Retail Callouts (8/7): LULU, NKE, AMZN, M, AdiBok, WAG

Takeaway: Spawn of LULU’s Chip starts new apparel venture. People don’t care about AMZN same-delivery but they will. Good stats on Soccer endorsement.



LULU - Lululemon Founder's Wife, Son Launch New Clothing Line In Vancouver



  • "The son and wife of Lululemon founder Chip Wilson have launched their own clothing line of street wear they say can perform like athletic wear."
  • "JJ Wilson and his mother, Shannon Wilson, sell Kit and Ace out of a freshly opened store of the same name in Vancouver's trendy Gastown neighbourhood."
  • "The pair have created an interesting luxury fabric blend called qemir, which is made up of 81 per cent viscose, nine per cent cashmere, and 10 per cent elastane. The material is used for the company's women's line."


Retail Callouts (8/7): LULU, NKE, AMZN, M, AdiBok, WAG - chart1 8 7

Retail Callouts (8/7): LULU, NKE, AMZN, M, AdiBok, WAG - chart2 8 7 14


Takeaway: This new concept is distinctively LULU, from the layout and presentation down to the little rippable tags. Chip can't be involved owing to his non-compete, which is unfortunate because if there is one thing that this guy has proven that he can do, it's build a brand. He's in print talking about how frustrating his transition out of management has been for both him and his wife, and we think that's one of a whole host of factors that ignited his decision to hire Goldman Sachs. Bottom line - Chip wants to be in the drivers seat, whether that's at Lululemon or another entity all together. Two likely outcomes to Chip's activism 1) he sells his shares and starts a new brand, or 2) he works with a strategic buyer to sell LULU outright and reinstates himself into a leadership position within the company. Either way it's a positive event for the stock.


NKE- Nike has most Europe soccer deals, Adidas the most lucrative: study



  • "U.S. sportswear group Nike will supply shirts to more teams in the top five European soccer leagues this season than Adidas, but the German firm has cornered the most lucrative clubs, a study showed on Wednesday."
  • "Sports marketing research group Repucom said Nike had outpaced Adidas in Europe for the first time since the 2009/10 season to supply 26 of the region's top clubs, up five compared with last year. Adidas is supplying 18, down four from last year."
  • "Although it has been a serious player in soccer only since 1994, Nike is now threatening Adidas's leadership in the sport. At the World Cup in Brazil, it supplied more teams for the first time and put its boots on more than half the players."


Takeaway: Nothing groundbreaking here, but one of the better articles we've seen with facts and figures on the soccer endorsement landscape. It's worth a read.


AMZN - Amazon Same-Day Delivery Expanding - “Get It Today” Available in Six More Cities



  • "Amazon Same-Day Delivery available for customers in Baltimore, Dallas, Indianapolis, Los Angeles, New York City, Philadelphia, Phoenix, San Francisco, Seattle and Washington DC metro areas. Customers can order as late as noon, seven days a week and get things like popular movies, video games, last-minute travel needs, back-to-school supplies and family necessities delivered to their home the same day. Prime members pay $5.99 for all the same-day delivery items they can order."


Takeaway: Not sure how important it is for the average consumer to get DVDs, Video Games, and 3-ring Binders on same-day delivery terms. But the need certainly increases when it comes to household items -- especially consumables. AMZN is still in the infant stages of building out this infrastructure. But regardless, the value proposition at $5.99 is pretty tough to beat. That's about how much people would otherwise spend on gas to hit all the different stores to get the items -- not to mention the implied cost of consumers' time.  This is a bit of a sleeper strategy for AMZN, in that nobody really cares about it now, but they'll be forced to in a few years' time as AMZN builds up density.




AMZN - Amazon Picks Favorites With Brands in ‘Pay to Play’ Move



  • " Inc. is giving special privileges to companies that sell their wares directly through its online store, according to a new study."
  • "Companies such as Burberry Group Plc and Levi Strauss & Co. that partner with Amazon have scored unusual deals that let them control how their merchandise is sold through the world’s largest online retailer, according to a study by market researcher L2 to be released this week. The companies have been able to limit the sale of goods from third-party resellers, a practice Chief Executive Officer Jeff Bezos has traditionally let run unimpeded over objections from some brands."


AdiBok - Adidas Launches New Selena Gomez Collection



  • "Selena Gomez introduced her new collection to her 12 million Instagram followers last night."
  • "Pictured wearing silver high-tops with black pants, a printed sweater, denim jacket and a beanie, the 22-year-old actress spread the word about her latest collaboration with Adidas Neo faster than any marketing campaign."


M - Macy’s launches omnichannel wedding promotion



  • "Macy’s is launching an online wedding promotion in partnership with TV host and fashion consultant Clinton Kelly. Known as 'Weddings with Clinton Kelly,' the promotion will include an online wedding hub with a collection of articles and videos to help build the perfect registry, as well as advice from Kelly."


