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Retail Callouts (7/15): ICSC, NKE, JWN

Takeaway: ICSC - good sign for retailers as they close out 2nd quarter. NKE salutes Jeter.



Wednesday (7/16)

EBAY - Earnings Call: 5:00pm


Friday (7/18)

VFC - Earnings Call: 8:30am





ICSC - Chain Store Sales Index


Takeaway:  Yet another huge week of growth as measured by the ICSC Index. We're coming against some really ugly numbers last year, so it's appropriate to look at the 2-year comp, which is in the second chart below.  All in, trends are very consistent with prior weeks, running just north of 3%. While that's far below the absolute 1-year weekly reading, it's still very respectable by any means. Definitely a good sign for retailers as they close out the second quarter.


Retail Callouts (7/15): ICSC, NKE, JWN - Chart1 7 15 2014

Retail Callouts (7/15): ICSC, NKE, JWN - Chart3   ICSC 2yr 7 15 2014




NKE - Nike Says Farewell to Jeter in Showcase of Biggest Athletes



  • "What does $120 million a year in Nike-sponsored talent look like?  Just watch the shoe company’s new commercial, which commemorates the final season of Derek Jeter’s professional baseball career. The ad, called 'RE2PECT,' serves as a showcase for other athletes with Nike Inc. endorsement deals, including top moneymakers Michael Jordan and Tiger Woods."
  • "Other than Michael Jordan himself, Jeter has had more Jordan Brand shoes than any athlete."


Takeaway: Classy move by Nike in honoring one of its highest-profile yet lowest-beta athletes ever. It's so rare for an athlete to earn such tremendous respect from fans (and even many Yankee haters), and sustain it over an entire career without blowing it like we've seen from so many other athletes (Lance, Tiger, Kobe -- even Jordan has had some moments he'd like to forget). We'd like to think to think that the highlight of Jeter's endorsement career with Nike is when they brought him into a room full of analysts and investors in 2000 on his birthday, where the gnarly looking group of analysts sang Happy Birthday to him. He then fielded questions, and yes, someone asked him about SG&A. He answered it like a champ ("Not sure if I know what SG&A is, but I know Nike needs to spend more money on athletes.").




JWN - Nordstrom in Talks to Buy Trunk Club, a Men’s Personal Shopper Service



  • "The Seattle-based, high-end retailer has recently held acquisition talks with Trunk Club, an e-commerce company that offers a personal styling service for men, according to people familiar with the talks."
  • "Trunk Club customers consult with a stylist and then receive a mailing that contains an array of clothing options, such as jeans, shoes and blazers. Customers keep and pay for the items they want and mail the rest back for free." 


Retail sales growth slows sharply in June - BRC



  • "British retail sales growth slowed in June to one of its weakest rates in three years, possibly in response to fears of higher interest rates, industry figures showed on Tuesday, adding to recent lackluster economic data."
  • "The British Retail Consortium said total retail spending in June was just 0.6 percent higher than a year before, the lowest growth rate since May 2011 if annual volatility caused by the timing of Easter is excluded."


BBBY - Bed Bath & Beyond Inc. Prices $1.5 Billion Of Senior Unsecured Notes, Announces Planned $1.1 Billion Accelerated Share Repurchase And Planned $250 Million Revolving Credit Facility



  • "Bed Bath & Beyond Inc. today announced the pricing of three series of senior unsecured notes for an aggregate principal amount of $1.5 billion."
  • "The Company also announced it intends, subject to business and market conditions, to enter into an accelerated share repurchase agreement to repurchase an aggregate of $1.1 billion of the Company's common stock following the closing of the notes offering."

China Policy Hits Cotton Prices



  • "China is unwinding its massive stockpiles of cotton and readying to implement direct-farmer subsidies, potentially depressing global prices of the raw material.


Burger Time!

This note was originally published at 8am on July 01, 2014 for Hedgeye subscribers.

“I still eat a burger at a counter with ketchup dripping down my face.”

-Scarlett Johansson


Like being long #InflationAccelerating and slow-growth #YieldChasing in 2014, that sounds #tasty.


My Mom makes yummy burgers on the barbee too. Today we’ll be pounding those back (amongst other things) as we celebrate Canada Day out here on the Big Lake they call Gitchee Gumee in Thunder Bay, Ontario.


Back in Connecticut, it’s going to be Berger Time as well. The Craig Berger, that is – our long-awaited head of Technology Research @HedgeyeBerger who will be launching his Best Semiconductor Ideas  today at 11AM EST (Dial-in: 1.800.434.1335; Conference Code: 859426#).


