Bear Truce?

“Reconciliation, n. A suspension of hostilities. An armed truce for the purpose of digging up the dead.”

-Ambrose Bierce


In what will undoubtedly be my worst two macro market days to start a month since the first week of July, I am the man in the arena this morning whose face is marred with blood and mud.


Bear Truce? - g5


Back to the Global Macro Grind


I can’t for the life of me find the sell-side note that explained 6-9 months ago that the bull case for both European and US growth equities was that Draghi was going to save Europe from slowing and that Putin was going to declare a truce. #ThesisDrift


But macro markets drift, and whether you like its message or not, the score is the score – and I’ll be held accountable to it. Responsibility in recommendation starts with answering questions in the moment. What do we do next?


I’ll summarize the questions I’ve been getting from Institutional Investors and give you where I stand this morning:


Q: Do you think the UST 10yr Yield has bottomed?


A: No. While yesterday’s ISM print was impressive, it’s not the consumption economy – I think it partly reflects the late-cycle pricing and hope you’ll see at the end of most economic expansions. Risk to Q3 GDP consensus estimates remains to the downside. 10yr yield has immediate-term downside to 2.33% and this makes Friday’s jobs report all the more important now.


Q: Do you cover the Russell 2000 short?


A: No. Much like when bond yields had a head fake (to the upside) in early July and the Russell rallied, IWM has been doing the same for the last few weeks on even less volume. To put yesterday’s move to 1179 in context, Total US Equity Market Volume was -32% vs. its YTD avg, and the Russell would still need to rally +3% (from here) to get back to the July 7th breakeven.


Q: Doesn’t the price of Oil falling get you more bullish on the US Consumer?


A: No. I never was bullish on the median consumer or US housing to begin with! If Brent breaks $95, it might get me less bearish, but not flat out bullish. While the rate of change always matters (WTI crude was -3.2% yesterday as Putin leaked the truce to his boys), the overall consumption tax on US consumers is broad based (Rents at all-time highs, Food prices +16% YTD, Real Wages flat to negative, etc.).


Q: Don’t you think the US stock market looks good on up days?


A: Kidding. No one actually asked it that way. But if you are me and see the reams of questions I get in the heat of the moment (how “bearish” the market looked at the early AUG lows when the Russell 2000 was at 1114 and SPX = 1925), and how this market looks like its “gonna rip”, “never really go down”, etc. after 5 straight up weeks… you’d at least chuckle.


Q: Doesn’t Draghi have credibility with markets?


A: Yes. We don’t doubt this guy means what he says and we don’t disrespect his impact on the currency market either (that’s why I covered the US Dollar short idea on the only pullback we’ve had since he decided to devalue again at Jackson Hole). But don’t confuse market credibility with economic stability. QE is simply a centrally planned policy to inflate asset prices.


Q: Do you buy European Equities on the Draghi put?


A: Not sure. I still need to see how markets respond to what he has to say on Thursday (ECB meeting). Buying European Equities today is a very different thesis than our bullish on European #GrowthAccelerating call was from 2013 until Q2 of 2014. Effectively, you’d be buying into a slowing economy with a broken idea that a renewed Policy To Inflate will “stimulate” real economic growth.


Q: Do you stay with long China and India?


A: Yes. Both the absolute and relative returns of these two stock markets (China +11.5% and India +30.1% YTD) are pulverizing something like the Russell 2000. More importantly, we think that’s happening for the right rate-of-change economic reasoning. In stark contrast to US and European GDP growth (which is slowing both sequentially and y/y), India is flat out accelerating, and China is finally stabilizing.


Q: What’s your sense on sentiment?


A: In the US stock market, I can assure you that many funds have been forced to chase this 4-5 week move off the August lows. In the US bond market, people are still fighting the down rates move too. Looking at the II Bull/Bear US Equity Sentiment Survey this morning, Bears have been blasted to fresh YTD lows of 13.3%, and the Bullish Spread is testing its early July highs of +4,280 (basis pts) wide to the bullish camp.


In other words, there will be no bear truce issued from Stamford, CT today. If you’d like to answer all of these questions differently, I’d be happy to post them to our entire subscriber base. It’s what makes a market.


When my face is bloodied, I love to get right back up, take a stance, and fight.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.33-2.46%


RUT 1151-1184

EUR/USD 1.31-1.33

Brent Oil 100.74-103.71

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bear Truce? - Chart of the Day

Retail Callouts (9/3) – UA, NKE, HD, TGT, Payless, Endorsements

Takeaway: Gisele’s the new KD = $570m for UA. Consumer response to HD breach could be good for retail. Brand diversity at Open. Payless wants LBJ?



