The Best of This Week From Hedgeye

Takeaway: Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.


Q&A: Keith Answers Questions From Subscribers

In this Q&A portion of Tuesday's Morning Macro Call, Hedgeye CEO Keith McCullough discusses the Fed's next move, the U.S. housing market, and his continued bullishness on bonds.

Two Chip Stocks Feeding on the Apple iPhone 6 Frenzy

Hedgeye semi analyst Craig Berger highlights two new chip suppliers riding the coattails of Apple’s highly anticipated iPhone 6. 


Sitting Ducks?

The Best of This Week From Hedgeye - SittingDuck


Ain't No Hawk!

The Best of This Week From Hedgeye - JacksonHole cartoon

Think the Fed's going to suddenly strike a hawkish tone? Don't hold your breath.


$SPY Up 150% Since 3/09 Lows

The Best of This Week From Hedgeye - COD 8.22.14


Buying the iPhone 6?

Shares of Apple are hitting record highs, fueled largely on investor optimism that iPhone 6 sales are going to be blockbuster. 

Cartoon of the Day: Hindenbull

Takeaway: Risk happens slowly at first...

Cartoon of the Day: Hindenbull - Hindenburg

Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS

Takeaway: SIGMA review for the 16 retailers reporting this week. TGT, DKS, URBN, FL, HIBB, TJX, HD, LOW, DLTR, SPLS, AEO, BONT, GPS, GME, SHLD, PETM



Here's a SIGMA review of every retailer that reported earnings this week. As a reminder, the analysis triangulates sales, inventories and margins. The vertical axis is the spread between sales and inventories -- the higher on the scale, the better.  The horizontal axis is the y/y change in EBIT margin. In effect, you want to be either in the upper right hand quadrant, or headed there. The opposite holds true for the lower left.


There are 16 charts in total. The group overall carried on the trends we started to see with department stores last week, where inventory positions are improving across the board.  The exception report had been made up of the winners that stood out amongst the list of dogs. But this time, we're seeing the opposite. Target, Dollar Tree ,Sears, Staples and Hibbett are leading the charge for those that are tuning the wrong way. No major surprises there.  URBN and GPS are two of the more notable positive turns to us.



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart1 tgt



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart2 DKS



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart3 URBN



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart4 FL



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart16 HIBB



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart5 TJX



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart6 HD



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart8 LOW



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart7 DLTR



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart9 PETM



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart10 SPLS



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 21 chart11 AEO



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 21 chart12 BONT



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart13 GPS



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart14 GME



Retail Callouts (8/22): 16 SIGMAs for The Week’s EPS - 8 22 chart15 SHLD





HD - The Home Depot Names Craig Menear CEO, Effective November 1, 2014



  • "The Home Depot®, the world's largest home improvement retailer, announced that Craig Menear, currently president, U.S. retail, has been named CEO and president, effective November 1, 2014, and has been elected to the company's board of directors, effectively immediately. Current chairman and CEO Frank Blake will remain chairman."



DG, FDO, DLTR - Family Dollar Board of Directors Rejects Proposal from Dollar General Based on Antitrust Issues




  • "Family Dollar Stores, Inc. announced today that its Board of Directors has unanimously rejected the non-binding proposal made by Dollar General Corporation on the basis of antitrust regulatory considerations. In addition, the Family Dollar Board unanimously reaffirmed its recommendation in support of the merger agreement with Dollar Tree, Inc."


UPS - UPS confirms malware breach at 51 stores



  • "UPS Stores, a subsidiary of United Parcel Service, said that a security breach may have led to the theft of customer credit and debit data at 51 UPS stores in the United States."
  • "In a statement, the company said that customers who had used their debit or credit cards at affected locations (which are listed on the UPS site) from Jan. 20 to Aug. 11 may have been exposed to the malware. However, the company noted, exposure began after March 26 in most cases."


LUX - Luxottica to Discuss CEO's Possible Departure at Next Board Meeting



  • "The world's largest eyewear maker, Luxottica Group SpA, said Thursday that it will discuss the possible departure of Chief Executive Andrea Guerra at its next board meeting."

