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Retail Callouts (1/14): AdiBok Endorsements, UA, JCP Properties, RH, AMZN

Takeaway: AdiBok-unlikely to execute endorsement plan, but if it does it hurts UA. Dept. Store closures-JCPs two options.



AdiBok, UA, NKE - Adidas to Sign Up to 500 Athletes for Endorsements



"The company’s U.S. arm has the go-ahead to sign as many as 250 National Football League players and 250 Major League Baseball players over the next three years, up from a total of fewer than 40 now."


Takeaway: When a once-relevant brand duo (Adidas and Reebok) plans to buy its way into the US sports endorsement arena, it is bad news for everyone. Maybe we'd be ok with that if the company had the product to back it up. But it doesn't.  Apparently in Herzogenaurach, the order of operation is a) spend, b) sell, c) create great product.

We're especially surprised in that AdiBok is getting so aggressive with its endorsement spending after it just signed a $1.3bn (US) deal ($130mm/10 years) for Manchester United -- which is almost triple the price Nike was previously paying. This number accounts for about 5% of Adi SG&A.

In reality, we don't actually think that AdiBok will get to a point where it can execute on this aggressive plan in the US, as it ranks in the top 10 global retailers/brands that need a complete management overhaul. We think that's more likely than not in 2015.

But if it does not happen, and AdiBok continues with its plan to up the ante in the endorsement game, it severely crimps Under Armour -- which has started to sign larger athletes and now appears to have some severe competition (note that Notre Dame, a perennial Adidas school, switched to UA last year).


JCP - Landlords eager to reclaim JCPenney stores



Takeaway: The announced store closures by M and JCP are nice, but the reality is that half of that will come back as capacity selling apparel. We need to see another 90mm square feet, or 950 stores, go away -- and never come back. Our work shows that JCP needs to close 300 stores. And we think the company can take 2 different paths to achieve this end goal.

1) In the report we put together in May we identified a fleet of stores (300) that matched the demographic profile of the announced closures from January '14. In summary the annual household income within a 15 minute driving radius was about 20% below the company average.  By eliminating the bottom of the barrel demographic our math shows that the demographic profile would rise 7% and productivity would increase 20% for JCP's remaining 700 store portfolio.  At first glance it appears that the 40 closures this year are in this bucket. So, JCP can continue cull its bottom tier stores locked in less than optimal properties, or…

2)  The company could play offense and monetize its 134 'A' Mall locations. The economics are such that landlords could take an existing JCP property. Chop it up into a RH, Whole Foods, and Cheesecake factory and take rental income from the Anchors up 100+% (see image below).  Which would still allow for good returns after factoring in the redevelopment costs.

Retail Callouts (1/14): AdiBok Endorsements, UA, JCP Properties, RH, AMZN - 1 14 chart1





US December Retail Sales

Retail Callouts (1/14): AdiBok Endorsements, UA, JCP Properties, RH, AMZN - 1 14 chart2





AMZN - Amazon to take over textbook sales at UMass Amherst



Obama Pushes for Greater Cybersecurity



Online grocery delivery startup Instacart gets $220 million infusion



RSH - RadioShack offered $500 million loan from Salus Capital



Game Digital slumps 40% after profit warning



RAD - Rite Aid Completes Amendment and Extension of Existing Credit Facility



Takeaway: Neither you nor your clients can afford to miss what we have to say about the yen, the Nikkei and the SPX in today's Macro Playbook.