Wenesday (9/3)

GIII - Earnings Call: 8:30am

VNCE - Earnings Call: 9:00am


Thursday (9/4)

PVH - Earnings Call: 9:00am

BEBE - Earnings Call: 4:30pm

ZQK - Earnings Call: 4:30pm

ZUMZ - Earnings Call: 5:00pm





UA, NKE, Adi - Under Armour inks Gisele Bundchen



  • "Under Armour has signed [Gisele Bundchen] to be part of its new women's campaign...Sources tell that it's a multiyear deal. Financial terms were not disclosed."
  • "Bundchen will be part of Under Armour's women's campaign, which kicked off last month with the signing of ballerina Misty Copeland, another nontraditional endorsement deal for the brand. The Copeland spot, featuring her against-all-odds story, has garnered more than 5.8 million views on YouTube."
  • "The campaign, with its I Will What I Want slogan, also includes skier Lindsey Vonn, soccer player Kelley O'Hara and tennis player Sloane Stephens."


Takeaway: Tough timing on this one from our perspective. The day UA loses its bid for Kevin Durant, it announces the Gisele deal. The equity market liked the trade-off, though. It was good for $570mm in added market cap. Nonetheless, we think that the Gisele deal is a head-scratcher. It's convenient that she's married to UA's highest-paid endorsee, Tom Brady. But when we think about what type of person will drive the women's business, we think of Misty Copeland, who has an inspiring story of success in a career (ballet) that the average woman can associate with. This was and is a slam dunk for UA.  But does the average woman really associate with a supermodel like Gisele who made $47mm last year ($16mm more than her husband, and $39mm more than Adriana Lima?) and has the kind of body that could make a Hefty Bag look good? Our sense is that the answer is No.  Also, consider that Gisele is a 'serial endorser'. That's not a bad thing, as she is getting the most out of her brand. But in addition to UA, she has contracts with H&M, Chanel, Carolina Herrera, gets a cut from sandals that she designs for Grendene, and has her own line of Hope lingerie 'Gisele Bundchen Intimates'. She is also the face of Pantene and Oral-B in Brazil. But the truth is that we don't know the economics here. If it's only a million bucks, then it's probably worth it. But if UA is paying up for Gisele, we'll view this as a really questionable deal.


UA video link: Click Here


HD - Home Depot Shares Drop After Chain Investigates Data Breach



  • “'We’re looking into some unusual activity,' Paula Drake, a spokeswoman for the Atlanta-based company, said in an e-mailed statement. 'We are aggressively gathering facts at this point while working to protect customers. If we confirm that a breach has occurred, we will make sure customers are notified immediately.'”
  • "Brian Krebs, the independent journalist who uncovered a hacker attack at Target Corp. last year, reported that a 'massive' batch of stolen credit- and debit-card information went on sale this morning. There’s evidence that the cards are linked to Home Depot stores, Krebs said on his website, KrebsOnSecurity."


Takeaway: Ok...this is purely our opinion, but the first thing we thought when we saw the HD breach was "will the consumer really give two hoots about this?". Clearly, people that are directly impacted will be gun shy next time around. But we've got to think that this mindset, if true, will also positively impact the recovery time for people impacted by past data breaches. That probably includes Target. There are two events that we think could really rattle consumers from here, either a) a material breach at WMT, or b) Amazon. Both would be significant enough to move the needle in consumers shopping on-line vs in-store.


NKE - Payless to Revive Pro Wings, Offer LeBron James $500 Million Contract



  • "Following Kevin Durant’s monstrous deal with Under Armour, Payless ShoeSource has offered LeBron James an unprecedented contract which would pay him $50 million per year for 10 years.
  • Payless spokesperson James Weilen admitted the company drew inspiration from Under Armour, who recently offered Kevin Durant a 10 year contract worth $285 million. 'The deal with Durant proved stars will sign with smaller companies if the situation is right,' Weilen stated. 'The prices of shoes have climbed to astronomical heights, and many of today’s stars have realized the need to offer affordable, quality shoes to their supporters and fans. We believe LeBron will make the correct decision for both himself, his fans, and his family.'”
  • "In addition to the large sum of money, the company has offered the Cleveland Cavaliers superstar a large portion of stock in the company. Payless, which has existed since 1956, brings in over $3 billion in sales annually."
  • "The company wants LeBron to revive their sports line Pro Wings, which reached its height in the early 90′s. Pro Wings were often styled similarly to expensive alternatives created by ReeBok and Nike."