Burger Time! - HE SC launch


Back to the Global Macro Grind


We surprised some of our Institutional Subscribers when we added Semiconductors (SMH = +16.6% YTD) to the long side of our Global Macro Themes deck in Q2. With Berger on board, we’ll really be able to augment our top-down macro call. It goes something like this:


  1. As US growth slows (and European + Emerging Market + Asian demand stabilizes/strengthens), we like global instead of local demand
  2. With the US Federal Reserve fear-mongering disinvestment (0% rates), US capex and inventory growth will continue to disappoint
  3. With tight inventory and low-capex, obvious ways for companies to grow faster are through A) pricing and B) M&A


Yep, just one more way you can be long a slowing US domestic consumption cycle.


There’s a solid article in the FT today reminding you that those who were bullish on the “US capex cycle” have been direly disappointed in 2014 YTD. Newsflash: you aren’t going to get a real mid-1990s capex cycle until you let interest rates rise.


Ideological central-planners don’t get the career-risk adjusted decision making process of execs inasmuch as their Keynesian textbooks don’t get how a country like the UK can see manufacturing demand accelerate (PMI for June 57.5) as the value of the UK currency does (Pound $1.71 vs USD today).


Why on earth would a public CFO sign off on his or her CEO ramping capex (and hurting peak margins, because that’s what happens in the short-term when you invest) when he or she can just fire people (cut costs), take price, and/or buy someone and do the same all over again?


Back to Berger time…


He and I are going to have some fun together creatively destructing some of the old ways of #OldWall research. You see, our edge isn’t what some of NYC and CT’s finest hedgies went to jail for. It’s working as a team, using a differentiated top-down and bottom-up research process.


If you’re still reading my rants, you probably have a feel for what I do. What Berger does is born partly out of his industry experience (worked at Intel, INTC) and partly from doing his time working for firms that also loved doing banking and brokering (we don’t plan on doing either).


We do un-conflicted, un-compromised, independent research. If we don’t have Research Edge that helps investors generate alpha, we don’t get paid. We’re really looking forward to marrying the top-down signaling process of Global Macro with Craig’s detailed financial models and industry analysis.


Here’s a looksy at slide 10 of Berger’s 52 slide Global Semis deck:


1.       Chip Sector now a Dividend + Cash Return Story: Div yield leaders include STM (4.2%), INTC (3.0%), MXIM (3.0%), MCHP (2.9%), ADI (2.7%)


2.       Large Dividend Hikes (and/or share buybacks) Possible: from SNDK, QCOM, BRCM, NVDA, MRVL, ALTR, AVGO, POWI, VSH, SWKS


3.       Acquisitions in Chip Sector Heating Up: Consolidation trends should continue with CAVM, ISIL, SLAB, POWI, MLNX, AMCC, IPHI, EZCH our top acquisition targets


In other words, if you’re into slow-growth #YieldChasing + M&A, you should still be into semis.


If you’d like to throw some more inflation ketchup on that tasty Hedgeye-Style factored burger, stay with long inflation via my homeland too. Largely a play on commodity #InflationAccelerating, Canadian Stocks (TSX) are +12.9% YTD. Beats banging your head against that Old Wall Dow, doesn’t it?


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.49-2.59%

SPX 1938-1967

VIX 10.61-12.79

Pound 1.69-1.71

WTIC Oil 104.76-106.94

Gold 1312-1342

Copper 3.13-3.21


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Burger Time! - Chart of the Day


Client Talking Points


Newsy call by Goldman yesterday reiterating what’s been the wrong call in 2014. Gold futures/options contract volume was +27% versus the 5-day average on that, but neither our TRADE line of $1301 support, nor implied volatility (still -2% on a 1 month basis) confirmed the 1-day fear. Buy more!  


If you ask the bond market about yesterday’s Goldman Sachs’ call on Gold or consensus U.S. growth acceleration hopes in Q3, it doesn’t care – 10yr yield right back to 2.53% this morning with immediate-term downside to 2.49% into Yellen’s testimony.


Lines of immediate-term TRADE resistance that matter to us most are EuroStoxx50 = 3241, DAX 9855, and FTSE 6788. We are happy to let the market tell us which way to go in European equities for July and August.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


Reynolds American To Acquire Lorillard In Transaction Valued At $27.4 Billion, or $68.88.



The way of the pioneer is always rough.

-Harvey S. Firestone


Despite yesterday’s sell-off in Gold the shiny commodity remains up +9% year-to-date and the UST 10yr Bond Yield is down -17% year-to-date.

