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McCullough: Move Into 'Quad Four' May Mean Market Pain

 

Hedgeye CEO Keith McCullough discusses the move into Quadrant 4 of Hedgeye's proprietary Growth/Inflation/Policy (GIP) model and what it means for the markets in this excerpt from today's Morning Macro Call for institutional subscribers. Quadrant 4 is where both growth and inflation slow.   


LABOR DATA SOFTENS SLIGHTLY

Takeaway: Labor weakens a bit, on the margin.

Converging Toward Zero

After a very strong print last week, the labor data took a small step back this week with the rate of change slowing on both a 1-week and 4-week rolling basis. As we've stated often, it's important to remember that initial jobless claims reach a frictional level that they're unlikely to drop much below. This is not dissimilar from the unemployment hitting its frictional bottom at around 4%, i.e. "full employment". As such, as the level of initial claims approach that frictional bottom (~300k), one should expect the rate of change to converge toward zero. The question is, is there a conspicuous trend-line deviation in that rate of change?

 

With that being said, the data had recently been running at a fairly steady rate of ~10% improvement year-over-year. That is to say, claims are lower by 10% this year vs. last. This week saw claims better by around 6.5%, which is a deceleration vs the recent trend, but not out of line with the converging trend towards zero.

 

Bottom line: labor's still improving, but at a slowing rate.

 

The Data

Prior to revision, initial jobless claims rose 13k to 293k from 280k WoW, as the prior week's number was revised up by 1k to 281k.

 

The headline (unrevised) number shows claims were higher by 12k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -1.25k WoW to 298.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -6.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.3%

 

LABOR DATA SOFTENS SLIGHTLY - 2

 

LABOR DATA SOFTENS SLIGHTLY - 3

 

LABOR DATA SOFTENS SLIGHTLY - 4

 

LABOR DATA SOFTENS SLIGHTLY - 5

 

LABOR DATA SOFTENS SLIGHTLY - 6

 

LABOR DATA SOFTENS SLIGHTLY - 7

 

LABOR DATA SOFTENS SLIGHTLY - 8

 

LABOR DATA SOFTENS SLIGHTLY - 9

 

LABOR DATA SOFTENS SLIGHTLY - 10

 

LABOR DATA SOFTENS SLIGHTLY - 11

 

LABOR DATA SOFTENS SLIGHTLY - 19

 

Yield Spreads

The 2-10 spread rose 8 basis points WoW to 205 bps. 3Q14TD, the 2-10 spread is averaging 199 bps, which is lower by -21 bps relative to 2Q14.

 

LABOR DATA SOFTENS SLIGHTLY - 15

 

LABOR DATA SOFTENS SLIGHTLY - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Hedgeye Raises More Than $56,000 for Bridgeport Youth Program in Inaugural Charity Golf Tournament

Independent Financial Research Firm Raises Money for Bridgeport Caribe Youth Leaders (BCYL)

 

FOR IMMEDIATE RELEASE

 

STAMFORD, Conn – September 25, 2014 – Hedgeye Risk Management, today announced that it has raised over $56,000 to support Bridgeport Caribe Youth Leaders (BCYL) a 501(c)(3) youth organization in Bridgeport, CT committed to engaging young people in athletic, educational and community programs. The money was raised via Hedgeye Cares 1st Annual Charity Golf Challenge, which was held September 16th at the Great River Golf Course in Milford, CT.

 

In its inaugural year, the Hedgeye tournament attracted 91 golfers. It included a full day of lunch, golf, dinner and a silent auction later in the evening. The Lincoln Motor Company was the event’s Platinum Sponsor and offered participants test drives in their newest models. Other major Sponsors included Bloomberg, Salesforce, MBIA Foundation and Firefly Space Systems.

 

“I am deeply grateful to [Hedgeye CEO] Keith McCullough and the entire Hedgeye Cares team for their generous support to the Bridgeport Caribe Youth Leaders.  Their contribution will help us to continue to provide Bridgeport youth; the environment, resources and inspiration that foster leadership skills and values.  I admire Hedgeye’s commitment to the community and BCYL and look forward to a long lasting relationship together,” said BCYL President John Torres.

 

Hedgeye Raises More Than $56,000 for Bridgeport Youth Program in Inaugural Charity Golf Tournament - Keith McCullough John Torres

 

Some of the silent auction items donated included a Martha’s Vineyard vacation, a signed jersey and hockey stick from New York Ranger forward Martin St. Louis and a round of golf at the exclusive Sebonack Golf Club in Southhampton.

 

”We’ve been enormously blessed and are just trying to give a little something back to our community here in Connecticut. John Torres and his team at Caribe are working tirelessly to give kids in Bridgeport the tools they need to become tomorrow’s leaders and success stories,” said Hedgeye CEO Keith McCullough.

