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Excerpt: Detecting Deception

Earlier this month our Restaurants Team held a conference call for institutional investors Statement Analysis - Putting Companies Through a Linguistic Polygraph Test with former U.S. Deputy Marshall Mark McClish.

 

Mark McClish is the author of I Know You Are Lying and the creator of the Statement Analysis method. In this brief excerpt Mark explains how to identify signs of deception and dissects an excerpt from HAIN’s Q1 earnings call as an example.

 

 

Reading conference call and analyst meeting transcripts is a key part of the analyst’s job. We all use words to define our reality, and our choice of words can be revealing. The premise of Statement Analysis is that a person’s choice of specific words can reveal when there might be an attempt at deception. This Statement Analysis exercise looks exclusively at a company’s written and verbal statements. Using these hidden clues, we can dig deeper into a company’s public pronouncements for signals of potential concerns in a company’s reporting.


Cartoon of the Day: Oil Plunge!

Cartoon of the Day: Oil Plunge! - Oil cartoon 12.20.2014

Oil prices have slumped almost 50% this year, set for the biggest annual decline since 2008. "It's flat out ugly for whoever is long inflation expectations in Energy terms," says Hedgeye CEO Keith McCullough.


Retail Callouts (12/30): ICSC, Idea List, UA, AMZN & Free Shipping

Takeaway: ICSC-intermediate downtrend continues, but 2015 comps get easier. UA steals Murray from Adi. AMZN comments on Holiday & Free Shipping

HEDGEYE RETAIL IDEA LIST

Retail Callouts (12/30): ICSC, Idea List, UA, AMZN & Free Shipping - 12 30 chart1

 

ECONOMIC DATA

 

Takeaway: The ICSC numbers end the year on a low note decelerating on a 1,2, and 3 yr basis after the pre-Christmas rebound which we suspect was helped by retailers need to clean up inventory positions headed into January. Since the week 36 peak, the trend has been overwhelmingly negative. That being said, comps in the first calendar quarter of 2015 get very easy with an average comp of 1.6% compared to the rest of the year at 3.1%.

Retail Callouts (12/30): ICSC, Idea List, UA, AMZN & Free Shipping - 12 30 chart2

 

 

COMPANY HIGHLIGHTS

 

UA - Under Armour Signs Andy Murray

Retail Callouts (12/30): ICSC, Idea List, UA, AMZN & Free Shipping - 12 30 chart3

 

Takeaway:  At 27 Murray isn't quite a tennis dinosaur but he's getting close. Still this is a coup for UA which was able to steal him away from Adi. The 4 year deal is just north of $5mm per year or about 2% of the company's 2014 projected marketing spend and less than a half of a percent of total revenue. That's a drop in the bucket for UA. And it gives them a bonafide presence on the court. The company's current lineup of athletes (Sloane Stephens and Robert Ginepri) don't spend a lot of time playing in front of a national TV crew.   UA has been unafraid to diversify, trying its hand at everything from speed skating to supermodels, so tennis is a logical extension for the brand. At the price that they are paying…this is a win for UA.

 

AMZN - Free shipping saved consumers $2bil+, volume up 100mm units

(http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-newsArticle&ID=2002056)

Retail Callouts (12/30): ICSC, Idea List, UA, AMZN & Free Shipping - 12 30 chart4

 

Takeaway: If we assume that each order on average cost the consumer $5 to ship, we get to a total of 400 million packages shipped for free this holiday season, up 100mm units or 33% from last year. That's pretty damaging for the rest of retail. Especially when you consider the drag it has on profitability. AMZN pays close to 10% of it's revenue to cover its shipping expense every year and its e-comm operation is 6x bigger than WMT and 16X bigger than M. If it's an issue for AMZN you can bet it's a bigger issue at just about every other retailer on the planet. We've seen that from KSS where the online EBIT margin is 4% margin compared to Brick and Mortar closer to 10%. Historically, retailers have been lemmings when it comes to shipping charges and we think the trend towards free continues.

