Hedgeye Risk Management CEO Keith McCullough discusses the Bernanke Fed's surprise decision not to taper and the enormous macro implications for the markets and economy in the months ahead. According to McCullough, "It was a great day for U.S. stock market bulls, but a depressing day for the country."


What’s New in Retail (9/19)

Takeaway: Athletic data update. RL management changes, and why we don't think DKS' targets are realistic.

What’s New in Retail (9/19)

As part of our morning routine, we scour the tape and trade rags for stories that we think might be relevant to our investment process. 





Athletic footwear sales continue to teeter on the zero growth mark in the US, though Athletic Apparel once again saves the day with growth in the low double digits. From a brand perspective, it’s the Nike and UnderArmour show. The only other brand that’s showing up to play is Skechers.  


What’s New in Retail (9/19) - Footwear ApparelChart1

What’s New in Retail (9/19) - Footwear2

What’s New in Retail (9/19) - Apparel3




NKE - Annual General Meeting, Thursday 9/19/13 1:00pm



UK retail sales in unexpected fall


"Data from the Office for National Statistics showed that the volume of retail sales dropped by 0.9% in August – mainly as the result of weaker demand for food.

Food sales dropped 2.7% in August, and there was little evidence of the recent pickup in housing activity helping sales of household goods, which fell by 1.6%. Over the three months to August – considered a better guide to the trend than one month's figures – retail sales were up by 1.7%. Annual growth – comparing the latest quarter with the same three months in 2012 – stood at 2.3%, the ONS said."


Our Take: This is in contrast to strong results recently posted by Sports Direct and Foot Locker in the UK. Either the athletic sector is holding up extremely well, or the Food retail space is under severe pressure.



DKS – Outlines Growth Strategy – We Don’t Believe It


During its Analyst Day, DKS outlined its growth strategy through the end of Fiscal 2017. Here are some of the highlights:

  • Revenues to reach $10 billion assuming a 11% CAGR from FY12 revenues of $5.8 billion
  • 10.5% Operating Margin, a 150 bps increase from FY12's 9.0%, through expansion of Gross Margin and SG&A leverage
  • E-Commerce revenues expect to grow to $1.1 billion, up from about $325mm today.
  • 800 Dick's Sporting good stores from 518 at the end of FY12
  • Growing Field and Stream stores from its 1 current location to 55 doors generating $750 million in revenue
  • $1.8 billion in CapEx



Our Take: There are companies that grow because they should, and others because they could. Dick’s in our opinion, is the latter. Reaching its lofty store growth goals while tripling e-commerce sales over three years and hitting new peak 10.5% margin levels seems incredibly aggressively to us – particularly given increased competition from the brands it sells as well as the Amazon’s of the world in hardgoods. We still scratch our heads as to why its such a consistent love-fest with this company.  We think DKS is a value trap.


RL - Ralph Lauren Announces That Roger Farrah Is Stepping Back


  • "Ralph Lauren Corporation... today announced plans to introduce changes to its leadership team and to create an Office of the Chairman, led by Ralph Lauren, Chairman and Chief Executive Officer (CEO) of the Company, and including Roger Farah, Jackwyn Nemerov and Christopher Peterson. Roger Farah, currently President and Chief Operating Officer (COO), will become Executive Vice Chairman. Jackwyn Nemerov, currently Executive Vice President (EVP), will become President and COO. Christopher Peterson, currently Senior Vice President (SVP) and Chief Financial Officer (CFO), will become Executive Vice President and Chief Administrative Officer (CAO) in addition to his role as CFO. The Office of the Chairman is being created to enhance the Company’s ability to support the growth of the business in an increasingly complex global environment and capitalize on new business opportunities. Mr. Farah, Ms. Nemerov and Mr. Peterson will report directly to Mr. Lauren. The changes will be effective as of November 1, 2013, allowing for a smooth transition period."
  • "In his new role, which reduces his time commitment to the business, Mr. Farah will be responsible for engaging in strategic projects and business development, as well as advising the Chairman and mentoring and counseling the management team."
  • "Jackwyn Nemerov, in her new capacity as President and COO, will be responsible for global merchandising, manufacturing and supply chain operations as well as the Company’s retail, wholesale and licensing businesses worldwide."
  • "Christopher Peterson, in his new capacity as EVP and CAO, will oversee legal, corporate facilities, global real estate, and corporate services and will also continue in his role as CFO to lead the global finance and information technology organizations, including financial planning and analysis, accounting, tax, treasury and investor relations."


