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Cartoon of the Day: Over the Moon

Takeaway: Macro phase transitions can crush alpha, fast.

Cartoon of the Day: Over the Moon - Over the moon sm 04.08.2014

 

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REPLAY: 2Q14 MACRO INVESTMENT THEMES CALL

Earlier today the Hedgeye Macro Team, led by CEO Keith McCullough, hosted their quarterly Macro Themes conference call in which they detailed their Top 3 Global Macro Investment themes for 2Q14.  The Replay and Presentation Materials can be accessed via the links below.

  

 

Replay:  CLICK HERE

Presentation:  CLICK HERE

 

Q2 2014 MACRO THEMES OVERVIEW

  • #ConsumerSlowing: The cyclical increase in consumer spending growth from the 2009 lows is under pressure. Rising food prices and a stagnating USD continue to squeeze average Americans on the margin. Given the potential for further USD depreciation and a continuation of global commodity inflation as a real macro risk, we think U.S. consumption growth will slow as it bumps up against difficult compares heading into 2Q and beyond.
  • #StructuralInflation: Following up on our cyclical #InflationAccelerating theme, we are focusing now on structural inflationary pressures embedded in the U.S. economy. Much like in Japan, zero percent interest rate policy has fueled a broad-based portfolio re-balancing away from financing economic growth to reach for additional yield in slow-growth assets. This is fueling systemic underinvestment in both human and physical capital. However (unlike in Japan), the USD's long-term downward trend adds an additional layer of inflationary pressure due to an increased reliance on imported goods and services amid capacity constraints abroad.
  • #HousingSlowdown:  We have been big housing bulls over the last 18 months. But the party is ending. Asymmetry in being long has flattened.   Price follows demand on a lag and demand is slowing as affordability declines, regulatory changes drag on liquidity, and institutional interest ebbs.  We walk through our updated view on the Supply/Demand/Price dynamics prevailing in the housing market and our forward outlook for prices. 

 

- Hedgeye Macro


Wal-Mart Finds Room on India’s Couch | $WMT

Takeaway: Just brilliant.

Wal-Mart Finds Room on India’s Couch | $WMT  - india2


Wal-Mart to Launch E-Commerce & Open Wholesale Stores in India

  • "Wal-Mart Stores Inc. is launching e-commerce and adding wholesale stores in India to sell to small businesses after shelving its hopes last year to open retail stores in the country. The world's largest retailer by sales plans in the next four years to open 40 to 50 additional wholesale stores in India, adding to its current 20, said Scott Price, chief executive of Wal-Mart's Asia division, in an interview Tuesday."
     
  • "Mr. Price said the Bentonville, Ark., retailer's India-based cash-and-carry wholesale business will also roll out online sales this summer. He said the model will start small, with only one wholesale store posting its products for sale online. Mr. Price added that the store's staff will deliver the goods to the mom-and-pop stores that order them as much as 40 kilometers (about 25 miles) away, he said."

Takeaway From McGough:

The move to open wholesale stores is brilliant. The reality is that India is a massive marketplace made up of hundreds of thousands of mom-and-pop retailers. The biggest risk for Wal-Mart is that it went in with a substantial retail business, and faced massive revolt from the masses who don't want to be put out of business by the big American price cutter. But becoming a buying agent for the moms-and-pops? That makes a boatload of sense.

 

Editor's Note: This is a complimentary research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow McGough on Twitter @HedgeyeRetail

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Materials & Dial-in for Q2 2014 Macro Themes Conference Call

Hedgeye's Macro Team will be hosting our highly-anticipated Quarterly Macro Themes conference call today at 11:00am EDT. Led by CEO Keith McCullough, the presentation will detail the three most important macro trends we have identified for the quarter and related investment opportunities.

