What is Retail Sales?


It’s a trivial, but not an insignificant question.


In casual conversations with investors, particularly those who aren’t Macro centric, I’d say a majority don’t technically know what Retail Sales encompasses.   Superficially, the term “Retail Sales” kind of connotes that it’s a broad measure of the 70% of the economy that is consumer spending – and most people take it that way.  


In fact, retail sales is an estimate of spending at department stores, food service providers, auto dealers, and gas stations.  In other words, it is largely an estimate of spending on goods


In other, other words, while it’s a timely, insightful barometer of the prevailing state of domestic consumerism, it doesn’t include spending on services, which comprises the lion’s share of consumption at ~2/3 or household spending and ~45% of GDP


The numbers are also volatile on a month-to-month basis, subject to significant revision and reported on a nominal basis – making it difficult at times to distinguish whether sales trend changes are due to prices or volumes.  





Retail sales in June rose 0.3% MoM, decelerating -30bps sequentially to +4.3% YoY.  Strong reported auto sales in June again buttressed headline growth, although the miss vs expectations suggests pricing was probably weak. 


Under the headline, the Retail Sales Control Group (Retail Sales ex Food, Auto Dealers, Building Materials & Gas Stations, which feeds GDP) accelerated modestly on a MoM, 1Y, and 2Y basis after decelerating across all three measures in May. 


General Merchandise, Personal Care, and Nonstore/Electronic Sales (the E-sales proxy) led gainers while 9 of 13 categories improved MoM.


Overall, “decent” is probably an apt descriptor for the June data, particularly in the wake of negative MoM growth in Real Consumer spending in both April and May. 




VAPID ACCELERATION:  JUNE RETAIL SALES - Retail Sales control Group June





Relatedly, Consumer Credit Growth Continues To Improve….


We previously highlighted the Fed G.19 Data from April which showed US revolving consumer credit balances rose at a month-over-month annualized rate of +12.3%, the fastest rate of growth since 2001 and a positive inflection relative to the steady, ~0-1% growth reported the last few years. 


On the back of the jump in revolving credit in April, the recently released May data showed a +2.1% MoM annualized increase, the third straight month of sequential, above-trend growth.   


So, credit growth (credit cards, autos, C&I) is showing some positive mojo of late and the ever increasing reality of our modern, consumption economy remains:  credit = spending = the marginal driver of growth.


Whether the nascent credit acceleration can support and/or catalyze a breakout in domestic growth remains to be seen. 


With #InflationAccelerating, Real Wages decelerating, and the consumption data middling-to-slowing, the early read through appears to be that consumers are tapping credit to maintain consumption levels in the face of compressing household margins. 









Christian B. Drake



Staying Long of Gold

Gold tested its long-term TAIL Line of resistance at $1324/oz. at the end of last week. Spot contracts backed-off yesterday fueled by Goldman’s call for a move off the highs by the end of the year. Their prediction induced some big selling in front-month COMEX futures ahead of their earnings report today and Yellen’s testimony:


Spot Volume:

  • +28% vs. 5-Day Avg.
  • +57% vs. 1-Month Avg.

Like us, they cited growth, and consequently interest rates as a driver. We will look for some read-through on the Fed’s expectations with Yellen’s commentary today at her semi-annual testimony to the Senate Banking Committee. We continue to be of the view that she will be forced to echo a more dovish tone as we progress towards the September meeting:


Hedgeye Position:

  • #Inflation Accelerating continuing to be consumer headwind; growth miss warranting easier policy on the margin:
    • Commodities catch a bid perpetuating the consumer headwinds already manifest (long-gold, short USD bias)
    • Yield spread compression reflects forward-looking growth expectations
    • Top-line pressure on high-multiple, early cycle consumer stocks (consumer based-sectors)
    • Sector variances observed in growth-slowing sectors outperforming to the upside (Energy, Utilities, REITs, TIPS, Long-End of the Treasury curve)

Because of this bearish set-up on rates (for now), we remain long of Gold into the second half of the year (TREND Support = $1272):

  • Front-Month COMEX Futures +30 bps today off the down move
  • Yield Spread: -30 bps day-over-day 

We re-entered on the long-side in real-time alerts yesterday on the oversold signal.  


