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Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis

Takeaway: KSS 10Q shows bifurcation store vs e-comm comp. Online shopping patterns suggests that retailers define peak periods by promotional cadence.

EVENTS TO WATCH

Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart2

 

 

COMPANY HIGHLIGHTS

 

KSS - 10Q: e-Commerce

Takeaway: KSS released its 10Q on Friday. The most notable takeaway is 31.6% growth in the online channel. Despite the big jump we still saw a sequential deceleration on the 2yr because of the replatform during 2Q13.  Specifically, when we look at the quarterly comp composition (chart 2), we see that after backing out the e-commerce growth, it implies that the store comp was -4%, matching new lows. Juicy and Izod aren't really having the desired effect for the bulls. KSS remains our top short.

 

 Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart1

 

Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart3

 

Black Friday Weekend Online Shopping

(http://www.sli-systems.com/resources/press-releases/cyber-monday-1000-pm-est-revealed-peak-online-holiday-shopping-hour)

 

Takeaway: There's nothing investable about this chart, but we find the content to be fascinating. This shows the hourly trend in shopping online over the Black Friday weekend. Three takeaways…

  1. The holiday shopping season appears to being in earnest online at about 8pm on Thanksgiving night.
  2. The notion that Cyber-Monday is being 'pulled forward' to Black Friday does not appear to be true.  Yes, there is a step-up from Thanksgiving Day levels, but still nowhere compared to the spike we saw on Monday.
  3. Notice the huge drop-off from Cyber-Monday to Tuesday.  Is that because people all of a sudden don't want to shop? Absolutely not. That's when the online promotional spigot all but shuts down -- at least relative to what had been in place the preceding four days. This is the 'tail wagging the dog', in that consumers will shop when the promotions are there. When the deals go away, so do shoppers.

 Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart4

 

OTHER NEWS

 

DLIA - Teen Clothing Retailer Delia’s Files for Bankruptcy

(http://www.bloomberg.com/news/2014-12-08/teen-clothing-retailer-delia-s-files-for-bankruptcy.html)

 

BEBE - Bebe confirms data breach hit U.S. retail stores

(http://fortune.com/2014/12/05/bebe-data-breach/)

 

AMZN - Instacart Is Raising North Of $100 Million At A $2 Billion Valuation

(http://techcrunch.com/2014/12/05/instacart-2b-kleiner/)

 

Black Friday’s momentum sees slowdown with Canadian shoppers

(http://globalnews.ca/news/1710620/black-fridays-momentum-sees-slowdown-with-canadian-shoppers/?hootPostID=08fdc89710f27837f0f01230f0362993)

Retail Callouts (12/8): Key KSS 10Q Callouts, Hourly E-comm Analysis  - 12 8 chart5

 

AMZN - Amazon Gets $5 Million From N.Y. to Bring 500 Jobs to Manhattan

(http://www.wwd.com/retail-news/direct-internet-catalogue/amazon-gets-5-million-from-ny-to-bring-500-jobs-to-manhattan-8060133?module=hp-wirestories)

 

Nintendo Heads for Best Holiday in Years as Profit Seen Triplin

(http://www.bloomberg.com/news/2014-12-07/nintendo-heads-for-best-holiday-in-years-as-profit-seen-tripling.html

 

FIVE - Five Below names COO and retail veteran Joel Anderson as CEO

(http://www.chainstoreage.com/article/five-below-names-coo-and-retail-veteran-joel-anderson-ceo)

 

 

 


#Deflation

Client Talking Points

EURO

After being burnt another -1.3% last week (-10.1% in the last 6 months), the Euro is making fresh year-to-date lows this morning at $1.22 vs. USD – via #StrongDollar, this is only going to perpetuate the #deflation. Swiss CPI is -0.1% year-over-year for NOV. 

OIL

Oil saw no bounce last week (-0.8% WTI week-over-week) and is down another -1.1% this morning to $65.10 with no immediate-term support to $62.21. In energy land, small/mid cap equity and high yield/junk do not like the #deflation risk.

UST 10YR

The UST 10YR Yield bounced on the 1st good jobs data in over a month (jobless claims rising), but we think it’s just another head-fake within the UST 10YR’s current 2.16%-2.34% immediate-term risk range; #deflation is going to freak the Fed out. 

Asset Allocation

CASH 60% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 7%

Top Long Ideas

Company Ticker Sector Duration
EDV

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.

TLT

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).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

We're going live with @KeithMcCullough on @HedgeyeTV at 830ET. Watch here:

https://www.youtube.com/watch?v=fVWiGdPpZas&feature=youtu.be

@Hedgeye

QUOTE OF THE DAY

The only lifelong, reliable motivations are those that come from within, and one of the strongest of those is the joy and pride that grow from knowing that you've just done something as well as you can do it.

