[video] The 3 Most Overrated Economists in the World

Lots of Tweeting

This note was originally published January 22, 2014 at 07:58 in Morning Newsletter

“You have to earn your followers at the outset of your company… and you must value them every day.” -John Hamm 

The big picture

So I was tweeting yesterday and one of my followers tweeted that I’d just tweeted my 100,000th tweet. Fully loaded, with using the word tweet 6x in this opening paragraph of today’s rant, that’s a lot of tweeting.


Lots of Tweeting - tbanner


One of the main reasons why I have so many bloody tweets is that I do this thing called The #TweetShow. For those of you who have a day job, you probably don’t have time to watch it – but I’ll fire it up every day that I can at 3PM EST and tweet the US market close. I tweet once every 1-1.5 minutes. *Full Disclosure: Twitter has shut down my account, multiple times, for excessive throttling.


Throttling? Not to be confused with trading, high-frequency-tweeting the close is a new idea. From a positioning perspective, it’s my way of telling you what I think and when during the most important decision making hour of my day. It’s not for everyone (that’s why I do it). And I can’t say why so many people follow it, but I can say thank you to whoever tunes in.

Macro grind

From a financial media perspective, the alternative to listening to some tunes and watching my team and I of 30 analysts grind through tickers is listening to people who have never played the game tell you everything they know about it on TV.


As a disruptor in a profession in dire need of evolution, I definitely come up with my fair share of dumb ideas. But #TweetShow is not one of them. It’s turned into a much better feedback loop than anything I ever had running my hedge fund. You’d be amazed what crowd-sourcing a real-time stream of comments about all your positions does. I value the crowd’s feedback, every day.


Three years ago I called Twitter “The New Tape.” And the point I was trying to make there was that 10-15 years ago (when I was learning this game), I’d watch the tape (tickers, news, bid/ask, etc.) as I was making decisions. Now I watch my custom tweet-stream. From a #behavioral perspective, the contra-indicators (tweeters) I follow are as critical as the news-flow itself.


One of my contra-indicators for the last 3-4 years has been Nouriel Roubini. While I’m sure he is a rock-star and all, I can’t for the life of me understand why he is tweeting me pics of himself with his shirt undone to mid-chest with a bunch of failed economists from #Davos this morning.


I have an academic channel on Twitter (it’s a contra-stream) than includes:

  1. Nouriel Roubini
  2. Mohamed El-Erian
  3. David Blanchflower

… and many more.


But instead of journos drooling over the idea of having them endow us with their non-market-practitioner intellect, let’s just look at these 3 characters for who they have become since the “great depression” freak-out thing, or whatever they are calling it now.

  1. Roubini just went bullish on growth (after growth shocked he and mostly every economist @Davos to the upside last year)
  2. El-Erian just left working with Gross (after he got the “new normal” thing of 1-1.5% growth and long bonds forever = #wrong)
  3. Blanchflower just tweeted something else that I don’t understand

Blanch is a beauty. He fits my contra-stream profile perfectly. He’s the professor of Keynesian economics @Dartmouth who swore (2-3 yrs ago) that austerity (read, fiscal conservatism and a stronger currency) would spell the end of economies and life itself in the UK.


In other news…

  1. UK unemployment drops to a 4.5 yr low (biggest drop since 1997) of 7.1% versus 7.4% last
  2. UK Services and Manufacturing PMI readings are tracking at 15-18 year highs
  3. UK’s currency (British Pound) is up another +0.4% to $1.65 vs USD this morning

Now, maybe our economic model is for dummies, but it’s better than theirs. As a refresher, here’s how our GIP (Growth, Inflation, Policy) model works:

  1. POLICY: on the margin, fiscal conservatism and less monetary stimuli strengthen a country’s currency
  2. INFLATION: it’s local (priced in local currency) and it falls when purchasing power (currency) strengthens
  3. GROWTH: real (inflation adjusted) consumption growth (and confidence) are perpetuated by #StrongCurrency

In other words, instead of an elegant sounding linear academic theory, our process is more like Mucker’s PIG than anything else. We start with POLICY, then move onto making INFLATION and GROWTH calls from there.


The other big thing about respect being earned on Twitter (instead of allocated to guys who made a bear market call we made 6 years ago, and haven’t made the right call since), is that there is an obviousness to consensus.


Last year our call was the #DeflatingTheInflation via #StrongDollar = US #GrowthAccelerating. Now our call is for US #InflationAccelerating and consumption #GrowthSlowing. And I’m smiling because no one on my contra-stream tweeted that yet.

