Lululemon Founder Explores Buyout (Right In Line With Our Bullish $LULU Thesis)

Takeaway: This latest news from Lululemon is right in line with the bullish thesis Hedgeye retail sector head Brian McGough outlined on June 25th.

LULU - Lululemon Founder Explores Buyout


From the Wall Street Journal:

"Advisers to Lululemon Athletica Inc. founder Dennis "Chip" Wilson have been sounding out private-equity firms, including Leonard Green & Partners, about taking the yoga-gear maker private..."


Lululemon Founder Explores Buyout (Right In Line With Our Bullish $LULU Thesis) - lululemon chip wilson


Takeaway from McGough: Right in line with our thesis -- keeping in mind that a buyout is the least likely of all the outcomes we outlined on June 25th when we presented why LULU is worthy of being on our Best Ideas List as a long. We think that a strategic buyer is twice as likely as a 'Chip-led and PE-supported' buyout.


But the greatest likelihood is that Wilson fails outright in his effort to control or sell the company, and he therefore defaults to selling all his stock. That's the highest return move for shareholders. See our separate LULU note from this morning for our rationale.


Lululemon Founder Explores Buyout (Right In Line With Our Bullish $LULU Thesis) - image003


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Introduction to New Tech Sector Head Craig Berger

Hedgeye is excited to welcome Craig Berger, our new Semiconductor Analyst and Technology Sector Head. In this HedgeyeTV video, Craig touches on his extensive resume, his research process, and highlights a few of his favorite names in the space.

The Fed's First Cousin

This note was originally published at 8am on June 20, 2014 for Hedgeye subscribers.

“Yeah, my wife is my cousin or whatever, but it’s not like what you think.”

-Donnie Azoff


In The Wolf of Wall Street, Donnie (whose real name is Danny) is a beauty of a storyteller. In real life, Danny was convicted of securities fraud and money laundering. And, yes, he married his cousin.


Jordan Belfort: “Is she like your first cousin?”


Donnie Azoff: “Her father is the brother of my mom… and she grew up hot.”


The Fed's First Cousin - don1


Back to the Global Macro Grind


Hot, as in inflation. Yep, but if you ask the sheep at the Fed, it’s not like what you think. Even though commodity inflation accelerated to fresh YTD highs yesterday (CRB 19 component Commodities Index = +11.4% YTD), it’s sort of like the cousin thing.


You see, as long as the Fed doesn’t call it what it is, you and I can keep making money buying it. In the meantime, just don’t tell 80% of Americans that they are getting it “jammed down their throat” (Jordan Belfort told his brokers to do that with Steve Madden’s stock):


  1. CRB Food Index up another +2.1% this week = +22.8% YTD
  2. Nickel +2.7% this week = +32.3% YTD
  3. Gold +3.1% this week = +9.1% YTD


I know. I know. You can’t eat Gold. But instead of whining about it on down days in 2014, you can certainly buy it!


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


How high can Gold go?


  1. If we’re right and the inflation-accelerating-slows US growth setup is similar to 2011, Gold can go a lot higher
  2. From an immediate-term TRADE perspective, the new risk range is $1285-1336/oz
  3. From an intermediate-term TREND standpoint, $1381 is resistance


Put another way:


  1. Gold has immediate-term upside of +2.1%
  2. Gold has intermediate-term upside to +14.9% YTD


That sure as heck beats being long something that is going to keep getting eaten by the Fed Policy To Inflate. US Consumer Discretionary stocks (XLY) are down -0.43% YTD. And, all things considered,  being levered long to the recent edition of the US #HousingSlowdown pretty much sucks wind right now too.


Where the real pin action has been since the Fed cut its US Growth estimates on Wednesday is in:


  1. INFLATION stocks like Energy (XLE) +13.43% YTD
  2. SLOW-GROWTH #YieldChasing stocks like Utilities (XLU) +16.13%


But, whatever you do… and no matter what you hear from Consensus Macro… don’t call any of these investment Style Factors inflation’s cousin.


Jordan Belfort: “I heard some stupid $h-t. I … I didn’t even want to bring it up. It’s just stupid.”


Donnie Azoff: “$h-t with me?”


Jordan Belfort: “You know, just… people say $h-t. I don’t even know. I don’t even listen to it…”


Donnie Azoff: “What do they say?”


When an un-elected-central-planner devalues the Dollar, it’s inflation, stupid.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.47-2.67%

SPX 1927-1964

RUT 1155-1189

USD 80.28-80.63

Brent 112.12-116.42

Gold 1286-1318


Best of luck out there today and have a great weekend,



Keith R. McCullough
Chief Executive Officer


The Fed's First Cousin - Chart of the Day

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The Week Ahead

The Economic Data calendar for the week of the 7th of July through the 11th of July is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.


The Week Ahead - 07.03.14 Week Ahead


FiveFecta: June Employment

Takeaway: The Labor market data remained solid in June, but keep optimism anchored as we move into 3Q.

Editor's note: This note was originally published July 03, 2014 at 12:33 in Macro. For more information on our market and economic research options click here.

Solid report overall as NFP goes >200K for five months in a row for 1st time since Jan 2000 (although that wasn’t a particularly positive harbinger), employment gains were broad based, the Unemployment rate flirts with a 5-handle, and the U-6 and total LT unemployed continued to decline. 


On the other side, total part-time and involuntary part-time both increased significantly while the slope in private wage growth remained negative – with real earnings growth likely to be negative for a second month in June. 