Our Take: In effect, Roger will be spending 50% of his time on the business,  and the rest with his family. Nemerov and Peterson will pick up the slack on his day job. We have a particularly favorable opinion of Peterson, so we welcome him getting more involved. The negative part of this is that Roger is clearly one of the most highly regarded executives in all of retail. We like him being involved as much as possible at RL. On the flip side, there was a lot of speculation that Roger was going to leave the company outright – and now we know that this won’t happen.


ADS - Reebok Turns to ‘Race From Hell’ to Revive Former Glory


  • "This year for the first time, Reebok’s name will be on Spartan’s championship, the culmination of a race series that will attract some 500,000 athletes in 2013. The sporting-goods company, a unit of Adidas AG (ADS), signed a multi-year partnership with Spartan in January. Last month, Reebok signed a similar deal with Les Mills, a New Zealand company that sells branded fitness routine classes. And since 2010, it has sponsored CrossFit, a rival program."
  • "Reebok will start selling products developed for Spartan next year, prominently featuring the race circuit’s brand in addition to Reebok’s. Details remain under wraps."
  • "Reebok will produce and distribute products bearing both the Reebok and Les Mills brands and offer 100,000 instructors a 25 percent discount on clothes and shoes.


 Our Take: Reebok needs all the help it can get. Its market share in the US is 1/4 today of where it was when it merged with Adidas.


AMZN , SPLS, RSH - Staples, RadioShack Yank Amazon Lockers From Stores


  • "Staples Inc. (SPLS) and RadioShack Corp. (RSH) have removed Inc. (AMZN)lockers from their stores about a year after starting the program as competition stiffens with the online retailer. The chains began testing a system last year in which Amazon shoppers could have a Web order delivered to a store and then pick it up for no extra cost."
  • "Staples ended the test with Amazon after it 'didn’t meet the criteria we set up together,' Demos Parneros, president of North American stores and online for Staples, said in an e-mail."
  • "RadioShack stopped the program because it didn’t fit with its strategy, Merianne Roth, spokeswoman for the Fort Worth, Texas-based retailer, said today in an e-mail."


 BBG - Billabong Links With Centerbridge and Oaktree


  • "Surfwear company Billabong said Thursday that it has entered binding agreements with the hedge funds Centerbridge Partners and Oaktree Capital Management for a longterm refinancing package and ditched its previously announced refinancing deal with Altamont Consortium."
  • "The new Centerbridge/Oaktree deal includes a six year senior secured loan of $360 million; a 135 million Australian dollar ($127 million at current exchange) equity placement to the Centerbridge/Oaktree Consortium and, following the placement, a 50 million Australian dollar ($47 million) non-underwritten, renounceable rights issue available only to shareholders other than the Centerbridge/Oaktree Consortium. According to the statement, after the financial operations, Centerbridge/Oaktree will own between 33.9 and 40.8 percent of Billabong’s fully-diluted share capital."
  • "Centerbridge and Oaktree have tapped Neil Fiske, a former head of adventure-wear company Eddie Bauer Holdings Inc., to become Billabong's new chief executive and revive a suite of brands that also includes Tigerlily and Von Zipper. Mr. Fiske displaces the Altamont consortium's choice, former Oakley Inc. boss Scott Olivet."


SKS, HBC - Saks Incorporated Announces Plans for Seven New Saks Fifth Avenue OFF 5TH Stores in 2014


  • "Saks announced its plans to open seven new Saks Fifth Avenue OFF 5TH stores in 2014: The Outlets at Bloomfield in Pearl, MS; Potomac Mills in Woodbridge, VA; Palm Beach Outlets in West Palm Beach, FL; Outlet Shoppes at Louisville/Lexington, KY; Twin Cities of Eagan in Minneapolis, MN; The Mayfair Collection in Mayfair, WI; and Easton Gateway in Columbus, OH."
  • "The stores will range from 25,000 to 28,000 square feet and will be modeled in Saks Fifth Avenue OFF 5TH's luxury-in-a-loft store design."