Early Look

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TODAY’S S&P 500 SET-UP – July 15, 2014

As we look at today's setup for the S&P 500, the range is 31 points or 1.17% downside to 1954 and 0.40% upside to 1985.                                                    













  • YIELD CURVE: 2.08 from 2.09
  • VIX closed at 11.82 1 day percent change of -2.15%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:30am: Retail Sales, m/m, June, est. 0.6% (prior 0.3%)
  • Retail Sales Ex Auto, m/m, June, est. 0.5% (prior 0.1%)
  • 8:30am: Empire Manufacturing, July, est. 17 (prior 19.28)
  • 8:55am: Redbook weekly sales
  • 10am: Business Inventories, May, est. 0.6% (prior 0.6%)
  • 10am: Fed’s Yellen Gives Semi-Annual Testimony to Senate panel




    • FEC reporting deadline for some PACs and parties
    • 10am: FDIC board meets in open session
    • 10am: CBO releases long-term budget outlook
    • 10am: DoD spending bill mkup at Senate Appros. subctme
    • 10am: Senate Judiciary Cmte hearing on S.1696 to prohibit certain limits, requirements for abortion service access
    • 10am: Subcmte on oversight & investigations of House Fin Svcs Cmte on DoJ’s Operation Choke Point consumer lending program
    • 2pm: Joint Economic Cmte holds hearing to assess 5 years of economic recovery
    • 4pm: Reps.  Nancy Pelosi, John Larson, introduce companion to Senate’s proposed campaign finance constitutional amendment
    • U.S. ELECTION WRAP: Drs. for Congress; Bechtel, Schwab Giving



  • Fed Chair Yellen gives semi-annual testimony to Senate
  • U.S. said to push EU envoys for additional Russia sanctions
  • Boeing said to be near orders from lessors of $9.2b in planes
  • Airbus’s $21b in sales tops Boeing at Farnborough opening
  • Draft U.S. defense bill funds 34 F-35 JSFs, extra ship
  • German Zew investor confidence falls for seventh month
  • Sprint said to plan for long U.S. review of T-Mobile purchase
  • Citi, Discover, others to report June credit-card charge-offs
  • Microsoft said to announce job cuts as soon as this week
  • U.S. DoJ probes price coordination among music publishers: WSJ
  • Facebook, Nielsen to track TV viewing habits on devices
  • Alibaba, Lions Gate to start China video streaming service
  • Staples, Postal Service end plans for mini offices: WSJ
  • Novartis to license Google’s “smart lens” technology
  • Oil, railroad lobbies offer plan to phase out old tank cars
  • More energy cos. seen seeking condensate export access
  • U.S.’s Levin calls AbbVie deal tax inversion “wake-up call”
  • N.Y. AG says data breaches more than tripled in 2006-13
  • FedEx says U.S. DoJ to treat asbestos case as criminal
  • President Obama to deliver speech on economy in McLean, Va.



    • Comerica (CMA) 6:40am, $0.76
    • Commerce Bancshares (CBSH) 7:00am, $0.68
    • Goldman Sachs Group (GS) 7:35am, $3.09 - Preview
    • JB Hunt Transport Services (JBHT) 8:30am, $0.79 - Preview
    • Johnson & Johnson (JNJ) 7:45am, $1.55  - Preview
    • JPMorgan Chase & Co (JPM) 6:59am, $1.31 - Preview
    • Wolverine World Wide (WWW) 6:30am, $0.27



    • AAR (AIR) 4:05pm, $0.41
    • ADTRAN (ADTN) 8:15pm, $0.30
    • Boston Private Financial (BPFH) 4:05pm, $0.20
    • Cintas (CTAS) 4:15pm, $0.75
    • CSX (CSX) 4:01pm, $0.52
    • Intel (INTC) 4:01pm, $0.52 - Preview
    • Interactive Brokers Group (IBKR) 4:01pm, $0.29
    • Pinnacle Financial Partners (PNFP) 5:30pm, $0.48
    • Yahoo! (YHOO) 4:05pm, $0.38 - Preview



  • Brent Front-Month Contango at $1/Bbl for First Time in 4 Years
  • Brent Crude Falls to Three-Month Low on Supply; WTI Near $100
  • Asia Chocolate Binge Compounds World Cocoa Shortage: Commodities
  • Albemarle to Buy Rockwood in Cash & Stock Deal Valued at $6.2b
  • Zinc Lured East as Mitsui Sees Support for Premiums in Asia
  • Copper Slips Before Yellen Testifies to Legislators on Policy
  • Crop Sowing in India Seen Gathering Pace as Monsoon Revives
  • North Dakota Expects ‘Big Surge’ in Oil Output Through Aug.
  • Corn to Soybeans Decline as U.S. Crops in Best Shape Since 1994
  • Marcellus Natural Gas in Northeast Drives Record U.S. Output
  • Steel Rebar Falls as Investors Sell After China FDI, Loan Data
  • Palm Imports by India Drop for Second Month as Sunflower Climbs
  • U.S. Condensate Producers Seen Jumping on Export Bandwagon
  • Strong El Nino Seen Unlikely by Australia as Pacific Ocean Cools


























The Hedgeye Macro Team
















CHART OF THE DAY: Let's Connect the Macro Dots


CHART OF THE DAY: Let's Connect the Macro Dots - Chart of the Day

My Dear Gold

“Frankly, my dear, I don’t give a damn.”



