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REVISION - Retail Callouts (9/25): Farah/Burch, RL, KSS, RonJon, AMZN

Takeaway: Farah joins Tory Burch. Genius move as it preps to go public – but what a big black eye to Ralph Lauren – the person and the brand.



Thursday (9/25)

NKE - Earnings Call: 5:00pm


Friday (9/26)

FINL - Earnings Call: 8:30am




RL - Roger Farah Joins Tory Burch as Co-CEO



  • "Roger Farah didn’t wait long to make his next move. After stepping down as vice chairman at Ralph Lauren Corp. in May, Farah planned to take the summer off and think about new opportunities in the fall. On Wednesday, he made good on that promise — the second full day of fall."
  • "Farah, 61, has been named co-chief executive officer of Tory Burch, the privately held sportswear and accessories company, a new post. He was also appointed to the company’s board and took an equity stake in the business. He will report to Tory Burch, who is chairman and co-ceo."

 REVISION - Retail Callouts (9/25): Farah/Burch, RL, KSS, RonJon, AMZN - 9 25 chart1

Image Source: Women's Wear Daily, George Chinsee


Takeaway:  This is a major surprise. If you didn't know that Tory Burch planned to go public, well now you know. Putting Roger Farah in the co-CEO role alongside Tory is genius. Tory's brand is clearly at the size where the eccentric/visionary founder can no longer rely on design and merchandising to take the company to the next level. But there is nobody in retail that has a more defined track record in doing this than Roger Farah (even though he was a bust in prior jobs at Foot Locker and Federated). Having Roger on board is easily good for 5-10 multiple points when it goes public. The bankers must be salivating. In fact, the bankers probably made this happen. We'd expect a deal in 12-18 months' time.  This is actually good for the space, we think. Coach is caput. Kors is losing its luster. And despite the fact that Kate's fundamentals are stellar, investors are scrutinizing every little word management utters. Having another public brand in Luxury might actually turn this into a real 'space' again. But one thing that is undeniable is that this is a colossal black eye for Ralph Lauren. Roger earned over $100mm in a decade and a half at Ralph Lauren, and then went 'part time' in November 2013. We never really heard of a 'part time' COO -- and that lasted all of six months until Roger officially retired.  RL's explanation was that 'he wants to spend more time with his family.' Either he's tired of his family...or he saw this opportunity coming down the pike all along. 


Former Apple retail chief Ron Johnson to launch gadget delivery service, report says



  • "According to a report on Tuesday, former Apple SVP of Retail Ron Johnson is looking to open an on-demand delivery service for electronic devices, a sector currently being explored by the likes of Amazon, Google and others."


Takeaway: The funny thing here is that the reporter is referring to RonJon as the former SVP of Apple Retail. In fairness, it's written from an Apple perspective. But how quickly people forget his wrath of value destruction at JC Penney.


KSS - Kohl's Pulls Men's Parka After Humane Society Probe



  • "In response to an investigation led by The Humane Society of the United States Kohl's has stopped selling a men's R&O parka with fur trim that was being marketed as faux fur."
  • "Kohl's said 'No such authorization was given here. Once aware that the product was made with real fur, Kohl's immediately removed the product from our website.'"

Takeaway: Nothing to make a big deal about unless you are a red paint thrower. Just another whoops for the quality control team. This is the 2nd time in 2 years that the company peddled mislabeled fur products on its site. The fine for this type of offense = $16,000, that is if someone wants to go to the trouble of brining a civil suit to court. All in, this is pretty much a non-event. 





HBC - Saks Fifth Avenue Heads Downtown



  • "Hudson's Bay expects to open a 85,000-square-foot Saks Fifth Avenue store at Brookfield Place in spring 2016 and a 55,000-square-foot Saks Fifth Avenue Off Fifth discount outlet in fall 2017 at One Liberty Plaza."


Caroline Brown Said Headed to Donna Karan



  • "Sources indicated Wednesday that Caroline Brown’s new job will be as chief executive officer of Donna Karan International, succeeding Mark Weber. WWD reported Wednesday that Brown was stepping down as president at Carolina Herrera at the end of the year to take on a new job, which could not immediately be learned."


