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Economic Kings

This note was originally published at 8am on April 16, 2014 for Hedgeye subscribers.

“My name is Ozymandias, king of kings:

Look on my works, ye Mighty, and despair!

Nothing besides remains.  Round the decay

Of that colossal wreck, boundless and bare

The long and level lands stretch far away.”



The excerpt above is from one of my favorite poems, “Ozymandias”, written by Percy Shelley.  As you might have been able to decipher, the poem (well sonnet really) is about the inevitable decline of all leaders and the empires they build based on personal pretensions to greatness.


The economic and military history of the world is replete with examples of great empires that have been built and then suffered decline.  The most notable to us in the west is likely the British Empire, and rightfully so.  At its peak the British Empire covered more than 13,000,000 square miles, or ¼ of the earth’s surface.


The second largest empire in the history of the world was the Mongol Empire.  The origins of the Mongol empire were admittedly modest and started when a young boy named Temujin vowed in his youth to bring the world to its feet.  Genghis Khan, as he would later be known, did that and more.  The Mongol empire, although almost impossible to manage, stretched from Vietnam to Hungary and was the largest contiguous empire in history.


In modern days, empires are more commonly measured by economic output. Currently, the top three economic empires in the world are the United States with a $16.8 trillion GDP, China with a $9.2 trillion GDP, and Japan with a $4.9 trillion GDP.  Collectively, these behemoths make up almost 40% of the global economy.


If history tells us anything, to the point of Shelly’s sonnet, emperors will decline.  Or as a quant might say, revert to the mean.  The challenge for us as stock market operators is to find opportunities in this tectonic economic shift and to be on the right side of global economic empire building and subsequent declines.

Back to the global macro grind . . .


The mighty empire of China reported some critical economic numbers last night.  My colleague Darius provided a quick summary of the results below:

  • APR MNI Business Indictor: 51.1 from 53.4… G -1
  • 1Q Real GDP: 7.4% YoY from 7.7% vs. a Bloomberg consensus estimate of 7.3%... G -1
    • QoQ: 1.4% from 1.7% vs. a Bloomberg consensus estimate of 1.5%
  • MAR FAI: 17.6% YoY from 17.9%... G -1
  • MAR Retail Sales: 12.2% YoY from 13.6% in DEC (most recent release)... G -1
  • MAR Industrial Production: 8.8% YoY from 9.7% in DEC (most recent release)…   G -1

As you can see from his short hand notation, “G -1” (growth decelerating), broadly speaking the data was incrementally bearish for growth.  


In the Chart of the Day, we take a look at year-over-year Chinese growth by quarter going back ten years.  As the chart highlights, it is really no secret that Chinese growth has been declining and also no surprise that the Chinese stock market is basically shrugging off the data this morning. 


Most pundits are now vocal on the fact that Chinese growth has slowed and is slowing.  Meanwhile, Chinese policy makers are of the view that this is the bottom in China’s economy (in as much as an economy growing 7%+ can be considered bottomed).  Given that policy makers have the ability to stimulate and an early, inside look at the data, at a minimum, we’d probably not short China here.


Or as Genghis Khan said:


“If you’re afraid – don’t do it, if you’re doing it don’t be afraid.”


Speaking of being afraid, what scares me and should scare most stock market operators are the mysterious projections that many strategists of the Old Wall come up with.  As an example, yesterday we took a look at the projections for real GDP growth in the U.S.  From Q2 2014 to Q2 2015 the real GDP quarterly growth rate is projected as follows:

  • Q2 2014 – 3.0%
  • Q3 2014 – 3.0%
  • Q4 2014 – 3.1%
  • Q1 2015 – 3.0%
  • Q2 2015 – 3.0%

Clearly, Herding 101 was a well attended class by most of these sell side economists in PH.D. school . . .


We are not ready to call for the decline in the United States economic empire just yet, but we are wise to note that the Emperor, namely the U.S. dollar, continues to weaken and, in our view, is likely front running a more dovish tone by the Fed.  In that vein, the U.S. 10-year yield is down again this morning (albeit small) as well after failing to participate in the late day, low volume exuberance in equities yesterday.


For those of you that do watch the Fed closely, Grandma Yellen, I mean Chairperson Yellen will be speaking at 12:15pm this morning in beautiful New York.  Our friends at Goldman Sachs are out this morning saying it will be pertinent to interest rates, and the market seems to be agreeing with (or maybe front running) that view.  


Finally this morning on the inflation front, and this is a point we highlighted in our recent themes deck, we are starting to see some tightness in the labor market.  According to an article from Bloomberg, businesses in some US cities are raising wages and adding benefits to attract employees as metropolitan jobless rates have fallen below the 5.2% to 5.6% level considered full employment.  The article noted that 49 of the 372 metro areas reported rates below 5% in February, while four years ago just two cities were below that level.   This has the potential to build what we call #StructuralInflation and it is prudent to keep your hedgeyes on this trend.


