Here is a series of videos from Hedgeye CEO Keith McCullough’s appearance earlier today on Opening Bell with Maria Bartiromo.
Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.
1. CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.
The COTTON, SOYBEANS, and GOLD markets experienced the most BULLISH relative positioning change in the CRB week-over-week
The ORANGE JUICE, SILVER, and ULSD (HO) markets experienced the most BEARISH relative positioning change in the CRB week-over-week
2. Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.
- The CORN, NATURAL GAS, and WHEAT markets are positioned for HIGHER PRICES near-term
- The RBOB GAS, LEAN HOGS, COTTON, and WTI CRUDE markets are positioned for LOWER PRICES near-term
3. Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.
- The CORN, WHEAT, and SUGAR markets are positioned for HIGHER PRICES in 1-year
- The LEAN HOGS, LIVE CATTLE, and COCOA markets are positioned for LOWER PRICES in 1-year
4. Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.
10/13/14 Monday Mashup: DFRG, EAT and More
10/16/14 DFRG: Timing is Critical
Events This Week
Monday, October 20th
- CMG earnings call 5:00pm EST
Tuesday, October 21st
- EAT earnings call 10:00am EST
- MCD earnings call 11:00am EST
- SONC earnings call 5:00pm EST
Wednesday, October 22nd
- CAKE earnings call 5:00pm EST
Thursday, October 23rd
- DNKN earnings call 8:00am EST
- BJRI earnings call 5:00pm EST
Chart of the Day
Milk prices are up +26.2% YTD and +31.3% YoY.
Recent News Flow
Monday, October 13th
- DRI downgraded to neutral at Piper Jaffray with a $50 PT.
Tuesday, October 14th
- DRI appointed Jeffrey Smith as Independent Non-Executive Chairman and Gene Lee as Interim CEO.
- DRI downgraded to Ba1 from Baa3 at Moody's.
- EAT downgraded to hold at KeyBanc.
- TXRH downgraded to hold at KeyBanc.
- CBRL upgraded to buy at Argus with a $120 PT.
Wednesday, October 15th
- SBUX mentioned positively at Bernstein where it continues to be rated outperform with a $99 PT.
Thursday, October 16th
- LOCO announced the opening of its nineteenth Las Vegas area location.
- CAKE announced its newest opening at the new Mall at University Town Center in Sarasota, FL.
Friday, October 17th
- MCD estimates were reduced at Janney, which reduced its PT to $90.
The XLY (-0.9%) outperformed the SPX (-1.0%) last week. Both casual dining and quick service stocks, in aggregate, outperformed the narrower XLY.
XLY Quantitative Setup
From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.
Casual Dining Restaurants
Quick Service Restaurants
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Hedgeye CEO Keith McCullough talks to Seeking Alpha Contributor and BluePac managing partner Chris Sommers about Sommers' high conviction short idea, Monsanto.
Takeaway: Changes to our Ideas list: Longs (RL, NKE, BBBY, URBN, JWN), Shorts (M, DKS, GPS). VFC earnings. Reebok sale - more noise than possibility.
HEDGEYE RETAIL IDEA LIST
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.
EVENTS TO WATCH
SKX - Earnings Call: 4:30pm
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
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."
Hedgeye Senior Macro Analyst Darius Dale shares the top three things in Keith's macro notebook this morning.
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