Retail Callouts (9/3) – UA, NKE, HD, TGT, Payless, Endorsements - chart1 9 3


Takeaway:  Uhhh...for real Payless? 1) You're not making money. 2) LeBron couldn't care less about lowering the price of his shoes. Nike has sold LBJ footwear for over $300 and he laughed all the way to the bank. 3) LBJ is not gonna wear Red Wings. 4) Do you really think he can be incentivized by stock in Payless? 5) Last we checked, he's in bed with a company called Nike that won't let him go.


Nice try though.




It's usually the Nike and Adidas show at the tennis majors -- and for the most part, it still is (especially with Women). But we can't help but notice how other -- traditionally non-athletic -- brands are sneaking into the big televised Men's matches.  1) Novak Djokovic was one of the early defectors from the big brands by going with Uniqlo, subsidiary of Japan's Fast Retailing. He wears Adidas sneakers when he plays, but it's the distinctive Uniqlo logo that people see the most. 2) Bautista Agut, who lost to a near unstoppable Roger Federer (Nike) last night, wears Lacoste on the court alongside Asics kicks -- an unusual combination. But one that caught our attention nonetheless. 3) Tomas Berdych, who used to be a Nike endorsee, now wears H&M apparel while playing competitively, which is the first time we've seen H&M have such a prominent showing in any sporting event. We don't think this is alarming for the incumbent brands -- but it definitely shows how some non-traditional brands are getting into the endorsement game. If this hurts any of the athletic brands on the margin, it's probably UnderArmour.


Retail Callouts (9/3) – UA, NKE, HD, TGT, Payless, Endorsements - 9 3 chart2


Retail Callouts (9/3) – UA, NKE, HD, TGT, Payless, Endorsements - 9 3 chart3


Retail Callouts (9/3) – UA, NKE, HD, TGT, Payless, Endorsements - 9 3 chart4






FL - MARKET REPORT: Foot Locker puts boot into Ashley as it raises threat to Sports Direct on rumours of private equity plan



  • "Mike Ashley’s Sports Direct International’s comfy position as king of the multi-branded, mass sports retailing market in the UK could soon come under threat."
  • "As shares of New York-based Foot Locker rose a further 1.5 per cent to a 52-week high of $56.97, rumours were rife that a consortium of private equity players were lining up a cash offer in the region of $70 a share."
  • "If successful, new management would then apparently put in motion extensive expansion plans to increase Foot Locker’s presence in Europe, particularly in the UK, with plans to double the number of its sites from the current 23. A move that would certainly query Ashley’s pitch."


CVS - CVS Caremark Announces Corporate Name Change to CVS Health to Reflect Broader Health Care Commitment



  • "CVS Caremark Corporation announced today that it is changing its corporate name to CVS Health to reflect its broader health care commitment and its expertise in driving the innovations needed to shape the future of health. "
  • "'For our patients and customers, health is everything and CVS Health is changing the way health care is delivered to increase access, lower costs and improve quality,' announced Larry J. Merlo, President and CEO, CVS Health.  'As a pharmacy innovation company at the forefront of a changing health care landscape, we are delivering breakthrough products and services, from advising on prescriptions to helping manage chronic and specialty conditions.'"


KER - Kering to Assume Control of Eyewear Business



  • "Spying 'significant' growth potential for frames and sunglasses in the luxury and sport segments, Kering plans to take back control of its eyewear business, allowing it to squeeze extra margin in a promising product universe."
  • "The French group said Tuesday it would “evolve” its 20-year partnership with Italian manufacturer Safilo Group SpA, terminating the current license for the cash-cow Gucci brand at the end of 2016, two years earlier than planned, in exchange for compensation of 90 million euros, or $118.2 million at current exchange, to be paid in three installments."


JCP - J.C. Penney partners with Fanatics for online sports store



  • "J.C. Penney Company is launching a new online sports store on its e-commerce site that will be powered by Fanatics, an online retailer of officially licensed sports merchandise. Fanatics, which operates the e-commerce platform for hundreds of collegiate and professional sports teams, leagues and media sites, will provide fans with a selection of team sports apparel and merchandise at, offering more than 300,000 licensed products spanning all the major sports leagues."
  • "'Our partnership with Fanatics enables us to deliver even more quality team merchandise that our customers want during their favorite sports season,' said John Tighe, senior VP of men's apparel for J.C. Penney. 'Whether it's football in the fall or March Madness in the spring, J.C. Penney has the caps, shirts and collectible gear to make any sports enthusiast a true fanatic.'"