AMZN - DHL Beats Amazon, Google to First Planned Drone Delivery



  • "Deutsche Post AG, Europe’s largest postal service, is about to begin deliveries of medication and other urgent goods to the island of Juist using unmanned helicopters after securing approval from state and federal transport ministries and air traffic control authorities to operate in a restricted flight area. The vehicles, called parcelcopters, will operate from tomorrow, weather permitting, and fly for four to six weeks in the pilot project, the Bonn-based company said yesterday."


HAS, DIS, MAT - Hasbro Swipes Disney’s ‘Frozen,’ Princess Licenses


  • "In a major coup, the company known for Transformers and G.I. Joe announced yesterday that it secured the doll license starting in 2016 for two juggernauts of the girls toy aisle with Walt Disney Co.’s “Frozen” and Princess brands. Even better for Hasbro is that it’s taking the rights to make Elsa and Cinderella figurines from larger rival, Mattel Inc."


AMZN - Amazon’s Twitter E-Commerce Integration Now Adds To Your Wish List With An #AmazonWishList Tweet



  • "Amazon expanded its Twitter e-commerce integration today, giving users the ability to add to Amazon wish lists using the hashtag #AmazonWishList in a reply to a tweet."
  • "In May Amazon launched a variant of this feature that enabled customers to drop items they discovered on Twitter into their shopping carts — using #AmazonCart in replies."

ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds

Takeaway: Moving into the seasonally weakest part of the year, U.S. equity fund flows continue to create a slippery slope

Investment Company Institute Mutual Fund Data and ETF Money Flow:


In the most recent 5 day period ending September 17th, U.S. equity fund flow continued dire intermediate term trends with another $1.9 billion redeemed by investors. This now makes 20 of 21 weeks of outflow heading into the seasonally soft 4th quarter which could exacerbate the ongoing trend. Our research shows that despite these already substantial losses in the U.S. equity fund category over the past 5 months which total over $50 billion, that the average draw down in U.S. stock funds since 2007 has averaged 42 weeks with over $115 billion lost, so trends could continue on their downward slope. We continue to be cautious on shares of T Rowe Price (TROW) and Janus Capital (JNS) as we round out the rest of the year. 


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - Drawdown table


Hedgeye Best Ideas TROW Research 


Total equity mutual funds had slight inflow in the most recent 5 day period ending September 17th with a $157 million subscription into all stock funds as reported by the Investment Company Institute. The composition of flow trends continued to be weighted towards International stock funds with a $2.1 billion inflow buffering another meaningful outflow of $1.9 billion in U.S. stock funds. The inflow in International funds makes it a perfect 37 for 37, i.e. inflows in all 37 weeks of 2014. Conversely however, domestic trends continue to be very soft with now 20 of 21 weeks of outflow now totaling over $50 billion lost. The running year-to-date weekly average for all equity fund flow continues to decline and now settles at a $1.3 billion inflow, now well below the $3.0 billion weekly average inflow from 2013. 


Fixed income mutual fund flow had a hiccup in the most recent ICI data booking a modest outflow with the culprit being taxable bonds. Taxable fixed income put up its first outflow in a month and a half with a $1.2 billion redemption. Intermediate term trends are still quite positive however for taxable fixed income with 30 of the past 32 weeks having had positive subscriptions. Municipal or tax-free bond funds in the most recent survey put up a $517 million inflow, making it 35 of 36 weeks with positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.9 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 


ETF results were mixed during the week with substantial inflows into equity funds but redemptions in passive fixed income products. Equity ETFs put up a $10.1 billion subscription, the biggest inflow in 3 months, while fixed income ETFs suffered a $1.8 billion outflow, also the most meaningful redemption in 12 weeks. The 2014 weekly averages are now a $1.9 billion weekly inflow for equity ETFs and a $788 million weekly inflow for fixed income ETFs. 


