The Gold Synchrony: Eat IT

Takeaway: Takeaway: Gold broke out of @Hedgeye’s immediate-term TRADE resistance level of $1285 on Thursday

Gold's refreshed immediate-term TRADE risk range is $1285-$1336 with intermediate-term upside to TREND resistance at $1381.


With the +3.4% gain week-over-week the consumer is lucky he won't be eating gold at the dinner table this weekend. Unfortunately, the CRB food index appreciated +3.10% to +22.8% YTD.


The repetitive call to front-run the Fed’s response to worse-than expected data undoubtedly manifest this week:


  • Headline CPI on Tuesday printed +0.4% vs. +0.2% expected (inflation accelerating)
  • Full-year GDP forecast from the Fed downwardly revised for the SEVENTH year in a row (growth slowing):

-        2.1-2.3% from 3.0% (predictable response)

-        2015 estimates held constant (possibly foreshadowing an 8th year?)


As inflation accelerates, and growth expectations decrease, the likelihood of an easier fed increases. We believe Thursday’s session was anything but coincidental:


  • Gold Surges 3.44%
  • Spot Volumes: 62%, 52%, and 49% above 1, 3, and 6-Month averages respectively
  • The 1-Week negative correlation tightens significantly to -0.91.
  • The 1, 3, and 6-month correlations have remained in the -0.60s from the March top in the Euro


The Gold Synchrony: Eat IT - GLD Levels Chart


Divergences in the equity market between consumer-based growth and inflationary sectors continues:

  • XLE (+13.5% YTD); XLU (+14.9%)
  • XLY (-1.00%)
  • SPX (+6.1%)

The Gold Synchrony: Eat IT - XLU XLY SPX chart


American consumption habits remain the driving force in our economy. Open-ended discussions on the flow through from fed policy, to credit growth, to spending are regularities on our team. We are continuously stuck with the assumptions from central planners:


Last ten Years:

  • Trailing 1-year personal savings rate: -9.0%
  • Median consumer net income margins have decreased over last 5 years of data availability (Net Income % After-Tax Earnings--> BLS PCE survey):
    • 2008: 1.88%
    • 2009: 1.94%
    • 2010: 1.94%
    • 2011: 1.61%
    • 2012: 1.38%


  • U.S. Private Sector Real Hourly Earnings Growth (Y/Y % Change): -43.7%
  • USD Index: -10.0%
  • CRB Index: +16.44% (+11.7% YTD)


The Gold Synchrony: Eat IT - Consumer Margin Compression


Unfortunately U.S. dollar devaluation and commodity inflation require fiscal subsidization when the wealth effect does not flow-through in the assumed capacity. Sure, the top 20% with the opportunity to own fixed assets and chase inflation in stock and commodity markets continue to take a larger portion of the total "wealth creation" from interest, dividends and property related income. This increase in wealth would arguably induce more spending. Reiterating the aforementioned point, exploring the validity of the central government’s assumptions on the trickle-down effect of a monetary increase is paramount to understanding the state of the consumer. Our analysis suggests the assumptions are much too high. More easily observed is the basket of goods we consume everyday:


The Gold Synchrony: Eat IT - CRB vs. USD


Despite the Fed’s revision yesterday, consensus expectations for growth in 2H remain comparatively optimistic in our opinion. We continue to like utilities, treasuries, and commodities on the long-side.


The Gold Synchrony: Eat IT - GIP Model


Ben Ryan






Poll of the Day Recap: 73% Believe Gold Is Heading to $1,500

Takeaway: 73% believe Gold is headed to $1500; 27% see downside towards $1100.

How high can gold go? If we’re right and the inflation-accelerating-slows U.S. growth setup is similar to 2011, gold can go a lot higher.


“Reality is that very few of the world’s savants made Gold one of their top Global Macro LONG positions in 2014,” Hedgeye CEO Keith McCullough wrote in today’s Morning Newsletter. “It’s still nowhere in the area code of consensus. And yesterday it broke out above @Hedgeye immediate-term TRADE resistance of $1285/oz.”