FiveFecta: June Employment - drake1


FiveFecta: June Employment - Eco Summary Table 070314




  • NFP:  Solid Report with NFP = +288, Private = +262, 2Mo Revision = +29K
  • Household Survey:  Net gain of +407K in June with Employment growth accelerating across all age buckets except 20-24 YOA
  • Unemployment Rate:  Unemployment Rate dropped to 6.1% from 6.3% prior alongside the +407K increase in total Employed and a -325K decrease in Total Unemployed
  • U6/LT Unemployed:  U-6 Unemployment dropped to 12.1% from 12.2% while the ranks of the long-term unemployed dropped -293K MoM on an absolute and -1.8% to 32.8% as a % of total
  • State & Local Government Employment:  increased for a 10th consecutive month in June while the rate of job loss at the Federal level improved 10bps sequentially to -2.0% YoY.  Aggregate government salary and wage growth has finally begun to contribute positively to aggregate disposable income growth in recent months 
  • Initial Claims:  The employment data has followed the steady improvement in the initial jobless claims data in recent months and this mornings update to claims was again positive with both headline rolling claims and the YoY rate of improvement in NSA claims holding near the best levels YTD. 

 FiveFecta: June Employment - State   Local Govt Employment


FiveFecta: June Employment - CLaims SA 070314


FiveFecta: June Employment - Employment by Age 070314


FiveFecta: June Employment - Salary   Wage Growth




  • Hours Worked:  Ave weekly hours worked for private employees continued to track sideways at 34.5
  • U-6/U-3 Spread:  The spread, which sits as part of the FOMCs  dashboard of “slack” indicators, ticked up sequentially with the magnitude of decline in the U-3 rate outpacing that of the U-6. 
  • Ticking Clock:  At 61 months as of June, the current expansion continues to surpass the mean duration of expansions (59 months) over the last century.  We continue to think this reality weighs into the feds policy calculus  – they need to get out of QE if only to give themselves the opportunity to (credibly) get back in if need be.   

FiveFecta: June Employment - Eco Cycle Profile Table


WAGE GROWTH:  Average hourly earnings in the Private sector grew 2.0% YoY, down from +2.1% in May and continuing the stagnant 2.0% +/- 20bps that has prevailed over the last two years.  Average hourly earnings for Production and Nonsupervisory employees also decelerated -10bps to +2.29% YoY.   


With nominal earnings growth static, real earnings growth likely to be negative for a 2nd month in June with the official release, and the spread between spending and earnings growth having re-expanded the last couple quarters, we continue to think the upside to consumption growth remains constrained in the immediate/intermediate term – particularly if inflation continues to march northward and the savings rate remains at current levels.  


FiveFecta: June Employment - Real Weekly Earnings


FiveFecta: June Employment - Nominal Spending vs. Nominal Earnings


FiveFecta: June Employment - Wage Growth Production Workers Nominal



WAGE RAGE:  Wage Growth Refuses To Accelerate, Does it Matter To The Policy Outlook?  

Conventionally, wages are viewed as a lagging indicator, with wage inflationary pressure building as the labor supply declines and the economy moves towards constrained capacity.  There’s a view that the FOMC won’t move to raise rates so long as real wage growth is flat or declining, which it is currently. 


It’s somewhat difficult to make a particularly cogent empirical argument in either direction, however.  The longest historical dataset for (real) wages is that for Production & NonSupervisory Employees which goes back to 1964 (the BLS series for total private employment reported inside the NFP release only dates back to 2006). 


The problem with using this series stems from the well documented, secular plight of middle and low income earners where flat/negative real wage growth has characterized the last four decades.  


In fact, the current post-recessionary trend in real wage growth compares favorably with those observed over the last half century.   


We’d agree that the collective policy bias of the current FOMC body argues for dovish conservatism in the face of negative real wage growth alongside sub-target, or moderately above target, inflation levels.   


FiveFecta: June Employment - Post Recession Real Wages  Indexed 2




The painstakingly slow progression of growth out of the Great Recession has been exhaustingly documented and the duo of negative post-recession GDP prints observed in 1Q13 and 1Q11 sit as the two worst of any post-war recession with a recovery greater than 61 months (the duration of the current expansion).    


The five month run of positive labor market data has been encouraging - though not fully corroborated by broad macro strength post the immediate weather-distortion bounce. 


We’d advise keeping growth optimism anchored over the intermediate as growth compares get harder and inflation comps easier in 3Q and the conflation of rising inflation, static nominal wage growth, and an ongoing deceleration in housing should drive a sequential deceleration in domestic economic growth.  


The reality of the intermediate/LT is that household balance sheets remain over levered, demographics are going the wrong way,  and policy driven increases in inequality will continue to feed the growing phantasm that is the U.S.  middle class. 


Yellen’s acute attention to the prospects for secular stagnation and hysteresis isn't misplaced. 


FiveFecta: June Employment - Post Recession GDP  QoQ 2


FiveFecta: June Employment - Post Recession GDP  Indexed 2




Enjoy the Holiday Weekend,



Christian B. Drake




Cartoon of the Day: That Burger's Gonna Cost You

Takeaway: Live cattle and lean hog prices are up well into the double-digits year-to-date. But there's no inflation right?

Cartoon of the Day: That Burger's Gonna Cost You - burger cartoon 7.03.2014

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