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 212497#
  • Materials: CLICK HERE  

Q2 2014 MACRO THEMES OVERVIEW

  • #ConsumerSlowing: The cyclical increase in consumer spending growth from the 2009 lows is under pressure. Rising food prices and a stagnating USD continue to squeeze average Americans on the margin. Given the potential for further USD depreciation and a continuation of global commodity inflation as a real macro risk, we think U.S. consumption growth will slow as it bumps up against difficult compares heading into 2Q and beyond.
  • #StructuralInflation: Following up on our cyclical #InflationAccelerating theme, we are focusing now on structural inflationary pressures embedded in the U.S. economy. Much like in Japan, zero percent interest rate policy has fueled a broad-based portfolio re-balancing away from financing economic growth to reach for additional yield in slow-growth assets. This is fueling systemic underinvestment in both human and physical capital. However (unlike in Japan), the USD's long-term downward trend adds an additional layer of inflationary pressure due to an increased reliance on imported goods and services amid capacity constraints abroad.
  • #HousingsSlowdown:  We have been big housing bulls over the last 18 months. But the party is ending. Asymmetry in being long has flattened.   Price follows demand on a lag and demand is slowing as affordability declines, regulatory changes drag on liquidity, and institutional interest ebbs.  We will walk through our updated view on the Supply/Demand/Price dynamics prevailing in the housing market and our forward outlook for prices. 

 Ping  for more information.


VIDEO | Keith's Macro Notebook 4/8: JAPAN EMERGING MARKETS COMMODITIES


Retail Callouts (4/8): Weak ICSC, WWW, WMT, AMZN, TGT, CWTR, SHLD

Takeaway: ICSC sales doggin it. WMT finally winning in India? Goodbye CWTR. FTC, data security, & TGT. AMZN brings tech to grocery.

EVENTS TO WATCH

  • BBBY - Earnings Call: Wednesday 4/9, 5:00pm

 

ECONOMIC DATA

 

ICSC - Chain Store Sales Index

 

A whopping +1.5% reading for the ICSC numbers this week. Is this for real? We're only had 2 weeks all year where the growth reading has been above prior year levels. Anyone hoping for a snapback of any penned up demand after the nasty winter is getting zero support by these ICSC numbers. As a reminder, this same store sales index is comprised of 80 retailers of different sizes and concepts. While it includes dot.com for those retailers, it does not account for the shift to pure-play e-tailers like Amazon, which could put natural pressure on these numbers. Nonetheless, even accounting for a dot.com shift, these numbers are lackluster.

 

Retail Callouts (4/8): Weak ICSC, WWW,  WMT, AMZN, TGT, CWTR, SHLD - chart1 4 8

 

COMPANY NEWS

 

WMT - Wal-Mart to Launch E-Commerce and Open Wholesale Stores in India

(http://online.wsj.com/news/articles/SB10001424052702304819004579488843785884708?mg=reno64-wsj)

 

  • "Wal-Mart Stores Inc. is launching e-commerce and adding wholesale stores in India to sell to small businesses after shelving its hopes last year to open retail stores in the country. The world's largest retailer by sales plans in the next four years to open 40 to 50 additional wholesale stores in India, adding to its current 20, said Scott Price, chief executive of Wal-Mart's Asia division, in an interview Tuesday."
  • "Mr. Price said the Bentonville, Ark., retailer's India-based cash-and-carry wholesale business will also roll out online sales this summer. He said the model will start small, with only one wholesale store posting its products for sale online. Mr. Price added that the store's staff will deliver the goods to the mom-and-pop stores that order them as much as 40 kilometers (about 25 miles) away, he said."

 

Takeaway: The move to open wholesale stores is brilliant. The reality is that India is a massive marketplace made up of hundreds of thousands of Mom and Pop retailers. The biggest risk for WMT is that it went in with a substantial retail business, and faced massive revolt from the masses who don't want to be put out of business by the big American price cutter. But becoming a buying agent for the Moms and Pops? That makes a boatload of sense.