ELY - Callaway Golf Company Declares Dividend And Announces New $50 Million Stock Repurchase Program



  • "Callaway Golf Company announced today that the Board of Directors has authorized the Company to repurchase up to $50 million of the Company's common stock in open market or in private transactions.  The Company will assess market conditions, buying opportunities and other factors from time to time and will make strategic repurchases as appropriate.  The repurchases will be made consistent with the terms of the Company's credit facility which defines the amount of stock that can be repurchased."

Getting Out Of The Way

This note was originally published at 8am on July 24, 2014 for Hedgeye subscribers.

“Why would we ever predict when we can know?”

-Dan Heath


Great question. I guess that’s why some people like to trade on inside information.


In Global Macro Risk Management, there is no inside information. Or at least not the hard core stuff like Galleon used to get. Maybe there was back in the day when someone could literally call their boy at the Bank of England and just get the next rate move prior to it being announced. But even the biggest bureaucrat on the planet is scared of orange-jump-suit-risk #accelerating at this stage of the game.


As the game changes, our #process does. We believe that the best prediction of the future is based on what we already know. I’ve spent a lot of time talking to investors about how our models work. Sometimes at least 2/3 of our forecast is based on what we already know. In other words, we use real-time data and measure its rate of change vs. historical data in order to gauge a forward looking probability.


Getting Out Of The Way - wallstreet 120370032


Back to the Global Macro Grind


Thinking in rate of change (slope) and probability terms works a heck of a lot better than the ‘I’m smart and it feels like’ this is going to happen approach. Most of that spew anchors on what already happened – not on the measurable factors underneath the hood that could cause whatever happened to undergo a phase transition.


There are those two thermodynamic risk management words again – phase transitions. To put that in the most simpleton speak I can, there are two types of phase transitions I really care about:


  1. Bearish to bullish TREND reversals
  2. Bullish to bearish TREND reversals


While always considering our intermediate-term TREND duration within the context of our other durations (TRADE and TAIL) is critical, when something undergoes a phase transition on our TREND duration, that something often ends up becoming the best calls we make.


Don’t forget that if you go both ways like I do (don’t think dirty – think hockey: back-check, fore-check, paycheck), sometimes the most important call to make is to get out of the way.


How do you do that?


  1. If you’re short and something is going from bearish to bullish = COVER
  2. If you’re long and something is going from bullish to bearish = SELL


If you’re a longer-term investor, just cover or sell some. Only average players take coaching personally.


If you analyze your P&L across your entire career, what you’ll realize is that your performance distribution has big tails (i.e. your biggest losers kill you). Since risk management Rule #1 is don’t lose $$, that makes getting out of stuff really important.


Who gets you out?


We know who gets you in. Every bank, broker, and buds out there is trying to get you into what they get paid on next. This is Wall Street don’t forget. But getting you out of your “best idea” (might be your marriage too!) before it’s about to go really bad, #priceless.


I didn’t know what I was going to write about this morning (I usually don’t – I have 45 minutes to write something before it gets edited), so I certainly hope you can poke holes at this. I can.


I can poke holes at every single idea we have; especially if my intermediate-term TREND signal is reversing versus the desired direction of the position. Maybe that’s why a lot of PM’s ask me to scrub their portfolios (we call it a Ticker Scrub). It’s so easy a Mucker can do it.


What looks greasy dirty out there right now? (i.e. what is signaling a bearish to bullish TREND reversal):


  1. Chinese Stocks (Shanghai Comp) which closed up another +1.3% last night after China’s best PMI in 18 months
  2. Copper prices are up another +1.2% this morning to $3.24/lb after breaking out above @Hedgeye TREND
  3. US Equity Volatility (VIX) as the front month makes a series of higher-all-time-lows


Greasy? Yeah, you know – like when I score a goal in men’s league hockey off my elbow. I’m getting older and slower, so I love those. And I really love seeing something breakout for fundamental reasons that neither I nor my analysts can see. Those are beauties.


Is there anything better in this business than that? When all of the super smart people in this world are all wrong, at the same time, for the wrong reasons? Most of the time no super duper slide deck can arrest gravity.


Embrace the uncertainty out there. I can guarantee you’ll be really wrong less times. And you’ll smile more often too. After all, playing this game is a lot more fun when you can know how to be right by not being really wrong. You just have to know when to get out of the way.


Our immediate-term Global Macro Risk Ranges are now as follows:


UST 10yr Yield 2.45-2.51%

SPX 1964-1992

RUT 1134-1164

Shanghai Comp 2051-2099

VIX 10.32-12.51  

WTI Oil 101.75-104.15

Gold 1286-1324

Copper 3.17-3.28


Best of luck out there today,




Keith R. McCullough
Chief Executive Officer


Getting Out Of The Way - Chart of the Day


Client Talking Points


Vladimir Putin trying to steal Mario Draghi’s thunder this morning by banning U.S. and EU (even Canadian!) food imports. The Russian stock market doesn’t like it, down another -1% to -17.3% year-to-date #TrainWreck.