Staying Long of Gold - Levels Chart


To further clarify our bullish position, the thesis stems from our view that growth would likely turn from accelerating to decelerating moving into Q1 2014. A link to the full write-up from Darius Dale along with a summary review of his main points is included below. We will stick with the same position here with the willingness to change our view with the relevant catalyst:


From November 26th, 2013:

  1. “#GrowthSlowing: We think monetary and fiscal policy uncertainty (mostly monetary policy uncertainty) will weigh on consumer and business confidence. Furthermore, GDP comps get difficult as CPI/GDP deflator comps get easier, at the margins.
  2. #InflationAccelerating: We think domestic disinflation is now a rear-view phenomenon as easy comps and a weak dollar provide upward pressure on CPI and PPI readings.
  3. #IndefinitelyDovish Monetary Policy: We are increasingly of the view that the Fed is aware of the systemic risk present in the bond market and is potentially setting up to never commence tapering. They will likely accomplish this by setting far-too-aggressive targets for GDP growth and shifting their focus to combating a perceived risk of deflation, at the margins.

Historically, moves by the US into Quad #3 have been bullish for the price of gold, as both the US dollar and real interest rates tend to decline in this economic “state”; the opposite holds true on a move into Quad #1 (i.e. #GrowthAccelerating as #InflationAccelerates), which is where both the reported data and consensus expectations have tracked throughout much of 2013. Given where we’ve been on growth and inflation for much of the year, it would be modest to say that we are not surprised to see gold down almost -26% YTD (we’ve been the bears on gold for much of the past 12-18M).”


Gold: Is it Time To Get Back In on the Long Side?      


With the gold outperformance year-to-date, has the bull market run its course over the last six months?


We still like it on the long-side for the same reasons and will continue to buy at the low end of our immediate-term TRADE risk-range on the signal that selling has been exhausted to the downside.


Full-year growth expectations from the Fed have already been downwardly revised since we made the call moving into this year (GLD +11% YTD) and are still likely too optimistic:


Staying Long of Gold - U.S. GIP Model


Staying Long of Gold - U.S. Hedgeye vs. consensus growth estimates


The markets expectation of fed tapering leaned on an improving growth outlook moving into the year. This expectation for a steepening in the long-end of the yield curve has reversed as growth has slowed:

  • 10-year Treasury Net Futures and Options Contracts at CBOT from the CFTC:
    • December 31, 2013: -176K (Tapering expectations putting upward pressure on rates)
    • May 20, 2014: +49K (Capitulation on Q1 GDP print, #inflation accelerating)
    • July 8, 2014: -68K (rates can’t go any lower)
  • Yield Spread YTD: (10yr – 2yr): -22% YTD to +206 bps wide
  • Actual and/or rhetorical easing of policy relative to previous expectations
  • The USD is expected to weaken under the feds predictable, linear model for countering high-frequency economic data points. Below is a squeeze of real-purchasing power despite a flat dollar YTD:
    • USD Index: +23 bps
    • CRB commodity Index: +5.6%
  • Investors choose gold over a depreciating currency:

The GIP model (Growth, Inflation, Policy) which predicts forward-looking growth and inflation indicates growth expectations from both the fed and consensus macro are still too optimistic…


The policy response should our predictive model play-out is key to #Dollar Devaluation driving the upward pressure on Gold. Growth will miss relative to expectations (although the predictive gap has tightened), and, in now Pavlovian fashion, investors will move to hedge a devaluing currency (rotation into Gold Over dollars).


On the growth miss, the fed responds with more money in the system and #dollar devaluation squeezes consumer margins. Inflation expectations still set-up to miss vs. Hedgeye estimates:


Staying Long of Gold - U.S. Hedgeye vs. consensus inflation estimates


Using 2013 as a case study, the relationship between the relative convexity of growth and inflation influencing a monetary policy response with U.S. dollar implications can be observed under both upside and downside surprises.   

