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Video: How This Trend Will Impact Certain Tech Stocks This Summer


Cartoon of the Day: Blowing Bubbles

Here’s the handiwork of our unelected, unaccountable central planners.

 

Cartoon of the Day: Blowing Bubbles - Fed bubbles cartoon 07.09.2 14

 

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FLASHBACK | Selling: Russell Levels, Refreshed $RUT $IWM

Takeaway: As you think about how painful it might be to short the domestic growth style factor right here, it probably felt the same in March too.

Editor's note: The following note was written by Hedgeye CEO Keith McCullough on July 01, 2014 at 11:57 in Macro. The Russell 2000 is down approximately 3% since. If you're a professional looking for a research edge click here for more information on how you can subscribe. 

POSITION: 7 LONGS, 8 SHORTS

 

I #timestamped my most recent cover signal on the Russell 2000 on June 12th, so there’s been a lot of waiting and watching going on for the better part of the last 3 weeks. While not perfect, over the years I have had to teach myself to act on my signals, not my emotions.

 

Being bearish on US consumption growth (and the highest multiple growth stocks within the Russell that are tied to US demand) doesn’t have to be accepted at every time and price. Hedge fund consensus dog piled the short side of the market in May. I think June’s meltup had a lot to do with that.

 

Which brings us to today – Happy Canada Day! And a fresh SELL signal at 1208.

 

There are a few things to note about the 1208 line. Most importantly, it’s where you could have sold the Russell before its 10% draw-down. And maybe as importantly, now it’s easier to see all the reasons why you’d have sold growth in March (and bought inflation and slow-growth #YieldChasing).

 

For now, across our core risk management durations, here are the lines that matter to me most:

 

  1. Immediate-term TRADE overbought = 1208
  2. Intermediate-term TREND support = 1169

 

In other words, my risk management model considers a -3% correction from this level more than improbable. And as you think about how painful it might be to short the domestic equity style factor of the market right here and now, it probably felt the same way in March too.

 

From a fundamental research perspective, we still think #Q3Slowing will be the story Consensus Macro will have to re-adjust for from now until September. We’ll host our Q3 Macro Themes call on why next Friday.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

FLASHBACK | Selling: Russell Levels, Refreshed $RUT $IWM - keith1


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Retail Callouts (7/9): NKE, AdiBok, SHLD, TGT, KSS

Takeaway: NKE walks away from ManU - Adi close to £750mm deal. NKE releases new football clear. SHLD sets the standard for buy online/pick up in store

EVENTS TO WATCH

 

Thursday (7/10)

  • FDO - Earnings Call: 10:00am

 

Friday (7/11)

  • PSMT - Earnings Call: 12:00pm

 

COMPANY HIGHLIGHTS

 

NKE, AdiBok - Nike Says Manchester United Jersey Deal to End Over Valuation

(http://www.bloomberg.com/news/2014-07-08/nike-said-to-exit-manchester-united-jersey-talks-over-valuation.html)

 

  • "Nike Inc.’s 13-year relationship with Manchester United will end next season because renewal terms sought by the record 20-time English champion were excessive…"
  • "The current contract, signed in 2002, is worth a minimum of 23.3 million pounds a year to United through the 2014-15 season. The team wanted to increase that to more than 60 million pounds, a person familiar with the discussions said yesterday."
  • “'Any partnership with a club or federation has to be mutually beneficial,' Beaverton, Oregon-based Nike said in an e-mailed statement. 'The terms that were on offer for a renewed contract did not represent good value for Nike’s shareholders.'”

 

Takeaway: For our thoughts on the topic see our note from this morning. Link: https://app.hedgeye.com/feed_items/36606-nke-walking-away-from-manchester-united-deal?page=1

 

NKE - ACCELERATING ATHLETES THROUGH INNOVATION: NIKE VAPOR ULTIMATE CLEAT

(http://nikeinc.com/news/accelerating-athletes-through-innovation-nike-vapor-ultimate-cleat)

 

  • "New Nike Vapor Ultimate Cleat combines Nike Flyknit and game-changing plate technology for unprecedented lightweight speed and strength."
  • "Nike Flyknit debuted with the Nike Flyknit Racer in 2012 and more recently in the KOBE 9 Elite basketball shoe, Nike Magista soccer boot and Nike Mercurial Superfly."

