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Contributor Call: Short Monsanto ($MON), Says BluePac's Chris Sommers


Hedgeye CEO Keith McCullough talks to Seeking Alpha Contributor and BluePac managing partner Chris Sommers about Sommers' high conviction short idea, Monsanto.

Retail Callouts (10/20): RL, NKE, BBBY, URBN, JWN, M, DKS, GPS, VFC, AdiBok

Takeaway: Changes to our Ideas list: Longs (RL, NKE, BBBY, URBN, JWN), Shorts (M, DKS, GPS). VFC earnings. Reebok sale - more noise than possibility.



Retail Callouts (10/20): RL, NKE, BBBY, URBN, JWN, M, DKS, GPS, VFC, AdiBok - 10 20 chart1


This week's changes


RL: Moved from Bench to Core Longs. The company should earn more than $10 next year. In the $150s, this is about as cheap as RL will get.

NKE: Like RL, moved from the Bench to Core Longs. We've been waiting for a pullback to get louder. But fundamentally, that's unlikely to happen. Expectations for the current year might be in check, but one thing people consistently underestimate is not necessarily the strength of the business, but the duration over which that strength sustains itself.

BBBY: It's at the top of our Long Bench. BBBY is a quality company with a great management team, but one that missed for the better part of two years after integrating Cost Plus. But in the latest quarter it finally showed improvement in most metrics. That's hindsight, but it's our sense that the rebound could last as long as the downturn -- if not longer.

URBN: Booted from the Long Bench. We've been waiting for a reason to be more constructive on URBN. Last week's announcement about weak comps at Anthro gave us the opposite. One thing about concepts that have such high sales productivity is that they take very long to inflect -- both positive and negative. We've got some time on this one.

JWN: In conjunction with our Department Store deep dive last week, we added JWN to our Long Bench. Tough to argue that JWN actually works if the significantly negative fundamental trends (i.e. 1,000 store closures) takes place. But the reality is the company is well positioned for how consumer shopping patterns are changing. We like it long term, and at the right price. 



M: Added to Core Shorts. We get the whole 'best in breed' thing, as well as its focus on Omni-channel, and Localized selling. But the fact is that when we're calling for 16% of department store square footage to exit the industry, Macy's will feel the pain along the way. It's too big not to.

DKS: Still on our Core Short list, but if we get the sense that Sears is taking a turn for the worse, then it will benefit DKS on the margin. Everyone thinks that DKS and TSA are the biggest sporting goods retailers in the US. They're not. It's Sears, by a long shot.

GPS: Moved two notches higher on our Bench. Gap is not in trouble because Glenn Murphy is leaving. Glenn Murphy is leaving because Gap is in trouble. Big difference.




Wednesday (10/22)

SKX - Earnings Call: 4:30pm


Thursday (10/23)

CRI - Earnings Call: 8:30am

UA - Earnings Call: 8:30am

CAB - Earnings Call: 11:00am

KER-FR - Earnings Call: 12:00pm

DECK - Earnings Call: 4:30pm

AMZN - Earnings Call: 5:00pm




VFC - 3Q14 Earnings


Retail Callouts (10/20): RL, NKE, BBBY, URBN, JWN, M, DKS, GPS, VFC, AdiBok - 10 20 chart2


AdiBok - Investors Seek to Buy Adidas’s Reebok Unit



  • "A consortium of investors from Hong Kong and Abu Dhabi is launching a bid to buy Reebok from Adidas AG in a move that, if successful, would unwind an eight-year-old marriage of sneaker makers that has shown disappointing results."
  • "Jynwel Capital, the investment arm of the billionaire Low family of Asia, and funds affiliated with the government of Abu Dhabi planned to send a letter to Adidas directors imminently, offering to buy its Reebok business for about €1.7 billion ($2.2 billion), people close to the matter said. They are expected to argue that Reebok would have a brighter future if it were managed independently, echoing a sentiment that has underpinned a recent wave of corporate breakups."


Takeaway: This is laughable. Anyone who did their diligence on Reebok should know two things 1) After Adidas bought Reebok in 2005, it German-engineered the Massachussets-based company to seamlessly integrate on all levels with German-based Adidas. In doing so, they lost about $1bn in sales -- handing most of it to Nike, and opening the door for UnderArmour as the #2 player in the US.  These actions make Reebok nearly impossible to separate from Adidas. 2) Adidas has a long valuation memory. It bought Reebok for a staggering $3.8bn. There's no way it will sell it for $2.2bn and book a $1.6bn loss. That would be the nail in the coffin for CEO Herbert Hainer.