That’s what Rhett epically told Scarlett at the end of Gone With The Wind.  That pretty much sums up what I think of the Goldman call to sell Gold yesterday too.


Earlier in the movie, Rhett explains the generational gap to Scarlett:


“If you are different, you are isolated, not only from people of your own age but from those of your parents… but your grandparents would probably be proud of you and say, there’s a chip off the old block… and your grandchildren will try to be like you.” (The Fourth Turning, pg 79)


And that pretty much summarizes my generation vs. The Old Wall’s boomer and GI generations. Yes, I’m generalizing to make a point. You can blame my birth year, or blame them.  It doesn’t matter.  History won’t care.  In terms of our Global Macro #process, we are different.  And that’s just fine with me.


My Dear Gold - goldbars thumb


Back to the Global Macro Grind


If you ask the bond market what it thought of the GS call to sell Gold yesterday, evidently it couldn’t give a damn either.  US 10yr Treasury Yields are back down to 2.53% this morning and remain as bearish as Gold is bullish in our model. If you want to get Gold right, get rates right.


Put another way:


  1. If you are bearish on Q3 US GDP growth slowing, you are A) bullish on bonds and B) bullish on Gold
  2. If you are bullish on Q3 US GDP growth accelerating, you are B) bearish on bonds and B) bearish on Gold (like we were in 2013)


Inclusive of yesterday’s newsy selloff in Gold, don’t forget the context of the move:


  1. Gold is +9% YTD
  2. UST 10yr Bond Yield is -17% (-51bps) YTD


So the Goldman growth bulls have some hay to bail. That’s not a personal attack – I have plenty of friends at Goldman who I hold in the highest regard. It’s just the YTD score.


Since Goldman has some very thoughtful people in their research department, this makes for an interesting bull/bear debate. From a macro perspective, their calls for 2014 are fairly uniform. Their highest profile strategists have a bullish growth and interest rate bias:


  1. Abby Cohen is looking for US growth to accelerate and US Equities to see multiple expansion
  2. Jan Hatzius is trying to get the Fed to pull forward the “dots” (raise rates sooner)


Hedgeye, on the other hand:


  1. Is looking for #InflationAccelerating to slow US consumption growth and perpetuate multiple compression in early cycle stocks
  2. And is trying to front-run the Fed’s decision-making process by predicting they get easier (as the economic data slows) in Q3/Q4


Don’t worry – “front-running” is only a bad compliance word if you’re running a bank, broker dealer, or asset management firm with some sort of inside information. I don’t do that. I just run my mouth.


On our Q3 Macro Themes Call last Friday, I went through the bull case for Gold via our #DollarDevaluation theme (ping if you’d like to review our slide deck – I’ll be presenting it in London this week). The sequence of front-running predictable Fed behavior is as follows:


  1. On the margin, Q314 real consumption data slows like the June data did (i.e. the Fed can’t blame FEB weather anymore)
  2. Janet Yellen, being a very particular bureaucrat looking to dot i’s and cross t’s, will want to acknowledge that slowing
  3. By the SEP Fed meeting, Wall Street will be looking at a much more dovish Fed than the tapering one it had at the start of the year


If you agree with me on that:


  1. You short the US Dollar
  2. You buy more Treasuries (and slow-growth #YieldChasing equities that look like bonds)
  3. And you buy more Gold


What I care most about on the GS call is the impact it had on our core 3-factor risk management model yesterday (price, volume, and volatility):


  1. PRICE – Gold held both its immediate-term TRADE line of $1301 and intermediate-term TREND line of $1271
  2. VOLUME – vs the 5-day avg, futures and options contract volume was +27.7%
  3. VOLATILITY – implied volatility didn’t move much (it’s still down -2% and -18%, respectively, on a 1 and 6 month basis)


Put another way, Goldman can still move markets, big time, from a volume perspective. But on my score card, when A) price holds my TRADE and TREND lines of support and B) implied volatility is falling, across durations… I buy more.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.49-2.58%


RUT 1145-1175

USD 79.76-80.32

Gold 1

Copper 3.20-3.30


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


My Dear Gold - Chart of the Day

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