BRBY - Burberry chief executive sells more than £5m of luxury brand's shares



  • "Burberry chief executive Christopher Bailey has sold £5.2m of shares in the luxury fashion company, four months after taking over from predecessor Angela Ahrendts."
  • "Bailey has offloaded 68,667 shares and nearly three quarters of two sets of performance related shares granted in 2011 and 2009 when he was the company's chief creative officer and which recently vested. It is understood that nearly half of the shares granted under the performance related schemes were sold to cover taxes. Of the remainder, half were retained and half were cashed out."


DDS - Dillard's Announces CFO Departure



  • "On August 22, 2014, Dillard’s, Inc.  announced that James I. Freeman, Senior Vice President and Chief Financial Officer of the Company and a director, informed the Board of Directors of his intent to retire as an executive officer of the Company effective February 1, 2015. Mr. Freeman will remain on the Board of Directors."

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Takeaway: Some cracks in the RCL bullish thesis while more positive pivots for CCL and NCLH on the margin

Some cracks in the RCL bullish thesis while more positive pivots for CCL and NCLH on the margin


Wall street darling RCL has seen little resistance this year. Quantum pricing looks good and up until now the RCL thesis looked bullet proof.  However, our August survey revealed some discounting in the RC Caribbean itineraries.  Stocks trade on the margin and the pivot here looks negative for RCL despite unabated strength in Europe.


On the other hand, the CCL and NCLH pivots look positive, on the margin.  The August survey indicated slightly higher pricing for the Carnival brand pricing for FQ4 2014 and FQ1 2015.  For NCLH, the Norwegian brand (through mostly Getaway) seems to be reflecting CEO Sheenan's promise of a 3% price increase.  


We've been negative on NCLH, neutral on CCL, and positive on RCL. Given the survey results versus current sentiment, we could see the relative performance of the stocks reverse somewhat over the coming weeks.


  • CCL:  Positive
  • RCL:  Negative
  • NCLH:  Positive


We track YoY and sequential pricing for 13,000 ship itineraries spanning across 8 geographic regions.  We rely on sequential pricing trends (defined as how pricing has changed relative to pricing seen at the last time the company provided guidance) for price pivot signals.



Our pricing survey for mid-August suggests the RC brand underperformed in the Caribbean and for some Asia itineraries.  Meanwhile, we saw a slight improvement for CCL and NCLH due to stronger pricing for the Carnival and Norwegian brands.  European pricing, which is Q3 heavy, remained steady. 



Caribbean pricing continues to be volatile but in mid-August, the Carnival brand showed higher pricing.  In stark contrast, the other brands in the Caribbean fared poorly, particularly Princess.



  • Carnival brand
    • Sequential pricing rose slightly for FQ4 as well as for FQ1/FQ2 2015. 
    • On a YoY basis, FQ4 pricing is trending up in the mid-teens for the Eastern Caribbean itineraries and mid-single digit growth for the Western/Southern Caribbean itineraries.
  • Princess/Holland America
    • Pricing is significantly lagging behind.  Princess, in particular, has been discounting aggressively for Caribbean and Western US itineraries for FQ4 2014 and FQ1 2015. Holland America pricing was a tad lower.


  • Costa continues to be the shining light for CCL’s European business thanks to very easy comps.  FQ4 pricing growth remains comfortably near 20%.  1H 2015 pricing comparisons will be a challenge if Costa does not raise prices.  Pricing for the other brands were either flat or slightly higher.


  • Pricing ticked up for Holland America and Princess itineraries.

South America

  • Costa pricing for FQ4 moved modestly lower while 1H 2015 pricing was a tad higher
  • Holland America/Princess pricing was unchanged for early 2015




Royal Caribbean brand pricing receded somewhat in mid-August in the Caribbean.  However, that was offset by its pricing leadership in Europe.