Sounds to us like this is someone trying to make some activist noise to shake up the stock.





M - Apple Pay Rolls Out, With Holes in System



  • "Macy’s spokesman Jim Sluzewski said he expects the Macy’s branded card to be added eventually. He said roughly half of Macy’s sales come from its proprietary card, which is also linked to its loyalty program."
  • "Store-branded cards are “the big gaping hole in Apple Pay,” said Richard Crone, founder of Crone Consulting, a payments advisory firm, who estimates that merchants collect as much as 4% of each transaction with their proprietary cards."


SHLD - Family Dollar Issues Statement Regarding Director Nominations for 2015 Annual Meeting



  • "Family Dollar Stores, Inc. a leading national discount retailer offering name brands and quality, private brand merchandise, today confirmed that, on October 17, 2014, affiliates of Elliott Advisors  Limited delivered a notice that purports to preserve the ability of Elliott to seek to elect seven directors if there were to be a 2015 annual meeting of the stockholders of Family Dollar. Family Dollar will review the notice in due course."


SHLD - Sears Holdings Announces Seven Lease Agreements With Primark



  • "Sears Holdings Corporation announced today that it has entered into lease agreements with Primark, a leading fashion retailer in Europe, for seven standalone stores.  Sears will continue to have a significant presence in six of these locations with a streamlined store format of up to 100,000 selling square feet at each store."
  • "Pursuant to the terms of such agreements and subject to customary conditions, Primark will lease from Sears Holdings a total of approximately 520,000 gross square feet of retail space (approximately 400,000 net square feet retail space) in mall-based stores located in the Northeastern United States.  The space is expected to be delivered to Primark over the next 12 to 18 months."


SHLD - Sears Holdings Corporation Announces Intent to Conduct Rights Offering of Units Consisting of Senior Unsecured Notes and Warrants



  • "Sears Holdings Corporation today announced that the Company's board of directors has approved a rights offering allowing its stockholders to purchase up to $625 million in aggregate principal amount of 8% senior unsecured notes due 2019 and warrants to purchase shares of its common stock. This rights offering will generate up to an additional $625 million in proceeds, if it is fully subscribed and closes as planned, with the proceeds to be used for general corporate purposes."


Obama Unveils Cyber Security Initiative



  • "Retailers lauded the initiative, calling it a “catalyst” for the next generation of payment security tools, in the wake of massive data security breaches that have ensnared retailers, banks and government agencies and compromised the financial and personal data of millions of consumers across the country."


VFC, H&M - North Face and H&M Try to Clean Up the Down Business



  • "Down insulation, for all of its warmth, can be a cold and dirty business. Ducks and geese are often plucked alive and many of the fine feathers in comforters and puffy coats come from birds that were force-fed to make foie gras. The North Face, recognizing a problem in its pitch, is backing a certification standard to create a down supply chain that customers can feel warm and fuzzy about."


WMT - Walmart bring lockers to hometown supercenter



  • "Walmart’s newest omnichannel initiative is on display at a supercenter in Northwest Arkanas where the retailer has installed lockers for online order pickup."
  • "The large blue structure is located just inside the entrance to a supercenter in Rogers, Ark. and builds upon the retailer’s well-established Site to Store omnichannel offering. The big difference is shoppers who place orders online for in store pick up no longer need to visit the customer service counter to retrieve merchandise. Instead, once merchandise arrives in store or the order is pulled from existing store inventory it is placed in an appropriately sized locker."

Macro Notebook 10/15: Volume | Volatility | Europe


Hedgeye Senior Macro Analyst Darius Dale shares the top three things in Keith's macro notebook this morning.

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 80.51%
  • SHORT SIGNALS 78.32%

European Banking Monitor: Widening in PIIGS Spreads Leads the Way

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email  




European Financial CDS - Swaps were sharply wider in Europe last week. Much of the weakness was driven by Greek banks, which widened by an average 85 bps on the week.


European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart5 Euribor OIS spreadvf


Sovereign CDS – European Sovereign swaps widened notably last week. Portugal and Spain saw swaps widen 28 and 18 bps, respectively. Meanwhile, Italian and French swaps were wider by 14 and 10 bps. The US and Japan also widened by 2 and 4 bps. 


European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart2 sovereign CDS


European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart3 sovereign CDS


European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread was unchanged at 9 bps.