LVMH - Fendi Celebrates New Milan Palazzo


"The luxury company will unveil its new flagship here on Thursday, the day of its show, and stage an exhibition titled 'Making Dreams: Fendi and the Cinema' to mark its enduring relationship with Cinecittà and Hollywood."

"Relocated from Via Sant’Andrea onto the prestigious Via Montenapoleone, the boutique is housed in the 16th-century Casa Carcassola-Grandi, with a neoclassical-style facade. Covering two floors and about 5,400 square feet... The opening comes on the heels of the new Avenue Montaigne store in Paris in July; both stores were designed by Tokyo-based French architect Gwenael Nicolas."


JWN - Nordstrom's New Americana Home


  • "Nordstrom held a gala Tuesday night to unveil what is increasingly a rarity in its portfolio: a new full-line store in the U.S.  Officially opening Friday, the 135,000-square-foot store at Caruso Affiliated’s shopping center The Americana at Brand in Glendale, Calf., is the first and only full-line Nordstrom completed this year as the retailer has focused expansion elsewhere. The store was relocated from the neighboring Glendale Galleria, where it had been since 1983."
  • "Another full-line U.S. store won’t open until September a year from now at The Woodlands Mall in The Woodlands, Tex., followed by an October opening at St. Johns Town Center in Jacksonville, Fla., before three full-line stores bow in 2015 at Ridgedale Center in Minnetonka, Minn., Mayfair Mall in Wauwatosa, Wis., and Del Amo Fashion Center in Torrance, Calif., a relocation destination. "
  • "When it comes to opening full-line Nordstrom stores in 2014 and 2015, a lot of the attention will shift north of the border prior to turning on Manhattan. Nordstrom has revealed that it will premiere full-line retail in Canada in September 2014 at Calgary’s Chinook Centre and subsequently in 2015 add four full-line stores in Calgary."
  • In Manhattan, Nordstrom will build a seven-floor, 280,000-square-foot full-line store…'It doesn’t open until 2018 and it’s a big, complicated project, but we are excited about that location and now the ball is in our court for the next couple of years to execute something that hopefully the people in Manhattan are excited about.'"


Patagonia - Patagonia Adds Worn Wear Sections to Four Stores


  • "Patagonia Inc. has expanded its sale of used Patagonia clothing from a trial in its Porland, OR store to full blown Worn Wear sections within its stores in Portland, Seattle; Palo Alto and Chicago (Lincoln Park). Customers can now purchase used Patagonia items from any of the four locations and continue to receive credit for bringing in their clothing for resale. Items accepted for trade-in include Patagonia shells, fleece, down and synthetic insulation, and ski and alpine pants. Clothing must be clean and in good condition, and customers can earn trade-in credit valued at 50 percent of the price of the item which will then be sold through the store's Common Threads Worn Wear section. Credit can be redeemed for purchases in store or online at"



  • FIVE's 7 million secondary share offering was priced at approximately $47 through Credit Suisse.


DLTR - Dollar Tree Adopts $2 Billion Share Repurchase Program


  • "Dollar Tree Inc. (DLTR) said its board of directors has authorized the repurchase of up to $2 billion in shares, including a $1 billion variable maturity accelerated share repurchase."


Great for Bulls, Awful For U.S.

Client Talking Points


Well, Ben Bernanke just eviscerated almost my entire bull case for US growth accelerating from here. So it’s a good thing he cut his GDP forecast. The best way to slow real economic growth is by burning your currency. Bottom line here is that yesterday was a great day for 2013 US stock market bulls, but a very sad day for America.