In the video below Keith discusses the key catalysts for continued momentum in Gold and what the breakout line will be important for further upside.



In the poll we asked: Whats the next stop for gold? $1100 or $1500


At the time of this post, 73% believe Gold is headed to $1500; 27% see downside towards $1100.


Those who see Gold heading higher to $1500 had this to say:

  • Since all the Fast Money guys are still bearish and skeptical about gold. I'm betting higher.
  • No matter what anyone says there is a price to pay for money printing & ZIRP rate policy & it can't be avoided by any power known to man.  It's really just about that simple.  Currency pricing power destruction is absolutely the worst thing a central banker can ever do and the FED/other central bankers have done a huge amount of it.  As the world moves away from dollars which it has & is, lots of this evidence exists, the world has huge excesses of dollars plus what the FED has printed out of thin air, the petro-dollars time is ending over the next few years & this will change the reserve currency status over time which will lower the dollar spending power even further, this can't be stopped now as leadership of the U.S. has made their bed.
  • The shorts have had their day in the sun. They've beaten gold into the dirt and with wars all over the world they try it again! China isn't selling back the hundreds of thousands of tons shipped their way in the last year. It's no time to be short even if you're in cahoots with the Fed.
  • $1500 is just a stop on the way to higher prices. Of all the experts nobody called the price of gold correctly lately.
  • Its building a great base so if this current run clears $1350 then we proceed to $1500 - next major resistance level.
  • See



Those who believe Gold is moving lower to $1100 reasoned:

  • Long-term TAIL prediction: The 2016 election cycle could be very hawkish (i.e. negative for both the Fed and Gold) if Brat's victory over Cantor is anything resembling a canary in the coal mine.
  • I simply don’t get gold investors .. demand is down and will go down more .. why invest in something that is in less demand.

Cartoon of the Day: Burning Dollar

Takeaway: Dollar debauchery is hurting Americans.

Cartoon of the Day: Burning Dollar - Burning dollar 06.20.2014

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All-Time Highs: Can Food Prices Go Even Higher?

Takeaway: U.S. consumers are feeling the food inflation heat.

Editor's note: This is an excerpt from a research report released by Hedgeye Macro on 6/19.


We continue to field arguments against the inflationary read-through on the commodity squeeze. Sharp increases in livestock and poultry prices over the last ten years in the face of stagnant wage growth, a decline in savings rates, and a declining U.S. dollar illustrate this reality in staggering fashion.


All-Time Highs: Can Food Prices Go Even Higher? - benchart


If Janet Yellen’s commentary earlier this week is any indication, the Fed will continue to promote yield-chasing from financial intermediaries and those lucky enough to hold equities and fixed assets. The PCE survey from the BLS reports the top quintile of income earners takes 66% of the aggregate income in the basket from interest, dividends, and investment related income. Needless to say, a majority of Americans consume meat.


2013 Meat Consumption Per Capita (KG/Person):

  • United States: 106.9
  • China: 53.5
  • World Average: 34.9

The average consumer we have continuously highlighted is reaching insolvency. Median net income margins have consistently compressed over the last five years to about 1.38% with savings rates decreasing over the same period.


Last Ten Years:

  • USD Index: -9.8%
  • Trailing 1-year U.S. Personal Savings Rate: -9%
  •  S&P GSCI Livestock Index: +69%
  • U.S. Private Sector Avg. Hourly Earnings (Real): -43% 

All-Time Highs: Can Food Prices Go Even Higher? - Beef cartoon 06.18.2014

Keith's Macro Notebook 6/20: COMMODITIES GOLD UTILITIES

Retail Callouts (6/20): COH, SKX, NKE

Takeaway: COH Analyst Day takeaway. SKX sues AdiBok for violating patent. NKE adds EBAY CEO to board.