 

WWW - Fall Preview: Sperry Top-Sider

(http://www.wwd.com/footwear-news/fashion/fall-preview-sperry-top-sider-7632727)

 

  • "Sperry Top-Sider continues to tap into its seafaring heritage for fall ’14. The brand updated its signature looks for men with novelty materials, ranging from camouflage to rough-out leathers. Retailing from $60 to $150, the line is available at Nordstrom, Bloomingdale's, Zappos.com and Sperry stores."

 

Retail Callouts (4/8): Weak ICSC, WWW,  WMT, AMZN, TGT, CWTR, SHLD - chart2 4 8

 

Takeaway: The first observation is that the representation of what people consider to be traditional boat shoes continues to shrink. More boots, and more vulcanized shoes -- which is a big opportunity for Sperry (share of vulcanized is less than 1%). Our view is that when people are sitting there waiting for the 'boat shoe cycle' to roll over, Sperry will have come along and built up a vulcanized shoe business that will mitigate any lost sales. All that said, we think the real opportunity for Sperry comes in layering the PLG brands onto the existing WWW international infrastructure. We think there's worst case sales risk in the US of $80mm (excluding vulcanized offset) and $300mm in opportunity outside the US.

 

TGT - Judge Backs FTC's Authority in Data-Breach Case

(http://online.wsj.com/news/articles/SB10001424052702304819004579487832665956494?mg=reno64-wsj)

 

  • "A federal judge on Monday gave a boost to the Federal Trade Commission's push to police corporate cybersecurity, allowing the agency to move forward with a lawsuit alleging that Wyndham Worldwide Corp. failed to make reasonable efforts to protect consumer information."
  • "Monday's ruling focused solely on the FTC's authority to bring its lawsuit. The judge offered no opinion on the underlying merits of the commission's allegations against the company. But the suit could have broad ramifications for the liability of companies whose security systems are breached."
  • "The commission alleged that Wyndham failed to employ reasonable data-security measures to protect the information from theft. It alleged there were several information-security problems at Wyndham hotels, including wrongly configured software, weak passwords and insecure computer servers."

 

Takeaway: Federal courts just gave the FTC the power to regulate cybersecurity. Now the FTC just has to prove that these companies 'failed to make reasonable efforts to protect consumer information.' The merits of this line of prosecution still have to be proved in court, but it is notable for TGT who admitted a few weeks back that its own internal controls failed to act when notified about a potential breach on 12/12/13.

 

CWTR - Coldwater Said to Plan Liquidation After Bankruptcy

(http://www.bloomberg.com/news/2014-04-07/coldwater-said-to-plan-liquidation-after-bankruptcy-correct-.html)

 

  • "Coldwater Creek Inc...is planning to liquidate its assets after a bankruptcy filing that may come as soon as today, according to two people with knowledge of the matter."
  • "The company received a so-called stalking horse, a minimum bid from parties that would sell off the retailer’s assets to repay creditors, said the people, who asked not to be identified because the matter isn’t public. The filing would come five months after Coldwater said it was exploring strategic alternatives, including a sale."

 

Takeaway: Some companies file Chapter 11 in order to buy them time to reorganize and continue on as a viable entity. Others are simply so bad that filing Ch 11 is simply a means to an end. That end can't come soon enough for Coldwater.

 

OTHER NEWS

 

AMZN - Amazon enhances online grocery shopping experience with new tool

(http://www.retailingtoday.com/article/amazon-enhances-online-grocery-shopping-experience-new-tool)

 

  • "AmazonFresh recently launched a new tool called the Amazon Dash that allows users to scan items or speak the items aloud as part of a new way to shop for groceries without having to go into the store or shop online."
  • "A small, stick-like device, the Dash has a built-in microphone that users can use to 'voice search' the thousands of items available through Amazon. The Dash connects to the home's Wi-Fi network and places the item in the virtual shopping cart."