The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $12.9 billion spread for the week ($10.3 billion of total equity inflow versus the $2.6 billion outflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $3.9 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 


Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart1





Most Recent 12 Week Flow in Millions by Mutual Fund Product:


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart2


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart3


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart4


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart7


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart8



Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds:


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart9


ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart10



Net Results:


The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $12.9 billion spread for the week ($10.3 billion of total equity inflow versus the $2.6 billion outflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $3.9 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 



ICI Fund Flow Survey - Slippery Slope for U.S. Stock Funds - ICI chart11 




Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA

LEISURE LETTER (09/25/2014)



  • Sept 25:  Nevada August revenues
  • Sept 29 - Oct 2: G2E Las Vegas
  • Tuesday: Sept 30
    • JPM Securities: FCH, AHT
    • DB Leveraged Finance: WYNN, MGM, CHH, FCH, RHP
    • TAG Fall Consumer Conf: LVS, WYN, MTN
  • Wednesday: Oct 1
    • DB Leveraged Finance: PENN, BYD, SGMS
    • TAG Fall Consumer Conf: LVS, WYN


IGT – announced an agreement to provide state-of-the-industry systems solutions encompassing IGT Advantage systems, sbX Floor Manager and Service Window, that will provide a comprehensive patron interaction and floor optimization suite of solutions and applications to City of Dreams Manila

Takeaway:  Good to see IGT gaining traction in Asia. 


MPEL – announced an a salary increase for its co-chairman, chief executive and executive director, Lawrence Ho Yau Lung, to US$2.5 million from US$2 million.

Takeaway: A challenging time to justify higher executive compensation, when revenues and earnings are revising lower. 


WYNN (Macau Daily Times) Despite comments from Chairman Steve Wynn indicating he believed the Wynn Cotai land purchase investigation was complete, the Commission Against Corruption (CCAC) issued a statement to the contrary saying "The relevant investigation is still underway. To observe the principle of judicial confidentiality, the CCAC will neither make any comments nor provide any supplementary information on the case.”

Takeaway: As we indicated yesterday, nothing in Macau is ever concluded until the appropriate governing agency indicates matters are concluded.


IHG:LN – announced the signing of a new 900-room InterContinental Hotels & Resorts property in downtown Los Angeles that will be the largest InterContinetnal hotel in the Americas region. The hotel, which is scheduled to open in 2017, will be part of Korean Air and Hanjin Group’s 73-story, US$1.1 billion-plus new-build Wilshire Grand project. Offices and retail space will occupy the building’s lower floors while guestrooms will be on floors 31 through 69 with a sky-lobby on the 70th floor and an F&B outlet on one of the top floors.

Takeaway: Development of Luxury and Upper-Upscale lodging in central business districts is finally restarting.


TVPT – raised $480 million, the high end of its forecasted range, in its initial public offering when the company priced 30 million shares at $16 a share as compared to a filing range of $14 and $16. Underwriters have the option to buy another 4.5 million shares. With 25% of the company being sold, the public offering values Travelport at $1.92 billion.

Takeaway: Another on-line travel, global distribution system goes public.


Revel Auction Update (philly.com) The auction of Atlantic City's shuttered Revel Casinos Hotel never got started Wednesday in New York before it was adjourned until Tuesday, an attorney for Florida bidder Glenn Straub said. "They spent six hours privately negotiating with whoever the bidder is that they want to be the winning bid," Stuart J. Moskovitz, the attorney for Straub, said of Revel's legal team. "They wouldn't even tell anybody who it was, and because the negotiations apparently weren't sufficiently fruitful, they ended at 3 p.m.," he said.

Takeaway: New Jersey - where everything happens behind closed doors.


Saipain Casino Development (GGRAsia) Macau junket investor Imperial Pacific International Holdings Ltd said via filing with the Hong Kong Stock Exchange that the total development cost for a casino project on the Pacific island of Saipan is estimated at US$7.1 billion. The company announced a more than twofold increase in investment for the project and said it plans to build and operate “a town hotel and an integrated resort with gaming facilities in five phases”. The full plan includes 1,600 gaming tables and 3,500 slot machines, as well as 4,250 rooms and 300 villas. The company said it plans to finance the development costs by equity and/or debt financings, however it “has not yet formulated any concrete fund raising plan”.