-Lloyd Dobens

STAT OF THE DAY

Japanese Yens burned another -2.3% last week (lost -15.6% of their value in the last 6 months) and the U.S. Dollar Index rose another +1.1% on the week (+11.2% in the last 6 months).


December 8, 2014

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BULLISH TRENDS

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BEARISH TRENDS

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CHART OF THE DAY: #Quad4 Deflation

CHART OF THE DAY: #Quad4 Deflation - 12.08.14 Chart

 

Here's a little snapshot of our Q4 Macro Theme #Quad4Deflation: 1) US 5yr Breakevens dropped another -4 basis pts on the wk to 1.36% (crashing -26%, or -47bps, YTD) 2) CRB Commodities Index deflating another -0.8% last week to -9.9% YTD


Party Hard?

“I’m the fellow who takes away the punch bowl just when the party is getting good.”

-William McChesney Martin

 

Economic #history fans will remember McChesney Martin as the Chairman of the Federal Reserve when central planners didn’t decide the fate of every market day (1). Sadly, Richard Nixon and Arthur Burns changed that by Burning The Buck in 1971.

 

Today, if you want to light up your country’s currency and party hard, you need a Ph.D. in economic storytelling. Devaluation has plenty of stock market pop, but “the trouble is...” according to Ken Rogoff, “a lot of people have not had any punch yet.”

 

In contrast, the two aforementioned quotes are what Jim Rickards used to introduce Chapter 10 (pg 243 in The Death of Money) – “Crossroads.” And, oh are we at a crossroad for both growth and inflation expectations, globally, this morning.

 

Back to the Global Macro Grind

 

Before I replay what happened last week, here’s what the Japanese just restated (revised lower) about the results of burning their currency – Q3 GDP dropped -1.9% (year-over-year) in 2014. “So”, they definitely need to triple down on that!

Party Hard? - Abenomics cartoon 11.17.2014 

I know, that is so Q3. How about China’s November trade data? Imports dropped -7% year-over-year (from +5% in October, which was a bad number to begin with); exports slowed to +5% NOV vs. +12% in OCT. #TrainWreck = Chinese stocks straight up.

 

In other central planning news, here’s what the world’s Big 3 (currencies) did last week:

 

  1. Japanese Yens burned another -2.3% last week and have lost -15.6% of their value in the last 6 months
  2. Europe crashed the Euro another -1.3% wk-over-wk (-10.1% in the last 6 months)
  3. US Dollar Index rose another +1.1% on the week (+11.2% in the last 6 months)

 

With the exception of a counter-TREND move in US jobs data (the 1st pseudo good rate of change report in months), most of the strength in the US Dollar can be attributed to the currency war (i.e. where the BOJ and ECB burn theirs).

 

To review, why does an un-elected central planner burn the currency?

 

A)     In response to #GrowthSlowing and/or

B)      In reaction to #deflation

 

In Hedgeye-speak (i.e. in Bayesian rate of change terms), when both of these core factors (GROWTH and INFLATION) are slowing, we call that the 4th Quadrant. That’s why our Q4 Macro Theme is called #Quad4 Deflation. That’s where we think the USA is too.

 

But, but… “it’s different this time” (says the cover of Barron’s, who will be charging 2 & 20 for that investment thesis starting in 2015 due to #deflationary forces in Old Wall media print advertising).

 

And… at the end of a cycle (66 consecutive months of US economic expansion), the other 2/3 of Americans who have only been punched (negative real wages for the last 5 years) are going to magically get wage growth and a capex cycle…

 

Roger that.

 

Simple Global Macro risk manager question: with global #GrowthSlowing and #Quad4 Deflation, how are global capex cycles and wages going to inflate? A: I don’t know.

 

While the fanfare surrounding Nikkei and “Dow 18,000 Bro” has been fantastic, the following stock markets have not been:

 

  1. Emerging Markets (MSCI Equity Index) down -1.8% on the week to -1.6% YTD
  2. Latin American Equities (MSCI Index) down another -5.1% week-over-week to -10.8% YTD
  3. Asia ex-Japan (MSCI Index) down -0.9% on the week to +3.7% YTD
  4. Brazil’s stock market -5.0% on the week to +0.9% YTD
  5. Canada’s stock market down -1.8% week-over-week (+6.3% YTD)
  6. Russia’s stock market continued to crash, -6.7% last week to -37% YTD

 

These stock markets have been undergoing what we call a phase transition in inflation expectations becoming deflationary ones. You can see that in the following real-time read-throughs:

 

  1. US 5yr Breakevens dropped another -4 basis pts on the wk to 1.36% (crashing -26%, or -47bps, YTD)
  2. West Texas Crude Oil down another -0.8% to -28.6% YTD
  3. CRB Commodities Index deflating another -0.8% last week to -9.9% YTD

 

Even the strongest commodities in 2014 (Coffee and Cattle) were down -3.9% and -2.6% last week, respectively.