 

Click below to watch video highlights.

 

ABOUT HEDGEYE RISK MANAGEMENT


Hedgeye Risk Management is an independent investment research and media firm. Focused exclusively on generating and delivering actionable investment ideas in a proven buy-side process, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts, all with buy-side experience, covering Macro, Financials, Energy, Technology, Healthcare, Retail, Gaming, Lodging & Leisure (GLL), Restaurants, Industrials, Semiconductors, Consumer Staples, Internet & Media.

 

CONTACT: Dan Holland

dholland@hedgeye.com

203.562.6500


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REVISION - Retail Callouts (9/25): Farah/Burch, RL, KSS, RonJon, AMZN

Takeaway: Farah joins Tory Burch. Genius move as it preps to go public – but what a big black eye to Ralph Lauren – the person and the brand.

EVENTS TO WATCH

 

Thursday (9/25)

NKE - Earnings Call: 5:00pm

 

Friday (9/26)

FINL - Earnings Call: 8:30:am

 

COMPANY HIGHLIGHTS

 

RL - Roger Farah Joins Tory Burch as Co-CEO

(http://www.wwd.com/business-news/human-resources/roger-farah-joins-tory-burch-as-co-ceo-7941760?module=hp-topstories)

 

"Roger Farah didn’t wait long to make his next move. After stepping down as vice chairman at Ralph Lauren Corp. in May, Farah planned to take the summer off and think about new opportunities in the fall. On Wednesday, he made good on that promise — the second full day of fall."

"Farah, 61, has been named co-chief executive officer of Tory Burch, the privately held sportswear and accessories company, a new post. He was also appointed to the company’s board and took an equity stake in the business. He will report to Tory Burch, who is chairman and co-ceo."

 

REVISION - Retail Callouts (9/25): Farah/Burch, RL, KSS, RonJon, AMZN - 9 25 chart1 

Image Source: Women's Wear Daily George Chinsee

 

Takeaway:  This is a major surprise. If you didn't know that Tory Burch planned to go public, well now you know. Putting Roger Farah in the co-CEO role alongside Tory is genius. Tory's brand is clearly at the size where the eccentric/visionary founder can no longer rely on design and merchandising to take the company to the next level. But there is nobody in retail that has a more defined track record in doing this than Roger Farah (even though he was a bust in prior jobs at Foot Locker and Federated). Having Roger on board is easily good for 5-10 multiple points when it goes public. The bankers must be salivating. In fact, the bankers probably made this happen. We'd expect a deal in 12-18 months' time.  This is actually good for the space, we think. Coach is caput. Kors is losing its luster. And despite the fact that Kate's fundamentals are stellar, investors are scrutinizing every little word management utters. Having another public brand in Luxury might actually turn this into a real 'space' again. But one thing that is undeniable is that this is a colossal black eye for Ralph Lauren. Roger earned over $100mm in a decade and a half at Ralph Lauren, and then went 'part time' in November 2013. We never really heard of a 'part time' COO -- and that lasted all of six months until Roger officially retired.  RL's explanation was that 'he wants to spend more time with his family.' Either he's tired of his family...or he saw this opportunity coming down the pike all along. 

 

Former Apple retail chief Ron Johnson to launch gadget delivery service, report says

(http://appleinsider.com/articles/14/09/23/former-apple-retail-chief-ron-johnson-to-launch-gadget-delivery-service-report-says)

 

"According to a report on Tuesday, former Apple SVP of Retail Ron Johnson is looking to open an on-demand delivery service for electronic devices, a sector currently being explored by the likes of Amazon, Google and others."

 

Takeaway: The funny thing here is that the reporter is referring to RonJon as the former SVP of Apple Retail. In fairness, it's written from an Apple perspective. But how quickly people forget his wrath of value destruction at JC Penney.

 

KSS - Kohl's Pulls Men's Parka After Humane Society Probe

(http://www.wwd.com/retail-news/department-stores/kohls-pulls-mens-parka-after-humane-society-probe-7940832?module=Retail-latest)

 

"In response to an investigation led by The Humane Society of the United States Kohl's has stopped selling a men's R&O parka with fur trim that was being marketed as faux fur."

"Kohl's said 'No such authorization was given here. Once aware that the product was made with real fur, Kohl's immediately removed the product from our website.'"

 

Takeaway: Nothing to make a big deal about unless you are a red paint thrower. Just another whoops for the quality control team. This is the 2nd time in 2 years that the company peddled mislabeled fur products on its site. The fine for this type of offense = $16,000, that is if someone wants to go to the trouble of bringing a civil suit to court. All in, this is pretty much a non-event.

