Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.
IS UA THE NEXT NKE?
On December 18, the Hedgeye Retail Team hosted a Black Book call on the athletic apparel and footwear space. On Wednesday we released this excerpt, in which Sector Head Brian McGough explains how his opinion of athlete endorsements has evolved (which is particularly relevant given $UA's recent signing of Andy Murray) and reveals what Under Armour needs in order to become the next Nike.
This institutional conference call focused on Athletic footwear and apparel space. Specific names included Nike (NKE), Adidas (ADDYY), UnderArmour (UA), Foot Locker (FL), Hibbett (HIBB), Dick's Sporting Goods (DKS), and Finish Line (FINL) - which collectively offer up a good mix of LONGS and SHORTS.
HEDGEYE CEO KEITH MCCULLOUGH SHARES THE TOP THREE THINGS IN HIS MACRO NOTEBOOK MONDAY MORNING.
In December 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.
Oil prices slumped almost 50% in 2014, 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.
The Sound of Deflation
That sound you're hearing around the globe? Deflation.
Real- Time Alerts: Historical Closed Position Return Distribution
The brief excerpt below is from Tuesday's Morning Newsletter written by Hedgeye U.S. macro analyst Christian Drake.
We’ve #TimeStamped 2,969 signals in Real-Time Alerts since 2008. The historical data is there to see and download on our website and in the Chart of the Day below we show the return distribution across RTA’s 6+ year history. In our attempt to further the evolution towards an investing meritocracy, we feel we’ve built a better Risk Management mousetrap.
As always, you are free to disagree. We happily accept and consider all (thoughtful) criticism as we work to continually evolve the process.
2014 Outperformance in Low Beta: #PAIN
This is a brief excerpt from Friday's Morning Newsletter by Hedgeye CEO Keith McCullough.
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If you’re a U.S. equity only investor, the lower-volatility + higher-absolute-and-relative returns came in mostly slow-growth, lower-beta, #YieldChasing sectors:
Yep, instead of being long #deflation (Energy stocks, XLE, DOWN -10.6% YTD), these slower-growth, lower-volatility sectors had similar returns to what? Yep – the Long Bond.
Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.
Takeaway: We are adding Hologic to Investing Ideas.
Note: The excerpt below was written earlier this morning by Hedgeye CEO Keith McCullough. Stay tuned for further updates from our Healthcare sector head Tom Tobin.
Looking for names that my Research Team likes that are:
1. Bullish intermediate-term TREND duration
2. Immediate-term TRADE oversold within their bullish TREND
Hologic is a name Tom Tobin has liked for a while, but he's also becoming the axe in the name with regards to monitoring the company's key revenue factors using his proprietary process.
In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of US facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November.
We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015.
Takeaway: You can't afford to miss our summary of consensus across the investment community as it relates to formulating your big macro bets in 2015.
THEMATIC INVESTMENT CONCLUSIONS
Long Ideas/Overweight Recommendations
Short Ideas/Underweight Recommendations
QUANT SIGNALS & RESEARCH CONTEXT
What Will the Big Macro Surprises Be in 2015?: In our 12/31 Early Look note, which was penned by my colleague Daryl Jones, we discussed how investors tend to overweight the recent past in their predictions of outcomes over longer durations. We’re all guilty of it and, quite frankly, it would be nearly impossible not to based on how our brains are wired to interpret and analyze signals, according to Dr. Daniel Kahneman, the world’s foremost authority on behavioral heuristics.
So what does Bloomberg consensus think will happen in 2015?
Looking to the U.S. economy:
Looking to the global economy:
Looking to the Eurozone economy:
Looking to the Japanese economy:
Looking to the Chinese economy:
Key takeaways from current sell-side consensus:
We don’t do wire-to-wire annual predictions, but here’s how we currently stand with respect to the aforementioned takeaways (we can and will change our minds throughout the year, as we did nailing the move from #InflationAccelerating in 1H15 to #Quad4 deflation in 2H15):
Obviously the sell-side forms only one part of the Consensus Macro equation. Consensus on the buy-side, which, as an industry, is becoming increasingly less differentiated from a positioning perspective, can be roughly tracked via the speculative net length of futures and options contracts, which is reported weekly by the CFTC.
A positive reading indicates a net LONG position, while a negative reading indicates a net SHORT position. Perhaps more important than the absolute positioning is how the position is tracking over time, as such deltas can indicate the presence of marginal investors crowding into or blowing out of positions. To that tune, the following chart shows the net length of 20 key macro markets, ranking them according to their TTM Z-Scores:
Key takeaways from current buy-side consensus:
From a process perspective, it’s worth noting that we typically begin to fade the Consensus Macro lean whenever a particular index or market’s speculative net length reaches +/- 2 SIGMA. That’s not to say we will automatically adopt a variant view with respect to the intermediate-to-long term, but the immediate-term counter-trend reversals tend to be epic when the market is leaning too heavily in one direction or the other. Fading Beta in our Real-Time Alerts product is one of the things we do best @Hedgeye.
All told, we hope this snapshot of consensus is helpful in formulating your opinions on where the best places to source your non-consensus macro bets are in 2015. Consensus is right more often than any of us are paid to admit, but we all know the big money is typically made on the other side of the trade.
From the only macro team whose non-consensus forecasts got the direction of interest rates right in both 2013 and 2014, best of luck to you in 2015!
***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.
#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.
Moscow, We Have a Problem (12/16)
#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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.
ECB President Mario Draghi once again is talking down the EUR/USD – this time in a New Year’s interview with the German newspaper Handelsblatt that further hints that the Bank may issue QE.
While the market is selling the EUR/USD to levels not seen since 2010, Draghi’s timing of QE still remains vague and undecided. He states that the risk to price stability is higher now than 6 months ago– but is this a surprise? NO: the ECB has been unable to revert deflation over the past 18 months and the massive move in energy prices (oil is down -39% over the last 3 months) has completely caught the Bank’s economic and inflation predictions off guard.
As we approach the ECB’s next policy meeting on 1/22, our call hasn’t changed. We expect Draghi to continue to talk down the EUR/USD (etf FXE) through the prospect of QE. The cross remains broken across our TRADE, TREND, and TAIL durations.
On QE timing, we continue to expect louder opposition from the Germans (in particular) against QE which may well extend out the prospect of a potential issuance (late last year the Bank target a Q1 arrival). Just today we received comments from a senior member of Merkel's party, Michael Fuchs, who warned against the ECB pouring money into struggling Eurozone states through bond purchases as this would reduce pressure on them to enact much-needed reforms.
We continue to warn not to confuse Draghi’s policy to inflate with economic growth and believe our Q4 macro theme of #EuropeSlowing remains intact. Eurozone PMI Manufacturing figures for December were released today –they are ugly on an absolute and rate of change terms basis (see chart and table below).
Based on our proprietary GIP model, we expect slowing in the region until at least Q3 of this year, and continue to call for a negative divergence from France (etf EWQ) that delivered a PMI of 47.5 and remains anchored well below the 50 line indicating contraction.
Happy New Year and enjoy the weekend!
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.