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Cartoon of the Day: Harpoon

Cartoon of the Day: Harpoon - Moby Yen 11.13.2014

 

Japan’s equivalent of Janet Yellen (his name is Haruhiko Kuroda) essentially said that Hedgeye Macro nailed it on our #GrowthSlowing call and that the Bank of Japan is at a “critical point to overcome deflation.” There’s that word again, #deflation.

 

Forget what 80 TRILLION is in the context of what the Germans did in the 1920s for a second (99% of people in this world don’t get the econ #history lesson anyway) and think about what this Panic Policy in Japan is going to do to the rest of the world’s economics in 2015

 


Retail Callouts (11/14): Retail Sales, JWN, TGT, NKE, KATE, WMT, GPS

Takeaway: Retail sales not equal to Dept. Store #s. JWN better than the rest. TGT takes page from WMT playbook. NKE to players: don't mess with kicks.

ECONOMIC DATA

 

Takeaway: A sequential tick up on both the 1 and 2 yr trend lines, though it wasn't reflected in the commentary we've heard from retailers over the past few days. Maybe the answer is as simple as people are buying less of what Department Stores are selling. If that answer works for M and KSS then it's good enough for us.

 

Retail Callouts (11/14): Retail Sales, JWN, TGT, NKE, KATE, WMT, GPS - 11 14 chart1

 

COMPANY HIGHLIGHTS

 

JWN - 3Q14 Earnings

 

Retail Callouts (11/14): Retail Sales, JWN, TGT, NKE, KATE, WMT, GPS - jwn sigma

 

Takeaway: The things that we like about JWN, in a space where we have an overwhelmingly negative view, all looked solid. 3.9% Revenue growth, 5% square footage growth, 22% DTC growth on the full-price banner, and 34% growth in Hautelook/Rack.com. After the week of earnings we've seen across the department store space the top line was all that mattered (+9% reported, ~+8% if you exclude the estimated Trunk Club benefit). But, the earnings algorithm was weak, 9% revenue growth translated into a 5% growth in earnings (ex. Trunk Club dilution EPS growth = 11%). The SIGMA trajectory is punk with inventories growing 15 percentage points ahead of sales and margins declining. That almost always equates to a negative margin event in the short term. We added JWN to the long bench on 10/16, but still aren't comfortable with a name operating  in a space where we think 93mm square feet needs to disappear over the next 5 years.

 

TGT - Target Follows WMT E-comm Acquisition Playbook

(http://www.startribune.com/lifestyle/282538741.html)

 

  • "Powered Analytics' Fabric product uses mobile technology, location data and machine learning to connect a retailer's app to the in-store shopping experience."

Retail Callouts (11/14): Retail Sales, JWN, TGT, NKE, KATE, WMT, GPS - ecomm

 

Takeaway: TGT taking a page out of the WalmartLabs playbook. To keep score - WMT has acquired 15 small tech startups since 2010. Everything from a streaming video service to a recipe and meal planning service. TGT's acquisition strategy has been more company focused to date, i.e. chefs.com and dermstore.com. Maybe none of WMT's deals are homeruns but it has allowed the company to build its digital acumen through the acquisition of people and technology. TGT is way behind on this front and we'd point out has one of the worst dot.com track records in all of retail over the past 8 years.

 

NKE - Nike warns NFLers Not To Mess With Kicks

Retail Callouts (11/14): Retail Sales, JWN, TGT, NKE, KATE, WMT, GPS - nke

 

Takeaway: We don't blame Nike for reinforcing its endorsement policy and protecting its investment. The company is shelling out $220mm per year for the NFL deal on top of what it is paying its endorsees to wear it's gloves/cleats, and pay to wear fees. Players are billboards and that strategy doesn't work if you can't see the swoosh. Maybe the answer is neon colorways à la the London Olympics or the 2014 World Cup - though we doubt the NFL would let that fly.

 

 

OTHER NEWS

 

KATE - Kate Spade Opens 1st West Coast Location

(http://www.retail-insider.com/retail-insider/2014/11/kate-spade)

 

  • "Kate Spade has opened its first West Coast (Canada) store at Park Royal Shopping Centre in West Vancouver. The 2,000 square foot location is in the mall's southern component, called Park Royal South, next to the mall's new Michael Kors store."

 

WMT - Wal-Mart Told Store Managers to Match Online Prices With Amazon

(http://www.wwd.com/retail-news/mass-off-price/wal-mart-told-store-managers-to-match-online-prices-with-amazon-8031791?module=Retail-latest)

 

  • "Greg Foran said the directive was meant to formalize a practice already in place in many stores. 'About half of the stores were doing it anyway,'"

 

GPS - Old Navy Blasted for Higher Cost of Its Women’s Plus-Size Jeans

(http://www.bloomberg.com/news/2014-11-13/old-navy-criticized-for-higher-cost-of-women-s-plus-sized-jeans.html)

 

  • "The petition charges Old Navy with sexism, noting that a pair of women’s plus-size jeans can cost about $15 more than regular jeans, while a pair of men’s jeans costs the same no matter the size."


LULU - Lululemon pushing menswear, expansion

(http://www.fierceretail.com/story/lululemon-pushing-menswear-expansion/2014-11-13)

 

  • "In an effort to boost its menswear sales, Lululemon has begun opening more dual-sex flagship stores. And on Black Friday, the yoga apparel company will open its first men's only store in Manhattan."