  • RC brand
    • A bit of a surprise as sequential pricing turned south for many of the Royal Caribbean brand itineraries for FQ3 and FQ4.  The discounting extends to Allure of the Seas and Oasis of the Seas.  
    • Excluding Quantum of the Seas, on a YoY basis, FQ3 pricing is trending down mid-single digits, while FQ4 pricing is down slightly.
    • Quantum of the Seas pricing was steady as a rock
  • Celebrity
    • FQ4/FQ1 sequential pricing was steady but due to hard comps, YoY pricing is lower by high single digits.  
  • Pullmantur
    • Pricing was steady for Q4 2014 but a challenging start to Q1 2015 due to more difficult comps


  • August sustained the pricing momentum seen earlier in 2014.  For the RC brand, FQ3 pricing is trending 20% YoY and slightly above 10% YoY for FQ4.
  • Celebrity pricing increased sequentially for 2H 2014 with YoY pricing in the low double digits.
  • After creeping higher for the previous two months, Anthem of the Seas pricing rose modestly in mid-August for May-October 2015 sailings.
  • Pullmantur pricing slightly increased sequentially


  • Pricing was generally weak for the RC brand while Celebrity is seeing pricing growth.





NCL has been slumping for much of 2014 due to Caribbean overcapacity. But do pricing signals from mid-August suggest the beginning of an inflection point or a head fake?


  • Still discounting in the Caribbean for FQ3 but the sequential cutting has tapered.
    • Breakaway cut FQ3 prices to a new low of $91 per diem 
  • FQ4 pricing showed a 3% sequential price increased led by Getaway in the Nov/Dec months
    • This is the 1st sequential price increase since we started tracking the data for FQ4
    • FQ4 ship premiums rose for Breakaway and Getaway





  • Q1 2015 pricing lower - as expected, due to difficult comps
  • Q2 2015 up slightly


  • Pricing was stable; few itineraries available


  • Continues to be a struggle for the rest of the year



CCL/NCLH outperformed while RCL was the laggard in August, at least relative to recent trends.  The Caribbean has been a roller-coaster ride for the cruisers this summer as mixed brand pricing trends are the norm and we may see more volatility ahead.  A trend or an outlier, only time will tell.  


The good news is that Europe pricing remains quite robust for the rest of 2014 despite the significant global geopolitical turmoil.  The question is whether it can be sustained into 2015.  While it is super early, we're seeing mixed pricing there as well. 


The Carnival brand is making strides in pricing thanks to ridiculously easy comps but it is not translating into higher prices for CCL's other brands. With earnings in one month, we look to September's survey for confirmation of these trends.  


Though NCLH performed better in mid-August, we wait to see if it is indeed an inflection point.  Remember, CEO Sheehan promised investors a 3% price increase across its fleet during its Q2 conference call.  Among the big 3 operators, NCLH is most sensitive to the Caribbean/Bermuda market, and faces harder pricing headwinds in 1H 2015 along with no yield boost from a new ship until FQ4 2015.

Wait & Watch

Client Talking Points


Domestic stock funds put up their 16 consecutive week of outflow and are now entering the seasonally weakest period of the year so avoid those equity managers JNS and TROW. The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds).


Indices are broadly lower in-line with recent economic data out of the region. Eurozone CPI is running at 0.4% year-over-year in July, which is the lowest since October 2009. Our quantitative lines of support have been broken across European equities for 1.5 months (the DAX, CAC, and MIB index all remain bearish TREND signals).


The U.S. dollar is up here week-over-week. If it holds above the tail line of 81.44 and continues to make a series of higher highs we may have to back away from our negative view. We will have to see what Yellen’s next move is, she speaks at Jackson Hole today at 10:00am (Mario Draghi speaks at 2:30pm).

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.


The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.


Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road


$GPS makes it clear that market share for Athleta will come from $NKE. No mention of $LULU. (not that we won't see share shift there too)



Great  moments are born from great opportunities.

-Herb Brooks


The A.L.S. Association has received $41.8 million in donations from July 29 until Aug. 21. More than 739,000 new donors have given money to the association. That’smore than double the $19.4 million in total contributions the association received during the year that ended Jan. 31, 2013, according to a filing with the Internal Revenue Service.

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