Long Ideas/Overweight Recommendations

  1. Consumer Staples Select Sector SPDR Fund (XLP)
  2. Health Care Select Sector SPDR Fund (XLV)
  3. iShares U.S. Home Construction ETF (ITB)
  4. PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
  5. iShares 20+ Year Treasury Bond ETF (TLT)
  1. LONG BENCH: Vanguard REIT ETF (VNQ), Utilities Select Sector SPDR Fund (XLU), Vanguard Extended Duration Treasury ETF (EDV)

Short Ideas/Underweight Recommendations

  1. iShares TIPS Bond ETF (TIP)
  2. CurrencyShares Japanese Yen Trust (FXY)
  3. iShares MSCI Emerging Markets ETF (EEM)
  4. SPDR Barclays High Yield Bond ETF (JNK)
  5. Industrial Select Sector SPDR Fund (XLI)
  1. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)



Japan Consternation Continues: Today’s moves in global macro make us incrementally wrong on Japan. Specifically, the yen’s +1.3% rally vs. the USD helped perpetrate a -1.7% decline in Japan’s benchmark equity index, the Nikkei 225. Since we authored the thesis back on 12/16, the FXY has is more-or-less flat (down -13bps); that lack of currency debasement has contributed to a -881bps decline in the DXJ over that time frame.




The JPY rallied from a close of 117.93 yesterday to and is now trading around ~116.50 on today’s weak U.S. retail sales report – testing a key Fibonacci retracement level.



Source: Bloomberg L.P.


Our intermediate-term TREND line of support is 114.26; while a continued pullback in the cross would undoubtedly bring us more pain on the long side of Japanese equities, we are content to maintain conviction in our thesis that the Japanese yen is likely to trade materially lower vs. U.S. dollar over the intermediate-to-long term to the extent that support level holds.




Holding that level would likely present investors with a opportunity to “back the truck up” on the long side of the Nikkei, which is already nearing TREND support on our quantitative factoring.




So why are the dollar-yen rate and Japanese stocks correcting? The simple answer is repatriation.


During “risk off” periods, the USD/JPY tends to hold a strong inverse correlation with cross-asset volatility due to the country’s status as the world’s largest supplier of capital as Japan domiciled investors have historically sought higher returns offshore than those available in domestic markets. Japan’s net international investment surplus of ~$3T is equivalent to 68% of the country’s GDP and compares to a -$5.5T deficit for the U.S. (somewhat a function of its reserve currency status).


The more nuanced answer is a function of monetary policy expectations.


Specifically, “sources” are out this morning claiming that the BoJ is considering cutting its FY15 target for core CPI (which includes energy prices) and “isn’t inclined to expand QQE at the current juncture”.


While the former might be true, we remain resoundingly on the other side of the latter conclusion. Specifically, we think any cut to the BoJ’s inflation forecast will effectively force them to do more to archive their politicized “5% Monetary Math” target; the BoJ is failing miserably at its politicized objective at the current juncture.






Qualitatively speaking, continued consolidation in the dollar-yen cross to our intermediate-term TREND support level would effectively wash out the weak  hands in the Abenomics trade.


Looking to our Tactical Asset Class Rotation Model (TACRM), we see that the FXY has a Volatility-Adjusted Multi-Duration Momentum Indicator reading of +0.1x, which implies the preponderance of market participants are observing no clear direction of volume-weighted average price momentum.


A continued break out in the yen would likely register a “BUY” signal on this metric and that would likely coincide with a material ramp higher in the VIX and a lower-low in the SPY relative to its early-JAN and mid-DEC lows.




Is the #bubble in U.S. equities over? If you ask the high-yield credit market, in which TAIL risk is officially on, the answer is clearly “yes”. If you ask us, we’d say “TBD”, but, as we have been highlighting for the past 3-6 months, the risk factors are definitely there for anyone who dares to do the work…




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



Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.


The Hedgeye Macro Playbook (1/12)


#Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.


Early Look: Creatively #Patient (1/14)


Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.


Mortgage Apps | Seasonal Wheel-Spinning (1/7)


Best of luck out there,




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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.          

LEISURE LETTER (01/14/2015)



  • Jan 14:  AC Dec Revs
  • Jan 15:   LA Dec Revs
  • Jan 29:  PENN 4Q CC
  • Feb 2: Cod Manila Grand Opening


SJM –Nearly 100 workers from Palacio Lisboa, a restaurant inside Hotel Lisboa, complained to the Labour Affairs Bureau yesterday that they had been overworked in the past yet had not been compensated by the company.