 

OTHER NEWS

 

HBC - Saks Fifth Avenue Heads Downtown

(http://online.wsj.com/articles/saks-fifth-avenue-heads-downtown-1411560305)

 

"Hudson's Bay expects to open a 85,000-square-foot Saks Fifth Avenue store at Brookfield Place in spring 2016 and a 55,000-square-foot Saks Fifth Avenue Off Fifth discount outlet in fall 2017 at One Liberty Plaza."

 

Caroline Brown Said Headed to Donna Karan

(http://www.wwd.com/business-news/human-resources/brown-said-headed-to-donna-karan-7942281?module=hp-topstories)

 

"Sources indicated Wednesday that Caroline Brown’s new job will be as chief executive officer of Donna Karan International, succeeding Mark Weber. WWD reported Wednesday that Brown was stepping down as president at Carolina Herrera at the end of the year to take on a new job, which could not immediately be learned."

 

AMZN - DHL Beats Amazon, Google to First Planned Drone Delivery

(http://www.bloomberg.com/news/2014-09-25/dhl-beats-amazon-google-to-first-scheduled-drone-delivery.html)

 

"Deutsche Post AG, Europe’s largest postal service, is about to begin deliveries of medication and other urgent goods to the island of Juist using unmanned helicopters after securing approval from state and federal transport ministries and air traffic control authorities to operate in a restricted flight area. The vehicles, called parcelcopters, will operate from tomorrow, weather permitting, and fly for four to six weeks in the pilot project, the Bonn-based company said yesterday."

 

HAS, DIS, MAT - Hasbro Swipes Disney’s ‘Frozen,’ Princess Licenses

(http://www.bloomberg.com/news/2014-09-24/hasbro-swipes-disney-s-frozen-princess-licenses-from-mattel.html)

"In a major coup, the company known for Transformers and G.I. Joe announced yesterday that it secured the doll license starting in 2016 for two juggernauts of the girls toy aisle with Walt Disney Co.’s “Frozen” and Princess brands. Even better for Hasbro is that it’s taking the rights to make Elsa and Cinderella figurines from larger rival, Mattel Inc."

 

AMZN - Amazon’s Twitter E-Commerce Integration Now Adds To Your Wish List With An #AmazonWishList Tweet

(http://marketingland.com/amazon-twitter-extend-e-commerce-ties-amazonwishlist-101171)

 

"Amazon expanded its Twitter e-commerce integration today, giving users the ability to add to Amazon wish lists using the hashtag #AmazonWishList in a reply to a tweet."

"In May Amazon launched a variant of this feature that enabled customers to drop items they discovered on Twitter into their shopping carts — using #AmazonCart in replies."


REVISION - Retail Callouts (9/25): Farah/Burch, RL, KSS, RonJon, AMZN

Takeaway: Farah joins Tory Burch. Genius move as it preps to go public – but what a big black eye to Ralph Lauren – the person and the brand.

EVENTS TO WATCH

 

Thursday (9/25)

NKE - Earnings Call: 5:00pm

 

Friday (9/26)

FINL - Earnings Call: 8:30am

 

COMPANY HIGHLIGHTS

 

RL - Roger Farah Joins Tory Burch as Co-CEO

(http://www.wwd.com/business-news/human-resources/roger-farah-joins-tory-burch-as-co-ceo-7941760?module=hp-topstories)

 

  • "Roger Farah didn’t wait long to make his next move. After stepping down as vice chairman at Ralph Lauren Corp. in May, Farah planned to take the summer off and think about new opportunities in the fall. On Wednesday, he made good on that promise — the second full day of fall."
  • "Farah, 61, has been named co-chief executive officer of Tory Burch, the privately held sportswear and accessories company, a new post. He was also appointed to the company’s board and took an equity stake in the business. He will report to Tory Burch, who is chairman and co-ceo."

 REVISION - Retail Callouts (9/25): Farah/Burch, RL, KSS, RonJon, AMZN - 9 25 chart1

Image Source: Women's Wear Daily, George Chinsee

 

Takeaway:  This is a major surprise. If you didn't know that Tory Burch planned to go public, well now you know. Putting Roger Farah in the co-CEO role alongside Tory is genius. Tory's brand is clearly at the size where the eccentric/visionary founder can no longer rely on design and merchandising to take the company to the next level. But there is nobody in retail that has a more defined track record in doing this than Roger Farah (even though he was a bust in prior jobs at Foot Locker and Federated). Having Roger on board is easily good for 5-10 multiple points when it goes public. The bankers must be salivating. In fact, the bankers probably made this happen. We'd expect a deal in 12-18 months' time.  This is actually good for the space, we think. Coach is caput. Kors is losing its luster. And despite the fact that Kate's fundamentals are stellar, investors are scrutinizing every little word management utters. Having another public brand in Luxury might actually turn this into a real 'space' again. But one thing that is undeniable is that this is a colossal black eye for Ralph Lauren. Roger earned over $100mm in a decade and a half at Ralph Lauren, and then went 'part time' in November 2013. We never really heard of a 'part time' COO -- and that lasted all of six months until Roger officially retired.  RL's explanation was that 'he wants to spend more time with his family.' Either he's tired of his family...or he saw this opportunity coming down the pike all along. 