Anything linked to Burning The Buck went absolutely ape on Bernanke fighting economic gravity. If Ben bans the economic cycle, Gold should love that. Of course, Bernanke rescued Gold from crashing yesterday. The two are Best Friends Forever. And he’ll keep that nice fat consumption tax on at the gas pump going on US consumers. Instead of snapping its TAIL risk line, Bernanke has Brent Oil hold $109.04 TAIL support.


They absolutely love Ben Bernanke and Down Dollar. So you can take that slide deck we have on Emerging Markets and burn it alongside the buck too. Turkey rocketed +7.6% overnight, Indonesia shot up  +4.8%. No, those are not typos.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


As for Ben Bernanke and the Fed, shame on you - you are a national embarrassment @federalreserve



"I may reverse my entire macro position based on Bernanke's disaster day - and I won't apologize for it" - Keith McCullough


Assets the Fed holds have jumped by over $800 billion, or about 30%, to more than $3.6 trillion since it first announced its latest bond-buying program last September. The balance sheet is up from less than $1 trillion prior to the recession.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

September 19, 2013

September 19, 2013 - dtr



September 19, 2013 - 10yr

September 19, 2013 - spx

September 19, 2013 - dax

September 19, 2013 - nik

September 19, 2013 - euro

September 19, 2013 - oil

September 19, 2013 - natgas2



September 19, 2013 - VIX

September 19, 2013 - dxy

September 19, 2013 - yen
September 19, 2013 - gold

September 19, 2013 - copper

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed

Takeaway: The trend of smaller bond fund outflows continued in the most recent week but still both taxable and tax-free bond funds booked outflows

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Equity mutual fund inflow accelerated week-to-week to $5.2 billion for the 5 day period ending September 11th, up from the $903 million inflow the week prior


Fixed income mutual fund outflows also improved but still resulted in a $5.5 billion withdrawal by investors, an improvement from the $6.7 billion draw down last week


Within ETFs, passive equity products experienced an large inflow of $10.3 billion, the best weekly period in 2 months with bond ETFs flows also experiencing positive trends with a $1.4 billion inflow


ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 1



For the week ending September 11th, the Investment Company Institute reported improvements in both equity and fixed income mutual fund flows however with bond trends simply booking a smaller outflow. Total equity fund flow totaled a $5.2 billion inflow which broke out to a $2.7 billion inflow into international equity products and a $2.4 million inflow in domestic stock funds. These trends were an improvement from the prior week's total equity fund inflow of $903 million. Including this acceleration in stock fund flows, the year-to-date weekly average for 2013 now sits at a $2.6 billion inflow for total equity mutual funds, a substantial improvement from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, outflow trends continued for the week ending September 11th with the aggregate of taxable and tax-free bond funds combining to lose $5.5 billion in fund flow. The taxable bond category specifically shed $2.8 billion in the most recent period versus the $4.7 billion loss last week. Tax-free or municipal bonds continued their sharp outflow trends losing another $2.7 billion in the week ending September 11th, continuing its trend from last week which experienced a $2.0 billion outflow and the 10th consecutive week over the $2.0 billion outflow mark. Franklin Resources (BEN) continues to have the most exposure in our coverage group to declining Municipal bond trends with over 10% of its assets-under-management in the tax-free category. The 2013 weekly average for fixed income fund flow has now drastically declined from 2012, now averaging a $464 million weekly outflow this year, a far cry from the $5.8 billion weekly inflow averaged last year.


Hybrid funds, or products that combine both fixed income and equity allocation, continue to be the most stable category bringing in another $1.2 billion in the most recent weekly period, an improvement from the $349 million inflow the week prior. The year-to-date weekly average inflow for hybrid products is now $1.6 billion for '13, almost a 100% increase from 2012's $911 million weekly average.



ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 2

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 3

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 4

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 5

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 6



Passive Products - Large Equity ETF Inflow:



Exchange traded funds experienced positive trends for the week ending September 11th with a massive equity inflow and also a stable fixed income subscription. Equity ETFs gained $10.3 billion, the biggest inflow in 8 weeks for equity ETF products and the 5th largest inflow for the category in all of 2013. Including this week's inflow, 2013 weekly average equity ETF trends are averaging a $2.8 billion weekly inflow, an improvement from last year's $2.2 billion weekly inflow average.