Takeaway: That's more than 1.66 million annual room nights as compared to current annual inbound visitation of a mere 400,000. Visitors origins include: Japan 30%, Korea 35% and China 25%.


Delta Bridge Update (Macau Daily TImes) The Transportation Infrastructure Office (GIT) revealed the design of the new Hong Kong-Zhuhai-Macau Bridge (Delta Bridge) and confirmed the project is slated for completion by the end of 2016. GIT officials revealed that they plan to start building the customs area on the Macau side early next year.  Engineer Lam Wai Hou from GIT said that the passenger capacity of the Zhuhai-Macau checkpoint will be 150,000 per day while that of the Hong Kong-Macau checkpoint will be 100,000 per day. The port of entry will have 18 lanes for vehicles to both arrive and depart Macau respectively.

Takeaway: The opening of the Delta Bridge is widely expected to be a catalysts for stronger revenue results from the mass gaming segment.


Warhol Paintings To Be Auctioned – German casino company WestSpiel will sell two Andy Warhol paintings at a Christie's auction in November. The two paintings include "Triple Elvis (Ferus Type)” and “Four Marlons” which rate among Warhol’s most famous portraits. The monumental paintings, each nearly 2.1 meters high, have never appeared at auction before and could bring a combined total of $130 million when they go up for bid on Nov. 12

Takeaway: Might Mr. Wynn be a bidder?


Los Cabos International Airport – heavily damaged by Hurricane Odile on Sept. 14, is expected to be open for commercial operations by Nov. 25, according to airport operator Grupo Aerportario Pacifico.  Some commercial operations could begin on a limited basis by Oct. 9, although that date is subject to the pace of repair work, which includes the three terminal buildings, control tower and equipment and debris removal.  The facility will continue to operate only relief and humanitarian flights through Oct. 8.

Takeaway: A near term headwind for the lodging companies but could prove to be a catalysts for other Mexico beach destinations such as Puerto Vallarta.


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.

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.


Takeaway: The Hedgeye Macro Playbook is a daily 1-page summary of our core ETF recommendations, investment themes and noteworthy quantitative signals.

CLICK HERE to view the document.


Best of luck out there,


Darius Dale

Associate: Macro Team

Boom-Bust Cycle

This note was originally published at 8am on September 11, 2014 for Hedgeye subscribers.

“The Panic of 1819 was the first boom-bust cycle of the economy caused by government monetary policy.”

-Thomas Dilorenzo


It was an inevitable consequence of the Hamiltonian system of government debt accumulation combined with a government-run bank that prints money in order to fund the debt.” (Hamilton’s Curse, pg 68)


Sound familiar? It shouldn’t. Unless you’ve studied economic history, you might actually think that all of this won’t end in panic. Unless it’s different this time, it always has. Give it some time.


While a sub 2% US GDP growth economy could hardly be described as a “boom”, we have had some booming bubbles develop within the Fed’s 0% experiment. From real estate, to MLP #YieldChasing, to the latest Silicon Valley bubble, I think we’ll all look back and call it epic.


Boom-Bust Cycle - 45


Back to the Global Macro Grind


Forget about the bubble talk for a second, rewind the tapes (or just watch it trade in real-time today) and watch Apple’s (AAPL) volume and intraday price moves. That’s no bubble – that is a mania.


Manias are much more fun to watch than bubbles – people do the craziest things. Watch Go Bro (GPRO) trade, or watch the new squeeze quant algos jam these no-borrow-high-short-interest stocks. It’s pure, unadulterated, price momentum chasing.


While mo mo manias are entertaining, the bubble in momentum chasing US equity market cap is downright frightening. Pop Quiz: if you add up Apple, Facebook, and Alibaba’s proposed market caps, what do you get?


A: $1 TRILLION Dollars


Yeah, that’s normal. And so is paying $350 for an iUgly watch and, at the same time, telling the world there is no inflation “because there’s deflation in technology” (in other news, fully loaded with Oil’s recent decline, USA’s cost of living just hit another all-time high).


