Keith's Macro Notebook 6/23: COMMODITIES XLE DUBAI

Retail Callouts (6/23): HE Retail Ideas List, LULU, ASOS, NKE, JCP, WMT

Takeaway: LULU: Wilson making noise at the board level - 3 ways to win, 1 to lose.



Retail Callouts (6/23): HE Retail Ideas List, LULU, ASOS, NKE, JCP, WMT - ideas




Wednesday (6/23)

  • BBBY - Earnings Call: 5:00pm


Thursday (6/24)

  • NKE - Earnings Call: 5:00pm


Friday (6/25)

  • FINL - Earnings Call: 8:30am




LULU - Lululemon Founder Fights for Company Control



  • "Lululemon Athletica founder Dennis 'Chip' Wilson is working with bankers at Goldman Sachs as he weighs options for shaking up the company's board and gaining more influence over the yoga gear maker's operations, people familiar with the situation said."
  • "The founder could launch a proxy fight to win additional board seats or partner with a private-equity firm in a buyout, another person familiar with the matter said. Alternatively, he could sell his stake, this person said. So far, Mr. Wilson hasn't made any decisions on further steps, said a different person familiar with his thinking who wouldn't elaborate on what is under consideration."
  • "Lululemon's board has sought advice from bankers in response, another one of the people said. The board hasn't been asked to act on a specific proposal from Mr. Wilson, and nobody has approached the board about possibly buying the company, the person said."


Takeaway: We added LULU to our Best Ideas list immediately following the company's latest disappointing quarter. Our rationale is NOT because this is a great company executing on a great growth plan.  Quite the opposite…it is that it is an outstanding brand that should see change to help it realize its true underlying growth potential.  With Wilson making noise at the Board level, we see three ways to win, and one way to lose. 1) Chip wins the board (at least it stops all the infighting -- win), 2) Chip wins the board and appoints himself CEO (that's the one thing that will cause us to pull the plug on this idea faster than you can say 'Down Dog'), 3) Chip orchestrates a buyout (shareholders win), or 4) Chip sells his stock (shareholders win BIG). We'll be hosting a conference call later this week to review our call. 




ASOS - Retailer Asos Resumes Taking Orders After Warehouse Fire



  • "British online fashion retailer Asos PLC started taking orders again early Monday after a fire at its main warehouse in northern England destroyed about of fifth of the stock at the site."
  • "The fire broke out late Friday at the distribution center in Barnsley where Asos said it held around 70% of its £159 million ($270 million) in inventory. Based on those figures for the end of May, the fire destroyed around £22 million in Asos products."
  • "Asos said it had taken down its website after the fire late Friday night ripped through four floors of the company's warehouse."


NKE - Trout becomes second MLB star with Nike shoe deal



  • "Mike Trout... became the first MLB player since Ken Griffey Jr. to have his own signature Nike shoes."
  • The kicks are going for $140...the line also includes gear like batting gloves, wristbands and hats."
  • "Check out the new Nike Lunar Vapor Trouts below, in stores on July 12…"


Retail Callouts (6/23): HE Retail Ideas List, LULU, ASOS, NKE, JCP, WMT - chart2 6 23


JCP - JCPenney Announces Closing of $2.35 Billion Credit Facility



  • "J. C. Penney Company, Inc. announced today that it has closed its new $2.35 billion asset-based senior secured credit facility, comprised of a $1.850 billion revolving line of credit and a $500 million term loan. The new facility replaces a $1.850 billion credit facility that was scheduled to mature in April 2016 and provides better pricing terms than the previous facility."
  • "Ed Record, Chief Financial Officer of JCPenney, said, 'We proactively pursued this new facility to extend the maturity several years and further enhance our liquidity position, particularly during periods of peak working capital needs.  We are pleased with the improved pricing terms of this facility as well as the support and confidence from our banking partners.'"


WMT - Wal-Mart Canada Names Dirk Van den Berghe



  • "Wal-Mart Canada...on Friday named Dirk Van den Berghe president and chief executive officer. Van den Berghe will begin on Aug. 1, reporting to Shelley Broader, who was recently promoted to president and ceo of Wal-Mart Stores Inc.’s EMEA region, which comprises the retailer’s operations in Europe, the Middle East, Africa and Canada."