  • CASH: 28

Our levels

Our immediate-term Risk Ranges are now as follows (our top 12 macro ranges are in our Daily Trading Ranges product):


SPX 1826-1855

Shanghai Comp 1991-2069

Pound 1.63-1.65

Natural Gas 4.28-4.55

Gold 1223-1267


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Lots of Tweeting - Chart of the Day

Bullish UK Charts

We received more positive economic data out of the UK this morning, in line with our Q4 2013 and Q1 2014 macro themes of #EuroBulls and #GrowthDivergences, respectively, that forecast a bullish outlook for UK equities and the British Pound.

  • The ILO Unemployment Rate ticked down to 7.1% in NOV vs 7.4% in OCT and expectations of 7.3%.
  • BOE Minutes released showed a 9-0 decision to keep the benchmark rate unchanged and the asset purchase target unchanged.

UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which we expect should provide further strength to the equity market and currency. The decline in the unemployment rate represents the largest decline in almost 5 years! Additionally we’re seeing CPI also moderated, down 10bps to 2.0% in DEC Y/Y in the last reading – we expect this cut to boost business and consumer confidence and increase purchasing power and consumption.


Bullish UK Charts - vv. unemployment


Bullish UK Charts - vv. cpi


While the FTSE (etf EWU) is approaching immediate term TRADE overbought level, it’s trading well above its intermediate term TREND level of support.


Bullish UK Charts - vv. ftse


On the currency side, we remain bullish on the British Pound versus the US Dollar (etf FXB), a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve). This was confirmed once again by the Minutes released today, which continues to stoke the Pound. The Bank said there was no need to raise rates even if the unemployment rate hits 7% in the near future.


The British Pound is holding its Bullish Formation, which we expect will continue to be supported by prudent monetary policy from the BOE and strengthening economic fundamentals.


Bullish UK Charts - vv. pound 


Matthew Hedrick


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%

Tough Game Coach! $COH

Takeaway: Either they're being conservative (not) or there's a bigger problem at hand (likely).

Editor's note: This is an excerpt from Hedgeye Retail Analyst Brian McGough's morning research. To learn more about our range of subscriber services click here.

Tough Game Coach! $COH - coach


Coach has been one of our top shorts, and we knew numbers had to come down. But admittedly, we did not pinpoint this EPS print as the event.


There were so many callouts in this quarter we almost don't know where to begin. a) sales down 3%, b) inventories up 12%, c) gross margins down 300bp, d) EPS miss by 5%, e) take down margin guidance -- finally -- to 26-27%. It still needs to come down, e) take down sales guidance as well -- which is interesting in that it's logical to think that they need to pick either margin, or top line.


Tough Game Coach! $COH - bri1 

Either they're being conservative (not) or there's a bigger problem at hand (likely). The lack of leadership is still concerning. But not as concerning as its trajectory in the SIGMA chart above. 

Join the Hedgeye Revolution. 

What's New Today in Retail (1/22)

Takeaway: Sales trending down, painfully. COH capitulates - we’re still short. WWW’s new Merrell line a step in right direction. AMZN/Zappos M JWN



ICSC - Chain Store Sales Index


Takeaway: Retail can't get out of its own way. Sales are down sequentially, and are showing an abysmal year/year growth trajectory. Clearly, the malaise that started in the last week of December has not ended.


What's New Today in Retail (1/22) - chart3 1 22

What's New Today in Retail (1/22) - chart4 1 22




COH - COH Q214 Earnings


Takeaway: Coach was one of our top shorts, and we knew numbers had to come down. But admittedly, we didn't pinpoint this EPS print as the event. There were so many callouts in this quarter we almost don't know where to begin. a) sales down 3%, b) inventories up 12%, c) gross margins down 300bp, d) EPS miss by 5%, e) take down margin guidance -- finally -- to 26-27%. It still needs to come down, e) take down sales guidance as well -- which is interesting in that it's logical to think that they need to pick either margin, or top line. Either they're being conservative (not) or there's a bigger problem at hand (likely). The lack of leadership is still concerning. But not as concerning as its trajectory in the SIGMA chart below.


