility with its top line. The same factor that the Street beats this company up so often for – the long lead times in its shipping window – also gives the company great visibility into its top line for an extended time period.

 

The big question is around comp guidance for the first quarter. The company already noted that the first quarter would be its weakest comp of the year – due to the timing of the product refresh and catalog drop. The Street knows that. The consensus is printed at 11%, and we think that the whisper is for something in the high-single digits. Could guidance for 1Q be in the single digits? Yes – with no product refresh, a 41% compare vs last year, and the strong possibility that some 1Q purchases were pushed into 2Q,the upcoming quarter will be the weakest of the year – as management already indicated. What we can say is that with the tremendous delta in our estimates versus the Street over our modeling horizon – and with how good the TAIL and TREND calls are lining up, we’re not going to get too bent out of shape figuring out if people are going to freak out over guidance that was already largely given.

 

MATERIALS: CLICK HERE

AUDIO REPLAY: CLICK HERE 

 

RH: Duration Review Into The Print - rh model



$LNCO Hammered 30% Since Kaiser's Call: More Pain to Come?

Hedgeye Managing Director and Energy Sector Head Kevin Kaiser explained back in November why he remains the bear on shares of LINN Energy (LINE) and Linn Co (LNCO).

 

 

For the record, Kaiser added Linn Co as a best idea SHORT back on March 21, 2013. The stock has fallen -30% since then.  

 

Not bad considering the S&P 500 is up +20% during this time.

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