 

From here, I think the debate really boils down to what’s more important: A) the impact of #deflation on stocks, bonds, and workers who have been compensated (in size) by the last 5 years of inflation expectations, or B) Ph.D. hopes for US wage growth?

 

Rather than partying hard with the planners, I’ll take B). Yep, call me names – I’m the fellow who doesn’t get paid to navel gaze at the Weimar Nikkei Dow and think that 55x earnings for the Russell 2000 in 2014 wasn’t a #bubble.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.16-2.34%

SPX 2040-2081

RUT 1149-1190

EUR/USD 1.22-1.24

Yen 119.04-121.31

WTI Oil 62.21-69.40

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Party Hard? - 12.08.14 Chart


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 8, 2014


As we look at today's setup for the S&P 500, the range is 41 points or 1.70% downside to 2040 and 0.27% upside to 2081.                                        

                                                                                       

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.66 from 1.66
  • VIX closed at 11.82 1 day percent change of -4.52%

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Fed Labor Market Conditions Index Change, Nov. (pr 4)
  • 12:30pm: Fed’s Lockhart speaks in Atlanta
  • 11:30am: U.S. to sell $24b 3M bills, $26b 6M bills
  • U.S. Rates Weekly Agenda
  • FX Weekly Agenda

 

GOVERNMENT:

    • President Obama hosts Prince William at White House
    • 9:30am: Supreme Court issues orders on pending cases
    • 11am: House Democrats hold conf. call briefing to discuss Trans-Pacific Partnership negotiations
    • 2pm: Senate Foreign Relations Cmte hearing on authorization for use of military force against Islamic State

 

WHAT TO WATCH:

  • Merck Said in Talks to Buy Cubist Pharmaceuticals for $7b
  • CBS, Dish Reach Multiyear Content Distribution Agreement
  • McDonald’s Nov. Comp. Sales Seen Falling for 6th Month
  • Banks Urge Big U.S. Clients to Park Deposits Elsewhere: WSJ
  • KKR, CVC Said to Lead Bidding for KFC Mideast Operator Americana
  • Blackstone to Sell California Office Portfolio for $3.5b: WSJ
  • Obama Tested for Sore Throat at Washington Army Hospital
  • United Technologies CEO Left Amid Director Concern on Priorities
  • Temasek to Buy Stake in High-Speed Trader Virtu Financial
  • PetSmart Auction Said to Be Extended to Later This Week: NY Post
  • China Blocks Review of Carbon Pledges Sought by U.S. at UN Talks
  • Madoff Aide Hired in 1960s Will Be First to Learn Prison Fate
  • China Rejects Arbitration of South China Sea Territorial Dispute
  • Hostages Killed in Yemen During Rescue Mission by Special Forces
  • NYC to Sell Public-Housing Stake to Developers: WSJ

 

EARNINGS:

    • ABM Industries (ABM) 5pm, $0.57
    • Diamond Foods (DMND) 4:02pm, $0.25
    • H&R Block (HRB) 4:05pm, ($0.42)
    • Photronics (PLAB) 4:30pm, $0.09
    • Triangle Petroleum (TPLM) Bef-mkt, $0.14
    • Vail Resorts (MTN) 8am, ($2.03)

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Commodity Benchmarks Seen Open to Manipulation, Law Firm Says
  • Oil Slumps to Five-Year Low as OPEC Decision Spurs Forecast Cuts
  • Gold Bulls Return as Wagers on Stimulus Accumulate: Commodities
  • Hedge Funds Betting That OPEC-Led Oil Rout Is Near End: Energy
  • Wheat Falls as Snow Seen Shielding Black Sea, U.S. Sales Slip
  • Copper Drops for Second Day as Chinese Imports Unexpectedly Fall
  • MORE: China Copper-Product Imports Rise to 7-Month High in Nov.
  • Gold Rises for First Time in Three Days After Bullish Bets Climb
  • Kuwait Plans $7 Billion Heavy-Oil Project Amid Cheaper Crude
  • Trafigura Gross Margin Improves After Oil, Metals Volumes Climb
  • Oil Slump Seen Driving M&A as Nordea Bank Monitors Valuations
  • Algeria’s Sonatrach Says Lower Oil Price Won’t Delay Investments
  • U.S. Gulf-Latin America Fuels Cargoes Rise to Record: Weber
  • Rubber Rises Most in 2 Weeks as Yen at 7-Year Low Boosts Appeal

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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