 

BABA - Alibaba's boutique shop 11 Main opens doors on mobile

(http://www.usatoday.com/story/tech/personal/2014/11/12/alibaba-11-main-mobile-launch/18909609/)

 

  • "The shopping site 11 Main, which opened on the Web in June, can be browsed on new smartphone apps especially designed for Apple and Android devices. An iPad app will launch this year."

 

AMZN - Hachette Looks Like the Winner as Its War With Amazon Ends

(http://www.businessweek.com/articles/2014-11-13/hachette-looks-like-the-winner-as-war-with-amazon-ends)

 

  • "Hachette Chief Executive Michael Pietsch announced that the book publisher has reached a new multiyear agreement with Amazon.com, ending months of contentious contract negotiations. The deal, which will cover print and e-book distribution, will begin next year."

GLD: Removing Gold from Investing Ideas

Takeaway: We are removing GLD from our high-conviction stock idea list.

We are removing Gold (ETF: GLD) from investing ideas on the bounce within a bearish @Hedgeye TREND (+1%) to step aside from the steamroll that is #QUAD4 deflation.

 

Both gold and oil (the most tightly correlated commodities to the USD) are bearish on an intermediate-term TREND basis vs. the USD in a bullish TREND set-up. The bearish TREND set-up for the Japanese Yen and Euro against the dollar remains intact and are models suggest these large currency moves have even more room to run.

 

GLD: Removing Gold from Investing Ideas - br5

 

With growth setting up to surprise to the downside in the U.S. (which was the set-up which got us into gold on the long-side back in May), deflation’s ugly head (growth slowing and rates moving lower) has more to say over the intermediate-term. Economic data continues to confirm an early cycle slowdown continues with extremely difficult CPI comps even if commodities started going down in Q4 and Q1 2015 (when inflation surprised to the upside) because of the year-over-year comparative basing effect.     

 

 


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The Small Cap Bottom Is In? Really? You Sure About That?

This is an excerpt from Hedgeye morning research. Click here to learn more.

 

The Russell 2000 (IWM) tried her best @Hedgeye TREND resistance (1187) and failed (again).

 

The Small Cap Bottom Is In? Really? You Sure About That? - 59

 

We can’t begin to count how many people who A) missed shorting this in July now saying B) the small cap “bottom is in!” But it’s a lot of people. 

 

So fade that as the Liquidity Trap that has been this index just made yet another lower-all-time-#Bubble high.


THE HEDGEYE MACRO PLAYBOOK

Takeaway: Our Macro Playbook is a daily 1-page summary of our investment themes, core ETF recommendations and proprietary quantitative market context.

INVESTMENT CONCLUSIONS

Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI France ETF (EWQ)
  4. iShares MSCI European Monetary Union ETF (EZU)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

 

QUANT SIGNALS & RESEARCH CONTEXT

 

  • #Deflation Risk, Revisited: The topic of deflation risk is one that continues to permeate into the consensus narrative across the investment community; in light of this, we consider it our fiduciary duty to help steer the debate with analysis, as opposed to perma-bull storytelling. With respect to our CPI model (CLICK HERE to review that methodology), we continue to anticipate disinflation in headline CPI readings over the intermediate term. This would be the case even if commodity prices stopped going down today and remained flat, due to the comparative base effects of #InflationAccelerating in 1H14. Of course, additional commodity price deflation – which our TACRM model continues to imply – would only perpetuate downward concavity in reported inflation; sub-1% YoY CPI readings are very probable over the intermediate term. Since the start of 2008, the CRB Index has declined by a cumulative -43% on a 1-week forward basis when TACRM is generating a “DECREASE Exposure” signal for Commodities as a primary asset class like it is currently.
  • #ConsumerSlowing, Confirmed: Speaking of developing downward concavity, how about domestic consumption growth? Lost amid the perma-bull storytelling about lower gas prices is the fact that Retail Sales growth continues to slow on a trending basis, decelerating from a +4.4% YoY in SEP to +4.1% YoY in OCT! 
  • Wait for Perma-Bulls To Puke Up the "Lower Gas Prices Thesis" Before Buying Consumer Stocks: We have built a very sophisticated model to track the weighted average cost basis of non-discretionary items like rent, food, energy and utilities within the consumer’s PnL and this model is showing seven consecutive months of sequential deflation. That is the longest streak of consumer "tax cuts" since at least the start of 2007! At some point, this will benefit U.S. consumption growth, but with both the data (i.e. slowing Retail Sales and Real PCE growth) and the market (of the nine S&P sector SPDRs, the XLY has the third-lowest VAMDMI reading behind XLE and XLB) not confirming the disgustingly misguided perma-bull narrative, we find it prudent to wait for a meaningful pullback in the U.S. equity market before allocating capital to consumer growth stocks.

 

THE HEDGEYE MACRO PLAYBOOK - US CPI vs. HRM COMMODITY PRICE SAMPLE

 

THE HEDGEYE MACRO PLAYBOOK - US CPI vs. HRM COMMODITY PRICE SAMPLE 2013 14

 

THE HEDGEYE MACRO PLAYBOOK - RETAIL SALES

 

THE HEDGEYE MACRO PLAYBOOK - CONSUMER SQUEEZE INDEX

 

***CLICK HERE to download the full TACRM presentation.***

 

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.

 

Early Look: Bad #Deflation (11/14)

Oil: Supply, Supply, Supply (11/13)

 

#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.

 

Top Ten Reasons to Stay Short the Euro (11/5)

 

#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.

 

Early Look: Battlefield’s Vortex (11/11)

 

Best of luck out there,

 

DD

 

Darius Dale

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.


Morning Macro Call 11/14/14

 

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