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Retail Callouts (2/3): ICSC, TGT Store Growth, AMZN, RSH, ICON

Takeaway: ICSC disappoints against easiest compare in years. After departing Canada, TGT store plan faces the original challenge of driving US growth.


Retail Callouts (2/3): ICSC, TGT Store Growth, AMZN, RSH, ICON - 2 2 chart2



ICSC RETAIL SALES (80 General Merchandise Stores)

Takeaway: We expected a number far better than +3.7% this week given that it went against a weather-impacted week in 2014 that was the worst in 4-years. Despite the apparent strength, the 2-year trend actually decelerated by 50 bps for the week. The 3-year trend -- which eliminates all the noise -- actually decelerated in all but one week year-to-date.


Retail Callouts (2/3): ICSC, TGT Store Growth, AMZN, RSH, ICON - 2 3 chart1

Retail Callouts (2/3): ICSC, TGT Store Growth, AMZN, RSH, ICON - 2 3 chart3





TGT- Target Announces Store Growth Plans for 2015



Takeaway: Every time we talk about TGT we have to put our accountability pants on. In the Black Book we put together in April of last year our research indicated that the company would never make money in Canada and would print $3.2bil in revenue in 2017, 40% below consensus. But we can't ignore what the stock has done since that point - which we can translate pretty easily in to 'We were wrong'. But, this announcement by the company glitzed and glammed by the PR department reminds us what TGT is working with in the US. The 15 openings equate to 0.4% sq. ft. growth in the US and -6% for the consolidated company if we include the discontinued Canada operations (it also ignored closed stores, which could be very well North of 15). As misguided as Steinhafel was in moving to Canada for growth, we have to ask what challenged internal growth forecast led TGT North of the border in the first place? It went from having a peer group where it had a notable competitive advantage, to putting itself right in the middle of four unique competitors – 1) WalMart, 2) Department Stores, 3) Dollar Stores, and 4) Supermarkets. As a bonus, it has Amazon.com hovering over its head plucking away every last sales dollar it can. We get the 'easy comp through 2Q' argument, but for a business trading at 17x earnings and 8x EBITDA on 2015 numbers that is stuck in the competitive set its built for itself, we think it's one of the most expensive names in retail today.

Retail Callouts (2/3): ICSC, TGT Store Growth, AMZN, RSH, ICON - 2 3 chart4





AMZN - Amazon in Talks to Buy Some of RadioShack's Stores



SPLS, ODP - Staples, Office Depot in Advanced Talks to Merge



TGT, WMT, GNC, WBA - Retailers Receive Cease and Desist Orders Over Herbal Supplements



RSH - NYSE Moves to Delist RadioShack



AMZN - Report: Amazon pilots e-commerce sites with universities



Topshop Reportedly Closes Japan Stores



TJX - The TJX Companies, Inc. Elects William H. Swanson to Board of Directors



LE - Lands' End names new CEO



ICON - Iconix Acquires Athletic Brand PONY In North America



ICON - Iconix Announces Definitive Agreement To Acquire Strawberry Shortcake Brand



LOW - Lowe's Names James H. Morgan To Board Of Directors


Follow The Counter-TREND Move

Client Talking Points


It didn’t take much to get the machines to chase a reversal of what was an epic 6 month inverse correlation move between the USD and Oil. It’s all about rate of change, and the USD arresting its ascent was evidently enough – now it gets whippier. 



The USD Index trades down, but only to the middle of its 93.41-95.82 risk range, but WTI bounces right to the top-end of its 42.84-51.31 range, so we like shorting Oil right here more than shorting U.S. Dollars, but we would keep moving.


Greek stocks go from -13% at the end of last week to -2% year-to-date now, so we guess everything is fine again? While it’s having no economic results (Italy just printed a new low #deflation print of -0.6% year-over-year CPI for JAN), the performance divergence between DAX +11.2% vs SPX -1.8% year-to-date is eye popping – maybe U.S. stocks really do need another QE to compete!

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


$WEN is going to look more like $QSR (BK) where does this leave $MCD? #NEWCEO needs to shake things up!





Money is not the most important thing in the world. Love is. Fortunately, I love money.

-Jackie Mason




The average American office worker spends nine hours each week in meetings or thinking about meetings, up 14 percent from four years ago.

February 3, 2015

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the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

CHART OF THE DAY: The Dominating USD Correlation Matrix

CHART OF THE DAY: The Dominating USD Correlation Matrix - 02.03.15 chart


Editor's note: This is a brief excerpt from today's Morning Newsletter written by Hedgeye CEO Keith McCullough.


But you already know that since the flexible and prepared player knows this USD correlation matrix is dominating:


  1. Inverse correlation between USD and the CRB Index (19 commodities) on a 90-day duration is -0.97
  2. Inverse correlation between USD and Oil on a 90-day duration is -0.95


In other words, if you got the rate of change in the USD right, you’ve gotten both the commodities and Oil crash right. Oh, and you played the counter-TREND reversal beautifully too!


The Idea Generation Game

“It constipates the whole process.”

-Stephen King


While I am sure he has plenty of it, that’s what the King pin of American supernatural fiction had to say about cash. “Money is great stuff to have, but when it comes to the act of creation, the best thing is to not think of it too much.”


Sadly, that is not how some think about what they call their “dough.” On the independent research battle front, I can’t count how many people told me we’d be wrong on interest rates falling because guys with a lot more money than me thought otherwise.


Who raised these people to think that way? America was built on a meritocracy of new ideas replacing broken ones. The day we wake up thinking that only the people with money are “smart” is the day we start losing. Anyone can win the idea generation game.