Our immediate-term Global Macro Risk Ranges are now:


SPX 1805-1855

Russell2000 1093-1151

Nikkei 13679-14456

USD 79.11-80.03

EUR/USD 1.36-1.38

Brent 107.99-110.76


Good luck empire building today!


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Economic Kings - Chart of the Day


TODAY’S S&P 500 SET-UP – April 30, 2014

As we look at today's setup for the S&P 500, the range is 27 points or 1.08% downside to 1858 and 0.36% upside to 1885.                                            













  • YIELD CURVE: 2.27 from 2.25
  • VIX closed at 13.71 1 day percent change of -1.86%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, April 25 (prior -3.3%)
  • 8:15am: ADP Employment Change, April, est. 210k (prior 191k)
  • 8:30am: Employment Cost Index, 1Q, est. 0.5% (prior 0.5%)
  • 8:30am: GDP Annualized, 1Q, est. 1.2% (prior 2.6%)
  • 8:30am: Former Fed Chairman Bernanke speaks in Washington
  • 9am: ISM Milwaukee, April, est. 56 (prior 56.03)
  • 9:45am: Chicago Purchasing Managers, April, est. 57 (pr 55.9)
  • 10am: Retail Sales annual benchmark revisions
  • 10:30am: DOE Energy Inventories
  • 2pm: FOMC seen holding benchmark interest rates in range from 0% to 0.25%, trimming QE to $45b from $55b
  • 3pm: New York Fed to issue QE schedule for May


    • President Obama holds event on the economy at White House
    • 10am: Supreme Court hears arguments in Limelight patent case
    • 10am: House Oversight Cmte hearing on effect of liquefied natural gas exports on U.S. foreign policy
    • Budget hearings/panels/testimony:
    • 10am: Education Sec. Duncan at Sen. Appropriations subcmte
    • 10am: Army Sec. McHugh, Chief of Staff Odierno at Sen. Appropriations defense subcmte
    • 2pm: Treasury Sec. Lew, IRS Commmissioner Koskinen, IRS IG George at Sen. Appropriations panel
    • 2pm: House Ways and Means health subcmte hearing on improving Medicare oversight


  • GE offers $17b for Alstom assets as Siemens plans bid
  • Exelon said to agree to buy Pepco for more than $5.4b
  • What to watch in the FOMC meeting: steady taper, green shoots
  • Bayer said to offer assets to compete for Merck OTC w/Reckitt
  • Sanofi said to explore $7b-$8b drug portfolio sale: Reuters
  • Energy Future sponsors KKR, TPG, Goldman to get 1% equity
  • Credit Suisse, BNP Paribas U.S. charges said to be weighed
  • Philip Morris light-tobacco case’s $10.1b award alive
  • Microsoft Xbox One game console rolls out in China in Sept.
  • Qatar’s Al Mirqab makes $1.55b cash offer for Heritage Oil
  • Deutsche Bank among 15 Europe lenders cut to negative by S&P
  • Deutsche Bank to Credit Suisse attack Basel repo-mkt measures
  • Putin says sanctions threaten U.S., EU role in Russia energy
  • Tesla plans at least 2 battery sites as Musk says speed is key


    • Actavis (ACT) 7am, $3.23 - Preview
    • ADT (ADT) 6am, $0.43
    • AllianceBernstein  (AB) 7:15am, $0.41
    • Automatic Data Processing (ADP) 7:30am, $1.08
    • Barrick Gold (ABX CN) 6:30am, $0.19 - Preview
    • Bell Aliant (BA CN) 6am, C$0.39
    • Carlyle (CG) 6:30am, $1.04
    • Cenovus Energy (CVE CN) 6am, C$0.48 - Preview
    • CGI (GIB/A CN) 6:30am, C$0.69 - Preview
    • Dominion Resources (D) 7:30am, $0.97
    • Energizer (ENR) 7:30am, $1.71
    • Energy XXI (EXXI) 6:15am, $0.28
    • Exelon (EXC) 7:30am, $0.68
    • Garmin (GRMN) 7am, $0.44
    • Hess (HES) 7:30am, $1.01 - Preview
    • Hospira (HSP) 7:30am, $0.49 - Preview
    • Hyatt Hotels (H) 7:30am, $0.11
    • IAC/InterActiveCorp (IACI) 7:30am, $0.55
    • International Paper (IP) 7am, $0.54
    • Jean Coutu (PJC/A CN) 7am, $0.30
    • Level 3 Communications (LVLT) 8am, $0.28
    • MeadWestvaco (MWV) 7:25am, $0.23
    • New York Community Bancorp (NYCB) 8am, $0.26
    • NextEra Energy (NEE) 7:30am, $1.07
    • PBF Energy (PBF) 7am, $1.00 - Preview
    • Phillips 66 (PSX) 8am, $1.35 - Preview
    • Pinnacle Entertainment (PNK) 8am, $0.42
    • Pitney Bowes (PBI) 6:30am, $0.40
    • Revlon (REV) 6:30am, $0.28 - Preview
    • Sealed Air (SEE) 7:30am, $0.25
    • Southern Co (SO) 7:30am, $0.56
    • SPX (SPW) 6:30am, $0.21
    • Taser Intl (TASR) 7:30am, $0.07
    • Thomson Reuters (TRI CN) 7am, $0.38
    • Time Warner (TWX) 7am, $0.88 - Preview
    • Vantiv (VNTV) 7am, $0.37
    • WellPoint (WLP) 6am, $2.08 - Preview
    • Wisconsin Energy (WEC) 7am, $0.85