 

OTHER NEWS

 

BABA - Tmall global sales increase 10 times in 10 months

(http://www.shanghaidaily.com/business/it/Tmall-global-sales-increase-10-times-in-10-months/shdaily.shtml)

 

WAG - Walgreen Shareholders Approve Alliance Boots Deal

(http://www.wwd.com/beauty-industry-news/financial/walgreens-shareholders-approve-boots-deal-8086343?module=hp-topstories)

 

APP - American Apparel Faces Growing Calls to Sell

(http://www.wwd.com/business-news/financial/pressure-builds-at-american-apparel-8086667?module=Business-latest)

 

SHLD - Sears ecommerce chief resigns

(http://www.chainstoreage.com/article/sears-ecommerce-chief-resigns)

 

 


Early Look

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Macro Notebook 12/30: Deflation | Utilities | Volume

 

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


Case/Shiller | HPI Stabilization Confirmation Redux

Takeaway: Case/Shiller is now showing similar trends in HPI stabilizing on a second derivative basis as Corelogic & FHFA.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

Case/Shiller | HPI Stabilization Confirmation Redux - Compendium

 

Today's Focus: October S&P/Case-Shiller Home Price Report

 

THE DATA:  The Case-Shiller HPI data for October showed home prices growing +4.5% YoY, decelerating -30bps from +4.8% in September.  Recall that the Case-Shiller HPI series is constructed as a 3-month moving average so the October release reflects HPI changes over the Aug-to-Oct period, effectively amounting to September data. The Case-Shiller series tracks the Corelogic data closely, but on a lag, and with the Corelogic figures released almost a full month before Case-Shiller, the slope and likely magnitude of the C-S HPI is pretty well advertised.

 

BOTTOM-LINE: Home-Price growth continued to decelerate but, from a modeling perspective, we're primarily concerned with the rate of deceleration and, on that score, the trend remains one of improvement.  The sequential change in the YoY Rate of Change improved to -0.3% in October from -0.8% the month prior.  As we’ve highlighted alongside the other HPI releases, all three primary price series are now confirming the same (2nd derivative) stabilization story.  The 1st chart below illustrates that trend.  Given the correlation between 2nd derivative HPI trends and housing related equities, a stabilization/re-acceleration in home price growth augurs positively for the group. 

 

 

Case/Shiller | HPI Stabilization Confirmation Redux - HPI 2nd Deriv Inflection

 

Case/Shiller | HPI Stabilization Confirmation Redux - CS MoM   SA

 

Case/Shiller | HPI Stabilization Confirmation Redux - CS YoY TTM

 

Case/Shiller | HPI Stabilization Confirmation Redux - CS YoY   vs ITB

 

Case/Shiller | HPI Stabilization Confirmation Redux - CS bubble chart

 

 

About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.

 

Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.

 

 

Joshua Steiner, CFA

 

Christian B. Drake


An Eerily Familiar Illiquidity Setup

Editor's note: This is a brief excerpt from Hedgeye morning research. Click here for more information on how you can become a subscriber to the fastest-growing independent research firm in America.

 

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At the S&P 500's all-time closing high yesterday, Total U.S. Equity Market Volume (including dark pool) was down -14% and -33% versus its 1-month and year-to-date averages.

 

An Eerily Familiar Illiquidity Setup  - 78

 

In size, we would much rather be long the Long Bond via TLT than SPY with this illiquidity setup in stocks looking very similar to the end of September and November. That of course was just before the abrupt 10% and 5% corrections in early October and December.

 

What do you do when you have global growth slowing and #deflation? You buy the Long Bond (TLT), and anything liquid equities that looks like a bond. On a related note, Utilities led U.S. Equity gainers (again) yesterday, +1.2% on the day to a monster +29.3% year-to-date.

 

Click image to enlarge.

An Eerily Familiar Illiquidity Setup  - R3K


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