Hedgeye Director of Research Daryl Jones shares the top three things in Keith's macro notebook this morning.
Hedgeye Director of Research Daryl Jones shares the top three things in Keith's macro notebook this morning.
Takeaway: No snapback in ICSC on easy compares. KATE/NB partnership no lose for KATE. More Black Friday moves by TGT. Creating our own KSS word cloud.
EVENTS TO WATCH
ICSC (International Council of Shopping Centers -- Sales index of 80 general merchandise retailers)
Takeaway: Very slight sequential bump to +2.1% vs +1.8% last week. Not enough to reverse the downtrend we've been seeing for the past month. What's interesting is that last year, we saw disposable personal income growth go negative in November and December. That suggests to us that we should be seeing a pop in sales growth as we head into the final stretch of the year. Guess not.
KATE - How New Balance Became Fashion's No-Risk Source for Sneaker Cred
Takeaway: At first blush, this wasn't exactly what we had in mind when it came to the Saturday-New Balance partnership. Very little branding from what we can see outside of the text towards the heel of the shoe plus some funky pattern on the midsole = a black New Balance shoe with Zebra stripes. But the reality for KATE is that this partnership has zero downside. They're using the Saturday banner, which has zero relevance to the consumer. They can't damage what does not exist in the event that this initiative goes South. We're a lot more interested to see how the West Elm partnership goes for KATE.
M - Macy's Set to Unveil Visual Search App
Takeaway: Smart move by Macy's here. We'd be shocked if it directly generates even a hundredth of a point in comp. But it is a way for Macy's to collect information regarding consumers likes/dislikes that will help the company merchandise the store better. We still think Macy's is a short here. But we recognize and admire what it's doing as industry forces pressure earnings and cash flow.
TGT- Target opening at 6pm Thanksgiving, Announces Black Friday Deals
Takeaway: Target is opening 2 hours earlier -- again -- are giving 10% off gift cards on November 28th, and that's on top of offering free shipping on every single item (no matter how low priced) on Target online. Could Target win back traffic in Cornell's first holiday at Target? Sure. But we seriously question what kind of Gross Margins TGT will put up over the next two quarters.
KSS: A Play On Words
Takeaway: Hey, give KSS a little credit here. At least the company is being consistent with consumers and investors alike. At the company's analyst meeting on 10/29, the company mentioned the word 'Frozen' 10 times throughout the day. In fact, we ran our own word cloud from the KSS Analyst Day transcript looking for traditional Wall Street words like revenue, margin, and profit as well as some of the 'head scratcher' words we heard during the 7+ hour meeting ie. Love, Frozen, and Greatness Agenda. This is the result. Not a surprise that the word 'Love' = 27x ('Love will drive our business'), and 'Greatness Agenda' 18x. The word 'Profit', which we think is a pretty important one, was mentioned only 10x, 'Earnings' only 2x, and 'Revenue' only 1x.
BABA- Alibaba Singles' Day Sales Top $5.9 Billion
Takeaway: To put this number in perspective, US Consumers spent $1.25bn on Cyber Monday last year on ALL online sites. Alibaba alone clocked in 4.7x that amount on Singles' Day. BABA did $1bn of volume in the first 18 minutes, and $2bn in the first hour alone.
ZQK - Quiksilver Reaches Agreement to Sell Surfdome to SurfStitch Group
Takeaway: No brainer for ZQK on this one. The balance sheet needs every nickel it can find. Though the company did not release precise economics, we think that the income from Surfdome was well below $1mm annually. $16mm in proceeds makes a lot of sense from where we sit.
India to Ban Import of Animal Tested Cosmetics
RSH- RadioShack Resorts to Thanksgiving Openings to Boost Sales
H – Hyatt Hotels and Playa Hotels & Resorts B.V., announced the upcoming opening of Hyatt Ziva Puerto Vallarta, Mexico. The new all inclusive resort, which is scheduled to open December in time for the winter holiday season, is at the site of the former Dreams Puerto Vallarta. It is the culmination of an approximate $20 million expansion, renovation and repositioning that is intended to reinvent this resort destination in a way that brings effortless indulgence to the all inclusive vacation experience.
Takeaway: Based on our search, we found availability beginning on Sunday, December 28 at a nightly rate of $368 for a Ziva Terrace King Bed.
BYD - Vice Chairman Marianne Boyd Johnson sold 22,800 shares, sold 800 shares at $11.84 each and another 22,000 at $11.54 each out of the Marianne Boyd Gaming Properties Trust. The trust still owns 5.612 million shares.
Takeaway: Not sure why she is selling but it does not appear to be related to the expiration of options. Ms Boyd has sold 74,300 shares so far in November.
Macau's Secretary for Economy & Finance – Lionel Leong Vai Tac is rumored to be the favorite to replace Francis Tam Pak Yuen as Secretary for Economy and Finance, the official that oversees Macau’s gaming industry. Lionel Leong Vai Tac, Vice-Chairman of the Advisory Council on the Environment and member of the Executive Council and the National People’s Congress.