If you add Google, the Top 4 in the Silicon Valley bubble get you to $1.25 TRILLION. To be fair, BABA is not really a “valley” name – the “smart money” in there didn’t want to give Alibaba $20 million. It wasn’t a “good idea” back then. So they’ll give them $25 Billion now instead!


And if you back out Exxon (just to make my storyline better), here’s what you can get for $1.25 TRILLION:


  1. Berkshire Hathaway = $235B
  2. Wal Mart = $230B
  3. GE = $230B
  4. Chevron = $225B
  5. Johnson & Johnson = $210B
  6. Citigroup = $125B


Remember that while I am sure I am wrong on my $29.99 watch from WalMart not being as cool as the iWatch, Apple (AAPL) has $600 billion reasons (market cap) why that fashion statement has been discounted by the market, just a bit.


Now, to be fair (again, I am a fair guy!) for those of you who know everything about Apple (AAPL), you’ll recall that there is a precedent for this stock blowing up (split adjusted, it went from where it is today to $55 in less than a year). Never mind what the US stock market bubble would do if AAPL dropped 50% from here (still trading at a $50B premium to my preferred iBear watch outlet, WMT), what if it dropped 5, 10, or (deep breaths) 25%?


Just asking.


I know. Every boom-bust bubble call needs a catalyst. Here’s mine – US #GrowthSlowing.


Oui. C’est tout, mes amis. En Francais, that means that is it.


That’s all I think I need to get right from here in order to get both bonds (long the Long Bond and anything equities, like XLU, that looks like a bond) and the stock market bubble right. I think I need to get the rate of change in US growth right.


While I don’t think AAPL will get cut in half from here, US GDP growth could, easily, from this headfake Q2 bounce of 4%. More importantly, US GDP growth could be half of consensus expectations (Old Wall consensus = 3% GDP growth and +3.3% 10yr yield), for Q3 and Q4.


And that’s our bullish scenario. The bearish one, of course, is that 1/3 of America (you and I) figures out that 2/3 of Americans are already in another early cycle recession. After 63 consecutive months of US economic expansion, that’s what booming bubbles within the cycle eventually do – they bust.


Our immediate-term Global Macro Risk Ranges are now (I update my Top 12 Macro Ranges in our Daily Trading Range product, with intermediate-term TREND views, daily, as well):


UST 10yr Yield 2.31-2.53%

SPX 1983-1999

RUT 1154-1169

VIX 11.34-13.56

Pound 1.60-1.63

Gold 1241-1281


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Boom-Bust Cycle - Chart of the Day

Dollar, Nikkei and Gold

Client Talking Points


The USD is signaling immediate-term TRADE overbought vs. both the Euro and Yen this morning, so watch-out if this starts to reverse (this is where the USD Index topped in 2013 as well). Inverse correlations between the USD and big stuff like Oil and Gold are running -0.8-0.9 on 60-90 day correlation durations.


One of the biggest benefactors of Draghi going for the devaluation drugs in May has been Japanese stocks – they love the smell of Burning Yen. The Nikkei’s round trip recovery came on worsening economic data, but it is +17% since May 19th as the Dollar Yen trade got torched.


2014 round-trip for both the CRB Index and Gold on this massive FX move (biggest since 1997, which by the way isn’t a riskless reference point in macro history), and Gold’s exhaustion level on the downside is 1203-1211 inasmuch as the USD Index is exhausted on the upside in the 84.92-85.67 range.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). Now that we have our first set of late-cycle economic indicators slowing in rate of change terms (ADP numbers and the NFP number), it's time to really think through the upcoming moves of this bond market. We are doubling down on our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


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.


Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road


FX: Draghi continues to burn the Euro, down to $1.27 vs USD, signaling immediate-term TRADE oversold



Stop walking through the motions of a conditioned routine and start consciously taking action on your visualized intent.

-Steve Maraboli


As part of its holiday strategy, Toys"R"Us plans to hire 45,000 seasonal employees at its stores and distribution centers nationwide, more than doubling the company's workforce.

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