From the time we wrote the following positive note on the USD and consumer vs. bearish gold call on March 1st, 2013 to our bullish gold call on November 26th 2013 gold decreased -21%. We took this stance in observation of the exact same catalyst:


The growth and inflation outlook influencing the forward-looking expectation for the dollar


A few points to highlight from Christian Drake’s March 1st, 2013 note are included below along with a link the full article:

  • “Positioning: 
    • Short Basic Materials:  Materials is the worst looking sector across the S&P from a quantitative perspective and has direct negative leverage to commodity deflation
    • Long Consumption:  A Real-time tax cut via energy deflation is positive for real earnings growth and discretionary income.  We like Consumption oriented/Consumer Facing equities in the U.S.  and select Asian equity markets (China, Hong Kong)
    • Short Gold:  To the extent that U.S. dollar strength is reflective of growth and interest rate expectations (or just the expectation for a cessation in easing) we think gold holds further downside over the intermediate term.”

USD Redux: 3 Ways The Dollar Wins  

The relationship between the price of gold vs. forward growth/policy expectations and the change in the Fed balance sheet discretely illustrates the point. 


Staying Long of Gold - Fed Balance Sheet vs. Gold Price


Staying Long of Gold - USD vs. Gold and GIP


To re-iterate our position, we continue to be short of the U.S. consumer and long of defensive and late cycle sectors which outperform as growth decelerates and inflation accelerates. The divergence below appears to have more room to run in the third quarter.


2014 YTD:


  • SPX: +7.0%


Underperformers: Consumption-Driven  

  • RUSSELL 2000: 0.3%
  • Consumer Discretionary (XLY) : +1.1%



  • GLD: +8.4%
  • Treasuries (TLT): +10.8%
  • Utilities (XLU): +11.8%
  • REITs (REIT Index): +17.9%
  • Energy (XLE): +12.0%       


Ben Ryan





LEISURE LETTER (07/15/2014)



  • July 15-17: Pre-RCL earnings Hedgeye Cruise pricing survey
  • July 16:  LVS 2Q call (430pm)
  • July 23:  TRIP 2Q call (430pm)
  • July 24:  
    • WYN 2Q call (830am)
    • PNK 2Q call (9am)
    • LHO 2Q call (930am)
    • PENN 2Q call (10am)
    • HOT 2Q call (1030am)
    • AWAY 2Q call (430pm)
  • July 25:
    • PEB 2Q call (9am)


CZR (Las Vegas Review Journal) An FBI-led raid has shut down a multi-million dollar illegal sports betting operation at Caesars Palace that authorities say was run by Malaysian and Chinese nationals who were taking wagers on the World Cup soccer tournament. Caesars Palace was not a target of the Las Vegas investigation and cooperated with authorities. The Nevada Gaming Control Board and the U.S. Department of Homeland Security assisted the FBI in a raid last week at the Strip resort. It was unclear how much money the illegal bookmaking ring took in here. All eight defendants were each charged with one count of illegal transmission of wagering information and one count of operating an illegal gambling business, both felonies.

Takeaway: Another illegal World Cup gambling operation. 

AHT – signed a definitive agreement to acquire the 357-room Fremont Marriott Silicon Valley hotel.  The Fremont Marriott Silicon Valley features 357 guestrooms and approximately 15,000 square feet of meeting space.  Ashford intends to finance the property with $37.5M of non-recourse mortgage debt.

Takeaway: Interesting to us was the lack of any details regarding actual purchase price as well as trailing 12 month NOI or EBITDA.  As of March 31, 2014, AHT had more than $154 million of cash and cash equivalents on its balance sheet as well as more than $33 million of marketable securities. These amounts do not include the additional $88 million in proceeds from the early April equity offering.


NCLH – reached an agreement with Meyer Werft to build two new Breakaway-Plus class cruise ships for delivery in 2Q 2018 and 4Q 2019.  Each ship will be 164,600 gross tons and include 4,200 passenger berths.  The contract price for both ships is approximately euro 1.6 billion. The Company has export credit financing in place for each ship, arranged and underwritten by KfW IPEX-Bank GmbH of Germany.