COH - Analyst Day Takeaway


Takeaway: Coach is a name we’ve been short more often than not. I’ve been debating whether the bear case is too widely accepted. Apparently not. As they guided  2015 NA comps down in the 20s during yesterday's analyst day. The brand is being completely repositioned, and anyone buying today will need to wait 3-5 years to see if it’s working.  Only question in my mind is that it has a 3.85% dividend yield. Balance sheet has no debt, and there’s a 70% gross margin to backstop the dividend. Being cheap isn’t enough for me to want to buy a dead brand. It had a 3.5% yield a week ago – that seemed cheap too.


SKX - Skechers Sues Reebok for Patent Breach



  • "Skechers USA Inc. has filed a lawsuit against Reebok International for selling footwear that infringes on its GoWalk product line."
  • "Skechers is claiming that Reebok is selling the copycat products under the name 'Reebok Walk Ahead RS.' Reebok’s U.S. head of media relations could not be immediately reached for comment."


Retail Callouts (6/20): COH, SKX, NKE - Chart 1 6 20 14


Takeaway: Yea, the shoes look pretty similar, and who knows SKX may actually win this one. I mean they both look like glorified water shoes. But seriously? Talk about the pot calling the kettle black.


NKE, EBAY - John Donahoe Named to Nike Inc.'s Board



  • "John Donahoe, EBay Inc.'s president and chief executive officer, was named to Nike Inc.'s board Thursday."
  • "'John’s executive management experience in digital commerce, technology, strategic planning, and marketing for a global brand makes him an excellent addition to our board,' said Philip Knight, Nike co-founder and chairman."


Takeaway: sales accounted for about 2% of NKE's sales in 2013, or about 12% of total DTC sales. E-commerce will never play a huge part in the NKE sales algorithm because of the 80/20 split between wholesale and retail, but this is an area where the company needs to improve. Bringing in Donahoe should help.




FDO - Icahn Letter to Family Dollar CEO Howard Levine


  • "Although we appreciated the cordial nature of our discussion at last night’s dinner, it was apparent that we have a strong difference of opinion as to the future of our company."
  • Family Dollar has consistently underperformed its peers on most, if not all, operating metrics (same store sales, total revenue growth, sales per store, sales per square foot, operating margins, capital structure efficiency, etc.) and faces growing competition. In addition, the company’s shares have underperformed not only the shares of its peers but also the S&P 500 index over the last 1-year and 3-year periods.
  • "But perhaps more importantly, we believe that for a number of reasons we discussed last night it is imperative that Family Dollar be put up for sale immediately."


GIL - Gildan Activewear Announces Agreement to Acquire Marketer and Manufacturer of

Branded Sheer Hosiery, Legwear and Shapewear



  • "Gildan Activewear Inc. today announced that it has signed a definitive agreement to acquire substantially all of the assets of Doris Inc. (Doris), a marketer and manufacturer of branded sheer hosiery, legwear and shapewear products to retailers in Canada and the United States. The initial purchase price is approximately CDN $110 million (U.S. $101.4 million), with possible additional contingent payments of up to CDN $10 million (U.S. $9.2 million), which are based on the achievement of targets for growth in sales revenues. The purchase consideration will be paid in cash and will be financed out of Gildan’s bank credit facility. "
  • "Revenues of Doris for the year ended March 31, 2014 amounted to approximately CDN $95 million (U.S. $87.6 million), and adjusted EBITDA for the same period amounted to approximately CDN $14 million (U.S. $12.9 million), so that the acquisition is expected to be immediately accretive to Gildan’s earnings in fiscal 2015."


ANF - Report: Abercrombie installing in-store mobile charging stations



  • "Abercrombie & Fitch is reportedly rolling out charging stations for mobile phones and tablets in its stores. According to TheStreet, there are currently two Abercrombie & Fitch stores with mobile charging stations installed, and the retailer plans to roll out the stations at several more Abercrombie and Hollister stores by the end of the year."
  • "Abercrombie is also providing lockers so customers can leave their mobile devices to charge without worrying about them being stolen."

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