Takeaway:  Prostitution ring Monday, now wage pressures. Hotel Lisboa has a lot on its hands.


Pollard Banknote Limited/KONAMI 

  • Kansas:  Launched on September 3, 2014, Kansas Lottery's $5 Frogger instant scratch game has sold in leaps and bounds—after only ten weeks on the market, it became the Kansas Lottery's highest selling $5 instant scratch game since 2005, and reached a remarkable sales index of 238! The proven sales-driving Frogger brand, published and licensed by KONAMI, is available to lotteries exclusively through Pollard Banknote.
    • Meanwhile, the Kansas Lottery reported $245m in sales for FY 2014 (ending June 2014) - second-largest annual sales amount and nearly $1 million above the previous year’s total.
  • Michigan: For FY 2014, the Lottery’s instant ticket sales reached $914,000,000— up 11% YoY, far exceeding the average U.S. lottery instant sales growth by almost threefold over the same time period.  The Lottery’s success can be attributed to a number of factors, including leveraging Pollard Banknote’s sales driving portfolio of instant ticket product innovations and growing its range of technology enabled products that extend the life of traditional instant tickets. In February 2014, the Lottery introduced its $30 instant ticket price point with the launch of $2,000,000 CA$H—a ticket that featured the sparkle and shine of Pollard Banknote’s patented Scratch FX®. Offering premium instant games at a higher price point proved to be a valuable strategy for the Michigan Lottery, as $30 instant ticket sales accounted for more than 9% of total instant sales in FY 2014.

 Takeaway:  2 jurisdictions (KS, MI) with momentum for Pollard Banknote


Red Lion Hotels – has entered an agreement to sell its Bellevue, Washington, hotel for US$35.4 million to an affiliate of Wig Properties. 

Takeaway:  $196k per key for this midscale property.


Crystal Cruises – kicking off its 25th Anniversary year by reporting significant booking revenue – nearly 80% of its budgeted outlook.  Looking ahead to 2016, for which the line is reporting 40% of maximum bookings, guests can save up to $5,950 per person on Crystal Serenity’s 102-day world cruise that follows a route round trip from San Francisco featuring segments to/from Sydney, Bali, Shanghai and Tokyo.  Until March 2, when fares are set to increase, all-inclusive luxury cruise fares start at just $1,730 per person.

Article HERE

Takeaway:  Crystal confirms other commentary we're hearing that Wave has gotten to a good start on the bookings side.


NCLH – key features unveiled on Regent Seven Seas Explorer (launching July 20, 2016)

  • Massive two-bedroom suite with built-in spa and eye-popping price: $5,000 per person per day
  • 10 categories for passengers to choose from, starting with the entry-level 407-square-foot deluxe veranda suite, which includes a living area and sleeping quarters. According to Robin Lindsay, executive vice president of ship operations for Regent, more than 60% of the ship's suites are 470 square feet or larger. Additionally, 70% of the balconies have 50% more depth than is typically found on Regent ships, which translates to balconies of almost 10 feet deep in 70% of the suites.
  • The line's popular restaurants return on Seven Seas Explorer, including Prime 7 Steakhouse (kudos for the gorgeous bar in which you can dine if you so choose) and the casual Veranda Cafe, with its elegant evening version, known as Sette Mari at La Veranda.
  • The Constellation Lounge, Regent's main theater, will host a wide range of activities, from cooking classes in the morning to concert recitals and theatrical performances at night. This theater features beautiful color schemes that can change at whim and hand-blown Murano glass lamps for a cozy feel. The Observation Lounge, with its "Great Gatsby"-inspired decor evokes a modern take on the roaring 20s.

Article HERE


Bohai Ferry – Acquiring the Costa Voyager was Bohai Ferry’s first step into the cruise business, renaming her Chinese Taishan and finding a unique deployment by sailing out of Yantai.  General manager of Bohai Ferry, Li Zhan, explained they expect to run their single vessel for a year before looking at more tonnage.

