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Takeaway: We’re Adding KSS to our Best Ideas list as a short. We’ll be hosting a call Wed. 9/24 at 11am ET to review our thesis. Call details below.

We’re adding Kohl's Corp. (KSS) to our Best Idea list as a short. We'll be hosting a call on Wednesday, September 24th at 11:00am EDT to review our thesis in depth (including some preliminary results of the department store consumer survey that we just completed).   


We have not liked this name for a while, but we're adding to our Best idea list because we think the recent 180 degree turn in sentiment and subsequent strength in the stock is simply unwarranted. Are estimates in check for the next two quarters? Probably. But the big issues are a) substantial risk to the model in 2015, and b) the duration of a 'new normal' for KSS at a lower EPS level.


Specifically, while the Street is looking for 10% earnings growth next year, we're modeling a -10% decline in earnings for the year. We think that 2014 will mark the last time for at least 4-5 years  -- barring a parabolic acceleration in the U.S. economy -- that KSS will earn anything starting with a $4. That's not good when the Street is over $5 two years out. Its operational misses should crimp its ability to buy back stock and financially engineer the P&L.


We'll have a very detailed slide deck analyzing key levers of the P&L and balance sheet, and will also delve into key e-commerce and real estate considerations.


Call Details

Toll Free Number:

Direct Dial Number:

Conference Code: 765136#

Materials: CLICK HERE

Crossing The Bubble

This note was originally published at 8am on September 09, 2014 for Hedgeye subscribers.

“First there is a mountain – then there is no mountain. Then there is.”

-Zen Proverb


Replace the word #bubble for mountain and you’ll be right where I think the US stock market is right about now. While April-May of 2014 (when social-cloud-bubble stocks were imploding) may seem so 4-5 months ago, if you want to review the risks, there they were.


The aforementioned quote comes from the beginning of chapter 2 in a Tech #bubble book I’ve been re-reading for the last week, Crossing The Chasm, by Geoffrey Moore. The chapter is called High Tech Marketing Enlightenment.


Originally written in 1991 and re-published in 1999, it was one of the first books that the Quatrone boys in the bubble department at CS First Boston told me that I had to read. So I did. And within 6 months, the entire thing went poof…

Crossing The Bubble - Hindenburg


Back to the Global Macro Grind


What we called the internet back then is now called the “cloud.” And my former employer (CS First Boston) is now called Credit Suisse. Their new head of investment banking ran the Alibaba #bubble road-show at the Waldorf yesterday. If you were there, congratulations – you were crossing the 3rd US stock market bubble I have seen in my career.




On our research desk yesterday I was using the term freely. Not having any conflicts of interest (banking, brokerage, advertising, etc. fees), it was kind of fun – you know, being honest and stuff…


“But Keith, Alibaba is a big company that makes money.”


At 27-30x revenues, imagine they didn’t? (Amazon came public at 10x revs in 1997)


BREAKING: Facebook’s Value Tops $200B –Bloomberg


Oh and today Apple (AAPL) is going to host an Obama-like rock star concert (U2, who I love, will be there!) today at the Flint Center (where Steve Jobs introduced the Macintosh in 1984) with larger screens, wearables, and stuff… #cool.


That stock is “cheap” though. Its market cap is only $600B. That’s with a B, as in bubble or beelion dollars, bros.


Since we’re throwing around billions in one hundred dollar clips right now, why shouldn’t Alibaba be worth $200B? Exxon (XOM) is only worth $400B (and they make money too!).


*PS. If you think I am nuts. Please re-read this 1 year from today.


In yesterday’s Early Look, for some reason this sentence got a lot of attention/feedback: “I haven’t been this bearish since the fall of 2007.” So I’ll reiterate that this morning with one caveat – I haven’t been this bearish on US stocks since yesterday.


In other news, the #bubble formerly known as Bitcoin dropped to $469 today.


And everyone and their brother seems to think that bonds are finally going to prove them right (going down). So I’ll reiterate the bullish on US #Q3Slowing call (bullish on the Long Bond, in TLT, EDV, and BND terms) too this morning.


Since no one on consensus TV will be watching anything but AAPL today, here are some Bond Market levels to monitor:


  1. Immediate-term TRADE risk range of the 10yr UST Yield has widened to 2.31%-2.51% (widening ranges are bearish)
  2. Intermediate-term TREND resistance line for the 10yr Yield = 2.81%
  3. Immediate-term TRADE risk range for the 30yr UST Yield has widened to 3.03-3.29%
  4. Intermediate-term TREND resistance for the 30yr Yield = 3.46%


That’s why I am taking our allocation to Fixed Income (Hedgeye Asset Allocation Model) to 91% of its max this morning. My “max” allocation to any asset class is one-third of total assets.