European Banking Monitor: Widening in PIIGS Spreads Leads the Way - chart5 Euribor OIS spread


Matthew Hedrick 



Ben Ryan





LEISURE LETTER (10/20/2014)



  • Oct 23:
    • RCL Q3 earnings 10 am
    • PENN Q3 earnings 10 am
    • LHO Q3 earnings 10 am "LaSalle Hotel Properties"
  • Oct 24: PEB Q3 earnings 9 am


CZR – Caesars Entertainment Operating Company a subsidiary of Caesars Entertainment received a notice of default from holders purporting to own at least 30% in principal amount of the subsidiaries outstanding second-priority senior secured notes issued under the Indenture, dated December 24, 2008. 

Takeaway: Debt pressures continue to increase.


CZR – Caesars Entertainment Corporation and its subsidiary Caesars Entertainment Operating Company, Inc. announced they executed non-disclosure agreements with certain beneficial holders of debt issued by CEOC, including senior secured term loans, pursuant to the third amended and restated credit agreement, dated as of July 25, 2014, enabling the commencement of formal discussions with the Bank Lenders. On September 12, 2014, Caesars Entertainment and CEOC announced that they executed non-disclosure agreements with certain beneficial holders of CEOC's 11.25% senior secured notes due 2017, 8.5% senior secured notes due 2020 and 9% senior secured notes due 2020.


GLPI – Moody's recently downgraded Cannery Casino's outlook from stable to negative and noted declining EBITDA will pressure Cannery's covenant cushion.  More importantly, Moody's noted the decline at Cannery's Meadows Casino has caused its leverage to rise to 8x and interest coverage ratio to fall to 1.2x.

Takeaway: Maybe not such a great acquisition for GLPI and this could be the reason why no has operator surfaced.


LVS – is looking at a site near Taoyuan International Airport in Taiwan. Business leaders in the area are advocating the legalization of a casino there as part of that area’s commercial development.

Takeaway:  Add Taiwan to the list of opportunities for LVS.


MGM & 2282.HK – Pansy Ho speaking at the Global Tourism Economy Forum commented that labor costs and a shortage of construction workers could put back the opening of MGM Cotai, scheduled for 2016.

Takeaway: A delay in the opening looking more like a reality.


PEB – announced that it has successfully amended and restated its senior unsecured revolving credit facility. The amended credit facility has been increased to $600 million and is composed of a $300 million unsecured revolving credit facility, an extension of the Company’s existing $100 million unsecured term loan, and a 180-day option to draw down an additional $200 million in unsecured term loan proceeds. The pricing on the amended credit facility has been significantly reduced, the revolving credit facility now matures in January 2019 with options to extend the maturity date to January 2020, and the term loan now matures in January 2020

Takeaway: Capital markets increasing appetite to lend to the lodging industry.


CCL (cruisebusiness.com) Costa Cruceros announced the cancellation of its four planned departures of Costa Pacifica from Buenos Aires, citing “commercial difficulties” and “economic situation of the region” as the main reasons for this decision. The company also refers to the growing demand in the Mediterranean as a reason for this strategic move. It is cancelling cruises departing from Buenos Aires on February 27 and March 7, 10 and 18, so that the ship may return to Europe earlier than expected.

Takeaway: Managing the deployments for higher profitability and returns.

CCL – Princess is offering a $149 five-night inside-cabin Caribbean sailing over Thanksgiving while a balcony cabin is quoted at $249 for the itinerary aboard the Caribbean Princess departing Ft. Lauderdale to Costa Maya and Cozumel.

Takeaway: Less expensive than a Thanksgiving feast - book now!


RCL (TTG Digital) – Celebrity Cruises 'game-changing' agent incentive  

Celebrity Cruises has launched a new “game-changing” loyalty program starting Nov 1 for the trade, allowing agents to choose their prizes rather than the cruise line. It enables the trade to earn points when they sell cruises, which they can then redeem for luxury gifts such as iPads, or put towards a cruise with Celebrity.

Takeaway: Not really game-changing.



  • Released new Ebola guidelines for all brands which includes a public health questionnaire that all adults must complete prior to check-in. 
  • Carnival Magic disembarks in Galveston, blood test clears Ebola lab worker
  • Cruise Lines International Association recommends additional 'contact screening,' on top of travel history screening, and denial of boarding for anyone who had physical contact with, or helped care for, a person with Ebola within 21 days before embarking a cruise.