Article HERE


MSC – With four new ships on order through 2019, MSC Cruises may be intending to pick up three options between STX France and Fincantieri, taking them through 2022. When MSC’s double-order at Fincantieri was placed in 2014, the Italian cruise line said it had an option for one additional ship. Prior to that, MSC signed with STX France for two ships, plus an option of two more.


In today’s MSC Sinfonia drydock release, MSC said: “MSC Cruises currently carries roughly 40,000 guests per day, but by 2022 will double its capacity to 80,000 guests a day – 3.4 million per year – once the Renaissance Program is completed and the last of seven planned ships is delivered.”

Takeaway:  Build, build, build philosophy intact for MSC


Xi –Chinese President Xi Jinping warned the war on corruption was far from over, despite the country's many achievements.  The CPC had dealt with cases implicating corrupt high-ranking officials -- such as Zhou Yongkang, Xu Caihou, Ling Jihua and Su Rong -- which showed the world that the CPC was not scared of taking a "self-purifying" approach, according to Xi.  Xi Jinping told discipline officials that "strong remedies must be used to cure the illness" of corruption.

Article HERE

Takeaway:  Xi reiterating his hard stance on anti-corruption


Pacman vs Mayweather –  Promoter Bob Arum told Yahoo Sports on Tuesday that Manny Pacquiao has agreed to terms for a May 2 bout with Floyd Mayweather, and that the only thing in the way of the long-awaited fight occurring is Mayweather's approval. Unconfirmed sources say the fight may be on May 2 at the MGM Grand Garden. 

Article HERE

Takeaway: Big win for MGM if fight happens at the Arena


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:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. 

Attention Students...

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Japan, Commodities and Financials

Client Talking Points


In other news, the Yen had a surprise move above my immediate-term resistance line of $118.48 vs. USD, so that delivered a -1.7% down day for the Nikkei (which is down -6.4% now since its centrally planned gap higher on DEC 8th); the FX war gets more interesting now – Euro is going all in devaluation, and Fed needs to push out the USD dots.


CRB Index had another fresh new low of 220 yesterday (-30% crash since June) which is pile driving Dr. Copper down another -6% this morning to $2.48 (Copper down 19% and 25% since October and June, respectively); no idea how levered credit to inflation expectations assets works from here – will let bulls figure that out.


No matter what the European planners do, JPM/WFC/BAC still have to report reality in NIM terms (Yield Spreads at 12 month lows this morning) and the Financials (XLF) are already -3.6% year-to-date signaling bearish TREND in my model. Will that hold? We’ll see. But we do not like late-cycle Industrials (XLI) or Regional Banks (KRE).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. 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. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road


Hedgeye's Morning Macro Call *LIVE* with @KeithMcCullough this morning at 8:30am.  Gratis - humpday special >> https://www.youtube.com/watch?v=Y53fx9VOIMg



You cannot push any one up a ladder unless he be willing to climb a little himself.

-Andrew Carnegie


Chipotle Mexican Grill Inc. suspended sales of pork at about 1/3 of its more than 1,700 restaurants after finding an important supplier didn’t comply with its animal-welfare standards, a spokesman said Tuesday.

CHART OF THE DAY: Were You Too Late Getting Long Late-Cycle?

CHART OF THE DAY: Were You Too Late Getting Long Late-Cycle? - Chart of the Day

Creatively #Patient

“Creative minds tend to make unusual associations because they engage in divergent thinking.”

-J.P. Guilford


Joy Paul Guilford was one of the first credible American researchers in the field of creative thinking. He was a psychologist (born in Nebraska in 1897, moved to LA – died 1987) “best remembered for his psychometric study of human intelligence, including the distinction between convergent and divergent production.” (Wikipedia)


Is your portfolio converging  or diverging from consensus? When you diverge from the crowd, are you typically early – or happy to be late? Irrespective of your answers to those questions, isn’t the idea of a diversified portfolio to have creative ideas that are all of the above? After all, it’s always nice to have something working!