    • Amdocs (DOX) 4:01pm, $0.78
    • American Equity Investment (AEL) 4pm, $0.47
    • Ashland (ASH) 5pm, $1.54
    • Atmel (ATML) 4:05pm, $0.05
    • Boyd Gaming (BYD) 4pm, $0.01
    • Brandywine Realty Trust (BDN) 4:12pm, $0.33
    • Canadian Oil Sands (COS CN) 5:01pm, C$0.57 - Preview
    • CBRE (CBG) 4:05pm, $0.17
    • Constellation Software (CSU CN) 4:30pm, $2.83
    • Duke Realty (DRE) 4:11pm, $(0.06)
    • Enbridge Energy Partners (EEP) 4:01pm, $0.18
    • Equity Residential (EQR) 4:29pm, $0.23
    • Fidelity National Financial (FNF) 4:03pm, $0.18
    • Flextronics Intl (FLEX) 4:01pm, $0.20
    • Fortune Brands (FBHS) 4:01pm, $0.31
    • Hologic (HOLX) 4:01pm, $0.33
    • Intersil (ISIL) 4:05pm, $0.14
    • JDS Uniphase (JDSU) 4:05pm, $0.11
    • Key Energy Services (KEG) 6:18pm, $(0.07)
    • Lincoln National (LNC) 4:10pm, $1.30
    • MetLife (MET) 4:05pm, $1.40
    • Murphy Oil (MUR) 5:01pm, $0.97
    • Neurocrine Biosciences (NBIX) 4:02pm, $(0.20)
    • New Gold (NGD CN) 4:04pm, $0.02 - Preview
    • Newfield Exploration (NFX) 4:01pm, $0.42
    • Rovi (ROVI) 4:05pm, $0.43
    • Ruckus Wireless (RKUS) 4:05pm, $0.04
    • Tesoro (TSO) 4:30pm, $0.39 - Preview
    • WebMD Health (WBMD) 4pm, $0.10
    • Weight Watchers Intl (WTW) 4:05pm, $0.09 - Preview
    • Western Digital (WDC) 4:15pm, $1.88
    • Whiting Petroleum (WLL) 4pm, $0.97
    • Williams Cos (WMB) 4:05pm, $0.24
    • Yelp (YELP) 4pm, $(0.06)


  • Diamonds to Oil Bring Modern Gold Rush Dreams to Melting Arctic
  • WTI Set for Biggest Monthly Loss in Five on Supply; Brent Slides
  • China Fuels Highest Solar Silicon Demand Since 2011: Commodities
  • Gold Buying by China Seen Lower by StanChart as India Flows Rise
  • Wheat Snaps Rally as Global Supply Outlook Counters U.S. Woes
  • Gold Extends Drop Below $1,300 Before Conclusion of Fed Meeting
  • Copper Climbs as German Revival Signs Bolster Demand Prospects
  • Sugar Advances Supported by Weather Risks; Arabica Coffee Falls
  • Rebar in Shanghai Set for Monthly Drop as Iron Ore Price Slides
  • Drillers Hooked on Oil Bolster Goldman $6 Gas Outlook: Energy
  • Barclays Said to Create Bad Bank Overseen by Eric Bommensath
  • Saudi Oil Output Faces Summer Heat Challenge: Chart of the Day
  • Australia’s $40 Billion LNG Overruns Endanger Asian Supplies
  • Barrick Gold Profit Tops Estimates as Costs Beat Expectations

























The Hedgeye Macro Team














April 30, 2014

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April 30, 2014 - Slide9

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April 30, 2014 - Slide11
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Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.


Takeaway: We’re Adding TGT to our Best Ideas list as a short. We’ll be hosting a call Today at 11am ET to review our thesis. Call details below.