Takeaway: If true, it will be interesting to see how Mr. Leong Vai Tac works with the gaming operators - in a prior business life, he provided laundry services to many of the Macau casinos/hotels.
Macau Population Increase – The population of Macau was 631,000 at the end of September, 7,000 more than three months earlier. The Statistics and Census Service attributes the increase to the influx of migrant workers, whose number rose by 7,567 to 162,877. In the third quarter 1,971 babies were born in the city, 419 people died, 2,656 Chinese immigrated and 538 people gained the right of abode.
Zhuhai MICE – last week, the Zhuhai International Convention & Exhibition Center (ZCEC) opened to its first event when it hosted the China (Zhuhai) International Automobile Exhibition. Costing 7 billion yuan ($1.14 billion), the 269,000sqm CEC is comparable to the Shenzhen Convention & Exhibition and the Guangzhou (Pazhou) International Convention & Exhibition center. The first phase, with floor space of 700,000sqm, encompasses the International Exhibition Wing with six 5,000sqm halls at ground level; International Convention Wing with the 2,000sqm Plenary Hall; Opera Theater, Concert Hall; 35 meeting rooms; and support facilities. The 30,000sqm exhibition floor accommodates 1,600 standard 3-square-metre booths. The CEC also has a 4,500sqm column-free, divisible Grand Ballroom with a 4,000sqm kitchen capable of catering round-table banquets of up to 6,000 people.
Takeaway: Increased competition for MICE from Zhuhai and more importantly MICE attendees will not need a Macau visa.
Macau Loansharking Increasing – A total of 177 loansharking cases, mostly related to ‘gaming activities’ in the city, were recorded for the first nine months of this year, according to Secretary for Security Cheong Kuoc Va. The number of registered loansharking cases as at end-September represent a rise of 48.7% when compared with the same period last year, making it one of the types of crime recording the most rapid increase so far. Of the 98 people arrested for the loansharking cases in the period this year, most were from mainland China.
Takeaway: Increased loanshark activity, an outward sign of tighter credit for the mass population.
Macau Visitation Overstay Crackdown – for the January to September period, Macau Immigration Security Units have seen more mainland Chinese overstay using permits other than the individual visit scheme visas. A total of 31,198 of these overstays were recorded for the period, which is 5,520 more people than a year ago, while the number of overstays using a permit for the individual visit scheme in the period is 3,426 people, 75 people less than the same period last year. However, Secretary for Security Cheong Kuoc Va noted the number of overstays from the mainland has already fallen since July, the month authorities imposed the new rule requiring mainland Chinese passport holders transiting Macau to and from another country or territory be granted a stay of five days maximum instead of seven.
Florida Casino Boat Files for Bankruptcy – the Palm Beach-based, 600-passenger Island Breeze Casino filed for bankruptcy. The operators are hoping to restart operations next month after reaching an agreement with its Miami slot machine leaser. The Island Breeze charges a $15 boarding fee to non-members and $10 fee to player club members.
Takeaway: Apparently not quite the "from Palm Beach to Vegas in 30 minutes" experience as advertised. The operators promised the Port of Palm Beach the vessel would carry 125,000 passengers per year OR pay $5 for each person below that headcount.
Real Estate to be 11 GICS Sector – last night MSCI and S&P announced Real Estate will become the 11th Global Industry Classification Standard (GICS) sector with implementation to be effective after market close on August 31, 2016. Both, MSCI & S&P are requesting feedback on the implementation by February 13, 2015.
Takeaway: While likely an initial 3.5% weighting in the Index (based on current weighting), this segregation likely paves the way for additional REIT inclusions in the Index.
Japan Consumer Sentiment dropped for the third consecutive month in October. The Japanese Consumer Confidence Index was 38.9 in October, down from 39.9 in September. A reading below 50 suggests consumer pessimism
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 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.
Takeaway: Our Macro Playbook is a daily 1-page summary of our investment themes, core ETF recommendations and proprietary quantitative market context.
Long Ideas/Overweight Recommendations
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QUANT SIGNALS & RESEARCH CONTEXT
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TRACKING OUR ACTIVE MACRO THEMES
#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.
Oil: More Downside? (11/5)
#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.
#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.
Best of luck out there,
Associate: Macro Team
About the Hedgeye Macro Playbook
The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.
Takeaway: November should look better YoY than October but Macau is headed for another downturn in December
Analysis of November trends and our monthly forecast
Please see our note: docs.hedgeye.com/HE_Macau_Less_Bad_11.11.14.pdf
The Hedgeye Macro Team, led by CEO Keith McCullough, will be hosting a conference call TODAY, Tuesday November 11th at 11:00am EST featuring Professor John B. Taylor of Stanford University.
Professor Taylor is a highly regarded scholar known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. In the call entitled, Are Global Central Banks Out of Bullets?, Professor Taylor will discuss his view of global monetary policy and where it goes from here.
KEY TOPICS WILL FOCUS ON
ABOUT JOHN TAYLOR
Awarded the Alexander Hamilton Award for his overall leadership at the U.S. Treasury, the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis
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