 

Retail Callouts (4/8): Weak ICSC, WWW,  WMT, AMZN, TGT, CWTR, SHLD - chart3 4 8

 

SPD - Mike Ashley surprises City by selling Sports Direct shares worth £200m

(http://www.theguardian.com/business/2014/apr/07/mike-ashley-surprise-sale-of-sports-direct-shares)

 

  • "Sportswear tycoon Mike Ashley turned the tables on the City last night with a surprise sale of shares worth more than £200m. The move came days after investors threw out a bonus scheme that would have handed Ashley £72m of free stock."
  • "Prior to Monday's share sale announcement, Ashley owned a 62% stake in Sports Direct with the sale of 25m shares equivalent to around 7% of his holding. His remaining stake is still worth over £3bn. Goldman Sachs said it purchased 25m shares from his personal investment company MASH and was looking to sell them on at £8.50 to £8.70 a share. At the top end of that range the placing would raise £217.5m, however, the investment bank did not reveal the price it had paid for the shares. The shares closed down 3% at £8.93."

 

WTSL - Kathy Bronstein Exits Wet Seal Board

(http://www.wwd.com/retail-news/people/kathy-bronstein-exits-wet-seal-board-7633168)

 

  • "...Kathy Bronstein has resigned from the board of The Wet Seal Inc. Bronstein was ousted as vice chairman and chief executive officer of the Foothill Ranch, Calif.-based specialty chain in February 2003 after an 11-year run. She sued the company for wrongful termination, gender discrimination, emotional distress and other charges and ultimately settled the case, receiving $2.2 million and stock options then valued at about $4.2 million."
  • "After leaving Wet Seal, she formed KB Bronstein Consulting and continued to operate the firm upon joining Wet Seal’s board in September 2012."

 

CA - Motier Buys 6.1% Stake in Carrefour

(http://www.wwd.com/business-news/financial/motier-buys-61-stake-in-carrefour-7633044)

 

  • "Motier, the holding company of the family that owns Groupe Galeries Lafayette, said Monday it has bought 44.2 million shares in Carrefour, equivalent to 6.1 percent of the French retailer’s share capital."
  • "Motier said its acquisition was a long-term investment that reflected its confidence in the growth potential of Carrefour, the world’s second-largest retailer behind Wal-Mart Stores Inc. Motier will also dedicate the necessary resources to developing its core department store activity over the next few years, it added."

 

SHLD - William Hutchinson to Head Sears' Supply Chain

(http://www.wwd.com/retail-news/people/william-hutchinson-to-head-sears-supply-chain-7632882)

 

  • "William Hutchinson, vice president of global fulfillment and logistics for Dell Inc., has been appointed senior vice president of Sears Holdings Corp. and president of supply chain for the Hoffman Estates, Ill.-based operator of Sears and Kmart."
  • "He succeeds Raj Penkar, who has led supply chain operations since 2011 and will retire on May 31."

 

SHLD - Adam Levine Adds Women's to Kmart Line

(http://www.wwd.com/retail-news/mass-off-price/adam-levine-adds-womens-to-kmart-line-7633193)

 

  • "Adam Levine...is launching a women’s collection in time for summer to add to his namesake men’s wear at Kmart. The first season, launching Thursday, captures a casual aesthetic that mirrors Levine’s own style."
  • "The apparel is priced from $12.99 to $29.99, with accessories from $6.99 to $29.99...The collection will be distributed to 500 Kmart stores across the nation, and is also available at shopyourway.com.""

 

JNY - The Jones Group Shareholders Approve Merger With Sycamore Partners

(http://phx.corporate-ir.net/phoenix.zhtml?c=85851&p=RssLanding&cat=news&id=1916442)

 

  • "The Jones Group Inc. announced that, at today's special meeting, The Jones Group shareholders overwhelmingly voted to approve the agreement pursuant to which affiliates of Sycamore Partners will acquire The Jones Group for $15.00 per share in cash, or a total transaction value of approximately $2.2 billion. With today's approval of the proposals by The Jones Group shareholders, The Jones Group Inc. and Sycamore Partners have received all requisite approvals required to complete the transaction. The companies are committed to a seamless transition and expect to close the transaction promptly."

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 80.64%
  • SHORT SIGNALS 78.61%
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