The crux of our argument? Wall Street's perception of Target's financial trajectory is more upbeat than Main Street. When the stock glossed over the company's weak 4Q earnings report, it was because Steinhafel (CEO) issued guidance that he hoped the company would grow into if the Company repaired its reputation after the data breach - not guidance that he knew TGT could meet or beat. We don't think that the Street is giving TGT credit for a) a miss this year, and b) another one in 2015.  The reality is that when a customer has a great experience in retail, they tell a friend. When a customer has a bad experience, they tell 20. Just ask JC Penney or Lululemon. Some of these 'fire your customer' events are worse than others, but there's one commonality - they take a very long time to recover.  

We think that TGT will be lucky to earn $3.75 this year, and $4.00 in 2015. The current 15x multiple is about as high as TGT has seen in 5-years - clearly the market is not factoring in a miss. We think that multiple compression alone on a weaker EPS number gets to a $48-50 stock, or $12-13 downside. If we're wrong, then we're looking at about $5 upside. That's about 2.5x to one, which we like on sleepy mega-cap shorts in Retail. 


TGT - ADDING TO BEST IDEAS LIST AS A SHORT *Reminder: Today 11am ET - TGT Bestidea



  1. The biggest risks to current consensus expectations. 
  2. Target's visitation statistics (via one of our proprietary consumer surveys). 
  3. How key competitors are reacting to the opportunity to gain share from Target.  
  4. Target's value proposition compared to the rest of Retail, particularly Wal-Mart. 
  5. Has target.com suffered the same customer attrition fate as Target stores?
  6. Which categories is Target winning? Where is it losing?
  7. Historical margin cycles for Target and other major retailers, and where we are in that cycle today.  


  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 917515#
  • Materials: CLICK HERE

For more information contact .

Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut)

Takeaway: CEO Keith McCullough and the team of analysts at Hedgeye have been out front proactively warning people of the social media bubble.

Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - bubblespopping1


On March 27th, when Wall Street consensus was still goo-goo-ga-ga about all things Social Media (Twitter, Yelp, Facebook, etc) and the bubble was hitting hew highs, Hedgeye CEO Keith McCullough wrote the following in his Morning Newsletter.


I know no one wants to call it a bubble. There’s career risk in calling something what it is...Boom! Crush. This stuff gets real in a hurry doesn’t it?"




(Click here to read the full "Morning Newsletter" from March 27.)


Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - km1


Despite being shrugged off by many a bubble-blinded pundit, he continued to question consensus' conviction that "It's different this time." He's been doing it on television, Twitter, and most importantly, with our customers.


Here he is on Fox Business with Maria Bartiromo advising investors to tread carefully in the market, particularly the Nasdaq.


Here he is again with Bartiromo, questioning an analyst's bullishness on Amazon and saying that AMZN was more likely to have a 2-handle on it than a 4-handle.


Shares of Amazon are down 11% since McCullough made his call.


In another Morning Newsletter entitled, "Accepting Little Bubbles," McCullough had this to say:


Accepting that little bubbles are going to start to pop bigger ones (like, say, the US stock market’s all-time high price) is a process, not a point.


...Having survived (made $ at a hedge fund in down tapes - 2000, 2001, 2002) the Tech Bubble, The LBO and Oil Bubbles (2008), and The Gold and Bond Bubbles (2011-2012), what I have learned about risk managing these suckers is quite simple:


First, they start to make lower-highs. Then the volume on down days eclipses the volume on the bounces (up days to lower-highs)… then bearish catalysts start to pile up… then what was happening slowly starts to happen more than a little – it happens all at once.


Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - km2

Finally, take a look at this brief HedgeyeTV video below from April 4th, where McCullough spells out his concerns about the bubble. Pay close attention to his bearish comments on YELP and note the date the video was shot. (Hat tip to Hedgeye Internet & Media analyst Hesham Shaaban.)


Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - yelp



Do you want to learn more about Morning Newsletter and other Hedgeye offerings? Click here.

Did You See Panera Bread? You Could've Made Money Listening to Howard Penney | $PNRA

Takeaway: It (literally) pays to listen to Howard Penney.

Fast-casual food chain Panera Bread reported earnings and lowered 2014 guidance which sent its shares tumbling 4.4% in after-hours trading Tuesday evening.


Did You See Panera Bread? You Could've Made Money Listening to Howard Penney | $PNRA - pnra


Talk about nailing it.


Yesterday, Hedgeye Managing Director and Restaurants Analyst Howard Penney shot a 3-minute video on HedgeyeTV outlining his bearish case on PNRA and why he added the stock as a "Best Idea" on the short side.


As you can see below, it pays to listen to Penney.


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