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[Podcast] McCullough: The #NOTaper Trade Is On

Hedgeye CEO Keith McCullough delivers a Thanksgiving Eve morning macro call discussing the markets and economy with particular emphasis on the US Dollar, 10-Year Treasury and Gold.


#NoTaper Trade? On.

Client Talking Points

US Dollar

Down Dollar. That's what you get when your centrally planned market is trying to front-run the Fed’s next move. It's officially the third down week in a row now for your Burning Buck post Janet "Mother of All Doves" Yellen's no-taper confirmation. Meanwhile, across the pond, the Euro and Pound are strong like bull versus the USD. It's sad.


Bonds Yields are continuing to confuse consensus (CFTC futures/options net short position in the long bond is at year-to-date highs). But hope for a December taper is fading fast just like the US Dollar’s purchasing power. TREND support for 10-year yield is 2.64%. Keep an eye on that level.


Question: Gold likes what?

Answer: Down Dollar + Down Rates

Yup. Gold made another higher-low yesterday (versus the June 27th closing low of $1200.67). It's up +0.75% this morning. The next line of resistance to keep an eye on is $1285/ounce. If you haven't watched it already, here's my video on Gold from yesterday.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.


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.


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


That's the problem with academics, they think they know it all and really don't want to learn. @Wesbury


"I have no special talents. I am only passionately curious." - Albert Einstein


According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.

What's New Today in Retail (11/27)

Takeaway: Footwear ASPs look good. Let’s hope ARO doesn’t choke on poison pill. JNY bullies sole suitor. LVMH stunt gets a rise out of Kremlin.



Hedgeye Black Friday Consumer Survey: Focus on JCP.  We'll be conducting a follow-up to our prior consumer survey (which helped us call a JCP beat and KSS miss) following Black Friday weekend and Cyber Monday. We'll have results next week, and will have an updated presentation accordingly. If you are interested in our results, please email sales@hedgeye.com, or .




Weekly Athletic Footwear Data


Takeaway: This is a meaningless week as it relates to total industry sales as comparisons don't line up well on the holiday calendar -- ie industry sales decline of 46.5% is hardly representative of reality. But what is relevant is the change in average selling price and market share. As it relates to ASP, we're looking at a 10% boost for the week, which is driven by strength across the board. On the market share front, the best gains continue to belong to Nike and Jordan. It's worth noting that Reebok has taken a notable dive over the past three weeks.


What's New Today in Retail (11/27) - chart1 11 27

What's New Today in Retail (11/27) - chart2 11 27

What's New Today in Retail (11/27) - chart5 11 27




ARO - Aéropostale Adopts Poison Pill



  • "Aéropostale Inc.’s board, which is being pressured by investors to consider selling the company, put a poison pill in place to make sure things don’t move too fast."
  • "The New York-based company adopted a stockholder-rights plan Tuesday that allows shareholders to purchase preferred stock if a person or group acquires 10 percent or more of the company, or if a passive institutional investor takes a stake of 15 percent or higher, with some exceptions."
  • “'The plan is not intended to prevent an acquisition of the company on terms that the board considers favorable to, and in the best interests of, all stockholders,' the company said. 'Rather, the plan aims to provide stockholders with adequate time to fully assess a takeover bid, and, if appropriate, allow the board time to explore alternatives to maximize stockholder value.'”


Takeaway: If the company is doing this to simply slow down the process and arrive at the best decision for shareholders, then we're ok with the poison pill. But if they're doing it to protect the interest of a very small group of holders (ie management) then we have a major problem with this move.


JNY - Jones Group Sets Deadline for Sycamore



  • "The Jones Group Inc.’s board set Sunday as the deadline for Sycamore Partners to submit its final buyout bid, according to a source."


Takeaway: Are we missing something, or does JNY have zero leverage in setting a deadline for anybody to submit a bid? They only have one bidder…if they scare that one away, then they're begging for a 20% decline in the stock.  Poor strategic move, in our opinion.


CROX - Crocs Said to Discuss Investment With Funds Including Blackstone



  • "Crocs Inc...is in talks with buyout firms including Blackstone Group LP about a possible investment, people with knowledge of the matter said."
  • "Proceeds from the sale of a minority stake or debt could be used for a stock buyback, said the people, who asked not to be identified because the information is private. The private-equity investor would then help map out a turnaround plan for the retailer, including having a say over senior management candidates, the people said."