What's New Today in Retail (1/22) - chart1 1 22


WWW - Fall Preview: Merrell



  • "For fall ’14, the brand brings low-profile and responsive constructions to light hiking and trail running styles; mapped insulation and two lug densities for grip to winter hikers; and lugged outsoles with hiking-boot inspired details for more casual products. Priced from $100 to $200, the line will begin to deliver in July to outdoor shops, footwear independents and online accounts"


What's New Today in Retail (1/22) - chart2 1 22


Takeaway: Nice shift for Merrell away from it's traditional styles. What's even more encouraging for us is that new President Gene McCarthy likely had minimal impact on these styles. He simply has not been there long enough. We'd look for a stronger 'McCarthy presence' in the product in the Spring.


AMZN - Amazon to Start Collecting NC Sales Tax Next Month 



  • "Amazon has struck a deal to start collecting sales tax Feb. 1 from its customers in North Carolina, according to the News & Observer newspaper of Raleigh."
  • "North Carolina assesses a state sales tax of 4.75 percent, but the state’s residents generally pay 6.25 to 7.5 percent due to additional city and county sales taxes. Amazon had already agreed to start collecting sales taxes in South Carolina starting in 2016. The online retailer has now reached such agreements with 19 states, often after agreeing to invest millions of dollars and hire thousands of workers to build and run distribution centers that provide same-day delivery within a certain radius."


Takeaway: Amazon continues to build out its network of distribution centers. Currently, Amazon is only required to collect sales tax from customers in states in which it has a 'physical presence'. So with each new agreement to pay sales tax it means a new DC for AMZN - we have to think there is a trade-off between the states and AMZN, on one hand the states can begin collecting sales tax and on the other AMZN is more than likely receiving tax incentives for creating new jobs.


AMZN - Andre Leon Talley, Zappos to Relaunch Couture Site



  • " will debut its redesigned site today with artistic and editorial direction from former Vogue editor André Leon Talley."
  • "The company tapped Talley as artistic director of the digital platform as part of its continued expansion into the luxury market."


Takeaway: Zappos seems to be having early success in entering the luxury market. We were shocked at the quality of the brands sold on the site.


M - Macy’s opens Super Bowl shop in Herald Square flagship



  • "In anticipation of Super Bowl XLVIII, Macy’s has opened an exclusive NFL Shop at Super Bowl on the fourth floor of its flagship Herald Square in New York City. Macy’s will keep the 36,000-sq.-ft. space open through Tuesday, Feb. 4."


Takeaway: Macy's must be thanking the NFL for sending them 0 East Coast teams to the Super Bowl in New York. We don't even think an uptick in Richard Sherman jersey sales can offset that absence. Nonetheless, we give Macy's credit for attempting to capitalize on the big event being held in the NY Area.


JWN - Nordstrom to open online fulfillment center



  • "Nordstrom plans to open its third fulfillment center at Conewago Industrial Park in Elizabethtown, Pa., in summer 2015."
  • "The new facility joins the company's existing fulfillment centers in Cedar Rapids, Iowa, and San Bernardino, Calif."


Takeaway: JWN gets e-commerce and executes better than anyone in the business. This is another piece of their growth strategy and will be used to support the company's 3 sites: Nordstrom's, Nordstrom's Rack, and Hautelook.


PartyCity -Party City files for IPO of up to $500 mln



  • "Party City Holdco Inc...filed with U.S. regulators to raise up to $500 million in an initial public offering of common stock."
  • "...Party City has 40,000 retail outlets worldwide, which include its own stores, independent party supply stores and grocery retailers."
  • "The company, whose biggest markets include UK, France, Germany and Australia apart from North America, reported a net loss of $51.7 million and revenue of $1.33 billion for the nine months ended Sept. 30."


Takeaway: We didn't realize that Party City had a presence outside the US. Little known fact, one of the higher profile executives in the company is the CPO -- or Chief Party Officer. It's that person's job to ensure that there are always parties being thrown for one reason or another. 


DOTS - Dots Joins Clothing Retailers Filing for Bankruptcy



  • "Dots LLC, the 400-store clothing chain for young women, filed for bankruptcy protection, blaming prior management, the economy and leases that cost too much."
  • "The company, founded 27 years ago outside Cleveland, has arranged to borrow $36 million to keep operating as it reorganizes under court protection and implements a new merchandising strategy, according to an e-mailed statement."


Takeaway: Another regional apparel discounter bites the dust. We wish it the best with its $36mm loan, but our sense is that it will simply prolong the inevitable. Our bet is that DOTS is done. Few and far between are the regional department store chains that have earned the right to exist.


[video] Keith's Macro Notebook 1/22: CHINA UK RUSSELL

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