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Keith's Macro Notebook 2/10: USD | UST 10YR | SPX

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


Hedgeye's Morning Macro Call with CEO Keith McCullough: The Bubble Formerly Known as 2014

 

Please enjoy this complimentary look at our Morning Macro Call, a daily conference call for institutional investors. In today’s Morning Macro Call, CEO Keith McCullough gives his daily global macro rundown, talks about Hedgeye’s bullish view on housing, and takes questions from viewers. 

 


YELP: Is Eat24 Another Accounting Gimmick?

Takeaway: The precedent set by its SeatMe acquisition makes us question management's motivation behind the Eat24 acquisition.

KEY POINTS

  1. PAYING FOR A DISTRACTION: YELP is establishing a trend of questionable acquisitions following disappointing earnings releases (last quarter, it was two international acquisitions).  Today, YELP purchased Eat24 for $134M ($75M in cash, remainder in stock).  The company is guiding toward an incremental $36M in acquired revenues, although the actual contribution could be more (no historical Eat24 revenues provided). 
  2. THE BIG QUESTION IS ACCOUNTING: Where will YELP account for its newly acquired Eat24 customers? For context, YELP acquired SeatMe back in 3Q13.  Beginning in 2014, YELP discretely reclassified its SeatMe accounts as Active Local Business Accounts, and then stopped providing its total number of SeatMe customers beginning in 2Q14.  In essence, YELP inflated its core advertising account metrics by including accounts paying for the reservation service it acquired.  So, why should we expect anything different this time around?

 

For our most current thoughts on YELP, see the note below.  

 

YELP: Shot Itself in the Foot (4Q14)

02/06/15 07:38 AM EST

[click here]

 

  

Let us know if you have any questions, or would like to discuss in more detail.

 

Hesham Shaaban, CFA

@HedgeyeInternet


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

Retail Callouts (2/10): ICSC, KATE Flash Sale, TGT, FINL

Takeaway: KATE's First Flash Sale of the year, no change in promotional cadence. Chain store sales number respectable, but 3yr downtrend continues.

EVENTS TO WATCH

Retail Callouts (2/10): ICSC, KATE Flash Sale, TGT, FINL - 2 9 chart2

 

 

ICSC RETAIL SALES (80 General Merchandise Stores)

 

Takeaway: Going against the toughest comp in calendar Q1 the 1 year decelerated 180bps sequentially, with a 25bp pop in the 2yr. Not spectacular, but respectable. The trend we're most focused on here is 3yr trend which eliminates all noise. It's decelerated in all but one week this year.

Retail Callouts (2/10): ICSC, KATE Flash Sale, TGT, FINL - 2 10 chart1

Retail Callouts (2/10): ICSC, KATE Flash Sale, TGT, FINL - 2 10 chart3

 

 

COMPANY HIGHLIGHTS

 

KATE - Flash Sale Promotions

 

Takeaway: We track the promotional cadence for about 100 retailers by keeping account of the promotional emails. There are a few variables that we will admit are hard to account for, specifically the volume and depth behind each campaign. But, comparing the YY change in the direct business we think is the most efficient way.

There was a lot of noise surrounding the promotional posture of the handbag industry to start the year -- it eroded $710mm in market cap for KATE over a 15 day period. We dug into KATE's promotional cadence and came back extremely positive, which was proven true when the company  pre-announced on 1/29. Opening the inbox this morning, we were hit with KATE's first 'Flash Sale' of the year, so we went back to the archives to see if the sales matched the prior years' offerings. And the results were exact down the to the calendar days and % off (pictures and details below). KATE is slowly pulling back the 'Flash Sale' concept to promote full price sales in its direct channel. It's held true to its stance to date - we'd point to the exclusion of a 'Flash Sale' in December of 2014, which Management discussed in August, as proof. Though we question the effect it will have on comps. In year one of this new posture, the company just reported a 26% comp.