Takeaway: A relief to cruisers that Ebola tests came out negative but we have been hearing cancellations due to the Ebola fear. More Ebola screenings now being taken on the ships.


Japan Gaming Likely Delayed (Reuters) Japan's plan to legalize casino gambling has likely been delayed again, a senior official said on Monday. Parliament was unlikely to have enough time to pass the controversial law during the current session of parliament, the coalition official said. The hurdle is quite high for both lower and upper houses to enact it during the current session which ends on Nov. 30, according to Keiichi Ishii, policy chief of Komeito, the junior partner in Abe's coalition government.

Takeaway:  This is disappointing news. Some sources say Japan is now or never. 


Deputy PM Support(Kyodo News) The deputy prime minister of Japan, Taro Aso said he was in favor of allowing casinos to operate in the country with the aim of promoting tourism and boost economic growth.  But Mr Aso also emphasized the importance of developing legislation to prevent the opening of casinos from causing law and order problems and increasing gambling addiction,


Delta Bridge Accident – Early Sunday morning, an accident at a construction site for the Hong Kong-Zhuhai-Macau Bridge (Delta Bridge) in Chek Lap Kok, Hong Kong resulted in the death of a worker and four injuries. Local media reported that five workers at a 15-meter high pier were operating a crane machine to lift construction materials, when the pier collapsed and two workers fell to the ground. One of them, a 43-year-old, died after being rushed to hospital. Among the four injured, three of them are still in hospital, with one in critical condition.

Takeaway: We hope this does not lead to a broader investigation and construction delays. However, no private casino companies to blame here.


Ho Tram Strip – The Grand Ho Tram Strip casino resort in Vietnam on Saturday added another major attraction to its roster with the opening of The Bluffs, a new 18-hole golf course designed by Greg Norman.

Takeaway: The programming of Ho Tram continues, but infrastructure improvements to get to Ho Tram are still needed. 


Las Vegas Gran Prix(The Independent) Formula One executive Bernie Ecclestone is in discussions about hosting a grand prix on the streets of Las Vegas, including The Strip.  Mr. Ecclestone indicated the race circuit "would include The Strip for sure". A senior source in the US racing scene added that F1’s track designer Hermann Tilke had visited Las Vegas several times to work on the layout of the course, showing that the project is at an advanced stage. 

Takeaway: We have seen and experienced first hand the energy, excitement and success of the F1 in Singapore and we believe an F1 Grand Prix in Las Vegas would surely bring significant interest from sponsors, fans, as well as media. Would be a good draw to international visitors.


Colorado Ski Season– Ski season is officially starting in Colorado with the opening of Arapahoe Basin. Some skiers were lined up before dawn on Friday to make turns on the single intermediate tail opening at 9 a.m. A-Basin began making snow Oct. 2 and, over the course of several days, created the 18-inch base necessary for opening. The ski area also received about a foot of natural snow in the past several weeks. Vail Resorts says Keystone plans to open on Oct. 31. Breckenridge will follow on Nov. 7, Vail on Nov. 21 and Beaver Creek on Nov. 26.

Takeaway: Let it snow!


Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's F3Q 2014 earnings release, we recently turned negative on those stocks based on the negative European thesis. 


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

Bears Bounce

Client Talking Points


We see way too much single factor (price momentum vs. a moving average) commentary about markets relative to what’s happening on a basic multi-factor (price, volume, volatility) basis; on the SPX “bounce” Friday (Russell was down on the day), Total U.S. Equity Market Volume was -11% vs. it’s 1 month average; that’s bearish.


From a front month VIX perspective it’s important to realize where we just came from. At 1208 Russell on July 7th, the VIX = 10.32. As of Friday’s close (21.99), the VIX is +113% from there and +60.3% year-to-date, making higher-highs vs. all of 2013-2014 earlier in the week. This is a phase transition. No resistance to 28.92.


FTSE, DAX, MIB, CAC, etc. -0.7-0.9% = no follow through from the no-volume late-week bounce there either; what is the catalyst for European Equities? If it’s economic gravity (slope of the line in all European growth data slowing), that’s bad – and we think the follow through to U.S. Equities with European businesses will be too.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).


Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road


GOLD: after a rock solid week of +1.4%, up another +0.2% this morning to +3% YTD vs Russell -7%



Never go to a fight you are invited to.

-Jim Chanos


IBM Q3 revenue of $22.4 billion was the lowest since Q1 2009, consensus estimate was $23.37 billion.

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