Today is Ratification Day in the USA (Treaty of Paris officially ended the American Revolution vs. European Central Planners). I love ratifying the end of broken ways. And, even if all of European markets (and US markets reacting to them) only trade on the next central planning rumor today, I’ll always love the divergent thinking that’s been embedded in American independence.


Back to the Global Macro Grind


Yep, it’s all about the love this morning. I said it on the Q1 Macro Themes Call and I’ll say it again this morning – I absolutely love this market. The Global Macro long/short market of non-consensus ideas, that is!


Here’s a not so creative idea. Asset price #bubbles can pop.

Creatively #Patient - bubble cartoon 09.09.2014

The US stock market #bubble has been down for 8 of the last 10 trading days, and plenty of the #bubbles within the bubble (think social media, MLP, energy, TSLA in 2020, etc. stocks) continue to pop.


But, there’s always a bull case to be made somewhere. And, compliments of Hedgeye, asset price #deflation becomes the creative asset of the new buyer, from lower prices. We need to cross the #Quad4 #Deflation bridge before we get to #Quad1.


Are you with us and bullish on #Housing? Yesterday’s macro market action typified the opportunity that is being Creatively #Patient. US equity futures were green in the a.m., then ramped on news from a US homebuilder that they had a good quarter (KBH). Then:


  1. KB Homes (KBH) told the Old Wall that they still have margin pressure associated with what was a bad trailing 12 months
  2. Oh, and that they do a lot of business in the state of Texas
  3. KBH went from being up nicely to -18% on the day (so we #timestamped buy there in Real-Time Alerts, #patience)


Texas? Jobs correlated to asset price #deflation of West Texas Crude? Pardon?


Yeah, really creative thought path there guys. If you didn’t know that #Deflation’s Dominoes go like this: Yens and Euros burned by central planners à Strong USD vs Yens and Euros à Crashing Oil à Shaking High Yield Debt Markets (spread risk breakout) à Levered Energy (MLP) stocks smoked à Job losses in Texas, the Dakotas, etc…


Well, I guess now you know.


So join my boy, Mr. T (as in TLT Long Bond) in commemorating another fresh new 12 month high in the best way to play global #GrowthSlowing + #Deflation. Because lower-bond yields are discounting a peak in late-cycle job adds in a late-cycle economic indicator’s (inflation) Energy states.


What other wild and creative thought path can we come up with in lieu of the aforementioned causal factor embedded in crashing long-term bond yields (10yr started 2015 at 2.17% don’t forget)?


  1. Down Long-term Treasury Yields
  2. Compressing Yield Spread (long-end minus short-rates)
  3. Short the Financials?


Unless you’re still thinking it’s different this time, Financials are cyclicals too. And a core driver of bank earnings is called NIM (net interest margin) which is driven by the spread between the short and long-end of the Treasury curve.


Not to pick on people who got plugged chasing another US equity market top on December 29th, but that was a seminal day for we revolutionaries who refused to buy into the year-end CNBC hype.


At the close of US trading on December 29th:


  1. SP500 = all time high of 2090 (it has corrected -3.2% from there)
  2. Big Cap Financials (XLF) = $25.04 close (correction = -4.7% from there)
  3. Regional Banks (KRE) = $41.18 close (correction = -8.9% from there)


Again, I know. If all you do is talk about the SP500 (which you can’t charge an active manager premium fee for):


A)     At -3.2%, it hasn’t corrected that much – and, by the way, there have been great early-cycle and consumption sectors to be long (after they deflate) on oversold signals within the SP500 too

B)      But the mistakes associated with buying either late-cycle Industrials (think global demand), #deflation risk sectors (energy), and US Regional Banks have been severe


It’s early in the year, and my job is to help make sure you don’t underperform. The best way to do that is to think a little more creatively than the next fund manager, and be a lot more #patient.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-2.01%



VIX 17.45-21.99
WTI Oil 44.01-49.03
Copper 2.43-2.65


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Creatively #Patient - Chart of the Day

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