  • 2013 - 2 day sale 2/5 - 2/6, 75% off
  • 2014 - 3 day sale 2/11 - 2/13, 75% off
  • 2015 - 3 day sale 2/10 - 2/12, 75% off

Retail Callouts (2/10): ICSC, KATE Flash Sale, TGT, FINL - KATE 2 10

 

 

OTHER NEWS

 

TGT - Target and landlords in court battle over sale of leases

(http://www.theglobeandmail.com/report-on-business/target-and-landlords-in-court-fight-over-sale-of-leases/article22876509/)

 

FINL - Imran Jooma Joins Finish Line as Chief Omnichannel Officer, Executive Vice President

(http://phx.corporate-ir.net/phoenix.zhtml?c=81647&p=irol-newsArticle&ID=2014905)

 

West Coast port congestion could cost retailers $7 billion this year

(http://www.chainstoreage.com/article/west-coast-port-congestion-could-cost-retailers-7-billion-year)

 

EXPR, UA - Express Signs NBA All-Star Stephen Curry

(http://www.wwd.com/retail-news/specialty-stores/express-signs-stephen-curry-8165276?module=hp-topstories)

 

New Look chief says retailer ready for IPO

(http://www.ft.com/intl/cms/s/0/2134845c-b0f6-11e4-94feab7de.html?siteedition=intl#axzz3RLNwI3nj)

 

BOSS - Permira Pares Hugo Boss Stake

(http://www.wwd.com/business-news/financial/permira-pares-hugo-boss-stake-8165815?module=hp-topstories)

 

ARO - Aeropostale, Inc. Announces Executive Appointments

(http://phx.corporate-ir.net/phoenix.zhtml?c=131103&p=irol-newsArticle&ID=2014924)

 

BABA - Alibaba Urged to Step Up Action on Fakes

(http://www.wwd.com/business-news/government-trade/alibaba-urged-to-step-up-action-on-fakes-8165893?module=Business-latest)

 

Pam & Gela to Launch E-Commerce

(http://www.wwd.com/retail-news/designer-luxury/pam-gela-to-launch-e-commerce-8165335?module=hp-topstories)

 


Trading Post The Jobs Report

Client Talking Points

USD

The USD is stabilizing in a narrowing risk range now (leading indicator for less FX volatility) and we think that takes out accelerating upside in both the CRB Index (+7% off the 213 lows) and Oil (WTI risk range = 43.07-53.88) from here, which would reverse plenty of sub-sector counter-TREND moves in the S&P 500 – we’ll see.

UST 10YR

Day 2 of consensus saying what they’ve been saying for a year (“rates up, litftoff, etc.”) and we guess we will have to endure this until the USA #deflation data (CPI and PPI) is reported for JAN (next week). China and Norway printed -4.3% and -12.4% year-over-year PPI’s this morning!

SPX

The S&P 500 (SPX) meandering at -0.6% year-to-date doesn’t exactly inspire fund flows, so it’s probably time to start adding to U.S. Equity exposures that are not affected by the #deflation factors coming back into the market place. We still like U.S. domestic consumption plays like XLY (Consumer) and ITB (Housing) on the long side.

Asset Allocation

CASH 50% US EQUITIES 7%
INTL EQUITIES 5% COMMODITIES 0%
FIXED INCOME 32% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
EDV

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.

TLT

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.

HOLX

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

TWEET OF THE DAY

Going LIVE in 15 min. Send in your questions for @KeithMcCullough and @HedgeyeDDale via Twitter or the YouTube chat. https://www.youtube.com/watch?v=YmHcuyWSiH0

@Hedgeye

QUOTE OF THE DAY

Great works are performed not by strength but by perseverance.

 -Samuel Johnson

STAT OF THE DAY

The percentage of Russians whose opinion of the U.S. is very or mainly bad rose to a record 81% in January from 44% a year ago, according to the latest poll by the independent Levada Center, which has tracked attitudes since 1990.



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