 

Retail Callouts (7/9): NKE, AdiBok, SHLD, TGT, KSS - chart1 7 9

 

Takeaway: After a black eye in Brazil yesterday and reports that the company is terminating its 13 year partnership with ManU, NKE could use a tire pump. This new football cleat (American football this time) release is textbook Nike. Take an existing piece of innovation, incorporate it across product categories (running, basketball, soccer, football), stager the release dates, issue a press release and voila. There's not another player in the game that can create the type of buzz around product launches like Nike.

 

SHLD, TGT, KSS - Sears, Kmart Team to Expand Free Store Pickup to More Than 2,000 Locations

(http://searsholdings.mediaroom.com/index.php?s=16310&item=137295)

 

  • "Sears and Kmart, two leading integrated retailers focused on making shopping easier for Shop Your Way members and customers, are introducing a unique online/in-store collaboration to allow pick up of sears.com or kmart.com orders at any of each other's stores – more than 2,000 locations nationwide – ready in five minutes or less."

 

Takeaway: Rarely does SHLD set the standard in this space, but this buy online/ pickup in store initiative across banners is impressive. TGT and KSS take note. Both are way behind Sears and Kmart, with TGT rolling out buy online/pickup in store nationwide in fall '13 and KSS set to begin the program in 3 markets during the 3rd quarter of this year. If more purchases are going to shift to the internet then at least give consumers a reason a convenient reason to visit your stores. They may even go inside.

 

OTHER NEWS

 

KORS - Michael Kors Taps Mark Brashear as Part of Major Men's Push

(http://www.wwd.com/menswear-news/designer-luxury/michael-kors-taps-brashear-as-part-of-major-mens-push-7789920?module=hp-topstories)

 

  • "On Tuesday, the company revealed that Mark Brashear, who resigned last month as chairman and ceo of Hugo Boss Americas, has been brought on board as global men’s wear president for the rapidly growing Kors brand. Brashear will spearhead a major expansion of the company’s men’s business, which will include the rollout of freestanding men’s stores starting next year as well as the extension into new categories, as Kors surges toward its goal of building a $1 billion men’s brand."

PURCHASE APPS SLIGHTLY BETTER TO START 3Q

Takeaway: 3Q begins with a small bounce in purchase applications but the divide between PHS and purchase apps remains extreme.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Compendium 070914

 

Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended July 4. 

 

The data reflected a modest Increase to start 3Q with a +3.7% WoW increase in Purchase Apps and a +0.4% increase in Refi’s driving a +1.2% increase in the Composite Index

 

While we still aren't seeing any meaningful signs of a positive inflection in demand, moving forward, it's probable we see continued improvement from a rate of change perspective (YoY will improve even if purchase index level stays static) as comps ease through 2H.  

 

Here's a summary look at the data: 

Composite Index:  +1.2% sequentially and the first positive week in the last four.  

 

Purchase Apps:  First increase in 4 weeks with purchase demand +3.7% WoW, taking the Index back above the 180 level (181.7).  YoY improves to  -9.9% from -15.9% prior as we continue move past peak 2013 comps.

 

Refi:  Up +0.38% sequentially with the YoY improving to -45.9% from -48.5 prior with rates holding just above their best levels of the TTM. 

 

30Y Rates: Tick up +4bps WoW to 4.32% but holding near the best levels of the last year.  The latest week marks the 3rd consecutive week 30Y FRM rates are down on a YoY basis.  

 

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Purchase   Refi YoY   

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Purchase LT   Summary Stats 

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Purchase Index   YoY Qtrly 

 

 PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Composite Index   YoY Qtrly

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - Composite LT   Summary Stats 

 

PURCHASE APPS SLIGHTLY BETTER TO START 3Q - 30Y Rates

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

Joshua Steiner, CFA

 

Christian B. Drake


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