Either European stocks know Mario Draghi isn’t going to deliver more cowbell, or everyone will be surprised when he does. The EUR/USD hasn’t budged and Portugal is down another -1%. The DAX has no bid (yet) either.


Oil continues to break down (both Brent and WTIC) as the #InflationAccelerating consumption tax of 1H 2014 loses some of its momentum – doesn’t mean U.S. CPI is going to collapse; just goes up at a slower rate as U.S. GDP #Q3Slowing continues.

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


While Mass deceleration has been our theme for the Macau stocks since 6/13/14 we were definitely surprised it happened so drastically



I am not a product of my circumstances. I am a product of my decisions.

-Stephen Covey


The secular decline in Casual Dining continues July same-store sales -1.1% (2YR down 90 bps to -2.5%) July Traffic -3.2% (2YR dwn 110 bps to -4.2%).

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Chance of a Crash?

“We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost.”

-Raghuram Rajan


Crash? Yep. My man Dr. Raj doesn’t consider it improbable. Do you? The aforementioned quote comes from an interview the former Chief Economist of the IMF (2003-2006) and now Governor of the Reserve Bank of India just gave to the Central Banking Journal.


“Investors are counting on easy money – they put the trades on even though they know what will happen as everyone attempts to exit positions at the same time… there will be major market volatility if that occurs.”


I can assure you that “everyone” has not attempted to get out of the US stock market, yet. Just think, all we needed was a 2% down day (and a -3.5% correction from the all-time bubble highs), and volatility (VIX) ripped +65%! That’s called some wicked asymmetry.


Chance of a Crash? - EL chart 2


Back to the Global Macro Grind


I have no love lost for those who think that they can centrally plan things like gravity, economic cycles, etc. But if I had to pick one modern central planner to help me run money, it would be Dr. Raj. When it comes to real-time interconnected market risk, sorry Janet, but you wouldn’t make it past the first interview at a performance based fund.


Not only did Rajan tell linear-economist Larry Summers to go flower himself circa 2006 (Summers called Rajan’s views of market risks “misguided”), but he’s taken India on a path that American, European, and Japanese bureaucrats seemingly do not have the spine to traverse – that of raising interest rates in order to tone down the real cost of living (inflation).


India’s stock market (one of our favorite long ideas in 2014 – the Wisdom Tree India Earnings Fund (EPI) in Real-Time Alerts) not only took the rate hikes and inflation fighting policy from Dr. Raj in stride, they celebrated them. India’s BSE Sensex is up another +0.4% this morning to +23.2% for the YTD as these wacky things called investment and capex cycle expectations in India take hold.


Raising rates?


Sadly, if we’re right on both US Housing and GDP continuing to slow here in Q3, there isn’t a chance on this side of central planning hell that Janet Yellen is going to raise interest rates in the 1st half of 2015.


Being the bear on both US growth and rates this year, I get a lot of questions on Fed timing. I spent all of yesterday seeing Institutional Investors in NYC (8 meetings) and by the end of the day I came to the realization that the biggest risks to our current views are:


  1. We aren’t bearish enough on US growth
  2. We aren’t bullish enough on long-term Treasuries


Sounds a little crashy, but just fyi, markets do crash after making all-time bubble highs on no-volume.


Again, what I just wrote is that the risk to our current view is that we’re not bearish enough on the US stock market. Since we don’t do the “year-end bonus-target” thing for stock and bond market levels, here’s that current view:


  1. US Treasury 10yr Yield tests 2.21-2.41%
  2. SP500 corrects towards 1829


Yeah, on that 2.41% level for the 10yr, I know. What a leap that forecast is with the 10yr at 2.45% this morning! As my friends from Thunder Bay would say though, “the thing of it is” we’ve been looking for 2.41% since the 10yr was at 3%.


On the SP500 though, my current views are finally shifting to the bear side.


As most of you who have been following my team and my levels know, I have been more focused on having you sell the Russell 2000 than the SP500 YTD, primarily because the SP500 has many more slow-growth #YieldChasing components that I like(d).


Provided that the SP500 remains bearish on my intermediate-term TREND signal (1930 resistance), I see my long-term TAIL risk line of 1829 support as probable. What does probable mean in risk management speak? Well, it doesn’t mean improbable.


Other than a certified train wreck for whoever bought SPX 1987, what would 1829 look like?


  1. A -4.7% correction from yesterday’s closing price of 1920
  2. A -8% correction from the all-time high (1987) – the Russell 2000 has corrected -7% since July 7th


Oh, and about 1987… if you want to go all crashy in your investment meeting today, how ominous of a date/level is that?


If I am right in that I am not bearish enough on the SP500 (yet), and my long-term TAIL risk line of 1829 snaps. Oh snap, they will. That’s the point about my definition of TAIL risk – once it’s on, the only support strategy (level) I’ll be recommending is prayer.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.43-2.53%


RUT 1107-1131

India’s BSE Sensex 251

VIX 14.92-18.59

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Chance of a Crash? - Chart of the Day

August 7, 2014

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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 80.52%
  • SHORT SIGNALS 78.67%