Takeaway: The cost/berth is ~US$259k per new ship, a 15% premium over Escape/Bliss.  By historical standards, this seems like a long lead time for delivery.  Maybe they just want a taste of the public frenzy from RCL's new ships.


CCL – (Seatrade Insider) Cunard offers NA agents 5% bonus for Med bookings on Queen Victoria.  


Insider Transaction

HOT – Director Bruce W. Duncan sold 21,813 shares on Thursday, July 10th at an average price of $84.36 and now owns 37,684 shares.

Takeaway: Another Starwood insider selling shares.


Chinese Lottery Sales – According to the Chinese Ministry of Finance, Lottery sales in mainland China reached RMB178.41 billion (US$28.74 billion) in the first six months of the year, up 19.2% YoY.  The growth was partially fueled by a jump of 45.7% YoY in lottery sales during June, to MOP36.05 billion due to a 83% YoY rise in sports lottery sales to RMB19.24 billion, fuelled by the FIFA World Cup.

Takeaway: Could Chinese lottery sales benefited at the expense of June Macau GGR?


Philippines e-Gaming Parlors – Premiere Horizon Alliance Corp said its shareholders had approved Leisure & Resorts World’s offer to buy all of Premiere Horizon’s stake in Digiwave Solutions Inc. Digiwave operates Pagcor-licensed e-Games outlets in Metro Manila and nearby provinces. e-Games outlets are parlors or cafes dedicated to online casino-style games and are licensed by the Philippine Amusement and Gaming Corp (Pagcor).  

Takeaway: The build up of Leisure & Resorts World continues.


China Infrastructure Catastrophe – A portion of the (currently under construction) 710 kilometer tunnel, known locally as the Funing No 1 tunnel which will Kunming with Nanning collapsed on Monday trapping 15 workers who are trapped in the debris from the collapsed railway tunnel.

Takeaway: If the Chinese government conducts a full scale investigation and concludes safety measures were not followed, this could result in a delayed completion of the North/South high speed railway - which would be a negative for Macau mass play.


Philippines Weather – Typhoon Rammasun’s a Category 3 storm with sustained winds of 115 mph made land fall this morning in the eastern Philippines and is expected to impact Manila later today and will be over the capital by tomorrow before moving into the South China Sea through either Bataan or Zambales province in the northwest. Rammasun will be out of Philippine territory by Thursday, moving toward southern China.

Takeaway: Rammasun could cause property damage to the Manila-based casinos.



China June New Yuan Loans – CNY1.08T vs consensus CNY950B and CNY870.8B in May for loan growth +14.0% year/year vs +13.9% in May

Takeaway: The improved credit trends could be a harbinger of better VIP play in Macau in six to nine months from now. 



  • 482 new home units were sold in June, compared to 1,806 in June 2013 and 1,488 units in May 2014. Government data indicates about 4,500 units sold in the first six months of 2014. 
  • Q2 prices of private residential property dropped 1.1% YoY, following a 1.3% drop during Q1 2014. 
  • Singapore hotel RevPAR dropped 4% to SGD240.85 based on occupancy falling 2.5% to 82.5% and a 1.5% reduction in average daily rate to SGD291.79. Singapore room supply increased 2.8% year/year.

Takeaway: More macro headwinds for Singapore market


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

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 80.46%
  • SHORT SIGNALS 78.35%

We’ll Gladly Take the Other Side of Goldman Sachs on Gold $GLD

Takeaway: Buy more Gold.

Editor's note: This is an excerpt from Hedgeye morning research by CEO Keith McCullough. Click here to learn more and how to become a subscriber.


We’ll Gladly Take the Other Side of Goldman Sachs on Gold $GLD - ben gold


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


In other words, buy more.


Incidentally, if you asked the bond market about Goldman’s call on Gold, or consensus US growth acceleration hopes in Q3, it doesn’t care – the 10-year yield is right back to 2.53% this morning with immediate-term downside to 2.49% into Janet Yellen’s testimony.


We’re sticking with #GoldBond.


We’ll Gladly Take the Other Side of Goldman Sachs on Gold $GLD - Gold Bond cartoon 07.10.2014


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.


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