If I was running my hedge fund, what the 0% US Equity allocation implies is a net neutral (fully hedged on a beta-adjusted basis) book. And my net long position to International Equities would be 16% (and rising) on pullbacks to the low-end of my risk range.


If you’re at CS telling people it’s different this time – best of luck. Crossing the bubble is a big business, so make sure to get either a big allocation or commission! Forget 2007, the drawdown risk in billions of #bubble market cap terms is more epic than it was in 2000.


My immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.31-2.51%

SPX 1982-2007

RUT 1154-1179

VIX 11.34-13.56

EUR/USD 1.28-1.30

Pound 1.61-1.64

Gold 1251-1286


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Crossing The Bubble - Chart of the Day

CHART OF THE DAY: Be LONG Mega Cap Liquidity vs. SHORT Small Cap Illiquidity

CHART OF THE DAY: Be LONG Mega Cap Liquidity vs. SHORT Small Cap Illiquidity - Chart of the Day


At 55x trailing earnings, and 42% of the names in the Russell 2000 crashing (-20% or more from their 12 month peak), the US stock market is “cheap.” Right.

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Pygmy Minds

“The government which governs the least, governs best.”

-Thomas Jefferson


After the election of 1800, Alexander Hamilton didn’t like the aforementioned Presidential acceptance speech from Thomas Jefferson. He called it the “symptom of a pygmy mind.” Jefferson sounded pretty darn smart to me.


What wasn’t smart was what Hamiltonian central planner and New York group-thinking Fed head, Bill Dudley, said about the purchasing power of the American people (the US Dollar) at a Bloomberg conference in NYC yesterday:


“We would have poorer trade performance, less exports… and if the Dollar were to appreciate a lot, it would dampen inflation… making it harder to achieve our objectives.” I couldn’t make that up if I tried. In stark contrast to the Reagan/Clinton administrations, who trumpeted Strong Dollar (and raised rates), this is how the Bush/Obama economic teams thought/think.


Pygmy Minds - dud


Back to the Global Macro Grind


Evidently, alongside his protectionist big government spenders at the US Treasury, Mr. Dudley is lost in some 18th century British time warp. And you know what, you’re going to have to deal with it. Because it’s not going away. In an economy that is 70% consumption, it’s all about the “exports”, baby!


To put this day in American history in context, Bloomberg’s “50 Most Influential” are mostly government guys. My partner, and Director of Research @Hedgeye, Daryl G. Jones, was at their conference yesterday (Mike, we’re a big customer – love the data product!). From raging Keynesian, Jason Furman, to Jack Lew, this was quite the central planning affair.


To recap yesterday’s headlines, in addition to Dudley talking down the Dollar and rates (good for our Long Bond  (TLT) position):


  1. Lew wants to limit inversions
  2. Jason Furman wants to spend
  3. Larry Summers wants a “major spend”


In other words, when all monetary policies fail to create real, sustainable, economic growth, the USA needs to move the goal posts (again) and spend, spend, spend. Isn’t that just wonderful.


In other news…


  1. The BABA #Bubble stopped inflating yesterday (Dudley, get on that)
  2. The Russell 2000 lost another -1.7% on the day, reiterating its bearish TREND for 2014
  3. The 10yr Bond Yield is falling (again) this morning to 2.54%, -16.2% YTD


Oh, and there are some bombs dropping in the Middle East again too, but no worries. At 55x trailing earnings, and 42% of the names in the Russell 2000 crashing (-20% or more from their 12 month peak), the US stock market is “cheap.”


Talk is cheap. Especially the central planning kind. Remember the narrative that 0% rates forever were going to provide Americans their housing dream? Well the news on that front sucked (again) yesterday, as Existing Home Sales for August slowed (again).


And what do you think US government monetary and fiscal policy is going to do as Housing and Employment gains from 2013 slow?


A)     Get tighter on interest rates and spend less

B)      Get tighter on rates and spend moarrr

C)      Get looser on rates and spend, spend, spend


Alex, I will take C).


As opposed to betting alongside consensus (which still thinks rates are going to rise), this Mr. Market chose C) yesterday too:


  1. Housing stocks (ITB) got crushed on the “news” -2.1% to -6.8% for 2014 YTD
  2. Russell 2000 diverged, big time, from the big cap Dow, -1.7% to -3.0% for 2014 YTD
  3. Consumer Discretionary (XLY) was down -1.4% yesterday, underperforming Utilities 2x


Yep, when US GDP growth expectations slow, you buy the Long Bond (TLT = +13.1% YTD) and anything that looks like a #YieldChasing bond (Utilities), and you like it.


The biggest risk to buying anything US equities (especially REITS and Commodity linked stocks) is that we are right in our US economic projections and entering what we call Quad 4 (where both inflation and growth are slowing, at the same time).


With that, my pygmy mind (I’m 5’9 in the 1994 hockey program, standing on pucks in my socks) agrees with Mr. Dudley, wholeheartedly. If these guys turn this place into Japan, they won’t be achieving anyone’s growth or inflation “objectives.”