The Idea Generation Game - 2 it


Back to the Global Macro Grind


Fast or slow, you probably can’t win this year’s game. Not with our July 2014 call for a breakout in cross asset class volatility in play. Just watch Greece go from -13% to -2% YTD on a floater headline that their “new” Finance Minister is “creative”, and you’ll get my point.


Don’t confuse moving slowly with moving patiently either. There’s a big difference. #Patient players can move both fast, and slow. That’s the point. There’s a time to risk manage your active portfolio – and there are times to wait and watch.


Risk manage your portfolio? Yes. It’s commonly called trading – and while you can feel really “smart” buying and holding stocks at 10 VIX, at VIX 15-25… not so much. Look what led yesterday’s v-bottom rally off the terrible January ISM report’s lows:


  1. US listed Oil & Gas Stocks (XOP) = +6.1%
  2. US listed Energy Stocks (XLE) = +3.1%
  3. US listed Financials (XLF) +1.6%


Yes, 2015’s biggest losers led yesterday’s gains. Unless you made some counter-TREND moves (i.e. booked gains in shorts that were working and went long some of the inversely correlated sectors and asset classes linked to a Down Dollar move), you lost ground yesterday.


While generating both absolute and relative returns, every day, would be nice – that only happens on either Twitter or in fictional novels about rainbows and puppy dogs. Real world risk management is far closer to Stephen King’s “It!”


What is it? What is that thing that helps Portfolio Managers and Self Directed Investors alike beat the market year-in and year-out? I’d say it has a lot do with having a more flexible #process than a constipated one.


Did consensus really think the US Dollar was going to go up, every day?


  1. Friday’s GDP miss/slowing was a clean cut negative for the US Dollar
  2. So was yesterday’s ISM slowdown from an already slowing 55.5 in DEC to 53.5 in JAN
  3. And so would be a bad jobs report on Friday…


But you already know that since the flexible and prepared player knows this USD correlation matrix is dominating:


  1. Inverse correlation between USD and the CRB Index (19 commodities) on a 90-day duration is -0.97
  2. Inverse correlation between USD and Oil on a 90-day duration is -0.95


In other words, if you got the rate of change in the USD right, you’ve gotten both the commodities and Oil crash right. Oh, and you played the counter-TREND reversal beautifully too!


Seriously. Getting that right is not that easy.


But not being Consensus Macro is easier than thinking it’s “smart.” Here’s where the “smart” hedge fund futures and options bets were (non-commercial CFTC net futures/options positioning) going into yesterday’s counter-TREND macro move:


  1. Peak multi-year net LONG position in US Dollars of +70,456 contracts (vs. the 1yr avg of +24,739)
  2. Peak multi-year net SHORT position in the Euro of -177,296 contracts (vs. the 1yr avg of -83,603)
  3. Net SHORT the Russell 2000 at its peak net short position of the year (-30,174 net short contracts)


That’s right, after all of these things have worked, big time, for 6 months – all of the “smart” money has crowded into them.


Sure, there was a net LONG position of +324,181 in Crude Oil going into yesterday’s rip, but don’t forget that Wall Street was been levered long Oil the entire way down too (the 1yr avg net LONG position in Crude is +366,487 contracts!).


“So”, don’t constipate yourself with consensus. Motivate yourself to open your mind and move aggressively when the big things moving macro markets move. That sure beats counting your moneys. “There’ll be time enough for countin’, then the dealing’s done.”


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.64-1.78%


VIX 18.25-21.92
USD 93.41-95.82
WTI Oil 42.84-51.31
Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Idea Generation Game - 02.03.15 chart


Takeaway: We expect a miss and sobering commentary from Macau and Vegas.




  • $1.18 billion (Hedgeye) vs $1.19 billion (Street)


  • $373 million (Hedgeye) vs $385 million (Street)


  1. Latest on Wynn Palace budget/opening date.
  2. Update on the construction labor situation?
  3. Wynn Palace table numbers
  4. More color on the 2 VIP rooms opening in Jan/Feb
  5. How much cost cutting is available in OpEx other than labor?
  6. How are junket commissions trending in a declining revenue environment?
  7. Mass promotional environment
  8. Thoughts on reinstating proxy phone betting
  9. What's behind the recent improvement in Wynn's Mass business?




  • The new regulations in smoking, the turmoil in Hong Kong late in the month of October and, of course, the policy of the central government in being very, very aggressive about what appeared to be a misconduct and corruption of the government has put a lot of the wealthy businessmen in the foxholes.
  • The smoking rooms established at Wynn Macau have been successful. Wynn’s in the process of establishing an additional smoking room based on location. But overall, they don’t believe that that’s had a huge effect on business. There’s been some effect but it’s been marginal.


Wynn Cotai

  • As far as construction goes, Wynn states they are, on target, on budget and on time.
  • Cotai’s budget remains within 1% of expectations.
  • The Wynn Palace is very luckily set up for the smoking ban due to deciding to build balconies for all of the VIP and Mass rooms. This will allow players to gamble and then step outside to smoke.


Mass competition

  • Increased margin pressure in Macau. Competition is viewed as extremely intense.
  • Mass market area margins have been fairly constant over the last three quarters.  Wynn has seen its mass area and premium mass area margins stabilize.
  • Wynn remains confident he can secure 550 gaming tables from the government  


New junket rooms

  • Junkets conservative
  • Building junket rooms in 2 gorgeous VIP areas
    • We believe it could be 36 tables in total, opening in mid-Feb.

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