Tom Brady and his dad team up in UGG ad



  • "The Pats poster boy is featured in a new ad campaign for UGG, the fancy footwear Brady’s been endorsing for a few years. The schmaltzy black-and-white spot, shot at Brae Burn Country Club in West Newton, shows Brady and his father, Tom Brady Sr., enjoying some time together."


WTSL - WetSeal CEO Resigns


  • "Pursuant to such agreement, Mr. Goodman’s employment with the Company ended on August 26, 2014, at which time he resigned as the Company’s Chief Executive Officer (and principal executive officer) and from all other positions with the Company, including his position as a director on the Board of Directors."

September 3, 2014

September 3, 2014 - 1



September 3, 2014 - Slide2

September 3, 2014 - Slide3

September 3, 2014 - Slide4

September 3, 2014 - Slide5



September 3, 2014 - Slide6

September 3, 2014 - Slide7

September 3, 2014 - Slide8

September 3, 2014 - Slide9

September 3, 2014 - Slide10

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.


TODAY’S S&P 500 SET-UP – September 3, 2014

As we look at today's setup for the S&P 500, the range is 24 points or 0.86% downside to 1985 and 0.34% upside to 2009.                                                            













  • YIELD CURVE: 1.92 from 1.90
  • VIX closed at 12.25 1 day percent change of 2.25%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Aug. 29 (prior 2.8%)
  • 7:45am: ICSC weekly sales
  • 8:55am: Johnson/Redbook weekly sales
  • 9:45am: ISM New York, Aug. (prior 68.1)
  • 10am: Factory Orders, July, est. 11% (prior 1.1%)
  • 11:30am: U.S. to sell $40b 4W bills, $15b 11-day bills
  • 2pm: Federal Reserve Beige Book
  • 6:15pm: Money Marketeers of New York University dinner featuring Fed’s Powell as speaker



    • Senate, House out on final week of summer recess
    • Obama in Talinn, Estonia, to meet with Baltic state leaders
    • 8:10am: Defense Undersecretary  Kendall delivers remarks on procurement ahead of ComDef 2014 conference
    • 10:30am: Fed to meet on liquidity rule, swaps margins
    • 12pm: WellPoint CEO Swedish among those at Natl Inst. for Health Care Management holds policy forum on Obamacare
    • 2pm: FDIC board vote on margin/capital rules for covered swap entities
    • U.S. ELECTION WRAP: Return of Corporate Raider; Usher for Nunn



  • Putin, Poroshenko largely agree on Ukraine cease-fire steps
  • Concur said to explore sale to software makers including SAP
  • GM, Ford, Chrysler give Aug. auto sales: SAAR Est. 16.6m
  • FDIC board votes on margin/capital rules for covered swaps
  • Warner Bros. studio said planning worker buyouts
  • Veritas Capital agrees to acquire BeyondTrust for $310m
  • U.K. services growth surges in sign of unbalanced recovery
  • Eurozone Aug. composite PMI 52.5 vs flash reading 52.8
  • Eurozone July retail sales down 0.4% m/m; est. down 0.3% m/m
  • Home Depot’s suspected breach adds pressure to bolster security
  • McDonald’s ramps up food safety checks to lure back China diners
  • Google unveils Quantum-computing initiative to speed up hardware
  • Google executive for satellite Internet access leaves: WSJ *Burger King claim that move won’t save taxes draws skepticism * Warburg Pincus said to invest almost $700m in Huarong
  • Steve Wynn joins Bain Capital funding stock-trading venue IEX
  • CVS to rename as CVS Health, halt tobacco sales: WSJ
  • Magellan sells 90% of BridgeTex oil pipeline capacity: Reuters



    • Alimentation Couche-Tard (ATD/B CN) 8:40am, $0.44
    • G-III Apparel Group (GIII) 7am, $0.16
    • Navistar International (NAV) 7:02am, $(0.71) - Preview
    • Vince Holding (VNCE) 6am, $0.24



    • ABM Industries (ABM) 5pm, $0.46
    • Bazaarvoice (BV) 4:05pm, $(0.12)
    • Dominion Diamond (DDC CN) 5:30pm, $0.19
    • H&R Block (HRB) 4:03pm, $(0.39)
    • PVH (PVH) 4:02pm, $1.43