Bond ETFs also had a positive week with a stable $1.4 billion inflow which was a slight decline from last week's $2.4 billion subscription. Including this sequential drop in the most recent period the 2013 weekly bond ETF average is now just a $375 million inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow from 2012.



ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 7

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 8



HEDGEYE Asset Management Thought of the Week: Quantitative Easing...To Infinity and Beyond:


With the renewed emphasis on pumping liquidity into the credit markets and beyond as articulated by the Fed Reserve yesterday, we highlight the corresponding historical reaction of the asset management stocks in 1 week; 1 month; and 3 month time-frames. While each announcement was made in very different market conditions (for example the announcement of QE1 in 2008 was made in a Bear market for all stocks versus the announcement of QE2 in November of 2010 which was made in recovering equity markets), we none-the-less estimate the average stock reaction for all 4 current rounds of Quantitative Easing (QE) is useful for investors to understand. The averages point to the most favorable positive reaction for Blackrock shareholders, with BLK stock having averaged a 4%; 4%; and an 11% return in the 1 week; 1 month; and 3 month periods following major Fed QE announcements, the best reaction in the asset management group. This is likely because of the firm's substantial emerging markets business (which is 10% of the entire EM assets outstanding when including ETFs and mutual funds) which have historically benefited with lower or easing credit conditions in developed market economies. The leading real estate and balanced fund franchise at Invesco (IVZ) has also reacted positively to QE announcements as lower rates and easing credit conditions makes these yield based products more competitive. IVZ stock has averaged a 5%; 4%; and 5% return over the various stages of QE announcements in the 1 week; 1 month; and 3 month time-frames, the second best beneficiary of these announcements.  


 ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 9



Jonathan Casteleyn, CFA, CMT







Joshua Steiner, CFA











WYNN is considering an investment north of USD4 billion in Japan casino resorts if it wins permission.  MGM has also commented about investing “several” billion dollars in the market if given the opportunity.


Hiroyuki Hosoda, the chairman of a cross-party group of lawmakers promoting casino development in Japan, said that the group aims to submit a casino bill to the next diet session which starts in October and pass the bill in the following session of parliament.  A competitive bidding process will be needed before one or more casino resorts can be developed, he said. It would take five years after the legalization before the first casino is operational, Hosoda said.


MGM and WYNN said that they plan to partner with local consortiums to develop casino projects. According to managing director of global development for LVS, George Tanasijevich, LVS is also “open minded” about having local partners.


Among speculated local partners are trading companies such as Mitsui & Co., Mitsubishi Corp. and Itochu Corp. and gaming machine makers Sega Sammy Holdings Inc. and Konami Corp.  The trading companies have project-finance experience and real estate development connections, while the game makers have helped develop casino projects and technology outside of Japan.  The specific details about sites and operators will probably come after legalization.


Possible sites include the Odaiba section of Tokyo, an island of reclaimed land in Tokyo Bay, between Haneda airport and the business district surrounding the city’s main train station.  Sands will fund Japan casino resorts with existing operating cash if allowed to build, Tanasijevich said.


Tokyo’s potential as a gambling market is also drawing interest from CZR, SJM, and MPEL. 



Time is running out for the governing Kuomintang in Taiwan to pass legislation that would permit casinos on outlying islands. reports that a committee crucial for the passage of the bill has no plans to meet ahead of the end of the current legislative session in December.  A political stalemate is also threatening to stall the bill’s passage into law.  A lobbyist in Taiwan for Park Strategies, Anita Chen, said gaming legislation was included in the premier's list of some 45 priority bills.

Weidner Resorts of Las Vegas is the only company that has openly campaigned for a casino-resort, on Matsu.



Macau CPI for August 2013 increased by 5.31% YoY and 0.17% MoM.



Macau Government Tourist Office director Maria Helena de Senna Fernandes says there is no plan to extend the individual visa scheme to more mainland cities.  Apple Daily newspaper said Hong Kong officials had suggested the scheme could be extended to tourists from the northern cities of Qingdao, Taiyuan and Xi’an.

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.