Takeaway: We're sitting here thinking about which business we'd rather own -- JNY or CROX. It's not an easy decision. But the answer is probably CROX. JNY has dozens of brands where consumers hardly know they exist. CROX only has one major brand, but its brand is like Xerox or Kleenex -- as it's synonymous with a single product (that's tough to grow into new categories). CROX probably wins, as the low production cost, low R&D model is scalable globally, even if Americans won't go near the stuff.


SCC - Sears Canada Announces Reorganization of its Repair Services and Parts Business



  • "Sears Canada Inc. announced today that, following a comprehensive review of its Repair Services and Parts businesses, it will be implementing a number of significant changes designed to improve efficiency, profitability and the overall customer experience. The changes will take place over the next six months and will result in a workforce reduction of 712 associates."
  • "Separately, the Company is also announcing today a staffing reduction in its head office operation, a move to align the Company's support structure with the size and volume of the organization as well as to take advantage of internal processes that have been recently implemented to improve efficiency. The changes affect 79 associates and have been made across various functions of the head office operation."


LVMH - Louis Vuitton Exhibit in Moscow Stirs Controversy



  • "A major Louis Vuitton exhibition slated to be inaugurated in Moscow on Friday was the subject of a political maelstrom Tuesday as Communist Party representatives and other officials expressed outrage at the showcase."
  • "The venue — a giant structure resembling a vintage trunk, plunked in Red Square — has proven controversial given its proximity to the Kremlin and the presidential residence."


What's New Today in Retail (11/27) - chart6 11 27


Takeaway: We don't mean to side with the Kremlin on this one, but this one is tough to stomach. Then again, there's generally no such thing as bad press, and the fact that we're talking about it now means that they're achieving their goal. That said, I'm still not buying a LV trunk this holiday.


TGT - Survey: Target.com tops in digital coupon distribution



  • Target.com’s coupon distribution page — coupons.target.com - achieved the highest total average daily visits through the first half of 2013, according to an analysis by Kantar Media Marx. This is almost double the number of average daily visits to other key retail websites tracked by Kantar Media Marx.


Moncler - Moncler Sets Price Range for IPO



  • "Moncler’s selling partners — ECIP M, controlled by Eurazeo SA; CEP III, controlled by The Carlyle Group, and Brand Partners 2, controlled by Progressio Investimenti — set the price per share between 8.75 euros, or $11.87 at current exchange rates, and 10.20 euros, or $13.84."




comScore: Online holiday spending off to solid start



  • "For the holiday season-to-date (Nov. 1 - 24), $18.9 billion has been spent online using desktop computers, up 14% versus the corresponding days last year, according to comScore. Tuesday, November 19 was the heaviest online spending day of the season to date at $963 million. Two other shopping days – Thursday, Nov. 14 and Sunday, Nov. 24 – have also seen at least $900 million in online retail spending."


Bangladesh Reform Faces New Obstacles



  • "Reform measures aimed at improving conditions in the troubled Bangladesh garment industry face new obstacles as political upheaval takes hold in advance of national elections. The announcement on Monday that the 10th parliamentary election would take place on Jan. 5 set off a series of disturbances on Tuesday, including a 48-hour strike and shutdown of road, rail and sea transportation, and the expectation of more delays in shipments and other disruptions for businesses."
  • "The Dhaka Chamber of Commerce and Industry estimates that each day of a strike causes a loss of 16 billion takas, or $206 million, with an average of 50 such days of shutdown a year damaging the ability of the industry."


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Caps on the supply of gaming tables that Macau's casinos can install and new rules that make it harder for wealthy punters to remain anonymous are two of the regulatory changes prompting the junkets to alter their business model. Armed with extensive customer networks and deep pockets thanks to monthly turnover of up to $9 billion, the junkets are now trying to repeat the Macau formula in countries such as Cambodia, the Philippines and Vietnam.


Suncity, Heng Sheng Group, David Group, Tak Chun, Jimei Group, Golden Group, Mega Stars and Golden Dragon are some of the Macau junket operators scouting opportunities overseas.  Heng Sheng, one of Macau's youngest junket outfits which is aiming to go public in the near future, has cooperation agreements with Danang's Crown Casino in Vietnam and in Walkerhill casino in South Korea.