 

Former Apple retail chief Ron Johnson to launch gadget delivery service, report says

(http://appleinsider.com/articles/14/09/23/former-apple-retail-chief-ron-johnson-to-launch-gadget-delivery-service-report-says)

 

  • "According to a report on Tuesday, former Apple SVP of Retail Ron Johnson is looking to open an on-demand delivery service for electronic devices, a sector currently being explored by the likes of Amazon, Google and others."

 

Takeaway: The funny thing here is that the reporter is referring to RonJon as the former SVP of Apple Retail. In fairness, it's written from an Apple perspective. But how quickly people forget his wrath of value destruction at JC Penney.

 

KSS - Kohl's Pulls Men's Parka After Humane Society Probe

(http://www.wwd.com/retail-news/department-stores/kohls-pulls-mens-parka-after-humane-society-probe-7940832?module=Retail-latest)

 

  • "In response to an investigation led by The Humane Society of the United States Kohl's has stopped selling a men's R&O parka with fur trim that was being marketed as faux fur."
  • "Kohl's said 'No such authorization was given here. Once aware that the product was made with real fur, Kohl's immediately removed the product from our website.'"

Takeaway: Nothing to make a big deal about unless you are a red paint thrower. Just another whoops for the quality control team. This is the 2nd time in 2 years that the company peddled mislabeled fur products on its site. The fine for this type of offense = $16,000, that is if someone wants to go to the trouble of brining a civil suit to court. All in, this is pretty much a non-event. 

 

 

OTHER NEWS

 

HBC - Saks Fifth Avenue Heads Downtown

(http://online.wsj.com/articles/saks-fifth-avenue-heads-downtown-1411560305)

 

  • "Hudson's Bay expects to open a 85,000-square-foot Saks Fifth Avenue store at Brookfield Place in spring 2016 and a 55,000-square-foot Saks Fifth Avenue Off Fifth discount outlet in fall 2017 at One Liberty Plaza."

 

Caroline Brown Said Headed to Donna Karan

(http://www.wwd.com/business-news/human-resources/brown-said-headed-to-donna-karan-7942281?module=hp-topstories)

 

  • "Sources indicated Wednesday that Caroline Brown’s new job will be as chief executive officer of Donna Karan International, succeeding Mark Weber. WWD reported Wednesday that Brown was stepping down as president at Carolina Herrera at the end of the year to take on a new job, which could not immediately be learned."

 

AMZN - DHL Beats Amazon, Google to First Planned Drone Delivery

(http://www.bloomberg.com/news/2014-09-25/dhl-beats-amazon-google-to-first-scheduled-drone-delivery.html)

 

  • "Deutsche Post AG, Europe’s largest postal service, is about to begin deliveries of medication and other urgent goods to the island of Juist using unmanned helicopters after securing approval from state and federal transport ministries and air traffic control authorities to operate in a restricted flight area. The vehicles, called parcelcopters, will operate from tomorrow, weather permitting, and fly for four to six weeks in the pilot project, the Bonn-based company said yesterday."

 

HAS, DIS, MAT - Hasbro Swipes Disney’s ‘Frozen,’ Princess Licenses

(http://www.bloomberg.com/news/2014-09-24/hasbro-swipes-disney-s-frozen-princess-licenses-from-mattel.html)

  • "In a major coup, the company known for Transformers and G.I. Joe announced yesterday that it secured the doll license starting in 2016 for two juggernauts of the girls toy aisle with Walt Disney Co.’s “Frozen” and Princess brands. Even better for Hasbro is that it’s taking the rights to make Elsa and Cinderella figurines from larger rival, Mattel Inc."

 

AMZN - Amazon’s Twitter E-Commerce Integration Now Adds To Your Wish List With An #AmazonWishList Tweet

(http://marketingland.com/amazon-twitter-extend-e-commerce-ties-amazonwishlist-101171)

 

  • "Amazon expanded its Twitter e-commerce integration today, giving users the ability to add to Amazon wish lists using the hashtag #AmazonWishList in a reply to a tweet."
  • "In May Amazon launched a variant of this feature that enabled customers to drop items they discovered on Twitter into their shopping carts — using #AmazonCart in replies."

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