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.42-2.59%


RUT 1115-1154

VIX 11.66-14.22

USD 83.99-84.96

Gold 1211-1256


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Pygmy Minds - Chart of the Day

September 23, 2014

September 23, 2014 - Slide1



September 23, 2014 - Slide2

September 23, 2014 - Slide3

September 23, 2014 - Slide4

September 23, 2014 - Slide5

September 23, 2014 - Slide6



September 23, 2014 - Slide7

September 23, 2014 - Slide8

September 23, 2014 - Slide9

September 23, 2014 - Slide10

September 23, 2014 - Slide11


TODAY’S S&P 500 SET-UP – September 23, 2014

As we look at today's setup for the S&P 500, the range is 34 points or 0.87% downside to 1977 and 0.84% upside to 2011.                        













  • YIELD CURVE: 2.00 from 2.02
  • VIX closed at 13.69 1 day percent change of 13.05%


MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am: ICSC weekly sales
  • 8:55am: Redbook weekly sales
  • 9am: FHFA House Price Index, July, est. 0.5% (prior 0.4%)
  • 9am Fed’s Bullard speaks in St. Louis at community banking conf.
  • 9:20am: Fed’s Powell speaks
  • 9:30am: Fed’s George speaks
  • 9:45am: Markit US Mfg PMI, Sept., est. 58 (prior 57.9)
  • 10am: Richmond Fed Mfg Index, Sept., est. 10 (prior 12)
  • 11:30am: U.S. to sell $40b 4W bills
  • 1pm: U.S. to sell $29b 2Y notes
  • 2pm: Fed’s Kocherlakota speaks in Marquette, Mich.
  • 4:30pm: API weekly oil inventories
  • 9:15pm: Fed’s George speaks in Cheyenne, Wyo.



    • Senate, House out of session
    • Obama in N.Y. for UN General Assembly, at Climate Summit, attends evening reception for heads of state
    • Hillary Clinton speaks at Clinton Global Initiative
    • American Banker Regulatory Symposium:
    • 8:15am: FDIC’s Hoenig
    • 9:45am: Treasury’s Fin. Crimes Enforcement Network’s Calvery
    • 10:15am: U.S. Bancorp CEO Davis
    • 10am: Center for American Progress holds discussion on “Finding Consensus to Improve Our Tax Code”
    • 1:30pm: White House Council of Economic Advisers Chairman Jason Furman joins Brookings Institution discussion
    • 1:30pm: HHS Secretary Burwell remarks on Affordable Care Act
    • U.S. ELECTION WRAP: Rajat Gupta and Kansas Race, Ties to Orman



  • U.S. expands airstrikes into Syria to hit Islamic State
  • Lew tries to rein in tax-cut deals with anti-inversion crackdown
  • AstraZeneca, Shire fall after Lew comments
  • Yara Seeks CF merger in fertilizer deal with $20b sales
  • Allergan said to revive discussions to buy Salix Pharmaceuticals
  • Herbalife rebounds as concerns abate that Icahn is selling stake
  • Boeing said to near $3.3b 777 jet order from Kuwait Air
  • Housing to outrun capital spending in next leg of U.S. growth
  • ‘Frozen’ is still hot as Disney dominates early holiday toy list



    • AAR (AIR) 4:05pm, $0.38
    • Bed Bath & Beyond (BBBY) 4:15pm, $1.14 - Preview
    • CarMax (KMX) 7:35am, $0.67
    • Carnival (CCL) 9:15am, $1.44 - Preview
    • Copart (CPRT) 8:08pm, $0.41
    • Steelcase (SCS) 7:58am, $0.23



  • Brent Rises From 1-Week Low on China Manufacturing; WTI Gains
  • Nickel Seen by Lennon Advancing in 2015 on Shift to Deficit
  • Lemon Lovers Get Bitter Shock on California Drought: Commodities
  • Soybean Futures Rebound From Lowest Price Since 2010 on China
  • Money Managers Raised Bullish Copper Bets on LME, Cut Aluminum
  • Gold Rises From Eight-Month Low on Syria to Physical Purchases
  • Copper Advances on China PMI as Nickel Trims Losses: LME Preview
  • Robusta Coffee Rises for First Time in Five Sessions in London
  • India May Boost Crude Steel Capacity 32%, Based on Current Plans
  • Palm Futures Rebound From One-Week Low on Indian Demand Outlook
  • Russia-U.S. West Coast Arb Stays Open on Weak Sokol: Julian Lee
  • Walter’s Bonds Lose $363 Million on Coal Woes: Distressed Debt
  • Commodities Drop Signals Global Growth Concern: Chart of the Day
  • China Steel Consumption Set to Increase in 2015, CISA Says


























The Hedgeye Macro Team

















Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.