"More junkets are looking at the cash and premium mass player for business opportunities," said Chien Lee, former chairman and chief executive of Iao Kun Group which is planning a Hong Kong listing.



Macau unemployment rate for August-October 2013 held stable at 1.9% in comparison with July-September.

CHART OF THE DAY: Confidence? No Thanks


CHART OF THE DAY: Confidence? No Thanks - cdrake

Confidence? No Thanks

“Well, there’s not a day that goes by when I don’t get up and say thank you to somebody.”

-Rod Stewart


Roderick gets it. The youngest of five kids, he wasn’t born into poverty or affluence. The 68 year old rocker from Highgate (North London) was born on my wife’s due date (pending baby #3 for us in January). And God knows, I have nothing but thanks for my family’s health and happiness as we move closer to game time.


I also wanted to take some time to thank you, our clients, for making all that we’ve set out to achieve here @Hedgeye possible. We’re going on 6 years since the founding of our firm. You’ve helped us create 50 jobs in America. For that I’m forever grateful.


With achievement comes great responsibility. Now that we have our new @HedgeyeTV studio and office space built out in Stamford, CT we’re looking forward to being the change we all want to see in both our community and profession.


Back to the Global Macro Grind


Change starts with being transparent and accountable. All great American (and Canadian) Patriots have held their government to account. While hope is not a reputational management strategy, I sincerely hope you see some of my anti-government rants in that light.


Yesterday’s declining US Consumer Confidence reading is case and point. While the US government and its un-elected @FederalReserve refuses to acknowledge this, there’s an implicit link between:


A) The Purchasing Power of The American People

B) US Consumer Confidence


In real-time economic strategy speak, we call these coincident indicators. As you can see in Christian Drake’s Chart of the Day (US Dollar vs. US Consumer Confidence going back to January, 2013), the following conclusion is also explicit:


1. The US Dollar locked in her YTD highs in the May-July period

2. US Consumer Confidence peaked in mid-July of 2013


Not only did confidence peak; now, alongside the US Dollar (down 3 weeks in a row), it’s starting to plummet. While the chart we are showing is the University of Michigan’s reading, every single US Consumer & Business Confidence survey we track looks the same:


1. US Conference Board Consumer Confidence reading for NOV = 70.4 vs 81.0 in JUL

2. University of Michigan Consumer Confidence reading for NOV = 72.0 vs 85.1 in JUL

3. NFIB Small Business Optimism reading for OCT = 91.6 vs 94.1 in JUL


In other words, as the US government signs off on this no-taper-zero%-rates-on-savings-US-Dollar-devaluation lie, the American people aren’t buying it.


Why? Because everyone who is literate in real-world economics realizes that the current @FederalReserve Policy To Inflate is only good for high income earners in America who are long of the @PIMCO Total Return fund and/or stocks, art, bubbles, etc…


Within another US Consumer Confidence data series, look at the Bloomberg Consumer Comfort readings by Income bracket:


1. INCOME $40,000-50,000 confidence reading for NOV = -45.6 vs -23.1 JUL

2. INCOME > $100,000 confidence reading for NOV = +16.9 vs 17.0 JUL


Notwithstanding the obvious (that low-income earners all have NEGATIVE confidence readings to begin with), this is a national embarrassment; especially for a US President who campaigns explicitly with class warfare words. Obama, what about the “folks?”


I didn’t grow up in a community where we assigned people to different “classes.” I’m the son of a firefighter and teacher who put two feet on the floor every morning just like everyone else. And when someone less fortunate than me needed help, it was my leadership responsibility to do so.


So I’d like to thank you again this morning for the opportunity to lead from the front. There has never been a country that has devalued its way to long-term economic prosperity. Perpetually devaluing the purchasing power of the poor (US Dollar) is wrong. And it’s our patriotic responsibility to end this never-ending-money-printing-policy before it’s too late.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.69-2.81%


VIX 11.91-13.61
USD 80.35-80.91

Brent 108.69-112.14

Gold 1


Best of luck out there today and Happy Thanksgiving to you and your loved ones,



Keith R. McCullough
Chief Executive Officer


Confidence? No Thanks - cdrake


Confidence? No Thanks - Virtual Portfolio

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