  • Crude Rises as Russia-Ukraine Cease-fire Seen Boosting Demand
  • Palladium Falls to Two-Week Low on Russia-Ukraine Peace Talks
  • Copper Falls as China’s Power Grid Investigation Holds Up Demand
  • Grains Drop as Export Prospects Improve as Ukraine Tensions Ease
  • Arabica Coffee Declines After Rally as Cocoa Rebounds in London
  • Carbon Credits Give $664 Benefits Per Ton, Imperial Says
  • Richard’s Bay Coal Prices Fall Close to Lowest Since 2009
  • Rebar, Iron Ore Drop to Record Lows on Supply, China Demand
  • Trader Who Scored $100 Million Payday Bets Shale Is Dud: Energy
  • China Steel Industry Confronts Grim ’New Reality’: Adam Minter
  • Glencore May Bid for Anglo American in 2015, Jefferies Says
  • Palm Oil Climbs for Second Day as Weaker Ringgit Boosts Demand
  • Indonesian Coal Sellers Delay Offers Following New Permit Rules


























The Hedgeye Macro Team

















Takeaway: Corelogic data shows 1-month of stabilization amid what has been a steadily decelerating trend.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 




Today's Focus: July/August CoreLogic Home Price Report

CoreLogic released its monthly home price report for July/August earlier this morning. Unlike S&P/Case-Shiller, which is a rolling 3-month average repeat sales index,CoreLogic is a single month index released on almost no lag. Essentially, it gives you information three months more current than what you get from Case-Shiller. 


The Data:  Home price growth accelerated +10bps to 7.4% in July vs downwardly revised June figures (June revised from +7.5% to +7.3%).  The forward looking projection for August estimates a MoM increase of +0.6%, which equates to flat sequential year-over-year growth of +7.3%. 


The Dilemma(s): 

  • Revision to HPI estimate methodology:  Back in February, CoreLogic revised the methodology underpinning its month ahead HPI estimate from one based on hard, MLS price data to an econometric model consistent with its intermediate and long-term HPI projections.  Subsequent to the February methodology change, the volatility and magnitude of revisions seems to have increased significantly.  In short, the forward 1-month estimate has become a less reliable indicator of real-time HPI trends
  • June/July – A Tale of Shifting Slope:  Last months (June) release was consistent with the post-February HPI deceleration trend with home price growth slowing from 8.3% in May to 7.5% in June to +7.0% in July.  However, the estimate revisions in the July release completely shifted the slope in HPI – instead of consistent, ongoing 50-80bps deceleration in the rate of HPI change, the latest release shows a positive inflection in July and the expectation for 3-months of stable growth through August.   


The Decision:   Its worth re-highlighting our base conceptual framework for housing as its been effective across cycles:


(1) Demand leads HPI (& we know housing demand trends in real-time) ... (2) Home price growth follows the slope of demand on an 12-18mo lag ... (3) housing related equities follow the slope of home price growth


We have anchored on the 2nd derivative move in HPI trends as a key signal because, historically, equity prices across the housing complex have followed the slope in home price growth. 


This same dynamic has played out again in 2014 with housing related equities posting negative returns and significantly underperforming alongside the 4 months of discrete deceleration since home price growth peaked in February.   


Headfake or Inflection:  So, what do we do with a fledgling inflection in home price growth?  


Tactically, to the extent the market is discounting zero or low-single digit price growth into 1Q15, a flattening or slowdown in the rate of home price deceleration would be a positive catalyst for housing equities. 


The July HPI data is certainly a notable counter-trend shift but with just a single month of data, steepening comps in the back half of the year, and our demand model signaling an imminent peak in HPI, we’re hesitant to pivot on our bearish intermediate term outlook on housing.  Bottoms (& tops) are processes, not points, and, at present, we’re content to await confirmatory data.


It's worth noting that while sales comps ease through 2H14, price comps don’t begin to ease until Feb 2015 (hardest near-term comp is Oct which was +11.9% YoY). As such, we think the next 6 months of pricing data will continue weigh on the housing complex.





CORELOGIC HPI DATA - THE DILEMMA - Corelogic Ex Distressed Aug YoY TTM


CORELOGIC HPI DATA - THE DILEMMA - Pending vs Corelogic 15Mo lag



About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."


Joshua Steiner, CFA


Christian B. Drake

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.