  • "NIKE, Inc. today announced the appointment of Reenie Benziger as Vice President of Nike's global apparel business. Benziger will be responsible for the creation and production of all Nike apparel product globally.
  • Benziger moves from her current role as VP/GM of Global Young Athletes…"
  • "Carl Grebert, a 17-year Nike veteran, replaces Benziger as VP/GM of Global Young Athletes...Grebert most recently served as VP/GM of Nike Japan."


CA - Carrefour to Buy Dia France



  • "French retailer Carrefour SA has agreed to acquire Dia France, the French discount store chain operated by Distribuidora Internacional de Alimentación SA of Spain, three years after opting to spin them off."
  • "...Carrefour would acquire the more than 800 stores for an enterprise value of 600 million euros, or $816 million at current exchange. Carrefour said stores total about 5.9 million square feet and generate sales of 2.3 billion euros, or $3.05 billion, in 2013."
  • "Carrefour spun off the stores in 2011 as part of a larger plan to sell numerous assets following a drop in operating profits in its home market."


The latest Macau figures show table revenues at the familiar average of HK$775 million per day for last week (HK$5.425 billion for the week), exactly in-line with the comparable week of 2013.  As such, we don’t believe the number can be relied upon.  Our GGR expectation for flattish YoY growth for the full month of June remains.  


As you’ve probably read, there was a major bust of an Asian world cup betting ring, most of it in Macau.  Some of the arrests were apparently made at Wynn Macau where participants were operating out of one or more hotel rooms there.  We are hearing that players’ agents for one or more of the big junket operators were involved.  Here is a link to one of the articles:


It is our belief that junket volumes in June were negatively impacted as sports bets were redirected from the VIP tables.  The size of the illicit betting volumes is uncertain but it does appear to be sizeable.  Normalize the world cup activity and low hold, which we heard during my trip to Macau last week, and June may not have been that bad of a month for the casinos.  In addition, VIP volumes, while still weak, may not be as bad as the weekly numbers suggest.  The trade may be higher from here on these stocks.


MGM and SJM are outperforming thus far in June in terms of market share while Wynn and MPEL remain below trend.  MPEL may have more exposure to squeezed junkets than the other concessionaires which could be contributing to its weak share.  For Wynn we have downgraded our expectation for a more expansive credit policy with junkets.  Wynn looks to remain conservative in its approach given the uncertain environment.  





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 80.46%
  • SHORT SIGNALS 78.35%


Client Talking Points


The CRB Index (19 commodities) and CRB Food index powered fresh year-to-date highs last week of +11.8% and +22.8%, respectively. Oil is higher again this morning and even Copper is trying to breakout as Gold holds @Hedgeye $1285 support.


But but the SPX is up; yep, powered by Energy +2.6% to +14% year-to-date (and Utilities +2.2% to +14.5% year-to-date) last week as U.S. Consumer Discretionary (XLY) continues to eat it (-1.1% year-to-date); inflation slows real consumption growth; we continue to like long XLE + XLU; short XLY.


Pardon? Stock market down -6.2% this morning and has fallen -18% since June 1st. We don’t think the commodity complex has the energy side of the Middle East trade wrong; neither do the locals.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.


Three for the Road


U.S. GDP for Q114 should be revised to anywhere b/t down -1.5%-3%, depending on what inflation # the govt makes up




“The privilege of a lifetime is being who you are.”

-Joseph Campbell


Fance's June PMI slows again to 47.8 vs 49.6 last month.

CHART OF THE DAY: Inflation Ballers (Getting Paid By the Fed)

Takeaway: The only thing more dangerous than having a ball on Ronaldo’s foot in final minutes is having both Iraq & Fed come at you on oil inflation.


CHART OF THE DAY: Inflation Ballers (Getting Paid By the Fed) - Chart of the Day

Unstoppable Ballers

“Your love makes me strong; your hate makes me unstoppable.”

-Cristiano Ronaldo


If you’ve been following Team USA in the World Cup and didn’t know who Ronaldo was, now you know. Ronaldo’s sick pass in the final minute of last night’s USA-Portugal match reminded the ladies who is one of the best looking ballers in the game too!


To be fair, while he did get expelled for throwing a chair at his teacher, Ronaldo isn’t exactly a thug. His Mom was a cook and his Dad was a municipal gardener and they named him after Ronald Reagan. In 2009, the young Manchester United star with the flow became the highest paid footballer in the world.


Ronaldo plays for Real Madrid now and gets paid in a strengthening currency – British Pounds. After taxes, he makes 21M Pounds/year. That’s earnings, before-inflation-debauchery-accelerating (EBITDA - i.e. the unstoppable and un-legislated worldwide commodity inflation superimposed on poor people by the Fed).


Unstoppable Ballers - cristiano ronaldo therichest


Back to the Global Macro Grind


Unlike the US Federal Reserve, who knows how to trick people who wouldn’t know otherwise into believing that there is no inflation, after he shocks you with dramatic goals like he did yesterday, Ronaldo says “I don’t think about one trick or the other; they just happen.” #talent


As the Fed weakens the US Dollar, inflation just happens too:


  1. Last week the US Dollar Index was -0.3% to $80.33
  2. The CRB Commodities Index (19 Commodities) was up another +1% week-over-week to +11.8% YTD
  3. CRB Food Index was up another +2.1% on the week to +22.8% YTD


Yep, as Hemingway might have said, at first inflation happens slowly – then all at once. Here’s what some of the sub-components of commodity-inflation-expectations did AFTER the Fed cut its growth forecast and eased last week:


  1. Silver +6.1% on the week to +7.4% YTD
  2. Sugar +5.0% on the week to +10.0% YTD
  3. Gold +3.2% on the week to +9.2% YTD
  4. Nickel +2.7% on the week to +32.3% YTD
  5. Brent Oil +2.0% on the week to +5.8% YTD


True. Brent Oil isn’t really up that much, compared to Nickel. But West Texas Crude is up more than Silver, at +11.5% YTD! And, despite the bearish supply views of Consensus Macro on most things metals, I’m thinking +32.3% is getting someone paid in size being long #InflationAccelerating YTD.


But, but, “the Dow is up” … Uh, ok. It’s up a whopping +2.2% YTD.


If you want to be a real baller and be long the stuff in the US stock market that’s crushing a low-single digit performance # for the YTD, you need to be long of both inflation and the slow-growth it drives into the consumption core of America:


  1. Energy Stocks (XLE) up another +2.6% last week to +14.0% YTD
  2. Slow-growth Utilities (XLU) up another +2.2% last week to +14.5% YTD
  3. REIT stocks (MSCI Index) up another +1.6% last week to +15.8% YTD


Exactly. As long as the Fed won’t call the all-time highs in US Rents “inflation”, just buy exposure to the REIT and/or private equity firm that is going to jam his renters with more of it.


Other than currencies, commodities, and stock style factors, there are of course other ways to monitor what the real-time market thinks about #InflationAccelerating.


Five-year breakevens, for example, were up a full +11bps (basis points) last week to +26bps YTD. You can look at a chart of TIPs (Treasury Inflation Protection, which we continue to be long of on Real-Time Alerts terms too).


Or you can look at things like hedge fund net positioning via CFTC (Commodities Futures Trading Commission) net long and short positions:


  1. Gold’s net long position popped +15,292 to a net LONG position of +66,572 contracts last week
  2. Oil’s net long position ramped to an all-time high of +478,907 net LONGs (+39,087 net longer on the week)


Or you can just call all of this what it is. Because the only thing more dangerous than having the ball on Ronaldo’s foot in the final minutes of a game that is about to go bad is having both Iraq and the Fed come at you on oil inflation, all at once…


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.47-2.64%


VIX 10.11-12.98

USD 80.18-80.60

Pound 1.69-1.71

WTI Oil 106.01-107.98

Gold 1


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Unstoppable Ballers - Chart of the Day

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